The Tax Tribunal ruled that it is unfair to apply a seven-year period for tax assessments in cases where the income from the sale of multi-family dwellings is mistakenly reported as capital gains, treating it the same as a failure to report. The assessment period refers to the time frame within which the government can decide on taxes, adjust tax decisions, or cancel assessments. After this period, the government cannot impose taxes on the taxpayer.
For general tax items, the assessment period is five years from the day after the tax reporting deadline. However, if no report is made, or if fraudulent activities are committed, these periods are extended to seven years and ten years, respectively. The Tax Tribunal determined that treating misreporting of taxes the same as non-reporting is unfair.
On the 23rd, the Tribunal announced key rulings from the last quarter of the previous year (October to December).
According to the Tribunal, individual A reported the income from selling a multi-family dwelling as advance capital gains tax for the year 2017.
In response, the tax authority viewed individual A, who is engaged in the business of selling newly constructed dwellings, as having incorrectly reported business income as capital gains. The authority also noted that capital gains tax was not officially reported and concluded that it falls under 'non-reporting.' They applied a seven-year assessment period and reassessed the business income for 2017.
Individual A argued that considering the tax rates, they fall under cases where there is no obligation to report capital gains tax; therefore, even if the income is reassessed as business income, it should not be viewed as 'non-reporting.' Article 110, Section 4 of the Income Tax Act stipulates that if advance capital gains tax is reported, no obligation to report definitively arises unless the capital gains tax is subject to a progressive tax rate.
The Tribunal found that it is correct that the claimant erroneously reported business income as capital gains; however, treating this as non-reporting is unfair.
The Tribunal explained, 'The multi-family dwelling sold by the claimant is an asset subject to a single tax rate and therefore does not meet the criteria for capital gains tax reporting under the Income Tax Act.' They also considered that the tax authority properly accepted the claimant's advance reporting and noted that there appeared to be no special restrictions in the authority's exercise of taxation rights related to the sale of the multi-family dwelling.
In another case, the Tribunal ruled that 'it is unfair to impose a higher tax rate (8%) on individual B, a person under 30 and unmarried, when acquiring a dwelling while living apart from parents who own one dwelling, even though they lived with grandparents who are considered one dwelling owner.'
The tax authority argued regarding individual B that 'the grandparent generation and B are recorded on the same household registration, meaning that B is considered part of the same household as their parents,' and thus applied a higher tax rate for acquiring three dwellings in one household. In response, the Tribunal stated, 'The purpose of considering unmarried individuals under 30 as part of their parents' household under local government tax law is to ascertain that if such individuals acquire a dwelling without reaching a certain income level, it is deemed that they are unable to independently manage and maintain the dwelling,' and concluded that grandparents and parents cannot be seen as forming the same household.