Call Us At 519.672.5666

Insights & Articles

< Back to Insights & Articles

Dirani v Canada: Record Retention Rules Do Not Shield Taxpayers From Evidentiary Burdens

The decision from the Federal Court of Appeal in Dirani v Canada, 2023 FCA 13, provides an important reminder that the onus is on the taxpayer to produce relevant documents and records when objecting to a CRA assessment or when making an appeal to the Tax Court of Canada.

This evidentiary burden still exists for taxpayers even if the time periods for retention of books and records, as set out in the legislation, have expired.

In this case, Mr. Dirani appealed to the Federal Court of Appeal from the Tax Court of Canada. The main issue was whether Mr. Dirani could prove he had incurred bad debt expenses or allowable business investment losses.

Dirani v Canada

Mr. Dirani was the sole shareholder and owner of a company that rented VHS tapes between 1997 and 2001. The company was dissolved in 2001.

In 2006 and 2007, Mr. Dirani claimed a bad debt expense, under subparagraph 20(1)(p)(i) of the Income Tax Act, on the basis of alleged debts owed to him by the dissolved company. He also claimed deductions for allowable investment losses under paragraphs 38(c) and 39(1)(c) of the Act

The Minister denied these claims on the assumption that the company’s assets exceeded its liabilities upon its dissolution, that Mr. Dirani did not make an investment in the company, and that the company did not owe him any uncollectible debt.

The Tax Court found Mr. Dirani failed to disprove the assumptions made by the Minister as he did not submit any evidence showing he advanced money to the company or that he incurred any bad debt.

Mr. Dirani argued that the Tax Court could not require the evidentiary support for his claims because he was entitled to dispose of the company’s books and records, as two years had passed since its dissolution in 2001, per section 5800 of the Income Tax Regulations.

The Federal Court rejected Mr. Dirani’s argument for the following reasons:

1) Mr. Dirani was assessed in 2010 for his 2006 and 2007 tax years. Per subsection 230(1) of the Act, taxpayers are required to maintain books and records for 6 years.

2) Where a taxpayer serves a notice of objection or is a party to an appeal at the Tax Court, the taxpayer must retain “every record, book of account, account and voucher necessary for dealing with the objection or appeal” until it has been disposed of and any route for further appeal has been exhausted, per subsection 230(6) of the Act.

3) Section 5800 of the Regulations governs record-keeping requirements of dissolved corporations, not individual taxpayers.

4) The expiry of time periods in subsection 230(4) of the Act and section 5800 of the Regulations do not shield or immunize taxpayers from evidentiary burdens they face in Tax Court proceedings.

For the reasons listed above, Mr. Dirani’s appeal was dismissed.

Further guidance around record retention rules are provided here by CRA.

If you are considering objecting to a CRA assessment or making a Tax appeal, contact the Tax group at McKenzie Lake Lawyers for assistance.

This article was written by Tax Litigation Lawyer, Zoe Rajwani. For additional information, please do not hesitate to contact her at

If you require assistance with any tax law or litigation matter, speak to a Tax Lawyer at McKenzie Lake Lawyers LLP by calling 519-672-5666.