http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/169558/index.do
David Anthony v. Canada (National Revenue) (August 23, 2016 – 2016 FC 955, Boswell J.).
Précis: This decision had a somewhat convoluted history but in the end it boiled down to the fact that Mr. Anthony had made a taxpayer relief application to CRA asking that he be allowed to deduct lease payments personally in the case of two machines that were, as a matter of law, leased by a corporation owned by him. CRA denied the application and Mr. Anthony applied for judicial review of that decision. The Federal Court first dealt with two preliminary questions, holding (a) that it had jurisdiction to review the decision and (b) that it would not hear additional evidence which had not been produced to CRA in the relief application. The Federal Court then dismissed the application on the basis that Mr. Anthony had not demonstrated that CRA had acted unreasonably. Costs were awarded to the Crown.
Decision: Although the background to this decision is somewhat complex, the material facts were not:
[1] The Applicant has brought an application pursuant to section 18.1 of the Federal Courts Act, RCS 1985, c F-7, as am, for judicial review of a decision by a delegate of the Minister of National Revenue dated May 2, 2013. The decision under review denied the Applicant a personal deduction for rental expenses incurred in leasing two machines which he used to earn income in 2001 on the basis that the machines were leased in the name of his corporation, D.A. Machining Consulting Inc., and such expenses were deductible against income earned by the corporation.
The Federal Court first dealt with two preliminary questions, holding (a) that it had jurisdiction to review the decision and (b) that it would not hear additional evidence which had not been produced to CRA in the relief application. It then concluded that Mr. Anthony had not made a case that CRA had acted unreasonably in denying his application for relief:
[26] I reject the Applicant’s submission that the Minister’s delegate ignored relevant evidence or misapprehended the facts such that his decision was rendered in a procedurally unfair manner or otherwise unreasonable. The Applicant does not point to any evidence in the record that shows the Minister’s delegate misapprehended or ignored any material facts. It is true that the decision does not explicitly address the Applicant’s assertion that his corporation was inactive and that the Minister’s delegate ignored or misapprehended this fact, one which the Applicant characterizes as being significant. However, it is not completely accurate to assert, as the Applicant does, that his corporation was inactive because, even if it may not have been earning any income, it was nonetheless active at least to the extent it incurred monthly obligations for the rental payments. Moreover, even if the Applicant’s corporation was simply a shell, it was a shell that nevertheless was the party to the lease agreement with CIT and protected the Applicant from personal liability for the rental payments. In my view, it was not unreasonable for the Minister’s delegate to determine that the Applicant’s corporation, rather than the Applicant, should benefit from any deduction for the rental payments since it had the liability for the rental payments. As noted by the Federal Court of Appeal in R v Friedberg, [1991] FCJ No 1255 (FCA), aff’d [1993] 4 SCR 285, a case where the taxpayer was denied a deduction for a gift he funded for a museum to acquire a collection of textiles because he had not acquired title to the collection:
5 In tax law, form matters. A mere subjective intention, here as elsewhere in the tax field, is not by itself sufficient to alter the characterization of a transaction for tax purposes. …If a taxpayer fails to take the correct formal steps…tax may have to be paid. If this were not so, Revenue Canada and the courts would be engaged in endless exercises to determine the true intentions behind certain transactions. …evidence of subjective intention cannot be used to "correct" documents which clearly point in a particular direction.
[27] In short, I find that the decision made by the Minister’s delegate was a reasonable one and not rendered in an unfair manner.
The application was dismissed. Costs were awarded to the Crown.