A Slow Summer for TCC and FCA Decisions

Bill Innes on Current Tax Cases

The last few weeks have produced a number of Tax Court decisions which, while interesting, appear to have little application to the larger tax and business communities as a whole.  In the Federal Court of Appeal there is only an amended GAAR decision to report;  the amendments do not seem to be material but the case is a reminder of the court’s greater willingness to allow larger cost awards against the Crown, even where it succeeds on an appeal.

http://decision.tcc-cci.gc.ca/en/2013/2013tcc236/2013tcc236.html New Window

Salisbury House of Canada Ltd. et al. v. The Queen[1] (May 31, 2013) was a procedural case involving a corporation and its directors.  While the facts are quite complex the case boiled down to the fact that the corporation, which had been assessed for GST, had not filed a timely notice of objection.  The directors who sought to appeal had not been assessed.  All of the appeals were struck.

http://decision.tcc-cci.gc.ca/en/2013/2013tcc238/2013tcc238.html New Window

Armstrong v. The Queen[2] (July 24, 2013) involved a claim for Canada Child Tax Benefits.  The taxpayer successfully persuaded the court that he had primarily fulfilled the care and upbringing of the child in question.

http://decision.tcc-cci.gc.ca/en/2013/2013tcc230/2013tcc230.html New Window

Bandi v. The Queen[3] (July 25, 2013) involved a very complex tax shelter charitable donation program.  The taxpayer lost primarily because he failed to adduce any evidence that the property allegedly donated existed and was donated to the charity in question.  The court denied credit for the “cash” component of the donation on the authority of Maréchaux v. The Queen.[4]  One quite interesting aspect of the case is that the Crown argued that the tax credits should be blocked because the plan was not implemented in exactly the same fashion as shown by the promoters in their tax shelter registration.  The Tax Court judge rejected this argument:

[9]            I understand that in the present case the registration scheme worked as intended, as the CRA was able to audit all of the participants in the Charitable Technology Gifting Program. A literal interpretation of the provisions relied on by the respondent would impose on promoters of tax shelters an obligation to abandon an existing registration and reapply for a new number each time a change was made to the arrangement. At the hearing, I asked counsel for the respondent how a taxpayer can ascertain that all changes made to the tax-sheltered investment have been properly disclosed to the CRA. Counsel admitted that the registration forms are not posted online. The only information a taxpayer can obtain is the fact that the tax shelter number disclosed to the taxpayer by the promoters corresponds to a number issued by the CRA. In my opinion, if Parliament had favoured a dynamic reporting regime, it would have introduced a registration system that affords taxpayers the possibility of determining whether changes have been properly disclosed to the CRA by promoters.

This seems a very reasonable approach and may be important in future tax shelter decisions.

http://decision.tcc-cci.gc.ca/en/2013/2013tcc239/2013tcc239.html New Window

McKenzie v. The Queen[5] (July 26, 2013) is a GST decision involving the practice of selling cars to persons on Indian Reserves with a view to generating input tax credits which CRA attacked as artificial, or worse.  This case however turned on whether the director of a corporation which allegedly improperly failed to collect and remit GST could mount a due diligence defence.  To put a very complex case in the simplest possible terms, the Tax Court judge held that the appellant director could rely upon published positions of CRA to prove a reasonable belief that no GST was payable even if the underlying corporate taxpayer could not raise those published positions as a defence to liability for GST.

http://decision.tcc-cci.gc.ca/en/2013/2013tcc56/2013tcc56.html New Window

Lenneville et al. v. The Queen[6] (May 14, 2013) involved net worth income tax assessments of a couple who ran a small fishing business.  In a mixed decision, the Tax Court upheld the propriety of using a net worth approach but rejected the application of penalties and declined to permit CRA to open an otherwise statute-barred year.  The court found the appellants to be honest, hard-working people whose evidence was completely credible.

http://decision.tcc-cci.gc.ca/en/2013/2013tcc179/2013tcc179.html New Window

St-Denis v. The Queen[7] (June 6, 2013) involved an assessment for GST under section 325 of the Excise Tax Act (the rough equivalent of section 160 of the Income Tax Act).  The appellant’s mother had transferred property to him for nothing at a time when she owed considerable GST.  The appellant claimed that the transfer was to rectify a previous error which resulted in the property being transferred to his mother when it should have been transferred to him.  The court rejected the taxpayer’s evidence.

http://decision.tcc-cci.gc.ca/en/2013/2013tcc188/2013tcc188.html New Window

Auclair v. The Queen[8] (June 17, 2013) involved an appellant who was a pilot. His former employer had paid for part of his training.  Under the terms of his contract of employment with the former employer if he left his employment before completing 24 months, he had to repay the costs of his training based on $500 per month for the remaining portion of the 24 month term.  The appellant left early and had to repay $9,000.  He sought to deduct these costs as “the cost of supplies that were consumed directly in the performance of the duties of the office or employment and that the officer or employee was required by the contract of employment to supply and pay for” (subparagraph 8(1)(i)(iii) of the Income Tax Act).  The court concluded that the training was not a “supply”, was not “consumed” by the appellant and the payment to his former employer was not to enable him to perform his duties but rather “leave his employment ahead of the 24 month time frame” (para. 41 (e)).

http://decision.tcc-cci.gc.ca/en/2013/2013tcc240/2013tcc240.html New Window

Petratos et al. v. The Queen[9] (July 26, 2013) was a decision on a motion to extend the time to file notice of objection.  The case involved disputed claims for business losses which stemmed from some sort of tax shelter promotion (the details of the promotion are not set out the reasons for judgment).  CRA advised the taxpayers not to claim the deductions in filing their 2007 tax returns and the followed that advise.  After their 2007 returns were assessed however they filed T1 Adjustment Requests claiming to be entitled to the business losses in question.  When CRA denied the Requests, the taxpayers filed Notices of Objection.  CRA rejected the Objections as being untimely and ultimately the matter came before the Tax Court on an application to extend the time to file the Notices of Objection.  The taxpayers argued a number of points:

·         The Requests should have been treated as Notices of Objection;

·         The Requests should have been treated as applications to late file Notices of Objection;

·         The denials of the Requests should have started the clock running on the time for filing Notices of Objection;  and

·         The Requests should have been treated as applications for the determination of a loss.

Not surprisingly, the Tax Court rejected all of these novel arguments on the basis of principle and authority.

http://decision.tcc-cci.gc.ca/en/2013/2013tcc241/2013tcc241.html New Window

Nijaf Enterprises Inc. v. The Queen[10] (July 29, 2013) involved a claim for a partial rebate of GST.  The claim was denied by CRA because it had not been made within the two year period established under the Excise Tax Act.  The court rejected the taxpayer’s evidence that the claim had been filed in a timely fashion.  The cover letter transmitting the claim was particularly problematic:

[21]        The problem with Nijaf’s submission is that the address portion of the cover letter contains two dates, November 19, 2010 as well as April 19, 2010. In light of this, it is likely that this particular document was prepared on the later date, November 19, 2010.

[22]        It is not clear why there are two dates in the address portion of the letter. It is possible that the earlier date, April 19, 2010, was a clerical error that arose when the address portion of the letter was copied and pasted from an earlier letter.

http://decision.tcc-cci.gc.ca/en/2013/2013tcc235/2013tcc235.html New Window

Brisson et al. v. The Queen[11] (July 29, 2013) is a rather pathetic case where the taxpayers were sold a plan that seems to have involved the claiming of wholly fictitious business losses.  The Tax Court upheld very large penalties against the taxpayers on the basis that they should have known better.

http://decision.tcc-cci.gc.ca/en/2013/2013tcc243/2013tcc243.html New Window

http://decision.tcc-cci.gc.ca/en/2013/2013tcc242/2013tcc242.html New Window

Dillon v. The Queen[12] (July 30, 2013) and Dalle Rive v. The Queen[13] (July 30, 2013) both involved extremely strange obstructionist anti-tax protests.  Both appeals were struck.

http://decisions.fca-caf.gc.ca/en/2012/2012fca272/2012fca272.html New Window

The Queen v. Global Equity Fund Ltd.[14] (October 30, 2012) is a set of corrected reasons for judgment issued the week of August 4, 2013 by the Federal Court of Appeal.  The corrections do not appear to be material.  Nevertheless the case is a good reminder of the Court’s recent willingness to award costs against CRA even where, as in this case, they were successful on appeal:

[40]           As a result, Global has had to assume in this case the costs of defending itself from ever changing Crown positions concerning the GAAR in this appeal and before the Tax Court of Canada. Taking into account that this is a GAAR case, and the substantial and numerous changes in positions taken by the Crown, I am of the view that Global should be awarded its costs in this Court and in the Tax Court of Canada, irrespective of the result of this appeal. Moreover, in this Court, Global’s costs should be determined on a two counsel basis at the high end of column V of Tariff B.

All in all, a slow summer in the courts.

[1] 2013 TCC 236.

[2] 2013 TCC 238.

[3] 2013 TCC 230.

[4] 2010 FCA 287, 2020 DTC 5174.

[5] 2013 TCC 239.

[6] 2013 TCC 56.

[7] 2013 TCC 179.

[8] 2013 TCC 188.

[9] 2013 TCC 240.

[10] 2013 TCC 241.

[11] 2013 TCC 235.

[12] 2013 TCC 242.

[13] 2013 TCC 243.

[14] 2012 FCA 272.