HLB Smith Holdings v. R. – TCC: Operating company under control of two unrelated directors acting in concert – subsection 160(1) assessments upheld

May 31, 2018 By Bill Innes

Précis: The subsection 160(1) reassessments under appeal all resulted from dividends paid by an operating company in which the Smith Family had a 50% interest: [1] Each of the four appellants has appealed an assessment under section 160 of the Income Tax Act. The assessments of HLB Smith Holdings Limited (the “Holding Company”) and the Smith Family Trust (2001) relate to the payment of dividends in 2007 and 2008 by Power Electric Systems Limited (the “Operating Company”) to the Holding Company and, in the case of the Smith Family Trust (2001), the subsequent payment of dividends by the Holding Company to that trust. The assessments of Wayne Smith and Brenda Lee Brunelle relate to subsequent distributions by the Smith Family Trust (2001) to each of Mr. Smith and Ms. Brunelle. The other 50% was owned by the Scott Family. The taxpayer argued that they were not dealing at less than arm’s length with the Operating Company since Mr. Smith was a passive director who accepted the decisions of Mr. Scott in terms of dividends and other corporate matters. The Tax Court rejected this argument holding that Mr. Smith and Mr. Scott acted in concert to control the Operating Company and therefore each of the appellants dealt at less than arm’s length with the Operating Company for the purposes of subsection 160(1). As a result all of the appeals were dismissed with costs.
HLB Smith Holdings v. R. – TCC: Operating company under control of two unrelated directors acting in concert – subsection 160(1) assessments upheldREAD MORE »

Aeronautic Development v. R. – FCA: Federal Court of Appeal upholds finding of de facto control, denying CCPC status for SRED tax credits

May 30, 2018 By Bill Innes

Précis: The appellant, ADC, was originally wholly owned by an American corporation, Seawind Corp., which was in turn owned by Mr. Silva, an American resident. A few months later the shareholdings of ADC were restructured such that Seawind Corp. had only 46% of the shares and employess of ADC, directly or indirectly, owned the balance. ADC operated rent free out of a premises in Canada owned by Seawind Corp., which was also the sole client of ADC. ADC claimed SRED credits after the date of change of de jure control (August 2009) which CRA rejected on the basis that ADC was not a Canadian-controlled private corporation. ADC appealed unsuccessfully to the Tax Court which held that ADC was under the de facto control of Seawind Corp. ADC then appealed to the Federal Court of Appeal which dismissed the appeal, with costs, also on the basis of de facto control but without fully endorsing the reasoning of the Tax Court.
Aeronautic Development v. R. – FCA: Federal Court of Appeal upholds finding of de facto control, denying CCPC status for SRED tax creditsREAD MORE »

Stewart v. R. – TCC: Partners not allowed to proceed with their individual appeals where the Partnership had previously discontinued its appeal – abuse of process

May 29, 2018 By Bill Innes

Précis: The taxpayers were all partners of TSI I Limited Partnership (“TSI”). TSI had an appeal in the Tax Court arising out of the same issues raised in the appeals of the taxpayers but filed a Notice of Discontinuance with the Tax Court on May 2, 2016 and the appeal was deemed to be dismissed on June 24, 2016 pursuant to subsection 16.2(2) of the Tax Court of Canada Act (the “TCC Act”). As a consequence the Crown moved to strike the appeals of the individual partners on the basis that it would amount to an abuse of process to allow them to continue with their appeals. The Tax Court agreed and struck the appeals with one set of costs to the Crown.
Stewart v. R. – TCC: Partners not allowed to proceed with their individual appeals where the Partnership had previously discontinued its appeal – abuse of processREAD MORE »

Ashworth v. R. – TCC: Taxpayer paid down husband’s corporate line of credit thus providing consideration for transfer of husband’s share of home to her – Subsection 160(1)

May 11, 2018 By Bill Innes

Précis: Ms. Ashworth’s husband transferred his half of the family home to her at a time when he had outstanding tax liability. The Crown agreed that Ms. Ashworth had provided consideration in the form of assuming 50% of the mortgage on the property. The issue was whether paying down the line of credit of her husband’s corporation was also consideration. The Crown argued that since she was a signatory on that line of credit only 50% (i.e., her husband’s share) was consideration for the transfer of the home. The Tax Court rejected the Crown’s position and allowed the appeal except to the extent of $6,730 (relating to some credit card transactions). There was no order as to costs.
Ashworth v. R. – TCC: Taxpayer paid down husband’s corporate line of credit thus providing consideration for transfer of husband’s share of home to her – Subsection 160(1)READ MORE »

Barbour v. R. – TCC: Tenured professor denied claim for business expenses while on sabbatical

May 10, 2018 By Bill Innes

Précis: The taxpayer was a tenured professor at Ontario College of Art and Design University (OCADU) in Toronto. She claimed deductions for business expenses and losses in 2012 and 2013. During that period she was on sabbatical from July 2012 to June 2013. The Court found that the taxpayer was not carrying on any business during the years in question. While some of the disputed expenses might have qualified as expenses from employment, that was not pleaded or proven and there was no form T2200 from OCADU verifying that such expenses were conditions of employment. As a result the appeal was dismissed, without costs.
Barbour v. R. – TCC: Tenured professor denied claim for business expenses while on sabbaticalREAD MORE »

Manhue v. R. – TCC: Gross negligence penalty upheld in another Fiscal Arbitrators Case

May 09, 2018 By Bill Innes

Précis: Mr. Manhue was another victim of Fiscal Arbitrators. He claimed a business loss of $263,351.82 in 2009. The loss was denied and CRA imposed a gross negligence penalty of $32,633.91 under subsection 163(2) of the Income Tax Act. He appealed the imposition of the penalty unsuccessfully. However the Tax Court did exercise its discretion and did not award costs against him.
Manhue v. R. – TCC: Gross negligence penalty upheld in another Fiscal Arbitrators CaseREAD MORE »

Le v. R. – TCC: Taxpayer neither a de jure nor de facto director – director’s liability assessment lifted

May 07, 2018 By Bill Innes

Précis: The taxpayer was assessed for both GST and source deductions for several years in connection with 0780221 B.C. Ltd. (the “Corporation”) on the basis that she had been either a de jure or de facto director of the Corporation during the periods at issue. The Tax Court examined the evidence and was satisfied that the taxpayer had been neither a de jure nor a de facto director of the Corporation at any material time. Thus her two appeals were allowed with costs totaling $1,000 even though these were informal procedure appeals.
Le v. R. – TCC: Taxpayer neither a de jure nor de facto director – director’s liability assessment liftedREAD MORE »

Van Steenis v. R. – TCC: Interest on funds used for personal purposes not deductible

May 04, 2018 By Bill Innes

Précis: In 2007 Mr. Van Steenis borrowed $300,000 to purchase units of a mutual fund. Between 2007 and 2015 he received a return of capital from the fund of $196,850. He used some of that return to repay a portion of the loan but used the majority for personal purposes. Nevertheless he continued to deduct the full amount of interest on the loan. CRA reassessed denying an interest deduction for the returns of capital that had been used for personal purposes. The Tax Court dismissed the appeal. There was no order as to costs since this was an informal procedure appeal.
Van Steenis v. R. – TCC: Interest on funds used for personal purposes not deductibleREAD MORE »

Yu v. R. – FCA: Appeal of section 160 assessment dismissed by Federal Court of Appeal

Apr 13, 2018 By Bill Innes

Précis: The taxpayer was assessed pursuant to section 160 of the Income Tax Act (the “Act”) in respect of a transfer to him by his sister-in-law. He appealed unsuccessfully to the Tax Court. He next appealed to the Federal Court of Appeal. He had two grounds of appeal: 1. the Tax Court Judge incorrectly refused to allow him to break his direct examination to consult with his lawyer; and 2. the Tax Court Judge incorrectly rejected an argument that the monies transferred were the subject of a trust created by his mother-in-law. The Court of Appeal rejected both grounds of appeal and dismissed the appeal with costs.
Yu v. R. – FCA: Appeal of section 160 assessment dismissed by Federal Court of AppealREAD MORE »

Smith v. R. – TCC: Taxpayer could not deduct registered pension plan contributions again other sources of income when his employment income was exempt from tax under section 81 of the Income Tax Act (“ITA”)

Apr 12, 2018 By Bill Innes

Précis: The taxpayer was a registered Indian and his income as a tribe councillor and head of economic development for the Tlowitsis-Mumtagila First Nation was exempt from tax pursuant to section 81 of the ITA. He sought to deduct contributions of $3,210.00 to a registered pension plan (“RPP”) registered by his employer. The Court held that since his employment income was exempt from tax he could not deduct his RPP contributions against his other sources of income, which did not arise from employment. Thus the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.
Smith v. R. – TCC: Taxpayer could not deduct registered pension plan contributions again other sources of income when his employment income was exempt from tax under section 81 of the Income Tax Act (“ITA”)READ MORE »

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