MacDonald v. R. – TCC: Losses on Forward Contracts currently deductible – arrangement not a hedge

Sep 26, 2017 By Bill Innes

Précis: Mr. MacDonald was a very senior and experienced financial professional. He had a substantial holding of shares of Bank of Nova Scotia (“BNS”) which he had held for long period of time. He formed the opinion that the BNS shares were likely to decline steeply in value in part because of their large international exposure. Hoping to benefit from that decline he entered into a Forward Contract with TD Securities Inc. which included a collateral pledge of 165,000 BNS shares. Mr. McDonald did not have the option to settle the Forward Contract with the delivery of shares. Mr. MacDonald made cash settlement payments under the Forward Contract of roughly $10 million between 2004 and 2006. He treated the payments as business losses. CRA reassessed Mr. MacDonald in 2009 treating the payments as capital in nature. The position of CRA was that the arrangement was a form of “hedge” designed to protect the value of his BNS holdings.
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Radelet v. R. – TCC: Waiver of limitation period was effective

Sep 25, 2017 By Bill Innes

Précis: Subparagraph 152(4)(a)(ii) of the Income Tax Act (the “Act”) permits a taxpayer to waive the normal reassessment period. In this case Mr. Radelet attempted to set aside a waiver in a hearing that was bifurcated from the underlying tax issues which involved an alleged unreported capital gain and a disallowed business loss. He argued that the waiver should be set aside because it was obtained by coercion, that he lacked the mental capacity to execute such a waiver because of illness and, finally, that he did not understand the effect of the waiver. The Tax Court rejected all three grounds, holding the waiver was valid and ordered that Part II of the trial dealing with the substantive tax issues be set down for hearing. Costs were reserved until the conclusion of Part II.
Radelet v. R. – TCC: Waiver of limitation period was effectiveREAD MORE »

Khan v. R. – TCC: Court rejects evidence of charitable donations

Sep 22, 2017 By Bill Innes

Précis: Mr. Khan claimed charitable donations of $9,000 and $8,000 in 2005 and 2006, respectively. The Minister disallowed the donations and, in so doing, opened otherwise statute-barred years. All of the charities concerned had subsequently had their charitable status revoked by CRA either for issuing inadequate receipts or failure to keep proper books and records. The Court accepted the Minister’s position that the donations in question were not reliable and dismissed Mr. Khan’s appeal. There was no order as to costs since this was an informal procedure appeal.
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Flavor Net Inc. v. R. – TCC: SRED claims either not research or not documented properly

Sep 21, 2017 By Bill Innes

Précis: The taxpayer had previously been in the flavouring business but sold those lines and was now working on plant sterol beverages and other health foods. The taxpayer claimed SRED expense on two projects: Project 705—the Plant Sterols Beverage Project, and Project 806 - a Partial Hot Fill System. The Tax Court found that the evidence in relation to Project 705 did not disclose true scientific research. In the case of Project 806 the evidence was unclear, both in terms of when the work was done and the nature of the project. As a result the appeal was dismissed. Although the Crown asked for costs under the Informal Procedure Rules, the Court declined to award them.
Flavor Net Inc. v. R. – TCC: SRED claims either not research or not documented properlyREAD MORE »

Tang v. R. – TCC: Net worth assessment reduced by 84 percent

Sep 21, 2017 By Bill Innes

Précis: Mr. Tang was assessed for the 2005, 2006 and 2007 taxation years on the basis of net worth analysis. This amounted to additional income for the 2005 to 2007 taxation years in the amounts of $122,100, $291,663, and $74,943 as well as gross negligence penalties in each of the taxation years. Mr. Tang came to Canada in 1994 as a business immigrant and was involved with rental properties and also bought and sold real estate. He left Canada in 2009 and was no longer a resident. Mr. Tang, who insisted on representing himself notwithstanding the advice of the Court, argued that the sums alleged to be unreported income arose from loans from family members and other non-taxable sources. Amazingly (for this type of net worth case) the Court accepted the bulk of his evidence and directed the reassessments be reduced by 84%.
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Soheili v. R. – TCC: Taxpayer denied losses on sale of personal home

Sep 20, 2017 By Bill Innes

Précis: This case involved loss carryforwards denied by CRA. The taxpayer had claimed loss carry forwards of $29,520 in 2010 and $5,520 in 2011. A CRA audit allowed $6,120 loss carry forwards from 2009 into 2010 and denied the balance of the losses claimed. The taxpayer appealed to the Tax Court. In the Tax Court the Minister defended the assessments under appeal on the basis that the losses all arose from a home the taxpayer had built for his family. The Minister argued that no losses should have been allowed at all at the audit level. Although the taxpayer never occupied the property in question the Court concluded that it had been both acquired and held as the taxpayer’s personal property.
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Chiang v. R – TCC: Taxpayer not liable for penalties on over-contribution to RRSP

Sep 18, 2017 By Bill Innes

Précis: This is an unusual case where the taxpayer innocently, but mistakenly, over-contributed to his RRSP for three years in the 90’s. CRA assessed him under Part X.1 of the Income Tax Act (the “Act”) with tax and penalties in respect of that over-contribution. Mr. Chiang appealed both the tax and the penalties. The Court dismissed the appeal as to the tax payable but allowed the appeal on penalties. The Court found that on the evidence Mr. Chiang had established a due diligence defence that precluded the application of penalties.
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Aon Inc. v. R. - TCC: Replacing 50% of the roof of a parking garage ($4 million) a deductible expense.

Sep 07, 2017 By Bill Innes

Précis: The taxpayer expended roughly $4 million over a period of two years replacing a large portion of the roof of an underground parking garage that had been damaged by salt. The taxpayer sought to deduct the expense as a current operating cost. The area involved was roughly 47,000 square feet which was about 50% of the size of the parking area; a sizeable portion of the remaining area was covered by three buildings and not exposed to the same damage. CRA denied the deduction as being a capital expenditure. The Tax Court accepted the position of the taxpayer and allowed the appeal with costs.
Aon Inc. v. R. - TCC: Replacing 50% of the roof of a parking garage ($4 million) a deductible expense.READ MORE »

McCullock-Finney v. R. - TCC: Appellant’s intention to claim a Capital Gain Deduction in 1994 not effective

Aug 10, 2017 By Bill Innes

Précis: The taxpayer (since deceased) claimed a capital gains deduction in respect of two rental properties she disposed of in 2010 (which she had owned since 1979). CRA denied the deduction on the basis that she had not filed the requisite election with her 1994 income tax return. Her estate appealed to the Tax Court. The Tax Court dismissed the appeal. While the taxpayer might have intended to file the election in question there was no evidence that she had in fact filed it with her 1994 tax return. There was no order as to costs since this was an informal procedure appeal.
McCullock-Finney v. R. - TCC: Appellant’s intention to claim a Capital Gain Deduction in 1994 not effectiveREAD MORE »

Sharp v. R. - FC: “Fabricated” evidence allowed to remain on record with appropriate notation

Aug 04, 2017 By Bill Innes

Précis: The applicants moved to set aside a ministerial requirement for information under subsection 231.1(2) of the Income Tax Act on the basis that it was being used to further a criminal investigation of their affairs. In support of the application the applicants tendered an affidavit of a Ms. Kaiser which purported to attach correspondence involving an employee of CRA. That correspondence was found to have been fabricated. The sole question before the Court not already agreed upon by the parties was whether the fabricated correspondence should continue to form part of the record with an appropriate notation that it was fabricated (the position of the Crown) or whether it should be removed and replaced by a fresh affidavit provided by the applicants (the position of the applicants).
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