Geick v. R. - TCC: Policeman could not deduct legal fees defending criminal charges laid against him

Jul 11, 2017 By Bill Innes

Précis: The taxpayer was a police officer. In 2006, as a result of several charges under the Criminal Code relating to incidents in 2004, he was suspended with pay. He incurred $115,996.00 in legal fees between 2007 and 2011. In 2012 he claimed to deduct those expenses against his employment income and CRA disallowed the deduction. He then appealed to the Tax Court. He argued, variously, that the legal fees protected his salary income, his potential pension income and income from certain properties in which he had an ownership interest. The Tax Court rejected his arguments, holding that the payments were personal in character and therefore not deductible. His appeal was accordingly dismissed with costs in accordance with the tariff.
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Danilov v. R. - TCC: No deduction for legal fees incurred in fight with in-laws over money

Jul 10, 2017 By Bill Innes

Précis: Mr. Danilov and his wife were involved in protracted litigation (commenced in 2012 and still ongoing at the date of the Tax Court hearing in 2017) about funds they had received from his wife’s parents. He sought to deduct legal fees of $74,566 in computing his business income for the 2014 taxation year. The Court held that the fees were not incurred for the purposes of earning or producing income but rather were personal expenditures. The Court also rejected Mr. Danilov’s argument that his appeal should be allowed because the Crown had filed its Reply a few days late. As a result the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.
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Rowe v. R. - TCC: Gross Negligence Penalties Affirmed on Fiscal Arbitrator Client

Jul 07, 2017 By Bill Innes

Précis: This is a Fiscal Arbitrators case with two twists. Mr. Rowe was a professional accountant (CGA). He claimed the large Fiscal Arbitrators loss in 2009 in order to carry it back to prior taxation years where he had unsuccessfully attempted to claim bogus charitable donations. The only issue in this appeal was whether gross negligence penalties were applicable. Not surprisingly, the Court held that they were and dismissed the appeal. In view of Mr. Rowe’s contrition on the stand, among other factors, the Court did not award costs.
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Grant v. R. - TCC: Court recommends waiver of penalties and interest - unacceptable processing delay by CRA

Jul 07, 2017 By Bill Innes

Précis: Mr. Grant was the director of a company, RII Holdings Inc. (“RII”), that went through a long, messy and convoluted bankruptcy proceeding. He attempted to resist liability on the basis of a number of complex defences, including arguing that he had resigned as a director more than two years before the date of the assessment, none of which were accepted by the Court. The Court did take the somewhat unusual step of recommending that the Minister consider waiving penalties and interest because of “unacceptable processing delay on the part of CRA”. As a result the appeal was dismissed but there was no order of costs even though this was a general procedure appeal.
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Liu v. R. - TCC: Court rejects gross negligence penalties on unreported income

Jul 06, 2017 By Bill Innes

Précis: Mr. Liu was assessed with respect to unreported income for the 2010 and 2011 taxation years as well as gross negligence penalties in respect of such unreported business income. At or before trial the Crown made substantial concessions on the amount of unreported income. In addition, the Court allowed somewhat modest adjustments to the expenses Mr. Liu was entitled to claim. On balance the Court found that this was not an appropriate case for the imposition of gross negligence penalties and vacated the penalties imposed for 2010 and 2011. Although this was a general procedure case, the Court decided to make no order as to costs.
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Grimes v. R. - TCC: Taxpayer awarded 25% of solicitor-client costs on valuation issue

Jul 06, 2017 By Bill Innes

Précis: The taxpayer disputed CRA’s valuation of shares owned by a family trust on its deemed disposition date. Ultimately the Tax Court substantially reduced the CRA valuation. In this motion dealing with costs the taxpayer asked for costs in excess of the tariff, i.e., 75% ($155,856.83) of its solicitor-client costs, plus 100% of its disbursements (largely expert witness fees). The Court concluded that this was an appropriate case for costs in excess of the tariff, largely because of the significant monetary success of the taxpayer, but concluded that an award of 25% ($52,000) of its solicitor-client costs, plus 100% of its disbursements was more appropriate.
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CRA Announces it will not seek leave to appeal the FCA’s BP Canada Energy decision

Jun 08, 2017 By Bill Innes

Précis: The decision of the Federal Court of Appeal in BP Canada Energy v. Canada (National Revenue) (March 30, 2017 – 2017 FCA 61, Nöel C.J. (author), Stratas, Boivin JJ.A.) was blogged earlier on this site. The précis read: The Federal Court of Appeal has reversed the Federal Court’s decision that held that corporate taxpayers can be required to produce their internal tax accrual working papers (“TAMPs”). This may be one of the most important cases in several years on the extent of the power CRA has in gathering private tax information compiled by Canadian businesses. The Chief Justice of the Federal Court of Appeal, who is a noted tax expert, has written an intellectually compelling decision. If the Supreme Court grants leave to appeal, which I think highly likely, it is difficult to predict what the Court will do. If I were a betting person, I would be inclined to think that the McLachlin Court, which has always exhibited a balanced, pragmatic approach in tax cases, will accept the analysis of Chief Justice Nöel.
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Ferlaino v. R. - FCA: Stock option benefits denominated in US Dollars computed at exchange rate when exercised

May 25, 2017 By Bill Innes

Précis: The taxpayer was granted employee stock options denominated in US dollars. When he exercised the options he reported the benefit based on the exchange rate prevailing at the date of the grant of the options. CRA assessed him with an employment benefit based on the exchange rate prevailing at the date of the exercise of the options. He appealed unsuccessfully to the Tax Court and then appealed to the Federal Court of Appeal. The Court of Appeal dismissed the appeal from the bench, with costs, holding that the Tax Court had made no reviewable error.
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Groves v. R. - TCC: Mother, sole payer of support, cannot claim tax credits for one of two children

May 24, 2017 By Bill Innes

Précis: Ms. Groves and her former spouse had joint custody of the two children of the marriage. They separated in 2011 and under the original Separation Agreement she was to pay child support to her former spouse. Under an amended Separation Agreement executed in 2015 they were each to pay child support. Ms. Groves claimed the Canada Child Tax Benefit in 2014 in respect of one child. CRA denied the claim and Ms. Groves appealed to the Tax Court. The Court held that the case law was clear that where only one parent pays child support the parent paying support is not entitled to the Tax Benefit. Thus the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.
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The Armour Group v. R. - TCC: Lease cancellation fee of $2.24 million not deductible

May 12, 2017 By Bill Innes

Précis: In a complex land transaction with the Province of Nova Scotia the taxpayer claimed to have paid $2.24 million by way of set off to cancel a ground lease with the Province under which its wholly-owned subsidiary, Founders Square Limited (“FSL”), was the tenant. FSL acted as a bare trustee for the taxpayer and the taxpayer claimed to deduct the payment made by FSL as a business expense. CRA denied the deduction as being on account of capital, or alternatively, a non-deductible pre-payment of rent. The Tax Court held that the payment was on account of capital and dismissed the appeal with costs to CRA.
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