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Posts tagged "Tax Litigation"

Sarmadi v. R. - FCA: Lone dissent on onus revives debate on Ministerial assumptions
Jul 14, 2017 By Bill Innes
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Précis: On the face of it this was a run-of-the-mill appeal involving a net worth assessment against a denturist/cabdriver for the failure to report roughly $150,000 over a period of two years. The taxpayer was unsuccessful in the Tax Court an appealed to the Federal Court of Appeal. Justice Woods, with whom, Justice Stratas and Justice Webb concurred, found no reversible error on the part of the trial judge. Justice Webb wrote an extensive concurring opinion dealing with the issues of onus of proof in the case of Ministerial assumptions of fact. Essentially he found that there was no difference between facts pleaded by a taxpayer and Ministerial assumptions denying facts alleged by the taxpayer; in both cases the onus was on the taxpayer to establish the disputed facts on a balance of probabilities. Thus notwithstanding earlier jurisprudence that speaks of the taxpayer raising a prima facie case demolishing the Minister’s assumptions Justice Webb believes that simply means that the taxpayer must disprove the Minister’s assumptions on the balance of probabilities (at least in the case of denials of fact).
Sarmadi v. R. - FCA: Lone dissent on onus revives debate on Ministerial assumptionsREAD MORE »
Klundert v. R. - FCA: Mrs. Klundert’s subsection 160(1) appeal dismissed from the Bench
Jul 14, 2017 By Bill Innes
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Précis: This is likely almost the tail end of the Klundert saga. Mrs. Klundert’s husband, a tax protester optometrist, directed Ontario Health Insurance Plan payments to her bank account at a time when he owed substantial amounts of in income tax. CRA assessed Mrs. Klundert pursuant to subsection 160(1) and she appealed unsuccessfully to the Tax Court. She appealed to the Federal Court of Appeal and her appeal was dismissed from the Bench, with costs.
Klundert v. R. - FCA: Mrs. Klundert’s subsection 160(1) appeal dismissed from the BenchREAD MORE »
Mady v. R. - TCC: Taxpayer under-reported income on selling shares to wife and children for one cent
Jul 13, 2017 By Bill Innes
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Précis: The taxpayer entered into two sets of complex tax planning transactions. The first involved a trust holding shares of his dental practice corporation which transferred shares to his wife who then transferred the shares to the taxpayer. The result, if it worked, was that dividends would be taxed in his wife’s hands because of the application of section 74.1 of the Income Tax Act (the “Act”). The Minister denied the application of section 74.1 and applied the avoidance rule contained in subsection 74.5(11) to tax the dividends in the hands of the taxpayer rather than at a lower rate in the hands of his wife. The second transaction involved a reorganization of his dental corporation which involved three special classes of common shares which he then sold to his wife and two children, in trust, for one cent for each holder. On the same day all of the shares of the dental corporation were sold to an unrelated third party purchaser. The common shares issued to the taxpayer’s wife and children, in trust, were sold for roughly $735,000 for each holder. CRA reassessed on the basis that the shares were not transferred at fair market value by the taxpayer.
Mady v. R. - TCC: Taxpayer under-reported income on selling shares to wife and children for one centREAD MORE »
Thompson v. R. - TCC: Court permits statute-barred years to be opened because of unreported income
Jul 12, 2017 By Bill Innes
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Précis: Mr. Thompson and his late wife set up a corporation to manage his mortgage brokerage business. Neither was particularly sophisticated in either accounting or tax and they relied heavily on their accountant, Mr. Halford. Mr. Halford set up a simple split year deferral method allowing them to defer taxation of their business income (the “Deferred Income”). By late 2009 and early 2010 the Thompsons became concerned about the quality of Mr. Halford’s work. They moved to a new accountant who had considerable difficulty getting information from Mr. Halford. Mr. Halford eventually went out of business. The new accountant, Mr. Jeffery, found that Mr. Thompson had under-reported income for 2005 and 2006 and Mrs. Thompson had under-reported for 2005, 2006 and 2007. Mr. Jeffery proposed to report the unreported income in the 2009 taxation years of the Thompsons. CRA rejected the proposal and reassessed the Thompsons for the 2005-2007 taxation years (which were otherwise statute-barred). The only question before the Tax Court was whether the circumstances permitted CRA to open statute-barred years.
Thompson v. R. - TCC: Court permits statute-barred years to be opened because of unreported incomeREAD MORE »
Geick v. R. - TCC: Policeman could not deduct legal fees defending criminal charges laid against him
Jul 11, 2017 By Bill Innes
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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.
Geick v. R. - TCC: Policeman could not deduct legal fees defending criminal charges laid against himREAD MORE »
Danilov v. R. - TCC: No deduction for legal fees incurred in fight with in-laws over money
Jul 10, 2017 By Bill Innes
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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.
Danilov v. R. - TCC: No deduction for legal fees incurred in fight with in-laws over moneyREAD MORE »
Rowe v. R. - TCC: Gross Negligence Penalties Affirmed on Fiscal Arbitrator Client
Jul 07, 2017 By Bill Innes
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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.
Rowe v. R. - TCC: Gross Negligence Penalties Affirmed on Fiscal Arbitrator ClientREAD MORE »
Grant v. R. - TCC: Court recommends waiver of penalties and interest - unacceptable processing delay by CRA
Jul 07, 2017 By Bill Innes
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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.
Grant v. R. - TCC: Court recommends waiver of penalties and interest - unacceptable processing delay by CRAREAD MORE »
Liu v. R. - TCC: Court rejects gross negligence penalties on unreported income
Jul 06, 2017 By Bill Innes
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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.
Liu v. R. - TCC: Court rejects gross negligence penalties on unreported incomeREAD MORE »
Grimes v. R. - TCC: Taxpayer awarded 25% of solicitor-client costs on valuation issue
Jul 06, 2017 By Bill Innes
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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.
Grimes v. R. - TCC: Taxpayer awarded 25% of solicitor-client costs on valuation issueREAD MORE »

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