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Arbuckle v. R. – TCC: Gross negligence penalties upheld in “Detax” program

2 octobre 2017 By Bill Innes

Précis: The taxpayer, an employee of the Government of Ontario, claimed business losses of $209,664.62 and $167,111.43 in 2008 and 2009, respectively. The losses were part of a “Detax” plan recommended by her tax preparer, Mr. Rasool. CRA denied the losses and imposed gross negligence penalties. The Tax Court rejected much of the taxpayer’s evidence, particularly the suggestion that the losses were added to the returns after she had signed them and without her knowledge. As a result the gross negligence penalties were sustained and the appeal was dismissed with costs to the Crown.
Arbuckle v. R. – TCC: Gross negligence penalties upheld in “Detax” programPlus >

R. v. Repsol Energy Canada – FCA: Tax Court decision in favour of taxpayer upheld

27 septembre 2017 By Bill Innes

Précis: The taxpayer claimed that a large regasification plant in Saint John, New Brunswick fell within Class 43 property for CCA purposes. CRA rejected the Class 43 categorization and assessed the property under Classes 1 and 3, resulting in less CCA being available. Justice Campbell Miller of the Tax Court decided in favour of the taxpayer and awarded substantial costs. CRA appealed both the substantive decision and the costs award. The Federal Court of Appeal accepted the decision of the Tax Court both on substance and on costs (technically, there were four appeals involved). Thus CRA’s appeals were dismissed with one set of costs.
R. v. Repsol Energy Canada – FCA: Tax Court decision in favour of taxpayer upheldPlus >

Horn v. R. – TCC: Legal fees not deductible, paid to protect capital assets

26 septembre 2017 By Bill Innes

Précis: Mr. Horn through various corporations carried on a business trying to develop First Nations Gaming in Alberta. He obtained financing for his business from two American corporations. As part of the financing he pledged the shares of his main operating company, New Buffalo Gaming Inc. (“New Buffalo”). He sued in Arizona when the American corporations defaulted on the financing. Similarly, he also incurred legal fees in an Alberta action in which the American corporations attempted to enforce their security interest in the New Buffalo shares. He claimed a deduction for the US and Canadian legal fees paid in 2004, 2005 and 2006 as well as a loss carryforward in 2009 arising out of those legal fees. The Tax Court held that neither set of legal fees were not deductible insofar as they were incurred to protect a capital asset, i.e., the New Buffalo shares, which were pledged as part of the financing arrangements. Thus the appeal was dismissed, with costs.
Horn v. R. – TCC: Legal fees not deductible, paid to protect capital assetsPlus >

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

26 septembre 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.
MacDonald v. R. – TCC: Losses on Forward Contracts currently deductible – arrangement not a hedgePlus >

Radelet v. R. – TCC: Waiver of limitation period was effective

25 septembre 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 effectivePlus >

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

22 septembre 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.
Khan v. R. – TCC: Court rejects evidence of charitable donationsPlus >

Ike Enterprises v. R. – TCC: Court awards costs roughly 3 times the amount of the recovery

22 septembre 2017 By Bill Innes

Précis: The taxpayer appealed GST assessments and was successful on two out of three issues. This led to it being entitled to a refund of $38,865 plus interest and penalties. Because it had made a settlement offer as favourable as the Court’s decision it claimed substantial indemnity costs of $90,888, being 80% of their actual costs incurred after the date of the offer. The Crown objected to the amount of costs claimed on the bases that they were not reasonably incurred and on the basis that they claimed the fee arrangement with the client limited the fees to $19,432 which, they argued, should be the basis from which the 80% was computed.
Ike Enterprises v. R. – TCC: Court awards costs roughly 3 times the amount of the recoveryPlus >

Flavor Net Inc. v. R. – TCC: SRED claims either not research or not documented properly

21 septembre 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 properlyPlus >

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

21 septembre 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%.
Tang v. R. – TCC: Net worth assessment reduced by 84 percentPlus >

Soheili v. R. – TCC: Taxpayer denied losses on sale of personal home

20 septembre 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.
Soheili v. R. – TCC: Taxpayer denied losses on sale of personal homePlus >

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