Law Times

December 10, 2018

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Law Times • December 10, 2018 Page 23 provisions relied upon by tax- payer could not justify finding that any liability for any increased taxes would only arise once that reassessment was issued. Nothing in Act stipulated that increased liability as result of reassessment based on GAAR only arose when reassessment was issued. As Part I taxes were payable for year ended August 27, 2004, these taxes were payable under s. 157 by balance- due date for that year. Taxes were therefore outstanding immedi- ately following that date and in- terest commenced to accrue im- mediately following balance-due date and not from date that reas- sessment was actually issued. Quinco Financial Inc. v. Canada (2018), 2018 Carswell- Nat 3774, 2018 FCA 137, David Stratas J.A., Wyman W. Webb J.A., and J.B. Laskin J.A. (F.C.A.); affirmed (2016), 2016 Carswell- Nat 4708, 2016 TCC 190, Ran- dall S. Bocock J. (T.C.C. [General Procedure]). Federal Court Tax INCOME TAX Administration and enforcement Record of late filing in 15 of 30 years supported discretionary decision not to grant relief After deadline, taxpayer delivered his income tax return to drop box as instructed by Canada Revenue Agency (CRA) officer, but return was misdirected, so non-filer notice of assessment (NOA) was issued. Taxpayer's appeal led to reassessment that reduced taxes, late filing penalty and interest. Taxpayer's request for relief from penalties and interest was initially denied because of his failure to file on time and pay taxes, and second time, because CRA did not cause delay, there was no financial hard- ship, and taxpayer's age was not connected to his ability to pay tax- es. Taxpayer brought application for judicial review. Application dismissed. Decision was reason- able and appropriately took into account taxpayer's circumstances and taxpayer relief provisions in guidelines. Taxpayer chose not to pay his income taxes for five years because he believed non- filer NOA was wrong, but this did not provide him with legal right to pay no tax. It was reasonable for decision maker to reject argu- ment that issuance of non-filer NOA was circumstance beyond taxpayer's control. Whether re- turn was directed to intended de- partment immediately or at later date did not have any material ef- fect on calculation of interest and penalty because interest and pen- alty levied on non-filer NOA were cancelled and readjusted to actual date of filing. Remaining inter- est and penalty arose from filing return eight months after dead- line and non-payment of taxes by deadline. It was reasonable for decision maker to conclude that no action or error by CRA was material cause of penalty and in- terest. Taxpayer submitted that he was fully compliant taxpayer, which put his compliance history in play. Record of late filing in 15 of 30 years supported discretion- ary decision not to grant relief. Robinson v. Canada (Na- tional Revenue) (2018), 2018 CarswellNat 4460, 2018 Car- swellNat 5125, 2018 FC 825, 2018 CF 825, E. Susan Elliott J. (F.C.). Compelling taxpayer to provide report would not offend principle that taxpayer was not required to self-audit In course of audit, Canada Revenue Agency requested draft due diligence report prepared by accounting firm in connec- tion with transaction involving taxpayer. Taxpayer refused to provide report on grounds of ir- relevance, solicitor-client privi- lege, and principle that taxpayer was not required to self-audit. Minister of National Revenue brought application pursuant to s. 231.7 of Income Tax Act for order requiring taxpayer to pro- vide report. Application granted. Taxpayer was required to pro- vide report. Judge did not need to review report to fairly decide issues and it remained sealed in court file. Minister met low threshold that report may be rel- evant to amount payable by tax- payer under Act. Report was pre- pared for purpose of transaction that was being audited. Minister did not need to demonstrate that report was relevant to specific issue under audit. Report was not protected by solicitor-client privilege. Jurisprudence preclud- ing imposition on taxpayers of obligation to self-audit did not apply to these circumstances. At least some information in report could be characterized as tax ac- crual working papers but Minis- ter's request for report was made in context of active audit. Com- pelling taxpayer to provide re- port would not offend principle that taxpayer was not required to self-audit. There was no reason to exercise discretion to decline to compel production of report. Canada (National Rev- enue) v. Atlas Tube Canada ULC (2018), 2018 CarswellNat 6229, 2018 FC 1086, Richard F. Southcott J. (F.C.). Tax Court of Canada Tax INCOME TAX Administration and enforcement No object was required where notices of reassessments were void Taxpayer's husband died in 1995 and taxpayer's health declined steadily until her own death in October 2004. Taxpayer had been diagnosed with aggressive, meta- static breast cancer in fall of 2002. Tax returns for 1998, 2001 and 2002 taxation years were filed in 2003 and reassessed by Minister of National Revenue in 2003. Tax return for 1999 taxation year was filed in July or August 2000 and reassessed months later while tax return for 2000 taxation year was filed in April 2001 and reassessed in June 2001. Taxpayer brought application for extension of time to file notice of objection for taxa- tion years 1998-2002 inclusive. Application dismissed concern- ing 1999 and 2000 taxation years and unnecessary for 1998, 2001 and 2002 taxation years. There was insufficient evidence to find that taxpayer lacked mental ca- pacity before her diagnosis date. It was concluded that taxpayer had capacity when she executed and filed her 1999 and 2000 tax returns. Beyond contempora- neous documentary medical evidence concerning period after diagnosis date, balance of factual witnesses indicated that taxpayer was in confused and depressed state from her diagnosis date un- til time of her death. Finding was made, on balance, that taxpayer from and after her diagnosis date lacked mental capacity to execute or did not execute and file 2003 filings. Notices of reassessments responsive to those filings were void and accordingly, no objec- tion was required to void reas- sessments. Previously subsist- ing assessments for those years would be revived and were now operative. Ntakos Estate v. The Queen (2018), 2018 CarswellNat 7018, 2018 TCC 224, Randall S. Bo- cock J. (T.C.C.). Inf lated amount of tax receipt was not result of "pretence documents" and therefore was not benefit that vitiated gift Taxpayer M participated in phar- maceutical donation program A in 2003 and pharmaceutical do- nation program B in 2004 and 2005. Taxpayer E participated in pharmaceutical donation pro- gram B in 2005. In 2003 tax re- turn M claimed amount stated in tax receipt as gift and reported capital gain of $47,002.80 from disposition of pharmaceuticals identified on attachments to tax receipt. M claimed cash gifts of $15,350 and $15,075 and in-kind donations of $41,108.82 and $37,815.15 for taxation years 2004 and 2005. E claimed cash gifts of $39,966 and in-kind donations of $124,459.25 for 2005 taxation year. Minister disallowed claims for charitable donation tax credits in 2004 for M and 2005 for M and E. After taxpayers filed notices of objection to these reassessments, Minister reassessed taxpayers and for 2005 taxation year, E and M were allowed charitable donation tax credits for cash gift of $39,966 and $15,075. Taxpayers appealed. Appeals by M for 2003 and 2005 taxation years dismissed and for 2004 taxation year allowed in part; appeals by E dismissed. Burden of proof in tax cases and relationship of that burden to as- sumptions of fact made by Minis- ter had been subject of much com- mentary in tax jurisprudence. Question in appeals was whether any of Minister's assumptions of fact should be "downgraded" to material facts that must be es- tablished by evidence on record. Taxpayers consciously choose to participate in programs with little or no knowledge of what went on behind curtain and in such circumstances, it was not unfair to taxpayers to allow Minister to assume what went on behind curtain. By participating in pro- grams without further inquiry, taxpayers accepted risk that facts behind curtain were not what they expected them to be. Minis- ter's assumptions of fact as stated in replies were to be taken as true except to extent expressly recant- ed by Minister and taxpayer must present at least prima facie case to demolish those assumptions of fact. Valuations used by donation program A to issue tax receipt were patently f lawed and did not demolish Minister's assumption that fair market value of pharma- ceuticals at time they were gifted in 2003 did not exceed $1,759.80. It was found that pharmaceuti- cals donated by M in 2003 had fair market value no greater than $1,759.80. Based on assumed facts and evidence inf lated amount of tax receipt was not result of "pre- tence documents" and therefore was not benefit that vitiated gift. Taxpayers did not make gifts in- kind. M made cash gift of $15,350 in 2004 and was entitled to chari- table donation tax credit in re- spect of that gift. Morrison v. The Queen (2018), 2018 CarswellNat 6307, 2018 TCC 220, John R. Owen J. (T.C.C. [General Procedure]). INCOME TAX Tax avoidance Taxpayer not adducing evidence that advantage extended by brokerage rendered her exempt from tax liability Taxpayer was sophisticated inves- tor who opened tax-free savings account (TFSA) in January 2009, when TFSA rules were imple- mented. New TFSA rules set out anti-avoidance rules that prevent- ed taxpayers from taking advan- tage of tax exemption provided under s. 146.2 of Income Tax Act, and one such rule was taxation of "advantage", which was amended in October 2009 to include "swap" transactions. From May 2009 to October 2009, taxpayer made 71 share exchange transactions, in which taxpayer transferred shares listed on stock exchange between her TSA, her Canadian direct trading account (CDN) and self- directed registered retirement savings plan (RRSP). Taxpayer significantly increased total fair market value (FMV) of her TFSA in 2009 taxation year but after amendment, taxpayer did not enter into any swap transactions, and her TFSA increased in value in 2010 and 2012 but suffered loss in 2011. Minister reassessed taxpayer for 2009, 2010 and 2012 taxation years and found that tax- payer was liable to pay tax with respect to increase in total FMV of property held in her TFSA. Taxpayer appealed. Appeal al- lowed in part. It was concluded that taxpayer received advantage in relation to her TFSA in 2009, as increase in FMV for that year was attributable to series of swap transactions taxpayer conducted, and taxpayer was liable for tax for that taxation year. Evidence was clear that taxpayer was single mind directing all swap transac- tions, as she gave instructions to bank officers and parties in con- trol of RRSP and CDN acted in concert without separate inter- ests. Parties in control of RRSP and CDN never had economic stake in outcome of transactions as taxpayer only considered what was best for TFSA and based on that it was concluded that series of swap transactions would not have occurred if parties had been deal- ing at arm's length and were act- ing prudently, knowledgeably and willingly. For 2010 and 2012 taxa- tion years, taxpayer decided to risk leaving shares in TFSA where they were subject to market forces and real market risks. In 2010 and 2012 TFSA gains were consider- ably less and circumstances ap- pear to have changed significant- ly, accordingly, increase in value of shares in 2010 and 2012 was not attributable to swap transactions. Taxpayer also did not adduce evi- dence that advantage extended by brokerage rendered her exempt from tax liability. Louie v. The Queen (2018), 2018 CarswellNat 7016, 2018 TCC 225, Lucie Lamarre A.C.J. (T.C.C. [General Procedure]). Ontario Civil Cases Civil Practice and Procedure PRACTICE ON APPEAL Interlocutory or final orders Fact that, had judge reached opposite conclusion, resulting order would have been final did not dictate that order given was final Plaintiffs brought medical negli- gence action against defendants. Jury found in favour of plain- tiffs, however there was issue over answers jury had provided to questions asked. Trial judge decided that she would not en- ter judgment in accordance with jury's verdict and that new trial was necessary because answers of jury on causation were fa- tally f lawed. Plaintiffs appealed. Defendants brought motion to quash plaintiffs' appeal. Motion granted. Matter was transferred to Divisional Court for purpose of permitted defendants to bring motion for leave to appeal. Order in question was interlocutory. Order did not decide any sub- stantive right between parties, rather it directed that new trial be held where those substantive rights will be determined. Plain- tiffs were not being deprived of right of review. Fact that, had judge reached opposite conclu- sion, resulting order would have been final did not dictate that or- der given was final. Cheung v. Samra (2018), 2018 CarswellOnt 19188, 2018 ONCA 923, David Watt J.A., B.W. Miller J.A., and I.V.B. Nor- dheimer J.A. (Ont. C.A.).

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