Law Times

Law Times • February 13, 2017 Page 5 www.lawtimesnews.com NEWS Revenue agency targets firm over $2-million tax bill BY MICHAEL MCKIERNAN For Law Times T he Canada Revenue Agency is coming af- ter the law firm of an Oshawa, Ont. lawyer in an attempt to collect on his $2-million tax bill, according to a recent Tax Court of Canada judgment. The Crown alleges James Aitchison, a lawyer with 40 years of experience in real estate, busi- ness and tax law, has not paid any federal income tax since 1992, and had amassed a personal debt to the minister of national revenue of more than $2 million by 2007, according to Tax Court Justice Campbell Miller's deci- sion in Aitchison Professional Corporation v. The Queen. In early 2012, the decision says, the CRA delivered a notice of assessment for $2.1 million to Aitchison PC, the entity through which Aitchison practises law and which he co-owns with his two daughters. All three practise law out of the firm's Oshawa office. The assessment, which cov- ered the years 2007 to 2010, was made under s. 160 (1) of the In- come Tax Act, which comes into play when taxpayers transfer property to spouses, minors or other people dealt with at non- arm's length. While his daughters were paid during the period, Aitchison took home only nominal wages, if any at all, says the decision. That's despite accounting records at the professional cor- poration that the Crown alleges show he generated revenue in excess of $3 million for the firm over the four years in question. The Crown backed up its as- sessment by arguing that Aitchi- son had transferred the "right to invoice" for his services to the professional corporation for an amount equal to his total billings. But David Nathanson, the lawyer acting for Aitchison PC, says the assessment simply can- not succeed under s. 160 because it would require a transfer of property between Aitchison and his law firm. "When a lawyer or a law firm forms a professional corporation and begins to bill through that corporation, there is no transfer of anything in our view," says Na- thanson, counsel to the Toronto office of DLA Piper (Canada) LLP. "It's the Crown's position that a lawyer's right to bill is property, that it is something that can be transferred and that in this case it was transferred. But we don't see any legal basis for considering that right, what- ever it is, to be property. And even if it was property, it was not transferred." Last year, the law firm sought to have the case dismissed by bringing a motion under Rule 58 of the Tax Court of Canada (General Procedure) Rules, which is designed to save time and costs by determining a ques- tion of law, fact or mixed fact and law ahead of a full hearing. The firm asked Miller to rule on whether Aitchison had transferred his right to invoice to the professional corporation, and if so, whether that right constitutes property under the Income Tax Act. Negative answers to either would kill the Crown's case, they argued. Even if Miller answered "yes" to both questions, the law firm argued it would shorten the trial or eliminate the need for one altogether by promoting a settlement, since the only issue that would remain would be the proper valuation of Aitchison's right to invoice. However, in his Dec 1 ruling, the judge decided against deter- mining the questions, express- ing doubt about whether it could be done more quickly than a trial, given the novelty and com- plexity of the issues raised. "The question of whether there is a transfer is only deter- minable by a full examination of the factual circumstances sur- rounding [Aitchison Profession- al Corporation's] arrangement with Mr. Aitchison. Just by way of example, it strikes me how invoicing was handled would be significant. Also, what were the intentions of [Aitchison Professional Corpo- ration] and Mr. Aitchison? More than the key facts iden- tified by [Aitchison Professional Corporation] need to be f lushed out. This is best handled through the normal course of examina- tion and cross-examination," Miller wrote. "A full hearing would best serve the interests of justice in possibly establishing a prec- edent. I disagree with the Appli- cant's view that it is unnecessary to look beyond the complete legislative regime (Business Corporations Act and the Law Society Act) to ascertain the re- lationship. The Court needs to know all the circumstances." William Innes, a tax litiga- tor with Rueter Scargall Bennett LLP in Toronto, says the deci- sion is the latest in a line of recent failed Rule 58 motions at the tax court. "Anyone who has ever suf- fered through personal property law in the first year of law school knows just how complex and ar- cane this area of the law can be. As the judge points out, the court needs as much assistance as they can get in determining these issues. It's only with evidence and the course of a trial that they can de- termine what's going on," Innes says. "On the face of it, the argu- ment that the amount in this case should not be collectable looks a little too cute by half." The CRA had no comment on the matter. "As this matter is before the courts, and by virtue of the con- fidentiality provisions of the In- come Tax Act, the CRA cannot comment on details of this case," said CRA spokeswoman Lisa Newton in a statement. LT William Innes says a recent ruling is the latest in a line of recent failed Rule 58 motions at the Tax Court of Canada. law.utoronto.ca/ExecutiveLLM GPLLM Global Professional Master of Laws [Get a Master of Laws] Because business issues are legal issues. So if you want to get ahead in business, get the degree that gets you there faster. ONE YEAR – PART - TIME – NO THESIS – FOR L AWYERS AND NON - LAWYERS Untitled-8 1 2015-03-02 11:15 AM

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