Law Times

Page 14 September 18, 2017 • Law timeS www.lawtimesnews.com CASELAW not only relevant in cessation proceedings. RAD did not com- mit reviewable error and deci- sion was reasonable. Abegaz v. Canada (Minister of Citizenship and Immigra- tion) (2017), 2017 CarswellNat 816, 2017 FC 306, E. Heneghan J. (F.C.). Tax Court of Canada Tax INCOME TAX Administration and enforcement Auditor erring in methodology in valuating taxpayer's investments Taxpayer operated retail f lower business as sole proprietor dur- ing taxation years 2002 through 2006, and was GST registrant. Minister determined by net worth method that taxpayer had unreported income total- ling $440,249 over years at issue. Minister reassessed taxpayer under Income Tax Act beyond normal reassessment period, adding unreported amounts into income and imposing gross negligence penalties and reas- sessed taxpayer under Excise Tax Act for GST relating to un- reported income in amount of $30,853.89 as well as gross neg- ligence penalties. Taxpayer ap- pealed. Appeal allowed in part. Minister conceded amounts that reduced total unreported in- come to $364,876.73 and related GST to $25,319.80. Errors in net worth assessment were mostly because taxpayer was unwilling to provide books, records and information in timely manner. Taxpayer produced some cred- ible evidence in appeal process to demolish some of Minister's assumptions. While auditor did not err in excluding some unsubstantiated business as- sets and liabilities, other items such accounts receivable and inventory, should not have been excluded from calculations as their exclusion created approxi- mately $60,000 in additional "income". Auditor's admission of error in not showing "cash on hand" warranted adjustment in favour of taxpayer but there was no error in assumption that cash from sale of jewelry was held by taxpayer and spent as it was not deposited in bank accounts. Taxpayer demonstrated that ad- justment was necessary to avoid double-counting $15,000 trans- ferred between bank accounts. Taxpayer did not establish all of claimed repayments of loans to family members, but established some repayments beyond what auditor recognized. Auditor erred in methodology in valuat- ing taxpayer's investments. Tax- payer established that she mostly spent less than average figures used by auditor for personal ex- penditure categories. Taxpayer's evidence of expenditures in- curred in role as head of church's kitchen, for which church reim- bursed her, was accepted and led to certain adjustments. Lee v. R. (2017), 2017 Carswell- Nat 1983, 2017 TCC 74, K. Lyons J. (T.C.C. [General Procedure]). Minister failing to show that taxpayer failed to file return within reasonable period set out in demand Penalty in amount of $29,225.45 was assessed against taxpayer in respect of repeated failure to file for 2013 taxation year. Taxpayer filed income tax return over eight months after date on which it should have been filed. Tax- payer appealed. Appeal allowed. Because of jurisdictional limit of $25,000 for informal procedure, penalty could only be reduced by $25,000. Matter referred back for reconsideration and reas- sessment on basis that penalty assessed was to be reduced from $29,225.45 to $4,225. Neces- sary conditions for application of penalty for repeated failure to file required examination of both English and French ver- sions of Income Tax Act. French text required additional condi- tion not required in English text and two texts were not reconcil- able. Enactment of subsection 162(2) of Act was part of scheme modifying penalties arising as part of broader changes pro- posed in 1987 tax reform. Under old provision, 'tax sought to be evaded' was question of fact but could not include amount that had already been paid by in- stalment or whithheld by payer and remitted to Minister, thus penalty applied to amount that was same or no greater than amount of unpaid tax that cur- rent subsection 162(2) applied to. Conditions in English text widened application of penalty in comparison with French text that required fourth condition that taxpayer fail to comply with reasonable time set out in de- mand. English language version of text seemed to simply require that demand be sent and French version required that person fail to file return within time limit set in demand. French version ref lected proper interpretation of s. 162(2) of Act, and s. 162(2) could not apply unless taxpayer failed to file within time period set out in demand. Relevant sub- section of Act could only apply where four conditions were met; that person fail to file return as and when required by s. 150(1) of Act, that demand for return for year must have been sent under s. 150(2) of Act, that person must have failed to file return within reasonable period set out in de- mand, and that person must, be- fore time of failure, have been li- able for penalty for failure to file on time or for repeated failure to file on time for any of three pre- ceding years. Minister did not show that third condition had been met. Hughes v. The Queen (2017), 2017 CarswellNat 2535, 2017 TCC 95, Gaston Jorré J. (T.C.C. [Informal Procedure]). Reassessment raised beyond normal reassessment period pursuant to taxpayer's waiver Minister of National Revenue disallowed business loss and re- assessed taxpayer for failing to report capital gain from dispo- sition of commercial property. Reassessment was raised beyond normal reassessment period pursuant to waiver document executed by taxpayer. Taxpayer appealed, which was divided into two portions. Hearing was held as to whether waiver was unenforceable. Waiver was enforceable. Second portion of appeal dealing with disal- lowed business loss and as- sessed capital gain was still to be determined. Taxpayer was not unduly pressured, misled or unduly inf luenced to extent of nullifying his consent to waiver. Inclusion of prospect of gross negligence penalties in initial correspondence was not unrea- sonable. Request for extensions of time to provide information was initiated by taxpayer, which Canada Revenue Agency acced- ed to subject to receiving waiver. Taxpayer had mental capacity to consent to waiver, despite his narcotic painkiller withdrawal, and possible concussion, stroke and PTSD. Taxpayer's letters written at time were clear, lucid and effective. Taxpayer intended document to waive reassessment period limitation as described in waiver. Given relative ease, precision and detail exercised by taxpayer in completing form without consulting his lawyer, taxpayer knew form's contents and its inclusion of waiver of re- assessment limitation period. Radelet v. The Queen (2017), 2017 CarswellNat 3979, 2017 TCC 159, Randall S. Bocock J. (T.C.C. [General Procedure]). Ontario Civil Cases Business Associations CREATION AND ORGANIZATION OF BUSINESS ASSOCIATIONS Associations Members of local unincorporated branch entitled to separate from umbrella organization Appellant was umbrella orga- nization incorporated under Corporations Act. Applicants were members of local unincor- porated branch of organization. Applicants obtained judgment permitting them to depart from branch (and organization) and continue as members of sepa- rate and independent not-for- profit corporation, taking with them property held in trust for members from time to time of branch. Organization appealed. Appeal dismissed. Application judge correctly determined that clubman's veto applied. While organization was incorpo- rated under Corporations Act, branch was unincorporated vol- untary association. There was no legislation that gave branch legal status that would displace legal constructed identified in case law. There was no statute that governed how contractual relationship of all members of branch with each other was to be terminated. In calculating number of members of branch, application judge relied on pre- vious order. It was not now open to organization to go behind prior court orders and argue that there were more than 20 members at time in question, and therefore more than total number of members applica- tion judge determined. Such argument was also inconsistent with organization's position be- fore application judge that there were no members of branch re- maining. Organization's previ- ous cross-appeal of judgment that determined that property was held in trust for members of branch from time to time had been dismissed, and it was not now open to organization to revisit questions of title to prop- erty. Application judge relied on clubman's veto in granting relief he did, and not Variation of Trusts Act. Judge's com- ment that Variation of Trusts Act would have been basis for granting requested relief had it been argued did not amount to reviewable error. Polish Alliance of Association of Toronto Limited v. The Polish Alliance of Canada (2017), 2017 CarswellOnt 10127, 2017 ONCA 574, Alexandra Hoy A.C.J.O., K. van Rensburg J.A., and G.T. Trotter J.A. (Ont. C.A.); affirmed (2016), 2016 CarswellOnt 18255, 2016 ONSC 7230, F.L. Myers J. (Ont. S.C.J.). SPECIFIC MATTERS OF CORPORATE ORGANIZATION Shareholders Change of control provision and sale of significant assets unfairly prejudicial E Global, part of E group of com- panies, acquired steel company A Ltd.. E Global entered into Re- structuring Support Agreement (RSA) with A Ltd. and pledged $250 to $300 million cash in- vestment. Five of A Ltd.'s eight directors were affiliated with E group. RSA was amended to provide $150 million funded largely by loan from third par- ties, not E Global. Refinancing included transfer of A Ltd.'s port assets, without which A Ltd. could not function economical- ly, to E Global subsidiary P Inc.. Port Transaction involved A Ltd. selling Port assets excluding land to P Inc. and A Ltd. leasing land to P Inc. for 50 years. A Ltd. and P Inc. entered into Cargo Handling Agreement (CHA) which required P Inc.'s consent to change of control of A Ltd.. A Ltd. received Companies' Cred- itors Arrangement Act (CCAA) protection. Monitor brought oppression proceedings under CBCA. Claims regarding Port Transaction allowed. Reason- able expectations of trade credi- tors, employees, pensioners and retirees of A Ltd. were that A Ltd. would not deal with critical asset like Port in way as to lose long-term control over asset to related party on terms that per- mitted related party to control A Ltd.'s ability to do significant transactions or restructure and which gave unwarranted value to third party. These reason- able expectations were violated by Port Transaction and change of control veto provided to P Inc., and thus E Global, in Port Transaction. Port Transaction and third party loan would not have been necessary had E Global lived up to its obliga- tions under RSA. E Global acted in bad faith. Port Transaction and change of control provi- sion were unfairly prejudicial to interests of A Ltd.'s trade credi- tors, employees, pensioners and retirees. Change of control provision gave P Inc. and thus E Global effective control over who might acquire A Ltd.. Any buyer of A Ltd. business would require CHA to be assigned to it in order to be able to operate steel mill. Thus veto of P Inc. under CHA was effectively veto of E Global over any change of control of A Ltd. business. Busi- ness judgment rule did not pro- vide defence. Ernst & Young Inc. v. Essar Global Fund Ltd. (2017), 2017 CarswellOnt 4049, 2017 ONSC 1366, Newbould J. (Ont. S.C.J. [Commercial List]). Civil Practice and Procedure COSTS Appeals as to costs Leave to appeal costs used sparingly and where judge made error in principle or plainly wrong Plaintiff 's application for ex- tension of time to appeal costs order made after summary judgment motion was granted. Plaintiff 's applied for leave to appeal costs order. Applica- tion refused. Costs award was discretionary and awarded typically to successful party and there was no reason to de- part from rule. Leave to appeal costs award only used sparingly and where judge made error in principle or was plainly wrong. It was open to motion judge to conclude that issue of summary judgment motion was impor- tant to defendant because litiga- tion represented challenge to its practices and rights concern- ing closing of bank accounts.. Motion judge took dim view of fact that plaintiff submitted 230 written questions to defendant, many of which were improper. Motion judge was entitled to this and to conclude that it increased cost of litigation. Offers to settle were considered and it was open to conclude defendant had done as well as its offer to settle. It was open to motion judge to award substantial indemnity costs for all steps of action and motions of plaintiff and was not required to do fault assessment of each step befire awarding costs for that step. Humane Society of Canada Foundation v. Royal Bank of Canada (2017), 2017 CarswellOnt 6291, 2017 ONSC 2641, Marrocco A.C.J.S.C. (Ont. Div. Ct.).

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