Law Times

Law Times • January 29, 2018 Page 13 www.lawtimesnews.com Federal Court of Appeal Tax GOODS AND SERVICES TAX Input tax credits "Credit" in s. 232 of Income Tax Act means operation by which sum was put at disposal of someone else Registrant made partial pay- ments towards purchase price and HST for goods that were not delivered after vendor cancelled contracts. Vendor declared bank- ruptcy, did not remit HST col- lected from registrant's payments and did not refund amounts ow- ing under credit memos. Minister of National Revenue disallowed input tax credits relating to con- tracts that were cancelled pursu- ant to s. 232(3)(c) of Excise Tax Act, with effect that there was no deduction for HST paid by reg- istrant that was to be refunded. Tax Court judge dismissed reg- istrant's appeal, concluding that s. 232(1) of Act applied on basis that there was overpayment of tax which was credited to registrant by credit memos. Judge conclud- ed that "credit" in s. 232 of Act meant acknowledgement of sum owed. Judge determined that reg- istrant's actions in acknowledg- ing validity of credit memos, by relying on them to recover potion of amount owed from vendor, were fatal to its appeal. Judge re- jected registrant's public policy argument. Registrant appealed. Appeal allowed. Section 232 of Act did not apply to transactions as HST was not credited to regis- trant. Judge erred in concluding that "credit" in s. 232(1) of Act took its meaning from commer- cial terms "credit note" and "cred- it memorandum". Context and purpose of legislation suggested that narrow meaning of "credit" was intended. Registrant's treat- ment of credit memos in context of recovery efforts had no bearing on issue of meaning of "credit" in s. 232 of Act. Term "credit" in s. 232 of Act meant operation by which sum was put at disposal of someone else. Vendor did not put funds at disposal of registrant when it issued credit memos, so tax was not credited to registrant. Vendor was never in position to satisfy credit memos. North Shore Power Group Inc. v. Canada (2018), 2018 CarswellNat 22, 2018 FCA 9, David Stratas J.A., Judith M. Woods J.A., and J.B. Laskin J.A. (F.C.A.); reversed (2017), 2017 CarswellNat 72, 2017 TCC 1, Randall S. Bocock J. (T.C.C. [General Procedure]). INCOME TAX Administration and enforcement Proper to take gambling records into account in net worth determination Taxpayer was regular attendee at casinos and received large amounts of gifts from her boy- friend. Taxpayer owned busi- nesses and acquired properties and vehicles. Taxpayer did not keep books and records and filed late or incomplete tax re- turns. Minister of National Revenue reassessed taxpayer for 2005 through 2009 taxation years for unreported income un- der Income Tax Act (ITA) based on alternative net worth assess- ment. Tax Court judge dismissed taxpayer's appeals as to 2005 through 2008 and allowed appeal as to 2009 in part to extent that parties agreed to reduce 2009 as- sessment by $4,800. Judge held that alternative assessment was necessary and appropriate since taxpayer filed returns late, main- tained no books or records, oper- ated several businesses, owned properties and maintained vari- ous bank accounts. Taxpayer ad- mitted that asset values were cor- rect and failed to show that Min- ister's assessment was f lawed or suspect. Judge found no evidence of trust assets, offsetting fam- ily loans or misallocated business assets. Judge held that CRA audit in area of gambling met standard of probability and that Minis- ter's assessment was only reliable evidence of taxpayer's income li- ability. Judge reduced assessment in respect of 2009 taxation year by $4,800, which represented double entry effect of $2,400 win at casino having been recorded as loss, which was added to in- come when it should have been deducted. Taxpayer appealed. Appeal dismissed. Judge made no reviewable error in admitting records of gambling, which were admissible as business records. Judge did not err in determin- ing that it was proper to take gambling records into account in net worth determination or in preferring evidence of taxpayer's former boyfriend over evidence of her friends and relatives. Judge was not biased, and did not mis- state or ignore evidence. Truong v. Canada (2018), 2018 CarswellNat 28, 2018 FCA 6, David Stratas J.A., Near J.A., and Judith Woods J.A. (F.C.A.); affirmed (2017), 2017 Carswell- Nat 335, 2017 TCC 22, Randall S. Bocock J. (T.C.C. [General Procedure]). INCOME TAX Tax avoidance Sale of shares to spouse was quest to obtain tax benefit Taxpayer accepted offer to pur- chase his shares. Taxpayer ar- ranged series of transactions purportedly to recognize his spouse's contributions to busi- ness. Taxpayer sold half of his shares to spouse for fair market value and waived application of rollover in s. 73(1) of Income Tax Act and gifted other half of shares to spouse and allowed rollover. Spouse sold all of her shares to purchaser for $2 mil- lion. As shares had different ad- justed cost bases (ACB) and were identical property within s. 47(1) of Act, their ACB was deemed to be equal to average cost. Spouse realized capital gain of $1 mil- lion, half of which was taxable. Given rollover with respect to shares that were gifted, s. 74.1 of Act attributed to taxpayer half of that capital gain realized by spouse. Minister of National Revenue reassessed taxpayer un- der general anti-avoidance rule (GAAR) in s. 245 of Act to attri- bute to taxpayer taxable capital gain that had been realized by spouse. Taxpayer appealed. Ap- peal dismissed. Judge was cor- rect in holding that attribution to taxpayer of entire taxable capital gain realized on sale of shares was justified under GAAR. Judge was correct in finding that taxpayer received personal ben- efit by avoiding paying taxes on portion of capital gain that would otherwise have been his. Pur- pose of making gift to spouse in recognition of her contribution to business coexisted with that of tax minimization. Judge did not err in finding that sale to spouse was quest to obtain tax benefit for taxpayer, which was avoid- ance transaction, and that there was abuse. Splitting of capital gain that had accrued in shares while held by taxpayer prior to implementation of transactions by using s. 47(1) of Act frustrated purpose of ss. 73(1) and 74.2(1) of Act, which was to ensure that gain or loss deferred by reason of rollover between spouses be at- tributed back to transferor. Gervais c. Canada (2018), 2018 CarswellNat 11, 2018 Car- swellNat 12, 2018 FCA 3, 2018 CAF 3, Noël C.J., Gauthier J., and de Montigny J. (F.C.A.); af- firmed (2016), 2016 CarswellNat 10791, 2016 CarswellNat 4345, 2016 TCC 180, 2016 CCI 180, Gaston Jorré J. (T.C.C. [General Procedure]). Federal Court Immigration and Citizenship EXCLUSION AND REMOVAL Removal from Canada Humanitarian and compassionate considerations not based upon sympathetic factors Applicant, citizen of India, be- came Canadian permanent resi- dent as accompanying child of his parents, but he never became Canadian citizen. Applicant pled guilty and was convicted of sex- ual interference with minor, and he was sentenced to 18 months in jail and two years probation. Re- port was issued under s. 44(1) of Immigration and Refugee Pro- tection Act, and applicant was determined to be inadmissible pursuant to s. 36(1)(a). Admis- sibility hearing took place via teleconference and applicant re- quested Punjabi translator short- ly after hearing began, which was arranged. Deportation order was issued. Applicant unsuccessfully brought application for judicial review. Applicant unsuccessfully brought application to avoid removal on humanitarian and compassionate grounds. Ap- plicant brought application for judicial review. Application dis- missed. Applicant sought rehear- ing on arguments made in H&C application. Applicant could not ask to reweigh hardship of return to India as that had already been balanced against all other ele- ments of application. Guidelines outlining separation of persons did not bind decision-maker as they contained permissive lan- guage. H&C considerations were not based upon sympathetic fac- CASELAW Caselaw is a weekly summary of notable civil and criminal court decisions by the Supreme Court of Canada, the Federal Court of Canada and all Ontario courts. These cases may be found online in WestlawNext Canada. To subscribe, please access carswell.com or call 1-800-387-5164. CASELAW REACH ONE OF THE LARGEST LEGAL AND BUSINESS MARKETS IN CANADA! AVAILABLE ONLINE AND IN PRINT With more than 300,500 page views and 100,000 unique visitors monthly canadianlawlist.com captures your market. 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