Insights and Commentary from Dentons

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Insights and Commentary
from Dentons
On March 31, 2013, three pre-eminent law firms—Salans, Fraser Milner Casgrain,
and SNR Denton—combined to form Dentons, a Top 10 global law firm with
more than 2,500 lawyers and professionals worldwide.
This document was authored by representatives of one of the founding
firms prior to our combination launch, and it continues to be
offered to provide our clients with the information they need
to do business in an increasingly complex, interconnected
and competitive marketplace.
TO SUE OR NOT TO SUE? AND IN WHICH
COURT?
March 15, 2012
Number 2088
— Joel Nitikman, Fraser Milner Casgrain LLP
Canada–Austria
Protocol . . . . . . . . . . . .
4
Commentary
Updates . . . . . . . . . . . .
4
There are not many cases where a taxpayer has sued the Canada Revenue Agency
successfully for any sort of misfeasance.1 There may be several reasons for this: first, in
general the CRA tries its best to do a good job and is not often guilty of misfeasance.
Second, taxpayers often just want to get on with their lives and do not want to spend
several years and tens of thousands of dollars in legal fees suing the CRA. But third, there
is a difficult issue to address as to which court has jurisdiction to hear the suit. That was
the subject of a recent decision of the British Columbia Court of Appeal in Leroux v.
Canada Revenue Agency.2
To understand the issue, one must start with subsection 12(1) of the Tax Court of
Canada Act (the “TCC Act”).3 It provides:
Recent Cases
SR&ED credit . . . . . . .
4
Travel expenses . . . . .
4
Film certification . . .
5
Canadian film or
video production
certificate revoked
5
Clergy residence
deduction . . . . . . . . . . .
6
Capital gains
accruing in trust . . . .
6
Capital distributions
from Quebec
succession . . . . . . . . . .
6
Non-competition
covenant . . . . . . . . . . .
7
Limitation periods . .
7
12(1) The Court has exclusive original jurisdiction to hear and determine
references and appeals to the Court on matters arising under the Air Travellers
Security Charge Act, the Canada Pension Plan, the Cultural Property Export and
Import Act, Part V.1 of the Customs Act, the Employment Insurance Act, the
Excise Act, 2001, Part IX of the Excise Tax Act, the Income Tax Act, the Old Age
Security Act, the Petroleum and Gas Revenue Tax Act and the Softwood Lumber
Products Export Charge Act, 2006 when references or appeals to the Court are
provided for in those Acts.
For purposes of this discussion, the key word in this provision is “exclusive”. As a result
of this word, no court other than the Tax Court of Canada has the jurisdiction to
determine the amount of federal tax assessed against a taxpayer. Thus, where in the
course of a civil lawsuit a court other than the TCC would be required to determine
whether the amount of tax assessed was correct (for example, where there is an
allegation that the CRA has assessed an excessive amount of tax), that court must
decline to hear the case, or at least put that issue in abeyance until the amount of tax
assessed is determined by the TCC. While there may be some exceptions to this rule,
they are few and far between.4
One might say, well, fine, where there is an allegation of misfeasance and the amount of
tax is at issue, one can sue in the TCC, or at least petition that court to make a
declaration of misfeasance. But that too is impossible. By section 12 of the TCC Act, the
TCC has the jurisdiction only to determine the correct amount of tax to be assessed; it
has no jurisdiction to determine whether the CRA engaged in any misfeasance in the
course of issuing the assessment, or to set aside the assessment because of such
misfeasance, or even to declare that there has been such misfeasance. And while the
Federal Court normally does have supervisory jurisdiction over a “federal board,
commission or other tribunal”, such as the Minister of National Revenue and the CRA, by
section 18.5 of the Federal Courts Act (the “FCA”)5 the Federal Court has no jurisdiction
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to hear any application for a declaration concerning, or judicial review of, the Minister’s decision to issue the
assessment, because there is a right to appeal that assessment to the TCC on its merits. As the Court so blithely put it
in Webster:6
[21] I would add that the right to appeal an income tax assessment to the Tax Court is a substantial one. The
mandate of the Tax Court is to decide, on the basis of a trial at which both parties will have the opportunity
to present documentary and oral evidence, whether the assessments under appeal are correct in law, or not. If
the assessments are incorrect as a matter of law, it will not matter whether the objection process was flawed.
If they are correct, they must stand even if the objection process was flawed.
Or as it was put even more succinctly in Hardtke:7
[15] Consequently, a taxpayer cannot appeal the manner in which tax was assessed, but must restrict an
appeal to the issue of whether the amount assessed is correct in light of the ITA.
Leroux
With that background in mind, one may summarize the facts in this case. Mr. Leroux brought a claim against the CRA
for damages founded on misfeasance in public office, negligence and breach of the Canadian Charter of Rights and
Freedoms and the Canadian Bill of Rights. On the CRA’s application, the BC Supreme Court struck out the portions of
the Statement of Claim dealing with the Charter and the Bill of Rights as disclosing no reasonable cause of action and
an abuse of process, but permitted the tort claims to proceed. Both parties appealed to the BC Court of Appeal.
The claims arose from a series of events over 13 years where various CRA employees, at least one of whom is now
dead, are alleged to have engaged in various audits, assessments, reassessments, and collection procedures relating to
Mr. Leroux’s alleged liability for income tax and GST. Mr. Leroux alleged that the deceased CRA employee attempted to
extort him. The actual assessments against Mr. Leroux were settled through a Consent Judgment by the TCC and the
Minister issued reassessments which conformed to the Consent Judgment.
The essence of the CRA’s defence in the civil case was that, to determine whether there had been misfeasance, the BC
Supreme Court would necessarily have to determine how much tax Mr. Leroux owed, and therefore that court had
no jurisdiction.
Mr. Leroux’s essential point in response was that he was seeking damages for the CRA’s “deliberate and negligent
misconduct”. He did not dispute the validity of the tax reassessments arising out of the Consent Judgment and,
therefore, the TCC and the Federal Court had no jurisdiction. He also argued that because the Excise Tax Act (the
“ETA”) permits collection of assessed GST prior to an appeal, while the Income Tax Act (the “ITA”) did not, that was a
breach of section 15 of the Charter and of the Bill of Rights.
With respect to the jurisdictional issue, the essence of Mr. Leroux’s claim was summarized by the BC Supreme Court as
follows:
. . . Paragraphs 82 and 83 [of the Statement of Claim] allege misfeasance in public office by the employees of
the defendant. The paragraphs allege bad faith, intentionally incorrect advice, wrongful seizure of documents,
intentional destruction of documents, extortion, intentional interference with the plaintiff’s business affairs,
improper breaches of the plaintiff’s privacy interest by disclosure of the plaintiff’s affairs to third parties,
deliberately failing to accept reasonable security in breach of a statutory duty, intentional delay of refund
payments, proceeding under legislation that is unconstitutional, and delaying compliance with a judgement of
the Tax Court. All of the actions complained of in those two paragraphs are alleged to have been done for
malicious purposes and with the intent to cause loss to the plaintiff.
The CRA argued that these claims contained three core allegations:
(1) “intentional delay of refund payments” and consequential loss of property;
(2) seizure and destruction of records that “the Plaintiff needed to prove that he did not owe any tax”; and
(3) audit initiated as part of an extortion attempt and thus “unlawful.”
The CRA argued that to prove these claims, Mr. Leroux must prove that the tax he owed was different from the
amount reassessed under the Consent Judgment.
On appeal, the BC Court of Appeal followed recent Supreme Court of Canada jurisprudence,8 and held that “any
ousting of the general jurisdiction over civil wrongs of the provincial superior courts must be express”.
TAX TOPICS
The Court of Appeal noted that neither section 12 of the TCC Act nor section 18.5 of the FCA says anything about
claims against the federal Crown for misfeasance or negligence. Both types of claims are within a provincial superior
court’s concurrent jurisdiction given by section 17 of the FCA and section 21 of the Crown Liability and Proceedings
Act.9 The ultimate issue, therefore, was whether Mr. Leroux’s claims were “in effect” a matter arising under the ETA or
the ITA. The Court of Appeal held that they were not. While the Statement of Claim was “verbose and somewhat
unclear in its pleading of the allegations founding the alleged torts”, the Court of Appeal held that, at most, the
amount of tax reassessed to Mr. Leroux was simply a “fact in a private cause of action, on which both parties can
rely”.
With respect to Mr. Leroux’s allegations of negligence, the Court of Appeal held that the CRA’s application to strike
turned on whether negligent supervision or a negligent act in the course of the administration or enforcement of the
taxing statutes could give rise to a private law remedy. That depended on whether a duty of care should be imposed
on the CRA toward a taxpayer. The CRA’s position was that it owes no duty to individual taxpayers to avoid negligent
administration or enforcement of the taxing statutes (!!). The CRA accepted that, on the facts alleged, there was a
reasonable foreseeability of harm. So that left the issue of whether there was sufficient proximity to establish a prima
facie duty of care on the CRA’s part.
The Court of Appeal agreed with the BC Supreme Court that that issue, and the collateral issue of whether there is a
policy reason to disallow a claim for negligence even if there was sufficient proximity, should be left to be decided by
the trial judge after a full hearing on the facts.
Finally, the Court of Appeal agreed with the BC Supreme Court that there was no discrimination and no violation of
the Bill of Rights merely because the CRA could collect GST but not income tax while an objection or appeal was
pending. That kind of distinction was not analogous those found in subsection 15(1) of the Charter. As for the Bill of
Rights, the chambers judge held that Mr. Leroux could have but did not apply to the Federal Court for judicial review of
the Minister’s decision to collect GST rather than to accept security. This was based on Canada (Minister of National
Revenue) v. Swiftsure Taxi Co. Ltd.10
One might disagree with this aspect of the case. While the Court of Appeal in Leroux suggested that in Swiftsure the
Federal Court concluded that a judicial stay of collection activity was available even where a statutory stay was not, it
is, with all due respect, questionable whether Swiftsure is good authority for that proposition. All Swiftsure decided was
that an interlocutory stay could be granted to prevent the Minister from disposing of assets already seized to satisfy a
tax debt until the full judicial review application could be heard. Swiftsure is very weak authority for the proposition
that Mr. Leroux had any real right to apply for a stay of the Minister’s power to collect GST.
If the matter goes ahead to trial, it will be fascinating to see whether the CRA can sustain its argument that it has
no duty to individual taxpayers to avoid negligent administration or enforcement of the taxing statutes.
— Joel Nitikman, Partner in the Tax Department with the Vancouver Office of Fraser Milner Casgrain LLP.
A number of tax lawyers from Fraser Milner Casgrain LLP write commentary for CCH’s Canadian Tax Reporter and sit on
its Editorial Board as well as on the Editorial Board for CCH’s Canadian Income Tax Act with Regulations, Annotated.
Fraser Milner Casgrain lawyers also write the commentary for CCH’s Federal Tax Practice reporter and the summaries for
CCH’s Window on Canadian Tax. Fraser Milner Casgrain lawyers wrote the commentary for Canada–U.S. Tax Treaty: A
Practical Interpretation and have authored other books published by CCH: Canadian Transfer Pricing (2nd Edition, 2011);
Federal Tax Practice; Charities, Non-Profits, and Philanthropy Under the Income Tax Act; and Corporation Capital Tax in
Canada. Tony Schweitzer, a Tax Partner with the Toronto office of Fraser Milner Casgrain LLP, and a member of the
Editorial Board of CCH’s Canadian Tax Reporter, is the editor of the firm’s regular monthly feature articles appearing in
Tax Topics.
Notes:
1 See, as one example, Longley v. Minister of National Revenue (1999), 176 D.L.R. (4th) 445 (BCSC), affirmed on other grounds (2000), 184 D.L.R. (4th) 59 (BCCA),
leave to appeal denied [2000] S.C.C.A. No. 256. In Longley the Court considered whether the CRA’s actions constituted the tort of misfeasance in a public office.
The Court found that advice given to Mr. Longley by CRA officials was intentionally misleading. The Court found that the officials who had dealt with
Mr. Longley did not have an honestly held belief that the opinions they had given him were correct.
2 2012 DTC 5052 (BCCA) (2012 BCCA 63), on appeal from Leroux v. Canada Revenue Agency, 2010 DTC 5123 (BCSC).
3 R.S.C. 1985, c. T-2, as amended.
4 On the jurisdiction of the various courts, see in general Joel Nitikman, “Current Cases” (2004), 52 Canadian Tax Journal 925–940, case comment on Obonsawin
v. The Queen; David Jacyk, “The Dividing Line Between the Jurisdictions of the Tax Court of Canada and Other Superior Courts” (2008), 56 Canadian Tax Journal
661–707. For comments on the six cases decided by the Supreme Court of Canada on this issue, see Harry J. Wruck, “The Remnants of Federal Court Judicial
3
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Review Jurisdiction After TeleZone” (2011), 69 The Advocate 341–350; David Mullan, “Civil Liability Claims against the Crown in Right of Canada and the Demise
of Grenier”, (2011), 51 Canadian Business Law Journal, 291–306; Gerald Heckman, “Canada (Attorney General) v. Telezone: Jurisdiction in Actions against the
Federal Crown” (2011), 38 Advoc. Q. 111.
5 R.S.C. 1985, c. F-7, as amended.
6 Attorney General of Canada v. Webster, 2003 DTC 5701 (FCA).
7 Hardtke v. The Queen, 2005 DTC 676 (TCC).
8 See Wruck, supra.
9 R.S.C. 1985, c. C-50, as amended.
10 2005 DTC 5229 (FCA).
SECOND PROTOCOL SIGNED BETWEEN CANADA AND AUSTRIA
The Department of Finance announced that a Second Protocol was signed by Canada and Austria on March 9, 2012.
This amends the Canada–Austria Tax Convention signed in 1976 which was amended by a Protocol signed in 1999. The
Second Protocol amends Article 26 of the Convention regarding the exchange of information by the competent
authorities of the two states. The Second Protocol will enter into force on the first day of the third month following
the later of the dates that Canada and Austria notify each other that the procedures for entry into force have been
completed in that country. The Second Protocol will have effect for taxable periods beginning on or after January 1 of
the calendar year following the year of its entry into force. The Second Protocol will be added following the
Canada–Austria Convention and Protocol in “Tax Treaties and Social Security Agreements” on CCH Online and on DVD
and in Volume 6 in print, as soon as possible.
COMMENTARY UPDATES
Commentary continues to be updated in the Canadian Tax Reporter for amendments enacted by Bill C-13 (Royal Assent
December 15, 2012). Subscribers to the reporter will find commentary updates for the amendments to section 112
regarding the stop-loss rules for the redemption of shares, and for sections 48.1 and 120.4 regarding tax on split
income.
RECENT CASES
SR&ED credit denied where work completed was routine engineering and
not undertaken to achieve technological advancement
The corporate taxpayer was in the business of developing and manufacturing engineered thermoformed plastic products
for consumer and industrial uses. In 2005, it undertook a revamp of its product to make it smaller and lighter. The
taxpayer claimed scientific research and experimental development (“SR&ED”) tax credits in 2005, on account of work
related to improving the design of its product. The Minister denied the taxpayer’s SR&ED claim, because the work that
the taxpayer performed did not meet the definition of SR&ED in subsection 248(1) of the Income Tax Act. The
taxpayer’s appeal to the Tax Court of Canada was dismissed (2011 DTC 1193), and the taxpayer appealed to the
Federal Court of Appeal.
The taxpayer’s appeal was dismissed with costs. The Tax Court judge made a finding of mixed fact and law in denying
the SR&ED credit, and that decision did not contain a palpable and overriding error in applying the law to the facts,
and was correct in law.
¶47,984, Jentel Manufacturing Ltd., 2012 DTC 5031
Taxpayer could not deduct travel expenses not directly related to the
business
The corporate taxpayer’s sole owner, M, travelled by private jet to provide gratuitous services to four corporations in
which he owned shares. He claimed flight expenses related to those services in 2002 and 2003, on the basis that those
expenses were incurred to garner future income from his shares of those companies. The taxpayer also claimed input
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tax credits (“ITCs”) to recover GST paid for the supply of the flight services. The Tax Court of Canada allowed the
taxpayer’s deductions for flight expenses related to direct business activity and the related ITCs claimed, but disallowed
the other deductions (2010 DTC 1351). The taxpayer appealed to the Federal Court of Appeal.
The taxpayer’s appeal was dismissed with costs. The connection between the travel expenses and the taxpayer’s shares
in the corporations, as possible sources of income, was not sufficiently direct to be deductible. Furthermore, ITCs could
not be claimed by the taxpayer, as they were not incurred for business purposes. Lastly, the Tax Court judge did not
make a palpable and overriding error warranting the appeal court’s intervention.
¶47,985, Lyncorp Manufacturing Ltd., 2012 DTC 5032
Application for judicial review of film certification granted
The Minister of Canadian Heritage revoked the corporate applicant’s Canadian film or video production certificate
(Part A) for the co-production of a film with a French firm (“Guilgagmesh”). The Minister’s position was that: (a)
Guilgamesh’s assets had been liquidated upon its becoming bankrupt; (b) Guilgamesh’s trustee then assigned to the
applicant all of its rights relating to the film; (c) the only evidence of the production costs incurred by Guilgamesh
relating to the film was an unsigned document containing a summary of Guilgamesh’s production costs, which was
almost identical to the initial estimate of those costs that had been originally filed with the Minister when the
production certificate (Part A) was issued; and (d) the film had therefore become an “excluded production,” because the
documents needed to enable the Minister to issue a certificate of completion (Part B) had not been received within the
statutory time frame. The applicant applied to the Federal Court for judicial review of the Minister’s decision, and for
an order requiring the Minister to issue a certificate of completion (Part B) for the film. The applicant’s position was
that it had met all of the requirements entitling it to a certificate of completion (Part B), and that the Minister had
issued Part B certificates to other film producers in similar circumstances.
The application was granted. The Minister had not denied procedural fairness, because the applicant had many
opportunities to make representations, and all of these were generally answered by the Minister’s representatives.
However, the Minister’s representatives had in their possession, several weeks prior to the expiration of the statutory
deadline, all of the information needed to make a decision concerning the issuance of the certificate of completion
(Part B). Accordingly, the Minister’s decision to revoke the original certificate (Part A) on the basis that insufficient
documentation had been provided was simply not reasonable. The matter was therefore returned to the Minister for
redetermination, on the basis that the Minister had in his possession all of the documents necessary to make a
redetermination.
¶47,986, Studios St-Antoine Inc., 2012 DTC 5033
Minister’s decision to revoke Canadian film or video production certificate
was breach of procedural fairness but judicial review denied
The Minister of Canadian Heritage revoked the corporate applicant’s Canadian film or video production certificate
(Part A) relating to the co-production in Canada and in Spain of a television series entitled “SNAILYMPICS II.” The
Minister’s position was that this film had become an “excluded production,” because the documents needed to enable
him to issue a certificate of completion (Part B) had not been received within the statutory time frame. The Minister’s
concerns were that when the original production certificate (Part A) had been issued, there was no treaty in existence
between Canada and Spain governing TV productions, and that the costs incurred by the Spanish co-producers of
SNAILYMPICS II had not been provided by the applicant. The applicant applied to the Federal Court for judicial view of
the Minister’s decision to revoke its original production certificate (Part A), and for an order compelling the Minister to
issue a certificate of completion (Part B) for SNAILYMPICS II. The applicant’s argument was that: (a) it had done
everything required to finish the production of SNAILYMPICS II; (b) it had provided the Minister with all of the
information needed to issue a certificate of completion (Part B); and (c) when the Minister issued the original
production certificate (Part A), he must have known, and could not ignore, the fact that the co-production treaty in
force with Spain at the time did not cover co-productions of television series.
The application was allowed in part. Despite the fact that co-productions of television series with Spain were not
covered by treaty, the Minister had issued original production certificates (Part A) and certificates of completion
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(Part B) for at least 33 other film productions, including SNAILYMPICS I, which had also been co-produced by the
applicant. His refusal to treat SNAILYMPICS II in the same manner involved a major policy change, which he ought to
have discussed in advance with the applicant to enable it to make representations before the decision was made to
revoke the original production certificate (Part A). That failure involved a breach of procedural fairness and rendered the
revocation decision unreasonable. However, the Minister could not be compelled to issue a certificate of completion
(Part B) for SNAILYMPICS II in this case, since to do so would be to contravene the provisions of s. 125.4 of the
Income Tax Act and s. 1106(1) of the Income Tax Regulations, which are de rigueur. Accordingly, the application could
only be granted to the extent of awarding it costs.
¶47,989, Les Productions Tooncan (XIII) Inc., 2012 DTC 5036
Taxpayer entitled to clergy residence deduction
The taxpayer deducted $10,000 in each of 2006, 2007, and 2008 for a clergy residence. She performed various
functions within the Toronto International Celebration Church. The Minister disallowed the deductions, on the basis that
the taxpayer was not a member of the clergy and did not minister to a congregation
The taxpayer’s appeal was allowed. The Court found the taxpayer was a “clergy.” She was a spiritual leader in the
church, recognized by the congregation and the senior pastor. The Court also found that the taxpayer ministered to the
congregation. She was fulfilling the ministerial role in the manner requested by the congregation and by the senior
pastor. Ministering to the congregation at the church was an integral part of the taxpayer’s employment responsibilities
and expectations.
¶47,990, Tidd, 2012 DTC 1060
Capital gains accruing in trust were taxable in hands of beneficiaries
The taxpayer’s grandmother owned a property at the time of her death in 1967. In her will, she left the property in
trust for the benefit of the taxpayer’s mother for the term of her life, and upon her death, the property was to be
transferred to the taxpayer and his siblings once the youngest of them had reached the age of 21. The taxpayer’s
mother passed away in 2007, and since the youngest of the siblings was 21, the property was transferred to the
grandchildren at that time. No capital disposition was ever reported by the trust. In 1994, the trust filed an election to
defer the 21-year deemed disposition rule until 1999. The Minister disallowed the taxpayer’s deduction of a capital
loss, and included a capital gain in the taxpayer’s income
The taxpayer’s appeal was dismissed. The Court found that capital gains had been accruing in the trust since 1999, and
that there was rollover of the accrued capital gain to the beneficiaries. A trust is obliged to roll over to the beneficiaries
the capital gains accrued on a capital property by deeming the beneficiaries to have acquired the asset at a cost
approximately equal to the trust’s adjusted cost base. A trust may elect not to have the rollover provision apply if it is
resident in Canada, but a prescribed form must be filed with the trust’s income tax return in the year of the
distribution. In this case, the trust did not file the prescribed form with its 2007 income tax return when the property
was passed to the taxpayer and his siblings.
¶47,991, Green, 2012 DTC 1061
Non-residents not required to file notice of capital distributions from
Quebec succession
The taxpayers, who were non-residents of Canada, were two of the three beneficiaries of the residue under their
mother’s will. After her death in 2006, the mother’s succession made five capital distributions to each of her children,
including the taxpayers. The Minister assessed penalties and interest against the taxpayers for three of the distributions,
on the basis that they had failed to provide notice of a disposition of Canadian taxable property. On the taxpayers’
appeal to the Tax Court of Canada, the Crown submitted that the taxpayers had disposed of capital interests in a trust.
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The taxpayers’ appeals were allowed. The Court found that a Quebec succession is not a trust. Consequently, there was
no disposition of “taxable Canadian property” and no obligation on the part of the taxpayers to file a notice of
disposition. The purpose of the applicable provision was to simplify the drafting, not to equate estates with trusts.
¶47,994, Lipson, 2012 DTC 1064
Amount paid to taxpayers for non-competition covenant constituted part
of taxpayers’ proceeds of disposition of corporation’s shares
Chateau Dollard Inc. owned and operated a seniors’ residence, and its shares (the “Shares”) were owned equally by the
three taxpayers. They agreed to sell the assets of Chateau Dollard Inc. to a numbered corporation (“4178092”) but
later terminated this agreement and entered into a new one agreeing to sell 4178092 the Shares for the same
consideration ($13,750,000). They paid $1,050,000 to 4178092 for the right to convert the original agreement into the
new one involving the sale of the Shares (the “Share Agreement”). This payment was effected by the taxpayers
endorsing back to 4178092’s solicitors cheques they initially received from 4178092. The purchase price for the Shares
also included $4,678,000 paid to the taxpayers for a non-competition covenant. The Minister reassessed the taxpayers
for capital gains arising out of their sale of the Shares during 2003. On their appeal to the Tax Court of Canada, the
taxpayers argued that: (a) in computing the proceeds of disposition of the Shares, the $1,050,000 should be deducted
from the $13,750,000, since the sole purpose of that $1,050,000 was to enable 4178092 to improve its borrowing
capacity to permit it to carry out the purchase transaction; and (b) the $4,678,000 should not be included in the
proceeds of disposition of the Shares, because it was an amount agreed upon by the parties in a separate arm’s length
transaction not related to the sale price of the Shares.
The taxpayer’s appeals were dismissed. Nowhere in the documentary evidence provided to the Court was mention
made of the fact that the $1,050,000 formed part of the adjustments to the $13,750,000 sale price of the Shares. In
addition, the $1,050,000 was really paid by 4178092 to the taxpayers, and was then paid back to it as part of their
obligation to compensate it for the loss of its tax advantages flowing from the sale of the Shares, as opposed to the
sale of assets. This arrangement, however, was separate and distinct from the Share Agreement. Therefore, the
$1,050,000 could not be applied to reduce the $13,750,000 sale price of the Shares. Nor could it be deducted by the
taxpayers in computing either their income or their capital gain from the sale of the Shares, because it was not laid
out by them to earn income, or to alter the sale price of the Shares. Although the parties had specifically allocated
$4,678,000 to the non-competition covenant in the Share Agreement, the Minister’s expert assigned a value of
between $0 and $125,000 to that covenant. He also assigned a value of $13,202,500 to the Shares. Accordingly, the
value of the non-competition covenant could not be considered as additional consideration for the Shares in excess of
the $13,750,000 ascribed to them in the Share Agreement. The Minister, therefore, was justified in treating the
$4,678,000 as part of the $13,750,000 proceeds of disposition of the Shares under subparagraph 40(1)(a)(i). The
Minister’s reassessments were affirmed accordingly.
¶47,995, Wagner, 2012 DTC 1065
Mental incapacity does not form basis to alter limitation periods
The taxpayer claimed a donation tax credit of $30,000 for his participation in the Universal Donation Program in 2005,
which consisted of $6,000 in cash and $24,000 in kind. The Canada Revenue Agency reassessed the taxpayer on
July 31, 2008, and reduced his charitable donation to nil, on the basis that there was no gift. In applying for an
extension of time to file a notice of objection, the taxpayer argued that he did not receive the notice of reassessment
and that, alternatively, he suffered from age-related dementia.
The taxpayer’s application was dismissed. The taxpayer failed to file his notice of objection within the required
one-year-and-90-day limit, and additionally, mental incapacity would not alter the time limits provided in the
legislation.
¶47,996, Jablonski, 2012 DTC 1066
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TAX TOPICS
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