BLAKES ON CANADIAN TAX CONTROVERSY
& TAX LITIGATION
Taxnet Pro
APRIL 2012
Supreme Court of Canada Upholds New Test for
Residency of Trusts
Jeffrey Shafer and Ed Kroft, QC
The Supreme Court of Canada (the SCC) released its decision in Fundy Settlement v. Canada (a.k.a. St. Michael
Trust Corp. or Garron Family Trust). A unanimous panel of seven judges dismissed the taxpayer’s appeal, as
had the two courts below. This decision confirms the original ruling of Woods J. of the Tax Court of Canada
(the Tax Court) that the “central management and control” test used to determine residency of corporations
for tax purposes also applies to the determination of the residence of trusts.
Facts
This case – one of two companion cases with substantially similar facts – dealt with a family trust settled by an
individual resident in St. Vincent, for the benefit of Canadian resident beneficiaries. The trustee of the family
trust, St. Michael Trust Corp. (St. Michael), is a corporation resident in Barbados. When the trust disposed of
the shares of two Canadian resident corporations, the purchaser withheld and remitted C$152-million of the
proceeds pursuant to section 116 of the Income Tax Act (Canada) (the Act), presumably on the assumption
that the trust was a non-resident of Canada. St. Michael applied for a refund of these funds on the basis that
the trust was a resident of Barbados and exempt from Canadian income tax on the gain realized pursuant to
the Canada-Barbados Income Tax Convention (the Convention). The Canada Revenue Agency (CRA) refused
the request for a refund, taking the position that the trust was resident in Canada and owed Canadian income
tax on the capital gain realized on the disposition.
BLAKES ON CANADIAN TAX CONTROVERSEY AND TAX LITIGATION
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APRIL 2012
Decision of Supreme Court of Canada
The SCC’s unanimous decision focuses on the question of the appropriate legal test for determination of the
residence of a trust (for a complete discussion of the Tax Court decision, please refer to our October 2009
Blakes Bulletin: Tax Court of Canada Decisions Relating to Non-Resident Trusts). St. Michael argued that the
residence of the trust must be the same as the residence of the trustee for two reasons: (i) trusts, unlike
corporations, are not “persons”, making the central management and control test inapplicable to trusts, and
(ii) the effect of subsection 104(1) of the Act is to treat a trust as essentially identical to its trustee for all
purposes, including residence. The SCC rejected both of these arguments.
The SCC acknowledged in response to the first argument that at common law a trust has no legal personality.
However, subsection 104(2) of the Act deems a trust to be, in respect of trust property, an individual.
Therefore, a trust is clearly deemed to be a person (an individual) for purposes of the Act.
St. Michael’s second argument relied on subsection 104(1) of the Act, which provides that in the Act “a
reference to a trust or estate ... shall, unless the context otherwise requires, be read to include a reference to
the trustee, executor, administrator ...”. The SCC held that no provision of the Act, including subsection 104(1),
established a legal rule requiring that the residence of a trust must be the residence of the trustee. The SCC
relied on the charging provision in subsection 2(1) of the Act, referring to tax being payable by a “person
resident in Canada”, to support the conclusion that it is the residence of the taxpayer whose taxable income is
being subject to tax, i.e., the trust and not the trustee, that must be determined.
The SCC pointed to several similarities between trusts and corporations to justify the application of the same
“central management and control” test to determine their residence for tax purposes. The SCC also agreed
with the Tax Court that the adoption of a similar test for trusts and corporations promotes the “important
principles of consistency, predictability and fairness in the application of tax law.”
Therefore, as with a corporation, a trust will be considered resident in the place where “its real business is
carried on”, which the SCC, citing both Canadian cases and decisions of the House of Lords, confirmed is
“where the central management and control actually abides.” In the corporate context, central management
and control will generally be exercised where the board of directors exercises its responsibilities. However,
where the facts are that central management and control is exercised by a shareholder who is resident and
making decisions in another country, the corporation will be found to be resident where that shareholder
resides.
Applying this test to the present case, the SCC noted that the Tax Court found as a fact that the main
beneficiaries of the trust exercised the central management and control of the trusts in Canada, and that St.
Michael had a limited role with little or no responsibility. The Tax Court found that St. Michael’s role was to
execute documents as required and provide incidental administrative services, and it was generally not
expected that St. Michael would have responsibility for decision-making beyond that. Although there was no
explicit evidence that this was the case, the Tax Court came to this conclusion based on the evidence as a
whole including the failure of the appellants to provide evidence establishing otherwise. Woods J. noted in her
decision that although the administrative nature of the trustee arrangement was likely unwritten, it was
effectively enforceable through a protector mechanism that allowed the protector to replace the trustee, and
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the protector itself could be replaced by the beneficiaries. The Tax Court also found that, more likely than not,
St. Michael had agreed from the outset that it would defer to the beneficiaries' recommendations, and that
the beneficiaries also understood this to be the arrangement.
The factors the Tax Court considered in concluding that St. Michael had a limited role were as follows:
1. Internal Memoranda Indicating Limited Role: There were internal memoranda setting out the intentions of
St. Michael, and these documents showed that St. Michael’s role would be more limited than contemplated in
the trust indentures. Specifically, it was found that the internal memoranda indicated that St. Michael’s role in
respect of the arm's-length share sale was administrative in nature and that St. Michael would not make
distributions to certain beneficiaries without the consent of other beneficiaries.
2. Trust Investments Appeared To Be Under Control of the Beneficiaries: The evidence also suggested that
investment of the share sale proceeds was under the direction of certain Canadian resident beneficiaries of
the trust because the investment advisers were the same as the applicable beneficiaries' investment advisers
and the advisers appeared to have been selected and directed by these beneficiaries rather than by St.
Michael.
3. Tax Advisers Appeared To Be Directed by the Beneficiaries: The evidence suggested that the tax
minimization plans developed by the tax advisers were under the direction of certain of the beneficiaries of
the trust rather than St. Michael.
4. No Documentation Was Provided as Evidence that St. Michael Played an Active Role: There was no
documentary evidence that St. Michael had any involvement beyond executing agreements and providing
administrative services.
5. St. Michael’s Expertise in Managing Trust Assets Was Questionable: For a significant period of time, St.
Michael had been an arm of an accounting firm, and was likely formed to complement the tax services offered
by the firm. The Tax Court found that it was questionable on the evidence whether the firm had any expertise
in managing trust assets.
6. Oral Testimony Was Not Inconsistent with the View that St. Michael Had a Limited Role: The oral
testimony was also consistent with the view that St. Michael had a limited role because it appeared that St.
Michael was not sufficiently informed of matters related to the share sale transactions, the beneficiaries
seemed to have little interest in what St. Michael was doing, St. Michael appeared to have done minimal due
diligence (e.g., on investments of the trust) to ensure that its fiduciary obligations were being complied with
and St. Michael did not appear knowledgeable about the trust’s investments.
While residence of a trust may in some cases be in the place of residence of the trustee where the trustee
carries out the central management and control of the trust, that was not found to be the case here.
The SCC explicitly declined to deal with two other arguments raised by the Crown. One dealt with a specific
anti-avoidance rule in section 94 and the other involved the general anti-avoidance rule in section 245 (the
GAAR). The SCC noted it did not need to deal with these points, but added the extra comment that the SCC’s
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decision not to address these issues should not be taken as an endorsement of the reasons of the Federal
Court of Appeal (the FCA) on those matters.
Unlike the Tax Court judge, the FCA had applied a very broad reading of the words “the trust ... has ... acquired
property, directly or indirectly in any manner whatever” in paragraph 94(1)(b) of the Act. Under that broad
reading, the FCA concluded that a shift in the value of the shareholdings of the corporations owned by the
trusts in this case constituted an acquisition of property by the trusts. The FCA held that if the central
management and control test did not apply to the trust in this case, the trust would be deemed a resident of
Canada for certain purposes under subsection 94(1). Yet the trust would still be considered a resident of
Barbados under the Convention because of the limited purposes for which the deeming rule in subsection
94(1) applied. On that basis, the trust would have been exempt under the Convention from Canadian income
tax on the gain realized on the share disposition. The FCA further held, with very limited discussion, that the
GAAR would not apply to these transactions. This holding was consistent with that of the Tax Court.
Some Implications of the Decision
1. Need to Re-Examine Trust Relationships
The SCC’s decision puts to rest any doubt that the legal test applicable to determine a trust’s residence for tax
purposes is the central management and control test. Taxpayers that have relied exclusively on the residence
of a trustee as being determinative of the residence of a trust should re-examine their arrangements.
2. Need for Legal Substance
It is clear that the issue of legal “substance” remains critical for the threshold question of establishing
residence. The SCC’s decision demonstrates that a presumption that central management and control resides
in the place of residence of a trustee of a trust (or by analogy, the place where the board of directors of a
corporation meets) can be displaced where evidence to the contrary is available. Trusts or corporations
wishing to establish residence in a treaty jurisdiction should ensure that meaningful decisions regarding the
management of these entities are made in that jurisdiction. Evidence of physical meetings in the jurisdiction
and that relevant information is being provided to permit meaningful decisions to be made is important to
support the residence of trusts and corporations in a particular jurisdiction. As this decision emphasizes,
having local agents that merely “rubber stamp” documents will not be sufficient to establish central
management and control in a particular place. By contrast, the recent decision of the Tax Court in Velcro
Canada Inc. v. Her Majesty the Queen (for a detailed discussion of this case, please refer to our March 2012
Blakes Bulletin: Velcro Canada Case: Latest Chapter in Treaty Shopping) seems to have placed less emphasis on
the governance of a holding company for purposes of determining beneficial ownership of certain payments
for treaty purposes.
3. Test for Residence of Corporations Not Incorporated in Canada
This decision also has implications beyond the trust context. Although it was widely understood and assumed
for many years that the “central management and control” test applied to the determination of residence of
corporations for Canadian tax purposes, this decision provides one of the few higher-court confirmations of
this principle. The decision now provides definitive and unambiguous authority for the application of the
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“central management and control” test to corporations where residence is not determined by a deeming rule
in the Act.
4. Possible Effect on Provincial Tax Rates for Domestic Trusts?
In recent audits of Canadian resident trusts, the CRA has taken the position that trusts are resident in the
province of residence of the beneficiaries, rather than the province of residence of the trustee. This affects the
provincial tax rate applicable to the trusts. It will be interesting to see how the CRA applies the SCC’s decision
in this context.
5. Topics for Another Day
This decision leaves the issues of the interpretation of section 94 of the Act and of the application of the GAAR
in a treaty context to be addressed, if at all by the SCC, in future cases.
Selected CRA Technical Updates
Ability to Object to a Denial of a Dividend Refund
In technical interpretation 2010-0383571I7 dated April 3, 2012, the CRA provided its views on whether a
denial of a dividend refund can be disputed upon the receipt of a notice that no tax is payable under
subsection 152(1) of the Income Tax Act (a "nil assessment").
Subsection 152(1) states, in part, that the Minister shall assess a taxpayer's tax and any interest and penalties,
if any, payable. Paragraph 152(1)(a) states that the Minister shall determine the amount of any refund under
section 129. Notwithstanding the fact that a taxpayer cannot object to a nil assessment, whether a taxpayer
can object to a denial of a dividend refund pursuant to section 129 is a separate issue.
Subsection 152(1.2) states that Division I, which includes the provisions governing the filing of a notice of
objection, and Division J, apply to amounts determined under Division I with any modifications that the
circumstances require. This would include a determination of a refund under section 129 made pursuant to
subsection 152(1), even if the amount of the refund were nil. Accordingly, a taxpayer that receives a
notification that the Minister has determined that no refund is payable under section 129 may file a notice of
objection to that determination even if the determination is included on a nil assessment.
2011 STEP Conference Q1 – Post Wind Up Obligations
In technical interpretation 2011-0401821C6 dated March 20, 2012, the CRA was asked of the obligations on
the directors, shareholders, trustees or beneficiaries (as the case may be), who received part or all of a
distribution in the event that proposed legislation was to be enacted and proclaimed into law, where the
corporation or trust had not filed income tax returns on the basis of that law.
It is the CRA’s longstanding practice to ask taxpayers to file on the basis of proposed legislation. Upon
enactment of a particular amendment, taxpayers who did not file based on the proposed amendment are
expected to take immediate steps to put their affairs in order and pay any taxes and interest owing.
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Where the Government announces that it will not proceed with amendments, any taxpayers who have filed
based on the proposed amendment are also expected to take immediate steps to put their affairs in order and
pay any taxes owing. Where a taxpayer acted reasonably under the circumstances, took immediate steps to
put their affairs in order and paid any taxes owing, the CRA will waive penalties and/or interest as appropriate.
Regarding the enacted legislation with retroactive effect, once a retroactive provision receives assent, it is
binding and produces legal effects. The Minister may, pursuant to subsection 152(4), make an assessment,
reassessment or additional assessment at any time, subject to such time bars as may be applicable. Moreover,
subsection 152(7) permits the Minister to assess tax payable, notwithstanding that no return has been filed.
Subsection 152(3) provides that liability for tax is not affected by the fact that no assessment has been made.
Accordingly, a retroactive commencement date gives rise to a liability prior to the wind-up of the corporation
or trust, notwithstanding that the assessment or reassessment is issued subsequent to the wind-up.
Furthermore, the fact that a corporation or trust has been wound-up does not bar the issuance of a notice of
assessment. The notice of assessment merely confirms the existence of the pre-existing liability. In the
corporate context there is support for this position in the continuation of action provisions of the applicable
corporate legislation. Similar continuation of action provisions are contained in provincial company legislation.
Where the legal representative of a taxpayer has possession or control over the property of the taxpayer, the
representative is required, pursuant to subsection 159(2), to obtain a clearance certificate before distributing
the property.
Where the legal representative, other than a trustee in bankruptcy, distributes the property without having
obtained a clearance certificate, the representative is personally liable to pay under subsection 159(3), to the
extent of the property distributed, the amounts which the corporation or trust can reasonably be expected to
be liable under the Act at or before the time the distribution is made. Furthermore, to the extent that the
property were to be distributed to a person who is not dealing at arm's length with the corporation or trust,
that person can be held liable under subsection 160(1) for the lesser of the tax payable by the corporation or
trust and the amount by which the fair market value of the property exceeds the consideration given for the
property.
2011 STEP Conference Q8 – Consequential Assessment
In technical interpretation 2011-0404471C6 dated March 16, 2012, the CRA provided information on
Subsection 152(4.3) of the Income Tax Act permits the Minister to reassess a taxpayer beyond the normal
reassessment period where the reassessment arises as a consequence of an assessment or a decision on an
appeal, either of which changed a taxpayer's balance in a particular year. The reassessment is allowed only to
the extent that it can reasonably relate to the change in the balance in that year, and may be made only
where the Act requires the inclusion, or allows the deduction, in computing a taxpayer's balance for the year
of an amount relating to the deduction or inclusion that was adjusted for the other year. Under subsection
152(4.4), the taxpayer's balance is the income, taxable income earned in Canada or any loss for the year, or
the tax or any amount payable by, any amount refundable to, or any amount deemed to have been paid or
overpaid by, the taxpayer for the year.
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Based on the above, the CRA was asked the following questions:
1. Must a request for an adjustment to be made by filing an amended tax return or by a letter, including a T1
Adjustment Form, if the matter involves an individual? Any taxpayer who requests an adjustment must do so
in writing, without the need to file any particular form.
2. When is the effective interest date for a consequential adjustment? Interest would accrue from the
balance-due day; however, if the amount assessed is paid in full before the end of the period specified in the
notice, no interest would be payable, pursuant to section 161.2.
3. If the auditor does not make the consequential assessment as requested, when and how does one file a
Notice of Objection, or seek other recourse? A Notice of Objection is filed in response to the issuance of an
assessment, and if no assessment is issued, an objection cannot be filed. If the auditor does not raise the
assessment as requested, the taxpayer could seek recourse from the auditor's supervisor.
4. Does the CRA have any published guidelines concerning consequential assessments? The CRA does not have
any published guidelines on consequential assessments. Such are available, however, in a document published
by the Department of Finance, entitled "Explanatory Notes to the Income Tax Act".
Late filed T2 and late-filed refundable dividend tax on hand
In technical interpretation 2011-0426331E5 dated February 17, 2012, the CRA was asked whether subsection
220(3) of the Income Tax Act provides the Minister with the discretion to extend the three-year filing
requirement in subsection 129(1) of the Act, and therefore allow the CRA to issue a dividend refund, and
whether the CRA would consider due diligence with respect to a dividend refund in situations where the
corporate tax return is filed beyond the three-year filing requirement provided in subsection 129(1).
Although subsection 220(3) provides the Minister with the discretion to extend the time for making a return of
income, this discretion does not extend to the filing deadline in subsection 129(1) of the Act. Subsection
129(1) provides that a private corporation may receive a dividend refund of all or part of the income tax that it
paid in respect of certain investment income and capital gains where it has paid taxable dividends to its
shareholders, provided it meets the requirements of the subsection. One of the requirements is that the
corporation files its return of income within three years of the end of the corporation's taxation year.
Subsection 220(3) does not alter or affect whether a corporation has factually filed its return of income within
the period required under the Act. In addition, there is no provision within section 129 to permit the Minister
to extend the time period. As a result, the granting of an extension of time to make a return pursuant to
subsection 220(3) does not extend the three-year period in subsection 129(1). Consequently, the CRA cannot
consider due diligence submissions with respect to a request for a dividend refund where the corporation's tax
return for the year was not filed within the three-year limit required by subsection 129(1).
In a recent court case, Tawa Developments Inc. v The Queen, the court held that subsection 129(1) contains an
unambiguous condition that a tax return be filed within a three-year time limit, and when this condition is not
met, the dividend refund cannot be obtained.
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Cases of Note
Barker v. R., 2012 CarswellNat 415, 2012 TCC 64 (Tax Court of Canada [General Procedure])
2006-2167(IT)G, 2012 TCC 64, 2012 CCI 64 -- Sheridan J. -- Tax – Income tax – Practice and procedure on
appeals – Discovery -- The parties were involved in proceedings related to income tax, on the matter of
whether debt taxpayer incurred to finance acquisition of tax shelter was limited recourse debt as set out in s.
143.2 of the Income Tax Act. PC was initially excluded from examination for discovery on the basis he was be
witness, but then the Minister of National Revenue requested undertakings regarding PC, which were
answered. The Minister brought the motion for examination of PC, regarding interest on debt. The motion was
dismissed. The Minister had not exhausted the means of obtaining information directly from the PC, as
required by s. 99(2)(a) of Act. The PC had information relevant to matter. Correspondence from the PC did not
show unwillingness to co-operate despite some delay. The reasons for motion was not based on the inability
to obtain information from the PC, but the looming trial date and the inappropriate time of the request.
Blackmore v. R., 2012 TCC 108 (Tax Court of Canada)
2008-101(IT)G, 2012 TCC 108, 2012 CCI 108 – Campbell J. – Tax – Income tax – Administration and
enforcement – Practice and procedure on appeals – Discovery – The taxpayer’s counsel brought an application
for introduction into the record of additional read-ins from examination for discovery, pursuant to s. 100(3) of
Tax Court of Canada Rules (Rules). The application was granted in part. To determine whether the proposed
additional portion of the discovery evidence should be allowed in because it qualified under s. 100(3) of the
Rules, the Court had to consider continuity of thought or subject-matter, the purpose of introducing evidence,
and fairness in the sense that evidence should represent the complete answer of witness. The first proposed
additional read-in was not permitted because there was an insufficient nexus between the proposed read-in
and subject matter. The second proposed additional read-in was permitted because it provided the complete
picture as to why the taxpayer made no representations to his banks respecting trust. The third proposed
additional read-in was also permitted into evidence, as it provided a more complete picture as to possible
corporate documentation that could establish agency relationship between the corporate shareholders and
the community.
Bruce v. R., 2012 CarswellNat 346, 2012 TCC 52 (Tax Court of Canada [Informal Procedure])
2010-2738(IT)I, 2012 TCC 52, 2012 CCI 52 - Woods J. - Tax - Income tax – Other income – Retiring allowances –
Miscellaneous – Administration and enforcement – Practice and procedure on objections – Extension of time
to object – The Minister assessed the taxpayer under the Income Tax Act relating to excess contributions to,
and withdrawals from, registered retirement savings plans for 1994 to 2010 taxation years. With respect to
assessments relating to Part I tax for 1994 to 2007 taxation years, the taxpayer’s application to extend time
was dismissed, with the exception for 2006 taxation year for which the extension was granted. With respect to
assessments relating to Part X.1 tax for 1994 to 2007 taxation years, the taxpayer’s application to extend time
with respect to 1994 to 2002 taxation years was dismissed, and granted with respect to 2003 to 2007 taxation
years. The taxpayer appealed from assessments and the appeal was allowed in part.
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The appeal with respect to the assessments of Part I tax under the Act for taxation years from 1994 to 2010
was dismissed, the appeal with respect to assessments of Part X.1 tax under the Act for taxation years from
1994 to 2002 and from 2008 to 2010 was dismissed, and the appeal with respect to assessments of Part X.1
tax under the Act for taxation years from 2003 to 2007 was allowed. The assessments were referred back to
the Minister for reconsideration and reassessment on the basis that Part X.1 tax should be $1,169.68 for 2003,
$1,178.26 for 2004, $984.84 for 2005, $623.68 for 2006 and nil for 2007. The Appeal was quashed with
respect to assessments for which extension of time was denied. It was not appropriate to reopen the
extension of time matter and the issue was not properly raised in the pleadings. The appeals with respect to
Part I tax for 2008 and 2010 taxation years, and Part X.1 with respect to 2008, 2009 and 2010 taxation years
were quashed because no notices of objection were filed. The Tax Court of Canada had no authority to grant
relief for conduct from the Canada Revenue Agency during audit and objection stages, and it had no authority
to waive tax, interest or penalties on the grounds of fairness or in respect of the decision of the Minister under
subsection 204.1(4) of Act.
Dhaliwal v. R., 2012 TCC 84 (Tax Court of Canada)
While the taxpayer could add pages to the paper tax return, the electronic tax returns were set by the CRA
and there was no chance for the taxpayer to add or append new a form or letter or to document them. The T1
adjustment request clearly did not satisfy the requirement that the taxpayer elect in his or her tax return. An
objection was filed after the tax return assessed could not be considered to meet the requirement that the
taxpayer choose in his or her tax return. CRA T4037 Capital Gains guide indicated that to elect deemed
disposition, the taxpayer would have to file to election and that to make the election letter signed by the
taxpayer indicating that the taxpayer wanted s. 50(1) to apply was to be attached to the return. The CRA
publication on electronic filing said that neither the taxpayer nor the EFILE service provider should send a
paper copy of return or any documents, unless the CRA asked.
The text of s. 50(1) did not describe the form or otherwise dictate how the taxpayer made his or her election
and chose in his or her tax return to have s. 50(1) apply. It was clear from the legislative history that the
purpose of election was to allow taxpayers a choice in order to avoid unintended application of new debt
forgiveness rules in certain circumstances, and not to ensure that the Minister was given any needed
additional information or paperwork. The reasoning that upon proper interpretation of s. 50, it was sufficient
to communicate the taxpayer's election by clearly communicating in his or her return that he or she wanted to
be allowed ABIL in respect of particular debt or shares disposed of in that year that was agreed with. The same
analysis applied equally to the electronic and paper format tax return.
Grossett v. R., 2012 CarswellNat 377, 2012 TCC 51 (Tax Court of Canada [Informal Procedure])
2008-1720(IT)I, 2012 TCC 51, 2012 CCI 51- Woods J. - Tax - Income tax - Administration and enforcement –
Practice and procedure on appeals – Miscellaneous – The taxpayer’s appeal in respect of assessments made
under the Income Tax Act for the 2002, 2003, 2004, 2005, and 2006 taxation years was dismissed following
the failure of the taxpayer to appear at a status review hearing. The taxpayer brought an application by for
order setting aside the judgment. The application was granted and the judgment was set aside. The taxpayer
could have applied earlier to have the judgment set aside. However, the delay was not inordinate and it was
just and equitable to set the judgment aside. The taxpayer may not have received the notice of status hearing,
or the judgment itself. It was not appropriate to conclude that the appeal had no merit until the evidence was
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properly introduced at the hearing of appeal and could be heard. The Minister would not be significantly
prejudiced if appeal were reopened.
Homa v. R., 2012 TCC 110 (Tax Court of Canada)
2010-3948(IT)I , 2012 TCC 110, 2012 CCI 110 -- Woods J. – 12/04/03 -- Tax -- Income tax –Administration and
enforcement – Jurisdiction of Tax Court of Canada – Practice and procedure on appeals – Waiver of right –
Interest – Waiver or cancellation – The taxpayer’s claims for medical expense tax credits were disallowed by
the Tax Court, with the result that the taxpayer was required to pay the interest on unpaid tax. In a letter to
the taxpayer, the CRA advised the taxpayer that application for interest relief was being allowed in part. The
CRA sent the taxpayer statements of account advising the taxpayer of amounts of future interest which were
owing. The taxpayer appealed and the appeal was dismissed. The Tax Court had no jurisdiction over
statements of account setting out aggregate amounts owed by the taxpayer. Assessments of interests were
not notices of assessment giving rise to the right of appeal to the Tax Court. The appeal was permitted to
continue with respect to the assessments relating to other years which potentially carried interest for which
relief could be given. The taxpayer, though, repeatedly stated that he did not intend to appeal from those
assessments, so it was not appropriate to consider them. With respect to the taxpayer’s claim for relief from
excessive the interest charged due to the CRA’s allegedly flawed computer system, argument was based on
assumption that CRA completely nullified interest for 2003 and 2005, but that was not the case.
Those years were not totally interest-free and the evidence was that the CRA intended only to cancel interest
which accrued up until 2009 decision, leaving future interest accruals unaffected.
Although the letter the CRA sent to the taxpayer advising him of interest relief did not clearly spell out that
future interest was not being waived, although the taxpayer was not presumed to know that the CRA was
referring to past interest when using the term “cancel” and future interest when using the term “waive” in its
correspondence to the taxpayer, and although the CRA itself used those terms inconsistently in the letter,
there was insufficient evidentiary foundation for estoppel or other relief.
McLarty v. R., 2012 CarswellNat 550, 2012 TCC 79 (Tax Court of Canada [General Procedure])
98-1659(IT)G, 2012 TCC 79, 2012 CCI 79 - Margeson J. - Tax - Income tax –Administration and enforcement –
Practice and procedure on appeals – Discovery – The Minister brought a motion for order granting leave to
examine the representative of an accounting firm or a former partner of a law firm, pursuant to s. 99 of the
Tax Court of Canada Rules (General Procedure). The Motion was dismissed and the stringent requirements of
s. 99 of Rules were not met. The Minister failed to establish that it had been unable to obtain information
from either the former partner or the firm, and what information was missing from these disclosures. Further
examination sought would cause undue delay and unreasonable expenses. The taxpayer failed to establish
that either the firm or the former partner had information that was relevant to the material issue in the
appeal. The Crown could easily perform a review of documents itself without the discovery it sought. There
was nothing to indicate that anyone currently associated with the firm had any independent knowledge of
audits of joint venture in issue except that which was reflected in records already provided. The Minister was
merely carrying on fishing expedition.
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Income Tax Cases under Appeal
1. — Applications for Leave to Appeal Filed With Supreme Court of Canada
Current as at April 20, 2012 Supreme Court of Canada Bulletin of Proceedings
Applications for Leave to Appeal from the Federal Court of Appeal and provincial Appeal Courts filed with the
Supreme Court of Canada are listed alphabetically below.
Style of Cause
Citation
Date Filed
SCC
File(s)
Daishowa-Marubeni International Ltd. v. R.
[2012] 1 C.T.C. 116 (FCA)
November 21, 2011;
application to be
decided on April 26,
2012
34534
Doig v. R.
2012 CarswellNat 150 (FCA)
March 20, 2012
34726
Envision Credit Union v. R.
2011 CarswellNat 5740 (FCA)
January 17, 2012
34619
Hahn v. R.
[2012] 1 C.T.C. 102 (FCA)
December 2, 2011
34552
Imperial Tobacco Canada Ltd. v. R.
[2012] 2 C.T.C. 128 (FCA)
January 9, 2012
34606
Public Service Alliance of Canada v. Canada
(Revenue Agency)
[2012] 2 C.T.C. 221 (FCA)
March 9, 2012
34706
2. — Leave to Appeal to Supreme Court of Canada Granted
Current as at April 20, 2012 Supreme Court of Canada Bulletin of Proceedings
Style of Cause
Citation
Date
Granted
Banque Toronto
Dominion
[2010] G.S.T.C. 99 (FCA)
Calgary(City) v. R.
[2010] G.S.T.C. 78 (FCA)
Bastien (Succession de) v.
R.
2009 CarswellNat 5362 (FCA)
Oct. 29,
2009
33196
Canada Trustco
Mortgage Co. v. R.
2009 CarswellNat 2851 (FCA)
April 22,
2010
33422
Copthorne Holdings Ltd.
v. R.
[2009] 5 C.T.C. 1 (FCA)
Jan. 28,
2010
33283
Craig v. R.
[2011] 3 C.T.C. 189 (FCA)
June 30,
2011
34144
March
24, 2011
Nov. 25,
2010
SCC
Status
File(s)
33878
33804
FCA decision reversed Jan. 12,
2012 ([2012] G.S.T.C. 2)
Heard on Nov. 15, 2011;
judgment reserved
Heard May 20, 2010; FCA
decision reversed July 22, 2011
([2011] 5 C.T.C. 111)
Heard Dec. 10, 2010; FCA
decision reversed July 15, 2011
([2011] 5 C.T.C. 50)
Heard Jan. 21, 2011; FCA
decision affirmed Dec. 16, 2011
(2011 CarswellNat 5201)
Heard March 23, 2012;
judgment reserved
11
11
BLAKES ON CANADIAN TAX CONTROVERSEY AND TAX LITIGATION
Blake
APRIL 2012
Dubé v. R.
2009 CarswellNat 2572 (FCA)
Oct. 29,
2009
Garron Family Trust
(Trustee of) [St . Michael
Trust Corp.] v. R.
[2011] 2 C.T.C. 7 (FCA)
June 23,
2011
GlaxoSmithKline Inc. v. R.
[2010] 6 C.T.C. 220 (FCA)
Prokofiew v. R.
[2010] G.S.T.C. 78 (Ont. CA)
Services
environnementaux AES
inc. v. Canada (Revenue
Agency)
2011 CarswellQue 1079 (Que.
CA)
March
24, 2011
Nov. 18,
2010
October
13, 2011
Heard May 20, 2010; FCA
decision reversed July 22, 2011
([2011] 5 C.T.C. 149)
Heard March 13, 2012; FCA
34056,
decision affirmed April 12,
34057
2012 (2012 CarswellNat 953)
Heard Jan. 13, 2012; judgment
33874
reserved
Heard on Nov. 8, 2011;
33754
judgment reserved
33194
34235
Tentatively scheduled to be
heard Nov. 8, 2012
3. — Leave to Appeal to Supreme Court of Canada Refused (2009 to Present)
Current as at April 20, 2012 Supreme Court of Canada Bulletin of Proceedings
Style of Cause
Citation
Antle v. R.
2010 CarswellNat 3894 (FCA)
May 12, 2011; February 2, 2012
Bennett v. R.
2010 CarswellNat 3595 (FCA)
April 14, 2011
Boily v. R.
2008 CarswellNat 5296 (FCA)
June 2009
Choson Kallah Fund of Toronto v.
M.N.R.
[2009] 3 C.T.C. 223 (FCA)
April 2009
Coleman v. R.
[2011] 3 C.T.C. 149 (FCA)
November 17, 2011
Collins (F. & E.) v. R.
[2010] 3 C.T.C. 100 (FCA)
May 2010
Collins (R.M.) v. R.
[2010] 5 C.T.C. 6 (FCA)
November 2010
Collins (R.M.) v. R.
2011 CarswellOnt 4984 (Ont. CA)
January 12, 2012
FMC Technologies Co. v. M.N.R.
[2009] 5 C.T.C. 197 (FCA)
January 2010
Faraggi v. R.
[2009] 3 C.T.C. 77 (FCA)
April 2009
Goff Construction Ltd. v. R.
[2009] 3 C.T.C. 101 (FCA)
October 2009
Goulet v. R.
2011 CarswellNat 2946 (FCA)
December 22, 2011
Grenier v. R.
2008 CarswellNat 5214 (FCA)
May 2009
Horn v. R.
[2009] 4 C.T.C. 110 (FCA)
April 2009
House of Holy God v. Canada
(Attorney General)
Imperial Oil Resources Ltd. v.
Canada (Attorney General)
2009 CarswellNat 1223 (FCA)
[2010] 2 C.T.C. 104 (FCA)
Date Refused
November 2009
May 2010
12
12
BLAKES ON CANADIAN TAX CONTROVERSEY AND TAX LITIGATION
Blake
APRIL 2012
Jenner v. R.
[2009] 1 C.T.C. 29 (FCA)
January 2009
Klundert v. R.
2011 CarswellOnt 11624 (Ont. CA)
April 5, 2012
Klundert v. R.
[2009] 2 C.T.C. 108 (Ont. CA)
Kossow v. R.
[2009] 3 C.T.C. 227 (FCA)
Lee v. R.
2011 CarswellOnt 5754 (Ont. CA)
Lehigh Cement Ltd. v. R.
[2010] 5 C.T.C. 13 (FCA)
November 2010
Leo-Mensah, R. v.
[2010] 3 C.T.C. 299 (Ont. CA)
December 2010
Lin v. R.
2009 CarswellNat 3988 (FCA)
May 2010
Lindsay, R. v.
[2011] 3 C.T.C. 168 (BC CA)
October 6, 2011
Little v. R.
[2010] 1 C.T.C. 105 (NB CA)
January 2010
Loba Ltd. v. M.N.R.
2008 CarswellNat 4716 (FCA)
Long v. R.
[2011] 3 C.T.C. 160 (FCA)
October 13, 2011
MacKay v. R.
[2008] 4 C.T.C. 161 (FCA)
January 2009
Maréchaux v. R.
[2011] 2 C.T.C. 77 (FCA)
June 9, 2011
McIntyre v. R.
2009 CarswellNat 4869 (FCA)
March 2010
Mills Estate v. R.
[2011] 6 C.T.C. 166 (FCA)
March 1, 2012
[2009] 4 C.T.C. 290 (FCA)
November 2009
2011 CarswellBC 1683 (BC CA)
March 29, 2012
Propep Inc. v. R.
2009 CarswellNat 2923 (FCA)
March 2010
Ray v. R.
[2010] 3 C.T.C. 169 (FCA)
June 2010
RCI Environnement Inc. v. R.
2008 CarswellNat 5535 (FCA)
July 2009
RCI Trust (Trustee of) v. M.N.R.
[2010] 3 C.T.C. 24 (FCA)
May 2010
Rupprecht v. R.
2009 CarswellNat 3418 (FCA)
April 2010
Rusnak v. M.N.R.
[2011] 6 C.T.C. 151 (FCA)
Song v. R.
2009 CarswellNat 2928 (FCA)
Sydel, R. v.
[2011] 1 C.T.C. 200 (BCSC)
TBT Personnel Services Inc. v. R.
2011 CarswellNat 3755 (FCA)
Telfer v. Canada (Revenue Agency)
[2009] 4 C.T.C. 123 (FCA)
Tembec Inc. v. R.
2008 CarswellNat 4097 (FCA)
Tennina v. M.N.R.
[2010] 3 C.T.C. 173 (FCA)
NCJ Educational Services Ltd. v.
M.N.R.
Neumann v. Canada (Attorney
General)
April 2009
September 2009
June 30, 2011
April 2009
November 24, 2011
March 2010
October 6, 2011
April 12, 2012
June 2009
January 2009
February 17, 2011
13
13
BLAKES ON CANADIAN TAX CONTROVERSEY AND TAX LITIGATION
Blake
APRIL 2012
Tesainer v. R.
[2009] 3 C.T.C. 109 (FCA)
October 2009
Vachon (Succession de) v. R.
[2012] 1 C.T.C. 172 (FCA)
April 2010
Valovic v. R.
[2011] 4 C.T.C. 171 (Ont. CA)
Verdicchio v. R.
[2010] 3 C.T.C. 80 (FC)
Wilder v. R.
[2009] 1 C.T.C. 246 (BC CA)
Wood v. R.
[2009] 2 C.T.C. 100 (FCA)
February 2009
Zen v. M.N.R.
[2010] 6 C.T.C. 28 (FCA)
January 20, 2011
177795 Canada Inc. v. R.
2009 CarswellNat 897 (FCA)
December 8, 2011
December 2010
March 2009
June 2009
4. — Notices of Appeal to Federal Court of Appeal Filed
Current as at April 17, 2012
Federal income tax cases appealed to the Federal Court of Appeal from decisions reported through April 17,
2012, but not yet heard or discontinued, are listed alphabetically below. Verification of the current status of
an appeal may be obtained by calling the FCA Registry at (613) 996-6795 or at http://www.fcacaf.gc.ca/IndexingQueries/infp_queries_e.php.
Style of Cause
Citation
Date Filed
FCA File(s)
Beaulieu v. R.
[2011] 4 C.T.C. 2238 (TCC)
March 2011
A-123-11
Bruce v. R.
2012 CarswellNat 346 (TCC)
March 2012
A-93-12
CAE Inc. v. R.
[2012] 2 C.T.C. 2001 (TCC)
August 2011
A-299-11
Christensen v. R.
2012 CarswellNat 211 (TCC)
March 2012
A-78-12
Edgelow v. R.
[2011] 6 C.T.C. 2161 (TCC)
July 2011
A-270-11
Emond v. R.
2011 CarswellNat 537 (TCC)
April 2011
A-163-11
Hare v. R.
[2011] 6 C.T.C. 2098 (TCC)
November 2011
A-434-11
Hérold v. R.
2011 CarswellNat 3259 (FC)
September 2011
A-330-11
Hess v. R.
[2012] 1 C.T.C. 2022 (TCC)
September 2011
A-361-11
Houle v. R.
2006 CarswellNat 6223 (TCC)
October 2006
A-418-06
Industries Perron Inc. v. R.
2011 CarswellNat 4044 (TCC)
November 2011
A-428-11
Johnson v. R.
[2012] 2 C.T.C. 2080 (TCC)
December 2011
A-491-11
Kelly v. R.
[2009] 6 C.T.C. 2229 (TCC)
May 2009
A-207-09
Lessard v. R.
[2012] 1 C.T.C. 2029 (TCC)
September 2011
A-346-11, A-347-11
14
14
BLAKES ON CANADIAN TAX CONTROVERSEY AND TAX LITIGATION
Blake
APRIL 2012
Lewin v. R.
[2012] 3 C.T.C. 2024 (TCC)
November 2011
A-444-11
Malo v. R.
2012 CarswellNat 504 (TCC)
April 2012
A-98-12
Mbénar v. R.
[2011] 6 C.T.C. 2007 (TCC)
May 2011
A-202-11
McDonald v. R.
2011 CarswellNat 3674 (TCC)
October 2011
A-388-11
McMillan v. R.
[2012] 1 C.T.C. 2132 (TCC)
September 2011
A-366-11
Morguard Corp. v. R.
2012 CarswellNat 412 (TCC)
March 2012
A-92-12
Newmont Canada Corp. v. R.
[2011] 3 C.T.C. 2336 (TCC)
April 2011
A-155-11 (judgment
reserved Feb. 28, 2012)
Ollenberger v. R.
2012 CarswellNat 327 (TCC)
March 2012
A-89-12
Ostroff v. R.
2011 CarswellNat 4497 (TCC)
December 2011
A-457-11
Pépin v. R.
2011 CarswellNat 3551 (TCC)
October 2011
A-381-11
Pluri Vox Media Corp. v. R.
2011 CarswellNat 1344 (TCC)
June 2011,
September 2011
A-219-11, A-331-11
Presseault v. R.
[2011] 3 C.T.C. 2126 (TCC)
March 2011
A-110-11
Price v. R.
[2012] 1 C.T.C. 2264 (TCC)
November 2011
A-431-11
RBC Life Insurance Co. v. R.
[2012] 2 C.T.C. 1 (FC)
January 2012
A-28-12
Real Estate Council (Alberta) v.
R.
2011 CarswellNat 13 (TCC)
February 2011
A-56-111
Romanuk v. R.
2012 CarswellNat 328 (TCC)
February 2012
A-76-12
Sackman v. R.
2011 CarswellNat 4157 (TCC)
October 2011
A-411-11
Sommerer v. R.
[2011] 4 C.T.C. 2068 (TCC)
May 2011
A-188-11
SRI Homes Inc. v. R.
[2012] 1 C.T.C. 2066 (TCC)
September 2011
A-363-11
St. Arnaud v. R.
2011 CarswellNat 4942 (TCC)
December 2011
A-463-11
Taylor v. R.
[2010] 6 C.T.C. 2351 (TCC)
May 2010
A-204-10
Toastmaster Inc. v. M.N.R.
2011 CarswellNat 4748 (FC)
December 2011
A-475-11
Triad Gestco Ltd. v. R.
2011 CarswellNat 2416 (TCC)
August 2011
A-286-11
Turbide v. R.
[2012] 1 C.T.C. 2321 (TCC)
September 2011
A-356-11
Watzke v. R.
2011 CarswellNat 3363 (TCC)
September 2011
A-369-11
Zouaimia v. R.
2011 CarswellNat 3834 (TCC)
October 2011
A-398-11
1207192 Ontario Ltd. v. R.
[2012] 1 C.T.C. 2085 (TCC)
September 2011
A-359-11
4145356 Canada Ltd. v. R.
[2011] 4 C.T.C. 2207 (TCC)
May 2011
A-193-11; to be
discontinued
15
15
BLAKES ON CANADIAN TAX CONTROVERSEY AND TAX LITIGATION
Blake
APRIL 2012
For more information please contact:
Lawyers from Blakes Tax Group
Toronto
Montréal
Calgary
Vancouver
Bryan Bailey
416-863-2297
[email protected]
Ryder Gilliland
416-863-5849
[email protected]
Ed Kroft
416-863-2500
[email protected]
Janice McCart
416-863-2669
[email protected]
Kathleen Penny
416-863-3898
[email protected]
Ron Richler
416-863-3854
[email protected]
Paul Stepak
416-863-2457
[email protected]
Paul Tamaki
416-863-2697
[email protected]
Deborah Toaze
604-631-5210
[email protected]
Jeffrey Trossman
416-863-4290
[email protected]
Chris Van Loan
416-863-2687
[email protected]
Sabrina Wong
416-863-2645
[email protected]
Jean Marc Gagnon
514-982-5025
[email protected]
John Leopardi
514-982-5030
[email protected]
Carrie Aiken
403-260-9775
[email protected]
Robert Kopstein
403-260-2825
[email protected]
Ed Kroft
403-260-9699
[email protected]
Edward Rowe
403-260-9798
[email protected]
Ed Kroft
604-631-5200
[email protected]
Bill Maclagan
604-631-3336
[email protected]
Janette Pantry
604-631-4163
[email protected]
Bruce Sinclair
604-631-3382
[email protected]
Deborah Toaze
604-631-5210
[email protected]
Kevin Zimka
604-631-3363
[email protected]
For more information please visit us online at www.gettaxnetpro.com or call 1-866-609-5811.
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