Builders and house flippers attempting to profit off the supercharged real estate market in Canada should all be aware of the decision in Wall v Canada, 2021 FCA 132, in which the Federal Court of Appeal dismissed the taxpayer’s appeal of the Tax Court’s decision to deny a claim for the principal residence exemption on the sale of three real properties, treat the sales as business income rather than capital gains, subject the sales to GST/HST, and impose gross negligence penalties. Background and Reassessment The taxpayer in Wall was a licensed real estate agent who had significant experience ..read more

The COVID-19 pandemic has resulted in unprecedented economic strain and an increase in the market for distressed debt. Taxpayers who purchase distressed debt may be interested in the Tax Court’s decision in Leonard v The Queen, 2021 TCC 33, where it was held that a particular distressed-debt transaction was “an adventure in the nature of trade” and thus, resulted in a non-capital loss. FACTS In Leonard, the taxpayer lent $1.5M to a real estate developer to purchase and develop land. Upon the developer’s default, the taxpayer purchased the land back from the developer and acquired the underlyin ..read more

In litigation, the discovery process is a truth-seeking exercise to enable parties to narrow the issues, uncover facts, and know the case they must meet at trial. Ahamed v Canada, 2020 FCA 213, a recent decision of the Federal Court of Appeal (FCA), provides clarity on what documents may be produced at discovery in a tax appeal. The appeal concerned the interpretation of a statutory provision involving tax-free savings accounts (TFSA), which are generally tax-free. At issue was whether the trading activities of the kind carried on by the taxpayer constituted carrying on a business so as to req ..read more

Does a corporate taxpayer have to be represented by a lawyer before the Tax Court of Canada? Can a company’s director represent the company? These questions were considered by the Federal Court of Appeal in HMQ v BCS Group Business Services Inc. In BCS, the company brought a motion under subsection 30(2) of the Tax Court of Canada Rules (General Procedure) (the “Rules”) to have its sole shareholder, director, and principal officer act on the company’s behalf before the Tax Court of Canada. Section 17.1 of the Tax Court of Canada Act (the “Act”) provides that a party to a proceeding before the ..read more

The capital cost allowance (“CCA”) regime allows taxpayers to claim depreciation against certain capital properties, which then reduces a taxpayer’s income. CCA is discretionary – taxpayers can choose to claim it in one year, and not in the next. In St. Benedict Catholic Secondary School Trust v The Queen, 2020 TCC 109, the Tax Court considered the degree of flexibility related to adjusting CCA previously claimed.   From 1997 through 2003, St. Benedict Catholic Secondary School Trust (the “Taxpayer”) claimed the maximum amount of CCA for a Class 13 property. During those years, the Taxpay ..read more

Contact a member of the Dentons’ Tax Litigation group for assistance on applying for a Remission Order A remission order is an extraordinary measure to provide complete or partial relief from tax, interest, or penalties. The authority is granted under subsection 23(2) of the Financial Administration Act, and in practice, it is the Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch of the Canada Revenue Agency (“CRA”), who makes the recommendation to grant or decline the remission order. The principal types of cases that warrant a remission are: extreme hardship; incorrec ..read more

In the recent decision Her Majesty the Queen v. CBS Canada Holdings Co., 2020 FCA 4, the Federal Court of Appeal held that the Crown (i.e., Her Majesty the Queen, representing the Minister of National Revenue and her agent the Canada Revenue Agency) could not resile from a settlement agreement with a taxpayer into which it had entered freely, simply because the Crown’s assumptions on which it had decided to enter into the agreement turned out to be wrong (or at least may have been wrong). The taxpayer had claimed a non-capital loss-carry-forward, which the Minister denied by way of an assessme ..read more

The Federal Court of Appeal recently drew clear boundaries around the CRA’s audit powers, holding that the Agency cannot compel employees of a taxpayer to attend interviews to answer oral questions as part of an audit. In Canada v. Cameco Corporation, 2019 FCA 67, the CRA sought a compliance order under subsection 231.7(1) of the Income Tax Act to required employees of Cameco to attend oral interviews. Cameco refused, but was willing to answer questions in writing, in response to requests to named employees. There is no argument about the CRA power to “inspect, audit or examine” the books and ..read more

In HLP Solution Inc. v. The Queen (2015 TCC 41 ) the Tax Court held that a CRA employee lacked the necessary impartiality to testify as an expert witness because of her prior involvement in auditing the taxpayer. Background The taxpayer was a software company that claimed Scientific Research and Experimental Development (SR&ED) tax credits for the 2009 taxation year. The CRA reassessed to deny the SR&ED credit claims. In the Tax Court, the taxpayer challenged the qualification of the CRA’s expert witness on the basis that she did not have the necessary impartiality ..read more

In McNally v. Canada (National Revenue) (2015 FC 767), the taxpayer brought an application to the Federal Court for an order requiring the Minister to assess his tax return. The Federal Court allowed the taxpayer’s application and ordered the Minister to examine the taxpayer’s tax return and issue a Notice of Assessment within 30 days. Background The taxpayer invested funds in a gifting tax shelter in respect of which he claimed a number of deductions. The taxpayer filed his 2012 federal income tax return in April 2013. Two months later – in June 2013 – he received a letter ..read more