July 10, 2009 by Dan White.

 Further to the Lipson case and the Lanrus case, GAAR is considered to be losing teeth.

Dan White

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Corporate Tax - Canada

Landrus: Specificity Ousts GAAR

Contributed by Borden Ladner Gervais LLP

June 05 2009

On April 16 2009 the Federal Court of Appeal affirmed the decision of the Tax Court of Canada in The Queen v Gary Landrus,(1) holding that the general anti-avoidance rule (GAAR) did not deny the deduction of a ‘terminal loss’ under Section 20(16) of the Income Tax Act.(2)

Landrus involved a reorganization in which two partnerships transferred buildings that had declined substantially in value to a new partnership comprising the same partners. The transfer triggered a terminal loss, which the minister of finance disallowed by invoking the GAAR on the basis that the transactions were abusive. Since the partners had continued to own an interest in the property through the new partnership, they did not realize a ‘true’ loss.

The court took into account the object, spirit and purpose of Section 20(16), the scheme of the ’stop loss’ rules in the Income Tax Act and the overall result of the transactions to conclude that the object, spirit and purpose of Section 20(16) were not frustrated. Therefore, the transactions were not abusive transactions for the purposes of the GAAR, even though they were avoidance transactions.

This case is notable for its use of an ‘overall results’ analysis for the purposes of applying the GAAR based on the Supreme Court of Canada’s decision in Lipson v The Queen.(3) The case also provides guidance on the application of the GAAR in circumstances where the taxpayer, although engaged in an avoidance transaction, will not be considered to have misused or abused the provisions relied upon to claim the tax benefit. In particular, the existence of detailed and carefully crafted specific anti-avoidance provisions in the Income Tax Act may preclude the application of the GAAR to a transaction which falls outside the scope of these rules.

For further information on this topic please contact Elinore J Richardson, Larissa V Tkachenko or Maria Anzola at Borden Ladner Gervais LLP by telephone (+1 416 367 6000) or by fax (+1 416 367 6749) or by email (erichardson@blg.com or ltkachenko@blgcanada.com or manzola@blgcanada.com).

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July 10, 2009 by Dan White.

 Here is the scoop on VD (Note a disease, but feels like it)

I suggest getting help with this if there is a significant amount of money involved.

Dan White

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Voluntary Disclosures Program

The Voluntary Disclosures Program (VDP) allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information they have not reported during previous dealings with the CRA, without penalty or prosecution.

A disclosure may be made for Income Tax and Goods and Services Tax/Harmonized Sales Tax (GST/HST) purposes, as well as for charges under the Softwood Lumber Products Export Charge Act, 2006, or the Air Travellers Security Charge Act.
How to make a disclosure

Complete Form RC199, Taxpayer Agreement – Voluntary Disclosures Program, and attach it to your disclosure submission and any supporting documentation. You can complete and submit the form yourself, or you can have an authorized representative do so on your behalf. A submission must be in writing and mailed or faxed to the tax services office (TSO) that has jurisdiction over the area where the taxpayer resides. For businesses, this would be based on their operating address.
Conditions for a disclosure

A valid disclosure must meet four conditions. These conditions require that the disclosure be voluntary, complete, involve the application or potential application of a penalty, and generally include information that is more than one year overdue. If the CRA accepts the disclosure, the taxpayer will have to pay the taxes or charges owing, plus interest. However, the taxpayer will not be subject to penalty or prosecution for those amounts accepted as a valid disclosure.
Right of redress

If a taxpayer disagrees with a VDP decision, they may  request a second review of their file by contacting the Director of the TSO where the original decision was issued. In addition, the taxpayer may pursue further recourse through the judicial review process.
How to contact us

For more information about the Voluntary Disclosure Program, or to find the appropriate TSO, please use this link: Contact Us.

Additional information about the Voluntary Disclosure Program is also available from the following documents:

* IC00-1R2, Voluntary Disclosures Program
* Form RC199, Taxpayer Agreement – Voluntary Disclosures Program
* Making a Voluntary Disclosure on your Ontario Corporate Tax

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July 10, 2009 by Dan White.

This was published as a news release by CRA.

While it is somewhat propaganda, there is truth to the point, that one should not evade taxes. However not being a tax evador does not mean not minimizing the tax you pay.

Our advice is play the game to win, which does include filing proper tax returns with legally defensible deductions.

If you are a non filer, you should check with an expert (call or email us) and find out your best strategy.

Dan White

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When it comes to your taxes, a clean slate means a clear conscience Ottawa, Ontario, April 6, 2009… Did you fail to file an accurate tax return or not file at all, but should have? Take advantage of the Canada Revenue Agency’s (CRA) Voluntary Disclosures Program and correct your tax information. By coming forward you may avoid being penalized, criminally investigated and prosecuted.

For the 2007-2008 fiscal year, the CRA processed approximately 8,400 disclosures for taxpayers who used the Voluntary Disclosures Program to get a second chance to comply with their tax obligations. Coming clean saved these taxpayers from an audit or a criminal investigation, which could have resulted in penalties, fines, and even jail time. These disclosures resulted in more than $373 million in assessed additional taxes.

By encouraging taxpayers to come forward and correct the information they filed with the CRA, the Voluntary Disclosures Program helps protect the tax base and puts all Canadians on a level playing field.

If you make a full disclosure before the CRA starts any compliance action or investigation, you may only have to pay the taxes owing plus interest, but not penalties or face prosecution.

For more information about how to come clean, see the Voluntary Disclosures Program at www.cra.gc.ca/voluntarydisclosures.

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July 10, 2009 by Dan White.

 The idea of withdrawing funds from an RRSP or RRIF is good, but apparently you need to be careful. Somehow this case does not reflect the spirit of fairness in the law.

Dan White

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Bradley v. The Queen (General Procedure). Tax Court of Canada, June 26, 2009.

Neutral Citation: 2009 TCC 341. Court File No. 2006-2923(IT)G. Hershfield, J. Deductions - Legal fees and returns to RRSPs of excess withdrawals -

The taxpayer spent more than a decade disputing the refusal of the Veterans Review and Appeal Board (the “Board”) to acknowledge his entitlement to a disability pension.

As a result he incurred legal fees of $21,095 during 2005, and financed these by withdrawing $44,000 from his RRSP, but later returned $24,000 of this to the RRSP.

In reassessing the taxpayer for 2005, the Minister disallowed the deduction of the $21,095 in legal fees, and of $23,000 claimed in respect of the return to the taxpayer’ RRSP of the $24,000 -

Appeal dismissed - The TCC concluded that: (a) by 2005, the taxpayer had never received any disability pension;

(b) as a result the legal expenses deductible by him for 2005 relating to his dealings with the Board were zero under s. 60(o.1)(ii)(A)(III);

(c) there is, however, a 7-year carryover rule in s. 60(o.1) which might enable the taxpayer to deduct the $21,095 in legal fees at some future time; and

(d) there was no provision in the Act that would justify the $23,000 deduction claimed by the taxpayer relating to his re-contribution to his RRSP of what turned out to be an excess withdrawal.

The Minister’s reassessment was affirmed accordingly - I.T.A., ss. 8(1)(b), 60(o.1), 146(1), 146(6.1), 204.1 - Income Tax Regulations, C.R.C. c. 945, s. 8307(7).

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July 10, 2009 by Dan White.

Kubbernus v. The Queen (General Procedure).
Tax Court of Canada, June 29, 2009. Neutral Citation: 2009 TCC 311. Court File No. 2008-3239(IT)
G. Angers, J. Appeals - Motions to quash - In an original assessment dated May 25, 2001 the Minister included in the taxpayer’s income for 2000 an amount of $1,997,525 relating to exercised stock options.
On June 29, 2006 the Minister received from the taxpayer an application for relief under ss. 152(4.2) or 164(1.5) of the Act with respect to his 2000 taxation year.
On October 16, 2006 the Minister reassessed the taxpayer permitting a capital loss carryforward of $545 for 2000.
On appeal from this reassessment (the “Reassessment”) the taxpayer objected to the $1,997,525 inclusion in his income for 2000.
The Minister moved for an Order quashing the taxpayer’s appeal from the “Reassessment” on the ground that it had been made under s. 152(4.2), so that no appeal therefrom was available under s. 165(1.2).
The taxpayer’s position was, in part, that: (a) the Reassessment was made under ss. 152(4)(b)(i) and 152(6), and not under s. 152(4.2) as the Minister had contended, so that the prohibition against an appeal in s. 165(1.2) was inapplicable; (b) under the doctrine of implied exception set out by the SCC, s. 169(1) of the Act does not specifically prohibit appeals from reassessments issued under s. 152(4.2); (c) the Minister was estopped from questioning the validity of the taxpayer’s Notice of Objection to the Reassessment; and (d) the Minister’s alternative motion for an order extending the time for filing a Reply should be dismissed because the Minister did not satisfy the test for granting an extension of time to file a Reply
- Appeal dismissed - The TCC concluded, in part, that:
(a) none of the taxpayer’s arguments was tenable;
(b) in a well-established line of cases (e.g. Groulx v. the Queen 2008 TCC 445 (TCC), affirmed 2009 FCA 10 (FCA)) it has been held that a taxpayer is precluded from appealing to the TCC from a reassessment made under s. 152(4.2) of the Act;
(c) s. 169(1) does not specifically prohibit appeals from s. 152(4.2) reassessments, because there is no need for this in light of the clearly worded prohibition in s. 165(1.2) against appealing from s. 152(4.2) reassessments;
(d) there was no evidence in the present case that the Reassessment was issued under s. 152(4)(b)(ii) or 152(6), as opposed to s. 152(4.2); and (e) although the Minister erred in considering the taxpayer’s Notice of Objection to the Reassessment,
the Court was not bound by this error,
and no estoppel arose in this case if the Minister’s conduct was not in accordance with the law.
The taxpayer’s appeal from the Reassessment was quashed accordingly - I.T.A., ss. 152(4)(b), 152(4.01), 152(4.2), 152(6), 164(1.5), 165(1.1), 165(1.2), 169(1), 169(2), 169(2.2).

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