Appellant did not have reasonable expectation of profit from commercial rental

Appellant wrote for local newspaper. Respondent denied appellant’s writing column was business. Appellant claimed losses of $33,165 in 2006 and $3,708 in 2007. Appellant rented tools and equipment. Appellant was disallowed maintenance and repair expenses with respect to rental property. Appellant appealed reassessment of goods and services tax (“GST”) by which Minister determined commercial portion of appellant’s property rental activity and tool rental activity were not commercial activities within meaning of s. 123(1) of Excise Tax Act (Can.). Appellant consolidated income and expenses from all appellant’s activities. Appeal was allowed in part. Appellant wrote for local newspaper as part of appellant’s political activities. Appellant did not make profit from columns appellant wrote for local newspaper. Appellant did not prove connection between legal fees claimed by appellant for lawsuit and columns written by appellant from specified date on. Appellant did not intend tool rental to be stand-alone business. Tool rental was incidental to operation of rental property. Incidental tool rental revenues should have been included in rental property revenues as part of rental property operation. No adjustment was made because it was not shown with certainty how much revenue was actually earned. Appellant’s commercial rental did not constitute commercial activity as defined under s. 123(1) of Act. Appellant did not have reasonable expectation of profit from commercial rental. Roof repair was to be allowed as current expense rather than on made on capital account.
Palangio v. Canada (Oct. 24, 2012, T.C.C., Paris J., File No. 2011-2064(IT)I; 2011-2065(GST)I) 223 A.C.W.S. (3d) 262.

INCOME TAX

Appellant failed to treat tax compliance obligations as priority

Appeal by taxpayer from late filing penalties. Appellant land development company filed 2003 tax return, due April 30, 2004, in November 2004 declaring no net income and no tax payable. Appellant filed amended return for 2003 in November 2008 declaring income of $292,232 and tax payable of $28,659. Appellant filed 2006 tax return, due April 30, 2007, in August 2009. Appellant assessed late filing penalties of $3,152 for 2003 and $216,479 for 2006. Appellant also assessed late GST filing penalties for various periods. Appellant’s sole shareholder testified 2003 return not filed in timely manner because loss anticipated and appellant had unused non-capital losses from previous years to offset any income. Witness erred in anticipating loss as result of failure to consider “soft expenses” not deductible from income. Witness testified 2006 return also not filed in timely manner because of anticipated loss, but could not explain how income underestimated by $5.8 million. Witness provided similar explanation for failure to file returns and remit GST in timely manner. Appeal dismissed. Issue whether appellant exercised requisite level of due diligence in relation to filing various returns within time required. In circumstances, proof of due diligence required proof of reasonable mistake of fact. Taxpayer could avoid late filing penalties if able to establish, on balance of probabilities, reasonable grounds to believe no tax owing. Witness’s evidence fell short of establishing reasonable grounds on both subjective and objective tests. Court satisfied appellant had simply failed to treat tax compliance obligations as priority.
830480 Alberta Inc. v. Canada (Dec. 3, 2012, T.C.C., Hogan J., File No. 2010-3252(IT)G; 2012-115(GST)I) 221 A.C.W.S. (3d) 757.

COMPENSATION

Interference caused by construction of new highway inflicted significant and permanent loss

In 2004, province completed new four-lane section of Highway 417 for public safety reasons. New highway routed traffic away from Highway 17. Claimant owned truck stop located on affected part of Highway 17 and took position that undertaking severely impeded road access to truck stop and substantially interfered with use and enjoyment of property. Claimant applied to Ontario Municipal Board for determination of compensation for injurious affection pursuant to Expropriations Act (Ont.). Board concluded claimant established business loss and loss in market value of affected property and awarded damages totalling $393,000 for injurious affection. Divisional Court affirmed board’s decision, finding that board reasonably concluded interference was substantial, correctly realized importance of balancing interests and conducted appropriate weighing of competing interests. Court of Appeal set aside board’s decision, finding that board failed to consider character of neighbourhood and any abnormal sensitivity of claimant and failed to recognize heightened importance of utility of defendant’s conduct where interference was product of essential public service. Claimant’s appeal allowed. Reasonableness of interference must be determined by assessing whether individual claimant has shouldered greater share of burden of construction than reasonable to expect without compensation. Interference caused by construction of new highway inflicted significant and permanent loss. Act provides right to compensation for injurious affection if damage results from action taken under statutory authority, action would give rise to liability but for that statutory authority and damage results from construction and not use of works. Only issue was whether claimant could have successfully sued for damages caused by construction under law of private nuisance if highway construction not done under statutory authority. Although focus in nuisance on whether interference suffered by claimant unreasonable, defendant’s conduct not irrelevant. Court of Appeal erred in finding that board’s application of law of nuisance to facts unreasonable. Board not required to specifically enumerate and refer by name to every factor. Board did not fail to take account of utility of province’s activity or fail to engage in required balancing. Board’s conclusion that claimant should not be expected to endure permanent interference that caused significant diminution of its market value in order to serve greater public good was reasonable.
Antrim Truck Centre Ltd. v. Ontario (Ministry of Transportation) (Mar. 7, 2013, S.C.C., McLachlin C.J.C., LeBel, Fish, Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner JJ., File No. 34413) Decision at 332 D.L.R. (4th) 641, 202 A.C.W.S. (3d) 310 was reversed. 223 A.C.W.S. (3d) 970.

CLASS ACTIONS

Plaintiff’s interest in conflict with proposed class

Plaintiff brought action on behalf of all land surveyors in Ontario who created plans of survey. Defendant managed electronic land registry system and made copies of plans of survey and sold them to public for fee. Plaintiff claimed nature of defendant’s business was infringement of copyright of proposed class in plans of survey. Plaintiff sought disgorgement of profits, compensatory damages and statutory damages. Plaintiff sought permanent injunction. Plaintiff’s motion for certification of proposed class action was dismissed. Plaintiff satisfied cause of action requirement except parts of claim for copyright infringement dealing with translation were struck out. Scanning plans to create digital format was not translation within meaning of s. 3(1)(a) of Copyright Act (Can.). Resulting digital plan of survey was not original work because there was no skill and judgment involved in scanning plans of survey. There was no evidence that any other surveyor wished to have copyright infringement complaint determined in class proceeding. Class had to be defined without elements that required determination of merits of claim. Common issues were rejected. Determination of consent was individual issue and had to be decided on individual basis. If defendant were successful in showing class members did not have copyright in plans or that all surveyors consented to defendant’s use of plans, then class would consist of no surveyors and answer to common issues 1 and 2 would bind no one. Common issue was rejected because asking what defendant did would not advance litigation. There was no evidence that common issue 4 could be decided on common basis. Issue of entitlement to damages was not common issue. Issue of interest depended on findings of liabilities and damages which were not amenable to being certified as common issues. Common issue could not be decided on class wide basis and was rejected. Class action was not preferable procedure. Plaintiff was not representative of proposed class because its interests were in conflict with proposed class and it did not provide workable litigation plan.
Keatley Surveying Ltd. v. Teranet Inc. (Dec. 14, 2012, Ont. S.C.J., C. Horkins J., File No. CV-10-414169-00CP) 224 A.C.W.S. (3d) 268.

Taxpayer’s lifestyle appeared to contradict claims of modest income Appeal by taxpayer from assessment by Minister under Income Tax Act (Can.), for 2000 to 2002 taxation years, and under Excise Tax Act (Can.), for 1998 to 2002 taxation years for unpaid GST. Taxpayer operated automobile brokerage, traded in shares of Internet business, and temporarily rented his home. Minister added income from business and rental income, and treating sale of shares as capital gain. Appeal allowed in part. Shares of Internet business may have been dealt with in manner contrary to securities commission rules. Gains from disposition of shares were capital in nature, and reassessment to make them part of ordinary income would be out of time. Payments made to internet business were not expenses but loans, and were not deductible. Loans did not have contingent obligation for repayment. Minister properly assessed revenue from automobile brokerage in 2000 and 2001 taxation years based on initial returns, and minister’s assumptions were not demolished. Home was used for car business purposes, and deduction was granted of 20 per cent of home expenses when premises were not leases. Deduction of 10 per cent suggested by minister was too low. No reliable evidence regarding use of home to meet business clients. Deposit analysis of 2002 taxation year showed deposits into bank of more than $500,000 and reported income from car business of $29,324. Certain expenses for automotive brokerage in 2002 were conceded by minister. All deposits were not likely from sale of cars, as some amounts were in American dollars and car sales were Canadian. Income from automobile brokerage reduced by $170,000. Taxpayer was not required to prove source of income to disprove minister’s assumptions. Taxpayer’s lifestyle appeared to contradict claims of modest income. Payment to law firm was not shown to be business related deduction of legal expenses. Rental income which was not reported in returns but not included in assessments could be reassessed, as taxpayer made misrepresentation regarding rental income. Deposit in amount of $10,000 could not be added to rental business as issue was not raised in pleadings. No adjustment made to GST collectible in 1998 and 1999, amount in other taxation years to be adjusted to reflect new findings regarding income tax owing. Minister did not show sufficient evidence to warrant penalties. Last v. Canada (Oct. 9, 2012, T.C.C., Woods J., File No. 2006-2525(IT)G; 2006-2902(GST)I) 220 A.C.W.S. (3d) 650.