Tax Court of Canada


Income Tax

Administration and enforcement

Intertwined issues could not be dealt with in isolation

Taxpayer was company providing helicopter service to offshore energy sector, wholly owned by parent company from which it leased helicopters. After initial assessment for nil tax under Income Tax Act, Minister audited taxpayer, leading to reassessment after expiry of normal reassessment period disallowing business expense of $12,788,270 paid to parent company. Taxpayer appealed, with its pleadings interchangeably characterizing expense as related to helicopter lease or “participation fee” under agreement with parent company while Minister alleged it was profit sharing to reduce its income to zero under tax plan. Taxpayer brought motion for determination of question of mixed fact and law, as to whether reassessment was void ab initio because it was not accompanied by allegation of misrepresentation or fraud. Motion dismissed. Question was not “silo issue” that could be separated from other issues in appeal. Pleadings disclosed factually complex appeal flowing from commercial transactions with pivotal concern being taxpayer’s characterization of amount plus debate between parties as to circumstances surrounding taxpayer’s income tax filing position. Facts surrounding reopening of tax year were germane to correctness of return and tied to question involving alleged Ministerial obligation to communicate allegations of misrepresentation to taxpayer. Intertwined issues could not be dealt with in isolation given highly contested material and facts surrounding characterization that led to income tax filing connected to taxpayer’s communications with CRA involving material disputed facts foundational to question. It would be challenging in appeal with contested material facts and credibility issues pivotal to question to gain full appreciation of circumstances required to properly address question centred on allegations of misrepresentation without hearing matter in trial setting. Preliminary determination of question would not result in substantial savings of time or costs. Question was also vague, requiring determination of timing and nature of what could constitute sufficient notice, and flawed in that case law suggested that allegation of misrepresentation appeared to be implicit upon issuance of reassessment.
Cougar Helicopters Inc. v. The Queen (2017), 2017 CarswellNat 3188, 2017 TCC 126, K. Lyons J. (T.C.C. [General Procedure]).

Taxpayer making false statements knowingly or in circumstances amounting to gross negligence
Taxpayer agreed to participate in tax avoidance program recommended by tax preparer R. Taxpayer signed her tax returns that falsely claimed business losses and requested carry back of losses. Minister reassessed taxpayer under Income Tax Act, disallowing claimed losses and loss carry-back request and imposing gross negligence penalties. Taxpayer appealed only with respect to imposition of penalties. Appeals dismissed. Only issue was whether taxpayer made admittedly false statements knowingly or in circumstances amounting to gross negligence. By signing signed returns after only cursory review of returns and without looking at entries made on it, taxpayer abdicated her responsibility for correctness of information contained in returns and was indifferent as to whether returns complied with her obligations under Act. If taxpayer had read her returns, it would have been obvious that business losses were claimed when she did not carry on any business. It would have been obvious that claimed losses and information set out in Statement of Agent Activities could not be reconciled with explanation of tax loophole given to her by R as meaning of obtaining promised large tax refunds. Taxpayer did not establish that R altered returns after taxpayer signed them, given that she signed loss carry back request forms even though she testified that she had not seen such forms. Taxpayer’s response to CRA’s initial query as to business loss claim did not express concern or surprise that might have been expected if she had been truly unaware of contents of tax return, and she instead proceeded to have R prepare following year’s tax return in same manner. Taxpayer’s testimony about her knowledge and her investigations into R and his programs could not be accepted. Fictitious losses and carry back were many times amount of taxpayer’s income and she had ample opportunity to review returns and ensure that their information was complete and accurate.
Arbuckle v. The Queen (2017), 2017 CarswellNat 4526, 2017 TCC 181, B. Paris J. (T.C.C. [General Procedure]).


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