Federal Court


Income Tax

Administration and enforcement

Minister relying on taxpayer’s own valuation to refuse to adjust deemed proceeds of disposition

Wife was beneficiary of testamentary spousal trust that had property as asset. In 2004, when wife died, there was deemed disposition of property at fair market value, which was reported as $2.8 million by applicant estate of deceased husband (“taxpayer”). In 2008, property was sold for $2.25 million, and taxpayer was not able to carry back capital loss to apply to 2004 capital gain. Taxpayer’s request for Minister of National Revenue to exercise discretion to reassess 2004 taxation year to reflect $2.25 million fair market value was denied. CRA auditor and taxpayer’s counsel made proposal to settle matter. CRA found discrepancies in chain of title of property. CRA’s decision letter denied loss carry back because disposition was made four years after death of wife, denied adjustment to deemed disposition because fair market value had been that of taxpayer's appraiser, and did not implement proposal because it was inconsistent with legislation. Taxpayer brought application for order of mandamus to require Minister to reassess 2004 taxation year in accordance with proposal, and application for judicial review of denial of taxpayer’s request to amend its 2004 tax return and reassess 2004 taxation year. Applications dismissed. It was not unreasonable for Minister to rely on taxpayer’s own valuation and to refuse to adjust deemed proceeds of disposition of $2.8 million. Fact that sale of property produced $2.25 million four years later did not mean that fair market value was $2.25 million in 2004. To extent that there was decision not to proceed with proposal, as exercise of discretion, Minister’s refusal to reassess under s. 152(4.2) of Income Tax Act was reasonable. Absent agreement as to chain of title, parties were not in agreement about proposal and proposal could not be legally implemented. There was no agreed upon proposal such that taxpayer could ground complaint that Minister reneged on proposal.
Biles Estate v. Minister of National Revenue (2017), 2017 CarswellNat 1408, 2017 FC 371, Michael L. Phelan J. (F.C.).


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