Federal Court


Income tax

Administration and enforcement

Taxpayer’s request for cancellation of interest refused

Taxpayer entered into complicated departure trade transaction with bank before move to Malta in 1998, borrowing money and incurring interest before departure to be deductible while reinvesting such money with bank and earning interest after move to be non-taxable. Taxpayer claimed deduction of $47,499,149 as interest and carrying charges, offsetting income he realized from three of his companies. Minister reassessed taxpayer and his companies for 1998 and 1999 taxation years, taking various positions in multiple reassessments that included denying corporate deductions for payments to taxpayer while including such payments in taxpayer’s income and premise that taxpayer had not terminated his Canadian residency. Litigation ensued, with taxpayer’s appeal held in abeyance pending outcome of similar case. Parties entered into settlement and taxpayer paid total balance of tax liabilities owing of $38,067,818, twelve years after reassessment. Taxpayer’s request for cancellation of interest in relation to 1998 taxation year was refused. Taxpayer applied for judicial review. Application dismissed. Taxpayer presented no evidence that he was without any other realistic options other than waiting for outcome of similar case before courts, simply relying on amount of aggregate of liabilities to support such assumption. Amounts, while significant, did not in themselves establish that he could not have paid assessed tax debts at time of reassessment. CRA’s aggressive reassessments were response to lack of information from taxpayer, who could have provided information for realistic assessment, could have provided waiver so that CRA did not need to take defensive positions or could have made settlement offer. Taxpayer chose, no doubt with advice of counsel, to deal with issues by waiting for court to pronounce upon validity of his complex and aggressive departure trade scheme. Taxpayer knowingly failed to pay tax debt pending decision in related case, knowing that interest would continue to accrue on tax debt. Complexities of situation were of taxpayer’s making and could not be used to absolve him from having to pay interest. There was nothing unreasonable in Minister’s decision.

Walsh v. Canada (Attorney General) (2017), 2017 CarswellNat 1809, 2017 FC 411, James Russell J. (F.C.).

cover image


Subscribers get early and easy access to Law Times.

Law Times Poll

Lawyers say a recent decision is one of many cases to come before the courts that illustrates how the legal system is grappling with valuing crypto-currency. Do you anticipate that in the next year you will encounter any cases or clients where crypto-currency is involved?