Tax Court of Canada


General principles

Constitutional issues

Parliament made great effort to consider types of transactions it wanted to capture and make subject to tax

Taxpayer transferred common shares in capital stock of privately held corporation, which he purchased after corporation had effected freeze reorganization, to his Tax Free Savings Account (TFSA). Reorganization was for purpose of exchanging existing common shares for preference shares, which had fair market value, after which new common shares of low value were issued to taxpayer and others. Taxpayer transferred thousands of new common shares in corporation over four taxation years, and then sold his shares pursuant to Shareholders Agreement, which required him to do so after his retirement at higher sales price reflecting their then total fair market value. Minister reassessed taxpayer for four taxation years as result of advantage he received due to these transactions under provisions of s. 207.05 of Income Tax Act and taxpayer appealed. Taxpayer brought motion for determination of two constitutional questions. Motion dismissed. Taxpayer’s argument that provisions of s. 207.05 of Act violated s. 53 and s. 92(13) of Constitution Act, 1867 was rejected. Provisions were clear, were properly passed by Parliament into law, having been amended and extended through several budgets since date of inception, and were constitutionally valid in this regard. Considering very limited scope of this tax, only holders of TFSA’s that engage in very specific transactions were caught by s. 207.05 of Act. Fact was that there was nothing in impugned section that spoke of taking title or seizing or confiscating TFSA, any investment in it, any initial contribution or anything for that matter. It was concluded that it was clear from plain but detailed provisions of s. 207.05 of Act that Parliament made great effort to consider inclusions, exceptions, conditions precedent and types of transactions it wanted to capture and make subject to this tax. There was nothing in these provisions that spoke to anything other than waiver or cancellation of preordained taxes under s. 207.04 or 207.05 of Act.

Hunt v. The Queen (2018), 2018 CarswellNat 5373, 2018 TCC 193, F.J. Pizzitelli J. (T.C.C. [General Procedure]).

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