Archives - March 2019

Posts tagged "Income Tax Act"

Bayrack v. R. – TCC: No child support deduction where taxpayer paid a net amount to his former spouse
Mar 27, 2019 By Bill Innes
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Précis: The taxpayer and his former spouse agreed to a consent order which provided that the taxpayer would pay a net amount (the net being calculated in accordance with the Federal Child Support Guidelines) to his former spouse for child support. He claimed a deduction for child support in 2014 pursuant to subsection 118(5.1) of the Income Tax Act (the Act) on the basis that he alleged that the effect of the netting out was that both he and his former spouse paid child support. The consent order was varied in both 2016 and 2017 in an attempt to comply with the provisions of subsection 118(5.1). The Tax Court rejected the claim for a deduction in 2014 on the authority of the decision in Verones v. The Queen, 2013 FCA 69, 2013 DTC 5061 which held that such a set-off (netting out) did not meet the requirements of subsection 118(5.1). Thus the appeal was dismissed, but without costs since this was an informal procedure appeal.
Bayrack v. R. – TCC: No child support deduction where taxpayer paid a net amount to his former spouseREAD MORE »
Brooks v. R. – TCC: Tax Court has very limited jurisdiction to grant Charter relief for the exercise of civil audit powers
Mar 25, 2019 By Bill Innes
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Précis: CRA moved to strike portions of the taxpayer’s pleadings: [2] The Respondent submits that it is plain and obvious that these paragraphs should be struck for several reasons. First, the Respondent contends that the Notice of Appeal pleads allegations, pertaining to the conduct of officials at Canada Revenue Agency (“CRA”), which are irrelevant to the correctness of a taxpayer’s assessment. Second, the Notice of Appeal also contains allegations pertaining to violations of the Appellant’s rights under sections 7 and 8 of the Canadian Charter of Rights and Freedoms (the “Charter”) resulting from the exercise of civil audit powers used to gather records and information, which the Respondent argues disclose no reasonable cause of action and have no reasonable prospect of success. Third, the Appellant seeks to vacate the reassessments pursuant to section 24 of the Charter but there has been no violation of his rights under sections 7 or 8 of the Charter. The taxpayer’s counsel argued that the Supreme Court had changed the law in this area in the Conway decision and that he should be allowed to proceed with his claim of Charter violations: ... The Tax Court rejected the taxpayer’s expansive interpretation of the Conway decision and allowed the Crown’s motion to strike with costs to CRA fixed in the amount of $1,000 payable forthwith.
Brooks v. R. – TCC: Tax Court has very limited jurisdiction to grant Charter relief for the exercise of civil audit powersREAD MORE »
Mikhail v. R. – TCC: Mixed bag on the taxation of Pharma rebates to pharmacy
Mar 21, 2019 By Bill Innes
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Précis: Mr. Mikhail and his wife were the shareholders of 1526818 Ontario Inc., carrying on business as Queenslake Pharmacy, (the Corporation). CRA conducted a targeted audit of the pharmacy industry. As a result, Mr. Mikhail filed amended returns for 2010 and 2011 and his wife filed amended returns for 2012 and 2013. Those returns reported the unreported income of the Corporation in each of those year taking the form of rebates (the Rebates) from drug suppliers and manufacturers. The Mikhails and the Corporation each appealed their reassessments for those years, the main point being the argument that the Corporation should not be taxed on the same income reported by the individual shareholders. A lesser point at issue was the quantum of the Rebates. The Court held that the Corporation, not the Mikhails, was taxable on what it termed In-Kind Rebates (traveller’s cheques, gift cards and prepaid credit cards) since they were used in the Corporation’s business and not appropriated by the Mikhails. Other non-cash Rebates were taxable only in the hands of the Mikhails, not the Corporation. The Court accepted that the cash rebates were placed in the Corporation’s cash register and were reported as income of the Corporation. The Court accepted the CRA’s assumptions as to the amount of the Rebates. There was no order as to costs.
Mikhail v. R. – TCC: Mixed bag on the taxation of Pharma rebates to pharmacyREAD MORE »
A & D Precision Limited v. R. – TCC: Taxpayer achieves mixed success in SRED claims
Mar 18, 2019 By Bill Innes
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Précis: This decision is similar to the Concept Danat case blogged recently on this site, with the exception that the numbers involved are bigger and the work was being done for a third party customer. The taxpayer claimed SRED expense in connection with 4 specific projects. Two projects were abandoned before trial. The Court found that 2/3 of the projects described as Matteo lathes involved normal engineering and lacked the innovation necessary to qualify for SRED treatment while the remaining 1/3 did qualify for SRED treatment. The fourth project did have the requisite element of innovation and the appeal was allowed in in full respect of it. There was no order as to costs in light of the mixed success. Nevertheless it was largely a good day for the taxpayer which made, I understand, about a 70% recovery of the amounts it chose to take to trial.
A & D Precision Limited v. R. – TCC: Taxpayer achieves mixed success in SRED claimsREAD MORE »
Roy v. R. – TCC: RRSP over-contributions not eliminated by loss on investments in RRSP
Mar 18, 2019 By Bill Innes
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Précis: The taxpayer had over-contributed to his RRSP commencing in 2006. By 2012 he had lost much of his investments and closed the RRSP account. In 2013 his initial assessment indicated that he had a deduction limit of $3,298 for 2013 and $23,439 of unused RRSP contributions available for 2014. By a subsequent notice of reassessment CRA notified the taxpayer this his unused RRSP contributions for 2013 were limited to $2,000 and reassessed 2013, 2014 and 2015 consequentially. He appealed these reassessments. The taxpayer also applied for and received in 2015 relief in respect of his prior over-contributions.
Roy v. R. – TCC: RRSP over-contributions not eliminated by loss on investments in RRSPREAD MORE »
Owda v. R. – TCC: Gross negligence penalties vacated on net worth reassessments of elderly cab driver
Mar 13, 2019 By Bill Innes
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Précis: Mr. Owda was an older man who drove taxi in the evenings for a few hours. CRA issued net worth reassessments for unreported income in each of 2011, 2012 and 2013 ($42,470 (2011), $29,203 (2012) and $5,333 (2013)). The Court allowed most of the CRA reassessments after making adjustments for family gifts but vacated the gross negligence penalties since “circumstances are not sufficiently extreme to justify these onerous penalties” [Para. [29]]. There was no order as to costs since success was divided.
Owda v. R. – TCC: Gross negligence penalties vacated on net worth reassessments of elderly cab driverREAD MORE »
Wilson v. R. – TCC: Unreported income from a bed and breakfast operation reduced by operating expenses
Mar 08, 2019 By Bill Innes
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Précis: The taxpayer operated a bed and breakfast at her home. She failed to file tax returns for the period from 2009 to 2015. CRA assessed her for an annual income of $30,000 from the bed and breakfast operation during this period. She was also assessed for RPP, CPP and OAS benefits along with interest and penalties.
Wilson v. R. – TCC: Unreported income from a bed and breakfast operation reduced by operating expensesREAD MORE »
Saunders v. R. – TCC: Court upholds gross negligence penalties for fictitious losses claimed in 2011
Mar 06, 2019 By Bill Innes
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Précis: This is yet another case of a taxpayer claiming fictitious losses in 2011 using a tax promoter that was subsequently convicted criminally for its tax preparation activities. What distinguished this case to some extent is that at the time the taxpayer filed his 2011 return CRA had already advised him they were denying similar losses claimed in 2009 and 2010 and considering the imposition of gross negligence penalties. CRA did apply gross negligence penalties in 2011 and the taxpayer sought in this appeal to have them vacated. The Court dismissed the appeal holding that the facts justified the imposition of penalties. There was no order as to costs as this was an informal procedure appeal.
Saunders v. R. – TCC: Court upholds gross negligence penalties for fictitious losses claimed in 2011READ MORE »
Concept Danat Inc. v. R. – TCC: Clothing manufacturer’s work on new printing and embroidery techniques using existing equipment not SRED.
Mar 05, 2019 By Bill Innes
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Précis: The taxpayer claimed SRED expense in respect of three projects in its clothing business. The issue in each case was whether the taxpayer resolved technological uncertainty or was just dealing with routine engineering. The Court concluded that the latter was the case in all three projects and dismissed the appeal without costs (it was an informal procedure appeal).
Concept Danat Inc. v. R. – TCC: Clothing manufacturer’s work on new printing and embroidery techniques using existing equipment not SRED.READ MORE »

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