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The Tax Court held that two Wilson Avenue properties were capital property until September 16, 2011, when financing fixed the shift to inventory.
The Tax Court of Canada dismissed a Rule 172(1) application to amend a consent judgment, holding the court had already adjudicated the small business deduction amounts.
The court found the appellant carried on a single business providing engineering, consulting and management services and that all revenue from Lanmark and Lanmark Engineering, including profit‑sharing distributions, was received as consideration for services forming part of a personal services business; the but‑for test was satisfied for services to both entities and the appellant therefore carried on a personal services business for the years at issue; Lanmark/Engineering did not have de facto control of the appellant and s.256(2.1) did not apply on the evidence, but even acceptance of assoc…
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The Court refused to consider the new issue raised on appeal because it was not argued in the Tax Court and would likely have required further factual evidence and findings; because the new issue could have led to different evidence and findings at trial and would prejudice the Crown, the Court declined to address its merits and dismissed the appeals with costs.
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The court found on the evidence, objectively assessed, that multiplication of access to the small business deduction was one of the main reasons for the reorganization and the separate existence of Partnerco and Serviceco pairs in the taxation years 2012 and 2013; accordingly subsection 256(2.1) applies and most corporations were properly considered associated, producing the tax consequences and reassessments, subject to the specific adjustments ordered in the judgment.
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The legal character of the appellant's income from seasonal and extended seasonal sites and RV storage was rental income; the services and amenities provided were ancillary and did not reach the tipping point to convert that income into active business income; the appellant did not employ more than five full‑time employees; therefore the business is a specified investment business under s.125(7) and the appellant is not entitled to the small business deduction.
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On the evidence the Court found that for both PLH and SCL reduction of taxes through access to the SBD was not one of the main reasons for the separate existence of the corporations in the taxation years at issue: PLH's advisors expected PLH would exceed the taxable capital threshold and thus not obtain SBD (PLH's 2011 SBD resulted from an unintended statutory timing anomaly), and SCL's operating mind lacked knowledge or motive to seek SBD. Therefore s.256(2.1) did not apply and the reassessments were vacated.
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On the facts, Arora had no employees and did not provide services via an incorporated employee in 2009 so it was not a personal services business for 2009 (reassessment for 2009 set aside and referred back); in 2010 Ms. Singh was an incorporated employee whose services related solely to Econo and, but for Arora, she would reasonably have been regarded as an employee of Econo, and Arora did not employ more than five full-time employees in 2010 (independent contractors cannot be counted), so Arora was a personal services business for 2010 and the reassessment for 2010 is upheld.
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For 2005 and 2006 the onus shifted to the Minister because Newgate's tax records were in CRA custody and subsequently lost or destroyed and the Minister failed to establish the correctness of those reassessments; for 2007 the appellants had access to Newgate's and 807 BC Ltd.'s filed returns and thus bore the burden but failed to rebut the reassessment that disallowed the small business deduction based on association; because Newgate's 2007 tax debt exceeded the amounts transferred, s.160 applied and the appellants' s.160 assessments were properly imposed; appeals dismissed.
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Documentary record and conduct established that tax reduction by multiplying the small business limit was one of the main reasons for the separate existence of the HoldCos including the Appellant; therefore subsection 256(2.1) applied to deem the Appellant associated with KT Holdings for the taxation years in issue, triggering the grind under s.125(5.1) and eliminating the business limit (denying the SBD) for 2013 and 2014; the 2012 taxation year was allowed on the basis of the Respondent's concession that the interest was active business income and the matter was referred for reassessment ac…
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