Canada Case Law

Chad v. Canada

Court

Federal Court of Appeal

Paletta Estate correctly interprets Stewart and Walls; where objective evidence shows an activity that appears commercial was undertaken with the purpose of realizing a loss rather than pursuing profit, that activity is not a source of income; the Tax Court properly applied this principle to find the appellant intended to incur a loss and thus had no source of income, so the reassessment was correctly confirmed.

Source excerpt

• Source of income
• Pursuit of profit
• Sham transactions
• Tax reassessment
• Standards of review

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Aidoo v. The King

Court

Tax Court of Canada

The Tax Court dismissed Eric Aidoo’s appeal over GLGI-related charitable donation claims for the 2007 taxation year, finding no donative intent and rejecting ancillary arguments.

• Charitable donations
• Donative intent
• Sham transactions
• Fair market value (valuation)
• Trust validity
• Duty to warn

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Walby v. Canada

Court

Federal Court of Appeal

Appellants participated in a single interconnected sham scheme and admitted they expected to be enriched; therefore they lacked the requisite donative intent for the cash payments to qualify as gifts under s.118.1 of the Income Tax Act. Subsections 248(30)-(32) do not negate the need for donative intent and "value" in s.248(32) is an objective monetary measure; accordingly the Tax Court did not err and the appeals are dismissed.

Source excerpt

• Charitable donation tax credit
• Donative intent
• Sham transactions
• Split gifting rules (s.248(30)-(32))
• Value/fair market value

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Burraq Employment Services Inc. v. The King

Court

Tax Court of Canada

Appeal dismissed: Court found on balance of probabilities that subcontractors’ invoices were sham accommodation invoices, Burraq did not acquire labour services from them and thus was not entitled to claimed ITCs; SUNRISE invoice lacked required registration information and Dodge Charger use was not shown to be business use (no logbook); penalties under s.285 were upheld based on knowledge or willful blindness and gross negligence as applicable.

Source excerpt

• Input tax credits
• Sham transactions
• Penalties (s.285 eta)
• Documentary requirements (s.169(4))
• Accommodation invoicing
• Vehicle itc apportionment

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Lux Operating Limited Partnership v. The King

Court

Tax Court of Canada

Leave to amend pleadings to add a sham allegation was granted because the amendment would assist the Court in resolving the central issue of partnership validity and any prejudice from delay was compensable by costs; the Crown's application for security for costs was dismissed because the Rules confine security for costs to appellants appearing resident outside Canada and the Court's inherent jurisdiction cannot override the statutory and regulatory framework governing designated members and security for costs.

Source excerpt

• Partnership validity
• Sham transactions
• Amendment of pleadings
• Security for costs
• Consolidation
• Designated member under income tax act

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Hillcore Financial Corporation v. The King

Court

Tax Court of Canada

The Reply was struck in its entirety because, taken as a whole and applying the high striking standard, it contained incurable defects that would prejudice or delay a fair hearing — specifically: inclusion of evidence as schedules (B‑1 to B‑42, D), improper legal conclusions (use of 'sham', conclusions on debtor/creditor relationships), overreaching admissions/denials, disclosure of irrelevant third‑party confidential information (Schedule A, unredacted bank account in B‑12), and pervasive repetition — but because the Respondent demonstrated a reasonable basis for the reassessments the Court…

Source excerpt

• Income tax act
• Reassessment
• Pleadings
• Motion to strike
• Subsection 163(2) penalties
• Sham transactions

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Walby v. The King

Court

Tax Court of Canada

The cash contributions were part of a single interconnected leveraged donation scheme (GLGI) in which the participants expected enrichment; the Appellants lacked donative intent when making the cash payments; ss.248(30)-(32) do not remove the donative intent requirement and thus do not save the donations; accordingly the appeals are dismissed and costs awarded to the Respondent.

Source excerpt

• Donative intent
• Gifts with advantage
• Sham transactions
• Subsection 248(30)-(32) interpretation
• Charitable donation tax credits

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Canada v. Thompson

Court

Federal Court of Appeal

The Tax Court order compelling disclosure of CRA files concerning audits of other taxpayers was set aside because the Thompsons failed to establish how those third‑party audit files were relevant to the sole pleaded issue of whether the Thompsons' transactions were a sham; such requests were an impermissible fishing expedition. Conversely, because the auditor on the Thompsons' file had relied on the RSD Solutions report, the Crown must answer follow-up questions about that report.

Source excerpt

• Sham transactions
• Discovery relevance
• Document production
• Audit files
• Undertakings
• Expert/report reliance (rsd solutions)

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Paletta v. The Queen

Court

Tax Court of Canada

The court found on the evidence that Fox's option exercises were preordained and the Option Agreements were shams intended to mask an agreement that Fox would reacquire the films prior to commercial release; accordingly the Partnerships never held films for a genuine income‑earning enterprise, the P&A and related financing expenses were not incurred for the purpose of earning business income and are not deductible, the defeasance steps were part of the sham, the s.237.1 tax‑shelter rules would in any event bar deductions for unregistered shelters, the reassessment denying a carry‑back was not…

Source excerpt

• Sham transactions
• Tax shelter registration (s.237.1)
• Deductibility of p&a expenses
• Option agreements and reassignment
• Characterization of gains (income v. capital)
• Statute-barred reassessment / misrepresentation

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Magren Holdings Ltd. v. The Queen

Court

Tax Court of Canada

Court held appellants’ reported capital gains and offsetting capital losses were not genuine dispositions because beneficial ownership never changed and the December 2005 steps were a sham/window-dressing orchestrated by Grenon to manufacture CDA credits and tax-free capital dividends; consequently the Part III reassessments are valid, GAAR alternatively applies, and s.184(3) protective elections are unavailable because appellants were authors of the sham.

Source excerpt

• Capital dividend account
• Capital gains and losses
• Beneficial ownership
• Sham transactions
• Assessment and reassessment
• Statute-barred periods

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