Madison Pacific – Federal Court of Appeal indicates that a CRA memo to Finance requesting action on an "abuse" likely would be inadmissible in a GAAR case on that abuse
Predecessors of the taxpayers had been acquired for their losses in transactions where less than 50% of their voting shares, but more than 90% of their non-voting participating shares, had been acquired. The Minister had reassessed to deny the acquired losses primarily on the basis that there had been an acquisition of control, but secondarily through applying the general anti-avoidance rule.
V. Miller J had required the Minister to disclose two documents that had been placed in the audit file: a draft proposal letter; and a memo from the Income Tax Rulings Directorate to Finance requesting an amendment to cut off this type of transaction. Gleason JA found no reversible error in requiring production of this memo - nor in the decision of V. Miller J that a request for all correspondence between the Directorate and Finance respecting the legislative scheme dealing with transfer of corporate losses was an impermissible “fishing expedition of vague and far-reaching scope.” However, she stated:
[T]he documents in issue are of limited relevance and likely inadmissible at trial as, under the GAAR analysis, the question of the policy in the ITA that the taxpayer is alleged to have avoided is ultimately a question of law. … Thus, while it may well be incumbent on the Minister to set out the disputed policy in the Minister’s pleadings as a matter of fairness … it does not follow that evidence on the policy will be admissible at trial as matters of law are for a court to determine.
Neal Armstrong. Summary of Madison Pacific Properties Inc. v. Canada, 2019 FCA 19 under s. 245(4), aff’g sub nomine MP Western Properties Inc. v. The Queen, 2017 TCC 82 under Tax Court Rules, Rule 95.