Docket: 2012-208(IT)I
BETWEEN:
ESTATE OF THE LATE CATHERINE M. ROUD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal
heard on January 25, 2013 at
St. John's, Newfoundland and Labrador
Before: The Honourable
Justice Patrick Boyle
Appearances:
|
Agent for the Appellant:
|
Margaret
Murphy
|
|
Counsel for the Respondent:
|
Gregory King
|
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under
the Income Tax Act with respect to the Appellant’s 2006 taxation year is
dismissed, without costs, in accordance with the Reasons for Judgment attached
hereto.
Signed at Ottawa, Canada this 31st day of
January 2013.
"Patrick Boyle"
Citation: 2013 TCC 36
Date: 20130131
Docket: 2012-208(IT)I
BETWEEN:
ESTATE OF THE LATE CATHERINE M. ROUD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
These are my reasons in
the 2006 appeal of the Estate of the Late Catherine Roud. It was heard in St. John’s under the Court’s Informal procedure.
[2]
Catherine Roud died in
August 2007. The executor of her estate is her cousin Ms. Murphy, who also held
a power of attorney over Ms. Roud’s affairs prior to her death.
[3]
The issues to be
decided are whether:
i) Ms. Roud realized a taxable capital gain
when shares owned by her were the subject of an income trust conversion in
2006; and,
ii) Whether Ms. Roud’s 2006 year was statute-barred
when the Canada Revenue Agency (“CRA”) reassessed her 2006 year to include the
unreported gain.
[4]
In 2006, Ms. Roud owned
approximately 4,000 common shares of Aliant Inc., a public telephone
company and successor to Newtel. Ms. Roud had worked for five decades at
Newfoundland Telephone, retiring in the late 1980s.
[5]
Aliant Inc. was
reorganized in July 2006 to become an income trust, an entity that is not a
corporation.
[6]
As part of the income
trust conversion, Ms. Roud’s Aliant Inc. shares were converted into trust units
of a commercial trust called The Bell Aliant Regional Communications Income
Fund. Each corporate share of Aliant was converted into one trust unit of Bell Aliant.
At that time each share, and hence each unit received, was worth about $33 and
Ms. Roud’s approximately 4,000 units received were worth about $133,000.
[7]
The adjusted cost base
to Ms. Roud of her Aliant shares was estimated and assumed by the CRA, as
described below, to be about $62,000.
[8]
It is the Appellant’s
position that no capital gain should have been realized and taxed at that time
because (i) the Aliant corporate shares were not sold for cash but merged into
Bell Aliant Trust Units, or (ii) perhaps Aliant Inc. was merely renamed Bell Aliant.
[9]
Unfortunately for Ms.
Roud and for other individuals and taxable entities, income trust conversions
did not qualify for tax deferred corporate rollover treatment under the Income
Tax Act (the “Act”) even though such a rollover would have been
available had shares been converted into or exchanged for shares of another corporation
as was the case when her Newtel shares were exchanged for Aliant Inc. shares. The
tax treatment of corporations and their shareholders under the Act
differs significantly from the tax treatment of trusts and their unitholders.
For this reason, Ms. Murphy’s argument can not succeed. Ms. Roud did dispose of
her Aliant Inc. shares and received in exchange the Bell Aliant Trust units.
The amount of proceeds she received for her Aliant Inc. shares is the fair
market value of Bell Aliant Trust units she received. It does not matter that
she did not receive cash.
[10]
No amount was included
in Ms. Roud’s tax return in respect of her Aliant Inc. share conversion to Bell
Aliant Trust units. That return was signed by Ms. Murphy as her Power of
Attorney. The tax implications of the proposed trust conversion had been
communicated to common shareholders of Aliant Inc. prior to the
conversion. Individual shareholders of Aliant Inc. would have been made aware
that this would be a taxable transaction resulting in a capital gain to
individuals holding Aliant Inc. shares as capital property on the day of the
conversion. Ms. Roud’s Aliant Inc. shares were one of her significant assets.
Dividends would have been received on them regularly.
[11]
There is absolutely no
suggestion that either Ms. Roud or Ms. Murphy intended to do anything
wrong. Income trust conversions are complex but different from the earlier
conversion of Ms. Roud’s Newfoundland Telephone Newtel shares into shares of
Aliant Inc. in the 1990s. However, in these circumstances, I am satisfied that
the failure to include the capital gain in Ms. Roud’s 2006 tax return resulted
in a misrepresentation in that return attributable to neglect or carelessness.
The result of this is that the normal three-year reassessment period did not
apply and the 2006 year is not statute-barred with respect to this taxable
capital gain.
[12]
For these reasons this
appeal must be dismissed. I would note as an aside that does not affect my
decision that the CRA believes it overstated Ms. Roud’s adjusted cost base in
her shares by more than $1,000. If so, this is to her favour as the CRA cannot
seek to increase the reassessment in this appeal. Further, it appears that had
Ms. Roud not exchanged her shares in 2006 for trust units, or even if there had
been a tax-deferred rollover available, this capital gain would have been
realized and taxable in 2007 upon her death in any event.
[13]
There is no accurate
available information about Ms. Roud’s costs of the shares she purchased. Ms.
Murphy believes her cousin probably purchased them over the 4 or 5 decades she
worked at Newfoundland Telephone. Ms. Roud retired in the 1980s. Unfortunately,
she left only a single share certificate issued upon the 1990’s conversion of
Newtel into Aliant Inc.. The cost estimated and assumed by the CRA was the
value of her Newtel shares in 1994. In the circumstances, that was a
reasonable, if not generous, assumption. In the absence of better evidence, the
Court accepts it.
[14]
This would be a
compelling case for the Minister to consider relief of at least some of the
interest under the so-called Fairness provisions of the Act. I
understand that such an application has been made and would expect it to be
given appropriate consideration in these circumstances.
Signed at Ottawa, Canada this 31st day of January 2013.
"Patrick Boyle"
CITATION: 2013 TCC 36
COURT FILE NO.: 2012-208(IT)I
STYLE OF CAUSE: ESTATE OF THE LATE CATHERINE M. ROUD AND HER MAJESTY THE QUEEN
PLACE OF HEARING: St John's, Newfoundland and Labrador
DATE OF HEARING: January 25, 2013
REASONS FOR JUDGMENT BY: The
Honourable Justice Patrick Boyle
DATE OF JUDGMENT: January 31, 2013
APPEARANCES:
|
Agent for the
Appellant:
|
Margaret Murphy
|
|
Counsel for the
Respondent:
|
Gregory King
|
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the
Respondent: William F. Pentney
Deputy
Attorney General of Canada
Ottawa,
Canada
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