Citation: 2010TCC350
Date: 20100623
Docket: 2010-155(IT)I
BETWEEN:
DONALD JOSEPH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1]
The Appellant has
appealed the reassessment of his 2008 taxation year. The issue in this appeal
is whether the Appellant is required to include in his income the amount of
$43,307.22 which he received from Fording Canadian Coal Trust.
[2]
The Appellant testified
that he had held 407 units in Fording Canadian Coal Trust (“Fording”). In 2008,
Teck Cominco (“Teck”) started an aggressive takeover bid for Fording. In
September 2008, Fording asked its unitholders to vote on the takeover. The
Appellant stated that he voted against the takeover, but his vote was
unsuccessful. In October 2008, Fording agreed to a cash and stock takeover bid
from Teck Cominco.
[3]
Fording sent out
information which included all cash distributions paid by it to its unitholders
in 2008. That information included the following:
The following
information is based on the Trust's understanding of the Income Tax Act (Canada)
and regulations thereunder, and is provided for general information only. T3
Statement of Trust Income Allocations and Designations forms are expected to be
available by the end of March 2009.
The following
table provides the cash distributions declared in Canadian dollars. The stated
amounts are on a per-unit basis and reflect the units outstanding when the
payments were declared.
|
|
$CDN
Per Unit
|
|
Record Date
|
Payment Date
|
Other
Taxable Income
|
Return
of Capital
|
Redemption
Proceeds
|
Total
Distribution Paid
|
|
Mar. 31, 2008
|
Apr. 15, 2008
|
$ 0.50000
|
$ -
|
$ -
|
$ 0.50000
|
|
Jun. 30, 2008
|
Jul. 15, 2008
|
$ 2.50000
|
$ -
|
$ -
|
$ 2.50000
|
|
Consideration pursuant to the Arrangement
|
$ 103.50343
|
$ 0.94215
|
$ 0.01442
|
$ 104.46000
|
The
"Other Taxable Income" amount is the portion of the distributions
that is to be included in the taxable income of unitholders. Generally, the
"Return of Capital" portion (other than that representing redemption
proceeds) of the distributions is not taxable but is required to be deducted
from the adjusted cost base of a unitholder's units of the Trust. Both amounts
will be reported on the T3 Statement of Trust Income Allocations and
Designations.
On the
redemption of Trust units under the Arrangement, a Canadian resident unitholder
will generally realize a capital gain (or a capital loss) equal to the amount
by which the aggregate redemption proceeds receivable by the unitholder exceeds
(or is less than) the adjusted cost base of the unitholder's Trust units and
any reasonable costs of disposition. (Please refer to the section entitled
"Taxation of Holders Resident in Canada - Certain Canadian Federal Income
Tax Considerations" under the Circular for a more detailed discussion.)
The redemption proceeds will be reported on the T5008 Statement of Securities
Transactions.
[4]
In October 2008, the Appellant was
asked to send his unit certificates to Computershare Investor Services Inc.
(Computershare), the agent who acted on Fording’s behalf. On November 6, 2008,
the Appellant received a cheque from Fording. I was not told the amount of this
cheque but the Appellant stated that he immediately reinvested the amount of
$38,730.53CDN. In April 2009, the Appellant obtained his T3 and T5008 with
respect to these transactions from the agent’s website. The T3 showed that in
2008 he had received “Other Income” of $43,307.22 and a “Return of Capital” of
$383.46. The T5008 showed that the Appellant received “Proceeds of Disposition”
of $44.99.
[5]
The Appellant stated that he had
received the 300 page document which contained the offer from Teck to Fording.
He did not read all of it. He did not understand that Teck and Fording had
arranged their transactions so that the sale proceeds would be taxed as
ordinary income for the unitholders. He stated that he called the agent and was
told that all decisions had been made by Fording. He attempted to telephone and
email Fording but was unsuccessful as the company no longer had an independent
existence.
[6]
It was the Appellant’s position
that it was ridiculous that the amount of $43,307.22 was designated as “Other
Income”. He argued that the amount of $38,730 ought to have been received by
him as a capital gain because it represented the sale of shares which he had
accumulated over a 40 year period. He argued that only the amount of $4,577
ought to have been designated as “Other Income”.
[7]
The relevant provisions from the Income
Tax Act (the Act) are:
12. (1) Income
inclusions -- There shall be included in computing the income of a taxpayer
for a taxation year as income from a business or property such of the following
amounts as are applicable:
(m) benefits
from trusts -- any amount required by subdivision k or subsection 132.1(1)
to be included in computing the taxpayer's income for the year, …
104. (13) Income of beneficiary -- There shall be included in computing the
income for a particular taxation year of a beneficiary under a trust such of
the following amounts as are applicable:
(a) in
the case of a trust (other than a trust referred to in paragraph (a) of the
definition "trust" in subsection 108(1)), such part of the amount
that, but for subsections (6) and (12), would be the trust's income for the
trust's taxation year that ended in the particular year as became payable in
the trust's year to the beneficiary; …
104. (21) Taxable capital gains -- Such portion of the net taxable capital
gains of a trust for a taxation year throughout which it was resident in Canada
as
(a) may
reasonably be considered (having regard to all the circumstances including the
terms and conditions of the trust arrangement) to be part of the amount that,
by virtue of subsection (13) or (14) or section 105, as the case may be, was
included in computing the income for the taxation year of
(i) a
particular beneficiary under the trust, if the trust is a mutual fund trust, or
(ii) a particular
beneficiary under the trust who is resident in Canada, if the trust
is not a mutual fund trust, and
(b) was
not designated by the trust in respect of any other beneficiary under the
trust,
shall, if so
designated by the trust in respect of the particular beneficiary in the return
of its income for the year under this Part, be deemed, for the purposes of
sections 3 and 111, except as they apply for the purpose of section 110.6, and
subject to paragraph 132(5.1)(b), to be a taxable capital gain for the year of
the particular beneficiary from the disposition by that beneficiary of capital
property.
[8]
Paragraph 12(1)(m) required
the Appellant to include in his income any amount that was required to be
included in income pursuant to subdivision k of the Act. Subsection 104(13) of
subdivision k of the Act required the Appellant to include the amount he
received from Fording in his income. The amount could be deemed a taxable
capital gain only if it was so designated by Fording in respect of the Appellant
in Fording’s income tax return for 2008. There was no evidence to show that
Fording designated any amount in respect of the Appellant as a net taxable
capital gain. On the contrary, the T3 issued by Computershare on behalf of
Fording showed that the amount paid to the Appellant was “Other Income” and the
T5008 issued to the Appellant showed that he received proceeds of disposition
in the amount of $44.99.
[9]
Counsel for the Respondent stated
that the Appellant realized a capital loss on the redemption of his Trust
units. There was no evidence with respect to the amount of this capital loss.
The Appellant stated that a capital loss was of no use to him as he did not
have any capital gains.
[10]
The Appellant has not brought any
evidence to show that the Minister’s reassessment was incorrect.
[11]
The appeal is dismissed.
Signed at Ottawa, Canada, this 23rd day of June 2010.
“V.A. Miller”
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