Inwest – B.C. Supreme Court finds that a reasonable filing position cannot be a “misrepresentation” for statute-barring purposes, and suggests that there is no fixed place of “business” if there is no source of business income

A decision (released back in August) dealt with a plan which avoided the high rate of B.C. corporate income tax through rolling shares into a Yukon corporation (“Wesbild”), which purported not to have a B.C. permanent establishment, before a sale of the shares closed (giving rise to a $336M capital gain). Wesbild’s position was that, applying Marconi, it was not carrying on business, so that under Reg. 400(2) it did not have a fixed place of “business” in B.C. CRA reassessed (but not until after the normal reassessment period) on the basis that, in the context of Reg. 400 et seq., “business” included having property or taxable capital gains as the only sources of income.

Fitzpatrick J., after noting that the French version of s. 152(4)(a)(i) rendered “misrepresentation” as “misrepresentation of facts,” found that “a statement of a filing position that, even if that position may be incorrect, involves a determination of law or mixed fact and law will not be a misrepresentation if that filing position is reasonable" and that it is sufficient "if that reasonable filing position is evident from the tax return.” Thus, it was not even necessary to get to the “neglect or carelessness” branch of s. 152(4)(a)(i) to determine that the reassessment was statute-barred. In any event, CRA did not establish neglect or carelessness given that the no-PE position had been carefully considered by Wesbild’s in-house tax lawyer – and furthermore (although this was not necessary to establish lack of carelessness), he had consulted outside counsel (Robert Kopstein at Blakes).

Respecting the latter point, Fitzpatrick J. found that it was sufficient for Wesbild to indicate that it had gotten detailed written advice from Kopstein and that it was unnecessary to put his opinion in evidence, given that it should not be compelled to waive its privilege.

Respecting CRA’s broad interpretation of “permanent establishment,” he also stated obiter:

There is no indication that the CRA’s currently-advanced dictionary definition of “business” had any support at all in 2001/2002 or even at this time.

Neal Armstrong. Summaries of Inwest Investments Ltd. v. The Queen, 2015 BCSC 1375 under s. 152(4)(a)(i), s. 232(1) – solicitor-client privilege, Reg. 400(2), Statutory Interpretation – French and English Version.