Docket: A-109-16
Citation:
2017 FCA 69
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CORAM:
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NOËL C.J.
WEBB J.A.
WOODS J.A.
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BETWEEN:
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HORST STRUCK
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Appellant
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and
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HER MAJESTY THE
QUEEN
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Respondent
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REASONS
FOR JUDGMENT
WEBB J.A.
[1]
Mr. Struck is appealing the Judgment of D’Arcy
J. of the Tax Court of Canada dated March 22, 2016 (Tax Court Docket:
2014-2421(IT)I) which granted the motion of the Crown and quashed Mr. Struck’s
appeal under the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) (the ITA)
in relation to his 2005 taxation year.
I.
Background
[2]
Mr. Struck transferred 150 shares of 468543 B.C.
Ltd. and a one-half interest in a rental property to his son in 2005. Mr.
Struck and his son reached an agreement on the amount that they determined as
the fair market value of these assets and how his son would pay for these
assets. Mr. Struck did not report any taxable capital gains in his tax return
for 2005 in relation to these dispositions.
[3]
On February 26, 2009 Mr. Struck was reassessed
to include taxable capital gains of $163,000 in relation to these dispositions.
Mr. Struck served a notice of objection on the Minister of National Revenue
(Minister) and on July 2, 2010 he was reassessed to reduce the taxable capital
gains to $110,500 with $75,000 being the taxable capital gain arising from the
disposition of the residential property and $35,500 being the taxable capital
gain arising from the disposition of the shares of the numbered company.
[4]
Mr. Struck filed an appeal with the Tax Court of
Canada. By a consent judgment dated January 8, 2013, the Tax Court accepted the
parties’ proposed consent to allowing Mr. Struck’s appeal and reducing the
total taxable capital gains to $72,100, with the taxable capital gain
attributable to the disposition of the residential property being $49,850 and
the taxable capital gain attributable to the disposition of the shares of the
numbered company being $22,250.
[5]
When the reassessment to reflect the consent
judgment was issued, Mr. Struck filed a notice of appeal with the Tax Court of
Canada. The Crown brought a motion to quash this appeal and by Judgment dated
March 22, 2016, this motion was granted and the appeal was quashed.
II.
Issue
[6]
The issue in this appeal is whether the Tax
Court Judge committed any error in quashing Mr. Struck’s appeal.
III.
Analysis
[7]
Mr. Struck’s argument is that, although he
agreed to the amount of the taxable capital gain he did not agree to the amount
of taxes that would be payable for 2005. In particular, Mr. Struck raised three
items that, if allowed, would reduce his taxes payable for 2005:
(a)
Mr. Struck claimed that he was entitled to claim
a reserve under section 40 of the ITA;
(b)
Mr. Struck claimed that he had net capital
losses of other years that he wanted to apply in 2005; and
(c)
Mr. Struck claimed that the shares of the
numbered company were qualified small business corporation shares as defined in
the ITA and therefore he was entitled to a deduction under section 110.6 of the
ITA.
[8]
During the hearing of this appeal, Mr. Struck’s
son confirmed that the Canada Revenue Agency has now allowed the net capital
losses of other years to be claimed for 2005 so this item is no longer in
dispute. He also confirmed that when he looked at the definition of a qualified
small business corporation share more closely, he realized that the shares of
the numbered company did not satisfy this definition as it held a rental
property. Therefore, Mr. Struck was no longer claiming that he was entitled to
any deduction under section 110.6 of the ITA.
[9]
As a result, the only item still in dispute is
Mr. Struck’s claim that he is still entitled to appeal in relation to the
question of whether he should be allowed to claim a reserve under section 40 of
the ITA.
[10]
The right to appeal an assessment issued
following an order or judgment of the Tax Court of Canada is restricted by
subsection 169(2) of the ITA, the relevant parts of which are as follows:
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(2) Notwithstanding subsection 169(1), where at any time the
Minister assesses tax, interest, penalties or other amounts payable under
this Part by, or makes a determination in respect of, a taxpayer
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(2) Malgré le paragraphe (1), dans le cas où, à un moment donné,
le ministre établit une cotisation concernant l’impôt, les intérêts, les
pénalités ou d’autres montants payables par un contribuable en vertu de la
présente partie ou détermine un montant à l’égard d’un contribuable :
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(a) … in
accordance with an order of a court … referring the assessment back to the
Minister for reconsideration and reassessment,
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a) … en
conformité avec l’ordonnance d’un tribunal qui … la renvoie au ministre pour
nouvel examen et nouvelle cotisation;
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…
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…
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the taxpayer may appeal to the Tax Court of Canada within the time
limit specified in subsection 169(1), but only to the extent that the reasons
for the appeal can reasonably be regarded
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le contribuable peut interjeter appel auprès de la Cour canadienne
de l’impôt dans le délai précisé au paragraphe (1) seulement dans la mesure
où il est raisonnable de considérer que les motifs d’appel sont liés à l’une
des questions suivantes que la Cour n’a pas tranchée définitivement :
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…
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…
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(e) in any other
case, as relating to any matter that gave rise to the assessment or
determination
and that was not conclusively determined by the Court …
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e) dans les
autres cas, une question qui a donné lieu à la cotisation ou au montant
déterminé.
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[11]
In this case, the relevant limitation is at the
end of the English language version of subsection 169(2) of the ITA which
provides that the matter that is being appealed cannot be one that was “conclusively determined by the Court”.
[12]
To determine the matter that was “conclusively determined by the Court” it is necessary
to review the Judgment that was signed by the Tax Court. The Judgment refers to
the “Consent to Judgment filed December 31, 2012”,
allows the appeal and refers the matter “back to the
Minister of National Revenue for reconsideration and reassessment in accordance
with the terms of the attached Consent to Judgment”. Therefore, the terms
of the Consent to Judgment were incorporated by reference into the Judgment.
[13]
The Consent to Judgment provided that:
The Appellant and the Respondent consent to
judgment allowing the appeal with respect to the Appellant’s 2005 taxation
year, without costs, and referring the matter back to the Minister of National
Revenue for reconsideration and reassessment on the basis that:
1. The assessed taxable capital gains shall be reduced to
$72,100, comprised of:
a) $49,850, representing 50 percent of a capital gain in the
amount of $99,700, from the disposition of a residential property located at
2485 Orchard Avenue, Sidney, British Columbia; and
b) $22,250, representing 50 percent of a capital gain in the
amount of $44,500, from the disposition of 150 common shares of 468543 B.C.
Ltd.
[14]
As a result, the total amount of the taxable
capital gain and the amount of the capital gain arising from the dispositions
of the properties in question were conclusively determined by the Tax Court. As
acknowledged by Mr. Struck’s son during the appeal, by agreeing to the amount
of the taxable capital gain (which he does not dispute) he was agreeing to all
of the consequences that would flow from that agreement.
[15]
Taxable capital gain is defined in section 38 of
the ITA. The relevant parts of this section are as follows:
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38 For the purposes of this Act,
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38 Pour l’application de la présente loi:
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(a) … a
taxpayer’s taxable capital gain for a taxation year from the disposition of
any property is ½ of the taxpayer’s capital gain for the year from the
disposition of the property…
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a) … le gain en
capital imposable d’un contribuable pour une année d’imposition, tiré de la
disposition d’un bien, est égal à la moitié du gain en capital qu’il a
réalisé pour l’année à la disposition du bien…
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[16]
A taxable capital gain from the disposition of property
is, therefore, simply one-half of the capital gain from the disposition of that
property. Capital gain is defined in section 39 of the ITA and the relevant
parts of this definition are as follows:
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39 (1) For the purposes of this Act,
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39 (1) Pour l’application de la présente loi :
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(a) a taxpayer’s
capital gain for a taxation year from the disposition of any property is the
taxpayer’s gain for the year determined under this subdivision … from the
disposition of any property of the taxpayer…
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a) un gain en
capital d’un contribuable, tiré, pour une année d’imposition, de la
disposition d’un bien quelconque, est le gain, déterminé conformément à la
présente sous-section … que ce contribuable a tiré, pour l’année, de la
disposition d’un bien lui appartenant…
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[17]
This section simply provides that the capital
gain from the disposition of any particular property is the gain as determined
under the same subdivision of the ITA from the disposition of that property.
[18]
The gain from the disposition of property is
determined under section 40 (which is part of the same subdivision). The
relevant parts of section 40 of the ITA are:
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40 (1) Except as otherwise expressly provided in this Part
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40 (1) Sauf indication contraire expresse de la présente partie :
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(a) a taxpayer’s
gain for a taxation year from the disposition of any property is the amount,
if any, by which
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a) le gain d’un
contribuable tiré, pour une année d’imposition, de la disposition d’un bien
est l’excédent éventuel :
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(i) if the
property was disposed of in the year, the amount, if any, by which the
taxpayer’s proceeds of disposition exceed the total of the adjusted cost base
to the taxpayer of the property immediately before the disposition and any
outlays and expenses to the extent that they were made or incurred by the
taxpayer for the purpose of making the disposition, or
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(i) en cas de
disposition du bien au cours de l’année, de l’excédent éventuel du produit de
disposition sur le total du prix de base rajusté du bien, pour le
contribuable, calculé immédiatement avant la disposition, et des dépenses
dans la mesure où celles-ci ont été engagées ou effectuées par lui en vue de
réaliser la disposition,
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…
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…
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exceeds
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sur :
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(iii) subject to
subsection 40(1.1), such amount as the taxpayer may claim
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(iii) sous
réserve du paragraphe (1.1), le montant dont il peut demander la déduction,
dans le cas d’un particulier … sur le formulaire prescrit présenté avec la
déclaration de revenu prévue à la présente partie pour l’année … jusqu’à
concurrence du moins élevé des montants suivants :
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(A) in the case of an individual … in prescribed form filed with
the taxpayer’s return of income under this Part for the year, and
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(A) un montant raisonnable à titre de provision à l’égard de toute
partie du produit de disposition du bien qui lui est payable après la fin de
l’année et qu’il est raisonnable de considérer comme une partie du montant
déterminé en vertu du sous-alinéa (i) pour ce bien,
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…
as a deduction, not exceeding the lesser of
(C) a reasonable amount as a reserve in respect of such of the
proceeds of disposition of the property that are payable to the taxpayer
after the end of the year as can reasonably be regarded as a portion of the
amount determined under subparagraph 40(1)(a)(i) in respect of the property,
and
(D) an amount equal to the product obtained when 1/5 of the amount
determined under subparagraph 40(1)(a)(i) in respect of the property is
multiplied by the amount, if any, by which 4 exceeds the number of preceding
taxation years of the taxpayer ending after the disposition of the property…
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(B) le produit de 1/5 de l’excédent déterminé en vertu du
sous-alinéa (i) pour ce bien et de l’excédent éventuel de 4 sur le nombre
d’années d’imposition antérieures du contribuable qui se terminent après la
disposition du bien…
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[19]
As a result of this section, the gain from the
disposition of a property, for the purposes of the ITA, will reflect any
reserve that a particular taxpayer is entitled to claim and chooses to claim.
The combined effect of sections 38, 39 and 40 of the ITA, is that by agreeing
to a particular amount as the taxable capital gain, Mr. Struck was also
agreeing to the capital gain (which is simply two times the amount of the
taxable capital gain and which was also identified in the Consent to Judgment),
but more importantly for the purposes of this appeal, Mr. Struck was also
agreeing to the amount of the gain, which was determined without any claim for
a reserve. If a reserve were to now be claimed, the amount of the gain for 2005
from the dispositions of the properties would be reduced which would also
reduce the capital gain and the taxable capital gain for 2005, since these
amounts are simply the amount of the gain and one-half of that amount,
respectively. Since the amount of the taxable capital gain has been
conclusively determined by the Tax Court, Mr. Struck is precluded from
advancing an appeal that would change this amount and the Tax Court Judge did
not commit any error in quashing his appeal in relation to this claim for a
reserve.
[20]
As a result I would dismiss this appeal, with
costs.
“Wyman W. Webb”
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“I agree
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Marc Noël
Chief Justice”
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“I agree
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J. Woods J.A.”
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