Walsh – Federal Court of Appeal confirms denial of interest relief for a taxpayer who held off paying an assessment pending the resolution of a similar (departure trade) case
In 1998, the taxpayer implemented a “departure trade transaction” under which he borrowed $695 million from CIBC so as to generate an interest deduction for the period prior to his departure from Canada, with that money simultaneously being reinvested with CIBC – but with the return thereon not being taxable to him prior to his departure due to the reinvestment occurring “through” intermediate Caymans companies who issued preferred shares rather than debt to him.
In 2002, his 1998 return was reassessed to deny his $47 million interest deduction and to increase the reported capital gain arising under s. 128.1(4). In May 2006, his 1999 return was reassessed to add $54 million of income based on the in-the-alternative view that he had not ceased to be a Canadian resident in 1998 – which, of course, was inconsistent with the earlier reassessment of the departure tax for that year. In June 2006, a similar departure trade case (Grant – subsequently affirmed), denied the interest deduction. In a 2010 settlement, the appellant accepted the denial of the interest.
Near JA affirmed the decision below that the decision of the Minister’s delegate to deny relief of the assessed interest had not been established to be unreasonable, noting that:
Telfer … stated that a taxpayer who knowingly fails to pay a tax debt pending a decision in a related case “normally cannot complain that they should not have to pay interest” … .
He also indicated that the inconsistent reassessment did not preclude the taxpayer from taking steps to reduce his interest exposure (and that the taxpayer had been slow in providing CRA with information to sort out when he had ceased to be a Canadian resident).
Neal Armstrong. Summary of Walsh v. Canada (Attorney General), 2018 FCA 229 under s. 220(2.1).