Krumm – Federal Court of Appeal confirms the tax shelter rules’ application to a private purchase of “Class 12 available-for-use” software with tax deductions not further spelled out

The classic tax shelter provided a computation showing how much tax an investor in the top marginal bracket would save. Here, the taxpayer acquired a 50% interest in software after being provided with a valuation report that included a tax opinion indicating that the software was Class 12 property that qualified as being available for use – no tax savings or deduction numbers. Woods JA agreed with Visser J below that this was sufficiently tantamount to representing that the cost of the software could be written off over two years - so that there was an unregistered tax shelter, resulting in the CCA claims being denied under s. 237.1(6).

Woods JA also stated:

… [T]he valuation report makes it clear that the report was intended to influence prospective purchasers. As for the interpretation of the tax shelter definition, there is nothing in the text or context which suggests that the provisions are intended to be limited to publicly marketed transactions. … Finance has expressed concern about “abuses through aggressive tax shelter promotions” … Th[is] concern … would be frustrated if the legislation were applicable only to certain types of promotions.

Neal Armstrong. Summary of Krumm v. Canada, 2021 FCA 78 under s. 237.1(1) – tax shelter – (b).