Glenogle Energy – Federal Court decision effectively penalizes a taxpayer for filing s. 97(2) elections on a timely basis rather than late

In January 2015, the taxpayer transferred resource properties to a limited partnership that was wholly-owned by it, directly and indirectly. The s. 97(2) elections that were filed approximately 18 months later (in July 2016) designated nominal agreed amounts. In November 2016, the taxpayer applied to amend the elections so as to increase the agreed amounts by approximately $32 million. Despite CRA requests, no detailed explanation was provided to CRA as to the reasons for the requested amendments, and ultimately, in May 2021, the Minister’s delegate denied the request on the basis inter alia that it involved retroactive tax planning (indicating that the amended elections circumvented the successor rule in s. 66.7) and that the taxpayer’s submission did not support that the requested amendments were “just and equitable” as required by s. 96(5.1).

In dismissing the taxpayer’s application for judicial review, Aylen J stated:

I am satisfied that the Applicant’s “explanation” was so devoid of particulars that it did not amount to an explanation at all. …

The Applicant … failed to explain in any meaningful way why it would be just and equitable for the Minister [to grant the request].

… I am not satisfied that the Applicant has demonstrated any error by the Minister’s delegate in his finding that the amendment requests constituted an attempt to circumvent the successor rule stipulated in section 66.7 … .

Doubtless it has occurred to the taxpayer that it would have been better off to have filed the s. 97(2) elections four months later and paid the additional penalty under s. 96(6) of $100 per month.

Neal Armstrong. Summary of Glenogle Energy Inc., 2022 FC 198 under s. 96(5.1).