Dockets: 2015-2842(IT)I

2015-5475(IT)I

BETWEEN:

SCOTT LAPRAIRIE,

Appellant,

and

HIS MAJESTY THE KING,

Respondent.

Appeal heard on September 7, 2023, at Vancouver, British Columbia

Before: The Honourable Justice Susan Wong

Appearances:

JUDGMENT

The appeals are allowed with costs on the basis that:

1. The appellant is entitled to carry forward the non-capital loss of $304,374 from the 1995 taxation year to the 1997 and 1998 taxation years, subject to the deemed limit set out in section 18.1 of the Tax Court of Canada Act.

2. The parties shall have until February 21, 2025 to reach an agreement as to costs, failing which the appellant shall file written submissions by March 21, 2025 and the respondent shall file a written response by April 22, 2025. Any such submissions shall not exceed five pages in length.

3. If the parties do not advise the Court that they have reached an agreement and no submissions are received by these dates, then costs shall be awarded to the appellant in the fixed sum of $1,000, inclusive of disbursements.

Signed at Ottawa, Canada, this 26th day of November 2024.

“Susan Wong”

Citation: 2024TCC149

Date: 20241126

Dockets: 2015-2842(IT)I

2015-5475(IT)I

BETWEEN:

SCOTT LAPRAIRIE,

Appellant,

and

HIS MAJESTY THE KING,

Respondent.

REASONS FOR JUDGMENT

Wong J.

Introduction/Overview

[1] These matters were held in abeyance pending the Savics decisions^[1] before this Court and the Federal Court of Appeal. Following those decisions, the present appeals of the 1997 and 1998 taxation years were amended to proceed with respect to an issue not dealt with in Savics.

Issues

[2] The ultimate issue is whether the Minister of National Revenue reassessed the appellant in accordance with the terms of a waiver of right of objection or appeal^[2], signed by him in furtherance of a settlement agreement.

[3] If the answer is yes, then subsection 169(2.2) of the Income Tax Act applies to prohibit the appellant from appealing to this court and the appeals are invalid.

[4] If the answer is no, then the question is whether the Minister properly applied non-capital losses arising from the settlement.

Factual background

[5] The appellant was a limited partner of AFS Limited Partnership No. 5, acquiring his partnership units in 1995 and holding them until the partnership was dissolved in 2011.^[3]

[6] In filing his 1995 return, the appellant claimed a non-capital loss with respect to AFS and applied the loss as follows:^[4]

1. carried back $260,312 (plus an unrelated loss of $120,982) to 1992;

2. carried back $54,648 to 1993;

3. carried back $159,426 to 1994;

4. carried forward $12,176 to 1996; and

5. carried forward $6,085 to 1997.

[7] On May 1, 2011, the Minister disallowed the AFS non-capital loss, resulting in the disallowance of the various carryforwards/carrybacks described above and leaving only the unrelated carryback of $120,982 intact. Back then, the appellant filed notices of objection with respect to 1995, 1996, 1997, and 1998 within time.^[5] There were also apparently outstanding related objections for 1992, 1993, and 1994.^[6]

[8] Approximately 1,200 taxpayers (including the appellant) were similarly reassessed by the Minister with respect to limited-partnership holdings in AFS and several other similar limited partnerships.^[7] The parties reached a group settlement and minutes of settlement were executed in February 2012.^[8] During the present hearing, counsel for the appellant invited the Court to review the details of the settlement as set out in Savics at the Tax Court level.^[9]

[9] For the purposes of this appeal, the relevant aspects of the settlement were that: (a) a portion of the previously disallowed non-capital (partnership) loss from 1995 would be allowed, and (b) if the appellant wished to avail himself of the settlement, he was required to sign a waiver of the right to object or appeal.^[10] The Minister was also permitted to make adjustments not expressly addressed in the minutes, as long as they were not inconsistent with the express terms of the minutes.^[11]

[10] The relevant terms of the settlement are set out in the document entitled “Waiver of Right of Objection or Appeal” which the appellant executed on November 28, 2013.^[12] The waiver provided (among other things) that he agreed to waive any right of objection or appeal to his 1995 and following taxation years with respect to AFS on condition that the Minister reassess him as follows:

• (i)allows me to claim as a deduction in my taxation year that includes December 31, 1995, the full amount of all deductions claimed by me in respect of the Partnership (including all interest, carrying charges and partnership losses) for such year less an amount equal to $355.23 per limited partnership unit of the Partnership held by me at the end of 1995;

• (ii)allows me to claim as a deduction in my taxation year that includes December 31, 1996, the full amount of all deductions claimed by me in respect of the Partnership (including all interest, carrying charges and partnership losses) for such year less an amount equal to $16.20 per limited partnership unit of the Partnership held by me at the end of 1996;

• (iii)allows all interest expense and carrying charges previously claimed by me in respect of the Partnership in any taxation year in which I have filed an objection or appeal or which is otherwise open for reassessment;

• (iv)allows me to claim interest expense in respect of my taxation year which includes the period from January 1, 2011 to January 17, 2011 in the amount of $3.07 per limited partnership unit of the Partnership held by me during that period;

• (v)allows any consequential claims by me for the carryforward or carryback of any losses resulting from the reassessments set forth above; and

• (vi)unless otherwise agreed to by me, does not make any other adjustment to my tax liability in connection with my investment in, or ownership of, limited partnership units of the Partnership other than consequential adjustments or other adjustments that are not expressly addressed by, and do not create a result that is inconsistent with, any of the preceding terms of the Waiver[sic].

[11] On June 30, 2014, the Canada Revenue Agency’s Appeals Division sent a letter to the appellant setting out the adjustments which would be made pursuant to the settlement.^[13] The letter attached a settlement worksheet, copies of T7W-C forms explaining the changes with respect to 1995, 1996, and 1998, plus stated (among other things) that:

a. additional non-capital losses of $304,374 would be allowed with respect to 1995;

b. of the $304,374 loss, $260,312 would be carried back to 1992 and $44,062 would be carried back to 1993, thus using up the loss amount; and

100. with respect to the years under appeal (1997 and 1998), no adjustments would be made to 1997 because net adjustments would result in an upward assessment while a carrying charge would be allowed for 1998.

[12] Notices of reassessment were also issued on June 30, 2014 for the 1992, 1993, and 1998 taxation years, effecting the changes described in the letter.^[14]

The parties’ positions

[13] The appellant says that the Minister improperly carried the $304,374 non-capital loss back to 1992 and 1993, because she did so without giving him a choice as to the application of the loss. He says that he would have applied the loss to the years under appeal, i.e. 1997 and 1998.

[14] The respondent says that in applying the loss as she did, the Minister was consistent with the terms of the settlement and followed the appellant’s own original pattern of loss carrybacks. Therefore, the Minister acted properly and there are no losses remaining to carry forward to 1997 and 1998.

Legal framework

[15] The starting point is subsection 169(2.2) of the Act, which says that a taxpayer may not appeal to this court with respect to an issue for which they have waived the right of objection or appeal in writing. The waiver itself does not require consideration and is not a contract, although similar principles of interpretation apply.^[15] In addition, a technical defect does not necessarily invalidate a waiver.^[16] Rather, one must seek to ascertain the parties’ intention as expressed in the waiver combined with any relevant circumstances for which there is evidence.^[17] It is important to look at the actual document.^[18]

[16] Paragraph 111(1)(a) – as it was in 1995 – read as follows:

111. (1) Losses deductible – For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such portion as the taxpayer may claim of the taxpayer’s

(a) non-capital losses – non-capital losses for the 7 taxation years immediately preceding and the 3 taxation years immediately following the year;

Put simply, a taxpayer may carry non-capital losses forward 7 years or back 3 years.

[17] The provision is a permissive deduction, i.e. one where the taxpayer is free to choose when, how, and how much to apply for a given year.^[19] The Federal Court of Appeal has said that with respect to discretionary deductions and subsection 111(1) specifically, only the taxpayer can direct when and how their losses are to be applied, subject only to the restrictions in subparagraphs 111(3)(a)(i) and 111(3)(b)(i).^[20] Otherwise, there is no basis for the Minister to impose a particular allocation.^[21] The Federal Court of Appeal has also stated that the Minister cannot assume the manner in which a taxpayer previously applied losses against income to be indicative of the taxpayer’s intention in the future.^[22]

Analysis and discussion

[18] On reviewing the legislative history with respect to paragraph 111(1)(a), the only change to the wording of this provision has been to increase the number of years a taxpayer may carry non-capital losses forward or back. Every iteration of the Department of Finance’s Explanatory Notes with respect to this provision mirrors the provision itself with respect to the use of the word “may” in terms of the taxpayer’s ability to carry such losses over. Combined with the consistent judicial interpretation in this regard, it is clear that the starting point is that it is the taxpayer’s choice as to the application of available non-capital losses.

[19] The next question is whether the appellant waived his ability to choose how to apply his non-capital losses, which requires a review of the waiver itself. Based on a literal reading, conditions (ii), (iii) and (iv) in the waiver are not relevant for the purposes of this appeal.^[23]

[20] Condition (i) in the waiver enabled the deduction of AFS/partnership amounts in the appellant’s 1995 taxation year.^[24] The settlement calculation resulted in non-capital losses of $304,374 for that year, which is confirmed in the Minister’s June 30, 2014 letter setting out the adjustments to be made pursuant to the settlement and waiver.^[25] A literal reading of this condition does not suggest an express or implied direction from the appellant as to how to apply the loss.

[21] On the other hand, a literal reading of condition (v) in the waiver allowed the appellant to make any consequential claims to carry forward or carry back any of the losses resulting from the reassessments in the preceding conditions (i) to (iv).^[26] The $304,374 non-capital loss resulted from the reassessment of the appellant’s 1995 taxation year under condition (i) of the waiver. A claim by the appellant to carry forward or carry back any portion of this $304,374 loss would be directly consequential and would, therefore, fall under condition (v) of the waiver. The wording of the condition also does not suggest an express or implied direction from the appellant as to how to apply the loss, nor a waiver of his ability to choose.

[22] Lastly, a literal reading of condition (vi) in the waiver precludes the Minister from making any other adjustments without the appellant’s consent, except for consequential or other adjustments which: (a) are not expressly addressed by the waiver, and (b) do not create a result that is inconsistent with the waiver.^[27]

[23] Between the time the waiver was signed on November 28, 2013 and the Minister’s June 30, 2014 letter plus notices of reassessment, it appears that the appellant did not give directions as to the application of the $304,374 non-capital loss nor did the Minister seek them. The Minister’s June 30, 2014 letter set out the adjustments flowing from the settlement plus waiver, and the reassessments were issued on the same day.

[24] In the circumstances, it cannot be inferred that the Minister sought the appellant’s directions, nor that the appellant gave directions or acquiesced to the Minister’s loss applications. There was no basis for the Minister to impose the allocation she did because she could not assume that the appellant’s original carrybacks to 1992 and 1993 meant his intentions would be the same post-settlement (and over 13 years later).^[28] Therefore, the Minister improperly applied the $304,374 non-capital loss as she did.

[25] I cannot see any statutory barriers to the Minister applying the loss to 1997 and 1998, as the appellant prefers. Condition (v) in the waiver expressly allows it and condition (vi) precludes the Minister from making adjustments which are not agreed to by the appellant; doing otherwise would create a result that is inconsistent with the terms of the waiver and contraindicated by condition (vi). In addition, the Minister’s June 30, 2014 letter confirms that as of the date of that letter, the appellant had open objections for the 1992 to 1998 taxation years.^[29]

[26] Since I have found that the Minister did not reassess the appellant in accordance with the terms of the waiver, it follows that subsection 169(2.2) does not apply and the present appeals are valid. The deemed recovery limit set out in section 18.1 of the Tax Court of Canada Act also applies to limit the aggregate of all amounts in issue to $25,000 per taxation year, i.e. for 1997 and 1998.

Conclusion

[27] The appeals are allowed with costs on the basis that:

1. The appellant is entitled to carry forward the non-capital loss of $304,374 from the 1995 taxation year to the 1997 and 1998 taxation years, subject to the deemed limit set out in section 18.1 of the Tax Court of Canada Act.

2. The parties shall have until February 21, 2025 to reach an agreement as to costs, failing which the appellant shall file written submissions by March 21, 2025 and the respondent shall file a written response by April 22, 2025. Any such submissions shall not exceed five pages in length.

3. If the parties do not advise the Court that they have reached an agreement and no submissions are received by these dates, then costs in the fixed sum of $1,000 shall be awarded to the appellant, inclusive of disbursements.

Signed at Ottawa, Canada, this 26th day of November 2024.

“Susan Wong”

APPEARANCES:

COUNSEL OF RECORD:

For the Appellant: