News of Note

When the taxpayer was assessed to deny SR&ED deductions or credits for its 2009 taxation year, the CRA auditor failed to follow the requirement in the Audit Manual to obtain a written response from the taxpayer as to whether the taxpayer wished to apply available non-capital losses (NCLs) to offset the assessed taxable income and eliminate the tax and interest. Although there were sufficient NCLs to this end, their specific amount was unclear until January 2015, at which time the taxpayer filed its request to have the NCLs so applied. This request was denied as being filed after the end of the normal reassessment period, which ended on September 3, 2014.

Shore J considered that it was reasonable of the Minister’s delegate to grant only partial interest relief under s. 220(3.1) respecting the assessed interest, on the basis that it was ultimately the taxpayer’s responsibility to decide whether it wished to apply its NCLs before the end of the normal reassessment period, which it had failed to do. He also considered that there was no procedural unfairness in the failure of the Minister’s delegate to consult the above Manual policy before granting only partial interest relief, indicating that the delegate should not have been expected to be aware of this policy and it was up to the taxpayer to bring the Manual to the delegate’s attention, which it did not do (i.e., it is the taxpayer’s duty to bring largely internal CRA documents to CRA’s attention?).

Unlike 1455257 Ontario, Shore J did not suggest that there was no statutory authority for the CRA policy in the Manual – a policy which is broadly consistent with the right to claim discretionary reserves from reassessed income (see the Trial decision referenced in Abed Estate) and make late designations (Nassau Walnut, Lussier – also narrowly construing s. 152(6)).

Neal Armstrong. Summary of Building Products of Canada Corp. v. Canada (Attorney General), 2020 FC 784 under s. 220(3.1).

CRA gave a ruling regarding the qualification of expenditures, on an underground mineral drilling program to expand the proven and probable reserves of a mineral deposit, as Canadian exploration expense under para. (f) of the definition, including expenditures for an underground ramp which not only facilitated the underground drilling but would be used to bring ore up to the surface once production commenced.

Neal Armstrong. Summary of 2020 Ruling 2019-0826011R3 under s. 66.1(6) – Canadian exploration expense – (f).

The validity of a s. 160 assessment of the taxpayer turned on whether the affiliate from which the taxpayer had received a transfer of property in 2003 should be regarded as having had its taxable income for 2000 reduced by a portion of its non-capital loss for 2002 that the affiliate had not claimed because the taxpayer and the affiliate had not found out about that additional loss until 2011, when the taxpayer made an ATIP request following the s. 160 assessment of it.

The taxable income of the affiliate for 2000 had arisen as a result of a 2005 settlement which had reduced a 2001 non-capital loss (and, thus, reduced the loss carryback to 2000), thereby leaving 2000 unsheltered. Although St-Hilaire J considered that there was no statutory authority for this (given the time limits in s. 152(6)), the CRA policy in such circumstances was to allow a taxpayer (i.e., the affiliate) to increase loss carry backs from other years, to offset the increased 2000 income. It made a request to carry back a loss from 2003 to 2000 (which CRA ultimately acceded to), but this was not enough to fully offset the 2000 taxable income.

Because it did not request the carryback of the additional 2002 loss in 2005 (even though CRA knew about it), this policy was to no avail. Furthermore, it was not possible to somehow treat the original request shortly after 2002 to carryback a smaller loss from that year to 2000 as carrying with it an implied request to carry back a larger loss (“discovered” in 2011) when, as a result of the 2005 settlement, use of that additional loss was now required.

In dismissing the taxpayer’s appeal, St-Hilaire J stated:

…[T]he Court is left with legislation that does not satisfactorily address the circumstances and an administrative policy that seemingly seeks to address the lacunae but for which there is no legislative authority. …

Neal Armstrong. Summaries of 1455257 Ontario Inc. v. The Queen, 2020 TCC 64 under s. 152(6), s. 160(1)(e)(ii) and General Concepts – Onus.

A cardiac surgeon, who carried on his medical practice through a professional corporation, successfully appealed a CRA denial of SR&ED credit claims respecting cardiac research which CRA claimed had been conducted by him in his personal capacity rather than as employee of his corporation. D’Arcy J stated:

He bills the Government of Ontario for such [medical] services in his own name. The Respondent does not challenge the Appellant’s position that any monies received in respect of such services are received by Dr. Lamy for and on behalf of the person providing the service, i.e., his employer, the Appellant. The result is the same with respect to the research activities: Dr. Lamy signed his own name on the contracts, but he provided the services as an employee of the Appellant.

It is helpful that this case did not challenge the proposition that the doctors’ professional corporations earn the professional income notwithstanding the required billing arrangements.

Neal Armstrong. Summary of Andre Lamy Medicine Professional Corporation v. The Queen, 2020 TCC 61 under s. 127(9) – qualified expenditure – (a) and s. 5(1).