News of Note

After referring to its adverse conclusion in 2021-0884651E5, CRA stated:

[T]he CRA is prepared to re-examine whether the cost recovery method should apply to Canadian resident taxpayers that are members of partnerships that sell shares subject to an earnout agreement. …

[It]s review … may take some time. Therefore, any change of position would likely be disclosed at a future CRA Round Table, rather than in the context of a technical interpretation.

Neal Armstrong. Summary of 1 February 2024 External T.I. 2023-0994141E5 under s. 12(1)(g).

CRA did not receive the taxpayer’s income tax return for its taxation year ending January 31, 2015 and assessed that year in June 2015 based on information in the taxpayer’s GST returns. On two occasions in 2017, the taxpayer attempted to file its 2015 return, but the CRA system did not accept the return and delivered an error message that such return had already been filed (when, in fact, what this was reflecting was that CRA had prepared the equivalent of a return in making its earlier assessment).

After the normal reassessment period had expired, the taxpayer sought an order of mandamus for CRA to accept a late-filed 2015 return.

In dismissing the application, Rochester J found that the Minister was not required to accept the return outside the normal reassessment period and that this did not change because of the misleading CRA error message, and noted that CRA had repeatedly requested that the taxpayer file the 2015 return.

Neal Armstrong. Summary of Animal Expert Maisonneuve Inc. v. Attorney General, 2024 CF 252 under s. 152(3.1).

Laskin JA found no reversible errors in the Minister’s findings that the charitable registration of the appellant (Sigma Chi), which described itself as an international fraternal organization, should be revoked:

• it was devoting the majority of its scholarship funds to Sigma Chi members and pledges (i.e., providing private benefits to its members through such “in-house” scholarships, contrary to s. 149.1(1)(a));
• it provided funds to non-qualified donees (contrary to s. 149.1(1)(a.1)) by making loans to Sigma Chi fraternity housing corporations, established to provide housing to members;
• it failed (also contrary to s. 149.1(1)(a.1))to maintain direction and control over the Horizon Scholarship program, a program partially funded by Sigma Chi and administered in the United States. (It had only one of the eight seats on the governing board, and only two of 16 on the selection committee, so that it did not have direction and control over the use of its funds.)

Neal Armstrong. Summaries of Sigma Chi Canadian Foundation v. Canada (National Revenue), 2024 FCA 59 under s. 149.1(1)(a) and s. 149.1(1)(a.1).

Although s. 13(12) deems the gain of a taxpayer from the disposition of a housing unit within 365 days of its acquisition to be an inventory gain, s. 12(13)(b)(viii) provides an exception for a disposition which inter alia can reasonably be considered to occur in anticipation of the taxpayer’s insolvency. CRA indicated that this exception might apply where an individual disposed of a housing unit to improve a declining financial situation (the costs associated with the housing unit caused the individual to have severe cash outflows resulting in maximizing credit cards in order to pay for basic needs). It stated that the exception applied where the taxpayer disposed of the housing unit “due to or in anticipation of the inability or lack of means to pay their debts as they become due” and that:

This could include circumstances where a taxpayer is relying on other forms of debt (such as credit cards) to pay for their basic personal expenses, the situation is expected to continue or has been ongoing for some time, and disposing of the housing unit would allow them to significantly improve their financial situation, thereby avoiding insolvency or becoming insolvent.

In other words, “anticipation” of insolvency includes reasonable “avoidance” of insolvency – even where the individuals concerned may have been the authors of their own misfortune.

Neal Armstrong. Summary of 30 January 2024 External T.I. 2023-0991461E5 under s. 12(13)(b)(viii).