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Canada, 2020 FCA 90-- summary under Paragraph 149(1)(d.5) Summary Under Tax Topics- Income Tax Act- Section 149- Subsection 149(1)- Paragraph 149(1)(d.5) LPIC was not exempt under s. 149(1)(d.5) because its owner, the Law Society, did not provide municipal-type services The Tax Court found that the appellant (“LPIC”) did not qualify under s. 149(1)(d.5) as being owned as to more than 90% by a “municipal or public body performing a function of government in Canada” because its parent, the Law Society of Upper Canada, although a “public body,” did not satisfy the test of “performing a function of government ”- it performed various functions in the course of regulating the legal profession, but not in the course of governing people located in Ontario. In dismissing LPIC’s appeal, Mactavish JA noted: “If the scope of the phrase ‘public body performing a function of government in Canada’ … were as broad as LawPRO says it is, it would not have been necessary for Parliament to have included the words ‘a municipal or’ in the phrase ‘a municipal or public body performing a function of government in Canada’. “ (para. 52) “The marginal note that accompanies paragraph 149(1)(c) refers to the provision as relating to ‘[m]unicipal authorities’, suggesting that in using the phrase ‘a municipality in Canada, or a municipal or public body performing a function of government in Canada’, Parliament intended to exempt municipalities and ‘municipal-type’ authorities.” ...

In rejecting this submission, Webb JA stated that, under a textual approach (para. 43): … [S]ubparagraph [247(2)(b)(i)] raises the issue of whether the transaction or series of transactions would have been entered into between persons dealing with each other at arm's length (an objective test based on hypothetical persons) not whether the particular taxpayer would have entered into the transaction or series of transactions in issue with an arm's length party (a subjective test). … Furthermore (para. 46): If the Crown's interpretation is correct, then whenever a corporation in Canada wants to carry on business in a foreign country through a foreign subsidiary, the condition in subparagraph 247(2)(b)(i) of the Act would be satisfied. ... In his conclusions, Webb JA stated (at para. 81): …[T]he rules in paragraph 247(2)(b) and (d) … do not allow the Minister to simply reallocate all of the profit of a foreign subsidiary to its Canadian parent company on the basis that the Canadian corporation would not have entered any transactions with its foreign subsidiary if they had been dealing with each other at arm's length. ...

After noting (at para. 38) that “increasing the adjusted cost base of the partnership interest by both the fair market value of the transferred properties and the elected amount gives rise to an absurd result,” Noël CJ stated (at para. 48): The Tax Court judge [found] … that the transfers, including the first, occurred after the partnership had been created. Specifically, the appellant’s partnership interest had already been acquired when the shopping centres were transferred, thereby eliminating any possibility that, in addition to the subsection 97(2) adjustment, the partnership interest could be increased under section 54 by the “cost”, i.e. the fair market value, of the transferred property …. ... As well, the Tax Court judge correctly held that the Act tracks the partnership interest as a whole rather than as individual units in “subdivision C dealing with capital gains and capital losses or in subdivision J dealing with partnerships” …. ...

In confirming the Tax Court’s dismissal of the taxpayer’s motion to compel answers to these and other questions, Locke JA first indicated (at para. 22) that it was “tempting to … [consider] that documents must be publicly available in order to be relevant to statutory interpretation,” but then also noted (at para. 30) that Upper Churchill [1984] 1 S.C.R. 297) “leave[s] room for cases where extrinsic evidence will not be relevant, but it also limits the issues to which such evidence might be relevant.” ... In this regard, he agreed (at para. 19) with the Tax Court’s view that “that earlier drafts of a final position paper do not have to be disclosed, and … that even where relevance is established, the Court has a residual discretion to refuse document production.” ... That document is hence similar to the “earlier drafts of a final position paper” which do not have to be disclosed …. ...

. … The Tax Court [under s. 171(1)] can only vacate, vary or refer an assessment back to the Minister. The opinion rendered by the Minister under subsection 247(10) … is not an assessment, although it will affect an assessment. … Even if the Tax Court could review the opinion without quashing it, since the existing opinion would remain in place (and therefore there would not be an opinion of the Minister that it would be appropriate to make the downward adjustment), on what basis could the assessment be referred back to the Minister? ...

. … Mr. Racine cannot be said to have sat in appeal from a decision he made. ... Sokol. … Dr. Sokol’s evidence was clear, compelling, and demonstrated the appellant’s knowing involvement in the scheme. … Although the above was sufficient in itself to result in the dismissal of this appeal, for the sake of completeness Gleason JA also addressed the other arguments, finding that the organization “had inadequate control over the distribution of funds in Israel” (para. 60); it did not ensure that that the agent used the charity’s resources to carry out activities on the charity’s behalf (paras. 63 and 44); it failed to keep accurate books and records by falsifying minutes of Board of Directors’ meetings and not maintaining documentation to support travel expenses, remuneration paid to fundraisers, activities in Israel and the donation scheme (para. 65); and it failed to file accurate information returns (paras. 74 and 75). ...

In rejecting this submission, Gleason JA stated (at paras. 15, 16): On its plain meaning, a deeming provision does not constitute an “election” or “appointment” …. … This textual interpretation is also supported by the interpretive presumption of consistent expression, which would require, unless the context dictates otherwise, that the terms “elected” and “appointed” be given a meaning in subsection 119(2) that is consistent with other provisions in the OBCA where these terms are used …. ...

. … Mr. Barrs finds himself faced with an interest bill that far exceeds those of the taxpayers who made their requests for relief in 2004. ... Given that the independent third-level review officer failed to engage with the request for greater relief in the open years to ensure equitable treatment, his decision must be set aside. … Failure to engage with an important argument advanced by a party will generally render an administrative decision unreasonable [citing Vavilov] …. ...

In reversing the Tax Court and in finding that the non-capital losses were deductible, Webb JA noted that, under Stewart, the test of whether “the activity is being carried out in a commercially sufficient manner to constitute a source of income” (Stewart, at para. 60) was only engaged “if there is a hobby or personal element to the activity in question” (Brown, at para. 26), and stated (at paras. 27, 29): … Mr. Brown’s decision to provide these management services as a result of his wife’s inability to continue to manage the gallery, does not mean that there is a personal or hobby element to his management services activity …. ... It is possible to find a personal reason why any person is carrying on a particular activity. … Since there was no personal or hobby element in Mr. ...

She stated (at para. 11) that “this Court has already determined that it is reasonable for the Minister to have regard to the diligence of a taxpayer in circumstances such as this: Denso Manufacturing … 2021 FCA 236 ” and that “even if … the Minister applied the wrong test in denying its applications for late filing, [the Bank] was still required to provide a reasonable explanation for its delay under the Hennelly test, which it failed to do.” ...