Search - considered

Reasons for Judgment Lamarre, J.T.C.C. [1]      These are appeals from determinations by the Minister of National Revenue ("Minister") that the appellant was not entitled to the Canada Child Tax Benefit from September to November 1998 inclusive (1997 base taxation year) and July to November 1999 inclusive (1998 base taxation year) in respect of her son Patrick, who was born in August 1983. [2]      In making his decision, the Minister considered that, although Patrick was a "qualified dependant", the appellant was not an "eligible individual" within the meaning of section 122.6 of the Income Tax Act (" Act "). ... and for the purposes of this definition,             (f) where the qualified dependant resides with the dependant's female parent, the parent who primarily fulfils the responsibility for the care and upbringing of the qualified dependant is presumed to be the female parent,             (g) the presumption referred to in paragraph (f) does not apply in prescribed circumstances, and             (h) prescribed factors shall be considered in determining what constitutes care and upbringing.... [10]     Sections 6301 and 6302 of the Income Tax Regulations (" Regulations ") provide as follows: PART LXIII Child Tax Benefits NON-APPLICATION OF PRESUMPTION             6301. (1) For the purposes of paragraph (g) of the definition "eligible individual" in section 122.6 of the Act, the presumption referred to in paragraph (f) of that definition does not apply in the circumstances where... ... For the purposes of paragraph (h) of the definition "eligible individual" in section 122.6 of the Act, the following factors are to be considered in determining what constitutes care and upbringing of a qualified dependant:             (a) the supervision of the daily activities and needs of the qualified dependant;             (b) the maintenance of a secure environment in which the qualified dependant resides;             (c) the arrangement of, and transportation to, medical care at regular intervals and as required for the qualified dependant;             (d) the arrangement of, participation in, and transportation to, educational, recreational, athletic or similar activities in respect of the qualified dependant;             (e) the attendance to the needs of the qualified dependant when the qualified dependant is ill or otherwise in need of the attendance of another person;             (f) the attendance to the hygenic needs of the qualified dependant on a regular basis;             (g) the provision, generally, of guidance and companionship to the qualified dependant; and             (h) the existence of a court order in respect of the qualified dependant that is valid in the jurisdiction in which the qualified dependant resides. [11]     It is not in dispute that Patrick was a qualified dependant. ...

In so reassessing the Appellant, the Minister relied, inter alia, upon the following assumptions: a) The facts as admitted and stated hereinbefore; b) Dennis Barnes and Janet Barnes were married to each other at all relevant times; c) The Appellant was incorporated on September 1, 1992 as part of a reorganization involving Edmonton Elevator, J & N, and Ideal Technical Corporation; d) Before the reorganization, the three latter corporations were controlled by Dennis and Janet Barnes in such a manner that the three corporations were associated for purposes of claiming the small business deduction; e) In the reorganization, the active business assets of Edmonton Elevator were transferred to the Appellant and the Barnes Family Trust (the "Trust") was set up; f) The Trust was a fully discretionary inter vivos trust of which the beneficiaries were the two children, who were under 18 years of age, of Dennis and Janet Barnes; g) After the reorganization, the shares of the corporations were owned as follows: Appellant Owned By 100% Class A common voting shares Dennis Barnes 100% Class B common non-voting shares Trust Edmonton Elevator 100% Class A common voting shares Janet Barnes 100% Class C preferred non-voting shares Dennis Barnes J & N 100% Class A common voting shares Edmonton Elevator Ideal Technical Sold to unrelated party h) No new capital was infused into the corporations to account for the additional shares which were issued in the reorganization; i) After the reorganization, both Dennis and Janet Barnes remained equally active in the business operations of their corporations; j) Edmonton Elevator and J & N filed their 1993 T2 tax returns on the basis that they were associated with each other and allocated $199,614 of the $200,000 annual business limit to Edmonton Elevator; k) In the Appellant's 1993 taxation year, Edmonton Elevator owned all the common shares of J & N and these two corporations were therefore associated pursuant to s. 256(1)(a) of the Act; l) the Appellant filed its 1993 T2 tax return on the basis that it was not associated with any other corporation; m) Although all of the Appellant's Class B common shares of its capital stock were owned by the Trust, those shares are deemed to be owned by the children pursuant to s. 256(1.2(f)(ii) of the Act, because the children's share of the accumulating income or capital from the Trust depended on the exercise of discretion by a person; n) Further, the children did not take any part in the management of the business and affairs of the Appellant and their deemed shares of the Appellant are deemed to be owned by Janet Barnes pursuant to s. 256(1.3) of the Act; o) In the Appellant's 1993 taxation year, all of the common shares of the capital stock of Edmonton Elevator were owned by Janet Barnes; p) Neither the above shares of Edmonton Elevator, nor the shares of the Appellant which are deemed to be owned by Janet Barnes, were shares of a specified class within the meaning of s. 256(1.1) of the Act; q) Therefore, in its 1993 taxation year, the Appellant was associated with Edmonton Elevator pursuant to s. 256(1)(c) of the Act, and also with J & N pursuant to s. 256(2) of the Act; r) The Minister correctly allocated $199,614 of the annual business limit to Edmonton Elevator, as filed, and the remaining $386 to the Appellant; s) It may reasonably be considered that one of the main reasons for the separate existence of the Appellant, Edmonton Elevator and J & N in the Appellant's 1993 taxation year was to reduce the amount of taxes that would otherwise be payable under the Act, within the meaning of s.256(2.1) of the Act. ... The issues to be decided in this appeal are: a) Whether the Appellant was associated with Edmonton Elevator and J & N pursuant to s. 256(1)(c) of the Act, on the basis that Janet Barnes controlled Edmonton Elevator, that she was related to the person who controlled the Appellant, and, further, that she is deemed pursuant to s. 256(1.3) to own all of the Class B common shares of the Appellant; b) Whether the Appellant was associated with Edmonton Elevator and J & N pursuant to s. 256(2.1) of the Act, on the basis that it may reasonably be considered that one of the main reasons for the separate existence of the Appellant, Edmonton Elevator and J & N was to reduce the amount of taxes that would otherwise be payable under the Act. [4] Assumptions 6(b), (c), (d), (e), (f), (g), (h), (j), (k), (l) and (o) are correct or were not refuted. ... (ii) where a beneficiary's share of the accumulating income or capital therefrom depends on the exercise by any person of, or the failure by any person to exercise, any discretionary power, those shares shall be deemed to be owned at that time by the beneficiary, except where subparagraph (i) applies and that time is before the distribution date, (Subparagraph (i) does not apply.) (1.3) Where, at any time, shares of the capital stock of a corporation are owned by a child who is under 18 years of age, for the purposes of determining whether the corporation is associated at that time with any other corporation that is controlled, directly or indirectly in any manner whatever, by a parent of the child or by a group of persons of which the parent is a member, the shares shall be deemed to be owned at that time by the parent unless, having regard to all the circumstances, it can reasonably be considered that the child manages the business and affairs of the corporation and does so without a significant degree of influence by the parent. ...

There was no evidence before the Court from which it could satisfactorily conclude that the steps that she was taking between 1994 and 1995 to decrease her expenses were in fact working. [9]            In order for the Appellant to be successful here, there has to be enough evidence that the changes that she took were sufficient to bring about a change and that she could go from a business not having a reasonable expectation of profit in 1994 to having a reasonable expectation of profit in 1995. [10]          With respect to the start-up period the Minister certainly allowed a sufficient start-up period between 1991and 1995. [11]          The Court has considered the cases referred to and some of these are helpful. ... Secondly, and significantly in one of the cases referred to, the business was terminated when the Appellant finally realized that profits were not realistically attainable, but the Appellant here continued on. [15]          This Court is satisfied that by 1995 the Appellant should have realized that profits were not realistically attainable. [16]          Again, in one of the cases referred to, Judge O'Connor said that it would not be unreasonable to suggest that a new start-up period should have been considered when the Appellant moved the business to Saskatoon. ... Counsel suggested that what it was is that she had to move the location of her business. [22]          Further, he suggested that when the Court considers the reasonable expectation of profit test, it has to consider that there were some personal factors that were considered by the Court in Tonn v. ...

To formulate a decision then, the overall evidence must be considered taking into account those of the tests which may be applicable and giving to all the evidence the weight which the circumstances may dictate. ... The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk be taken, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task. ... Cameron was cross-examined vigorously by counsel on behalf of the Company. [10] It is clear that up until February 1996, Cameron was considered an employee of the Company. ...

President or Vice President) shall be considered an employee of the Federation. ... He was of the opinion that such would not, as a result of that clause be considered as employment. ... Thus the practice developed of this administrative position being first offered to the Vice–President upon his election, and it seems that, generally speaking, they took up that position. [17] With respect, I find that this is a misinterpretation of the Article of the constitution in question, which in my view does nothing more than to say that if the President, Vice-President or a Director receives remuneration as director’s fees (which generally speaking they did not) or for the holding of any office (which only the President did as no payment was made for the position of Vice–President per se) they would not be considered thereby as an employee of MMF. ...

To formulate a decision then, the overall evidence must be considered taking into account those of the tests which may be applicable and giving to all the evidence the weight which the circumstances may dictate. ... The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk be taken, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task. ... They are the same in each case and are as follows: "(a) the Appellant's business consists of 22 beauty salon which have their own manager; (b) the Appellant's shareholders are as followed: Conforti Holdings Ltd. 50% Monzer Alsmaman 50% (c) the worker was hired as nail technician; (d) according to the Appellant's payroll records for the years 1994 and 1995, the worker's employment status was as follows: January 1, 1994 to March 19, 1994 employee (Period 1) March 20, 1994 to April 29, 1995 Self-employed (Period 2) April 30, 1995 to November 4, 1995 Employee (Period 3) (e) the reason for lay off was maternity leave; (f) the worker's rate of pay was established at 70% of the gross income generated by herself; (g) the worker's hours of work were determined by the clients appointments but had to be within the hours of the beauty salon; (h) the required equipment such as brush, nail polish, nail dryer were provided by the worker but the expenses were reimbursed by the Appellant when she was considered an employee; (i) the worker had to perform her services personally; (j) the Appellant maintains the right to terminate the worker's services; (k) the worker's services were integrated to the Appellant's business; (l) the worker's conditions of employment during the three periods referred to in paragraph (e) were the same except that during periods 1 and 3 the Payor reimbursed the worker for the cost of supplies while in period 2 the worker paid for the supplies; (m) the worker was employed by the Appellant pursuant to a contract of service; (n) the Appellant did not withhold unemployment insurance premiums (Canada Pension Plan contributions) from the worker's remuneration. ...

(Markham, Butterworths, 1990) at page 9, defined an agency relationship as: "Agency is the relationship that exists between two persons when one, called the agent, is considered in law to represent the other, called the "principal" in such a way as to be able to affect the principal's legal position in respect of strangers to the relationship by the making of contracts or the disposition of property." [20] The Minister in a draft policy (P-182) has considered the issue of agency in which he identified three essential characteristics in an agency relationship, more or less identical to the ones established by Professor Fridman. ... However, this is only one of many factors to be considered in determining whether the Appellant made a taxable supply. ...

If he satisfies the first test but not the second then a restricted farm loss of $5,000 (now $8,500) is imposed under section 31 of the Income Tax Act... [17] In Moldowan, supra, Dickson J. states at page 485: If the taxpayer in operating his farm is merely indulging in a hobby, with no reasonable expectation of profit, he is disentitled to claim any deduction at all in respect of expenses incurred. [18] Moreover, Robertson J.A. writes in Donnelly, supra: If the taxpayer is unable to satisfy the first test no losses are deductible.... [19] In order to claim losses, the appellant had to meet the first test before the second test could be considered, regardless of whether the activity in question was his primary source of income or not. [20] Was there a reasonable expectation of profit? ... The following criteria should be considered: the profit and loss experience in past years, the taxpayer's training, the taxpayer's intended course of action, the capability of the venture as capitalized to show a profit after charging capital cost allowance. [22] In light of these remarks by Dickson J., the evidence did not show that the farming business had a reasonable expectation of profit. ... In my view, a taxpayer cannot simply estimate distances travelled in the hope that this will suffice as an adequate accounting of mileage actually completed in the course of business for which expenses are claimed as a business expense. [39] Expenses may be considered deductible if they are incurred in order to earn income. ...

Based on financial projections made prior to the transaction, the appellant considered the financial impact over five years and opted to rent rather than own, as is constantly done with respect to automobiles; 7. According to Investissement et financement immobilier — Outils d’analyse et d’évaluation by Dominique Achour, when capital gains and inflation are no longer factors to be considered, the focus must be on the cash flow mathematics in order to determine the wise choice for the taxpayer; 8. ... The potential injustices resulting from inaccessibility because of high cost or complexity certainly are not relevant and cannot be considered. [8] Nor can the Court assess the theoretical, abstract quality of hypothetical theories. ...

However, if the motion should be dismissed then the Court would proceed to consider the appeal on its merits. [4] Both parties submitted written memorandum on this issue and the Court has considered those written memorandums in making its decision on the motion of the Appellant to allow the appeal because the provisions of the Act were not complied with. [5] This issue was considered by Christie, ACJTC, as he then was, in the case of Anthony M. ... However, Judge Christie considered this was an administrative oversight only, and of itself could not determine the question whether the reassessments under appeal were correct of not. ...