Subsection 245(5) - Determination of tax consequences

See Also

1245989 Alberta Ltd. v. The Queen, 2017 TCC 51, rev'd sub nom. Wild v. Canada, 2018 FCA 114

assessment of PUC without current income effect

The CRA assessment reducing paid-up capital of shares held by an individual shareholder (thereby reversing an abusive bump to such PUC) without any disclosed effect on his current taxable income, was confirmed.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(1) the use of class PUC-averaging to bump the PUC of personally-held shares was an abuse of s. 84.1 701
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) use of PUC-averaging rule to bump outside PUC was abusive 273

Subsection 245(6)


2763478 Canada Inc. v. Canada, 2018 FCA 209

individual allegedly suffering double taxation re s. 245(2) denial of capital loss of his corporation failed to apply under s. 245(6) within 180 days

An individual (Jobin) did not sell his shares of an operating company (Groupe AST) directly to a third-party purchaser, but instead transferred them on a s . 85(1) rollover basis into a holding company (276), following which some internal transactions occurred in which the adjusted cost base of the Groupe AST shares was stepped up to fair market value - including a non-rollover drop-down of those shares to a subsidiary (9144) in exchange for high-basis common shares - with 276 realizing corresponding capital gains. The Groupe AST shares were then sold to the purchaser at no additional gain.

Nine months later in the same year, 276 engaged in “value shift” transactions, i.e., a stock dividend of high-low preferred shares was paid on the high-ACB common shares that 276 held in 9144, thereby rendering those common shares almost worthless, and then the capital loss was realized by selling those common shares for $1 to a corporation owned by Jobin’s son.

After confirming the Minister’s denial of recognition of the loss by 276 under s. 245(2), NoëL CJ turned to its submission that it was unreasonable to so deny the loss because the corresponding gain that Jobin would be deemed to realize on his death under s. 70(5). NoëL CJ noted various obstacles to this argument including that the quantum of any such gain on death was speculative, and that (para. 68, TaxInterpretations translation):

[I]t is the disposition of shares held by Mr. Jobin which gives rise to the double taxation. It follows that it is the tax attributes to Mr. Jobin which would need to be changed in order to eliminate this double taxation and not those of the appellant [276]. Mr. Jobin was in the position to advance his rights in this regard by virtue of subsections 245(5) and (6) subject, however, to him making a request within 180 days following the issuance of the assessment against the appellant.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(10) 9 month separation did not avoid series 290
Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) not each transaction in series effecting an estate freeze had that objective 417
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) value shift transactions that permitted the absorption of a real gain by a paper loss abused the basic capital gains regime 317

Subsection 245(7) - Exception


S.T.B. Holdings Ltd. v. Canada, 2002 DTC 7450, 2002 FCA 386

The Court rejected a submission that s. 245(7) required that, in order for GAAR to be applied, the reassessment notice must state on its face that GAAR is being utilized and GAAR must be the primary assessing position. The Tax Court judge had correctly interpreted the word "following" to mean "after". S.245(7) referred to a prior GAAR application to a taxpayer resulting in a subsequent determination of the tax consequences for another, i.e., s. 245(7) was intended to apply only to third parties seeking a tax relief - a conclusion that was supported by the French version and the sandwiching of s. 245(7) between two subsections geared toward third-party adjustments.

Words and Phrases

See Also

J.K. Read Engineering Ltd. v. The Queen, 2014 DTC 1216 [at 3872], 2014 TCC 309

GAAR applies to impose liability for abusive transactions from inception

The taxpayers acknowledged that capital losses (purportedly generated under schemes similar to Global Equity, 1207192 and Triad Gestco) should be denied under GAAR, but argued (based on s. 245(7)) that as GAAR could not be applied without the intervention of the Minister, interest began to accrue only from the time of the GAAR assessments.

Hogan J found that in Copthorne, the taxpayer was liable for failure to withhold on a deemed dividend that arose because of GAAR already having applied to reduce the related shares' paid-up capital. The taxpayers' argument was contradicted by the "authoritative obiter" in S.T.B. that s. 245(7) applied to third parties only. Furthermore, after noting the references in s. 245(7) to tax consequences to a person "following" the application of s. 245 being determined by assessment, he stated (at para. 39) that the definitions of "following" in dictionaries "clearly indicate that the notice of assessment does not trigger the application of the GAAR, but is rather subsequent to it." He concluded (at para. 43):

I see nothing …to suggest that the application of the GAAR is suspended until an assessment is issued. On the contrary, subsection 245(2)…uses mandatory language to provide that the tax consequences of abusive avoidance transactions shall be recast to deny tax benefits that are not reasonable in the circumstances.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - General Concepts - Stare Decisis weight of obiter depends on fulness of argument 93
Tax Topics - General Concepts - Stare Decisis weight of obiter depends on fullness of argument 93
Tax Topics - Income Tax Act - Section 161 - Subsection 161(1) interest under GAAR assessments accrued from balance due dates 54

Copthorne Holdings Ltd v. The Queen, 2007 DTC 1230, 2007 TCC 481, aff'd 2011 SCC 63

taxpayer not allowed to self-assess under GAAR

The paid-up capital of the taxpayer was found to be higher than was appropriate in light of the object and spirit of the provisions of the Act with the result that redemption proceeds paid by it to a non-resident shareholder were successfully assessed under GAAR as being subject to Part XIII tax. In finding that the amount of the withholding tax was not subject to penalty under s. 227(8)(a), Campbell J. first noted that s. 227(8) established a strict liability rather than absolute liability penalty and further found (at para. 78) that as "there is nothing in the GAAR provisions that would allow a taxpayer to self assess on the basis that GAAR applies," a penalty should not be imposed as a consequence of the successful application of GAAR by the Minister.

Administrative Policy

GST/HST Memorandum 16-4 "Anti-avoidance Rules" 20 February 2015

12. …[T]he determination of the tax consequences to any person, resulting from the application of [ETA] section 274, will only be made through a notice of assessment, reassessment, or additional assessment. A person cannot use subsection 274(2) to revise their tax payable, or any other amount, without requesting an adjustment under the procedure outlined in subsection 274(6).