These joined income tax appeals concerned reassessments arising from a closely held real-estate development structure involving undeclared income on lot transfers, shareholder benefits, disallowed infrastructure and machinery expenses, input tax credits, and gross-negligence penalties.
The court held that the transfers of the lots occurred on the notarized deed dates, not earlier as alleged, but accepted the retrospective fair market values in the appellants' valuator's amended reports after the Crown admitted them.
Most disputed infrastructure and Pelle 320 expenses remained disallowed, although several specific expense items were accepted.
The court rejected the Minister's inclusion of claimed input tax credits in income under paragraph 12(1)(x) and subsection 248(16), holding the statutory mechanism did not apply on the record as assessed.
The Minister also failed to prove knowing false statements or gross negligence under subsection 163(2), so all penalties were vacated.
The appeals were allowed, the reassessments were referred back for reconsideration and reassessment, and no costs were awarded.
