Kristen Duerhammer

The Appellant appealed reassessments for its 2014, 2015, and 2016 taxation years, seeking to carry back a non-capital loss from 2017.

The 2017 loss was based on a terminal loss from the disposition of Class 13 property.

The Appellant argued it could unilaterally adjust its initial capital cost allowance (CCA) claims from 1997-2003 downwards to increase the undepreciated capital cost balance and the resulting terminal loss, because the Minister had issued nil assessments for those years.

The Tax Court of Canada dismissed the appeal, holding that the Income Tax Act does not permit a taxpayer to unilaterally adjust discretionary CCA claims retroactively to avoid the expiration of non-capital losses.

The Minister reassessed the appellant under the transfer pricing rules in section 247 of the Income Tax Act, reallocating all profits earned by a related Barbados corporation from the sale of a herbicide to the appellant's income.

The Minister argued the transactions were a sham, or alternatively, that they should be recharacterised or adjusted because arm's length parties would not have entered into them or agreed to the same terms.

The Tax Court of Canada allowed the appeal, finding no evidence of deceit to support a sham.

The court held that the Barbados corporation bore real risks, owned the inventory, and performed valuable functions.

Furthermore, the appellant demolished the Minister's assumptions by providing unrefuted expert evidence that the service fee paid to the appellant was within a reasonable arm's length range.

The reassessments and associated penalties were vacated.