2 total
Appeal dismissed; bad debt deduction denied as parties were not at arm's length and tax was unremitted.
The appellant appealed an assessment denying a bad debt deduction under section 231 of the Excise Tax Act for uncollected GST on the assignment of a property.
The Tax Court of Canada dismissed the appeal, finding that the appellant and the recipient corporation were not dealing at arm's length because the appellant and his spouse controlled the corporation.
Furthermore, the appellant failed to meet the mandatory conditions of subsection 231(1.1) because the tax collectible was never included in the net tax reported and was never remitted.
Court upheld recognition of corrective amendments to tax-planning contracts; revenue appeals dismissed.
These consolidated tax-planning appeals concerned errors in transactional documents that failed to reflect the parties’ common contractual intentions under Quebec civil law.
The Court held that, where parties mutually recognize drafting or implementation errors and amend their acts to align with their true agreement, courts may interpret and recognize those amendments under art. 1425 C.C.Q. The Court emphasized the distinction between exchange of consents and written expression, and rejected any acquired right of tax authorities to benefit from contractual errors once corrected by mutual consent, subject to third-party rights.
It also clarified that civil courts in such proceedings do not adjudicate the validity of tax assessments, which remain for competent tax forums.
The appeals were dismissed with costs throughout.
