Tax Law - SCJ

Discharge hearing for a bankrupt real estate agent who filed for bankruptcy in October 2020 with significant debts including a substantial costs award from family law proceedings.

The Trustee opposed discharge on multiple grounds including failure to comply with surplus income obligations under section 68 of the Bankruptcy and Insolvency Act, failure to perform duties under the Act, and unjustifiable extravagance in living.

The bankrupt earned over $590,000 in gross income during the bankruptcy period but dissipated funds without remitting tax or HST installments.

The court found multiple section 173 facts proven and imposed a conditional discharge requiring payment of $40,000 plus 20% of proven claims, along with tax compliance conditions.

The court considered whether a United States gift tax liability arising from a 2009 transfer of Florida property by the deceased, Carolyn Alexander, was a just debt of her Ontario estate.

The applicant, Carrie Lynn Dyjack, sought the court’s direction after paying the tax and related expenses personally.

The court found that the U.S. Gift Tax was a proper liability of the estate, rejecting the respondent’s arguments that the tax was not intended to be paid from the estate, that it was a “charge” payable by the beneficiary under the Succession Law Reform Act, or that it was unenforceable in Canada.

The court ordered the estate to reimburse the applicant for the tax and related expenses.

The applicant, a non-profit corporation operating a seniors' apartment complex, sought a municipal property taxation exemption under s. 3(1)(12)(iii) of the Assessment Act, claiming to be "organized for the relief of the poor." The Municipal Property Assessment Corporation opposed.

The court dismissed the application, finding that the applicant did not demonstrate the required "endeavour" to relieve poverty as interpreted by the Court of Appeal in Religious Hospitallers of St. Joseph Housing Corp. and reaffirmed in Stamford Kiwanis Non-Profit Homes Inc. The court also found insufficient evidence that the majority of the applicant's tenants were "poor" within the meaning of the legislation, despite some units being Rent Geared-to-Income and a means test for others.

The applicant mother sought an advance on equalization of $10,505,000 to address significant income tax liabilities related to corporate assets managed by the respondent father in her name.

The respondent father brought a cross-motion to set aside or vary existing preservation orders, arguing financial transparency and hardship.

The court granted the applicant an advance on equalization of $7,975,007.60, finding a clear need for the funds to discharge tax liabilities created by the respondent and that the advance would not exceed the likely final equalization payment.

The court dismissed the respondent's cross-motion, finding his financial disclosure lacked transparency and his claims of hardship were unsubstantiated.

The applicants, trustees of two family trusts, sought rectification of sections of their trust deeds nunc pro tunc to correct a drafting error.

The error inadvertently prohibited the distribution of dividends from a family operating company (Signature Realty Inc.) to a corporate beneficiary (2267134 Ontario Inc. or "Holdco"), contrary to the parties' original intention for tax-efficient asset reduction.

The Canada Revenue Agency (CRA) had reassessed the trusts based on this prohibition.

The court applied the four-part Fairmont test for rectification, finding that a clear prior agreement existed, the instrument failed to accurately record it, the agreement was still effective, and rectification would carry out the agreement.

The court distinguished this case from situations involving retroactive tax planning, as the parties sought to correct a document that did not reflect their unchanged agreement, rather than to amend the agreement itself to avoid tax consequences.

The Attorney General of Canada did not oppose the application.

The appellant, a mining services corporation, appealed reassessments disallowing its claim for the Ontario Manufacturing and Processing Profits (MPP) tax credit for the 2007 and 2008 taxation years.

The central issue was whether the appellant had "mining profits" as defined by the Corporations Tax Act, specifically whether its income was from a mineral resource "operated by it" or from "processing of ore." The court applied a textual, contextual, and purposive analysis to the terms "operated" and "processing." It found that the appellant, as a contractor providing mine infrastructure services, did not "operate" the mineral resources (which were controlled by Vale) nor did its income derive from "processing" ore, as its work was related to the production of ore rather than its transformation.

Consequently, the appellant did not qualify for the tax credit, and its appeal was dismissed.

The plaintiff, a CPA, sued his former lawyer for breach of contract and solicitor negligence, alleging improper advice regarding tax liability on a forgiven employment loan.

The plaintiff claimed the lawyer failed to advise him that he would be responsible for taxes on a $125,000 loan forgiveness from his former employer, Gemstar, and that Gemstar had agreed to pay these taxes.

The defendant lawyer asserted he advised the plaintiff that the documents did not obligate Gemstar to pay taxes and that the plaintiff, as a CPA, was aware of the tax implications of loan forgiveness.

The court found the plaintiff's evidence unreliable and preferred the defendant's, concluding that Gemstar never agreed to pay the taxes and that the lawyer provided correct advice regarding the loan forgiveness extinguishing the debt.

The court dismissed the action, finding no breach of the standard of care or compensable damages, and no loss of a real chance to sue Gemstar or negotiate a better deal.

The Receiver, KPMG Inc., sought court approval for an asset purchase agreement for a medical office building, authorization for distributions to secured creditors, approval of its activities, and its discharge.

The motion also included requests to seal and unseal confidential documents.

All relief sought was unopposed.

The court applied the Soundair Principles to approve the sale, authorized payment of real estate commissions, and approved the proposed distribution to the applicants, noting that the net sale proceeds were insufficient to satisfy secured obligations.

The court also addressed the issue of HST arrears and deemed trust claims, concluding no further action was needed due to the proposed bankruptcy and the "prescribed security interest" exception.

The Receiver's activities were approved, and a limited release was granted upon filing of a discharge certificate.

This motion concerned competing applications between two sets of shareholders of a family farm corporation regarding the enforcement of a settlement agreement for the division of corporate assets.

The agreement included a 'tax condition' requiring each party's tax counsel approval in their sole discretion.

One party refused to waive this condition, citing tax uncertainties.

The court analyzed the duty to exercise contractual discretion in good faith, finding that the refusal was not a good faith exercise of discretion, as the concerns were abstract or previously known.

The court enforced the minutes of settlement and further ruled that a general increase in milk quota, not explicitly addressed in the settlement, should be considered an 'other asset' of the corporation to be divided equally, rather than solely benefiting the party receiving the quota.

The applicants sought partition and sale of a jointly owned recreational property under the Partition Act.

The respondents opposed, arguing a co-ownership agreement governed the dispute and that the applicants acted in bad faith.

The court found the co-ownership agreement inoperable regarding fair market value and tax implications, and that the respondents were not acting reasonably or in good faith by arbitrarily determining the property's value.

The court exercised its discretion to grant the application for sale.

The defendant, TD Waterhouse Canada Inc., brought a motion for summary judgment to dismiss the plaintiff's action.

The plaintiff, Zhe Chen, alleged negligence by TD Waterhouse regarding margin account management, foreign exchange losses, trading restrictions, and incorrect tax reporting (T-5008 forms) which led to an erroneous CRA assessment.

The court found that the contractual agreements entitled TD Waterhouse to manage accounts as it did, without notice, and that there was no misrepresentation or breach of good faith.

Regarding the tax issue, while TD Waterhouse may have breached a statutory duty by not filling in cost information on T-5008 forms, it provided a CRA-approved T-5008 Summary with all necessary information.

The court found no basis to establish a duty of care for the foreseeable harm caused by the plaintiff's accountant's bad advice or the plaintiff's failure to file tax returns.

The motion for summary judgment was granted, dismissing the action.

Mary Aquino brought a motion for a garnishment hearing under Rule 60.08(16) of the Rules of Civil Procedure to vary garnishment letters issued by the Minister of Finance.

The Minister had assessed Aquino for her common law spouse's pre-existing unpaid tax debt under the Retail Sales Tax Act (RSTA) and subsequently issued garnishment letters against her commissions and wages.

The court dismissed Aquino's motion, holding that Rule 60.08(16) does not apply to the Minister's garnishment letters issued under section 36 of the RSTA, and therefore, the court lacked jurisdiction to grant the requested relief.

The applicants sought an urgent interlocutory injunction or stay to prohibit an arbitrator from hearing further proceedings related to HST issues, pending the determination of an application for leave to appeal the arbitrator's award.

The court dismissed the motion, finding that the applicants failed to establish a serious issue to be tried, irreparable harm, or that the balance of convenience favored granting the injunction.

The court emphasized deference to the arbitrator's scheduling decisions and the limited scope for judicial intervention in arbitration matters, particularly when a party attempts to re-litigate issues or change positions taken during the arbitration.

The defendants, a law firm and lawyer, brought a motion to temporarily stay a negligence action against them.

The plaintiffs, estate trustees, had sued the defendants for allegedly negligent advice regarding a share transfer to a charitable foundation, which led to a significant tax liability after a Canada Revenue Agency reassessment.

The plaintiffs had also appealed this reassessment to the Tax Court of Canada.

The court granted the temporary stay, finding a substantial overlap of issues and factual background between the negligence action and the tax appeal.

It concluded that the outcome of the tax appeal would significantly influence, if not be determinative of, the negligence claim, and that a stay would avoid unnecessary and costly duplication of judicial and legal resources without causing significant prejudice to the plaintiffs' access to justice.

The Gordin Family Members, defendants by counterclaim, brought a Rule 21 motion to strike portions of the counterclaim and dismiss it against them.

The counterclaim by Residences of Springhill Inc. (RSH) alleged fraudulent misrepresentation, civil fraud, and breach of contract related to an underpayment of HST on a condominium unit sale.

The court found no reasonable cause of action against the Gordin Family Members, as the pleadings failed to establish causation for the alleged torts and the breach of contract claim was negated by RSH's admission of receiving the full purchase price including HST.

The motion was granted, and the counterclaim was dismissed against the Gordin Family Members.

The defendants brought a motion for summary judgment, arguing the plaintiff's claim for negligent financial advice and misrepresentation was statute-barred under the Limitations Act, 2002.

They contended the plaintiff discovered her claim by August 2009 when she had concerns about her Individual Pension Plan (IPP) and sought legal advice.

The plaintiff argued the limitation period did not begin until September 28, 2011, when the Canada Revenue Agency (CRA) officially deregistered her IPP, as she could not have known of her loss or that a legal proceeding was appropriate before this final determination, especially given the defendants' prior reassurances.

The court dismissed the defendants' motion, finding the claim was timely.

Capcorp Planning (2003) Inc. appealed an assessment of Ontario Sales Tax and a penalty levied by the Minister of Revenue for non-remittance of tax on premiums paid for its extended health care plans.

The central issue was whether these plans, identified as "unfunded benefits plans" under the Retail Sales Tax Act, were exempt from tax because the risks covered could not "otherwise be obtained by taking out a contract of insurance." The court found that the plans were indeed unfunded benefits plans and, based on uncontradicted evidence that purchasers could not obtain alternative health insurance due to pre-existing conditions or other impediments, concluded that the amounts paid were not taxable.

Consequently, the assessment was quashed.

The court also rejected the respondent's arguments regarding the penalty rationale and the due diligence defence.

The Cetero Group brought a motion seeking entitlement to a $298,243 tax refund (carry-back refund) held by PricewaterhouseCoopers Inc. (PWC), as receiver of PRACS Institute Canada B.C. Ltd. The Cetero Group argued the refund was not validly assigned to PRACS, that PWC would be unjustly enriched, and that they were entitled to the refund through legal or equitable set-off due to PRACS's failure to pay under an operation support agreement.

The court found the carry-back refund was validly assigned to PRACS under an asset purchase agreement, providing a juristic reason for PWC's retention, thus defeating the unjust enrichment claim.

Furthermore, the court determined that neither legal nor equitable set-off applied, as the refund was not a debt owing by BA to PRACS, and the cross-claim for unpaid invoices was not sufficiently connected to the refund to warrant equitable set-off.

The motion was dismissed.

The defendants, an accounting firm and an individual accountant, brought a motion for summary judgment to dismiss the plaintiff's professional negligence claim based on the Limitations Act, 2002.

The plaintiff alleged that the defendants' failure to timely file tax returns resulted in the loss of refundable dividend tax on hand (RDTOH) and associated penalties and interest.

The court considered whether the plaintiff's claim was discoverable more than two years prior to its commencement on August 1, 2012.

The court found that the plaintiff had sufficient knowledge of the injury, its cause, and the identity of the wrongdoers by June 2010 at the latest, and that a proceeding would have been a legally appropriate means to seek a remedy at that time, despite ongoing mitigation efforts and the defendants' failure to advise of a potential claim against them.

The court dismissed the plaintiff's arguments regarding prematurity, fraudulent concealment, and estoppel.

This application sought a rectification order for a corporate amalgamation intended to achieve specific tax outcomes under the Income Tax Act's "tax bump rules." Due to an error, the amalgamation was performed in a single step instead of the required two steps, defeating the intended tax benefit.

The court applied the test for rectification, requiring proof of a continuing specific intention to undertake the transaction on a particular tax basis.

The court found, on a balance of probabilities, that the applicant had a continuing specific intention to utilize the tax bump rules, supported by various documents and witness testimony.

The application for rectification was granted, and costs were awarded to the applicant.