Words and Phrases - "misrepresentation"
Inwest Investments Ltd. v. The Queen, 2015 BCSC 1375
In order to avoid B.C. provincial income tax on a capital gain of $336.2 million which was realized on a sale in 2002 of a control block of a TSX-listed company (Future Shop), before closing the holders transferred their Future Shop shares to a newly-incorporated Yukon company (”Wesbild”) with non-resident directors. Its 2002 return indicated “OC” [outside Canada] as its jurisdiction. CRA commenced to audit the transaction more than four years after the initial assessment of the 2002 year and reassessed Wesbild in December 2011 for the difference on the taxable capital gain between the 13.5% B.C. tax rate and the 10% federal tax abatement credit.
Wesbild brought a summary-trial application respecting whether the Minister was statute-barred from issuing the reassessment. After noting (at para. 85) that “fairness is achieved for the Minister if the taxpayer is required to file its return in a manner that sufficiently identifies its filing position so that the Minister can assess that position, noting (at para. 101) that the French version of s. 152(4)(a)(i) refers to “soit a fait une présentation erronée des faits”, which translated as “has made a misrepresentation of facts,” and referring inter alia to Ver, Fitzpatrick J. stated (at para. 126):
[A] statement of a filing position that, even if that position may be incorrect, involves a determination of law or mixed fact and law will not be a misrepresentation if that filing position is reasonable; …the fairness objective of the legislation is achieved if that reasonable filing position is evident from the tax return… .
Here, the CRA position was that “business” as used in Reg. 400(2) was “’ very broad and wide enough to capture corporations that generate income from sources that include income from… property or capital gains’” (para. 136), whereas Wesbild argued that “the Marconi test applies and that it had no ‘business’” and, therefore, no permanent establishment in B.C. (para. 138).
In finding that Wesbild had not made a misrepresentation, Fitzpatrick J. concluded (at para. 143):
[The 2002 Return] indicated a filing position that was clearly more than arguable based on the… jurisprudence on the issue. There is no suggestion that Wesbild failed to disclose to the CRA all that it was required to disclose. The CRA was, of course, more than able to understand that filing position and take whatever steps it wished to challenge that position. … Simply, the filing position in the 2002 Return was certainly a representation, but it was not a misrepresentation of any kind. … Accordingly… s. 152(4)(a)(i) is not available… to allow the CRA to reassess outside of the normal reassessment period.
In any event, the Crown had not established neglect or carelessness. The in-house tax lawyer (Mr. Zien), in addition to considering the plan carefully himself, had “obtained outside legal advice on the issue to supplement his own views as to the viability of the Tax Plan” from Robert Kopstein at Blakes (para. 169). Furthermore (para. 181):
Wesbild’s filing position conformed to the Marconi test… . There is no indication that the CRA’s currently-advanced dictionary definition of “business” had any support at all in 2001/2002 or even at this time.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Solicitor-Client Privilege | not necessary to provide legal opinion to rely on having consulted legal counsel | 225 |
| Tax Topics - Income Tax Regulations - Regulation 400 - Subsection 400(2) | no fixed place of “business” if no source of business income | 183 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business | Marconi test of "business" applied outside source-of-income context | 154 |
| Tax Topics - Statutory Interpretation - French and English Version | "misrepresentation" informed by narrower French version | 109 |
9 November 2012 CTF Atlantic Roundtable, 2012-0465921C6 - CTF Atlantic - Statute Barred Years
1. What is "misrepresentation"?
There is no requirement that the person providing the information intended to deceive the CRA ... . ... [T]he information simply has to be incorrect at the time it is supplied to the CRA.
2. May only related issues be reassessed?
S. 152(4.01) makes it clear that, barring a waiver, CRA can "only reassess ... issues issues arising from a misrepresentation."
3. Would a tax avoidance arrangement generally be considered a misrepresentation?
There is no [such] general presumption... .
[A]lthough statute-barred years were assessed in project files like "Ontario Fincos", "Quebec Truffles" [sic, Shuffles?] and "Broken Amalgamations", in general the reassessment of statute-barred years where GAAR is the assessing authority should be rare. The GAAR Committee ... will not authorize an assessment of an otherwise statute-barred year unless there are compelling reasons provided which meet the negligence threshold.
Ver v. Canada, [1995] TCJ No. 593
The Minister's reassessment of the taxpayers' 1988 taxation year beyond the normal reassessment period, on the basis that various claimed expenses were household expenses, was not permitted. Bowman T.C.J. stated (at para. 13) that "a misrepresentation within the meaning of subparagraph 152(4)(a)(i) means a misrepresentation of fact", and that judgments as to the allocation of expenses between business and personal are not the subject of misrepresentation, that it had not been established that the taxpayers had suppressed any material facts and that the bold assertion in the Reply of the Minister that the Minister had "assumed" a misrepresentation was inappropriate where the Minister must prove a misrepresentation. He further stated:
"The precise misrepresentation alleged to have been made must be set out with particularity in the reply and proved with specificity. Three essential components must be alleged in pleading misrepresentation: (i) the representation; (ii) the fact of its having been made; and (iii) its falsity."
Nesbitt v. The Queen, 96 DTC 6045, [1996] 1 CTC 282 (FCTD)
In preparing the taxpayer's return, the taxpayer's accountant erroneously reported the taxpayer's share of a capital gain as $71,139.42 rather than $711,394.25.
Before going on to find that the taxpayer had made a misrepresentation attributable to neglect or carelessness, Heald D.J. rejected the view that a number reached through a mathematical calculation is not a fact and, therefore, cannot constitute a misrepresentation. He instead accepted the Crown's submission (at p. 6049) that "any incorrect statement amounts to a 'misrepresentation'".
MNR v. Foot, 64 DTC 5196, [1964] CTC 317 (Ex Ct), briefly aff'd 66 DTC 5072 (SCC)
The taxpayer, who underreported his income in his returns but pleaded (p. 5197) that "he honestly believed in the truth of the information contained therein" at the time he filed them, was validly reassessed by the Minister beyond the six-year limitation period referred to in s. 42(4) of the 1948 Act, which permitted the Minister to reassess at any time where the taxpayer had "made any misrepresentation or committed any fraud in filing the return". Dumoulin J. stated (at p. 5198) "that 'any misrepresentation' is synonymous with the expression 'incorrect' in the Income or Tax Act (the predecessor of s. 42(4)). He also stated (at p. 5199) that "reticence can constitute misrepresentation in circumstances where there is a duty on the representor to state certain matters, if they exist, and where, therefore, the representee is entitled as against the representor to infer the non-existence of such matters from the representor's silence as to them".