Photo: The Canadian Press
The Supreme Court of Canada in Ottawa on May 11, 2022. The Supreme Court of Canada says two British Columbia companies believed they were following tax guidelines while trying to protect corporate assets, now owe money because the Canadian Tax Court interprets the rules. THE CANADIAN PRESS / Sean Kilpatrick
The Supreme Court of Canada says two British Columbia companies that thought they were following tax guidelines while trying to protect corporate assets now owe money to the Canadian Revenue Agency as a tax court interprets the rules.
Eight of Canada’s nine Supreme Court justices agree that Rite-Way Metals Ltd and Harvard Industries Ltd, based in Langley, British Columbia, cannot overturn tax decisions they made in 2008 to set up separate family trusts. to protect corporate assets.
At the time, a section of the Income Tax Act allowed companies to avoid dividend taxes if the money was paid on family trust, but the Canadian Tax Court ruled differently from what was generally accepted by tax professionals.
This meant that the Cochrane family trust, set up by Harvard Industries, owed dividend taxes totaling $ 2,085,000, while the Collins family trust owed $ 510,000 in dividends to Rite-Way.
The British Columbia Supreme and Court of Appeals allowed the trusts to overturn the decisions, but writing to the majority, Canadian Supreme Court Judge Russell Brown overturned those decisions and upheld the Canadian Attorney General’s appeal.
Brown writes that the courts can intervene if a mistake is made, but they cannot intervene to allow what retrospective tax planning is or to “achieve the goal of avoiding unintentional tax liability.”
“Taxpayers should be taxed based on what they actually agreed to do and did, not what they could have done or later wanted to do,” Brown said.
The only Supreme Court judge to uphold the British Columbia court’s ruling said allowing Rite-Way and Harvard to reverse their earlier tax planning was the only remedy available.
“In my opinion, what brings this case to the area of injustice is not the application of the law, but rather the CRA’s discretionary decision to reassess taxpayers based on a retroactive approach” to the part of the law that allows family trusts, Judge Susan wrote. Kitten.
“Injustice occurs when the CRA reverses a long-standing interpretation and then seeks to reassess the taxpayer retrospectively,” Kote wrote.
In addition to settling the unpaid tax, the eight-to-one Supreme Court order ordered the Cochrane and Collins family trusts to pay the Attorney General’s costs at all levels of the court battle.
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