Taxation - Case Summaries
The database contains 10 case summaries relating to Taxation . The summaries are sorted in reverse date order with 20 summaries per page. If there are more than 20 summaries, use the navigation links at the bottom of the page.
Taxation - Aboriginal Rights - Income primarily from herring roe-on-kelp and herring roe fishery not exempt
Pilfold Estate v. v. R, 2014 FCA 97
This case involved an exemption claimed by a roe-on-kelp and herring roe fisher who was a status Indian from the Musqueam First Nation. After applying the connecting factors test, the court did not allow the exemption that company minute books were kept on the reserve. Some of these factors included:
"The fishing boat and fishing equipment were kept off reserve. The extensive preparations required each season occurred off reserve under Mr. Pilfold’s direction as captain of the fishing boat. The fishing took place off reserve under Mr. Pilfold’s direction. All sales were made by Mr. Pilfold to commercial buyers off reserve. The only factual connections between the fishing operation and the reserve were weak or insubstantial: some telephone calls were made from the Musqueam home with respect to equipment repairs, and some trimmings from the roe on kelp harvesting – a relatively small amount – were donated to First Nations."
Taxation - Aboriginal Rights and Defences
Income earned by status Indians taking place partly on reserve (preparation, mooring boats, delivery to co-op operating from reserve) and partly off reserve (catching nearby and sales) held to be exempt under s. 87 of the Indian Act. Long history of fishing near reserve also important
Canada v. Robertson, 2012 FCA 94
Application for leave to the Supreme Court of Canada was dismissed on 20 March 2012 2012 CanLII 64752 (SCC)
Taxation - Exemption under s. 87 of the Indian Act when aboriginal crew members fishing under communal fishing licence owned by Band, on boat owned by Band, for Company located on reserve.
McDonald v. R, 2011 TCC 437
Editor's note: This case, along with three similar cases (Bastien, Dube and Robertson, 2010 TCC 552) were under appeal at the time of posting (30 November 2011).
Aboriginal Rights and Defences - Taxation of Fishing income from traditional Territory (Off reserve) Taxation - Taxation of Aboriginal Fishing Income
Roberts v. R, 2010 TCC 52
This case involved a status member of the Kitsumkalum First Nation who lived on a reserve near Port Essington approximately 70 miles from Prince Rupert, British Columbia. After being assessed income tax on fishing income earned while fishing outside his reserve, but in his traditional fishing territory the FN Fisher appealed his assessment to the Tax Court of Canada. In deciding whether or not to assess tax upon the income, the court applied a 9 part connecting factors test.
With respect to location of the fixed place of business, the Court found that the FN Fisher lived on a reserve and maintained a business office and stored equipment on the reserve.
With respect to business activities, nature of work and location where business decisions made, (the most important connecting factor) the Court found (1) the core of the business was catching fish aboard a commercial fishing vessel located in off reserve waters, (2) the catch was never taken to the reserve, but offloaded directly to fish plants located off reserve, (3) business decisions were made both on reserve while planning and off reserve while fishing.
With respect to place of payment, while some cheques were delivered to the reserve, most payments were made by the fish buyer directly crediting his account.
With respect to, the degree to which the business was integral to life on the reserve or in the commercial mainstream, it was argued by the FN Fisher that the fishing activity was integral to life on the reserve because it was done in his Nation's traditional fishing territories. This argument was rejected because of (1) weak evidence of traditional use in the areas in question, and (2) existing jurisprudence such as Walkus v. R.  3 CTC 181 that gave a very narrow definition of the phrase "on a reserve".
Based upon the Court's review of all the connecting factors, it upheld the Government's assessment of tax payable.
Taxation - Sale of Licence to Government Licence Retirement Program treated as sale of capital property
Canada v. Hache, 2011 FCA 104
This case involved a snow crab and groundfish fisher who entered into an agreement with the Government of Canada in 2001 under the Fisheries Access Program ("FAP") to surrender his fishing licences and related gear for $3,050,000 dollars. The purpose of the FAP was to allow aboriginal groups to take part in the commercial fishery. At the time that the licences were offered to the Government in February of 2002, the ground fish licence had not been fished during the previous 10 years because the fishery had been closed and had not been issued with licence conditions, which effectively "deprived the licence of any validity" (para 4). With respect to the Snow Crab licence, in 2000 it was not issued to to to the fisher until after fishing had ended in that year. In February of 2001 he filled out an application under the FAP to sell both licences and his fishing gear for $3,209,518.20, with $2,109,518 allocated to the licences. Subsequently, he entered into the agreement referred to above. After being assessed tax on the amount of $2,583,465 deemed received from the sale of the licences, the fisher appealed his assessment to the Tax Court of Canada.
Initially, the Government took the position that the funds received from the sale of the licences should be treated as a eligible capital property under ss. 9 & 14 of the Income Tax Act ("ITA"). However at the appeal hearing it abandoned this approach and took the position that it should be treated as the disposition of capital property under ss. 38, 39 and 40 of the ITA. In doing so, the Government argued that for the purposes of the ITA, the disposition for the fishing licences was a disposition of "property".
In rejecting this argument, the Hearings Court declined to follow the prior case of Winsor v. Canada 2007 TCC 692 (digested here) because that case relied upon a lower level decision in the case of Saulnier v. RBC that was overturned by the Supreme Court of Canada on appeal. The Court noted that in Saulnier, the Supreme Court of Canada stated that "in general, a fishing licence cannot be considered property at common law" (para. 18). Although Saulnier held that a fishing licence "bears some analogy to a common law profit a prendre, which constitutes a property right . . . such a right exists only during the validity of a the licence. In addition the Hearings Court noted that in Saulnier, the licences was only considered a property right for the purpose of the Business and Insolvency Act that had an extended definition of property that included "profit, present or future . . . in . . . property". Since the year 2000 snow crab licence had not yet been renewed at the time of the application in 2001 and the groundfish licence had no conditions, this case was distinguished from the Saulnier case where apparently the licence holder held a validly issued licence at the time he made the assignment of his property. The Court compared the "voluntary payment" from the Government to be analogous to a company shareholder receiving payment under a non competition clause. Since such a payment was not considered disposition of property, a voluntary payment for a licence relinquishment was also not considered a disposition of property.
Upon appeal, the Federal Court of Appeal overturned the decision of the Hearings Court. In doing so, it took a "commecial reality" approach to the decision of whether a licence should be treated as property for the purpose of the Income Tax Act. Given the commercial value of the licences and the expectation of renewal, the licences were treated as property.
Taxation - Fishing Income of Aboriginal Fisher - Aboriginal Rights and Defences - Fishing Income
Ballantyne v. R., 2009 TCC 325
This case involved an aboriginal fisher who fished off reserve, but delivered his fish to and on reserve fishing co-operative that acted as agent for off reserve fish marketing company. The Tax Court ruled that the fishing income was not exempt from taxation.
Taxation - Treatment of Funds received from Sale of Licence to Government Licence Retirement Program
Winsor v. Canada, 2007 TCC 692
This case involved the Atlantic Groundfish Retirement Program, (the "AGLRP") under which the Federal Government purchased fishing licences for the purpose of reducing the number of persons participating in the ground fish fishery. The Appellant was a fish harvester who sold his fishing licences to the AGLRP and agreed to permanently leave the commercial fishery for a total payment of $120,000. $60,000 of this money was allocated to the fishing licences. Following the disposition of the licences, the fish harvester filed an income tax return which included one half of the amount allocated to the licences ($30,000) in income pursuant to s. 14(1) of the Income Tax Act, which deals with eligible capital property.
The issues in this case were whether the funds received from the disposition of these licences should be:
1) Included in income pursuant to s. 14(1) as a sale of eligible capital property;
2) Included in income pursuant to s. 38 as taxable capital gain; or
3) Not included in income at all.
With respect to the first issue, the court embarked upon a complicated review of the mirror image rule and concluded that "since the Federal Government was acquiring these licences for a non-commercial purpose no part of the amount received by the Appellant for his fishing licences would be included in determining E in the definition of “cumulative eligible capital” and hence no amount would be included in the Appellant’s income under section 14 of the Act in relation to the amount received by the Appellant for his fishing licences" [para. 12]
With respect to the second issue (s. 38), the court concluded that in order to treat the proceeds of sale of a fishing licence as a capital gain, it would first be necessary to determine whether a fishing licence was "property" for the purposes of the Income Tax Act. After a review of some of the more recent non tax cases on the subject (including Royal Bank of Canada v. Saulnier, which has an appeal pending before the S.C.C.) the court concluded that a fishing licence was "property" for the purposes of the Act. Since the licence could not be treated as eligible capital property pursuant to s. 14, and since the licence could be treated as property, the court ruled that the disposition should be treated as a capital gain.
Editor's note: For a case which ruled that the costs of acquiring a fishing licence should be characterized as being on capital account see F.A.S. Seafood Producers Ltd. v. Canada (Tax Court of Canada) (Bowie T.C.J.)  T.C.J. No. 664, 52 D.T.C. 2034 [link] digested herein
Post script: See also Hache v. Her Majesty The Queen (digested here) where this case is not followed because it relies upon a decision of RBC v. Saulnier that was overturned by the SCC.
Taxation - Qualification for Scientific Research and Experimental Development credits
Blue Wave Seafoods Inc. v. Canada , 2006 FCA 81
Judicial Review/Crown Liability - Negligent Audit - Misfeasance - Taxation - transfer Pricing by Fish Processors
Canus v. Canada Customs, 2005 NSSC 283
This case involved an audit by Canada Customs and Revenue Agency of a Canadian Fish Processor that sold fish to its U.S. parent company. As a result of this audit, the company was re-assessed tax in the amount of $1,031345 for improper transfer pricing. As a result of this re-assessment the Fish Processor was limited in the amount of credit that it could obtain and accordingly had to curtail its business activities. Subsequent to the re-assessment, the Fish Processor was successful in having the re-assessment reversed.
The fish process then commenced an action in Nova Scotia Supreme Court alleging both public misfeasance and negligence.
With respect to misfeasance, after referring to Odhavji Estate v. Woodhouse, 2003 SCC 69,  3 S.C.R., the court refused to find any misfeasance because there was no evidence of an improper purpose, ill will or intent to harm. With respect to negligence, the court distinguished Cooper v. Hobart, 2001 SCC 79,  3 S.C.R. 537 as a case involving a claim for physical harm. It also said the claim could not be established as relational economic loss because it did not fall into an existing category or any analogous category. It also declined to find a new duty of care under the Ann's v Merton London Borough Council principal. In doing so it distinguished Keeping v. Canada 2003 Carswell Nfld. 113 (C.A.) and applied Jones v. Department of Employment,  1 All E.R. 725 (C.A.). In any event, even if there were a duty of care, it would be negated for the policy reason that such a duty would interfere with the Crown's ability to raise revenue. The court also declined to find negligent misrepresentation.
Taxation - Deductibility of Licence Costs as Expenses
F.A.S. Seafood Producers Ltd. v. Canada , 1998 CanLII 344
This case involved a Company which purchased both a category "C" vessel based licence and a category "ZN" personal licence in 1992 for $150,000 dollars. The purchaser claimed the cost of purchasing the licences as an expense when filing its 1992 income tax return. Revenue Canada disallowed this deduction.
The issue of the case was whether the cost of acquisition could be expensed against income or whether it had to be treated as capital.
After considering considerable evidence on the nature of fishing licences, the court ruled that the cost of acquisition had to be treated as capital for the following reasons:
1. Licences are a necessary foundation of a fishing business which cannot be obtained without a one time outlay of a very substantial amount of money;
2. The large purchase price was paid because of the expectation of a long series of renewals of the licences by the Department of Fisheries in the future.
As an aside, this case contains some interesting observations on the property type nature of licences.
Counsel for the Appellant: Werner H.G. Heinrich
Counsel for the Respondent Patricia A. Babcock