Taxation
Case Summaries
Taxation - Fishing Income of Aboriginal Fisher - Aboriginal Rights and Defences - Fishing Income
Ballantyne v. R., 2009 TCC 325 [link]
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 [link]
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.) [1998] 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 - transfer Pricing by Fish Processors
Canus v. Canada Customs 2005 NSSC 283 (Reasons)
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, [2003] 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, [2001] 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, [1998] 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 - Qualification for Scientific Research and Experimental Development credits
Blue Wave Seafoods Inc. v. Canada [2004] T.C.J. No. 404, 2004 TCC 553
Taxation - Deductibility of Licence Costs as Expenses
F.A.S. Seafood Producers Ltd. v. Canada (7 August 1998) No. 95-1591(IT)G (Tax Court of Canada) (Bowie T.C.J.) [1998] T.C.J. No. 664, 52 D.T.C. 2034 [link]
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