Photo: The Canadian Press
Supreme Court of Canada in Ottawa on May 11, 2022. Canada’s highest court says two companies in British Columbia that believed they were following tax guidelines while trying to protect corporate assets now owe money because the Tax Court of Canada he reinterpreted the rules. THE CANADIAN PRESS / Sean Kilpatrick
Canada’s highest court says two British Columbia companies that thought they were following tax guidelines while trying to protect corporate assets now owe money to the Canada Tax Agency because a tax court reinterpreted the rules.
Eight of the nine Supreme Court judges in Canada agree that Rite-Way Metals Ltd. and Harvard Industries Ltd., both based in Langley, BC, cannot undo the 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 businesses to avoid dividend taxes if the funds were paid into a family trust, but the Tax Court of Canada ruled differently from what the tax authorities had agreed to. tax professionals.
It meant that the Cochrane family trust, created by Harvard Industries, owed $ 2,085,000 in dividends, while the Collins family trust owed $ 510,000 in Rite-Way dividends.
The Supreme Court and the BC Court of Appeal allowed the trusts to undo the decisions, but writing to the majority, the Supreme Court Judge of Canada, Russell Brown, overturned those rulings and upheld the appeal of the Attorney General of Canada.
Brown writes that courts can intervene if a mistake has been made, but they cannot intervene to allow for what amounts to retroactive tax planning or to “achieve the goal of avoiding unwanted tax liability.”
“Taxpayers have to impose themselves based on what they actually agreed to do and did, not what they could have done or wished they had done later,” Brown says.
The only high court judge in favor of BC court rulings writes that allowing Rite-Way and Harvard to reverse their previous tax planning is the only remedy available.
“In my view, what brings this case to the area of injustice is not law enforcement, but the CRA’s discretionary decision to revalue taxpayers with a retroactive approach” to the part of the act that allowed family trusts, he writes. Judge Suzanne Coté.
“Injustice results when the CRA reverses a long-standing interpretation and then tries to revalue a taxpayer retroactively,” Coté writes.
In addition to settling the unpaid tax bill, the eight-to-one higher court decision orders the Cochrane and Collins family trusts to pay the attorney general’s expenses at all judicial levels of the legal battle.