Digests

Brown v. Canada

A-208-02, A-311-02

2003 FCA 192, Rothstein J.A.

24/4/03

26 pp.

Reassessment--Appeal and cross-appeal in Court file A-208-02 from judgment of Tax Court allowing in part appellant's appeal from reassessments of 1993, 1994, 1995, 1996 taxation years--Appeal and cross-appeal in Court file A-311-02 from order of Tax Court awarding costs to respondent but excluding costs in respect of two expert witnesses--Two issues concerning appeal--(1) Whether CEG Partnership and American Softworks Corporation (ASC) dealt with each other at arm's length at relevant time--Relevant time for determination of arm's length question December 31, 1993--Income Tax Act, s. 69(1)(a) providing when taxpayer has acquired anything from person with whom taxpayer not dealing at arm's length at amount in excess of fair market value at time of acquisition, taxpayer deemed to have acquired it at fair market value--Parties not considered to be dealing with each other at arm's length if one person dictates terms of bargain on both sides of transaction--No evidence appellant had any influence on transaction already negotiated between ASC and CEG Partnership when not dealing with each other at arm's length--As result, conclusion of Tax Court Judge (T.C.J.) should not be disturbed--(2) Regarding valuation, question of valuation matter of assessment of expert and other evidence and should not be interfered with by Court unless palpable, overriding error--Appellant not showing palpable, overriding error on part of T.C.J. in respect of valuation issue--In respect of arm's length and valuation issues, appeal dismissed--Regarding cross-appeal, Minister urging T.C.J. erred by finding only US$6,000 per unit represented by assumption of acquisition note not at risk--Minister arguing T.C.J. should have also found appellant's US$4,000 per unit cash payment not at risk--As result, Minister says appellant should not be entitled to any deduction in respect of losses of CEG Partnership because none of appellant's partnership contribution at risk--General partner deemed to be limited partner for purposes of "At-Risk" rules if general partner entitled to receive benefit reducing impact of any losses because partner member of partnership--To determine if "At-Risk" rules apply to appellant, must first determine whether appellant deemed to be limited partner pursuant to s. 96(2.4)(b)--If so, s. 96(2.4)(d) applying to determine taxpayer's "At-Risk" amount--Dealing first with question of whether appellant properly deemed to be limited partner, s. 96(2.4) referring to taxpayer being member of partnership "at a particular time" and "at that time"--For purposes of present case, "time" any time within appellant's taxation years 1993 and 1994--Entitlement to benefit must arise within three years after December 31, 1993 or December 31, 1994-- December 31, 1995, partnership agreement and amending agreement 3 came into existence within 3-year period after appellant sought to deduct partnership losses--Accordingly, agreements relevant to determination of appellant's "At-Risk" amount in CEG Partnership--Regarding effect of agreements on appellant's "At-Risk" amount in respect of contribution to CEG Partnership--From consideration of partnership amending agreement and amending agreement 3, difficult to see why entire cash component of cost of partnership units at risk--No doubt shares intended to be in addition to US$8,000 per unit entitlement--Certainly no way to know what market capitalization of ASC would be on December 31, 2003, when shares made available to CEG Partnership--Upon evidence, value of shares simply not ascertainable--Evidence demonstrating share benefit simply too vague to ascribe value to it--Based on evidence, Minister's assumed value of share benefit displaced because value not ascertainable-- Appellant's amount at risk US$2,000 per unit--Regarding costs in Tax Court, both appellant and respondent appeal T.C.J.'s disposition with respect to costs--Costs within discretion of T.C.J. and barring finding such discretion not exercised in accordance with law, Court will not interfere with award--No basis for interfering with costs award--In conclusion, appeal dismissed--Cross-appeal allowed, but only to reduce appellant's "At-Risk" amount to US$2,000 per unit--In all other respects, cross-appeal dismissed--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 69(1)(a), 96(2.4) (as am. by S.C. 1998, c. 19, s. 123).