In Skinner v. The Queen, 2009 TCC 269, the taxpayer had reported as income in 2001 a large shareholder loan that had not been repaid. In 2002, the taxpayer attempted to deduct the amount previously included in income because the shareholder loan had been repaid. The Minister reassessed to reduce the taxpayer’s income in 2001 by reversing the inclusion for the shareholder loan. The Minister also reassessed to deny the deduction in 2002 because, after giving effect to the reassessment for 2001, the requirements of paragraph 20(1)(j) had not been met. The taxpayer appealed to the Tax Court of Canada, but the appeal was dismissed essentially on procedural grounds.
According to a long line of cases, the Tax Court cannot render a judgment that increases the amount owing under the assessment under appeal. In Skinner, the taxpayer was appealing from the Minister’s reduction of the taxpayer’s income, which was the result of the refusal to give effect to the reported 15(2) inclusion. The Tax Court held that it must dismiss the appeal from the 2001 reassessment because allowing the appeal would increase the taxpayer’s liability under the Act.
[30] As I read the jurisprudence, however, the governing factor in determining the Court’s jurisdiction is not who is seeking the order or the nature of the remedy sought, but rather, whether the ultimate result would be an increase in the quantum assessed in the assessment under appeal. If that question is answered in the affirmative, the “effect” is, by definition, to permit the Minister to appeal his own assessment and the Court is without authority to make such an order. As shown by both Pedwell and Petro‑Canada, the Court stands in no better position than the Minister where the order granted results in an increase in the taxpayer’s assessment. The effect of an order vacating that assessment is still to increase the tax assessed in that year, an outcome beyond the Court’s power to impose. Thus, whether the request originates with the taxpayer or the Minister and whether the order is to vary or vacate, the effect of ordering such a remedy is the same.
[31] As there is no question that if the Appellants were successful in their appeals of the 2001 Reassessment the result would be an increase in the quantum of their tax liability for that year, I am bound by the jurisprudence to conclude that the Court is without jurisdiction to hear their appeals. The Respondent’s motion to dismiss the appeals of the 2001 Reassessment is therefore granted.
The Tax Court then felt bound to dismiss the appeal for 2002 because the Minister’s reassessment for the previous year reversed the 15(2) inclusion. One of the prerequisites of a deduction under 20(1)(j) is that an amount was included in the taxpayer’s income in a previous year under 15(2). The result of the dismissal of the appeal for 2001 was that no amount was included in the taxpayer’s income under that subsection. Accordingly, the taxpayer’s appeal for 2002 could not succeed because the conditions in paragraph 20(1)(j) were not met.
The subtext of the appeal was that the taxpayer had attempted to engage in what the Minister regarded as abusive tax planning. Unfortunately for the taxpayer, the Minister was able to avoid a hearing on the merits because the taxpayer’s planning required an increase in income for one of the years in question. The Minister simply needed to reverse that increase to undo all of the planning.
