In David Anthony v Canada (National Revenue), 2016 FC 955, the taxpayer applied for judicial review of a decision of the Minister. The taxpayer had requested that the Minister adjust his return for 2001 to permit the deduction of lease expenses for machines used in his business. The taxpayer, however, was ignoring the fact that he was asking to be allowed to deduct personally expenses incurred by his corporation. The lease for the machines was between his corporation and the lessor. Unsurprisingly, the Court held that taxpayer was not entitled to deduct expenses he had not incurred (at ¶25).
Did it matter that the corporation was “inactive”?
[26] I reject the Applicant’s submission that the Minister’s delegate ignored relevant evidence or misapprehended the facts such that his decision was rendered in a procedurally unfair manner or otherwise unreasonable. The Applicant does not point to any evidence in the record that shows the Minister’s delegate misapprehended or ignored any material facts. It is true that the decision does not explicitly address the Applicant’s assertion that his corporation was inactive and that the Minister’s delegate ignored or misapprehended this fact, one which the Applicant characterizes as being significant. However, it is not completely accurate to assert, as the Applicant does, that his corporation was inactive because, even if it may not have been earning any income, it was nonetheless active at least to the extent it incurred monthly obligations for the rental payments. Moreover, even if the Applicant’s corporation was simply a shell, it was a shell that nevertheless was the party to the lease agreement with CIT and protected the Applicant from personal liability for the rental payments. In my view, it was not unreasonable for the Minister’s delegate to determine that the Applicant’s corporation, rather than the Applicant, should benefit from any deduction for the rental payments since it had the liability for the rental payments. As noted by the Federal Court of Appeal in R v Friedberg, [1991] FCJ No 1255 (FCA), aff’d 1993 CanLII 41 (SCC), [1993] 4 SCR 285, a case where the taxpayer was denied a deduction for a gift he funded for a museum to acquire a collection of textiles because he had not acquired title to the collection:
5 In tax law, form matters. A mere subjective intention, here as elsewhere in the tax field, is not by itself sufficient to alter the characterization of a transaction for tax purposes. … If a taxpayer fails to take the correct formal steps…tax may have to be paid. If this were not so, Revenue Canada and the courts would be engaged in endless exercises to determine the true intentions behind certain transactions. …evidence of subjective intention cannot be used to “correct” documents which clearly point in a particular direction.
