The following is a more detailed summary of a case about which I have written previously.
In R & S Industries Inc. v R, 2017 TCC 75, the Court held that the CRA and the taxpayers who file an election under s 85 or s 97 were bound by the agreed amounts set out in the election form (subject to the limits on agreed amounts set out in s 85). The Court, however, held that neither the CRA nor the taxpayers were bound by the other “key facts” set out on the form.
The CRA reassessed the taxpayer on the basis of the 97(2) election it had filed to include additional amounts in its income. The CRA refused the taxpayer’s request under s 96(5.1) to amend the election. The Federal Court refused the taxpayer’s application for judicial review (R & S Industries Inc. v Canada (National Revenue), 2016 FC 275).
The taxpayer also filed an appeal to the Tax Court. The Crown brought a motion to quash the appeal. The Crown argued that the Tax Court lacked jurisdiction over the subject matter of the appeal.
Justice Graham noted that the parties agreed that the taxpayer and the CRA were bound by the agreed amounts set out in the election form as filed (subject to the rules in s 85 regarding the limits on agreed amounts).
But an election form records other important information for the purposes of a rollover. Justice Graham called these the “key facts”, which include “the fair market value of the property transferred, the number and value of the partnership interests received for the transfer, and the type and value of the non-partnership interest consideration received for the transfer.” The taxpayer argued that its appeal should proceed so that it could show that some key facts set out in the election as filed—the allocations of consideration among the assets transferred—were wrong, which would require the CRA’s reassessment to be vacated or varied (presumably).
The Crown argued that the taxpayer should not be able to proceed in this manner because it permitted the taxpayer indirectly to amend its election and because the key facts set out on the form, and not just the agreed amount, were binding on the taxpayer.
Justice Graham disagreed. The key facts, he said, were factual determinations which could be challenged by the CRA (while an agreed amount could not, again subject to the limits provided in s 85). If the CRA challenges the fair market value assigned to a key fact (eg the value of boot), and reassesses because the amount of the boot alters an agreed amount, the taxpayer must be free to challenge the reassessment. Similarly, the taxpayer cannot simply point to the value used for boot on the form as conclusive. The taxpayer will need to lead evidence to support the value given in the form or some other value for boot.
Similarly, the taxpayer was not bound by the allocation of consideration shown on its election form:
[11] Other key facts, such as the allocation of consideration among transferred properties, are no different than fair market value. The Minister is not bound by the key facts stated on the T2059 and may, if she disagrees, reassess accordingly. Similarly, taxpayers are free to object to, and appeal from, such reassessments.
[12] The Minister is bound by the agreed amount because it is something that the parties have elected. The Minister is not bound by the key facts because the facts are the facts. They exist independently from the election. So, if the Minister is not bound by the key facts stated in the election, why would the parties to the transaction be bound by them?
[13] There is no question that a taxpayer would face an uphill battle in court trying to prove that a key fact that both parties to the transaction certified in the T2059 election to be true is, in fact, not true. However, that does not mean that the taxpayer is not free to try to do so. More importantly, it does not mean that the Court lacks jurisdiction to hear such an appeal.
