In Lauria v R, 2021 TCC 66, the taxpayers used a model from a shareholder agreement to value shares they sold to family trusts although an IPO of the issuer of the shares was imminent. The Court found that the taxpayers misrepresented the fair market value of their shares when they reported their dispositions. The Court also found that the misrepresentations were negligent, which permitted the CRA to reassess about ten years after the fact. The taxpayers were knowledgeable about valuations, they had not sought independent expert advice and the price of the shares in question increased 2,000% in the two months before the trusts sold the shares.
The Court noted that the price adjustment clauses used in the sales to the trusts did not apply because the clauses were triggered only by a final determination.
The decision is under appeal.
Bal Katlai and Hugh Neilson “Disposition of Capital Property: Failure To Report at Fair Market Value” 22:2 Tax for the Owner-Manager (April 2022)
