Tax Litigation : Tax tips

Wrongful dismissal

Taxpayers who sue for wrongful dismissal, including damages for mental distress and other non-financial matters, should try to ensure that the original statement of claim, and minutes of settlement include a detailed breakdown of the settlement's components to demonstrate that some of the settlement is not subject to Canadian income tax.

A class action, Deanne Ho-A-Shoo, was commenced against the federal government in the Ontario Superior Court

A class action, Deanne Ho-A-Shoo, was commenced against the federal government in the Ontario Superior Court, seeking recovery of interest paid under section 160 of the Canadian Income Tax Act. Section 160 allows Revenue Canada to pursue family members and others who receive property without paying fair market value(FMV), from a person who owes tax at the time of the transfer. In the past Revenue Canada has sought to recover not only the value of the property, but also interest on that amount. In the 1998 Algoa Trust case, the Court held that interest could not be assessed on a section 160 liability based on the FMV of the property transferred, but Revenue has not taken steps to pay back interest collected improperly. The case was settled in 2001 on the basis of CRA repaying to the plaintiff the interest charged.

De-Taxer Argument rejected

An Ottawa Superior Court judge has ruled that retired Ottawa school teacher Thomas Kennedy is not exempt from Canada’s Income Tax Act. Kennedy argued unsuccessfully that the Income Tax Act applies only to corporations and not to natural persons, that income tax is voluntary, and that the form requiring his employer to withhold amounts to cover tax is not valid. The arguments rejected by the court were essentially the same as claims made by anti-tax campaigners who say they know of lawful ways for individuals to exempt themselves from income tax.