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FEDERAL INCOME TAX - Interpretation - Administration and enforcement

Tuesday, May 18, 2021 @ 6:07 AM  

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Appeal by Savics from a decision of the Tax Court of Canada that confirmed the reassessment of Savics’ 1998 taxation year was completed in accordance with the parties’ settlement agreement. Savics was a limited partner in three limited partnerships that allocated income and losses to him. Savics also claimed carrying charges related to each partnership as a deduction in computing his income. In 1998, the net result of allocating income to him and claiming a deduction for the carrying charges related to the three partnerships was a reduction of Savics’ income by $41,234. The Canada Revenue Agency determined the partnerships in issue were not valid partnerships. The income Savics reported from the partnerships was removed from his income and the carrying charges were denied in a 2002 reassessment. As part of the settlement of Savics’ appeal, he could claim the carrying charges incurred. Savics executed waivers in which he accepted the settlement and waived his right of objection or appeal on condition that the Minister was only to make consequential adjustments to Savics’ tax liability. In the 2014 reassessment, Savics was restored to his original filing position by allowing a net carrying charge deduction of $41,234. Savics appealed the reassessment on the basis his income should have been reduced by the full carrying charge of $176,981 as contemplated by the settlement agreement.

HELD: Appeal dismissed. The standard of review applicable to the Tax Court’s interpretation of the settlement agreement, which involved issues of mixed fact and law, was palpable and overriding error. The Tax Court did not make a palpable and overriding error in finding the interpretation of the settlement agreement allowed the Minister to issue the reassessment. Section 152(5) of the Income Tax Act did not prevent the Minister from reassessing Savics’ 1998 taxation year to, in effect, restore the previous income he reported, and which was included in his income for the purposes of the initial assessment made by the Minister.

Savics v. Canada, [2021] F.C.J. No. 238, Federal Court of Appeal, M. Nadon, W.W. Webb and R. LeBlanc JJ.A., March 17, 2021. Digest No. TLD-May172021004