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FEDERAL INCOME TAX - Partnerships - Limited partnership - Administration and enforcement

Friday, December 15, 2017 @ 10:35 AM  


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Appeal by nine corporate partners in a limited partnership for the purpose of challenging the enforceability of a settlement agreement with Canada Revenue. The appellants were involved in film production conducted through four master limited partnerships (MLPs) associated through common promoters. An audit of the MLPs raised concerns regarding certain deductions claimed in connection with expenses. In 2004, a settlement agreement in respect of the tax treatment of various expenses was signed by Canada Revenue and a signatory who represented the four MLPs and related limited partnerships. The settlement primarily focused on one of the four MLPs, Sentinel Hill. The settlement resulted in notices of reassessment and determination in respect of expenses claimed for management fees, producer referral fees and financing fees. The appellants were the corporate partners in two of the other MLPs named in the settlement. The appellants contended that the settlement agreement was unenforceable as against them. The Tax Court of Canada concluded that the reassessments and determinations accorded with the settlement agreement as it applied to the appellants, and were consistent with the parties’ conduct. The Tax Court found that the agreement’s terms were sufficiently certain and was a product of a true meeting of the minds. The appellants appealed.

HELD: Appeal dismissed. The Tax Court did not err in interpreting the settlement agreement as it applied to the appellants with respect to expense disallowance ratios. The agreement specifically referred to the appellants’ MLPs and clearly reflected an intent to receive consistent tax treatment under the agreement as received by the Sentinel MLP. The Tax Court did not err in finding a meeting of the minds despite the internal disagreement over the disallowance ratios. The Tax Court did not err in concluding that the settlement was a principled agreement pursuant to the Income Tax Act in respect of the tax treatment of the disallowed expenses. The reasons for judgment were sufficient to permit meaningful appellate review.

University Hill Holdings Inc. v. Canada, [2017] F.C.J. No. 1139, Federal Court of Appeal, J.D.D. Pelletier, R. Boivin and M.J.L. Gleason JJ.A., November 24, 2017. Digest No. TLD-December112017009