Special Risks Holdings Inc. v. Minister of National Revenue, (1993) 70 F.T.R. 255 (TD)

• Judge: Muldoon, J.
• Court: Federal Court (Canada)
• Case Date: November 21, 1991
• Jurisdiction: Canada (Federal)
• Citations: (1993), 70 F.T.R. 255 (TD)

Special Risks Holdings Inc. v. MNR (1993), 70 F.T.R. 255 (TD)

MLB headnote and full text

Special Risks Holdings Inc. (plaintiff) v. Her Majesty The Queen and The Minister of National Revenue (defendants)

(T-416-88)

Indexed As: Special Risks Holdings Inc. v. Minister of National Revenue

Federal Court of Canada

Trial Division

Muldoon, J.

December 1, 1993.

Summary:

In 1978 a corporate taxpayer elected under s. 83(1) of the Income Tax Act to pay dividends out of its tax paid undistributed surplus on hand account and its 1971 capital surplus on hand account. The Minister, after determining excessive elections were made, reassessed the taxpayer for Part III tax on the excess. The taxpayer appealed the assessments.

The Federal Court of Canada, Trial Division, in a judgment not reported in this series of reports, dismissed the appeal. The taxpayer appealed.

The Federal Court of Appeal, in a judgment reported 63 N.R. 390, dismissed the appeal and confirmed the assessments. The taxpayer paid the reassessed tax and brought an action for a declaration that s. 184(3.1) entitled the taxpayer to a remittance of the assessed Part III tax. The taxpayer claimed that since s. 184(3.1) applied only after the assessments were confirmed, the present action was different from the first and did not constitute an attack on the assessment. The Minister claimed that the Federal Court lacked jurisdiction, and, alternatively, that the statement of claim be struck for failure to disclose a cause of action.

The Federal Court of Canada, Trial Division, in a judgment reported 23 F.T.R. 33, held that it had jurisdiction. The issue of s. 184(3.1) was distinct from the validity of the assessment, which could not now be challenged. The court refused to strike the statement of claim, where the taxpayer had an arguable case. The Minister appealed.

The Federal Court of Appeal, Pratte, J.A., dissenting, in a judgment reported 91 N.R. 395, dismissed the appeal and confirmed the refusal to strike the statement of claim. The court stated that it could not be said at this time that the taxpayer's statement of claim definitively revealed no cause of action. The action subsequently went to trial.

The Federal Court of Canada, Trial Division, dismissed the action.

Income Tax - Topic 6767

Computation of tax - Rules for corporations - Definitions - "1971 capital surplus on hand" - A taxpayer elected under s. 83(1) of the Income Tax Act to pay dividends out of its tax paid undistributed surplus on hand account and its 1971 capital surplus on hand account - The Minister determined excessive elections were made and reassessed for Part III tax on the excess - The taxpayer claimed s. 184(3.1) entitled it to a remittance of the paid Part III tax - Section 184(3.1) applied where the taxpayer made "a reasonable attempt to correctly determine its tax-paid undistributed surplus on hand" - Section 89(5)(a)(ii) deemed the contributed surplus on hand to be nil if the taxpayer sold shares of a corporation controlled by the taxpayer to a purchaser in a nonarms length transaction - The taxpayer sold shares, but retained control, even though the transaction was structured to leave the taxpayer with only 50% of the shares for a short period for tax purposes - Thereafter the scheme provided for the taxpayer to resume control - The Federal Court of Canada, Trial Division, dismissed the taxpayer's action - Section 89(5)(a)(ii) applied; the taxpayer never lost control - The requirements of s. 184(3.1) were not met.

Cases Noticed:

Special Risks Holdings Inc. v. Minister of National Revenue, [1983] 2 F.C. 743; 46 N.R. 361; 83 D.T.C. 5046 (F.C.A.), refd to. [para. 1].

Special Risks Holdings Inc. v. Minister of National Revenue (1984), 84 D.T.C. 6054 (T.D.), affd. 84 D.T.C. 6215 (F.C.A.), refd to. [para. 1].

Special Risks Holdings Inc./Placements Risques Speciaux Inc. v. Minister of National Revenue, [1984] C.T.C. 553 (F.C.T.D.), affd. [1986] 1 C.T.C. 201; 63 N.R. 390 (F.C.A.), refd to. [para. 1].

Special Risks Holdings Inc. v. Minister of National Revenue, [1988] 2 C.T.C. 244; 23 F.T.R. 33 (T.D.), affd. [1989] 1 C.T.C. 128; 91 N.R. 395 (F.C.A.), refd to. [para. 1].

Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241; 84 D.T.C. 6305, refd to. [para. 6].

Canadian Marconi Co. v. Minister of National Revenue, [1992] 1 F.C. 655; 137 N.R. 15 (F.C.A.), refd to. [para. 43].

Canadian Marconi Co. v. Minister of National Revenue, [1986] 2 S.C.R. 522; [1986] 2 C.T.C. 465; 70 N.R. 174; 33 D.L.R.(4th) 481; 86 D.T.C. 6526, refd to. [para. 43].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 83(1), sect. 83(2), sect. 152(1), sect. 152(2), sect. 152(3), sect. 152(3.1), sect. 152(4), sect. 152(8), sect. 184(1), sect. 184(2), sect. 184(3), sect. 184(3.1), sect. 184(4), sect. 184(5), sect. 185(1), [para. 6]; sect. 186(2) [para. 13].

Authors and Works Noticed:

Shorter Oxford Dictionary (3rd Ed.) [para. 38].

Counsel:

Richard W. Pound and Claude Desaulniers, for the plaintiff;

Roger Leclaire, Roger E. Taylor and André Leblanc, for the defendants.

Solicitors of Record:

Stikeman, Elliott, Montreal, Quebec, for the plaintiff;

John C. Tait, Q.C., Deputy Attorney General of Canada, Ottawa, Ontario, for the defendants.

This action was heard on November 21, 1991, at Montreal, Quebec, before Muldoon, J., of the Federal Court of Canada, Trial Division, who delivered the following judgment on December 1, 1993.