Changing past CCA claims not allowed
As discussed in the first article in this Letter, capital cost allowance (CCA) claims are optional. In a given year a business may choose to not claim CCA, or to claim less than is available, so as to use up losses or otherwise cause business income to be higher than it has to be.
Usually the CRA allows changes to past returns if a deduction has been overlooked. However, the CRA will deny requests to change past CCA claims, if the purpose is considered to be “retroactive tax planning”, because you have later determined that you did or didn’t want to claim CCA in a particular year.
This is what happened in the St. Benedict Catholic Secondary School Trust case, decided recently by the Federal Court of Appeal. The Trust had claimed certain business losses that the CRA denied because they had expired. To fix this problem, the Trust wanted to retroactively reduce its CCA claims for its 1997-2003 years, so that it would have a higher “terminal loss” when it disposed of a property in 2013. The CRA refused and the Trust appealed to the Tax Court of Canada, and then to the Federal Court of Appeal.
Both the Tax Court and the Federal Court of Appeal ruled against the Trust. As the Court of Appeal put it, a taxpayer has no right to “amend a tax return that had been previously filed to change the amount of CCA that was claimed for a particular year”. Even though CRA administrative policy often allows changes to past returns, that policy is not law and was not binding on the CRA.
Boat costs allowed as a business expense
In the recent Jackman case, the Tax Court of Canada held that a business used a boat primarily for marketing purposes, and not as a personal benefit to its shareholders.
The business operated a marina in Port McNeill on Vancouver Island, and sold fuel and provisions to boaters. The owners, Bruce and Nancy Jackman, ran the business together. They used their boat, the Port McNeill Explorer, to market the business at boat shows and to meet potential customers visiting the area. They also used it for business deliveries at times.
The Jackmans made only occasional personal use of the boat (maybe 5% of the time), and they paid $18,000 a year to the company to reflect this use. Nevertheless, the CRA assessed them for personal benefits on the basis that they had use of the boat.
On appeal, the Tax Court listened carefully to the Jackmans’ evidence and believed their explanations. The boat really was for business use and not personal use. As a result, the amount they had paid the company was sufficient, and they had no further personal benefit on which to pay income tax.
As you can see, sometimes it’s possible to disagree with a CRA assessment and appeal successfully to the Tax Court.
