Federal Court finds CRA incorrectly conflates amending an election with rectification

In Brent Carlson Family Trust v. Canada (National Revenue), 2021 FC 506, two family trusts made requests to amend elections for the 2014 taxation year filed under subsection 85(1) of the Income Tax Act (Canada) (the “Act”) in respect of certain share exchanges. The requests to amend came as a result of the trusts’ professional advisors failing to consider the fact that a number of beneficiaries were minors and therefore subject to the “kiddie tax” (subsection 120.4(5) of the Act) on the capital gains resulting from the share exchanges. The CRA denied the request to amend, indicating it amounted to “retroactive tax planning” based on recent jurisprudence on rectification (see Canada Life Insurance Company of Canada v. Canada (Attorney General), 2018 ONCA 562). Finding for the family trusts, the Federal Court stated the CRA’s decision lacked a “rational chain of analysis and transparency of reasoning” while also importing requirements specific to rectification and recission not required in the review of a request to amend under subsection 85(7.1).

Prepared by: Leonard Gilbert , Chris Marta

Leonard graduated from the University of Toronto, Faculty of Law (J.D. 2015) and is currently an associate practicing in the firm’s Toronto office. He previously performed extensively as a concert pianist and attended the Jacobs School of Music at Indiana… more »

Chris Marta is an associate practising in the firm’s Vancouver office. Chris Marta’s practice focuses on domestic and international tax planning for individuals, trusts and corporations. He also represents taxpayers in their disputes with the Canada Revenue Agency. Prior to… more »