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June 13, 2024

Tax Perspectives

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Please note that these publications may not be up-to-date as taxation matters are subject to frequent changes.

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Summer 2001
Volume 1, Number 1

The information in Tax Perspectives is prepared for general interest only. Every effort has been made to ensure that the contents are accurate. However, professional advice should always be obtained before acting and TSG member firms cannot assume any liability for persons who act on the basis of information contained herein without professional advice.

Tax Shelter Litigation Update

By A. Christina Tari,
Richler and Tari, Tax Layers (Toronto)

Beginning in 1987, the Auditor General and various committees reviewing Canada's fiscal policies criticized Revenue Canada for being too lax with respect to "tax avoidance." In response, Revenue Canada (now the CCRA) increased its contingent of tax-avoidance officers and developed national projects aimed at deterring perceived tax avoidance strategies, many of which involved tax shelters.

To withstand the CCRA's onslaught against tax shelters, the only way is to band together in a group. Against seemingly endless resources and delays, individual taxpayers don't really stand a chance. Here. is an update on what has been going on.


The CCRA has assessed virtually every computer software shelter it has been able to identify, beginning with the 1993 taxation year. The grounds on which the CCRA has reassessed are numerous; tax auditors have a "global" list of grounds from which to choose. We have successfully negotiated away some of these issues in certain files.

However, the CCRA now seems to be at a standstill in terms of any meaningful settlement. A decision of Judge Rip of the Tax Court of Canada in Peter Brown v. The Queen is pending, and the CCRA believes that the decision will set a precedent. Almost all of the CCRA's potential assessing positions on the global list were assumed by the auditor in the case. These were all argued at trial.

In Brown, a (general) partnership acquired 11 computer software programs that were to be used to develop computer games. Revenues from the sale of the games were to be pooled so that if one game succeeded, the partners would share in the bonanza and could offset the losses from the unsuccessful games.

The CCRA assessed the limited partners in the shelter in Brown on the basis that the partners bought the partnership units as a tax shelter in order to obtain tax savings and not to earn income from a business or property, and that the partnership was set up solely to enable the partners to obtain tax savings. Further, the CCRA stated that the partnership acquired the software at an inflated cost from a non-arm's-length party. The Crown argued (1) that the partners had no reasonable expectation of profit and (2) that the sales agreement contained a clause "guaranteeing" the partners sufficient income to cover their liability on the promissory notes.