Case: 2019 TCC 205 — Paletta et al. v. The Queen

Paletta et al. v. The Queen. Tax Court of Canada, October 1, 2019 (Amended October 7, 2019). Neutral Cite: 2019 TCC 205. Court File Nos. 2013-225(IT)G, 2013-2420(IT)G, 2013-4837(IT)G. Hogan J. Tax shelters — Appeal from Minister’s disallowance of losses claimed by taxpayer — The individual and corporate taxpayers entered into two separate arrangements which they characterized as investments in the film industry and they subsequently claimed $96 million in losses arising from those investments.

The Minister disallowed all such loss claims on the basis that some of the transactions entered into by the parties were a sham and that the partnership interests acquired by the appellants were unregistered tax shelters. The taxpayers appealed from those characterizations and their appeals were dismissed. The Tax Court of Canada reviewed the terms of the agreements entered into by both the individual and corporate appellants, and held that each such agreement was properly characterized as a sham.

The Court concluded that the parties to the agreements had agreed from the start that the film company would reacquire the films made before their commercial release by exercising its option to acquire all of the partnership interests. Consequently, in the Court’s view, the appellants and the partners knew that they would never generate income from the films. The Court concluded that each such Option Agreement was therefore a sham. The appellants were not entitled to the loss claims made, and their appeals from the Minister’s disallowance of such claims were dismissed. — Income Tax Act, RSC 1985, c. 1 (5th Supp.), s. 237.1.

Film and Media Tax Credits tax refunds

Planning to invest in the film industry. There are risks of disallowance of losses within structures that are not acceptable to CRA. Call us before you invest at 514-954-8789 or visit our Contact-us page.

Film and Media Tax Credits tax refunds
Film and Media Tax Credits tax refunds

Canadian and Provincial Film or Video Production Tax Credits, and the Film or Video Production Services Tax Credits provide refundable income tax credits to eligible productions.  If you are funding stage or starting a production call us at 1-514-954-8789 or Contact-us for free consultation.

Leave a comment