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2026-10-08

Struck, 2017 FCA 69: a taxpayer who consents to judgment on the amount of a taxable capital gain cannot later appeal to claim a capital gains reserve

2017 FCA 69 · Federal Court of Appeal

Provisions

ITA s. 169ITA s. 40ITA s. 38ITA s. 39ITA s. 110.6

Text

Author: Sas Tullo

This is a short income tax procedure case about what a taxpayer gives up when he settles a Tax Court appeal by consent. Horst Struck agreed with the Crown on the amount of his taxable capital gains for 2005 and the Tax Court entered judgment on those terms. When the reassessment implementing the judgment arrived, he appealed again, this time to claim a reserve that would have spread the gain over several years. The Tax Court quashed the second appeal and the Federal Court of Appeal agreed. The case matters to anyone settling with the CRA, because it shows that agreeing to a number can close off arguments the taxpayer thought were still open.

Facts

In 2005 Mr. Struck transferred 150 shares of 468543 B.C. Ltd. and a one-half interest in a rental property to his son, on terms the two of them agreed, and reported no taxable capital gain (para 2). The Minister reassessed in 2009 to include taxable capital gains of $163,000, reduced on objection to $110,500 (para 3). Mr. Struck appealed to the Tax Court, and by consent judgment dated January 8, 2013 the appeal was allowed and the total taxable capital gains were reduced to $72,100, being $49,850 on the residential property and $22,250 on the shares (para 4). When the reassessment giving effect to the judgment issued, he filed a fresh notice of appeal; the Crown moved to quash, and D’Arcy J. granted the motion on March 22, 2016 (para 5).

Before the Court of Appeal Mr. Struck advanced three items: a reserve under section 40 of the Income Tax Act, net capital losses of other years, and the capital gains deduction under section 110.6 on the footing that the shares were qualified small business corporation shares (para 7). At the hearing his son confirmed that the CRA had since allowed the net capital losses and that the shares did not qualify because the company held a rental property, leaving only the reserve in dispute (paras 8-9).

Issues

The single issue was whether the Tax Court judge erred in quashing the appeal (para 6), which turned on whether the claim for a reserve under section 40 related to a matter “conclusively determined by the Court” within the meaning of subsection 169(2) (paras 10-11).

Holding

The appeal was dismissed with costs (para 20). The amount of the taxable capital gain, and therefore the gain from which it is computed, had been conclusively determined by the consent judgment, so subsection 169(2) precluded an appeal seeking a reserve that would change that amount (para 19).

The court’s reasoning

Webb J.A., with whom Noël C.J. and Woods J.A. agreed, began with the statutory limit on second appeals. Subsection 169(2) provides that where the Minister reassesses in accordance with a court order referring an assessment back for reconsideration, the taxpayer may appeal again only to the extent that the reasons for the appeal can reasonably be regarded as relating to a matter that gave rise to the assessment and that was not conclusively determined by the Court (para 10). The operative limitation, in the English version, is that the matter appealed cannot be one “conclusively determined by the Court” (para 11).

To identify what had been conclusively determined, the Court looked to the judgment itself, which allowed the appeal and referred the matter back to the Minister in accordance with the attached consent; the terms of the consent were therefore incorporated by reference into the judgment (para 12). Those terms fixed the taxable capital gains at $72,100 and set out both the taxable capital gain and the underlying capital gain for each property (para 13). The total taxable capital gain and the capital gain were accordingly matters conclusively determined by the Tax Court, and, as Mr. Struck’s son acknowledged, agreeing to that amount meant agreeing to the consequences that flow from it (para 14).

The Court then traced the arithmetic through the Act. Under paragraph 38(a) a taxable capital gain is one-half of the capital gain (paras 15-16). Under paragraph 39(1)(a) the capital gain is the gain determined under subdivision c from the disposition of the property (paras 16-17). Under paragraph 40(1)(a) the gain is the excess of the proceeds over the adjusted cost base and selling expenses, less any reserve the taxpayer claims under subparagraph 40(1)(a)(iii) for proceeds not due until after the year (para 18). It follows that the gain “will reflect any reserve that a particular taxpayer is entitled to claim and chooses to claim” (para 19). By agreeing to the amount of the taxable capital gain, Mr. Struck also agreed to the capital gain and, more importantly, to the amount of the gain, which had been computed without a reserve; a reserve claimed now would reduce the gain, the capital gain, and the taxable capital gain, all of which had been conclusively determined (para 19). The Tax Court judge therefore made no error in quashing the appeal (para 19).

Practical implications

The decision gives a clear illustration of how subsection 169(2) operates after a consent judgment. The provision exists to prevent relitigation of what the Tax Court has decided, and the Court of Appeal reads “conclusively determined” by reference to the judgment and whatever it incorporates, here the consent itself. Because sections 38, 39, and 40 define taxable capital gain as a derivative of the gain, a consent fixing the taxable capital gain necessarily fixes every element upstream of it, including the absence of a reserve. The taxpayer cannot unbundle the number afterwards.

In my view, the practical message for practitioners is to treat a consent to judgment as a complete statement of the taxpayer’s position on every computational element that feeds the agreed figure. If a reserve, a loss carryforward, or a deduction is still wanted, it must either be reflected in the consent or expressly carved out as a matter left open. The Court did not need to decide whether the net capital losses or the section 110.6 deduction would have survived, since both fell away at the hearing (para 8), but the reasoning suggests that a loss applied under Division C, which does not alter the taxable capital gain itself, may stand on a different footing from a reserve that reduces the gain. That distinction was not argued and remains open. Subsection 169(2) was checked on the Justice Laws site and the text applied by the Court remains in force in substantially the same terms. Whether an appeal was taken is not verified here.

For readers settling a Tax Court appeal, the lesson is to settle the whole computation, not only the headline number. Once the Tax Court signs a judgment on agreed amounts, a later reassessment implementing it cannot be appealed to revisit anything that feeds those amounts.

This comment is general information, not legal advice. The law may have changed since the decision; check the current text in the tax wiki.

Struck v. Canada, 2017 FCA 69, decided April 3, 2017. Noël C.J., Webb, and Woods JJ.A.; reasons for judgment by Webb J.A. Reasons on the Federal Court of Appeal’s site. Also on CanLII. Decision under appeal: judgment of the Tax Court of Canada (D’Arcy J.) dated March 22, 2016, docket 2014-2421(IT)I.