Tax Appeal Dismissed: Claimant Failed to Meet Arm's Length Requirement
📌 In brief
In a recent Tax Court of Canada case, the appeal was dismissed because the claimant did not meet the requirement of dealing with an arm's length entity. The court ruled that the claimant was related to the landlord and the controlling shareholders of the company, which disqualified him from receiving certain tax subsidies.
⚖️ Legal holding
A taxpayer must deal with an arm's length entity to qualify for certain tax subsidies.
📖 Technical summary
The appeal was dismissed as the claimant did not meet the requirement of dealing with an arm's length entity.
📜 Headnote Official document
The Tax Court of Canada dismissed an appeal where the claimant failed to meet the requirement of dealing with an arm's length entity for tax subsidies. The court found that the claimant was related to the landlord and the controlling shareholders of the company, thus failing to satisfy the arm's length condition.
📚 Full judgment Official document
Citation: 2026 TCC 119 Date: 20260623 Docket: 2024-2515(IT)I BETWEEN: [NAME_1], Appellant, and HIS MAJESTY THE KING, Respondent .
REASONS FOR
JUDGMENT (I have prepared these Reasons for Judgment from the transcript of the Reasons for Judgment I delivered orally from the Bench on May 5, 2026 at Toronto, Ontario. I have edited them for punctuation and to remove repetitive phrases where I stumbled over my words. I added the phrase in square brackets in paragraph 9 to provide basic context. I did not make any substantive changes.) [NAME_3] J. [ 1 ] I'm going to give my oral judgment on this now. I won't be issuing written reasons for judgment. [ 2 ] I heard the testimony from both of you. While there were some inconsistencies in your testimony, I didn't think they were important to the key issues before me. I found you generally credible. [ 3 ] As you know, the issue that the government has with the application is that [NAME_2] has to have been dealing at arm's length. He can't be related to the landlord. [NAME_2], as tenant, can't be related to the landlord. He's clearly related to [NAME_4] because she's his mother [ 4 ] And he was also related to [NAME_5] as you agreed in your submissions because all of the shareholders of [NAME_5] are a related group where every member of that group is related to each other by blood or marriage and that group controls the company and therefore [NAME_2] is related to that. [ 5 ] As a result, he doesn't meet one of the qualifications that you have to meet to get the subsidy, and so, it's not a qualifying rent expense because the rent wasn't paid to an arm's-length entity. [ 6 ] I think you recognize what I just said and I think what you're essentially arguing is that due to some bad advice from CRA, you perhaps made the application incorrectly, and you'd like me to redo the application essentially as if it was [NAME_5] or [NAME_4] that had applied for it. [ 7 ] I don't have the power to do that. I can deal with the appeal in front of me, and the appeal in front of me is [NAME_2]'s appeal. I can't change the law. [ 8 ] I don't know whether [NAME_5] would have qualified or not. The Respondent has raised a number of other issues that [NAME_5] might have had with that including not having a business number at the relevant time, or not having had one early enough but none of that actually matters because [NAME_5]'s application isn't in front of me and, as you said, it's far too late now to bring one. [ 9 ] So, based on all of that, the appeal of the redetermination of [NAME_2]'s qualifying periods 10 to 21 [of the [NAME_6]] is dismissed. The Respondent isn't seeking costs, so, I'm not going to award costs. Signed this 23rd day of June 2026. “[NAME_3]” [NAME_3] J. CITATION: 2026 TCC 119 COURT FILE NO.: 2024-2515(IT)I STYLE OF CAUSE: [NAME_1] v HIS MAJESTY THE KING PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: May 5, 2026
REASONS FOR
JUDGMENT BY: The [NAME_3] DATE OF ORAL
REASONS: May 5, 2026 DATE OF
REASONS FOR
JUDGMENT: June 23, 2026 APPEARANCES: Agent for the Appellant: [redacted] Counsel for the Respondent: [redacted] [NAME_9] COUNSEL OF RECORD: For the Appellant: [redacted] n/a Firm: n/a For the Respondent: [redacted] Ottawa, Canada
❓ Frequently asked questions
What did this decision decide?
The appeal was dismissed because the claimant did not meet the requirement of dealing with an arm's length entity.
What was the dispute about?
The dispute was about whether the claimant met the requirement of dealing with an arm's length entity to qualify for tax subsidies.
How did the court decide, and why?
The court decided to dismiss the appeal because the claimant was related to the landlord and the controlling shareholders of the company, thus failing to satisfy the arm's length condition.
Which laws or rules were applied?
The Income Tax Act, section 152, was applied.
What was the argument that mattered most?
The argument that mattered most was that the claimant was related to the landlord and the controlling shareholders of the company, thus failing to satisfy the arm's length condition.
Was the decision for or against the person who brought the case?
The decision was against the person who brought the case.
What does this mean for someone in a similar situation?
Someone in a similar situation should ensure they meet the arm's length requirement to qualify for tax subsidies.
What evidence or documents mattered?
The evidence that mattered included the relationship between the claimant and the landlord, and the control of the company by a related group of individuals.