Okanagan Mortgage Team

Breaking News: Court Ruling Good for Mortgage Brokers Supreme Court of Canada rules in favour of tax deductible mortgages! Mortgage Brokers and Financial Advisors that are engaged in restructuring debt for tax efficiency can finally sleep easy. For almost a year, tax efficient mortgage strategies have been under critical review by the Supreme Court of Canada in the much acclaimed court case Lipson et. Al. v. the Queen. On January 8th 2009, the Supreme Court of Canada published their decision on this closely monitored General Anti-Avoidance Rule (“GAAR”) court case that involved taxpayers making their mortgage interest tax deductible among other transactions. “After a nail biting 8 months, we finally have a definitive answer on GAAR and tax efficient mortgages – and it is very good news for homeowners as well as the mortgage brokers that advise them.” said Sandy Aitken, President of TDMP.COM. “We’ve advised thousands of homeowners mortgage brokers in how to structure these deals properly under the tax rules. We are delighted to see that the TDMP tax strategy was unanimously supported by these seven judges in the highest court of the land.” While the Supreme Court Justices were split (4-3) on their decision regarding the Lipson’s Appeal, the most interesting revelation in the written decision is that the judges unanimously agreed that the Lipsons were very well within their rights to restructure their mortgage for tax benefits under paragraph 20(1)(c) and subsection 20(3) of the Income Tax Act (“ITA”)i.

In fact, the dissenting views among the judges were restricted to the application of GAAR with respect to the income attribution rules related to subsections 73 and 74.1 of the ITA (also known as the “spousal twist”) as well as the government’s failure to assess the taxpayer under 74.5(11) instead of GAAR with respect to these same income attribution rules. Differing opinions among Supreme Court Justices on these specific “spousal twist” issues were no doubt responsible for the court taking so long to render a judgement in the case. However, for ordinary homeowners with conventional mortgages structured for maximum tax benefits, it was worth the wait. It is now clear that there is nothing to prevent taxpayers taking full advantage of their entitlement to tax benefits that can result from restructuring their mortgage to more tax efficiently match up with their assets. “This is a landmark decision and a huge win for Canadian homeowners with tax efficient mortgages” said Aitken. “Not only did the judges specifically reaffirm the precedents set in prior court decisions- upon which we all rely: Duke of Westminsterii [1936] and Singletoniii [2001], they went one step further to rule that taxpayers have the right to restructure their debt without any threat of such transactions being caught under GAAR. More specifically, the Justices agree that taxpayers are allowed to make their mortgage interest tax deductible by restructuring their mortgage debt to align with eligible purposes.” TDMP.COM is Canada’s largest provider of tax efficient mortgage solutions and provides Public Seminars and TDMP Mortgage Broker Certification Training in all major urban centres across Canada.

i Supreme Court of Canada Citation: Lipson v. Canada 2009: Per LeBel, Fish, Abella and Charron JJ.: The Minister has failed to establish that the purpose of ss. 20(1)(c) and 20(3) have been misused and abused. The series of transactions did not become problematic until the taxpayer and his wife turned to ss. 73(1) and 74.1(1), in order to obtain the result contemplated in the design of the series of transactions which resulted in the taxpayer applying his wife’s interest deduction to his own income. ii Supreme Court of Canada Citation: Lipson v. Canada 2009: Paragraph 19: It has long been a principle of tax law that taxpayers may order their affairs so as to minimize the amount of tax payable (Commissioners of Inland Revenue v. Duke of Westminster, [1936] A.C. 1 (H.L.)). This remains the case. However, the Duke of Westminster principle has never been absolute, and Parliament enacted s. 245 of the ITA, known as the GAAR, to limit the scope of allowable avoidance transactions while maintaining certainty for taxpayers (Canada Trustco, at para. 15). iii Supreme Court of Canada Citation: Lipson v. Canada 2009: Per Binnie and Deschamps JJ. (dissenting): “Singleton” illustrates the proposition that there is nothing abusive in principle for a taxpayer to rearrange his or her capital (borrowed or non-borrowed) in a tax efficient manner. The Minister is not asking the Court to revisit Singleton. He does not claim that GAAR would have applied in that case. The Minister acknowledges here that “it is common ground that the interest was deductible”.