NYGman wrote:Shouldn't the price they paid for the property be a guide to the value of the property when eminent domain is used, and therefore limit their profit?
I know I had to explain to my brother that he could not go to a garage sale, buy something for pennies on the dollar, and then tax deduct the full book amount. He would be limited to the purchase price.
So while the developer may be buying up under market, are they not in fact depressing the market value, which therefore should result in them receiving less. Of course, this probably makes too much sense to be the way things are.
That comment goes to the heart of one of Canada's biggest tax avoidance schemes. Billions of dollars were involved. Various properties, prints of artwork, medicines, school supplies, computer software, were sold by the schemes' promoters to Canadian taxpayers as a basis for charitable donation deductions. The purchasers would donate them to a compliant charity, sometimes captive charities created by the promoters themselves, at claimed values much higher than their actual cost. This resulted in the donors making a profit from their refunds.
This is how they supposedly "worked". You would buy 100 crap art prints from a promoter for, say, $300 each. So you are out of pocket $30,000. The promoter has a piece of paper saying that they are really worth $1,000 each based on some semi-qualified appraiser saying that this is what the prints would sell for on an individual print basis in an art gallery in New York (an actual example). You'd donate the prints to a captive charity for the $1,000 amount and get a donation receipt for $100,000. At a combined provincial and Federal top tax rate of say 40% you get a refund of $40,000 for the donation for a profit of $10,000. Towards the end when there were so many of these schemes they were ruthlessly competing for suckers the claimed fake values escalated to up to ten times the cash price.
This was huge, with legal and accounting firms flogging it and thousands of Canadians buying in. It seemed foolproof until theory collided with reality in the first that case went to Tax Court. This case;
Klotz v. The Queen
2004 TCC 147
http://canlii.ca/t/1ggjc
Then NYGman's logic kicked in with Judge Bowman saying;
[40] I have reproduced large portions of Ms. Laverty's report because in fairness to her it is important that I give my reasons for not accepting it. On paper her report has a certain plausible ring to it. However, I reject it for several reasons:
(a) Even if we accept that the proper market to which one should look is the "retail" market, that is to say the retail art galleries, principally those in New York, the evidence does not support the conclusion that recourse to that market justifies the fmv determined in the report.
(iii) I do not think that what a New York art dealer might be asking for a similar print by one of the artists whose works are in the program proves anything about what scores of the same work would fetch if they were all dumped on the market at the same time.
(iv) The conclusion that over 80 per cent of the prints involved in the Klotz donation (and probably in everyone else's) were valued at precisely CDN$1,000 (which by an extraordinary coincidence is the amount mentioned in subsection 46(1)) is suspect, to say the least. I find it hard to believe that there is no difference between the multiplicity of prints valued.
(vi) Her evidence that the prints of some artists would fetch the prices she determined if exposed for sale over a period of years proves nothing about the fmv on December 30, 1999. It is moreover conjecture unsupported by the evidence. I am prepared to assume, without any real evidence, that, had we but world enough and time, the odd print of a particular artist might eventually sell for $1,000. I am not however prepared to leap from that speculative assumption to the conclusion that on December 30, 1999, 100 of that artist's prints would sell for $100,000 in the open market.
(vii) Some of the prints that were obtained by Curated through Ms. Krawczyk were obtained from dealers such as Szoke Gallery, Novak Graphics and Alex Rosenberg Fine Arts at the favourable prices authorized by her mandate. It is strange that dealers would sell the prints to Curated or Ms. Krawczyk for US$50 or less if there were a retail market out there ready to buy the prints for $1,000 each. Although the evidence of actual sales of identical or comparative prints is thin, if it exists at all, I am prepared to assume that one of a particular artist's prints may be offered for sale in a New York gallery for $1,000 and perhaps somebody might even pay that for it. However, one swallow does not make a summer and I have certainly not seen a flock.
[44] I am simply looking at the best evidence available to determine what the fmv of the gift of 250 prints is. The most contemporaneous and most comparable figure is what Mr. Klotz paid Curated for them. One might question whether even this figure is too high considering that the reason Mr. Klotz paid even as much as he did was that he believed that an expenditure of $300 would yield him a tax credit based on $1,000. It is an interesting question that I need not consider here whether the price paid for something is truly indicative of fmv where the predominant component in the price paid is the tax advantage that the purchaser expects to receive from acquiring the object. I need not pursue this question because the Crown did not suggest a lower figure. The US$50 figure (Ms. Krawczyk's maximum price) that was mentioned in the reply was not pressed in argument.
[46] The respondent's approach is in my view more realistic. Mr. Alasko described the sale to the appellant by Curated as a wholesale or bulk transaction. No doubt the respondent would have preferred to have him say it was a retail sale but in the final analysis it does not really matter what one calls it. It is what it is. It was a sale of 250 prints for $75,000 between two arm's length parties. The gift was a virtually contemporaneous disposition of the same 250 prints. What better evidence is there of what the 250 prints were worth at that time? Why chase the will o' the wisp of an elusive and largely hypothetical fmv through the trendy up scale art galleries of New York and ignore the best evidence that is right there before your very nose? The problem with the claim here, whereby property is acquired for $5 to $50, sold to the appellant for $300 and claimed to have a fmv two days later of $1,000, is that it is devoid of common sense and out of touch with ordinary commercial reality.
The taxpayers who lost at court in the earlier hearings were the lucky ones. They were allowed to deduct their actual cash purchase prices. After a while the Canada Revenue Agency decided to deny even that and the courts supported them so the taxpayers were completely out of pocket.
If you're not an obedient citizen (citoyen docile), the State can't take back what is yours (your house, your car, your profession, your tent trailer). So, if you establish a private trust, and if this trust owns your stuff rather than you, then the State can't seize your stuff. The problem is that it doesn't work that way. If you don't pay your taxes or your tickets because you're not a slave and you're too special to do it, there's no way you can protect yourself from getting your stuff seized (it didn't work for Pete Daoust: why should it work for you? 
). Well, I post the videos here and you can find the english translation in the comments of the thread:
