Canada v. Addison & Leyen Ltd., 2007 DTC 5365, 2007 SCC 33, [2007] 2 SCR 793

                                                 SUPREME COURT OF CANADA

Between:

Her Majesty the Queen in Right of Canada and

Canada Customs and Revenue Agency

Appellants

and

Addison & Leyen Ltd., Concrest Corporation Ltd.,

John Joseph Dietrich, Jeannette Marie Dietrich,

Rofamco Investments Ltd., Wilfrid Daniel Roach

and Helen Ann Roach

Respondents

Coram: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Abella and Charron JJ.

______________________________

Canada v. Addison & Leyen Ltd., [2007] 2 S.C.R. 793, 2007 SCC 33

Her Majesty The Queen in Right of Canada and

Canada Customs and Revenue Agency                                                                          Appellants

v.

Addison & Leyen Ltd., Concrest Corporation Ltd.,

John Joseph Dietrich, Jeannette Marie Dietrich,

Rofamco Investments Ltd., Wilfrid Daniel Roach

and Helen Ann Roach                                                                                                    Respondents

Indexed as:  Canada v. Addison & Leyen Ltd.

Neutral citation:  2007 SCC 33.

File No.:  31451.

2007:  May 24; 2007:  July 12.

Present:  McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Abella and Charron JJ.

on appeal from the federal court of appeal

Taxation — Income tax — Tax liability — Property transferred not at arm’s length — Taxpayers assessed pursuant to s. 160  of Income Tax Act in respect of non‑arm’s length transfers of property at less than fair market value — Provision expressly authorizing Minister of National Revenue to assess “at any time” — Assessment made after long delay — Taxpayers filing notices of objection but no appeal raised in Tax Court — Judicial review sought in Federal Court of discretionary assessment — Whether length of delay before decision to assess taxpayers enough to ground judicial review — Whether regular appeal process could have dealt with tax liability issues — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), s. 160  — Federal Courts Act, R.S.C. 1985, c. F‑7, s. 18.5 .

Administrative law — Judicial review — Availability — Jurisdiction of Federal Court — Taxpayers assessed pursuant to s. 160  of Income Tax Act  in respect of non‑arm’s length transfers of property at less than fair market value — Provision expressly authorizing Minister of National Revenue to assess “at any time” — Assessment made after long delay — Taxpayers filing notices of objection but no appeal raised in Tax Court — Judicial review sought in Federal Court of discretionary assessment — Whether judicial review available — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), s. 160  — Federal Courts Act, R.S.C. 1985, c. F‑7, s. 18.5 .

In February 2001, the Minister of National Revenue sent notices of assessment to the respondent taxpayers pursuant to s. 160  of the Income Tax Act  for taxes owing by a company to the limit of the payments received by them as direct or indirect shareholders of that company.  The Minister had concluded the company’s taxes, which arose from a 1992 assessment of its 1989 taxation year, were not recoverable.  The taxpayers filed notices of objection in May 2001, to which Revenue Canada did not respond, but never appealed to the Tax Court.  In 2005, the taxpayers applied for judicial review, under s. 18.5  of the Federal Courts Act , of the Crown’s decision to use its discretionary assessment powers under s. 160 , arguing that the long delay before the assessment was abusive, prevented their mounting a proper challenge to the assessment’s validity in the Tax Court and deprived them of any possibility of indemnification by the primary taxpayer.  The Federal Court granted the Crown’s motion to strike the claim, but a majority of the Federal Court of Appeal reversed that decision and allowed the application for judicial review to proceed.

Held:  The appeal should be allowed.

On the facts of this case, judicial review was not available because the Minister can assess at any time as s. 160  of the Income Tax Act  contains no limitation period.  This does not mean that the exercise of this discretion is never reviewable, but the length of the delay before a decision whether or not to assess is not enough to ground judicial review.  The length of delay might, however, ground a remedy like mandamus to prod the Minister to act with due diligence.  Furthermore, the allegations of fact here did not show that the regular appeal process could not have dealt with the tax liability issues.  [9-10]

Statutes and Regulations Cited

Federal Courts Act, R.S.C. 1985, c. F‑7, s. 18.5 .

Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), ss. 152 , 160 .

APPEAL from a judgment of the Federal Court of Appeal (Rothstein, Sharlow and Malone JJ.A.), [2006] 4 F.C.R. 532, 265 D.L.R. (4th) 253, 346 N.R. 238, [2006] 3 C.T.C. 95, 2006 D.T.C. 6248, [2006] F.C.J. No. 489 (QL), 2006 FCA 107, reversing a judgment of Kelen J., [2005] 2 C.T.C. 201, 2005 D.T.C. 5212, [2005] F.C.J. No. 516 (QL), 2005 FC 411.  Appeal allowed.

Graham R. Garton, Q.C., and Wendy Burnham, for the appellants.

Roderick A. McLennan, Q.C., H. M. Kay, Q.C., Curtis R. Stewart and L. A. Goldbach, for the respondents.

The following is the judgment delivered by

1                                   The Court — The respondents applied for judicial review of a tax assessment issued by the Minister of National Revenue under s. 160  of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .) (“ITA ”).  On a motion by the Crown, the Federal Court struck the application.  A majority of the Federal Court of Appeal reversed this judgment and allowed the application for judicial review to proceed. For the reasons that follow, we are of the view that the Crown’s motion to strike was well founded, that its appeal should be allowed and that the application for judicial review should be struck.

2                                   The present litigation arises out of the tax planning decisions that were made several years ago and the business dealings that were subsequently transacted.  In 1989, the respondents, who held shares, directly or indirectly, in a company, York Beverages (1968) Ltd. (“York”), which had sold its bottling business the year before, sold their York shares to another company, Synergy Inc. (“Synergy”).  Synergy planned to use York’s cash in hand to purchase seismic data and reduce York’s tax liability to zero.  Between the time of the sales of the bottling business and of the York shares, the respondents received various payments from York in the form of dividends, directors’ fees, loan repayments, etc.

3                                   In 1992, the Minister of National Revenue reassessed York for the 1989 taxation year under s. 152  ITA  after determining that the seismic data had been overvalued.  The reassessment was for $3,247,074.05, including a penalty and interest.  York filed a notice of objection.  The Minister never responded and York never appealed to the Tax Court of Canada.

4                                   At some point, the Minister concluded that nothing would ever be recovered from York.  In February 2001, the Minister sent notices of assessment to the respondents under s. 160  ITA .  In the notices of assessment, the Minister claimed York’s entire tax liability from the respondents, jointly and severally, and the amount assessed in respect of each of the respondents was limited to the amount of the payments that person had received from York in 1988 and 1989.  Including interest, the claim now exceeds $6,000,000.

5                                   The respondents filed notices of objection in May 2001.  Revenue Canada never dealt with the objections and the respondents never appealed to the Tax Court of Canada.  In 2005, they applied for judicial review of the Crown’s decision to use its discretion to assess them under s. 160  ITA .  They submitted that the long delay in issuing the assessment was abusive, prevented them from mounting a proper challenge to the validity of the assessment in the Tax Court and deprived them of any possibility of indemnification by the primary taxpayer.

6                                   The Crown moved to strike the application for judicial review.  In the Federal Court, Kelen J. granted the motion and struck the application: [2005] 2 C.T.C. 201, 2005 FC 411.  He found that judicial review was not available to the respondents and that they could and ought to have pursued alternative remedies.  The majority of the Federal Court of Appeal reversed the trial judgment: [2006] 4 F.C.R. 532, 2006 FCA 107.  Sharlow J.A. held that the Federal Court had jurisdiction over the matter and that the test for granting a motion to strike had not been met.  She stated that judicial review might be available on the issue of the exercise of the discretion to assess a taxpayer under s. 160  ITA .  Rothstein J.A. (as he then was), in dissent, would have upheld Kelen J.’s judgment.  He was of the view that a delay in issuing an assessment under s. 160  is not reviewable by the Federal Court under its judicial review jurisdiction.

7                                   The issue in this appeal is whether judicial review under s. 18.5  of the Federal Courts Act, R.S.C. 1985, c. F-7 , is available to challenge the exercise of the Minister’s discretion to assess a taxpayer under s. 160  ITA .  What the case actually turns on, however, is the interpretation of s. 160 .

8                                   We need not engage in a lengthy theoretical discussion on whether s. 18.5  can be used to review the exercise of ministerial discretion.  It is not disputed that the Minister belongs to the class of persons and entities that fall within the Federal Court’s jurisdiction under s. 18.5 .  Judicial review is available, provided the matter is not otherwise appealable.  It is also available to control abuses of power, including abusive delay.  Fact-specific remedies may be crafted to address the wrongs or problems raised by a particular case.

9                                   Nevertheless, we find that judicial review was not available on the facts of this case.  As Rothstein J.A. pointed out, the interpretation of s. 160  ITA  by the majority of the Federal Court of Appeal amounted to reading into that provision a limitation period that was simply not there.  The Minister can assess a taxpayer at any time.  In the words of Rothstein J.A.:

While in the sense identified by the majority, subsection 160(1) may be considered a harsh collection remedy, it is also narrowly targeted.  It only affects transfers of property to persons in specified relationships or capacities and only when the transfer is for less than fair market value.  Having regard to the application of subsection 160(1) in specific and limited circumstances, Parliament’s intent is not obscure.  Parliament intended that the Minister be able to recover amounts transferred in these limited circumstances for the purpose of satisfying the tax liability of the primary taxpayer transferor.  The circumstances of such transactions mak[e] it clear that Parliament intended that there be no applicable limitation period and no other condition on when the Minister might assess. [para. 92]

10                               The Minister is granted the discretion to assess a taxpayer at any time.  This does not mean that the exercise of this discretion is never reviewable.  However, in light of the words “at any time” used by Parliament in s. 160  ITA , the length of the delay before a decision on assessing a taxpayer is made does not suffice as a ground for judicial review, except, perhaps, inasmuch as it allows for a remedy like mandamus to prod the Minister to act with due diligence once a notice of objection has been filed.  Moreover, in the case at bar, the allegations of fact in the statement of claim do not disclose any reason why it would have been impossible to deal with the tax liability issues relating to either the underlying tax assessment against York or the assessments against the respondents through the regular appeal process.

11                               Reviewing courts should be very cautious in authorizing judicial review in such circumstances.  The integrity and efficacy of the system of tax assessments and appeals should be preserved.  Parliament has set up a complex structure to deal with a multitude of tax-related claims and this structure relies on an independent and specialized court, the Tax Court of Canada.  Judicial review should not be used to develop a new form of incidental litigation designed to circumvent the system of tax appeals established by Parliament and the jurisdiction of the Tax Court.  Judicial review should remain a remedy of last resort in this context.

12                               For these reasons, the appeal is allowed, the judgment of the Federal Court of Appeal is set aside and the judgment of the motions judge is restored, with costs.

APPENDIX

Statutory Provisions

Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .)

160. (1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to

. . .

(c)     a person with whom the person was not dealing at arm’s length,

the following rules apply:

(d)     the transferee and transferor are jointly and severally liable to pay a part of the transferor’s tax under this Part for each taxation year equal to the amount by which the tax for the year is greater than it would have been if it were not for the operation of sections 74.1 to 75.1 of this Act and section 74  of the Income Tax Act , chapter 148 of the Revised Statutes of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted therefor, and

(e)     the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of

(i)     the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and

(ii)     the total of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year,

but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act.

. . .

(2)     The Minister may at any time assess a taxpayer in respect of any amount payable because of this section and the provisions of this Division apply, with any modifications that the circumstances require, in respect of an assessment made under this section as though it had been made under section 152 .

Federal Courts Act, R.S.C. 1985, c. F-7 

18.5 Despite sections 18 and 18.1, if an Act of Parliament expressly provides for an appeal to . . . the Tax Court of Canada . . . from a decision or an order of a federal board, commission or other tribunal made by or in the course of proceedings before that board, commission or tribunal, that decision or order is not, to the extent that it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with, except in accordance with that Act.

Appeal allowed with costs.

Solicitor for the appellants:  Attorney General of Canada, Ottawa.

Solicitors for the respondents:  Bennett Jones, Calgary.