Citation: 2013 TCC 259
Date: 20130820
Docket: 2013-427(IT)APP
BETWEEN:
NEWFOUNDLAND TRANSSHIPMENT LTD.,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
D'Auray J.
[1]
This is an application
for an Order extending the time within which the applicant, Newfoundland
Transshipment Limited (“NTL”), may serve a Notice of Objection in respect of
the taxation years ending on December 31, 2002, December 31,
2003, December 31, 2004 and December 31, 2005.
Facts
[2]
NTL operated a marine
transhipment facility that handled crude oil production from the Hibernia,
Terra Nova and White Rose fields, located offshore of Newfoundland and
Labrador.
[3]
By letter dated April
17, 2007, NTL filed amended tax returns for the taxation years ending on
December 31, 2002, December 31, 2003, December 31, 2004 and December
31, 2005 (“years in issue”), requesting an amendment to its capital cost
allowance (“CCA”) classes.
[4]
In initially filing its
tax returns for the years in issue, NTL erroneously classified its pipeline as
a Class 1 asset instead of a Class 6 asset. The difference between a Class 1
asset and a Class 6 asset is significant since Class 1 has a depreciation
rate of 4% and Class 6 has a depreciation rate of 10%.
[5]
In filing its income
tax returns for the subsequent taxation years, namely for the taxation years
2006, 2007, 2008, 2009 and 2010,
NTL classified the pipeline as a Class 6 asset and claimed the CCA
deduction accordingly.
[6]
The Minister of
National Revenue (the “Minister”) took the position that the pipeline qualified
as a Class 1 asset and not as a Class 6 asset. In a letter dated
February 1, 2012, (the “February letter”) the Minister wrote the following
to NTL:
February
1, 2012
Newfoundland
Transshipment Limited
PO
Box 248 Stn C
3rd
Floor Baine Johnson Centre
St
John’s, NL, A1C 5J2
Attn: Mr. Paul Adams
Re: Review of income
tax returns for the period from 2002-12-01 to 2010-12-31
BN:
XXXXXX892
We have completed
our audit of your income tax returns. Our review was limited to the issue of a
pipeline that you had included on T2 Schedule 8 in Class 6. We have determined
that the pipeline should be included in Class 1.
Please see working
paper # 800 for a summary of our proposed adjustments. Further details and
adjustments can be found in the attached working papers.
If you have any
questions or concerns about the proposed adjustments, or if you have additional
information that may affect the adjustments please call me at the number listed
below before March 2, 2012.
If we do not hear
from you before March 2, 2012, we may make the adjustments as proposed. If this
is the case, a Notice of Reassessment will be issued to you at that time.
Yours truly,
(s) Dean Williams
Dean Williams
Audit Division
Tax Services Office:
01 – Newfoundland & Labrador
Enclosures
cc: Mr.
Brian Brophy, via facsimile
[7]
On April 24, 2012 the
Minister also wrote to NTL informing it that the audit for the 2006 to the 2010
taxation years were completed and that NTL would be reassessed as per the
February letter. The pipeline would be removed from Class 6 and be
reassessed under Class 1. With respect to the 2002 to the 2005 taxation years,
the Minister indicated that the request to adjust the CCA had been denied.
However, due to the departmental delay in treating the original request filed
on April 17, 2007, interest relief under the taxpayer relief provisions would
be granted for the period of April 17, 2007 up to November 2011, date of
the commencement of the auditor’s review.
[8]
On August 29, 2012, NTL
filed a Notice of Objection with the Minister with respect to the Notices of
Reassessment dated June 4, 2012 for the 2006 to 2010 taxation years. NTL also
requested that the Minister issue reassessments for the years in issue to
reflect the changes made by NTL in its amended returns with respect to the
pipeline for CCA purposes.
[9]
On September 21, 2012,
the Minister informed NTL that 2002 taxation year was a nil assessment. In addition,
the Minister stated that the Notices of Objection for 2002 to 2005 taxation
years were filed late. The Minister also informed NTL that an application for
an extension of time could not be granted since it was not made by NTL within
the one year of the expiration of the time limit for serving a Notice of
Objection pursuant to paragraph 166.1(7)(a) of the Income
Tax Act (the “Act”). With respect to the Notices of Objection for the
2006 to 2010 taxation years, the Minister informed NTL that they would be
assigned and reviewed by an appeal officer of the Canada Revenue Agency (the
“CRA”).
[10]
By letter dated October
10, 2012, NTL filed a Notice of Objection for the years in issue.
[11]
On October 31, 2012 the
Minister informed NTL that the Notice of Objection was filed late and that an
extension of time for serving a Notice of Objection could not be granted for
the reasons previously stated in his letter of September 21, 2012.
[12]
On January 24 2012, NTL
filed with this Court an application for an extension of time for serving a
Notice of Objection for the years in issue.
[13]
For ease of reference,
I have set out for the years in issue, the dates that NTL was assessed and the
time limits it had for serving the Notices of Objection and for filing an
application for an extension of time for serving a Notice of Objection as well
as to the dates when the years in issue became statute-barred:
2002 Taxation Year
Assessed: July
23, 2003
Time for Objection: October
20, 2003
Time for Extension: October
20, 2004
Statute-barred: July
23, 2007
2003
Taxation Year
Assessed: June
29, 2004
Time for Objection: September
24, 2004
Time for Extension: September
26, 2005
Statute-barred: June
29, 2008
2004
Taxation Year
Assessed: May
18, 2005
Time for Objection: August
16, 2005
Time for Extension: August16,
2006
Statute-barred: May
18, 2009
2005
Taxation Year
Assessed: June
23, 2006
Time for Objection: November
28, 2006
Time for Extension: November
28, 2007
Statute-barred: June
23, 2010
[14]
It is to be noted, that
at the time NTL filed its amended tax returns on April 17, 2007, none of the
years in issue were statute-barred. It was open to the Minister to make the
adjustments requested by NTL. However, the time limit for serving a Notice of
Objection had elapsed and except for the 2005 taxation, the time for filing an
application for an extension of time for serving a Notice of Objection had also
elapsed.
[15]
A waiver was not filed
by NTL for any of the years in dispute.
NTL’s position
[16]
NTL argued that the
February letter constituted a reassessment for the years in issue. Therefore,
NTL was still within the time limit for filing with this Court an application
for an extension of time for serving a Notice of Objection.
[17]
In addition, NTL stated
that it relied on the policy adopted by the CRA with respect to amended
returns; namely that under some conditions, amended returns will be considered
by the CRA as the facto waivers. If the CRA would have applied the policy to
NTL, the years in issue would still be opened.
Analysis
[18]
Before dealing with the
argument of NTL that the February letter constituted a reassessment, I
will first deal with the obligation of the Minister with respect to amended
returns and then with the argument that if the CRA had applied the policy on amended
returns to NTL, the years in issue would not be statute-barred.
[19]
The Federal Court of Appeal considered the effect of
amended returns in Armstrong v The Queen, 2006 DTC 6310. Justice Sharlow, writing for the Court,
makes it clear that a request to amend an income tax return will not
necessarily result in a reassessment, as it is merely a request to the
Minister. At paragraph 8 of her reasons, she states:
[8] An
amended return for a taxation year that has already been the subject of a
notice of assessment does not trigger the Minister's obligation to assess with
all due dispatch (subsection 152(1) of the Income Tax Act), nor does it start
anew any of the statutory limitation periods that commence when an income tax
return for a particular year is filed and then assessed. An amended income tax
return is simply a request that the Minister reassess for that year.
[20]
This Court has held that the
Minister cannot be compelled to accept an amended return. In the decision of Imperial
Oil Ltd v R, 2003 DTC 179,
Bowman, A.C.J., stated as follows at paragraph 38:
[38] […]
There is no mechanism whereby the Minister can be compelled to accept an
amended return or to act upon it if he chooses not to. […]
[21]
It is clear from these
decisions that the Minister does not have to accept or act upon an amended
return and reassess a taxpayer. Therefore, the Minister did not have to make
the adjustments requested by NTL to its CCA for the years in issue.
[22]
With respect to the CRA
policy to consider amended income tax returns as a waiver, this Court is not
bound by a policy of CRA. Moreover, this Court does not have the jurisdiction
to compel the Minister to assess nor does this Court have the jurisdiction to
decide that the Minister was not reasonable in exercising his discretion.
[23]
Turning now to NTL’s argument
that the February letter constituted a reassessment, NTL submitted the
following in its Application for an Extension of time for serving a Notice of
Objection:
The February Letter
concluded:
If we do not hear from you before March 2, 2012, we may make the
adjustments as proposed. If this is the case, a Notice of Reassessment will be
issued to you at that time.
As
a result of receiving the February Letter, the applicant was led to believe
that subsequent notices of reassessment would be forthcoming, in the form
normally issued by the Canada Revenue Agency (“CRA”).
The
Minister did not issue further Notices of Reassessment for the Taxation Years,
although did with respect to subsequent years, by way of letter dated April 24,
2012 (the “April Letter”). In the April Letter, the Minister stated:
We have completed our review of the above noted income tax returns
related to the pipeline. We will reassess your 2006 through 2010 income tax
returns as per our proposal letter dated February 1, 2012. The pipeline is a
Class 1 asset per Income Tax Regulation 1100 and will be removed from Class 6
and included in Class 1. The request to adjust the 2002 through 2005 corporate
income tax returns has been denied.
If you want to object to the assessment you must file a Notice of
Objection in the prescribed form and manner with the Minister within 90 days
from the date of the Notice of Reassessment. The details should outline your
reasons for the objection and all relevant facts.
The
Applicant filed Notices of Objection on August 29, 2012, arising from the
reassessment as made by the Minister in the February Letter, pursuant to the
Act.
By
letter dated September 21, 2012 (the “September Letter”), the Minister
acknowledged receipt of the Notices of Objection for the Taxation Years, but
stated that it would not consider the Objections under the appeal provisions of
the Act.
In
the September letter, the Minister stated that the objections for the Taxation
Years had not been filed within 90 days from the issuance of the Notice of
Assessment or Reassessment and could not, therefore, be considered.
On
October 20, 2012, the Applicant set forth its position by letter. In that
letter, the Applicant advanced the position that the February Letter
constituted a reassessment and requested that the Minister exercise its
discretion pursuant to section 166.1 of the Act and allow the Applicant’s
objection to the reassessment for the Taxation Years, as had been implied by
the February Letter to be accepted for consideration. Alternatively, the
Applicant requested that the Minister issue a reassessment for the Taxation
Years.
[24]
I do not agree with
NTL’s position that the February letter constituted a reassessment. It is clear
from the wordings that the February letter deals with the 2006 to 2010 taxation
years. Mr. Denis Williams for the CRA wrote in the February letter as follows:
We
have completed our audit of your income tax returns. Our review was limited to
the issue of a pipeline that you had included on T2 Schedule 8 in Class 6. We
have determined that the pipeline should be included in Class 1.
This paragraph refers to the 2006 to 2010 taxation
years; it is only for those years that NTL included in its income tax returns
the pipeline as Class 6. In its income tax returns for the taxation years under
issue, NTL had included the pipeline in Class 1.
[25]
Paragraph 3 of the
February letter also refers to the taxation years 2006 to 2010. Mr. Williams
wrote “that if you have any questions or concerns about the proposed
adjustments or if you have any additional information that may affect the
adjustments please call me”. The
adjustments to be made by the Minister refer to the 2006 to the 2010 taxation
years, as they were no adjustments to be made by the Minister for the years in
issue. The pipeline was already classified as a Class 1 asset for the
years in issue. In addition, it is clear from the language used by
Mr. William that the February letter is no more than a proposed reassessment
for the 2006 to 2010 taxation years. In the last paragraph of the letter, he
stated:
[…]
that if we do not hear from you we may make the adjustments as proposed. If
this is the case, a Notice of Reassessment will be issued to you at that time.
[26]
In a letter dated August
29, 2012, Mr. Brophy, the accountant acting on behalf of NTL asked the CRA to
issue a reassessment for the years under issue. Mr. Brophy would have not asked
the CRA to issue a reassessment if the letter of February 1st, 2102
constituted a reassessment.
[27]
The only reference to
the years in issue in the February letter is in the subject line and in the
working papers attached to the February letter, where it is stated “that
2002 through 2005 requested adjustments are denied”. In other words, the
Minister did not accept to process the amended returns as requested by NTL.
[28]
In any event, if I were
to accept that the February letter constituted a reassessment for the years
under issue, I could not grant an extension of time for serving a Notice of
Objection since the Minister did not have the authority to reassess the years
in issue, as by February 1st, 2012, the years in issue were statute‑barred.
This Court does not have the jurisdiction to grant an extension of time for
statute-barred years.
[29]
The application for an
extension of time for the years ending on December 31, 2002, December 31,
2003, December 31, 2004 and December 31, 2005 for serving a Notice of
Objection is dismissed. This Court does not have jurisdiction to grant the said
application.
Signed at Toronto, Ontario, this 20th day of August 2013.
“Johanne D’Auray”