Citation: 2007 FCA 151
HER MAJESTY THE QUEEN
INTERIOR SAVINGS CREDIT UNION
REASONS FOR JUDGMENT
This is an
appeal from an interlocutory Order of Little J. of the Tax Court of Canada
dismissing the Crown’s Motion to strike out Interior Savings Credit Union’s (“Interior”)
Notice of Appeal ( 4 CTC 2440, 2006 DTC 3351) from an assessment issued
with respect to its 2004 taxation year.
Notice of Appeal, Interior does not take issue with the taxes assessed for the
year. Rather, it challenges the adjustment indicated with respect to one of its
running accounts (i.e., the “preferred rate amount” (“PRA”)).
filing its Reply, the Crown brought an application before the Tax Court of
Canada to quash the Notice of Appeal on the ground that Interior’s right of
appeal under subsection 169(1) of the Income Tax Act (“the Act”) is
restricted to a challenge of the taxes assessed for the year. Since Interior
did not take issue with the taxes assessed for the year, there was nothing to
alternative, the Crown sought an extension of time to file its Reply to the
Notice of Appeal. At the time when the Crown’s Motion was filed, the delay for
filing the Crown’s Reply had been extended by consent and had yet to expire.
DECISION OF THE TAX COURT JUDGE
the Crown’s Motion to quash, Little J. first noted that the “general rule” is
that a nil assessment cannot be appealed (Reasons, at paras. 25 and 26):
Under subsection 152(4)
of the Act, the Minister may issue to a taxpayer either an
"assessment" or a "notification that no tax is owing". This
notification is often called a "nil assessment".
Subsection 169(1) of the
Act allows a taxpayer to appeal from an "assessment". A nil
assessment is not an "assessment". Therefore, the general rule is
that a taxpayer cannot appeal from a nil assessment.
the assessment before him was not a nil assessment and even though no challenge
was made by Interior to the taxes assessed, Little J. held that the PRA determination
could be appealed. In coming to this conclusion, he relied on the decision of
the Tax Court in Imperial Oil Limited and Inco Limited v. The Queen,
2003 DTC 179 (Imperial Oil), as confirmed by the Court of Appeal (The
Queen v. Imperial Oil and Inco Limited, 2003 DTC 5485) (Reasons, paras. 27-34).
Little J. went
on to hold that in any event, the nil assessment rule has been modified by the case
law over the years such that nil assessments can now be appealed (Reasons,
para. 35). After noting that it was critical for Interior to know as early as
possible where its PRA pool stood (Reasons, at para. 36), Little J. dismissed
the Crown’s Motion with costs in any event of the cause (Reasons, at paras. 35-37).
Little J. granted the Crown’s motion in the alternative for an extension of
time to file its Reply. At the same time, he ordered pursuant to subsection
44(2) of the Tax Court of Canada Rules (General Procedure) SOR/90-688 (“The
Tax Court Rules”) that the allegations of fact contained in the Notice of
Appeal be presumed to be true (Reasons, paras. 38-42).
ALLEGED ERRORS IN DECISION UNDER APPEAL
of its appeal, the Crown alleges that Little J. misconstrued the case law and
ignored the binding authorities when he held that Interior could pursue its
appeal despite the fact that it was not challenging the amount of tax assessed
for the year. A right of appeal is a creation of statute and there are no provisions
in the Act which allow Interior to attack the Minister’s computation of its PRA
pool in a year where this calculation has no impact on the amount of taxes
event, it was not open to Little J. to order that the facts alleged in
Interior’s Notice of Appeal be presumed to be true while at the same time
extending the time within which the Crown could file its Reply. Accordingly,
the Crown asks that this aspect of Little J.’s order be rescinded in the event
that it is not successful on the first branch of the appeal.
ANALYSIS AND DECISION
potential dispute surrounding Interior’s PRA stems from the merger of two
credit unions which took place in 2002 under the laws of British Columbia, Interior being the resulting
entity. Subsection 87(1) of the Act provides that when two credit unions
amalgamate, they must add their PRA’s together to determine the PRA of the amalgamated
credit union. It is not necessary to go into the details of the PRA computation
except to say that a credit union has an interest in having the lowest possible
PRA since it is a capped account which attracts a lower tax rate.
case, Interior took the position that the merger which took place in 2002 was
not an amalgamation within subsection 87(1). Consequently, rather than adding
together the PRAs of the two amalgamated credit unions, Interior took the
position in filing its tax return for the year of the merger that it had a PRA
of 0 and continued to compute its PRA pool on that basis (with appropriate
yearly adjustments) for its 2003 and 2004 taxation years.
respect to each of those years, the Notices of Assessment issued by the Minister
of National Revenue reflected in their bottom part under the heading
“Explanation” the Minister’s calculation of Interior’s PRA arrived at by adding
the PRAs of the two amalgamated credit unions. The PRA so indicated for the
year of the merger was at $54,348,490 which continued to be reflected with
appropriate yearly adjustments in the Notices of Assessment issued with respect
to Interior’s 2003 and 2004 taxation years.
Interior took issue for the first time with the Minister’s computation of its
PRA. It did so even though, as for the two prior years, this computation had no
impact on the taxes assessed. Interior’s sole contention is that its PRA was
improperly reflected on this assessment and that it is entitled to have this
computation reviewed now rather than later, in a taxation year where the PRA
will impact on its taxes payable.
respectful view, the Tax Court Judge erred in dismissing the Crown’s Motion to
strike. The Minister’s power and duty under subsection 152(1) of the Act is to
“… assess the tax for the year, the interest and penalties, if any, …”. The
taxpayer’s right to object (ss 165(1)) and to appeal to the Tax Court of Canada
(ss 169(1)) can only be exercised in order “… to have the assessment vacated or
varied …”. It follows that unless the taxpayer challenges the taxes interest or
penalties assessed for the year, there is nothing to appeal and indeed no
relief which the Tax Court can provide (Chagnon v. Norman, (1989) 16 SCR
661 at 662).
Court Judge properly notes in his reasons that the assessment before him was
not a nil assessment. However, he goes on to state that even if it was a nil
assessment, he would nevertheless allow the appeal to continue. The expression
nil assessment does not appear anywhere in the Act. When dealing with a
situation where a person owes no taxes, the Act authorizes the Minister to
issue a notice “that no tax is payable” (subsection 152(4)).
the term nil assessment is often used in the case law to identify an assessment
which cannot be appealed. There are two reasons why a so-called nil assessment
cannot be appealed. First, an appeal must be directed against an assessment and
an assessment which assesses no tax is not an assessment (see Okalta Oils
Limited v. MNR, 55 DTC 1176 (SCC) at p. 1178: “Under these provisions,
there is no assessment if there was not tax claimed”). Second, there is no
right of appeal from a nil assessment since: “Any other objection but one
related to an amount claimed [as taxes] was lacking the object giving rise to
the right of appeal …” (Okalta Oils, supra, at p. 1178).
aspects of the rule are succinctly put by Lamarre Proulx J. in Faucher v.
Canada, 94 DTC 1575, at p. 1579:
In conclusion, there is
no right of appeal from an assessment of a nil amount, or from an assessment of
which a reduction is not requested, …
It is the
second branch of the rule which applies to a situation where as here taxes are
assessed, but no objection is taken in the Notice of Appeal to the taxes
assessed. The decision of Rip J. (as he then was) in Les Soudures Chagnon
Ltée v. M.N.R., 90 DTC 1203 at p. 1205, and the cases to which he refers illustrate
the application of this aspect of the rule:
By appealing from its
assessment for 1981, the appellant is asking that its income, and accordingly
its taxes, be increased. The appeal procedure provided by the Act is, however,
intended to alleviate taxpayers’ tax burdens. The Court can only consider an
appeal brought from a tax assessment if the taxpayer is asking for a reduction
of tax for the year at issue: No. 526 v. M.N.R., 58 DTC 497, Niel L.
Boyko et al. v. M.N.R., 84 DTC 1233, at 1237, Steven Cooper v. M.N.R.,
87 DTC 194, at 205 and Paul Cohen v. M.N.R., 88 DTC 1404, at 1406. For
this reason, the appeal brought from a tax assessment for 1981 will be
has over the years created exceptions to the rule stated in Okalta Oil. For
instance, the Act (para. 152(1)(a)) requires the Minister to determine by way
of assessment the amount of specified refunds to which a taxpayer may be
entitled for a given taxation year and provides that the objection and appeal
provisions apply to such determinations with such modification as the
circumstances require (subsection 152(1.2)). Similarly, where there are
diverging views about the extent of a taxpayer’s specified losses, the Minister
may be required to determine the loss (subsection 152(1.1)), in which case the
objection and appeal procedures apply.
no such exception has been created with respect to the computation of a
taxpayer’s PRA. There is in this case no statutory duty on the part of the
Minister to determine where Interior’s PRA stood in 2004 (or in the two prior
years) and no corresponding right of appeal. The Minister’s view was communicated
to Interior as a matter of convenience. The fact that it was set out on the Notice
of Assessment does not make it part of the assessment.
situation is much the same as that described in Ruffolo v. The Queen,
2000 DTC 6357 (FCA), where the appellant argued that his “balance unpaid” was
part of the assessment and binding on the Minister because it was reflected on
the Notice of Assessment. Through error, the amount of the balance had been
inscribed as 0. Rothstein J.A. (as he then was) writing for the Court disposed
of the argument as follows (at para. 5):
The Minister’s duty to
assess in subsection 152(1) of the Act is in respect of "...the tax for
the year, the interest and penalties, if any, payable ...". The
determination of the "balance unpaid" is as a result of the
assessment, but is not a component of the assessment of the tax, interest and
penalties payable. It is included in the notice of assessment as a convenience
but it is not part of the assessment. That the box marked "balance
unpaid" is stated as "nil" is not binding on the Minister.
The same reasoning applies to the PRA in this case.
Little J. quoted
Imperial Oil as authority for the proposition that “every assessment can
be appealed” (Reasons, at paras. 27-34). His reasons suggest that Imperial
Oil enunciated a new principle which opens the door to Interior’s attempt
to challenge the PRA despite the fact that no challenge is made to the taxes
Oil is a case
where the Crown attempted to strike a Notice of Appeal on the ground that an
initial or desk assessment could not be appealed. The Crown’s argument was
that these species of assessments, because they usually reflect the taxpayer’s
filing position, were not intended by Parliament to be subjected to the appeal
process. Bowman C.J. was unable to identify any statutory basis for excluding
such assessments from the appeal process. He rejected the Crown’s argument and
the Court of Appeal agreed. There is no suggestion in Imperial Oil that
the right of appeal provided under subsection 169(1) can be used to put in
issue anything other than the taxes interests or penalties assessed.
Little J. goes
on to hold that in any event Interior could pursue its appeal even if the
assessment was a nil assessment. In support of this proposition, he cites Corriveau
v. The Queen,
2006 DTC 2583, and Joshi v. Canada, 2003 DTC 1550 (Joshi #1) and
the cases which are referenced in these decisions. According to Little J.,
these cases broke with the established rule that no appeal lies from a nil
McArthur J. was confronted with a nil assessment. The reasons state that “there
are some exceptions, where the Court can rule on an assessment in respect of
which no tax is payable”; the decisions of the Tax Court in Martens v. MNR,
88 DTC 1382, Aallcann Wood Suppliers Inc. v. Canada, 94 DTC 1475 and Joshi
#1 are footnoted. However, McArthur J. holds that these exceptions (without
discussing them) are not applicable in the case before him (Corriveau, at
#1, Hershfield J. refused to quash a Notice of Appeal directed against a
nil assessment in the context of an interlocutory application. His reasons indicate
that he attributes no finality to this ruling and state that the matter is left
to be decided at trial. It does not appear as though Joshi #1 ever
proceeded to trial. At least, there is no record of any trial decision in the
Book of Authorities submitted by the parties and I have been unable to find any
reported trial decision.
Joshi v. The Queen, 2005 DTC 22 (Joshi #2), a case which apparently
involves the husband of the appellant in Joshi #1, the Tax Court (O’Connor
J.) did hold that a nil assessment can be appealed. The following five
decisions were quoted in support of that proposition: Joshi #1, Martens,
supra, Aallcann Wood Suppliers, supra, Liampat Holdings Ltd. v.
Canada,  F.C.J. No. 1621 and Bruner v. Canada, 2003 F.C.J. No.
144 (FCA). We have already seen that Joshi #1 is not authority for the
proposition that a nil assessment can be appealed. In my respectful view, the
same applies to the other cases relied upon by O’Connor J.
the Tax Court refused to strike out a nil assessment on the basis that the
subject matter of the appeal came within a statutory exception to the normal
rule. Rip J. (as he then was) explained that although the assessment did not
assess any taxes, it did set out an amount which the Minister had the duty to
determine and with respect to which a special right of appeal had been created.
After quoting the relevant provisions, he said (at p. 1384):
provides the means by which the taxpayer is deemed to pay an amount on account
of tax equal to his refundable investment tax credit for the year. The
Minister, in accordance with paragraph 152(1)(b), determines the amount of tax
deemed to be paid for the year.
If the taxpayer does not
agree with the Minister’s determination of the amount of tax deemed to be paid
he has the right to object to and appeal the determination: subsection 152(1.2)
grants the taxpayer the right to apply the provisions of Divisions I and J of
the Act, which provide, inter alia, for the rights to object to an
assessment of tax and to appeal such an assessment, or a determination, other
than a determination made under subsection 152(1.1). Amounts to be determined
by the Minister include the determination of an amount of tax deemed by
subsection 127.1(1) to have been paid on account of tax under Part I of the Act
for the year.
In the matter at bar the
Minister has determined the amount of the refundable investment tax credit in
1984 to be $2,366.24 and the appellant wishes to appeal from this
The appellant has the
right under the provisions of subsection 152(1.2) to contest the determination
of the Minister by filing a Notice of Objection in the manner provided by
section 165 and, if not satisfied with the Minister’s decision in respect of
the objection., file a Notice of Appeal in the manner provided by section 169.
This is what the appellant has done. He need not wait for a future taxation
year to dispute the determination.
is a decision by Bowman J. (as he then was) which stands for the proposition
that in the absence of a binding loss determination by the Minister pursuant to
subsection 152(1.1) of the Act, it is open to a taxpayer to challenge the
Minister’s calculation of a loss for a particular year in an another year in
which the loss impacts on the taxes assessed. The reasoning of the Court is set
out in the following passage (at pp. 1475-76):
The Minister’s position
in the original reply to the notice of appeal that the Minister’s ascertainment
of a loss for a particular taxation year is immutable unless a loss
determination is made under subsection 152(1.1.) is, however, wrong. It is true
that this court cannot make a formal loss determination under subsection
152(1.1.). That is the Minister’s function. If such a loss determination is
made it is valid and binding unless challenged by way of objection or appeal
and, if it is sustained on appeal, it stands. The purpose of subsection
152(1.1.) is to permit a taxpayer to have its loss for a year determined
definitively and, if necessary, to have the Minister’s determination reviewed
by the court. One of the reasons for the enactment of subsection 152(1.1.)
was that no appeal lies from a nil assessment. In the absence of a binding loss
determination under subsection 152(1.1.), it is open to a taxpayer to challenge
the Minister’s calculation of a loss for a particular year in an appeal for
another year where the amount of the taxpayer’s taxable income is affected by
the size of the loss that is available for carry-forward under section 111. In
challenging the assessment for a year in which tax is payable on the basis
that the Minister has incorrectly ascertained the amount of a loss for a prior
or subsequent year that is available for deduction under section 111 in the
computation of the taxpayer’s taxable income for the year under appeal, the
taxpayer is requesting the court to do precisely what the appeal procedures of
the Income Tax Act contemplate: to determine the correctness of an assessment
of tax by reviewing the correctness of one or more of the constituent elements
thereof, in this case the size of a loss available from another year. This
does not involve the court’s making a determination of loss under subsection
152(1.1.) or entertaining an appeal from a nil assessment. It involves merely
the determination of the correctness of the assessment for the year before it.
[Emphasis and double Emphasis added]
The year in issue was not a nil assessment year since as is
indicated, the taxpayer was “challenging the assessment for a year in which tax
is payable, …”. Bowman J. simply held that all elements relevant to the
determination of the taxes assessed for that year, including the Minister’s
calculation of a loss in another year, were properly in issue.
Holdings Ltd., Counsel for the taxpayer relied on Aallcann Wood
Suppliers to argue that a nil assessment could be appealed. The Federal
Court (Cullen J.) held that Counsel had misconstrued Aallcann Wood Suppliers
(at para. 8):
I take Aallcann to mean
that this Court has jurisdiction to consider a nil assessment year where the
computations from the nil assessment year have an actual impact on another
taxation year; it does not give the Court jurisdiction to consider a nil
This is an accurate statement of the rule set out in Aallcann
O’Connor J. in Joshi #2 indicates that the recent decision of this Court
in Bruner, supra, (at para. 9) “… seems to have broadened the cases in
which the Court may review a nil assessment taxation year …”. However, Bruner
gives effect to the rule that no appeal lies from a nil assessment or from an
assessment where the amounts assessed are not in dispute. The dispositive
portion of the reasons reads (at para. 3):
Consequently, a taxpayer
is not entitled to challenge an assessment where the success of the appeal
would either make no difference to the taxpayer’s liability, […] or would
increase the taxpayer’s liability for tax. When the respondent took the
position that there was no amount in dispute, the Tax Court judge should have
applied the nil assessment jurisprudence and quashed the Notice of Appeal.
therefore no authority for the proposition advanced in Corriveau, Joshi #2
and in the decision under appeal that a nil assessment can be appealed.
It can be
seen that in reaching his decision Little J. wanted to provide Interior with
certainty as to where its PRA stood in a timely fashion. No doubt this is a
valid concern. At the same time, it must be understood that the issue
surrounding the PRA will only crystallize in a year in which the computation of
the PRA impacts on the taxes payable. Until that time, no one is bound by these
amounts. Little J. was obviously of the view that the Tax Court should be able
to provide certainty in the interim. However, this is a matter that can only be
addressed by the Parliament.
the established rule, Little J., upon noting that Interior was not taking issue
with the taxes assessed, was bound to grant the Crown’s motion and strike Interior’s
Notice of Appeal.
would add that Little J., after having dismissed the Crown’s motion to strike,
fell into error when he ordered that the allegations of fact contained in the
Notice of Appeal be presumed to be true. Subsections 44(1) and (2) of the Tax
Court Rules provide respectively:
44. (1) A reply shall be filed in the
Registry within 60 days after service of the notice of appeal unless
(a) the appellant
consents, before or after the expiration of the 60-day period, to the filing
of that reply after the 60-day period within a specified time; or
(b) the Court
allows, on application made before or after the expiration of the 60-day
period, the filing of that reply after the 60-day period within a specified
44. (2) If a reply is not filed within an
applicable period specified under subsection (1), the allegations of fact
contained in the notice of appeal are presumed to be true for purposes of the
(1) La réponse à l’avis d’appel doit être déposée au greffe dans les 60 jours
suivant la signification de l’avis d’appel, à moins que :
a) l’appelant ne consente, avant ou après l’expiration de ce délai, au
dépôt de la réponse dans un délai déterminé suivant l’expiration de celui-ci;
b) la Cour ne permette, sur demande présentée avant ou après l’expiration
de ce délai, le dépôt de la réponse dans un délai déterminé suivant
l’expiration de celui-ci.
Si la réponse n’est pas déposée dans le délai applicable prévu au paragraphe
(1), les allégations de fait énoncées dans l’avis d’appel sont réputées
vraies aux fins de l’appel.
As was noted
by Paris J. in Telus Communications (Edmonton) Inc. v. R. (No. 2),  G.S.T.C. 183-1 (at
paras. 5 and 6):
The reference in
subsection 44(2) to “an applicable period specified under subsection (1)”
relates to any one of three periods, namely: within 60 days after the service
of the Reply, within the period specified in a consent given by the Appellant,
or within the period allowed by the Court for the filing of the Reply.
This means that
subsection 44(2) only applies if a Reply is filed outside the sixty-day period
and the Appellant does not consent or where there is no order of the court
extending that period. Given my order extending the time period for filing a
Reply, subsection 44(2) does not apply.
with Paris J.’s reading of subsection 44(2). Given that in this case, Little J.
did extend the period within which the Reply could be filed, there was no basis
for the issuance of an order that the allegations of fact in the Notice of
Appeal be presumed to be true.
reasons, I would allow the appeal with costs, set aside the decision of Little
J. and giving the order which should have been given, I would grant the Crown’s
motion to strike out Interior’s Notice of Appeal with costs.
Robert Décary J.A.”
J. Edgar Sexton J.A.”