Citation:
2015 TCC 39
Date: 20150218
Docket: 2012-1779(GST)G
BETWEEN:
FORD
MOTOR COMPANY OF CANADA, LIMITED,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
Boyle J.
[1]
In this motion the Respondent is challenging
whether certain of the issues raised in the Appellant’s Amended Notice of
Appeal were issues identified in, and reasonably described in, the Appellant’s
Notice of Objection to the underlying assessment as required by the so-called “specified person” rules in sections 301 and 306.1 of
the Excise Tax Act (the “ETA”). It
is not disputed that Ford Canada is a specified person as defined in subsection
301(1) of the ETA.
[2]
This is one of a number of similar
motions brought by the Crown challenging notices of appeal filed by Ford Motor
Company of Canada, Limited (“Ford Canada”) and related Ford companies under the ETA. The other motions are being held in
abeyance pending the decision in this case. This motion was brought prior to
the Crown filing a Reply in response to the Amended Notice of Appeal.
[3]
The specific issue to be decided on this motion
is whether Ford Canada’s Notice of Objection “reasonably
describes each issue to be decided” as required by paragraph 301(1.2)(a).
In this motion the Crown is not challenging whether Ford Canada’s Notice of Objection complied with paragraph 301(1.2)(b) dealing with the quantum of
each issue. The Crown’s position with respect to compliance with paragraph
301(1.2)(c), which requires that the facts and reasons relied on be
provided, is slightly more nuanced. The Crown is not in its motion disputing
that a notice of appeal can include facts and reasons not provided in the
notice of objection, however the Respondent maintains that the provision of
additional facts not set out in the notice of objection cannot be used to help determine
whether the notice of objection identifies an issue and reasonably describes it
for purposes of complying with paragraph 301(1.2)(a).
A. Facts
[4]
The evidence in this motion went in by way of
affidavits. The Respondent filed the Affidavit of Catherine Rissanen, a
Litigation Officer with the Canada Revenue Agency (“CRA”), to establish that
Ford Canada was a specified person. The Respondent also filed the Affidavit of
Alan Seenan, the CRA Appeals Officer who had carriage of the Notice of
Objection in question. The Appellant filed the affidavit of Barbara Hoffmann
who is responsible for indirect tax compliance at Ford Canada.
The Amended Notice of Appeal:
[5]
The impugned paragraphs of the Amended Notice of
Appeal relate to two of the three matters raised in the Amended Notice of
Appeal. The first is a claim for additional input tax credits (“ITCs”) in the amount of $498,386 not claimed by Ford Canada when initially filing its returns. As described below, this amount is the remainder
of subsequently identified unclaimed ITCs requested by Ford Canada during the audit net of what was allowed by CRA at the Objection stage.
[6]
The second question involves Ford Canada’s ability to revise the foreign exchange conversion methodology used by it in computing ITCs
for its US$ denominated inputs from that used by it when initially filing its
returns.
The Reassessment:
[7]
The Notice of Reassessment in question is a
single page. It is comprised principally of numbers alongside various summary
descriptions of no more than four words. It states that “The
details of your assessment are shown on the Statement of Audit Adjustments”.
[8]
Since a GST/HST Notice of Reassessment only
provides a skeletal description and summary of the adjustments made in a
reassessment, and a Statement of Audit Adjustments is a contemporaneous CRA
document relating to and referred to in the reassessment, the Relevant
Statement of Audit Adjustments might often prove to be a useful and sensible
document to review and consider as it would clarify how CRA chose to describe
items upon reassessing that the taxpayer is responding to in its objection.
[9]
I assume that it was simply not relevant in this
particular case as the Appellant is not objecting to or appealing unfavourable
adjustments made by the auditor, but favourable adjustments requested by the
Appellant of the auditor for which the auditor did not make any reassessment.
[10]
The Notice of Reassessment indicates Ford Canada’s “Net Tax Assessed” in the period was almost 2 billion
dollars and that the “Total Adjustments for Assessment Period”
was approximately $4,000,000. The adjustments are summarized as “Adjustments to GST/HST” approximately $500,000, “Adjustments to ITC” approximately $3,500,000, and “Adjustments to GEN” approximately $60,000.
The Notice of Objection:
[11]
Ford Canada’s Notice of Objection addresses
these issues as follows:
1. Objection of denial of right to be
audited to net tax
Facts and Background
Ford Motor Company
of Canada, Limited (Ford) underwent a GST audit for the period October 1 1996
to June 30 1999. Before the audit was completed, Ford informed the auditor that
we had discovered several areas where there were (1) unclaimed ITCs […] and (3)
foreign exchange adjustments related to the audit period. Ford requested that
these items be taken into consideration before the audit was completed and the
Notice of Assessment was raised.
A Notice of
Assessment was issued without providing Ford an opportunity to review the final
assessment amounts. Ford’s request to include the items indicated above as part
of the audit was not acted upon by the auditor – none of these items was
included as an offset in the Notice of Assessment.
Unclaimed ITCs
Unclaimed ITCs
related to taxable purchases made during the audit period totalled $760,195.71
and were not taken into consideration during the audit.
[…]
Foreign Exchange
Adjustment
Many of Ford’s
expenditures were contracted in foreign currencies.
Before the audit was
completed, Ford sought to adjust their foreign exchange conversion methodology
to comply with ETA legislation, regulations, and policy statements. The value
for consideration of foreign dollar ITCs was converted to Canadian currency
using Bank of Canada rates on the day consideration for the supply was made.
This resulted in additional ITCs of $1,095,712.24 for the audit period.
Reasons for
Objection
[…]
Conclusion
Ford should have
been given the opportunity to review the final audit adjustments before the
Notice of Assessment was issued.
Section 296 clearly
directs the Minister to assess the net tax of a taxpayer.
Section 296(2)
clearly directs the Minister to take unclaimed ITCs into consideration. Section
296(2.1) directs the Minister to apply allowable rebates against the net tax
amount. Section 159 and GST Memoranda 300-7-10 outline the options available to
a taxpayer in determining the Canadian currency amount of a foreign currency
transaction.
Ford’s request that
the unclaimed ITCs … and the Foreign Exchange Adjustments be taken into
consideration in assessing the net tax amount should have been granted.
Relief Sought
Unclaimed ITCs
Ford respectfully
requests that the Minister take the allowable credits into account and reduce
the assessed amount accordingly.
[…]
Foreign Exchange
Adjustments
Ford respectfully
requests that the foreign exchange conversion methodology be adjusted to comply
with ETA legislation, regulations, and policy statements.
The Report on Objection:
[12]
The Report on Objection was prepared by Mr.
Seenan, the Appeals Officer, and signed off on by his Team Leader and the Chief
of Appeals. This report describes the matters raised by Ford Canada in its Notice of Objection as follows:
(1) ISSUES RAISED BY OBJECTOR
a. Denial of right to
be audited to net tax
- Unclaimed Input Tax
Credits of $760,195.71
[…]
- Foreign Exchange
Adjustment $1,095,712.24
[…]
(2) REVIEW OF EACH
VALID ISSUE UNDER OBJECTION
Part a:
Unclaimed Credits
(I) BASIS OF
(RE)ASSESSMENT
(a) Facts
1.
Unclaimed ITCs – Audit did not consider any unclaimed credits.
[…]
2.
Foreign Exchange Adjustment – Audit did not consider this adjustment.
[…]
(II)
REASONS FOR OBJECTION
(a)
Facts
1.
Ford Motor Company of Canada Limited (‘Ford Motor’) underwent a GST audit for
the period October 1, 1996 to June 30, 1999. Before the audit was completed,
Ford Motor informed the auditor that they had discovered several areas where
there were unclaimed ITCs, […] and foreign exchange adjustments related to the
audit period. Ford Motor requested that these items be taken into consideration
before the audit was completed and a Notice of Assessment was raised.
A Notice
of Assessment was issued without providing Ford an opportunity to review the
final assessment amounts. Ford’s request to include the items indicated as part
of the audit was not acted upon by the auditor – none of these items were
included as an offset in the Notice of Assessment.
2. Unclaimed ITCs – Unclaimed ITCs related to taxable
purchases made during the audit period totalled $760,195.71 were not taken into
consideration during the audit.
[…]
4. Foreign
Exchange Adjustment – Many of Ford Motor’s expenditures were contracted in
foreign currencies. Before the audit was completed, Ford Motor sought to adjust
their foreign exchange conversion methodology to comply with ETA legislation,
regulations, and policy statements. The value for consideration of foreign
dollar ITCs was converted to Canadian currency using Bank of Canada rates on
the day consideration for the supply was made. This resulted in additional ITCs
of $1,095,712,24 for the audit period.
Ford Motor
respectfully request that the foreign exchange conversion methodology be
adjusted to comply with ETA legislation, regulations, and policy statements.
(III)
APPEALS DECISION
(a)
Facts
1.
Unclaimed ITCs
A
referral was sent to the Audit Division of the Hamilton TSO to review the
request to allow additional ITCs of $760,195.72. A review was done and the
Audit Large File Section in the Hamilton TSO recommended allowing additional
ITCs of $261,809.42. Adjustment discussed and agreed upon between Barbara
Hoffmann at Ford Motor and Reg Owens/Kelle Patterson, CRA Hamilton Audit
Division on April 28, 2004.
[…]
3.
Foreign Exchange Adjustment
A
referral was sent to the Audit Division of the Hamilton TSO to review the
request to allow an additional ITC for foreign exchange adjustment of
$1,095,712.24. A review was done and the Audit Large File Section in the
Hamilton TSO recommended allowing additional ITCs of $849,286.72.
Audits explanation is as follows: The registrant records invoices
received in US funds using a bookkeeping rate dictated by the US head office. The ETA is very specific as to what the acceptable exchange rates are that
can be used to translate the US to Canadian funds and what methods are
acceptable. The rate being used by the registrant in their books and records is
clearly unacceptable. Nevertheless, the auditor checked with Rulings and
received an informal opinion that ITCs claimed do not have to correspond to the
value posted in the books and records and the claim could not be denied for
this reason.
Audit
recommended to allow additional ITCs of $849,286.72. Adjustment discussed and
agreed upon between Barbara Hoffmann at Ford Motor and Reg Owens/Kelle
Patterson, CRA Hamilton Audit Division on April 28, 2004.
Appeals
further reviewed this issue and recommends not to allow any additional ITCs
based on the foreign conversions. FMCC is asking to retroactively change its
method of converting foreign currency to Canadian currency. FMCC claimed an ITC
on all of its foreign purchases.
In
this case the conversion method originally used by FMCC to calculate an ITC is
not in dispute and technically the Minister may accept the method used since is
was used consistently.
It
should be noted that it was FMCC who decided which rate it would use to convert
its foreign transactions and the method FMCC used to convert its foreign
transactions to Canadian currency was not challenged by CRA. It has been used
consistently by FMCC for the past several years.
[…]
(b)
Law
1.
Unclaimed ITCs
Subsection
296(2) of the ETA allows for unclaimed credits. This subsection requires
the Minister to take allowable unclaimed credits into account when assessing
the net tax for the particular reporting period.
[…]
3.
Foreign Exchange Adjustment
1. Section 159 of the ETA deals with situations where payment for a
supply is expressed in foreign currency. For purposes of calculating any GST
payable, the value of consideration is determined by reference to the Canadian
dollar equivalent on the date consideration is payable. The section also
permits the Minister to accept a different method of determining the exchange
value currency.
[…]
2.
Section 159 of the ETA reads,
- Where the
consideration for a supply is expressed in a foreign currency, the value of the
consideration shall, for the purposes of this Part, be computed on the basis of
the value of that foreign currency in Canadian currency on the day the tax is
payable, or on such other day as is acceptable to the Minister.
The
ETA does not specifically state the source that must be used to
translate foreign currency to Canadian currency, and the Minister is given the
discretion to accept the conversion on a date other than the day the tax is
payable.
[13]
Paragraphs 3 through 5 refer to the Minister’s
delegation of powers, and to CRA publications dealing with acceptable exchange
rates and foreign currency values. Paragraph 6 deals with the definition of “amount” in section 123 of the ETA. Paragraph 7
reproduces subsection 296(2) of the ETA dealing with unclaimed credits.
This part ends with paragraph 8 which reads as follows:
8.
Since the ITC on the property or services have already been claimed by the
registrant subsection 296(2) does not apply and the Minister is not required to
allow this additional credit.
CRA’s Decision on Objection:
[14]
CRA issued its decision on Ford Canada’s objection by letter dated February 7, 2012. The Objection was allowed, in part,
and the adjustments allowed are reflected in the further reassessments which
form the basis of the Amended Notice of Appeal in this Court.
[15]
The Decision on Objection addresses the two
relevant matters as follows:
The basis of your objection is as follows:
1) whether the unclaimed input tax credits in the amount of
$760,195.71 should have been taken into consideration during the audit to
reduce the net tax assessed
[…]
3) whether the retroactive change to the foreign exchange conversion
methodology should have been taken into consideration during the audit to
reduce the net tax assessed in the amount of $1,095,712.24
[…]
Issue No. 1:
You
have requested that the Minister allow you additional input tax credits in the
amount of $760,195.72. A review [of] the facts and documents submitted
indicated that you are entitled to additional input tax credits in the amount
of $261,809.42 which was agreed upon by your Frankie Fenton in her letter dated
January 17, 2006. Therefore, the GST/HST return(s) will be adjusted
accordingly. (See Schedule “A” attached).
Subsection
296(2) of the Excise Tax Act authorizes the Minister to take into account an
allowable credit (i.e., an input tax credit or deduction that was not
previously claimed by the person) when the Minister assesses the net tax of a
person for a particular reporting period.
[…]
Issue No. 3:
Section 159 of the ETA states that, where the consideration for a
supply is expressed in a foreign currency, the value of the consideration
shall, for the purposes of this Part, be computed on the basis of the value of
that foreign currency in Canadian currency on the day the tax is payable, or on
such other day as is acceptable to the Minister.
The ETA does not
specifically state the source that must be used to translate foreign currency
to Canadian currency. However, Policy Statement P-222 states that to convert
from foreign currency into Canadian currency for the purposes of Part IX of the
ETA, a person may only use the rate of exchange from:
•
the source used for an actual conversion;
•
the source the person typically uses for actual
conversions;
•
a Canadian chartered bank;
•
the Bank of Canada; or
•
the rate provided by the Customs Branch of the
Department for purposes of converting the value of duty of imported goods.
When a source other than the source used for an actual transaction
is selected, that source must be used consistently and for a reasonable period
of time (such as one year).
When converting foreign currency into Canadian dollar, Ford Motor
Company of Canada, Limited used an exchange rate dictated by its US head office. This rate was never in dispute and was accepted by both Ford Motor Company
of Canada, Limited and the Canada Revenue Agency.
Based on the foregoing facts and law, your request that the foreign
exchange methodology be be (sic) adjusted to allow you additional input
tax credits in the amount of $1,095,712.24 is disallowed.
The Seenan Affidavit:
[16]
The relevant portions of the Seenan Affidavit
are as follows:
4. The Appellant filed a Notice of Objection dated February 21,
2003. A copy of the Notice of Objection is attached hereto and marked as Exhibit
“B” to this Affidavit.
5. At Objections the Appellant raised issues which may be summarized
as follows:
Item Issue
1) whether the unclaimed ITCs in the
amount of $760,195.71 should have been taken into consideration during the
audit to reduce the net tax;
[…]
3) whether the retroactive change to the
foreign exchange conversion methodology should have been taken into
consideration to reduce the net tax assessed in the amount of $1,095,712.24;
[…]
6. The Appellant provided additional information by letters dated
June 8, 2005, January 17, 2006, August 30, 2011 and November 15, 2011. A copy
of these letters are attached hereto and marked as Exhibits “C”, “D”,
“E”, and “F” respectively to this Affidavit.
[17]
I note that none of the letters referred to in
paragraph 6 of the Seenan Affidavit included any additional information
whatsoever regarding either the unclaimed ITC matter or the foreign exchange
conversion matter. They all dealt with one or both of two separate matters
identified in the Notice of Objection.
[18]
The Seenan Affidavit continued:
7.
During my review at Objections, I considered all of the issues raised by the
Appellant in its Notice of Objection. A copy of the Report on Objection is
attached hereto and marked as Exhibit “G” to this Affidavit.
[…]
9. By letter dated February 7, 2012, the Minister advised the
Appellant that the amount of $260,809.42 was allowed with respect to the
unclaimed ITCs (item 1 in the chart above) but that all of the remaining issues
were confirmed. A copy of this letter is attached hereto and marked Exhibit
“H” to this Affidavit.
B. The
Law
[19]
The relevant provisions of the GST/HST
Legislation in the ETA provide:
|
301 [Notice of objection] --
(1) Meaning of “specified person” -- Where an assessment is issued to a person
in respect of net tax for a reporting period of the person, […] for the
purposes of this section, the person is a “specified person ” in respect of
the assessment or a notice of objection to the assessment if
[…]
|
301 (1) Personne déterminée -- Pour l'application du présent article,
la personne à l'égard de laquelle est établie une cotisation au titre de la
taxe nette pour sa période de déclaration, […] est une personne déterminée
relativement à la cotisation ou à un avis d'opposition à celle-ci si, selon
le cas :
[…]
|
|
(b) […] the person's threshold amounts, determined
in accordance with subsection 249(1), exceed $6 million for both the person's
fiscal year that includes the reporting period and the person's previous
fiscal year.
|
b) […] le montant déterminant qui lui est
applicable, déterminé en conformité avec le paragraphe 249(1), dépasse 6 000
000 $ pour son exercice qui comprend cette période ainsi que pour son
exercice précédent.
|
|
(1.1) Objection to assessment -- Any person who has been assessed and
who objects to the assessment may, within ninety days after the day notice of
the assessment is sent to the person, file with the Minister a notice of
objection in the prescribed form and manner setting out the reasons for the
objection and all relevant facts.
|
(1.1) Opposition à la cotisation -- La personne qui fait opposition à la
cotisation établie à son égard peut, dans les 90 jours suivant le jour où
l'avis de cotisation lui est envoyé, présenter au ministre un avis
d'opposition, en la forme et selon les modalités déterminées par celui-ci,
exposant les motifs de son opposition et tous les faits pertinents.
|
|
(1.2) Issue to be decided [must be
specified] -- Where a
person objects to an assessment in respect of which the person is a specified
person, the notice of objection shall
|
(1.2) Question à trancher -- L'avis d'opposition que produit
une personne qui est une personne déterminée relativement à une cotisation
doit contenir les éléments suivants pour chaque question à trancher
|
|
(a) reasonably describe each issue to
be decided;
|
a) une description suffisante;
|
|
(b) specify in respect of each issue the
relief sought, expressed as the change in any amount that is relevant for the
purposes of the assessment; and
|
b) le redressement demandé, sous la forme
du montant qui représente le changement apporté à un montant à prendre en
compte aux fins de la cotisation;
|
|
(c) provide the facts and reasons relied
on by the person in respect of each issue.
|
c) les motifs et les faits sur lesquels
se fonde la personne.
|
|
306.1 (1) Limitation on appeals to the Tax Court -- Despite sections 302 and 306, if a
person to which subsection 301(1.2) or (1.21) applies has filed a notice of
objection to an assessment, the person may appeal to the Tax Court to have
the assessment vacated, or a reassessment made, only with respect to
|
306.1 (1) Restriction touchant les appels
à la Cour canadienne de l'impôt -- Malgré les articles 302 et 306, la personne à
laquelle le paragraphe 301(1.2) ou (1.21) s'applique qui produit un avis d'opposition
à une cotisation ne peut interjeter appel devant la Cour canadienne de
l'impôt pour faire annuler la cotisation, ou en faire établir une nouvelle,
qu'à l'égard des questions suivantes :
|
|
(a) an issue in respect of which the
person has complied with subsection 301(1.2) or (1.21) in the notice, or
[…]
|
a) une question relativement à laquelle
elle s'est conformée au paragraphe 301(1.2) ou (1.21) dans l'avis, mais
seulement à l'égard du redressement, tel qu'il est exposé dans l'avis,
qu'elle demande relativement à cette question;
[Je
souligne.]
|
|
and, in the case of an issue described in
paragraph (a), the person may so appeal only with respect to the relief
sought in respect of the issue as specified by the person in the notice.
[Emphasis added.]
|
|
[20]
The parallel provisions of the Income Tax Act
(the “ITA”) are found in sections 165 and 169. As some of the relevant
jurisprudence considers the ITA provisions, they are set out below:
|
165(1.11) Objections by large
corporations -- Where a
corporation that was a large corporation in a taxation year (within the
meaning assigned by subsection 225.1(8)) objects to an assessment under this
Part for the year, the notice of objection shall
|
165(1.11) Oppositions par les grandes
sociétés -- Dans le cas
où une société qui était une grande société au cours d'une année
d'imposition, au sens du paragraphe 225.1(8), s'oppose à une cotisation
établie en vertu de la présente partie pour l'année, l'avis d'opposition
doit, à la fois :
|
|
(a) reasonably describe each issue to be decided;
|
a) donner une description suffisante de
chaque question à trancher;
|
|
(b) specify in respect of each issue, the
relief sought, expressed as the amount of a change in a balance (within the
meaning assigned by subsection 152(4.4)) or a balance of undeducted outlays,
expenses or other amounts of the corporation; and
|
b) préciser, pour chaque question, le
redressement demandé, sous la forme du montant qui représente la modification
d'un solde, au sens du paragraphe 152(4.4), ou d'un solde de dépenses ou
autres montants non déduits applicable à la société;
|
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(c) provide facts and reasons relied on
by the corporation in respect of each issue.
|
c) fournir, pour chaque question, les
motifs et les faits sur lesquels se fonde la société.
|
|
169(2.1) Limitation on appeals by large corporations -- Notwithstanding subsections (1) and (2),
where a corporation that was a large corporation in a taxation year (within
the meaning assigned by subsection 225.1(8)) served a notice of objection to
an assessment under this Part for the year, the corporation may appeal to the
Tax Court of Canada to have the assessment vacated or varied only with
respect to
(a) an issue in respect of which the
corporation has complied with subsection 165(1.11) in the notice, or
|
169(2.1) Restrictions touchant l'appel
d'une grande société --
Malgré les paragraphes (1) et (2), la société qui était une grande société au
cours d'une année d'imposition, au sens du paragraphe 225.1(8) et qui
signifie un avis d'opposition à une cotisation établie en vertu de la
présente partie pour l'année ne peut interjeter appel devant la Cour
canadienne de l'impôt pour faire annuler ou modifier la cotisation qu'à
l'égard des questions suivantes:
a) une question relativement à laquelle
elle s'est conformée au paragraphe 165(1.11) dans l'avis, mais seulement à
l'égard du redressement, tel qu'il est exposé dans l'avis, qu'elle demande
relativement à cette question;
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[…] and, in the case of an issue
described in paragraph (a), the corporation may so appeal only with respect
to the relief sought in respect of the issue as specified by the corporation
in the notice.
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[21]
The Technical Notes that accompanied the 1995
introduction of the ITA provisions provide:
165(1.11)-(1.14)
Feb. 1995 TN: Section 165 provides rules governing
a taxpayer’s right to object to an assessment or determination by the Minister
of National Revenue of tax, interest, penalties and certain other amounts under
the Act.
New subsection
165(1.11) requires large corporations to reasonably describe the issues under
dispute, to specify the amount of relief sought in respect of each issue, and
to provide facts and reasons in support of the objection. In addition, under
new subsections 165(1.13) and (1.14) only those issues and related relief set
out in a valid notice of objection may be the subject of a further objection or
an appeal taken before the courts. New issues raised by Revenue Canada on a subsequent reassessment may be the subject of a separate objection, which will
itself be required to satisfy the new requirements in section 165.
New subsection
165(1.11) provides a number of requirements for notices of objection served by
large corporations. A corporation’s notice of objection must comply with the
requirements if the objection is from an assessment of a taxation year in which
the corporation is a large corporation within the meaning of subsection
225.1(8). Under that provision, a corporation is a large corporation in a
particular taxation year if tax under Part I.3 is payable by it for the
particular year or if, at the end of the year, it is related to a corporation
that is itself a large corporation.
Paragraph
165(1.11)(a) states that a corporation must reasonably describe each issue
which is to be decided.
Paragraph 165(1.11)(b)
requires a notice of objection to specify the relief sought by the taxpayer in
respect of each issue in the notice. The relief sought may be expressed as a
change in a “balance” of the taxpayer as defined in subsection 152(4.4), which
includes references to a taxpayer’s income, taxable income, taxable income
earned in Canada, loss for the year, or the tax or any amount payable by the
taxpayer for the year. The relief sought may also be expressed as a change in a
balance of undeducted outlays, expenses or other amounts of the taxpayer. The
provision is not intended to require a taxpayer to calculate all of the
potential effects that interdependent or related issues may have on each other,
but only that the relief sought in respect of a particular issue be quantified
in isolation of any other issues in a notice of objection.
Paragraph
165(1.11)(c) requires a notice of objection to include a statement of facts and
reasons which could be relied upon by a taxpayer. Additional facts or
reasons may be raised by a taxpayer subsequent to the filing of a notice of
objection.
Any notice of
objection served before 1995 may be revised to meet the new requirements if the
taxpayer submits the required information to a Chief of Appeals in a district
office or taxation centre of the Department of National Revenue before March
1995.
New subsection
165(1.12) allows the Minister of National Revenue to request the taxpayer to
specify the required information with respect to an issue where it was not
specified in the notice of objection. If the taxpayer specifies the information
in writing within 60 days of the request, it will be treated as having been
specified in the notice of objection.
New subsection
165(1.13) precludes large corporations from raising new issues or revising the
relief sought with respect to an issue in an objection to an assessment made
under subsection 165(3) except where the assessment was made pursuant to a
notice of objection to another assessment made under any of the provisions or
circumstances referred to in paragraph 165(1.1)(a). Subsection 165(1.1) already
restricts objections to assessments made under any of the provisions or
circumstances referred to in paragraph 165(1.1)(a).
New subsection
165(1.14) provides that the limitation in subsection 165(1.13) does not apply
to limit a taxpayer’s right to object to a new issue raised for the first time
by Revenue Canada in an assessment made under subsection 165(3).
[Emphasis
added.]
[22]
In Potash Corp. of Saskatchewan Inc.,
2003 FCA 471 the Federal Court of Appeal considered the following portions of
the paper “Draft Legislation on Income Tax
Objections and Appeals” by R.M. Beith at the 1994
Annual Conference of the Canadian Tax Foundation:
4 The Large
Corporation Rules were enacted in 1995 to discourage large corporations from
engaging in a full reconstruction of their income tax returns for a particular
year, after the objection or appeal process had started, based on developing
interpretations and the outcome of court decisions in litigation involving
other taxpayers. The reasons for these subsections are well-stated by R. M.
Beith in his paper entitled "Draft Legislation on Income Tax Objections
and Appeals" as outlined in the Report of Proceedings of the Forty-Sixth
Tax Conference, 1994 Conference Report (Toronto: Canadian Tax Foundation,
1995), 34:2.
One of the reasons for the legislation is to identify disputed issues much sooner so
that a taxation year's ultimate tax liability can be determined in a timely
way.
Owing to the complexity of the law and
the number of issues, for many years a number of large corporations have had
some of their taxation years left open through outstanding notices of objection
or appeals, so that they have been able to raise new issues based on emerging
interpretations and the outcome of court decisions challenged by other
taxpayers.
Recently, a particular problem was
identified by the auditor general and the Public Accounts Committee. A case
dealing with the calculation of the "resource allowance" which was
decided against the department, resulted in claims not only based on the
particular facts decided by the court but in respect of a new issue concerning
the calculation of the "resource allowance". These claims, both
directly and indirectly from the court decision, involved significant amounts
of tax and interests.
In summary, it is essential that
revenues be more predictable and therefore that potential liabilities be
identified and resolved within a more reasonable time.
Simply put,
Parliament wants the Minister of National Revenue (the Minister) to be able
to assess at the earliest possible date both the nature and quantum of pending
tax litigation and its potential fiscal impact.
[Emphasis
added.]
[23]
There have been several decisions from the
Federal Court of Appeal and several from this Court considering these ETA
or ITA restrictions. A Supreme Court of Canada leave application was
turned down in Potash. An appeal is pending before the Federal Court of
Appeal in another. A review of these decisions shows they are consistent,
clear, logical and capable of being applied. From these existing decisions general
conclusions and observations on the interpretation and on the application of
the designated person/large corporation restrictions can be clearly identified.
Telus Communications:
[24]
In Telus Communications (Edmonton) Inc. v.
Canada, 2005 FCA 159 the taxpayer was a specified person and raised in its
Notice of Appeal in the Tax Court of Canada the issue of due diligence with
respect to automatic penalties under the ETA upon being assessed for
additional net tax. The taxpayer’s Objection did not mention the penalties
assessed, although they would be automatically reduced to the extent Telus was
successful on the merits of the issue(s) objected to. Telus’ Objection was
partially successful and it was reassessed. Telus filed a second Objection
repeating the substantive grounds raised in the first Objection and requesting
the remaining adjustments be vacated “along with the
associated interest and penalties”.
[25]
In Telus’ appeal before the Tax Court of Canada,
the Crown moved to strike the amendments to the Notice of Appeal originally
filed which added the issue of the due diligence defence to the penalties. The
Crown had already filed its Reply to the Amended Notice of Appeal and the issue
before the courts was whether the Crown was precluded from seeking to strike
something to which it had already responded and joined issue with (sometimes
referred to as pleading over). Justice O’Connor dismissed the Crown’s motion on
the basis that it was too late, the Crown having already joined issue. The
Federal Court of Appeal reversed the trial judge. Justice Desjardins wrote for
the Court:
17 I find
that, notwithstanding the pleadings, the Tax Court, in an appeal involving a
"specified person", has no jurisdiction to deal with an issue that
was not properly raised in the notice of objection.
18 A
person who is a "specified person" has the right to object to any or
all assessment issues. In doing so, however, it must file a notice of objection
which accords with the requirements of subsections 301(1.2) of the Act. That
is, the issue must be reasonably described, it must be quantified, and it must
be supported by a statement of facts and reasons.
19 A person
who is a "specified person" may also object to a reassessment made by
the Minister after considering the notice of objection, but only with respect
to the issues raised in a prior notice of objection or new issues raised in a
reassessment (subsections 301(1.4) and (1.5) of the Act).
20 Identical
restrictions apply in the case of an appeal to the Tax Court. Under section 302
of the Act, a person cannot appeal unless he first serves the Minister with a
notice of objection within the prescribed time limits. This right of appeal
is further restricted for specified persons by subsection 306.1(1) of the Act
in that the specified person may appeal to the Tax Court only with regard to an
issue properly raised in its notice of objection and only with respect to the
relief sought in respect of that issue as specified in the notice of objection.
An issue is properly raised in a notice of objection only by complying with
subsection 301(1.2) (subject to the exception in subsection 301(1.5) which
has no application in this case).
21 In the
case at bar, the issue of due diligence was never raised in any notice of
objection. The respondent's request to vacate "associated interest and
penalties", which was mentioned only in its notice of objection to the
reassessment, was not a reference to the issue of due diligence but was
consequential to the reduction of interest and penalty flowing from the
requested reduction of the net tax adjustments. The respondent cannot therefore
raise due diligence in its amended amended notice of appeal before the Tax
Court.
[Emphasis
added.]
Potash Corporation:
[26]
The taxpayer in Potash was a “large corporation” pursuing an ITA appeal. In
its tax return for the year in question the corporation claimed amounts in
respect of the “resource allowance” and “earned depletion”. Under the ITA both resource
allowance and earned depletion are determined by a formula that includes “resource profits”. Resource profits are computed by a
prescribed formula that involves many factual elements. The reassessments
excluded a number of specific items/categories of income from the taxpayer’s
computation of resource profits and these were described by category, amount
and taxation year in a schedule attached to the reassessments. In its
objections the taxpayer described the specific items of miscellaneous income
that it sought to have included in its resource profits because such income was
related to and interconnected with the business of producing and marketing
potash. The taxpayer’s objections identified that this in turn directly
affected the amounts of its resource allowance and earned depletion. The
taxpayer described such miscellaneous income items using the same terms and
amounts that the Minister of National Revenue (the “Minister”)
had used in the schedule to the reassessments.
[27]
The taxpayer’s Notice of Appeal in the Tax Court
of Canada substantially repeated what was in the objections relating to the
computation of resource profits, with the same particulars. Prior to the trial
the taxpayer sought to amend its Notice of Appeal to add additional
miscellaneous income items that it could also identify as having not been
included by it in computing its resource profits in its returns.
[28]
In this Court, Justice Beaubier allowed the
motion to amend on the basis the new items of miscellaneous income satisfied
the requirements of the large corporation rules.
[29]
In reversing the trial judge Justice Malone
wrote for the Federal Court of Appeal:
19 In this
case the Judge commenced his statutory analysis from the position that the
Large Corporation Rules should be interpreted strictly because they “derogate
from and restrict the broad ability of taxpayers to … appeal assessments”. That
was an incorrect approach. The Supreme Court of Canada has rejected the strict
construction of taxation statutes, […]
[…]
In my view, the
Judge’s misapprehension of the proper interpretive approach led him to an
erroneous conclusion on the question of what constituted a reasonable
description of the issue. As a result, applying the correct interpretive
approach, this court must determine what constitutes a reasonable description
of the issue.
[…]
21 The Large
Corporation Rules place further requirements on large corporations that object
to an assessment by the Minister. The main issue in this case is the meaning to
be given to the words "each issue" in the phrase "reasonably
describe each issue to be decided" in paragraph 165(1.11)(a). In
interpreting those words, the Judge wrote:
The issue is the legal matter which the
taxpayer contests with the CCRA. It is not required to be described exactly,
but if it was, it could be expressed in section numbers of the Income Tax Act,
or in words taken from or paraphrased from those sections.
22 I do not
agree with this statement. While a large corporation is not required to
describe the issue "exactly", as the Judge states, it is required to
describe the issue "reasonably". What is reasonable will differ in
each case and will depend on what degree of specificity is required to allow
the Minster to know each issue to be decided.
23 In
reassessing PCS, the Minister set out the precise items of income which were
being disallowed as part of resource profits (see paragraph 8). In filing its
notice of objection, PCS objected to the disallowance of these same items of
income, describing them in the same fashion as the Minister. That complied with
paragraph 165(1.11)(a) because it gave sufficient certainty as to what issues
were then under objection.
24 Contrary
to the Judge's suggestion, it would not have been reasonable to simply say that
the computation of "Resource Allowance" or "resource
profits" was in issue, without specifying the particular elements of that
computation that required a determination by the Minister or the Tax Court, as
the case may be. That level of generality would render the Large Corporation
Rules meaningless, defeating the purpose of their enactment.
25 The
Judge's interpretation of paragraph 165(1.11)(a) could stand only if the
language of the provision unambiguously required it, which is not the case
here. It follows that the Judge erred in granting leave to amend the notice of
appeal to include the five items referred to above, and to make consequential
amendments to the quantum of the relief sought.
26 I recognize
that this is a harsh result for PCS, and a harsh rule for large corporations. A
large corporation that discovers an error in an income tax return after it has
filed a notice of objection or a notice of appeal may find itself barred from
taking proceedings to compel the Minister to correct the error. However, that
is the result that Parliament intended.
27 The Judge
made a number of comments relating to the statutory requirement to specify an
"amount" for each issue. If he had determined, as he should have
done, that PCS is not entitled to include the five disputed items in the notice
of appeal, there would have been no need to discuss quantification at all. Nor
is it necessary for me to comment on it. I prefer to leave open the question
of whether the obligation to "specify in respect of each issue, the relief
sought, expressed as the amount of a change in a balance (within the meaning
assigned by subsection 152(4.4)) or a balance of undeducted outlays, expenses
or other amounts of the corporation" necessarily binds a large corporation
to the stated amount, or a less favourable amount. It is arguable that there
may be situations where an amendment to a notice of appeal could be permitted
if the amendment goes only to quantum and does not entail the raising of a new
issue.
[Emphasis
added.]
Bakorp:
[30]
The taxpayer in Bakorp Management Ltd. v. The
Queen, 2014 FCA 104 was a large corporation pursuing an ITA appeal.
The Federal Court of Appeal upheld the decision of Mr. Justice Miller of this
Court to dismiss Bakorp’s appeal because it did not comply with the large
corporation rules. In its objection the taxpayer’s first paragraph is “Issue: 1. Share redemption proceeds added to income as
a deemed dividend. Taxation year March 10, 1995. Adjustments to deemed dividend
dollars ($25,332,237).” The trial judge treated
that as describing a desired $25,000,000 reduction, being that portion of a
deemed dividend that the reassessment removed from its 1995 income. The
aggregate deemed dividend reported by the taxpayer in its 1995 return had been
$53,000,000. The trial judge described the issue set out in the Notice of Appeal
as the taxpayer accepting the reassessments reduction of $25,000,000 of the
deemed dividend from 1995, but instead now wanting the $28,000,000 balance of
the deemed dividend to be removed from 1995 income. That is, in the objection
the taxpayer sought to have all of the deemed dividend included in 1995 and
objected to the Minister’s exclusion of $25,000,000, whereas in the Notice of
Appeal the taxpayer wanted to also have the $28,000,000 balance of the deemed
dividend reported by it in 1995 removed.
[31]
In upholding the trial judge Justice Webb
writing for the Federal Court of Appeal first addressed the question of what is
meant by “issue” in the large corporation rules.
He did this following the textual, contextual and purposive approach set out by
the Supreme Court of Canada in Canada Trustco Mortgage Co. v. Canada,
2005 SCC 54 and he quoted from paragraph 4 of Potash dealing with the
purpose of the large corporation rules.
[32]
After quoting paragraphs 21 through 24 of Potash
on what is required to reasonably describe an issue, Justice Webb
continues:
28 A
general statement or question related to an amount that is to be determined for
the purposes of the Act that would not allow the Minister to determine what is
actually in dispute will not be a sufficient description of the issue. The
examples cited as inadequate descriptions of an issue are a description of the
issue as the computation of resource allowance or resource profits. In a
similar vein, Justice Jorré of the Tax Court of Canada in Canadian
Imperial Bank of Commerce v. The Queen, [2013 GTC 55] 2013 TCC 170 in
dealing with the corresponding provisions in the Excise Tax Act, R.S.C.
1985, c. E-15, stated that a general description of the issue as the correct
amount of tax owing would not be sufficient.
29 Paragraph
165(1.11)(b) of the Act provides that, in relation to each issue, the relief
sought must be specified as a change in the balance of the items listed. This
means that the issue must be reasonably described in a manner that would result
in such quantification as a specified amount. For example, describing an issue
as the computation of resource profits would not be sufficient as it would not
be possible to ascertain from this description the specific change in any
balance that is being requested. If however, the particular element of the
computation that is in dispute is reasonably described, then the effect that
the resolution of the dispute would have on the income of the corporation is
capable of being quantified.
[…]
31 Bakorp
argued that since a notice of objection was served in relation to the
reassessment of Part IV tax, Bakorp obviously did not agree with the adjustment
made by the Minister. Bakorp argues that this part of the notice of
objection should be interpreted as a submission by Bakorp that the issue to be
decided was the correct amount of dividends that Bakorp had received in its
1995 taxation year. I do not agree that even if this paragraph could be so
interpreted, that this would be an adequate description of the issue for the
purposes of subsection 165(1.11) of the Act as it applies for the purposes
of Part IV.
32 In this
notice of objection, the issue is stated to be "share redemption proceeds
added to income as a deemed dividend". This does not identify any
question to be adjudicated but is a cursory statement of what has transpired.
The table included in the first paragraph of the notice of objection simply
lists the actual adjustments that were made to the deemed dividends that were
considered to have been received for the purposes of Part IV in the various
years listed. There is nothing in this paragraph to provide any hint of the
element or elements of the computation of the amount of dividends received
by Bakorp in 1995 for the purposes of Part IV of the Act that would require
a determination by the Minister or the Tax Court of Canada nor is there
anything in this paragraph to indicate whether Bakorp is disputing the
adjustment to the Deemed Dividend for 1995 on the basis that the
adjustment should have been greater or smaller.
33 A
description of the issue as "the correct amount of dividends that Bakorp
received in 1995" does not lead to any quantification of the change in any
balance other than as a range from nil to $52,912,264 as the amount of the
dividend that Bakorp received in its 1995 taxation year. This description of
the issue does not indicate anything about the question that must be answered
to resolve this dispute.
34 The
purpose of subsection 165(1.11) of the Act would be frustrated if this
satisfied the requirement of a reasonable description of the issue. In this
case, the reassessment is under Part IV of the Act. Part IV only imposes a tax
on certain corporations that have received dividends. In this case there is no
dispute that Bakorp was a private corporation and that it was not connected
with 968649 Ontario Limited at any time during Bakorp's 1995 taxation year.
Therefore, the only matter that could arise in relation to Part IV tax for 1995
would be the amount of the dividends that Bakorp had received in its 1995
taxation year. If the issue is simply the correct amount of dividends that
Bakorp had received in 1995, this would mean that subsection 165(1.11) of the
Act (as it applies for the purposes of Part IV) does not impose any requirement
on a large corporation other than the requirement to object. This would also
not satisfy the purpose of allowing the Minister to know the nature and quantum
of tax litigation at the earliest possible date.
35 When
the notice of objection is read as a whole, it is clear that Bakorp was
taking the position that it had filed its Part IV return correctly and hence
Bakorp was submitting that it should be paying more Part IV tax than was
reassessed by the Minister. In paragraph 13 of the notice of objection, Bakorp
provided a reconciliation of how Bakorp had accounted for the redemption
proceeds in filing its returns under the Act. In particular for its 1995
taxation year Bakorp stated that it had reported $52,912,264 as a deemed
dividend on its T2S(3). It also seems clear that Bakorp was taking the position
that amounts were to be reported as any questions or disputes related to the
adjustments to the amount to be paid on the redemption of the shares were
resolved. Therefore, the issue in respect of which Bakorp complied with the provisions
of subsection 165(1.11) of the Act, was the issue of whether Bakorp was correct
in concluding that it had received $52,912,264 in dividends in 1995 for the
purposes of Part IV on the basis that any question or dispute in relation to
such amount had then been resolved. In this case the quantification of the
amount is part of the description of the issue.
36 Therefore,
Bakorp was restricted to being able to only appeal in respect of this issue.
However, this is not the issue that is raised in the notice of appeal.
Paragraphs 13 to 16 of the notice of appeal are as follows:
Part III –
Issues
13. The issue with respect to the
Assessment is whether the 1995 Receipt is properly taxable in the Appellant's
1995 Year.
Part IV -
Statutory Provisions
14. The appellant relies on, inter
alia, section 3, subsections 84 (3) and 84 (7) of the ITA.
Part V -
Reasons Which the Appellant Intends to Submit
15. The Deemed Dividend, including the
1995 Receipt, was payable to the Appellant in the 1993 Year and, therefore, should
be included in the Appellant's taxable income for the 1993 Year.
16. There is no basis under the ITA upon
which the 1995 Receipt can be included in the Appellant's taxable income for
the 1995 Year.
42 In my
view, a reasonable description of the issue of the effect of subsection
84(3) of the Act on when dividends would be deemed to be received on a redemption
of shares would have been a description that would have alerted the Minister
to this legal argument related to the interpretation of subsection 84(3) of
the Act. This would mean something more than simply listing subsection 84(3) as
one of the three provisions that would be relied upon. It is, however, clear
that this issue arising as a result of this legal argument was not raised in
the notice of objection that had been filed by Bakorp and that Bakorp was not
relying on this issue in its notice of objection. If Bakorp's interpretation
of the legal argument is correct and the full amount of the deemed dividend
that was eventually paid was received by Bakorp in 1993 when the shares were
redeemed (and I do not express any opinion on whether this argument is
correct), the result would have been irreconcilable with the position that
was taken by Bakorp in its notice of objection.
43 I agree
with the Tax Court judge that the issue that Bakorp is attempting to raise in
its notice of appeal is not an issue in respect of which Bakorp has complied
with the provisions of subsection 165(1.11) of the Act.
Relief Sought
44 Although
it is not necessary to dispose of the appeal to comment on the question of
whether the relief sought in the notice of appeal is the same as the relief
sought in the notice of objection, I would also agree with the Tax Court Judge
that Bakorp is not seeking the same relief.
45 The relief
that may be granted by a judge of the Tax Court on an appeal under the Act is
limited. Under subsection 171(1) of the Act, if an appeal is allowed (which
would be what Bakorp would be requesting), the Tax Court judge can only vacate
the assessment, vary the assessment or refer the assessment back to the
Minister for reconsideration and reassessment. The relief sought as referred to
in subsection 169(2.1) of the Act cannot simply be a request in the notice of
objection to refer the matter back to the Minister for reconsideration and
reassessment. To hold that the restriction imposed by subsection 169(2.1) of
the Act in relation to the relief sought would be satisfied as long as the
taxpayer was still only asking to have the matter referred back to the Minister
for reconsideration and reassessment would be meaningless in light of the
limited options available to the Tax Court on an appeal. In the context of both
subsections 169(2.1) and 165(1.11) of the Act, the reference to the relief
sought in subsection 165(2.1) of the Act must be a reference to the specific
relief sought as described for the purposes of subsection 165(1.11) of the Act.
This would be consistent with the purpose of these provisions which was to
allow "the Minister of National Revenue (the Minister) to be able to
assess at the earliest possible date both the nature and quantum of pending tax
litigation and its potential fiscal impact". Such purpose would be
frustrated if the relief sought as described in subsection 169(2.1) of the Act
was not the relief sought as described in subsection 165(1.11) of the Act.
[…]
48 It should
be noted that in this case Bakorp attempted to change the issue under appeal
and the remedy sought. It remains an open question, as noted in paragraph 27
of Potash Corporation of Saskatchewan, whether a large corporation would be
allowed to change the amount specified as the remedy sought to an amount more
favourable to such corporation if the issue remains unchanged. It would seem
that a large corporation should be allowed, if the issue is not changed, to
change the amount specified as the remedy sought to an amount that is less
favourable to such corporation as this change would still be consistent with
the purpose of the provisions.
[Emphasis
added.]
BC Transit:
[33]
In British Columbia Transit v. Canada,
2006 TCC 437, Mr. Justice Miller had occasion to consider the ITA’s
large corporation rules. BC Transit’s Vancouver Skytrain system had been
reorganized by British Columbia such that BC Transit leased its Skytrain system
assets (which included subleasing leased Skytrain assets) to the Greater
Vancouver Transportation Authority known as Translink for a nominal rent of
$1.00 and Translink taking on BC Transit’s property tax obligations. As part of
the reorganization BC converted its loan to BC Transit to a “deferred capital contribution” which was reduced each
year by a “Grant” in the amount of the
amortization of the Skytrain assets for that year. BC Transit had claimed input
tax credits on its Skytrain expenses which were reassessed and denied by CRA because
BC Transit only received nominal consideration.
[34]
The trial judge described the objection in
paragraph 16:
16 The
Minister reassessed the Appellant on December 17, 2001, denying the $3,472,040
credit. In February 2002, BC Transit filed a Notice of Objection
prepared by its accountants, KPMG, objecting to the denial of the $3,472,040
ITCs. In the facts and reasons in the Notice of Objection, BC Transit
outlined the annual grant from the Government, but made no mention of
the property tax or subleases constituting consideration for the lease. BC
Transit identified two issues:
(i)
Did BC Transit use the Guideway (Skytrain) assets in the course of carrying on
a commercial activity;
(ii)
Did BC Transit property compute "the basic tax content"
($120,766,598) in accordance with subsection 123(1) of the Excise Tax Act.
[Emphasis
added.]
[35]
The Respondent argued that BC Transit could not
ask the Court to consider the property tax or sublease payments to be part of
the consideration for the lease as they were not raised in the objection. On
this issue, Mr. Justice Miller wrote:
38 The
Respondent argues that, as BC Transit did not raise as part of its facts and
reasons in its Notice of Objection that consideration included the property tax
and sublease payments, it has not complied with subsection 301(1.2) and is
therefore precluded by section 306.1 from raising this at trial. The Respondent
relies on the Federal Court of Appeal decision in The Queen v. Potash
Corporation of Saskatchewan Inc. in which the Appellant sought to amend its
Notice of Appeal. The Crown had argued in that case that the Large Corporation
Rules (the Income Tax Act equivalent of the Rules before me)
restrict the appeal to the Tax Court of Canada solely to the issues and relief
raised in the Notice of Objection. Potash argued that the rules were mere
procedural rules, and it was a reasonable exercise of the judge's discretion to
amend the Notice of Appeal to allow the amendment to the Notice of Appeal. In
not allowing the amendment, the Federal Court of Appeal concluded:
[29] The proposed amendments to the
notice of appeal seek to include in the computation of resource profits in the
four years under appeal five new items of income not described in the notice of
objection and, as a consequence, seek to increase the amount of the resource
allowance and earned depletion from the amount set out in the notices of
objection. To permit PCS to amend its pleading in this way is contrary to the
requirements in subsection 169(2.1).
39 In the
case before me, the Respondent has identified BC Transit's failure as failing
to provide any facts respecting the property tax and sublease payments, and
failing to provide any reasons as to the "nominal consideration"
issue in the Notice of Objection. It did not argue that there have been any
failures with respect to the issue or to the relief sought.
40 I do not
find the Respondent's argument persuasive. The Potash case was not about
the lack of facts or reasons: it was about not allowing an increase in the
amount at issue. There is no change to the amount at issue before me from
what was set out in the Notice of Objection, nor has the issue changed. The
issue has always been the entitlement to the ITCs. The Respondent is
correct that the property tax was not raised as part of the facts or reasons,
but I find this is not fatal.
41 In the Potash
case, the Court quoted comments from Mr. R.M. Beith, an official from
Department of Finance, made at the 1994 Canadian Tax Foundation Conference:
[…]
42 This
emphasizes that it is the issue and quantum that is of significance to the
Minister, not the facts and reasons that the Respondent points to as the
failure. It would prohibitively handcuff the large corporation to read
these provisions as limiting the large corporation to only those facts
identified at the Notice of Objection stage. That does not appear to be the
thrust of the section as supported by Mr. Beith, nor the interpretation of this
section by the Federal Court of Appeal in Potash. The very words of
section 306.1 itself refer only to the issues and the relief. Interestingly, at
the 1994 Tax Conference Mr. Beith went on to say this about paragraph
165(1.11)(c) (Income Tax Act equivalent to paragraph 301(1.2)(c)):
This requirement is no different from
what the law currently requires from all taxpayers. In addition, in contrast
to the requirements with respect to issue and quantum, additional facts and reasons
can be raised in appeals.
This is certainly a
sensible point of view, and one which I adopt. I find BC Transit is not in
breach of subsection 301(1.2) and, therefore, section 306.1 is not invoked. BC
Transit is free to argue that property tax and sublease payments are facts that
go to the consideration for the lease.
[Emphasis
added.]
CIBC:
[36]
In Canadian Imperial Bank of Commerce v.
Canada, 2013 TCC 170 the taxpayer was a specified person and had filed an
objection followed by a Notice of Appeal and an amended Notice of Appeal. The
substantive dispute was related to CIBC’s participation in the Aeroplan Program
in which it made payments to Aeroplan on which it paid $45,000,000 of GST for
which it later made a rebate claim.
[37]
In the objection the taxpayer set out the issue
as follows:
The issue for
determination is whether CIBC is entitled to the Rebate because it paid the
amounts that are the subject of the Rebate in error as GST. This issue, in
turn, requires a determination as to whether GST was exigible on the Subject
Payments.
[38]
Part IV of the Amended Notice of Appeal read:
IV. ISSUES TO BE DECIDED
15. The issue in
this Appeal is whether the Aeroplan Payments were consideration for a taxable
supply made by Aeroplan to CIBC or, instead, were:
(A) consideration
for Aeroplan's exempt supply of a financial service made to CIBC;
(B) in the alternative, Aeroplan's share of the
revenues from a joint venture, the Aeroplan Program; or
(C) in the further alternative, consideration
for Aeroplan's issuance or sale of a "gift certificate".
[39]
The taxpayer sought to further amended its
Amended Notice of Appeal to remove the references to the term joint venture and
replace it with the concept of CIBC and Aeroplan sharing the responsibilities
and revenues under the CIBC Aeroplan Program and jointly making a single supply
to cardholders.
[40]
The Respondent objected to the proposed
amendments relying on the specified person rules. The Respondent argued that
the proposed amendments dropping the joint venture would create a new issue,
one of there having been no supply for the Subject Payments, and which was not
reasonably described in the objection, and for which there were no facts or
reasons provided for in the objection.
[41]
Justice Jorré approached this issue as follows:
42 The merits
of the respondent's submission turn on the following questions:
(a)
What is the meaning of the word "issue" in the context of sections
301 and 306.1?
(b)
Has the appellant raised a new issue within the meaning of those sections?
(c)
If the appellant is not raising a new issue, did the appellant comply with
paragraph 301(1.2)(c)?
(d)
Finally, if it turns out that new reasons are raised rather than new issues,
and if the appellant has complied with paragraph 301(1.2)(c), at the appeal
stage can the appellant provide further facts and reasons in support of its
position in relation to the issues?
[42]
After referring to the Oxford Encyclopaedic
Dictionary definition of the word “issue”, he
continued:
46 The word "issue" also has a
certain elastic quality.
47 At one
level, the "issue" in an income tax appeal is whether the Minister
has correctly assessed a particular amount of tax, interest and, if applicable,
penalties. Similarly, in one sense, the issue in a GST appeal of a registrant
is whether the Minister has assessed the correct amount of net tax, interest
and, if applicable, penalties.
48 With
reference to "each issue" in sections 301 and 306.1, it is clear on
the face of the statute that issue has to be understood as being at a more
detailed level than simply: Overall, how much tax is owing?
49 At the
other extreme, the word "issue" may refer to every disputed point of
fact, procedure and law.
50 Clearly,
"issue" cannot be understood at such a detailed level. [Footnote 7
omitted]: It would unduly limit the scope of "facts" and
"reasons" and does not fit the scheme of the provisions. It would
also be extremely difficult to comply with.
51 In the
context of sections 301 and 306.1, the word "issue" has to be
understood as referring to some intermediate level of detail which recognizes
that not every disputed fact or reason is an issue.
52 While
"issue" may not be susceptible of the precise definition in this
context, guidance is available from the scheme of subsection 301(1.2) insofar
as it requires that a taxpayer:
(a)
reasonably describe each issue to be decided;
(b) specify
in respect of each issue the relief sought, expressed as the change in any
amount that is relevant for the purposes of the assessment; and
(c)
provide the facts and reasons relied on by the person in respect of each issue.
53 It is
clear from the section that "issues" are different from "facts"
and from "reasons".
54 Paragraph
(b) is interesting because it suggests that a particular
"issue" will to some extent be tied to a particular financial impact
in terms of the assessment.
55 While it
may be that two distinct "issues" might coincidentally have the same
quantitative impact, the fact that something which is alleged to be a different
"issue" has exactly the same impact may well be an indicia that it is
really the same "issue".
[Emphasis
added.]
[43]
The trial judge next refers to passages from the
Federal Court of Appeal in Potash and continued:
63 In Potash
Corporation, there was an amendment to include entirely new amounts to the
computation of the allowance, increasing the allowance.
64 Here,
with or without the amendments, we are talking about the exact same amounts
of GST paid on the same payments from the appellant to Aeroplan Limited
Partnership and whether those particular payments are subject to GST.
65 What is
being changed is part of the reasons and, possibly, part of the facts relied
upon by the appellant. There is no change to the "issue" in the sense
used by the sections in question.[Footnote 9 omitted]
[Emphasis
added.]
[44]
The judge goes on to address the Respondent’s
reliance on Telus for support as follows:
71 In Telus,
while success, in part or in whole, in the challenge to the net tax would
necessarily bring about a reduction in the penalty to the same extent, if the
appellant failed in its challenge to the net tax but succeeded on due
diligence, the penalty would be eliminated even though the net tax remained
unchanged. The due diligence defense clearly raises a new issue.
72 That
situation is very different from the one here. Here, the "no supply"
approach has the same consequence as the approach in subparagraphs 15(A) and
(C) of the proposed second amended notice of appeal. Subparagraph (A),
proposed subparagraph (B) and subparagraph (C) are all reasons in support of
the issue raised in the preamble of paragraph 15, "whether the Aeroplan
Payments were consideration for a taxable supply made by Aeroplan to
CIBC".
[Emphasis
added.]
[45]
The concluding paragraph of his analysis of what
is an issue and when it is reasonably described reads:
83 I am of the view that the situation
here is analogous to BC Transit in that what is raised here are
additional reasons, not a new issue.
[Emphasis added.]
[46]
The judge then addresses the issue of facts and
or reasons being added at the appeals stage that were not set out in the
objection. He wrote:
84 There is
no question that the notice of objection did provide facts and reasons in
support of the appeal. Is an appellant who is a specified person precluded at
the appeal stage from raising additional facts and reasons in support of any
issue already raised?
85 I agree
with Justice C. Miller of this Court who, in BC Transit, held that
subsections 306.1(1) and 301(1.2) were not a bar to an amendment in
circumstances where what had been shown was a failure with respect to providing
all facts and reasons as opposed to a failure to state the issue and the relief
sought in the objection.
86 This
result is clear from the sections. They do not require that every reason
invoked on appeal by an appellant be spelled out in the notice of objection.
This is apparent from subsection 306.1(1) which says only that the appellant
(i) must comply with subsection 301(1.2) and is limited to (ii) the issues
raised and (iii) the relief sought; the subsection does not say the person is
limited to the facts and reasons in the notice of objection.
87 As a
result I am satisfied that the proposed amendments do not raise new issues
contrary to subsection 306.1(1).[Footnote 16: Unfortunately there is probably
no "bright line" between facts, reasons and issues. In some
circumstances, it will be a judgment to be made in all the circumstances. For
the purposes of this matter it is not necessary for me to answer the question
whether there may be limited circumstances where the trial judge is better
placed to decide such a question.]
[47]
While not specified in either BC Transit
or CIBC, the conclusions of Justices Miller and Jorré on adding new
facts or reasons at the appeals stage are clearly also supported by the
Technical Notes issued by the Department of Finance when the large corporation
rules were added to the ITA.
Devon:
[48]
The taxpayer in Devon Canada Corp. v. Canada,
2014 TCC 255 was a large corporation against whom the Respondent brought a
motion to strike portions of its Notices of Appeal for not complying with the ITA
large corporation rules. The tax dispute involved the deduction by the Appellant’s
predecessors of significant payments made to employees for the surrender of
their purchase options, defined as Surrender Payments.
[49]
In his reasons allowing the motion only in part,
Justice Graham wrote:
3 In its
Notices of Appeal, Devon raises the following arguments:
(a) Devon's primary argument is that the Surrender Payments are
deductible as current expenses under subsection 9(1) of the Income Tax Act.
(b) In the alternative, Devon argues that the Surrender Payments are
eligible capital expenditures that, once added to cumulative eligible capital,
would result in deductions pursuant to paragraph 20(1)(b). It further
argues that, due to the fact that there were acquisitions of control of both of
the predecessor companies during the taxation periods in which the Surrender
Payments were made, subsection 111(5.2) applies to cause significant additional
deductions of cumulative eligible capital.
(c) In the further alternative, Devon claims that the Surrender
Payments are financing expenses deductible under paragraph 20(1)(e).
[…]
5 There are
three questions that I must determine on this Motion.
(a) The first question I must determine is whether Devon reasonably described the issue or issues to be decided in its Notices of Objection.
(b) If I find that Devon reasonably described the issue or issues,
then the second question that I must determine is whether Devon adequately
described the relief sought in respect of that issue or issues in its Notices
of Objection.
(c) If I find that Devon did not reasonably describe the issue or
issues or did not adequately describe the relief sought, I must then consider
an alterative argument raised by Devon. Devon argues that if the Minister
confirms a reassessment on a basis that differs from the basis upon which the
taxpayer objected, then the taxpayer may appeal to court in respect of that
basis notwithstanding the restrictions in subsection 169(2.1).
Did Devon Reasonably Describe Each Issue or Issues to be Decided?
Summary of Devon's Position
6 Devon submits that there are two bases upon which it can be said to have reasonably
described the issue or issues in its Notices of Objection.
7 Devon's principle (sic) argument is that the issue under objection / appeal is, and
has always been, whether the Surrender Payments are deductible. Devon says that
there are three different reasons why the Surrender Payments may be
deductible (i.e. on current account under section 9; as part of cumulative
eligible capital under paragraph 20(1)(b) and subsection 111(5.2); or as
a financing expense under paragraph 20(1)(e)) but that the presence of
those individual reasons does not change the overall issue of deductibility.
8 Devon's
alternative argument is that, if its Notices of Objection did not reasonably
describe the issue or issues, then the Minister's acceptance of a detailed
supplemental memo (the "Supplemental Memo") from Devon during the
objection process and the Minister's consideration and confirmation of the
Notices of Objection on the basis of the arguments contained in the
Supplemental Memo had the effect of amending Devon's Notices of Objection to
include the arguments set out in the Supplemental Memo as issues.
Summary of the
Respondent's Position
9 The
Respondent's principle (sic) argument is that the three "reasons" described
by Devon are, in fact, three separate issues and thus that Devon was required
to comply with subsection 165(1.11) in respect of each of those issues.
10 The
Respondent further submits that Devon's alternative argument must fail first
because the Supplemental Memo cannot have amended the Notices of Objection
because there is no mechanism in the Income Tax Act for making such an
amendment and second because the actions of the Minister in accepting and
considering the Supplemental Memo cannot override the restrictions of
subsection 165(1.11).
[…]
13 Devon's Notices of Objection make no reference to paragraphs 20(1)(b) and (e)
or subsection 111(5.2). The issue and statutory provisions are described as
follows in one of the Notices of Objection:
ISSUE TO BE DECIDED
The issue to be decided is whether the
Stock Option payment of $20,884,041 is a deductible business expense under
section 9 and not denied by section 18 of the Act for [predecessor company's]
February 11, 2001 tax year, thus reducing the taxable income by an amount of
$15,663,031 ($20,884,041 less an associated resource allowance adjustment of
$5,221,010).
STATUTORY PROVISIONS RELIED ON
[Predecessor company] relies on, inter
alia, subsections 3, 9, and paragraph 20(1)(v.1) of the Act.
14 There is a similar description of the
issue and statutory provisions in the other Notice of Objection.
15 In my
view, the sole issue set out in the Notices of Objection is whether Devon can deduct the Surrender Payments. The Notices of Objection propose one reason why
the deduction should be permitted but that does not preclude Devon from raising
other reasons in its Notices of Appeal.
[…]
17 Having
concluded that the sole issue has always been the deductibility of the
Surrender Payments, I must now consider whether the alternative arguments put
forward by Devon fall within that sole issue.
18 I will
consider Devon's paragraph 20(1)(e) argument first. The Minister denied
the deduction of the Surrender Payments on the basis that they were capital in
nature and thus that paragraph 18(1)(b) precluded their deduction. Devon's primary argument is that paragraph 18(1)(b) does not apply because the
Surrender Payments were on income account. Paragraph 20(1)(e) is an
exception to paragraph 18(1)(b). It simply permits certain types of
financing expenses to be deducted despite the fact that they would otherwise be
on capital account. In essence, Devon's primary argument is that the Surrender
Payments were on income account because that was their nature and its
alternative argument is that they were on income account because paragraph
20(1)(e) says so. Devon's paragraph 20(1)(e) argument is
therefore nothing more than an alternative reason why the Minister should
permit the deduction of the Surrender Payments. There is nothing in the themes
that have emerged from the caselaw that would cause me to question this
conclusion. In fact, Devon's case falls squarely in line with the reasoning in
the decisions in Canadian Imperial Bank of Commerce and British
Columbia Transit.
19 I will now
turn to Devon's paragraph 20(1)(b) and subsection 111(5.2) argument. If
Devon were simply claiming a deduction in respect of the Surrender Payments
under paragraph 20(1)(b), I would accept that no new issue was being
raised for the same reasons that I reached that conclusion in respect of the
paragraph 20(1)(e) argument as paragraph 20(1)(b) is simply
another exception to paragraph 18(1)(b). However, this is not what Devon is doing. Devon is also claiming a deduction under subsection 111(5.2). That deduction
is not optional. It must be claimed if certain preconditions are met. The
preconditions have been met in Devon's case. As a result, if Devon convinced a
trial judge that the Surrender Payments should be added to its cumulative
eligible capital, subsection 111(5.2) would cause Devon to be entitled to a
deduction in respect of other amounts in its cumulative eligible capital that
are totally unrelated to the Surrender Payments. The Federal Court of Appeal
was clear in Potash that there will be a new issue if a taxpayer attempts to
deduct additional amounts even if those amounts fall within the same category
of deductions. Based on the foregoing, I find that Devon's paragraph 20(1)(b)
and subsection 111(5.2) alternative argument is a new issue that cannot be
raised at appeal.
20 In
reaching this conclusion on the paragraph 20(1)(b) and subsection
111(5.2) argument, I have given consideration to Devon's submission that the
Supplemental Memo had the effect of amending its Notices of Objection to
include the argument. I do not accept Devon's position. There is no mechanism
in the Act that would permit a large corporation to amend its Notice of
Objection. Reading in such a mechanism would defeat the entire purpose of the
large corporation rules.
Did Devon Adequately Describe the Relief Sought?
21 Having
concluded that Devon reasonably described the sole issue in its Notices of
Objection and that its section 9 and paragraph 20(1)(e) arguments were
merely reasons, I must now consider whether Devon adequately described the
relief sought. Paragraph 165(1.11)(b) requires a large corporation to
specify the relief in respect of each issue, not in respect of each reason.
However, the Respondent argues that because the relief sought would be
different for each reason, Devon should nonetheless have specified that the
issue itself could result in different potential relief.
22 Devon did not describe the relief sought in respect of its paragraph 20(1)(e)
argument. Devon's Notices of Objection did not specify any relief other than
allowing the deduction in full. The Respondent submits that the total relief
sought under paragraph 20(1)(e) is greater than the relief sought under
section 9 and that Devon should not be permitted to increase the amount of
relief sought. Devon acknowledges that the relief sought under paragraph 20(1)(e)
would be greater over a 5 year period but submits that the relief sought in the
years in question is far less than the relief sought under its section 9
argument. Devon argues that the relief for the purposes of subsection 165(1.11)
is the relief in the year in question, not the relief over time. I accept Devon's position on this point. I find that the relief sought under the paragraph 20(1)(e)
argument is less than the relief sought under the section 9 argument.
23 In Potash,
the Federal Court of Appeal implicitly accepted that if a certain amount of
relief is specified in a Notice of Objection, a less favourable amount of relief
is automatically included:
... I prefer to leave open the question
of whether the obligation to “specify in respect of each issue, the relief
sought, expressed as the amount of a change in a balance (within the meaning
assigned by subsection 152(4.4)) or a balance of undeducted outlays, expenses
or other amounts of the corporation” necessarily binds a large corporation
to the stated amount, or a less favourable amount. It is arguable that
there may be situations where an amendment to a notice of appeal could be
permitted if the amendment goes only to quantum and does not entail the raising
of a new issue. (emphasis added)
24 This
approach is logical. If a large corporation's appeal involves numerous small
expenses some of which may ultimately be allowed and some of which may not, it
would be unreasonable to expect the large corporation to express its relief
sought in its Notice of Objection on an expense-by-expense basis. It would seem
to be sufficient if the large corporation simply stated the total relief
sought; it being understood that the relief would decrease for every expense it
was not permitted to deduct. Similarly, an absurd result would ensue if a large
corporation were expected to express alternative relief in a valuation case. I
cannot imagine that Parliament would have intended a large corporation to have
to state that it would like $X of relief if a certain asset was valued at
$4,000,000 (being the valuation favoured by the large corporation), $Y of
relief if the asset was valued at $3,999,999, $Z of relief if the asset was
valued at $3,999,998 and so on all the way down to whatever value the Minister
believed the asset to be worth.
[…]
Devon's Alternative Argument
27 As set out
above, Devon argues that if the Minister confirms a reassessment on a basis
that differs from the basis upon which a large corporation objected, then the
large corporation may appeal to court in respect of that new basis despite the
restrictions in subsection 169(2.1). As I have concluded that Devon was in
compliance with respect to its paragraph 20(1)(e) argument, I will only
consider this alternative argument in respect of the paragraph 20(1)(b)
and subsection 111(5.2) argument.
28 Parliament
has contemplated a situation where the Minister assesses a large corporation in
respect of certain issues, the large corporation objects to those issues and
then the Minister reassesses the same year but adds new issues. Subsection
165(1.14) and paragraph 169(2.1)(b) together allow the large corporation
to appeal to court in respect of the new issues despite the fact that those
issues were not described in the original Notice of Objection.
29 There
appears, however, to be a gap in the Act in the somewhat unlikely
situation where the Minister assesses a large corporation in respect of certain
issues, the large corporation objects to those issues and then the Minister
confirms the assessment, but on an entirely different basis than the basis of
the original assessment 12. I am unaware of anything in the Act that would
specifically allow the large corporation to appeal on the basis of the new
issues in this situation.
30 Devon submits that it is caught by the foregoing scenario. Devon says that, when the
Minister confirmed the reassessments, the Minister relied on paragraph 20(1)(b)
and subsection 111(5.2) as an alternative basis for the confirmation. Devon
therefore asks me to address the perceived gap in the Act by effectively
reading in to paragraph 169(2.1)(b) the ability for Devon to appeal in
respect of any alternative issue relied upon by the Minister in confirming the
reassessments.
31 While
there may be an argument to be made for that type of relief in a different
case, this is not an appropriate case to do so. This is not a case where the
Minister has abandoned the original basis of assessment and substituted a new
one. The Minister still maintains that its original basis of assessment is
correct. The Minister merely added the additional explanation regarding paragraph
20(1)(b) and subsection 111(5.2) to address the points raised by Devon in the Supplemental Memo. In fact, the Notices of Confirmation only mention those
provisions when describing the arguments raised by Devon. The stated reason for
confirming the reassessments is paragraph 18(1)(b). While the Reports on
Objection make it clear that the Minister considered Devon's argument, they in
no way indicate that the Minister abandoned the Minister's original argument.
[Emphasis
added.]
C. Analysis
[50]
There appears to be very little difference in
the texts of the ITA’s large corporation rules and the ETA’s
specified person rules. The differences do not appear at all material. There is
no apparent reason to approach or apply the two sets of rules differently.
There are cases decided under each set of rules with no discernible differences
to the courts’ approach, analysis or application.
[51]
It can be noted that the English texts’
requirement that each issue be reasonably described is expressed in the French
version as each question to be settled must have a sufficient description.
While the provisions do not themselves set out what it is that the description
must be reasonable or sufficient enough to attain, the Federal Court of
Appeal’s decisions have settled this having regard to the purpose of the
provisions.
[52]
The two provisions in these rules, the mandatory
provision applicable to the notice of objection and the restrictive provision
applicable to appeals to the Court, are part of a single regime and should be
read together. However, the provision applicable to the contents of the notice
of objection is itself clearly mandatory in its own right. It need not only
ever be a question of whether the issue in the notice of appeal is the same as
the issue in the notice of objection, though that is how a concern may most
often present itself.
[53]
Thus, it is possible that a Notice of Objection
will not comply with the requirement to reasonably or sufficiently describe any
issue or question, with the result that no issue whatsoever could be raised on
appeal to the Court. That is essentially the Respondent’s position on this
motion. However, as is evidenced from Justice Webb’s decision in Bakorp,
a court can be expected to seek to find and identify the issue described in the
objection having regard to the contents of the objection read as a whole,
including references therein to the taxpayer’s filings and to the issues in the
reassessment, and having regard to the quantification of the issue therein.
[54]
A taxpayer subject to the large
corporation/specified person rules is not expected or required to describe the
issue exactly, it is only required to describe it reasonably or sufficiently.
What is reasonable will depend upon on each case’s particular facts as it
involves determining the degree of specificity needed for the Minister to know
each issue to be decided. That may be done by referring to the disputed item(s)
in the same fashion as the Minister did when reassessing or auditing, as that
can be expected to give the Minister sufficient certainty of the issue objected
to. It may be done by specifying the particular elements of a defined tax term
that require determination by the Minister (Potash).
[55]
A sufficient description of an issue is one that
will allow the Minister to determine what is actually in dispute. A reasonable
description of the issue will allow for the quantification of the effect that
its resolution will have on the taxpayer. A reasonably described issue should
satisfy the purpose of the provisions - that the Minister know the nature and
quantum of disputed taxes at the objection stage. In particular circumstances,
a reasonable description may require the taxpayer to commit to a particular
interpretation or application of a provision in the ITA or the ETA
(Bakorp).
[56]
A description of an issue can be reasonable and
sufficient even if it does not refer to all of the facts and reasons (BC
Transit, CIBC and Devon).
[57]
It is the Minister who needs to be able to
understand the scope and quantum of the issue from its description in the
notice of objection. The reader of a notice of objection who should reasonably
be able to understand or recognize the particular issue from the contents of
the notice of objection is not the hypothetical reasonable Canadian, nor is it
a Tax Court judge. It is the Minister, in the form of the CRA, a party with
considerable pre-existing knowledge of which matters formed part of the reassessment
objected to, and who in most cases has had communications with the taxpayer
thereon.
[58]
Applying this approach to the facts of this
case, I am wholly satisfied that the two issues raised by the Appellant in the
impugned paragraphs of its Amended Notice of Appeal are the same issues that
were reasonably and sufficiently described by Ford Canada in its Notice of
Objection.
[59]
The evidence in this case wholly satisfies me
that both objectively and subjectively the Minister should have and did
understand from the Notice of Objection filed by the Appellant that these two
specific issues which had been specifically raised during the audit which gave
rise to the reassessment, were being objected to.
[60]
The description of the unclaimed ITC issue from
the Notice of Objection is set out above. It identifies this issue as relating
to input tax credits on taxable purchases in the relevant period that had been
identified as unclaimed and that had been requested by the Appellant of the CRA
auditor to be allowed as a credit before reassessing net tax.
[61]
The description of the foreign exchange
adjustment issue in the Notice of Objection is set out above. It identifies
this issue as relating to the conversion into Canadian dollars of all of its
foreign currency denominated supplied inputs in the period for purposes of
computing its ITCs. It specifies the precise methodology Ford Canada sought to have used, and that this had been requested by the Appellant of the CRA auditor to
be allowed as an additional credit before reassessing net tax.
[62]
The Notice of Objection describes Ford Canada’s rights to have its unclaimed ITCs recognized and to use the appropriate foreign
exchange conversion methodology in computing ITCs on foreign denominated inputs
as part of its right to be audited to net tax.
It identifies a precise amount – to the penny – for each of these issues. It
does not specifically describe each individual supplied input transaction for
either of these issues.
[63]
The unclaimed ITC issue description in the
Notice of Objection identifies “ITCs” on “taxable supplies” as the element of “net tax” that needs to be determined. The foreign
exchange adjustment issue description in the Notice of Objection also
identifies “ITCs” on inputs supplied as the
element of “net tax” that needs to be determined
in the context of all of its non-Canadian dollar denominated inputs. These are
very much comparable to the description of the issue in BC Transit, in CIBC
and in Devon. They appear to clearly satisfy the Federal Court of Appeal’s
comments in paragraph 24 of Potash, above.
[64]
These descriptions are also very comparable to
the language of the reassessment being objected to which refers to “Net Tax Assessed” and “Adjustments
to ITCs”. In this particular case, the CRA would not have referenced the
unclaimed ITC issue or the foreign exchange adjustment issue in its Statement
of Audit Adjustments as no adjustment was made for them.
[65]
These descriptions are also very comparable to
the language of the Minister’s Notice of Decision.
[66]
According to the Notice of Objection, Ford Canada had informed the CRA auditor that the unclaimed ITCs and the foreign exchange
adjustment had been identified and requested that they be taken into
consideration before the audit was completed and the reassessment issued. This
is confirmed in the Report on Objection.
[67]
The Objection also says there was ongoing
correspondence between Ford Canada and the CRA audit manager regarding Ford Canada’s request that the unclaimed ITCs and the foreign exchange adjustment be taken into
account in finalizing the audit. None of the evidence discloses how that was
done.
[68]
There may or may not have been a detailed
listing of the underlying transactions provided at the audit stage. Ford Canada’s audit stage request may or may not have referred to an aggregate amount of
$760,195.71 or $1,095,712.24. That is not in the evidence introduced by either
party on this motion. However, the Seenan Affidavit attaches numerous letters
CRA appeals received from Ford Canada after the Notice of Objection was filed.
None of these provide additional information with respect to the unclaimed ITC
matter or the foreign exchange adjustment. There is no evidence that Appeals
requested or needed any additional information with respect to the unclaimed
ITCs or the foreign exchange adjustment claimed in the Notice of Objection. In
any event, on the facts of this particular case it is not necessary that a
determinative list of each individual input transaction over the multi-year
audit period for which Ford Canada had not yet claimed an ITC, or of all of
Ford Canada’s US dollar and other foreign denominated supply inputs over this
period, have been provided at audit. That is beyond the level of reasonable and
sufficient detail required in the description of an issue of the nature involved
here. See Justice Jorré’s comments in CIBC above. Such a requirement
would, given the description of these two issues in Ford Canada’s Notice of Objection, exceed what is required according to the Federal Court of Appeal
decisions in Potash and Bakorp.
[69]
In the Notice of Objection, Ford Canada specifies unclaimed ITCs of $760,195.71. Appeals allowed $261,809.42 of those in the
further reassessments as described in the Notice of Decision. The entire
remainder of what Ford Canada describes as unclaimed ITCs being $498,386, are
claimed in the Amended Notice of Appeal. In the Amended Notice of Appeal, Ford Canada specifies additional ITCs of $1,095,712.24 in respect of the change in its foreign
exchange conversion methodology. This is also the precise amount used by Ford Canada in describing the issue in its Amended Notice of Appeal.
[70]
Most significantly, it is evident in this
case from the Seenan Affidavit that the Appeals Officer having carriage of the
Objection (i) could understand and summarize the issues raised in Ford Canada’s
Objection; (ii) did not seek additional information from Ford Canada relating
to the unclaimed ITCs issue or the foreign exchange adjustment issue; and (iii)
was able to consider these two issues and all of the others raised in the Objection
and deal with them. He went on to write the Report on Objection and the Notice
of Decision, and further reassessments followed. The Appeals Officer’s Report
on Objection indicates he referred the unclaimed ITCs of $760,195.71 to the
Audit Division of the Hamilton Taxation Services office to be reviewed. This
was done to a level of detail that resulted in further ITCs being allowed in
the specific amount of $261,809.42. The Notice of Decision says that this
specific adjustment was allowed based upon “a review of
the facts and documents” submitted.
[71]
The Report on Objection
indicates the Appeals Officer also referred the foreign exchange adjustment
issue to the Audit Division of the Hamilton Tax Services office to review the
additional ITC claim of $1,095,712.00. That
audit review was done and recommended that the specific amount of $849,286.72
in additional ITCs be allowed as that would result from the use of the
conversion rate method acceptable under the ETA. Appeals then further
reviewed this issue and decided not to follow the recommendation received upon
the conclusion of the Audit Division review requested on basis of legal principles,
not the insufficiency of the information provided to CRA.
D. Conclusion
[72]
For the foregoing reasons, the Respondent’s
motion to strike portions of the Appellant’s Amended Notice of Appeal is
dismissed and the Respondent will be allowed 60 days from the date hereof to
file its Reply to the Amended Notice of Appeal.
[73]
This appears to be a case of the Respondent
trying opportunistically to use the large corporation/specified person rules,
whose purpose and design are to protect and shield the fisc, as a sword against
the taxpayer. This is also a case where there is no dispute about the factual
evidence on the motion. The existing jurisprudence from this Court and the
Federal Court of Appeal on the question involved in this motion of what is a
reasonably described issue for purposes of the large corporation/specified
person rules is quite clear, recent and consistent.
[74]
In such circumstances, costs of this motion are
awarded to the Appellant, payable by the Respondent in any event of the cause.
If the parties cannot agree on the amount of costs within 30 days, the parties
are to have a further 30 days to make written submissions thereon.
Signed at Ottawa, Canada, this 18th day of February 2015.
“Patrick Boyle”
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