Date:
20020923
Docket:
2000-2864-IT-G
BETWEEN:
ANCHOR
POINTE ENERGY LTD.,
Applicant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Order
Rip,
J.
[1]
The applicant (appellant) Anchor Pointe Energy Ltd. ("Anchor
Pointe")
has brought a motion to this Court under section 53 of the Tax
Court of Canada Rules (General Procedure) ("Rules") for an order striking out certain paragraphs in the
respondent's Reply to the appellant's Notice of Appeal
("Reply") fromreassessments of tax for 1991. The applicant wants to
expunge paragraphs alleging facts that the Minister of National
Revenue ("Minister") was purported to have assumed in making the reassessments
under appeal and stating new reasons adopted by the Minister for
the reassessments after the reassessments were issued.
[2]
On December 4, 1991, five corporations amalgamated to create the
appellant. In October 1991, each
predecessor company purchased seismographic material
("seismic data") from various vendors, and in preparing
their respective tax returns for their 1991 taxation year, each
claimed a Canadian Exploration Expense ("CEE") within
the meaning of subsection 66.1(6) of the Income Tax Act
("Act").
[3]
By reassessment, notice of which is dated February 17, 1994, the
Minister reduced the CEE deduction of API and by reassessments,
notices of which are dated March 14, 1994, the Minister reduced
the CEE deductions of the four other predecessor corporations,
all for the 1991 taxation year.
[4]
The applicant filed the affidavit of Mr. Ola S. Juvkam-Wold,
director and president of the applicant. Attached to the
affidavit were copies of 14 documents. In a letter dated
September 17, 1993, officials of Revenue Canada, at the time,
proposed reassessing API on the basis of a determination of the
fair market value of certain seismic data. The report of the
auditor for Revenue Canada, dated December 15, 1993, establishes
that the reassessment was based on the fact that "the
valuation reports provided by [the
taxpayer] are not representative of the [fair market value] of
the seismic data as at October 28, 1991".
[5]
Notices of Objection to the reassessments for 1991 were filed by
the applicant on or about March 10, 1994 with respect to API and
on or about March 14, 1994 with respect to the other four
predecessor corporations.
[6]
Apparently, by agreement between the applicant and the tax
authority, the objections were held in abeyance awaiting the
decision of the Federal Court of Appeal in the case of Global
Communications Limited v. The Queen. The decision of the
Federal Court of Appeal was rendered on June 18, 1999. In short,
the Federal Court of Appeal held that seismic data purchased for
the purpose of resale or licensing does not qualify as CEE within
the meaning of paragraph 66.1(6)(a) of the
Act.
[7]
The Minister then confirmed the reassessments "based on the
findings in the Global case", according to the Canada
Customs and Revenue Agency ("CCRA") Report on Objection
or Appeal, dated March 17, 2000. The Minister was of the view
that there was no evidence that any of the seismic data purchased
by the predecessor corporations was to be used by the
corporations themselves for the purpose of oil and gas
exploration.
[8]
Had the tax authority originally reassessed applying the reasons
in the Global Communications decision, it would have
denied all CEE deductions claimed by the predecessor
corporations. However, the CCRA permitted the CEE deductions,
denying only the portion of the CEE deduction that related to the
cost of the seismic data that was above fair market value. The
author of the Report on Objection or Appeal acknowledges
"our view of the law that upward reassessments to statute
barred years are not to be done. This means we cannot increase
the amount of tax payable . . . [w]e are prohibited from issuing
a reassessment to disallow the CEE allowed by audit . . . for the
1991 taxation year".
[9]
The Notifications of Confirmation ("Notification" or
"Notifications") sent to the applicant stated that the
reassessments were confirmed on the basis that:
Seismic data purchased
for the purpose of resale or licensing does not qualify as
Canadian exploration expense ("CEE") within the meaning
of paragraph 66.1(6)(a) of the Act.
In addition, even if the
activities satisfied the purpose test set out in paragraph
66.1(6)(a) of the Act, you have failed to establish that the
seismic data in issue had a fair market value as claimed of
$328,000.
[10] In other
words, the main reason the reassessments were confirmed was
because of the reasons in Global Communications; the
original basis of the reassessments became the alternative basis
for the confirmations. The applicant appealed and in its Notice
of Appeal alleged that the predecessor corporations did not pay
an excessive amount for the seismic data. The applicant also
denied the primary basis of the confirmations stating that the
seismic data was purchased "with the intention that it would
be used for the purpose of determining the existence, location,
extent and quality of accumulations of petroleum and national gas
in Canada, and it has been used for that purpose". The
applicant also described the exploration activities undertaken by
it and its predecessor corporations in connection with the
seismic data.
[11]
The applicant requests that subparagraphs 10(q), (r) and (z),
paragraph 11 and subparagraph 12(b) of the Reply be expunged. The
applicant also wants subsections 66.1(6) and 66(3) of the
Act be expunged from the several statutory provisions the
respondent relies on in its defence of the appeal in paragraph 13
of the Reply. The grounds relied on by the respondent in
paragraphs 15 and 16 of the Reply should also be expunged,
applicant's counsel added.
[12] In the
Reply, the Deputy Attorney General of Canada declared, at
subparagraphs 10(q), (r) and (z), that:
In
reassessing, the Minister assumed the following facts:
. .
.
(q) API, APII, APIII, APIV and APV
did not purchase the seismic data for the purpose of determining
the existence, location, extent or quality of an accumulation of
oil or gas;
(r) the seismic was not used
for exploration purposes;
. .
.
(z) the seismic data purchased
by API, APII, APIII, APIV and APV does not qualify as a Canadian
Exploration Expense ("CEE") within the meaning of s.
66.1(6)(a) of the Income Tax Act (the
"Act").
[13]
Paragraph 11 of the Reply states:
In answer to the Notice of Appeal as a whole, he [the Attorney General of Canada] says that the Minister incorrectly reassessed
the 1991 taxation years of API, APII, APIII, APIV and APV by
allowing any deduction for CEE. He now says that:
(a) Any amounts
incurred in the purchase of the seismic data were not incurred by
API, APII, APIII, APIV or APV for the purpose of determining the
existence, location, extent or quality of oil or gas, but were
incurred for the purpose of obtaining a tax deduction;
and
(b) by permitting
deduction of amounts equivalent to the fair market value of the
seismic data purchased by API, APII, APIII, APIV and APV, the
Minister has understated the income of API, APII, APIII, APIV and
APV.
[14]
In Section B of the Reply, entitled "Issues to be
Decided", at paragraph 12(b), the Attorney General
submits that:
The issues
in this appeal are whether:
(a) . .
.
(b) the
Appellant's predecessors are entitled to CEE deductions, and
if so, how much.
[15]
The applicant submits that the Minister never assumed the facts
in subparagraphs 10(q), (r) and (z) when he made the
reassessments in 1994. Thus, these assumptions of fact and the
related portions of the Reply with respect to the "issues to
be decided" and the "statutory provisions" also
should be expunged.
[16]
The applicant also states that if the assumptions were validly
made, they purport to reassess the applicant on an entirely
different basis than the reassessments under appeal and were made
outside the "normal reassessment period"; the said
reassessments, to that extent, are accordingly barred by the
effluxion of time.
[17]
Ordinarily I would have adjourned this application to have it
heard by the trial judge. However, the parties are presently at
loggerheads with respect to the discovery of Mr. Juvkam-Wold. If
I strike out those provisions of the Reply requested by the
applicant, Mr. Juvkam-Wold may not be required to
answer questions relating to whether the cost of the seismic data
qualified as CEE. The affidavit of Mr. Juvkam-Wold includes a
letter dated May 31, 2002 from respondent's counsel with
respect to the adjournment of the discovery of
Mr. Juvkam-Wold and to which is attached a list of questions
referring to 38 of the appellant's documents and areas in
which seismic data was purchased. Applicant's counsel advises
that his client has 25 cartons of documents that may contain the
information sought by the Crown. Counsel's view is that the
CCRA is attempting to audit anew the applicant and its
predecessor's corporations. The original audits related to
valuation and the valuation basis of the reassessments is no
longer the primary basis of the reassessments. The applicant
fears that the CCRA now wishes to audit anew through the
discovery process applying the reasoning in the Global
Communications decision. The Crown desires to do now what it
should have and could have done before 1994, according to the
applicant. This may be costly to the applicant.
[18] Crown's
counsel argues that the respondent only wishes to ask questions
on the applicant's own documents, that is, documents included
in the appellant's List of Documents. This is not a question
of an audit. The respondent has a right to ask questions relating
to the documents because they relate to an issue under appeal and
the applicant has an obligation to answer them, she
declared.
[19] Section 53
of the Rules provides that:
The Court
may strike out or expunge all or part of a pleading or other
document, with or without leave to amend, on the ground that the
pleading or other document,
(a) may prejudice or delay the fair hearing of the
action,
(b) is scandalous, frivolous or vexatious, or
(c) is an abuse of the process of the Court.
[20]
Respondent's counsel argues that none of the grounds to
strike or expunge pleadings in section 53 of the Rules are
present in the Reply. In her view, the applicant wishes these
portions of the pleading to be struck so as to avoid replying to
questions as to whether it is eligible for CEE.
[21] Counsel for
the respondent acknowledges that the Minister reassessed to allow
a portion of the CEE claimed by the applicant's predecessors
on the basis that the fair market value of the seismic data
acquired was less than the amount claimed, and disallowed the
excess.
[22] However,
respondent's counsel argues that where a Notice of Objection
has been filed, the Minister is not bound by the normal
reassessment period. In her view, the filing
of an objection results in a continuation of the reassessment
process which, on the facts before me, she states, ended when the
Minister issued the respective Notifications. She relies on the
comments of Cattanach J. in Parsons et al. v. M.N.R., to the effect that the
reconsideration of an assessment by the Minister following the
filing of a Notice of Objection is not an appeal but
"continues to be part and parcel of the assessment
process".
[23] The
assumptions in issue, respondent's counsel acknowledges,
"were made by the Minister in reconsidering his
reassessments and were made prior to the confirmation". The
limitation period for the reassessments had not expired at the
time the Minister adopted the reasoning of the Federal Court of
Appeal in Global Communications and confirmed the
reassessments. The principle enunciated by the Supreme Court of
Canada in The Queen v. Continental Bank of Canada, that the Crown is not
permitted to advance a new basis for reassessment after the
limitation period has expired, does not apply to the facts at
bar, counsel argued.
[24] Once a
Notice of Objection is filed, the Minister, in accordance with
subsection 165(3) of the Act, must take one of four
actions after reconsidering an assessment: vacate the assessment,
confirm the assessment, vary the assessment or reassess. Each is
a separate and distinct process. While the confirmation of an
assessment may be part of the assessment process, it would be a
distortion of language to call a confirmation an assessment.
Confirmation is the action of ratifying or verifying an
assessment, without an assessment there can be no confirmation of
the assessment. The Minister first must assess an amount of tax
and then, if the taxpayer objects, the Minister may confirm that
the assessed tax amount is correct. When the Attorney General
states in pleadings that "in assessing, the Minister assumed
the following facts . . ." it is the facts the Minister
assumed "in assessing" that must follow, not facts he
or she assumed subsequently on reconsidering the assessment in
the objection or appeal stage.
[25] Associate
Chief Judge Bowman commented in Mungovan v. The Queen, that "assumptions
are not quite like pleadings in an ordinary lawsuit. They are
more in the nature of particulars of the facts on which the
Minister acted in assessing. It is essential that they be
complete and truthful." In an appeal the taxpayer is
fighting an assessment of money. In Johnston v. M.N.R., the Supreme Court of
Canada explained that:
. . . since
the taxation is on the basis of certain facts and certain
provisions of law either those facts or the application of the
law is challenged. Every such fact found or assumed by the
assessor or the Minister must then be accepted as it was dealt
with by these persons unless questioned by the appellant. If the
taxpayer here intended to contest the fact . . . he should have
raised that issue in his pleading, and the burden would have
rested on him as on any appellant to show that the conclusion
below was not warranted. . . . but the onus was his to demolish
the basic fact on which the taxation rested.
[26] The Crown
has a serious obligation to set out honestly and fully the actual
assumptions upon which the Minister acted in making the
assessment, whether they support the assessment or not. Pleading
that the Minister assumed facts that he could not possibly have
assumed is not a fulfilment of that obligation.
[27]
Subparagraphs 10(q), (r) and (z) of the Reply, ought to be
expunged. It is not true that "in assessing, the Minister
assumed" the facts the Attorney General stated the Minister
assumed in these provisions. This is, to my mind, an abuse of the
process of the Court. The assessment process may include both the
making of the assessment and the reconsideration of the
assessment that may lead to a confirmation of the assessment but reference to an
assessment itself is a reference to an administrative act
distinct from a confirmation.
[28] I am more
than somewhat disturbed that the Attorney General constantly
includes conclusions of law among the facts purportedly assumed
by the Minister in assessing. Subparagraph 10(z) is one of these
conclusions of law that has no place among the Minister's
assumed facts and should be expunged in any event.
[29] The Crown
is not restricted in its Reply to alleging only facts the
Minister assumed in assessing, as is its tendency. In accordance
with subsection 49(1) of the Rules, a Reply shall state
not only "the findings or assumptions of fact made by the
Minister when making the assessment" but also "any
other material fact". There is no reason the Attorney
General could not have stated the facts in subparagraphs 10(q)
and (r) elsewhere in the respondent's Statement of Facts of
the Reply.
[30] The
applicant's application to expunge the other portions of the
Reply must fail.
[31] Until the
Supreme Court decision in Continental Bank, supra,
the general view was that the Crown could plead new reasons to
support an assessment, but it would bear the onus of proof
regarding any facts not assumed at the time of the assessment.
[32]
Continental Bank of Canada was assessed tax for several reasons.
Before the Supreme Court, the Crown argued for the first time
that the taxpayer had sold depreciable leasing assets or that the
taxpayer was otherwise liable for recaptured capital cost
allowance under subsection 88(1) of the Act. No evidence
relating to the Minister's new argument was adduced at trial.
Bastarache J. held that the Minister should not be permitted to
raise new arguments in the Supreme Court "simply because
other arguments failed in the courts below". This is not new law;
parties cannot raise new arguments in an appellate court in
respect of which the other party had no opportunity to call
evidence at trial. He concluded that
"to allow the appellant to proceed with its new assessment
without the benefit of findings of fact made at trial would
require this Court to become a court of first instance with
regard to the new claim". McLachlin J., as she
then was, also refused to entertain an argument raised for the
first time in the Supreme Court. She agreed that the Minister
should not be allowed to advance a new basis for a reassessment
after the limitation period has expired.
[33] In
Continental Bank, Bastarache J. approved the reasons of
the Federal Court in The Queen v. McLeod. The facts before me
are quite different from those in McLeod, where Collier J.
rejected the Crown's motion for leave to amend pleadings to
include a new statutory basis for the assessment. He held that
the Crown's attempt to plead a new section of the Act
was, in effect, an attempt to change the basis of the assessment
appealed from and "tantamount to allowing the Minister to
appeal his own assessment, a notion which has specifically been
rejected by the courts". In the application at bar there has
been no application by the Crown to amend pleadings to change the
basis of the assessments.
[34] In any
event, as a result of Continental Bank, Parliament enacted
subsection 152(9) "to ensure that the Minister of National
Revenue may advance an alternative argument in support of an
income tax assessment after the normal reassessment period has
expired".
[35] Subsection
152(9) reads as follows:
|
The
Minister may advance an alternative argument in support of
an assessment at any time after the normal reassessment
period unless, on an appeal under this Act
|
Le ministre peut avancer un
nouvel argument à l'appui d'une cotisation
après l'expiration de la période normale
de nouvelle cotisation, sauf si, sur appel interjeté
en vertu de la présente loi:
|
|
|
|
|
(a) there is relevant evidence that the
taxpayer is no longer able to adduce without the leave of
the court; and
|
a) d'une
part, il existe des éléments de preuve que le
contribuable n'est plus en mesure de produire sans
l'autorisation du tribunal;
|
|
|
|
|
(b) it is not appropriate in the circumstances
for the court to order that the evidence be
adduced.
|
b)
d'autre part, il ne convient pas que le tribunal
ordonne la production des éléments de preuve
dans les circonstances.
|
[36] The
limitations found in paragraphs 152(9)(a) and (b),
according to the Technical Notes of the Department of Finance,
"are intended to import the Court protection afforded to
taxpayers that an alternative argument cannot be advanced to the
prejudice of the right of a taxpayer to introduce relevant
evidence to rebut the argument".
[37]
Applicant's counsel
acknowledges that by virtue of subsection 152(9) of the
Act the Crown "can raise a new, that is alternative
ground and in doing so allege new facts and submit additional
statutory provisions to support an assessment even after the
expiration of the normal assessment period", but adds that
the Crown cannot raise a new basis to assess the taxpayer to tax
without issuing a new assessment within the normal reassessment
period.
[38] The term
"normal reassessment period" for a taxpayer is defined
in subsection 152(3.1):
|
For
the purposes of subsections (4), (4.01), (4.2), (4.3), (5)
and (9), the normal reassessment period for a taxpayer in
respect of a taxation year is
|
Pour l'application des
paragraphes (4), (4.01), (4.2), (4.3), (5) et (9), la
période normale de nouvelle cotisation applicable
à un contribuable pour une année
d'imposition s'étend sur les périodes
suivantes:
|
|
(a) where
at the end of the year the taxpayer is a mutual fund trust
or a corporation other than a Canadian-controlled private
corporation, the period that ends 4 years after the earlier
of the day of mailing of a notice of an original assessment
under this Part in respect of the taxpayer for the year and
the day of mailing of an original notification that no tax
is payable by the taxpayer for the year; and
|
a) quatre ans
suivant soit le jour de mise à la poste d'un
avis de première cotisation en vertu de la
présente partie le concernant pour
l'année, soit, s'il est antérieur, le
jour de mise à la poste d'une première
notification portant qu'aucun impôt n'est
payable par lui pour l'année, si, à la
fin de l'année, le contribuable est une fiducie
de fonds commun de placement ou une société
autre qu'une société privée sous
contrôle canadien;
|
|
(b) in any
other case, the period that ends 3 years after the earlier
of the day of mailing of a notice of an original assessment
under this Part in respect of the taxpayer for the year and
the day of mailing of an original notification that no tax
is payable by the taxpayer for the year.
|
b) trois ans
suivant le premier en date de ces jours, dans les autres
cas.
|
[39] The
Minister is restricted by subsection 152(4) of the Act
from reassessing or making additional assessments after the
taxpayer's "normal reassessment period", as defined
in subsection 152(3.1). In certain cases, however, the
reassessment record may be extended by three years to either six
or seven years to take into account the effect of a deduction
claimed in respect of losses, tax credits or other deductions
carried back from later taxation years, for example: paragraph
152(4)(b).
[40] Subsection
152(4.01) limits the circumstances in which the Minister can
reassess where a reassessment to which paragraphs
152(4)(a) or (b) applies is made beyond the
taxpayer's normal reassessment period.
[41] When a
taxpayer objects to an assessment the Minister is to reconsider
the assessment with all due dispatch in accordance with
subsection 165(3) of the Act. Subsection 165(3)
states:
|
On
receipt of a notice of objection under this section, the
Minister shall, with all due dispatch, reconsider the
assessment and vacate, confirm or vary the assessment or
reassess, and shall thereupon notify the taxpayer in
writing of the Minister's action.
|
Sur réception de
l'avis d'opposition, le ministre, avec diligence,
examine de nouveau la cotisation et l'annule, la
ratifie ou la modifie ou établit une nouvelle
cotisation. Dès lors, il avise le contribuable de sa
décision par écrit.
|
[42] The
Minister must consider the facts alleged in the Notice of
Objection as well as any statutory provisions relied on by the
taxpayer. The Minister must also take into account any case law
that has been decided after the issuance of the assessment.
Surely, if case law is in favor of the taxpayer, a new assessment
ought to be issued. On the other hand, if new case law favors the
fisc, then the assessment ought to be confirmed. The
Minister's hands should not be tied when considering an
assessment under objection. The objection stage grants the
opportunity to the Minister and the taxpayer, frequently for the
first time, to make their respective positions known. The
Minister may learn more about the issues that lead to the
assessment and may reassess, vary or vacate the assessment in
favor of the taxpayer or confirm the assessment because he or she
is satisfied the assessment was issued for proper reasons.
Indeed, the Minister may even have found greater support for the
assessment. If the Minister confirms the assessment, the Minister
gives the taxpayer the basis for the confirmation in the
Notification.
[43] While the
Minister considers the assessment the limitation periods in
subsections 152(4) and (4.01) are stayed: subsection 165(5).
Parliament recognizes that the Minister may have to vary or
vacate the assessment under objection or reassess or confirm the
assessment and the Minister should not have to fight a deadline.
However, since the confirmation is part of the assessment
procedure, it is only common sense that the limitations in
subsections 152(4) and (4.01), which include the normal
reassessment period, be suspended until one of the four actions
described in subsection 165(3), including a confirmation, is made
by the Minister.
[44] In the
application at bar, the Minister informed the applicant of the
basis of the confirmations. The applicant knew the basis of the
confirmation before litigation commenced. In its Notice of Appeal
the applicant answered to the basis of the confirmation contained
in the Notifications. Thus, it cannot be said that the applicant
is not in a position to advance the relevant evidence that the
expenses were incurred to acquire seismic data that qualify as
CEE. This is not a situation where the Minister is seeking to
substitute a reassessment because the first reassessment did not
succeed. The Minister's new
basis for the reassessments was determined as part of the
assessment process and was made within the normal reassessment
period of the taxpayer for the year. The limitations improved
under subsections 152(4) and (4.01) include both the normal
reassessment period and an extended period. These time limits do
not apply when a Notice of Objection has been filed. The
taxpayer's normal reassessment period for 1991 had not
expired. Thus, I need not concern myself with whether the basis
of the confirmations in issue was an alternative basis for the
reassessments or an alternative or new argument in support of the
reassessments.
[45] I see no
reason why the other provisions of the Reply that the applicant
wished to have expunged cannot remain. In the main, the facts set
out in these provisions are material facts or submissions related
to these facts. The Minister informed the taxpayer of the basis
of the confirmations of the reassessments, the applicant denied
the basis of the confirmations in its Notice of Appeal and during
the trial of the appeals the applicant will be able to adduce the
relevant evidence.
[46] At the
conclusion of her submissions, counsel for the Crown requested
that if the assumptions of fact in paragraph 10 of the Reply are
expunged, the Crown be given leave to amend the Reply to include
these facts "outside the assumptions". The
applicant's submissions related only to its application. I am
therefore reluctant to grant the Crown leave to amend without the
benefit of the applicant's representations. The respondent
should therefore obtain the consent of the appellant or seek
leave to amend pursuant to section 54 of the Rules. This
should be done as expeditiously as possible so that the
discoveries may continue without much further delay.
[47] Costs
shall be in the cause.
Signed at
Ottawa, Canada, this 23rd day of September 2002.
J.T.C.C.COURT
FILE
NO.:
2000-2864(IT)G
STYLE OF
CAUSE:
Anchor Pointe Energy Ltd. v. The Queen
PLACE OF
HEARING:
Ottawa, Ontario
REASONS FOR
JUDGMENT BY: The Honourable Judge Gerald
J. Rip
DATE OF
JUDGMENT:
September 23, 2002
APPEARANCES:
Counsel
for the Appellant: Craig C. Sturrock
Counsel
for the
Respondent:
Wendy Burnham
Deborah Horowitz
COUNSEL OF
RECORD:
For the
Appellant:
Name:
Craig C. Sturrock
Firm:
Thorsteinssons
27th Floor, 3 Bentall Centre
595 Burrard Street
Vancouver, British Columbia V7X 1J2
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-2864(IT)G
BETWEEN:
ANCHOR
POINTE ENERGY LTD.,
Applicant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Motion heard
on August 7, 2002, at Ottawa, Ontario, by
the
Honourable Judge Gerald J. Rip
Appearances
Counsel
for the Applicant: Craig C. Sturrock
Counsel
for the
Respondent:
Wendy Burnham
Deborah Horowitz
ORDER
Upon motion by counsel for the applicant to have certain portions
of the Reply to the Notice of Appeal expunged in accordance with
section 53 of the Tax Court of Canada Rules (General
Procedure);
Upon reading the Affidavit of Ola S. Juvkam-Wold,
filed;
And upon hearing what was alleged by the parties;
It is ordered that subparagraphs 10(q), (r) and (z) of the Reply
to the Notice of Appeal be expunged. Costs shall be in the
cause.
Signed at
Ottawa, Canada, this 23rd day of September 2002.
J.T.C.C.
Email this Content