Date: 20030128
Docket: 1999-5096(IT)G
BETWEEN:
POTASH CORPORATION OF SASKATCHEWAN
INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard on January 24, 2003 at
Toronto, Ontario, by
the Honourable Judge D.W. Beaubier
Counsel for the
Appellant:
Guy Du Pont
Counsel for the
Respondent:
Wendy Burnham
REASONS FOR ORDER
Beaubier, J.T.C.C.
[1] This motion by
the Appellant was heard at Toronto, Ontario on January 24,
2003.
[2] It is a motion
pursuant to Rule 54 of the Income Tax Act that leave be
granted to amend the Notice of Appeal to add claims of amounts
and to amend numbers already referred to, so as to increase
them.
[3] Subsections
165(1.11) and (1.12) apply to Notices of Objection by "large
corporations". The Appellant is a large corporation. The
subsections read:
165(1.11) 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
(a) reasonably
describe each issue to be decided;
(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
(c) provide
facts and reasons relied on by the corporation in respect of each
issue.
165(1.12)
Notwithstanding subsection (1.11), where a notice of objection
served by a corporation to which that subsection applies does not
include the information required by paragraph (1.11)(b) or
(c) in respect of an issue to be decided that is described
in the notice, the Minister may in writing request the
corporation to provide the information, and those paragraphs
shall be deemed to be complied with in respect of the issue if,
within 60 days after the request is made, the corporation submits
the information in writing to a Chief of Appeals referred to in
subsection (2).
Thereupon, subsection 169(2.1) applies to the
appeal by a large corporation. It reads:
169(2.1)
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
(b) an issue
described in subsection 165(1.14) where the corporation did not,
because of subsection 165(7), serve a notice of objection to the
assessment that gave rise to the issue
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.
[4] These subsections
derogate from and restrict the broad ability of taxpayers to file
a Notice of Objection to, and to appeal assessments. Generally
Canada Customs and Revenue Agency ("CCRA") has years in
which to assess a taxpayer. The taxpayer then has 90 days in
which to file a Notice of Objection. CCRA may then take years to
reassess, whereupon the taxpayer has 90 days in which to
file a Notice of Appeal. Those time limits apply to large
corporation appellants. As a result, in the Court's view, the
subsections quoted should be interpreted strictly.
[5] Subsection
165(1.11) states that the Notice of Objection
"shall":
(a)
1. "reasonably
describe" -
That is an objective standard which the
description is to meet. It need not be exact.
2.
"each issue" -
The issue is the legal matter which the
taxpayer contests with 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.
(b)
1. "specify ... the
relief sought" -
This paragraph contains a reference to
"balance" (within the meaning assigned by subsection
152(4.4)). In my view that reference assists in determining the
degree of specificity. Using 152(4.4), the taxpayer is to specify
whether the relief sought relates to its income, or its taxable
income, or its taxable income earned in Canada, or any loss of
the taxpayer, or the tax or other amount payable by, or any
amount of refundable or any amount deemed to have been paid, or
any amount deemed to have been an overpayment by the taxpayer.
There may be other relief to be sought. But the ones referred to
are stated in subsection 152(4.4).
2.
"expressed as an amount of change in a balance ... or a
balance ... of undeducted outlays, expenses or other amounts
..." -
The word "expressed" governs the
remainder of the paragraph. The first definition of
"express" in the Shorter Oxford Dictionary,
3rd Edition is:
The action of expressing; an instance of
this.
In other words, the "amounts", etc.
which the paragraph requires to be expressed are merely
examples.
3.
"Amount" is defined in the Income Tax Act to be
a sum of money. But "amount" is not final. Its first
usage in paragraph (b) is "the amount of a change in
a balance". The question which arises is: balance of what?
The "what" is the "relief" sought, and not
the exact amount. Moreover, in the course of the objection
process, the "amount" might very well change. It is not
a frozen figure.
4. Nor is
the French wording of paragraph (b) materially different
so as to vary the meaning ascribed herein to the English
wording.
5. If the
foregoing is not the case, the Notice of Objection could simply
state "relief sought" and then the
"amount".
(c) Thereupon, the
Appellant need not specify. It need only "provide facts and
reasons relied on ... in respect of each issue". It should
be noted that an amount or number is a fact.
[6] A large
corporation need only specify the relief sought in respect to
each issue. That is, the relief sought at the time of the
objection. It is often the case that after a Notice of Objection
has been filed and reassessed, the amount in dispute will
change.
[7] If the
reassessment is not satisfactory, the Appellant may appeal.
Subsection 169(2.1) permits the appeal:
1. only
with respect to
(a) an issue
described in 165(1.11)(a) ... and
2. only
with respect to the relief sought as specified in the Notice of
Objection.
[8] The Appellant has
appealed respecting its 1993, 1994, 1995 and 1996 taxation years.
The Notices of Objection are exhibited to the Affidavit of
Jan Reinhart, Chief of Appeals, dated January 17, 2003 as
Exhibit (Tabs G, H, I and J, respectively). Using the 1993
Notice (Exhibit G):
1. The
issues are described as -
I.
Resource Tax Reductions, for which Relief Sought is
a reduction in net income and a reduction in the non-capital
loss.
II.
Saskatoon Building Lease Expenses, for which Relief
Sought is a reduction in net income and a reduction in the
non-capital loss.
III. Part I.3,
Tax, for which Relief Sought "is a reduction in
the Part I.3 tax payable of $864,734.00 x .225% =
$1,945.66".
IV. Resource
Allowance, for which Relief Sought is a reduction in
"net income of the taxpayer of $323,405.69, which is 25% of
the miscellaneous income amounts, with a corresponding reduction
in the amount of non-capital loss".
[9] The other Notices
of Objection are similarly organized and phrased.
[10] In each year issue I
of Resource Tax Reductions was raised. The proposed
amendments respecting this include rental income of $29,565 in
1996; farm income of $518,497 in 1996; miscellaneous income of
various sums (e.g. Lanigan $26,062 and $49,567) in 1993 and
1995; and foreign exchange of $3,855,967 in 1995.
[11] The amendments
requested arose in part from a response to give undertakings from
a question in the Examination for Discovery of the
Appellant's officer to
Advise what amounts of income earned by
Potash Corporation of Saskatchewan Inc. during the years under
appeal were not included in its calculations of resource
profits?
As a consequence of this undertaking, the
Appellant determined that 1995 Foreign Exchange of
$3,855,967, should have been included in its calculations of
resource profits. The previous particulars in the Notice of
Objection for 1995 that relate to this are described in
paragraphs 9 and 10 of the Respondent's written
argument. They read:
9. The relief
sought in the Appellant's Notice of Objection for 1995 is as
follows:
Relief Sought
The relief sought is a reduction in the
1995 net income of the taxpayer of $3,821,473.20, which is the
sum of the resource allowance of $2,183,698.97 (25% of the total
of the miscellaneous income amounts), and the deduction for
earned depletion of $1,637,774.23 (25% of the total of the
miscellaneous income amounts minus the resource allowance).
The "miscellaneous income
amounts" were set out in the Statement of Facts as
follows:
Farm Income - $297,682.00, Rental Income -
$26,597.00,
Management Fee from Saskterra -
$708,320.00,
Management Fee from Transport -
$186,000.00,
Miscellaneous Income - $192,455.00,
Interest Income from Head Office (remaining 90%) - $2,825,581.00,
Interest Income from PCS Sales - $3,820,790.26, Port Lease -
$636,000.00, and New Brunswick Grant Income -
$41,370.64 for a total of
$8,734,795.90.
10. For
1995, the Appellant is now seeking to amend its Notice of Appeal
to claim relief based not on $8,734,795.90, but on
$12,590,762.90, which increases the relief sought by an
additional $963,991 (being 25% of the difference between
$8,734,795.90 and $12,590,762.90).
[12] 1995 was chosen as an
example because the Notice of Objection did not particularize the
title "Foreign Exchange" or include its number of
$3,855,967. Apparently the Issue and Relief Sought did not
trigger an inquiry from the Respondent under subsection
165(1.12). But it did bring about the question in the Examination
for Discovery. Respecting this matter, pursuant to
subsection 169(2.1), the Appellant "may so appeal only
with respect to the relief sought as specified by the corporation
in the notice".
[13] As described in
paragraph [11] hereof, the 1995 Notice of Objection asks for a
relief of "a reduction in the 1995 net income of the
taxpayer". That has not changed as a result of the proposed
amendment. Only the amount sought has changed.
[14] In the Reply to the
Notice of Appeal, the Respondent did not refer to the particulars
itemized in the Notices of Objection for 1995 as specified, or as
"relief". Rather, they are referred to as "amounts
identified". Moreover the assumptions made no reference to
the amounts. In the "D. Grounds Relied On and Relief
Sought", the global amounts for each year were
described.
[15] Paragraph
165(1.11)(b) requires the specifics at the time of the
Notice of Objection. Subsection 169(2.1) limits the requirement
in the appeal to the relief sought. It does not reverse the last
lines of (2.1) to read "only with respect to the amount of a
change of balance or a balance of undeducted outlays, expenses or
other amounts of the corporation as specified in the Notice of
Objection". That is because the amounts (etc.) will
almost always change during the objection process.
[16] Thus the general
issues to be decided and the relief sought in the Notice of
Appeal cannot be expanded upon. But, for example, the
"amount of a change", "balance of undeducted
outlays", "expenses", or "other amounts"
may be changed by the Appellant. Just as it might appeal a
reassessment and claim relief respecting a lesser amount, so it
may appeal and claim relief respecting a greater amount. At the
appeal level, a lawyer, or another professional adviser may be
instructed for the first time and only then might the Appellant
(even a large corporation) realize that it has a rightful claim
to a greater amount.
[17] It may very well be
that in a long assessment process, the law will change. If the
law changes (as the Income Tax Act may and has, even
retroactively) it can be to the Minister of National
Revenue's advantage, so that stretching out the assessment
process works to the taxpayer's detriment, as it might work
to its advantage. There is nothing unfair if it changes to the
Appellant's advantage. (Moreover the Minister of National
Revenue has the right to exercise control over possible extended
time periods by proceeding expeditiously.) The extended time
periods can be to the taxpayer's disadvantage from another
point of view. A large corporation may have a problematic balance
sheet with a large potential tax liability over a number of
fiscal years. That can affect its borrowing power, its bond
rating and the value of its shares. In some circumstances, it
could put it out of business.
[18] The chronology of the
appeal is as follows:
1.
1999 - Notice of Appeal filed.
April
1, 2000 - Reply filed.
2. May
14, 2002 - Status Hearing occurred.
3.
September 18 and 19, 2002 - Respondent's counsel
examined the Appellant's officer for Discovery. (The Status
Hearing's Order for Examinations for Discovery had an expiry
date of September 30, 2002.) Respondent's counsel
asked specific questions which resulted in undertakings to
provide information.
4. When
preparing the undertakings, the numbers omitted were discovered
to have application to the Relief claimed. The Court takes note
of the fact that Respondent's counsel was able, from the
material she had, to divine the possibility that the items or
numbers now in dispute might exist.
5.
October 31, 2002 - The undertakings had to be given.
6.
November 5, 2002 - Settlement discussion occurred between
the parties which referred to the numbers and items now in
dispute.
7.
November 15, 2002 - An offer of settlement was made by the
Appellant to the Respondent which included the numbers in
dispute.
8.
January 3, 2003 - Respondent rejected the offer.
9.
January 14, 2003 - This motion was made.
10. February 6,
2003 - Trial is to occur.
[19] The Appellant's
counsel submitted written argument, the essentials of which
are:
1. There
is no surprise.
2. It is
just that the amendments occur.
3. The
Bill of Rights, paragraph 2(e) entitles the
Appellant to a "fair hearing".
It is not necessary to deal with the Bill
of Rights argument.
[20] On the evidence
described, the Respondent is not surprised.
[21] If the amendments are
not granted, the Appellant will lose the right to proceed with
these claims and/or will incur further expense relating to them.
Moreover, they are integral to the claims before the Court. For
this reason, in the words of Bowman, J. in Continental Bank
Leasing Corporation v. The Queen, 93 DTC 298 at 302, and
according to the common law, the amendments should be allowed in
"fairness, common sense and the interest that the Courts
have that justice be done". That is the case here.
[22] The Order granting the
motion will issue accordingly.
[23] In the event that the
motion was to be granted, Respondent's counsel indicated that
other matters including Examination for Discovery and a request
for adjournment of the hearing would arise. Therefore, in view of
the above findings, this motion is adjourned to a telephone
conference call to occur at 1:00 p.m. Ottawa time, Thursday,
January 30, 2003 for further argument and an order respecting
matters of procedure and further scheduling arising from these
Reasons for Order.
Signed at Saskatoon, Saskatchewan, this 28th day of January,
2003.
J.T.C.C.
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