REASONS FOR ORDER
D’Auray J.
I. Background
[1]
In this case, the applicant has filed an
application with the Court pursuant to section 58 of the Tax Court of
Canada Rules (General Procedure) (Rules) for the determination of questions
of law and fact before the hearing.
[2]
The application follows the filing by the
applicant of three appeals with this Court, that is, the appeal for the 2006
taxation year ending December 31, 2006 (2012-1020(IT)G), the appeal for the 2007
taxation year ending October 31, 2007 (2012‑4808(IT)G), and the appeal
for the period from November 1, 2007, to December 31, 2007 (2012-1921(IT)G). I
will call the periods covered by those three appeals the “periods at issue”.
[3]
In the notices of appeal for the periods at
issue, the applicant challenges the reassessments made by the Minister of
National Revenue (Minister), which, in particular, disallowed in their entirety
the scientific research and experimental development (SR&ED) expenditures
and the investment tax credits (ITCs) claimed by the applicant for the research
undertaken by Aluminerie Alouette Inc. (AAI).
[4]
The applicant submits in its notices of appeal
that the activities of AAI constitute SR&ED under the Income Tax Act (ITA).
Consequently, it submits that it validly claimed the SR&ED expenditures and
ITCs attributable to it for AAI’s SR&ED activities.
[5]
The applicant also contends that the Minister
made reassessments for the periods at issue without first reviewing the facts pertaining
to the applicant to determine its tax liability and without assessing the
amount of tax payable. According to the applicant, the Minister did not follow
the process set out in the ITA when she made the reassessments for the periods at
issue. Consequently, the reassessments are arbitrary and invalid.
[6]
Furthermore, the applicant argues that, for the
2006 and 2007 taxation years, the Minister made reassessments outside the
normal reassessment period.
[7]
The applicant submits that a determination on
the questions raised pursuant to section 58 regarding the arbitrary assessments
and the limitation period would completely dispose of those questions. It also submits
that a hearing on the application would also result in a substantially shorter proceeding.
There would also be a substantial saving of costs.
[8]
The respondent opposes the application based on
section 58 of the Rules. The respondent argues that the application is not the [translation] “proper” avenue for the determination
of the questions raised by the applicant. According to the respondent, the question
of the arbitrary assessments raises important factual considerations on which
the presiding judge will have to rule. Regarding the applicant’s allegation
that the Minister made reassessments outside the normal reassessment period, the
respondent argues that it is without merit because the order dated October 7, 2014,
by Justice Favreau of this Court,
confirms the validity of the reassessments. Thus, the application will not result
in a substantially shorter hearing or in a substantial saving of costs.
II. Questions to determine under section 58 of
the Rules
[9]
The questions to determine under section 58 of
the Rules, as stated by the applicant, are as follows:
[translation]
A. Arbitrary
assessments
(i) Did the Income Tax Act (Canada) (ITA)
authorize the Minister’s delegate to make reassessments for the period, by
disallowing the expenditures and ITCs claimed by the applicant as SR&ED in
respect of AAI’s activities, without first reviewing the facts pertaining to
the applicant to determine its tax liability and without assessing the amount
of tax payable on the basis of such a determination?
If the answer is negative, are the reassessments
with respect to the disallowed expenditures and ITCs for AAI’s activities invalid?
B. Assessments invalid in part
Did the ITA authorize the Minister to make
“reassessments” outside the normal reassessment period (152(3.1)(a) of
the ITA) in respect of the applicant on April 19, 2013, and October 3,
2013, respectively, for its taxation years ending December 31, 2006, and
October 31, 2007, relating to items other than those expressly listed in
subsections 152(4) and 152(4.01) of the ITA, including, specifically, those set
out in subparagraphs 152(4)(a)(ii), 152(4)(b)(iii), 152(4.01)(a)(ii)
and 152(4.01)(b)(iii) of the ITA?
If the answer
is negative, are said reassessments invalid with respect to the items assessed
that are not listed in subsections 152(4) and 152(4.01) of the ITA and,
specifically, with respect to the expenditures and ITCs disallowed in their
entirety for AAI’s activities (for the taxation years ending December 31, 2006,
and October 31, 2007) and the carry-forward of NCLs for the 2005
taxation year to the taxation year ending October 31, 2007?
[10]
The application is seeking the following relief:
1. Arbitrary assessments
An order declaring invalid the reassessments made in
respect of the applicant for its taxation years ending December 31, 2006, October 31, 2007,
and for the period of November and December 2007, in respect of the SR&ED
expenditures and the ITCs claimed by the applicant as SR&ED for AAI’s
activities, which were arbitrarily disallowed by the Canada Revenue Agency
(CRA).
2. Assessments invalid in part
An order declaring
invalid in part the reassessments made in respect of the applicant on April 19,
2013, and October 3, 2013, respectively, for the taxation years ending December
31, 2006, and October 31, 2007, on the ground that they were made outside
the normal reassessment period.
[11]
I will first consider whether the question on
the arbitrary assessments lends itself to a determination pursuant to section 58
of the Rules.
III. Question
1 – Arbitrary assessments
[12]
The applicant is one of AAI’s corporate partners.
[13]
AAI was incorporated in 1989 to manage and
operate aluminum production in Sept-Îles, Quebec.
[14]
During the periods at issue, AAI brought
together five partners: the applicant (40%), Aluminium Austria Metall (Quebec) Inc. (20%), Hydro Aluminium Canada, a limited partnership (20%), Albecour Inc. (13.33%)
and Marubeni Métaux & Minéraux (Canada) Inc. (6.67%).
[15]
AAI does SR&ED work on behalf of its
partners.
[16]
According to the agreement entered into by AAI‘s
partners, the inputs and aluminum produced by AAI remain the property of the
partners, based on the proportion of their respective participation. Also under
the agreement, the expenditures incurred by AAI for the SR&ED work and the ITCs
are claimed by each of the partners based on the proportion of their
participation in AAI.
[17]
For the periods at issue, the applicant claimed
the expenditures as SR&ED and ITCs. Some of its expenditures were
attributable to the SR&ED that the applicant itself had undertaken and some
of the SR&ED expenditures were attributable to research activities conducted
by AAI. The assessments in dispute in the application concern only the
SR&ED undertaken by AAI.
(a) Position of the applicant
[18]
The applicant submits that the Minister, in making
the reassessments, did not follow the procedure set out in subsection 152(1) of
the ITA, meaning that the Minister did not, with due dispatch, examine the
returns of income, assess the tax for the periods at issue, or determine the
amount of refund or the amount payable.
[19]
The applicant submits that, when the Minister
made the reassessments, she had not yet started the assessment of AAI’s
SR&ED work.
[20]
The applicant relies on the following facts:
•
On July 8, 2011, the Québec Tax Services Office
(TSO) sent Mr. Nadeau, AAI’s contact person for the CRA, a letter stating that
the review of the 2006 to 2009 taxation years regarding AAI’s SR&ED activities
would start in the fall of 2011. According to the applicant, that letter dated
July 8, 2011, from the Québec TSO, as well as a statement to the same
effect in a T2020 by Mr. Fournier of the Québec TSO, confirmed the start of the
review and audit process for the 2006, 2007, 2008 and 2009 fiscal periods
regarding AAI’s SR&ED work.
•
On July 14, 2011, the Montréal TSO made a
reassessment in respect of the applicant for the 2006 taxation year that allowed
it a portion of its own SR&ED expenditures, but that disallowed in their
entirety the SR&ED expenditures and ITCs claimed by the applicant in
respect of AAI.
•
On September 22, 2011, for the 2007 taxation
year, and on November 10, 2011, for the months of November and
December 2007, the Montréal TSO made reassessments also disallowing the SR&ED
expenditures and ITCs claimed by the applicant in respect of AAI.
[21]
According to the applicant, the Montréal TSO was
responsible for its tax file; it was that office that made the assessments in
respect of the applicant. The Québec TSO was responsible for the tax files of
AAI and AAI’s other partners. Thus, whether or not AAI undertook SR&ED within
the meaning of the ITA was reviewed by the Québec TSO. According to the
applicant, the Montréal TSO was never involved in reviewing AAI’s
SR&ED projects.
[22]
According to the applicant, the Montréal TSO reassessments
dated July 14, 2011,
September 22, 2011,
and November 10, 2011,
were made before the Québec TSO started the review of AAI’s SR&ED work for
the periods at issue. In this regard, the applicant argues that the reassessments
by the Québec TSO in respect of AAI’s other partners took place during the
months of October and November 2013.
[23]
According to the applicant, the review of AAI’s
work to determine whether AAI undertook SR&ED within the meaning of the ITA
started in 2012.
[24]
The applicant contends that assessments must
result from a process by which tax is assessed; the amount established by an
assessment must be representative of the product of that assessment.
[25]
The product resulting from the assessment can only
be determined on the basis of facts that are verified, complete, precise, accurate
and honestly and truthfully stated so that the taxpayer knows exactly the case
to meet. The taxpayer has a fundamental right to know the basis of an
assessment to be able to validly challenge it.
[26]
Consequently, the applicant submits that the
reassessments disallowing, for the SR&ED expenditures and ITCs of AAI, the
proportion corresponding to its participation in AAI are arbitrary and invalid
assessments.
[27]
The applicant argues that, should the Court
decide that the reassessments are not valid, [translation]
“most of the time” scheduled for the hearing on the appeal files would no
longer be necessary because the applicant would no longer have to prove, inter
alia, through expert witnesses, that those expenditures are AAI’s SR&ED
activities.
[28]
The applicant also submits that determining that
question before the hearing may dispose of all or part of the proceeding or
result in a substantially shorter hearing or in a substantial saving of costs.
[29]
The applicant argues that there is no material
fact in dispute because it relies on the statements from the examinations for
discovery, the T2020 and other documents from the CRA officers, including Ms. Martin,
SR&ED Financial Advisor (FA) at the Montréal TSO, Mr. Dufour, SR&ED
Technical
Advisor (STA) at the Québec TSO and Mr. Fournier, FA at the Québec
TSO.
(b) Position of the respondent
[30]
The respondent argues that a determination under
section 58 will not result in a substantially shorter hearing or in a substantial
saving of costs because the lists of documents have been exchanged and the
examinations for discovery have already taken place.
[31]
According to the respondent, the same persons
will have to testify in the context of the section 58 determination under and
before the judge who presides over the proceeding on the merits. In the
respondent’s opinion, that would be repetitive.
[32]
Furthermore, the respondent argues that the
question regarding the arbitrary assessments does not lend itself to a
determination under section 58 because the material facts surrounding the reassessment
process are in dispute.
[33]
The respondent contends that the case law
pertaining to section 58 of the Rules is to the effect that it is preferable to
submit questions of material facts to the judge who hears the case on the
merits. According to the respondent, the determination under section 58 should
never be a substitute for a hearing on the merits where there are material
facts to weigh to determine a question of law.
[34]
At paragraph 18 of her written submissions, the
respondent argues as follows:
[translation]
(a) The respondent
disputes the applicant’s use of the qualifier “arbitrary” in Part A of its application
to describe the assessments. On this point, the respondent intends to show that
the disallowance of the applicant’s expenditure claims was based on the absence
of supporting documentation submitted by the applicant despite the CRA’s repeated
requests in this regard.
(b) Paragraph 16 of affidavit A of Jocelyn Paradis states that it
was on February 19, 2010, that the CRA requested supporting documentation from
the applicant for the SR&ED expenditure claims for the Period. The
respondent intends to prove that the CRA requested the supporting documentation
from the applicant on February 10, 2009.
(c) The CRA decided to review the applicant’s SR&ED expenditure
claims for the Period when it was examining the applicant’s SR&ED
expenditure claims for the 2003 to 2005 taxation years to establish the purpose
of the equipment (18 pots).
(d) Before making the assessments in dispute, the CRA asked the
applicant several times to provide supporting documentation for its SR&ED
claims for the Period.
(e) The respondent intends
to prove that the applicant refused to provide supporting documentation for its
SR&ED claims for the Period because the production of documents depended on
the CRA’s findings regarding the applicant’s SR&ED expenditure claims for
the 2003 to 2005 taxation years.
(c) Analysis
[35]
From 2004 until the amendment in 2014, section
58 of the Rules provided as follows:
58 (1) A party may apply to the Court,
(a) for the
determination, before hearing, of a question of law, a question of fact or a
question of mixed law and fact raised by a pleading in a proceeding where the
determination of the question may dispose of all or part of the proceeding,
substantially shorten the hearing or result in a substantial saving of costs,
or
(b) to
strike out a pleading because it discloses no reasonable grounds for appeal or
for opposing the appeal,
and the Court may grant judgment accordingly.
(2) No evidence is admissible on an
application,
(a) under
paragraph (1)(a), except with leave of the Court or on consent of the
parties, or
(b) under
paragraph (1)(b).
(3) The respondent may apply to the Court to
have an appeal dismissed on the ground that,
(a) the
Court has no jurisdiction over the subject matter of an appeal,
(b) a
condition precedent to instituting a valid appeal has not been met, or
(c) the
appellant is without legal capacity to commence or continue the proceeding,
and the Court may grant judgment accordingly.
[Emphasis added.]
[36]
In its current version, that applies in this
case, section 58 of the Rules provides as follows:
58. (1) On application by a party, the Court
may grant an order that a question of law, fact or mixed law and fact raised in
a pleading or a question as to the admissibility of any evidence be determined
before the hearing.
(2) On the application, the Court may grant
an order if it appears that the determination of the question before the
hearing may dispose of all or part of the proceeding or result in a
substantially shorter hearing or a substantial saving of costs.
(3) An order that is granted under
subsection (1) shall
(a) state
the question to be determined before the hearing;
(b) give
directions relating to the determination of the question, including directions
as to the evidence to be given — orally or otherwise — and as to the service
and filing of documents;
(c) fix
time limits for the service and filing of a factum consisting of a concise
statement of facts and law;
(d) fix
the time and place for the hearing of the question; and
(e) give
any other direction that the Court considers appropriate.
[Emphasis added.]
[37]
It can be seen that subsections 58(1) and 58(2) of
the current version, after the 2014 amendment, are comparable to paragraph
58(1)(a) of the 2004 version.
[38]
Substantially the same conditions are present for
section 58 to apply, even though, in the current version, the phrase “if it
appears” was added, that is to say: “the Court may grant an order if it
appears that the determination of the question before the hearing may dispose
of all or part of the proceeding”.
[39]
Because the parties did not present arguments
regarding that amendment, I will not decide in this case whether the current
version of section 58 is more permissive than the 2004 version.
[40]
However, there is a difference with respect to
evidence. Pursuant to paragraph 58(2)(a) of the 2004 version, no
evidence was admissible on an application under section 58, except with leave
of the Court or on consent of the parties. Filing evidence was an exception. In
my opinion, that language was restrictive because the version of section 58 in force
in 2004 permitted only purely factual questions to be determined under section
58.
[41]
Under the current version, filing evidence is no
longer an obstacle at the second step of section 58. In an order granted under
section 58, the Court will give directions relating to the determination of the
question, including directions as to the evidence to be given, orally or
otherwise, and as to the service and filing of documents.
[42]
It goes without saying that I must consider that
amendment when reviewing the case law.
[43]
For section 58 of the Rules to apply, the
applicant must satisfy the following conditions:
(i) Establish that
questions of law and of fact are raised in the pleadings;
(ii) Establish that
determining the question before the hearing could dispose of all or part of the
proceeding, result in a substantially shorter hearing or a substantial saving
of costs.
[44]
I will therefore analyze each condition.
(i) Questions of law and of fact are raised in the pleadings.
[45]
The first condition is met. Questions of law and
of fact are raised in the pleadings.
[46]
For the second condition, the following question
must be answered:
(ii) Would determining
the questions under section 58 dispose of all or part of the proceeding, result
in a substantially shorter hearing or a substantial saving of costs?
[47]
The applicant must show that it satisfies one of
the conditions listed in subsection 58(2) of the Rules.
[48]
The applicant argues that it satisfies three
conditions in subsection 58(2) of the Rules, even though one condition suffices.
I will examine the three conditions.
[49]
In this case, the applicant argues that the
response to question 1 would dispose of all or part of the proceeding.
[50]
I agree with the applicant that if the Court
determined, at the second step of section 58, that the reassessments are valid
or invalid, the applicant could not reargue the arbitrary assessment issue before
the presiding judge, pursuant to the doctrine of res judicata. A
decision under section 58 of the Rules will therefore dispose of all or part of
the proceeding. I will explain.
[51]
In this case, if the Court determined at the
second step of section 58 that the reassessments made by the Minister were
invalid, the presiding judge would not have to dispose of the question of the
so-called arbitrary assessments, but, in addition, the judge would not have to
determine whether AAI undertook SR&ED within the meaning of the ITA.
Therefore, the determination at the second step of section 58 would dispose of
all of the proceeding with respect to the SR&ED questions.
[52]
However, if the Court determined at the second
step of section 58 that the reassessments made by the Minister were valid, the
applicant could not, before the presiding judge, raise question 1, that is, are
the assessments arbitrary? However, the applicant would have to prove before
the presiding judge that the work done by AAI was SR&ED within the meaning
of the ITA. Thus, the determination at the second step of section 58 would
dispose of part of the proceeding.
[53]
The applicant also submits that the hearing
could be substantially shorter and that that would result in a substantial
saving of costs.
[54]
I agree with the applicant. If at the second
step of section 58 the Court determined that the reassessments were not valid,
the presiding judge would not have to hear the SR&ED-related questions. It
goes without saying that that would substantially shorten the hearing. The SR&ED
questions concern several AAI projects. Furthermore, all of the costs
associated with the litigation that have not yet been incurred would be
avoided, including costs for expert witnesses.
[55]
That being said, the judge always has discretion
and can decide, citing other grounds, that the question does not lend itself to
a determination under section 58 of the Rules.
[56]
The respondent argues that, even though
questions of fact and of law can be determined under section 58, the issue of
whether the assessments are arbitrary does not lend itself to such a determination
because too many important factual considerations that surround the assessment
process are in dispute. Furthermore, witnesses would need to be heard, and the
judge presiding over the proceeding on the merits would have all of the
relevant elements to assess the evidence and determine the merits of the
applicant’s expenditure claims.
[57]
The respondent submits that at the time the
assessments were made, the CRA asked Mr. Nadeau of AAI several times to provide
supporting documentation for the work done by AAI. Because the CRA did not
receive any documents justifying the expenditures claimed by the applicant, the
Minister made the assessments for the periods at issue.
[58]
In response to the respondent, the applicant
argues that the CRA never asked the applicant to provide it with documents
justifying the SR&ED expenditures for the work done by AAI. It contends
that all of the document requests were made to AAI. It acknowledges, however,
that Mr. Nadeau was the person responsible for handling AAI’s tax matters
with the CRA. Furthermore, the applicant maintains that the information
requests that were made before July 2010 all pertained to the audit of the 2003
to 2005 taxation years and not to the audits of the 2006 and 2007 taxation
years.
[59]
Therefore, according to the applicant, the audit
started on July 8, 2011, and the review to determine whether the work done by AAI
constituted SR&ED started in July 2012, while the respondent claims that
the CRA officers requested documents regarding the periods at issue beginning
in 2009.
[60]
As pointed out by the respondent, this Court has
ruled in several cases that a question does not lend itself to a determination
under section 58 of the Rules when the question to determine concerns contested
facts. Thus, the respondent claims that a determination under section 58 in
this case should not be allowed because the facts surrounding the reassessments
are in dispute. Consequently, there would be no saving of costs, and a
determination under section 58 would not result in a shorter hearing.
[61]
I reviewed the cases cited by the respondent. In those cases, the judges of
this Court did not allow a determination under section 58 because the disputed
facts were related to facts that the trial judge had to determine in any event
at the hearing or because the question proposed dealt with facts relating to
the merits of the case.
[62]
However, I am of the opinion that that is not
the case here. The facts surrounding the reassessments have nothing in common
with the substantive issue, that is, whether AAI’s activities constituted SR&ED.
The question to determine in this application is a preliminary question.
[63]
Moreover, it is also evident in some of the cases
cited by the respondent that the judges declined to apply section 58 in the
absence of evidence. It is important to note that those decisions involved the 2004
version where evidence was not admissible on an application under section 58 except
with leave of the Court or on consent of the parties.
[64]
There are no longer any obstacles with respect
to evidence in paragraph 58(3)(b) of the 2014 version. The judge
may give directions as to the evidence to be given, documentary or oral.
[65]
In Suncor Energy Inc. v The Queen, a case concerning the
current version of section 58, Justice Rossiter stated that the existence of factual
disputes is no longer an absolute bar to the granting of an application but
will remain relevant to a court considering whether a determination will
substantially shorten the hearing or save costs.
[66]
Thus, I am of the view that the only question
the Court must consider under subsection 58(2) is the following: “Does it
appear that the determination of the question before the hearing could dispose
of all or part of the proceeding or result in a substantially shorter hearing
or a substantial saving of costs?”
[67]
It is not because facts are in dispute that
section 58 does not apply. That being said, when a question concerns facts that
are contested and those facts underlie the question of law, it is quite
possible that the criteria in subsection 58(2) will not be met.
[68]
In the light of these comments, I am of the
opinion that the question in this case lends itself to a determination under section
58 of the Rules. I am of the view that the applicant has shown that it meets the
conditions set out in subsections 58(1) and 58(2) of the Rules.
IV. Question
2 – Assessments invalid in part
[69]
On March 24, 2014, the applicant brought two motions
with the consent of the respondent, seeking direction from this Court as to
whether the reassessment dated April 19, 2013, for the 2006 taxation year and
the reassessments dated September 3, 2013, and October 3, 2013, for the 2007
taxation year were reassessments or additional assessments.
[70]
During the hearing of the motion, the applicant
argued that the reassessments were additional assessments while the respondent
argued that they were reassessments.
[71]
On October 7, 2014, Justice Favreau decided that
the reassessment dated April 19, 2013, for the 2006 taxation year and the
reassessments dated September 3, 2013, and October 3, 2013, for the 2007 taxation
year were reassessments and not additional assessments.
[72]
Despite the fact that the reassessment dated
April 19, 2013, was made by the Minister outside the normal reassessment
period, the applicant does not contest the Minister’s authority to make that
assessment. The Minister had the authority to disallow the foreign affiliate
losses deducted by the applicant pursuant to subparagraph 152(4)(b)(iii)
of the ITA.
[73]
However, the applicant submits that the
assessment dated April 19, 2013, is valid only in this respect. According to
the applicant, the Minister did not have the authority, in making the
reassessment dated April 19, 2013, to also disallow all of the SR&ED
expenditures and ITCs that it claimed for AAI’s work for its 2006 taxation year.
According to the applicant, there is no ITA provision allowing the Minister to
make a reassessment after the normal reassessment period relating to items
other than those listed in subparagraph 152(4)(b)(iii) of the ITA.
[74]
Regarding the 2007 taxation year, the applicant filed
a waiver with the Minister pursuant to subparagraph 152(4)(a)(ii) of the
ITA. In this regard, following the applicant’s request for adjustments, the
reassessments dated September 3, 2013, and October 3, 2013, were made by the
Minister outside the normal reassessment period. Those reassessments reduced
the tax payable by the applicant.
[75]
The applicant claims that the Minister had the
authority to make the reassessments dated September 3, 2013, and October 3,
2013, but only with respect to the items covered in the waiver.
[76]
The applicant submits that the waiver did not
cover the deferral of the transaction fees related to the Novelis spin-off or
the SR&ED and ITCs claimed in respect of AAI. As a result, the applicant submits
that the Minister could not make a reassessment for those items. It thus argues
that the reassessments dated September 3, 2013, and October 3, 2013,
for its 2007 taxation year are valid only for the adjustments made by the
Minister in the context of the waiver and that, for all of the other items,
those reassessments are invalid.
[77]
According to the applicant, subsection 152(5) of
the ITA does not allow for reassessments after the normal reassessment period. Furthermore,
according to the applicant, the Minister could have made additional assessments
to comply with subparagraph 152(4)(a)(ii) and the restriction imposed by
subparagraph 152(4)(b)(iii) of the ITA, but she opted for reassessments,
as evidenced by Justice Favreau’s order.
[78]
In addition, the applicant contends that it
cannot be subject to two assessments, that is, in part, the assessment dated
October 3, 2013 and, in part, the assessment made within the normal
reassessment period.
[79]
The applicant also argues that a determination
pursuant to section 58 would definitively dispose of the limitation period issue
because it could not be raised again before the presiding judge. Furthermore, there
would be a substantial saving of costs because the applicant would not have to pursue
the SR&ED questions and the transaction fee deferral question for the
periods at issue.
[80]
The respondent argues that a determination under
section 58 is not necessary because there is no legal basis for the question.
[81]
According to the respondent, the Minister could
not make an additional assessment in 2006 because the reassessments established
the tax payable for the year and not additional tax. Regarding the 2007
taxation year, the Minister could not make an additional assessment because the
assessment reduced the tax payable by the applicant.
[82]
According to the respondent, a reassessment made
outside the normal reassessment period, namely under subparagraph 152(4)(a)(ii)
of the ITA (waiver) or even under subparagraph 152(4)(b)(iii) of the ITA
(foreign accrual property income), does not cancel the adjustments made by the
previous assessment in the normal reassessment period.
[83]
The respondent argues that, if the applicant’s
reasoning were correct, each time the Minister makes an assessment that she is
authorized to make under the ITA after the normal reassessment period, a
taxpayer would be released from the obligation to pay the tax assessed in an
assessment made within the normal reassessment period. According to the
respondent, that position is untenable.
[84]
In that regard, the respondent submits that
subsection 152(5) of the ITA is clear. According to that subsection, when a reassessment
is made, under subparagraphs 152(4)(a)(ii) or 152(4)(b)(iii) of
the ITA, amounts relating to items that were not included in the
assessments made during the normal reassessment period cannot be included. A contrario,
it is clear from that subsection that amounts relating to items that were
already assessed during the normal reassessment period must be included in the computation
of the income of a taxpayer.
[85]
According to the respondent, the principle she
is advancing emerges from Justice Favreau’s order, which states the
following regarding the 2006 taxation year, at paragraph 12 of his reasons, and
regarding the applicant’s 2007 taxation year at paragraphs 20 to 22 of his
reasons:
2006
[12] As
stated in form T7W-C, the starting point for the reassessment dated April 19,
2013, is the [translation]
“previously assessed net income for income tax purposes” in the amount of
$1,694,939,106, which included the adjustments made by the previous assessment
dated July 14, 2011, for the applicant’s 2006 taxation year. No change was made
to those adjustments.
2007
[20] Under the reassessment dated September
3, 2013, the total federal tax to be paid by the applicant under Part I of the
Act was decreased by $5,492,114 with respect to the taxes payable according to
the reassessment dated May 11, 2012.
[21 According to the reassessment dated
October 3, 2013, the total amount of federal tax to be paid by the applicant
under Part I of the Act was decreased by an additional $1,053,087 with respect
to the amount of tax payable according to the reassessment dated May 11, 2012.
[22] Following those reassessments dated September
3, 2013, and October 3, 2013, the tax payable on the income under
Part I of the Act went from $99,413,327 to $92,867,526, according to the
reassessment dated May 11, 2012.
[86]
The respondent argues that neither the disallowance
of the SR&ED expenditures in respect of AAI nor the disallowance of the
carry-forward to the 2007 taxation year of the applicant’s 2005 non‑capital
losses (NCL) from the Novelis spin-off were covered by the reassessments made
by the Minister outside the normal reassessment period at the request of the
applicant, that is, the reassessments dated September 3, 2013, and October
3, 2013. The amounts relating to the SR&ED expenditures in respect of AAI and
the disallowance of the loss carry-forward in 2007 were assessed by the
Minister during the normal reassessment period.
[87]
In addition, the respondent argues that, if the
assessments dated April 19, 2013, September 3, 2013, and October 3, 2013, were vacated
in part, the previous assessments would be restored. Therefore, the amount
payable would remain the same, that is, the amount established by the valid
part of the assessment and the amount related to the previous assessment.
(a) Analysis
[88]
The parties brought to my attention several cases
that address limitation periods. However, they acknowledged that there were no cases
pertaining to the question proposed by the applicant. Thus, I cannot say that
the applicant’s legal position has no reasonable chance of success. In my
opinion, the question should be analyzed at the second step of section 58 if it
meets the conditions set out in section 58.
[89]
As to the conditions in section 58 of the Rules,
the limitation period for the reassessments was raised in the pleadings.
[90]
Furthermore, if the limitation period issue was
determined under section 58, the decision would be final according to the
doctrine of res judicata. Thus, the applicant could not raise that question
before the presiding judge.
[91]
If the reassessments were deemed invalid because
they were out of time and the previous assessments did not apply, I am of the
opinion that a substantially shorter hearing and a substantial saving of costs
would result. The questions related to the SR&ED undertaken by AAI would
not have to be heard by the presiding judge. As argued by the respondent, I
cannot assume that the applicant will have experts testify. That being said,
the applicant, in its submissions, raised the substantial saving of costs and
time that would result if it did not have to call expert witnesses.
[92]
In short, I agree with the applicant that it
would be unfortunate to continue with a proceeding that would deal at the same
time with the preliminary question, that is, the limitation period, and the
substantive question, that is, the SR&ED, if the applicant was successful
on the preliminary question.
[93]
I am of the opinion that the conditions in
section 58 of the Rules have been met.
V. Conclusion
[94]
The application is allowed; the questions to determine
under section 58 of the Rules will be as follows:
Question 1.
(i) Did the ITA authorize
the Minister to make reassessments for the periods at issue, by disallowing the
expenditures and ITCs claimed by RTA as SR&ED in respect of the activities
of AAI, without first reviewing the facts pertaining to the applicant to
determine its tax liability and without assessing the amount of tax payable on
the basis of such a determination?
(ii) If the answer is
negative, are the reassessments with respect to the disallowed expenditures and
ITCs for AAI’s activities invalid?
Question 2.
(i) Did the ITA authorize
the Minister to make reassessments outside the normal reassessment period in
respect of RTA on April 19, 2013, September 3, 2013, and October 3, 2013,
respectively, for its taxation years ending December 31, 2006, and October 31, 2007,
relating to items other than those expressly listed in subsections 152(4) and
152(4.01) of the ITA, including, specifically, those set out in
subparagraphs 152(4)(a)(ii), 152(4)(b)(iii), 152(4.01)(a)(ii)
and 152(4.01)(b)(iii)?
(ii) If the answer is negative,
are said reassessments invalid with respect to the items that are not listed in
subsections 152(4) and 152(4.01) of the ITA and, specifically, with respect to
the expenditures and ITCs disallowed in their entirety for AAI’s activities and
the carry-forward of the non-capital losses for the 2005 taxation year to the
taxation year ending October 31, 2007?
[95]
The directions set out in paragraph (b) of
subsection 58(3), that is, those concerning the evidence to be given, will be set
out in a separate order that will also fix time limits for the service and
filing of a factum, as well as the time and place for the hearing of the
question.
Signed at Ottawa, Canada, this 4th day of February 2016.
“Johanne
D’Auray”
Translation certified true
on this 30th day of May 2016.
François Brunet, Revisor
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