REASONS FOR ORDER
D’Auray J.
[1]
The applicant, Rio Tinto Alcan Inc., filed a
notice of motion on June 4, 2015, and an amended notice of motion on July 10,
2015, under section 58 of the Tax Court of Canada Rules (General Procedure)
(the Rules).
[2]
The applicant asks this Court to rule on the
following questions:
A. Arbitrary assessments
(i) Did the Income Tax
Act (ITA) authorize the delegate of the Minister of National Revenue (Minister)
to issue for the period,
without first reviewing the facts pertaining to the applicant so as to
determine its tax liability and without fixing the amount of tax payable on the
basis of such determination, reassessments disallowing the expenses and the investment
tax credit (ITC) claimed by the applicant in relation to scientific research
and experimental development (SR&ED) in
respect of the activities of Aluminerie Alouette Inc. (AAI)?
(ii) If not, are the
reassessments invalid with respect to the disallowed expenses and ITC relating
to the activities of AAI?
B. Assessments invalid in part
(i) Did the ITA authorize
the Minister to issue outside the normal reassessment period (paragraph 152(3.1)(a)
of the ITA), on April l9, 2013, and October 3, 2013, reassessments against the
applicant for its taxation years ending December 31, 2006, and October 31, 2007,
respectively, relating to items other than those expressly listed in
subsections 152(4) and 152(4.01) of the ITA, including, more 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?
(ii) If not, are the 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 more specifically with respect
to the expenditures and the ITC disallowed in their entirety in relation to the
activities of AAI (for the taxation years ending December 31, 2006, and October
31, 2007), and with respect to the carry-forward of non-capital losses for the 2005
taxation year to the taxation year ending October 31, 2007?
[3]
In support of its motion under section 58 of the
Rules, the applicant attached the affidavit by Jocelin Paradis. Mr. Paradis’s affidavit
primarily describes the factual background of the questions to be disposed of by
this Court, namely, the arbitrary assessments and the out‑of‑time reassessments
issued by the Minister.
[4]
Following the applicant’s amended motion, the
respondent filed with this Court a motion to strike paragraphs 4 to 8, 11, 12,
14 to 25, 28, 32 and 33 of Mr. Paradis’s affidavit.
[5]
The respondent asserts that she has moved to
strike out these paragraphs of Mr. Paradis’s affidavit because he is
relying on documents prepared by representatives of the respondent to allege
certain facts.
[6]
According to the respondent, Mr. Paradis cannot,
in support of his allegations in his affidavit, rely on excerpts from the
examinations for discovery of Ms. Martin, SR&ED Financial Reviewer at the
Canada Revenue Agency (CRA), and Mr. Dufour, Research and Technology Advisor
(RTA) for the CRA.
[7]
The respondent argues as well that Mr. Paradis also
cannot, in support of his allegations in his affidavit, rely on documents of CRA
officials, such as Mr. Dufour’s technical report, Ms. Martin’s and other
CRA officials’ T20, T2020 and T661 reports, and various emails among CRA
officials and between the representatives of the CRA and those of AAI.
[8]
As for the examinations for discovery, the respondent
argues that the applicant cannot use excerpts from the examinations for
discovery of the CRA officials, as the applicant does not have personal
knowledge of the facts alleged in those examinations. Furthermore, she argues
that, under section 58 of the Rules, if the applicant can file in evidence the
examinations for discovery of the respondent’s representatives, the filing thereof
should only take place at the second stage under section 58. In that regard, the
respondent relies on the provisions of subsections 58(1) and 58(2) and
paragraph 58(3)(b) of the Rules.
[9]
As for the other documents, such as the technical
report, the T20, T2020, and T661 reports, and the various emails among CRA
officials and between the representatives of the CRA and those of AAI, the respondent
argues that Mr. Paradis cannot adduce those documents in evidence in support of
his allegations in his affidavit, because he is not the author of the documents.
According to the respondent, Mr. Paradis’ allegations of fact are hearsay.
[10]
As for the applicant, it argues that Mr. Paradis,
as its Vice‑president, Taxation (Canada), [Translation]
“is responsible for all tax matters for the applicant in Canada. Therefore,
he has sufficient direct knowledge of all the evidence filed in support of Affidavit
58, including the content of the examinations for discovery.”
[11]
Furthermore, with regard to the examinations for
discovery of the respondent’s representatives, the applicant argues that they
were its examinations and that it was the applicant that examined for discovery
Ms. Martin and Mr. Dufour; it can therefore use the examinations for discovery
as evidence. The applicant also argues that sections 75 and 100 of the Rules allow
examinations for discovery to be read into evidence on the hearing of a motion.
[12]
The applicant further argues that the documents
relating to the examinations for discovery may also be used by Mr. Paradis to
support the allegations of fact in his affidavit.
[13]
As for the other documents in support of Mr.
Paradis’s allegations, the applicant argues that, although the documents could
be hearsay, they are admissible under the traditional exceptions to hearsay
and/or the exception to hearsay under the principled approach set out by the
Supreme Court of Canada.
The traditional exceptions to hearsay upon which the applicant relies are [Translation] “possession of
documents,ˮ [Translation] “statement made
in the course of the performance of a dutyˮ and
[Translation] “admission of
a party.ˮ The applicant also argues that the CRA reports are records made in
the usual and ordinary course of business of the CRA and are therefore
admissible under subsection 30(1) of the Canada Evidence Act.
[14]
Thus, according to the applicant, Mr. Paradis’s allegations
that the respondent seeks to strike are admissible.
[15]
During my teleconferences with the parties, there
were discussions about whether the parties could file evidence at the first
stage under section 58 of the Rules. In light of the amendment to
section 58 in 2014, it was decided as a precaution that the respondent would
also file evidence in support of her representations under section 58 and that
I would review everything.
[16]
I am of the view that a brief historical review
of section 58 of the Rules is in order. In 1990, when this Court was created, section
58 was drafted as follows:
DETERMINATION OF QUESTIONS OF LAW
Question of Law
58. (1) A party
may apply to the Court,
(a) for the determination, before hearing, of a question of
law 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.
[17]
It can be seen that, at that time, only questions
of law could be the subject of an application under section 58 of the Rules. The
rule was that no evidence could be filed in support of an application under section
58, except with leave of the Court or on consent of the parties.
[18]
In 2004, section 58 of the Rules was
amended so that a question of law,
a question of fact or a question of mixed law and fact could
be the subject of an application under section 58. Section 58 then read as
follows:
QUESTION OF LAW, FACT OR MIXED LAW AND FACT
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.
[19]
In 2014, section 58 of the Rules was
again amended. The purpose of the 2014 amendments was to spell out the process under
section 58, that is, the two‑stage process.
[20]
At stage one, the Court must determine whether the
proposed question is suitable for determination under section 58. If it is determined to be such, the Court proceeds to the second stage, that is, the hearing of
the question.
[21]
It is this version of section 58 that applies in
this case. So, as of 2014, section 58 reads 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.]
[22]
As can be seen in the text of section 58 of the
Rules, the first subsection of section 58 deals only with the first stage, namely,
deciding whether the question to be determined is one that may be dealt with under
section 58.
[23]
In that regard, the Court must take into account
the criteria set out in subsection 58(2) of the Rules to decide whether the question
is an appropriate one for determination under section 58. Those criteria are whether
the hearing pursuant to section 58 may dispose of all or part of the proceeding
or result in a substantially shorter hearing or a substantial saving of costs.
[24]
Subsection 58(3) of the Rules indicates that, in
an order granted under subsection 58(1), the Court shall 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.
[25]
Subsection 58(3) of the Rules and paragraph
58(3)(b) state that evidentiary matters are to be disposed of in the order,
which suggests that evidentiary matters will be determined only if the Court decides
to hear the question under section 58.
[26]
As drafted, section 58 does not prevent a party
from filing evidence at stage one of the process under section 58.
[27]
It should be noted that, at stage one of the section
58 process under the Rules, the Court is not required to dispose of the
substantive issues, namely, whether the assessments are arbitrary and whether the
reassessments were issued out of time, but must decide whether section 58 is applicable
to the questions to be determined and whether it will dispose of all or part of
the proceeding or result in a substantially shorter hearing or a substantial
saving of costs. Thus, at stage one under section 58, the scope of the
allegations in an affidavit should be limited to the facts relating to that
first stage.
[28]
At stage one under section 58, the facts alleged
by Mr. Paradis in his affidavit can only serve to establish that there are questions
of fact and law to be determined and that these questions are appropriate for
determination under section 58.
[29]
In the decision of the Supreme Court of Canada in
R v Khelawon, [2006] 2 S.C.R. 787, Charron J. states in Part 5.2.1 of her
reasons that “[t]he purpose
for which the out-of-court statement is tendered matters in defining what
constitutes hearsay because it is only when the evidence is tendered to prove
the truth of its contents that the need to test its reliability arises”.
[30]
At stage one under section 58 of the Rules, the Court
will not determine whether the assessments are arbitrary or whether the
Minister issued the reassessments out of time. Therefore, in accordance with
subsections 58(1) and 58(2) of the Rules, Mr. Paradis’s affidavit cannot have any
purpose other than to show that there are questions of law and fact are appropriate
for determination under section 58.
[31]
Thus, pursuant to Khelawon, Mr. Paradis’s
allegations are not hearsay because the allegations of fact merely establish
that questions of law and fact do exist for the purpose of determining a question
under section 58. At stage one under section 58, the documents in support of Mr.
Paradis’s allegations of fact cannot prove
the truth of their contents as these documents pertain
to the questions to be determined. If the motion under section 58 were allowed,
directions as to the evidence to be given would then be issued by the Court under
paragraph 58(3)(b), and at stage two under section 58, the documents could
be entered in evidence, if admissible.
[32]
The same reasoning applies to the affidavits and
related evidence filed by the respondent.
[33]
Consequently, Mr. Paradis’s allegations will not
be struck, as they serve only to establish that there are questions of law and
fact appropriate for determination under section 58. The respondent’s motion is
dismissed.
[34]
I have decided not to award costs considering
the recent amendment to section 58 of the Rules.
Signed at Ottawa, Canada, this 26th day of August 2015.
“Johanne D’Auray”
Translation
certified true
on this 22nd day
of July 2016.
Erich Klein, Revisor
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