Citation: 2013 TCC 267
Date: 20130827
Docket: 2009-2247(IT)G
BETWEEN:
SENTINEL HILL PRODUCTIONS IV CORPORATION,
in its capacity as designated member of
Sentinel Hill No. 207 Limited Partnership,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-2248(IT)G
AND BETWEEN:
SENTINEL HILL PRODUCTIONS IV CORPORATION,
in its capacity as designated member of
SHAAE (2001) Master Limited Partnership,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Woods J.
[1]
This matter relates to
applications by the appellants for the determination of a question pursuant to paragraph
58(1)(a) of the Tax Court of Canada Rules (General Procedure). The
respondent submits that it is not appropriate that the question be determined
under this procedure. These are my reasons concerning this issue.
[2]
Subsection 58(1) of the Rules
provides:
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.
[3]
The main focus of this preliminary proceeding is to determine
whether the conditions set out in paragraph 58(1)(a) have been satisfied. These
are:
(a)
that the proposed
question is raised by a pleading, and
(b)
that the determination
of the question may dispose of all or part of the appeal, substantially shorten
the hearing, or result in a substantial saving of costs.
[4]
For the interest of
readers, a previous motion in these appeals was heard by the case management
judge, Rip C.J. (Strother et al v The Queen, 2011 TCC 251).
The Proposed Question
[5]
The question that the appellants
seek to have determined (the “Proposed Question”) is reproduced below from a
letter to the Court dated February 12, 2013:
Whether
the notices of determination (“Partnership Determinations”) issued under
subsection 152(1.4) of the Income Tax Act (“ITA”) should be vacated and
the appeals consequently allowed (subparagraph 170(1)(b)(i), of the ITA) since
the Minister concluded at a subsequent time (on or prior to March 31, 2010),
after the time the Partnership Determinations were issued, that Sentinel Hill
No. 207 Limited Partnership and SHAAE (2001) Master Limited Partnership (the
“Partnerships”) and the 72 other limited partnerships did not exist for the
fiscal years ended December 31, 2001 and December 31, 2002 (the “Periods”).
[6]
It is also useful to reproduce the
grounds for the Proposed Question as set out in the notices of motion.
(a)
On March 29, 2005 and March 30, 2005, the Minister issued notices of
determination to the Partnership pursuant to subsection 152(1.4) of the Act;
(b)
The reply to the notice of appeal and the amended reply to the notice of appeal
filed by the Respondent clearly confirmed that, prior to filing the reply to
the notice of appeal and the amended reply to the notice of appeal, the
Minister had concluded that the Partnership did not exist for the Periods;
(c)
It was confirmed during the course of examination for discovery of Mr. Duff
that the reply to the notice of appeal and the amended reply to the notice of
appeal accurately reflected the Minister’s position that the Partnership did
not exist for the Periods;
(d)
Once the Minister had concluded that the Partnership did not exist for the
Periods, the Minister was permitted in accordance with subsection 152(1.8) of
the Act to issue notices of reassessment to the members of the Partnership in
lieu of the notices of determination issued to the Partnership provided that
such notices of reassessment were issued within one year of such conclusion;
and
(e)
Since the Minister had concluded that the Partnership did not exist for the
Periods on or before the date that the reply to the notice of appeal or amended
reply to the notice of appeal was filed, more than one year has elapsed since
the Minister made such conclusion, and therefore, the Minister is no longer
entitled to (i) proceed further pursuant to the notices of determination issued
to the Partnership or (ii) issue any notices of reassessment to the members of
the Partnership.
[7]
The excerpt above clarifies that
the focus of the Proposed Question is on whether the Minister of National
Revenue is now statute barred from issuing reassessments to partners by virtue
of subsection 152(1.8) of the Income Tax Act.
Background
[8]
The legislative
provisions referred to below are reproduced in an Appendix.
[9]
Sentinel Hill No. 207
Limited Partnership and SHAAE (2001) Master Limited Partnership (the
“Partnerships”) reported business losses in information returns for their 2001
and 2002 fiscal years.
[10]
In March 2005, the
Minister disallowed the business losses by making determinations of partnership
income or loss pursuant to subsection 152(1.4) of the Act (the
“Determinations”).
[11]
The Determinations are
subject to an objection and appeal procedure that is similar to the procedure
applicable to assessments (s. 152(1.2) of the Act). The process must be
conducted by a single partner (s. 165(1.15) of the Act).
[12]
These appeals have been
instituted by Sentinel Hill Productions IV Corporation pursuant to these
provisions.
[13]
Following the issuance
of a determination of partnership income or loss, the partners of the
partnership may be reassessed beyond the normal limitation period pursuant to subsections
152(1.7) and (1.8) of the Act, subject to the limitations set out in
those provisions.
Position of the appellants
[14]
The issue in this
preliminary inquiry is whether the Proposed Question should be set down for
hearing. The appellants submit that this is an appropriate matter for s. 58(1)(a)
because it makes no sense for the Minister to issue the Determinations on the
assumption that partnerships existed and then to take the position in the
replies that the Partnerships did not exist.
[15]
As for the conditions in
s. 58(1)(a), it is first submitted that the Proposed Question is raised by a
pleading because the replies state that the Minister concluded that the
Partnerships did not exist. Second, it is submitted that the determination of
the Proposed Question may dispose of the appeals in their entirety because the
appellants are asking that the determinations be vacated.
Position of the respondent
[16]
The respondent submits that the Proposed Question
should not be scheduled for hearing because it does not satisfy either of the
conditions in s. 58(1)(a).
[17]
With respect to the requirement
that the question be raised by the pleadings, the respondent submits that this
condition is not satisfied because the only issue raised by the pleadings is the
correctness of the Determinations. The Proposed Question relates to whether
possible future reassessments of partners are statute barred, which has nothing
to do with the correctness of the Determinations.
[18]
As for whether the Proposed Question
may dispose of all or part of the proceedings, shorten the hearing, or save
costs, the respondent submits that this requirement is not satisfied because
the Proposed Question is so lacking in merit that it accomplishes none of
these.
[19]
The appellants are requesting that
the Court vacate the Determinations because the Minister is now statute barred
from reassessing the partners. It is submitted that this is beyond the
jurisdiction of the Court which is limited to determining the correctness of
the Determinations.
Discussion
Nature of the Proposed
Question
[20]
I begin by examining the Proposed
Question. The question asks that the Determinations be vacated because the
Minister concluded, on or prior to March 31, 2010, that the Partnerships did
not exist. The essential issue is whether the Determinations should be vacated because the Minister is
statute barred from issuing reassessments to partners.
[21]
It is important to note
that the Proposed Question does not ask the Court to make a finding regarding the
existence of the Partnerships. This matter is in dispute between the parties. The
focus is simply on whether the Minister concluded that the Partnerships did not
exist.
[22]
The appellants rely on
s. 152(1.8) below.
(1.8) Time
to assess - Where,
as a result of representations made to the Minister that a person was a member
of a partnership in respect of a fiscal period, a determination is made under
subsection (1.4) for the period and the Minister, the Tax Court of
Canada, the Federal Court of Appeal or the Supreme Court of Canada concludes
at a subsequent time that the partnership did not exist for the period or
that, throughout the period, the person was not a member of the partnership,
the Minister may, notwithstanding subsections (4), (4.1) and (5), within one
year after that subsequent time, assess the tax, interest, penalties or other
amounts payable, or determine an amount deemed to have been paid or to have
been an overpayment under this Part, by any taxpayer for any taxation year, but
only to the extent that the assessment or determination can reasonably be
regarded
(a) as relating to any matter
that was relevant in the making of the determination made under subsection (1.4);
(b) as resulting from the
conclusion that the partnership did not exist for the period; or
(c) as resulting from the
conclusion that the person was, throughout the period, not a member of the
partnership.
(Emphasis
added)
[23]
According to the
appellants, s. 152(1.8) limits the time for reassessing the partners to March
of 2011 at the latest. This is one year after the filing of the replies that
denied the existence of the Partnerships. The Minister had taken a contrary
position at the time the Determinations were made.
[24]
I would also comment
that the Proposed Question appears to
involve several possible issues, some of which are mentioned below.
(a)
Does the one-year time period in s. 152(1.8) start to run from the date that the
Minister concludes there is no partnership even if a court reaches the same
conclusion at a later time?
(b)
Is the time limit for reassessing
partners affected by s. 152(1.7)?
(c)
Is the Minister’s position that
the Partnerships did not exist a “conclusion” for purposes of s. 152(1.8)?
(d)
Assuming that reassessments of the
partners are now statute barred, are these proper grounds to vacate the Determinations?
[25]
I turn now to the two
conditions that must be satisfied for purposes of s. 58(1)(a).
Is the Proposed
Question raised by a pleading?
[26]
The first condition is
that the Proposed Question must be raised by a pleading.
[27]
The appellants
acknowledge that the Proposed Question is not raised as an issue in a pleading,
but they submit that it is sufficient that the question is referred to in a
pleading. The appellants submit that the condition is satisfied because the
replies state the Minister’s conclusion that the Partnerships did not exist.
[28]
I disagree with this
interpretation of the “by a pleading” requirement. In my view, s. 58(1)(a) contemplates
that a pleading raise the issue that is the subject of the proposed question.
[29]
In this case, the
Proposed Question raises issues of whether reassessments of partners are now
statute barred, and whether the Determinations should therefore be vacated.
Neither of these are raised as issues in the pleadings.
[30]
The appellants submit
that the phrase “by a pleading” is broader than “in a pleading” and that it is
not necessary that the Proposed Question be raised as an issue in a pleading.
[31]
I do not agree. A
purposive interpretation of s. 58(1)(a) suggests that the Proposed Question
must be properly raised as an issue in the pleading. For reasons of fairness, issues
in an appeal are generally limited to those that are raised in the pleadings. The
language used in paragraph 58(1)(a) ensures that this principle is not
by-passed by bringing a motion under this provision. It is not an appropriate
use of s. 58(1)(a) to raise a new issue through this procedure.
May the
Proposed Question dispose of the proceeding?
[32]
Paragraph 58(1)(a) also
requires that the Proposed Question may dispose of the proceeding, shorten the
hearing, or save costs.
[33]
I would first comment
on a submission made orally by counsel for the appellants that it is nonsense
for the respondent to argue that the Partnerships did not exist because it is
contrary to the Determinations. The argument appears to be that the Minister is
in effect appealing his own determinations.
[34]
The problem with this
submission is that it has nothing to do with the Proposed Question. The
Proposed Question raises a statute bar issue that is entirely different from
the issue of whether the respondent’s position does not support the Determinations.
Whether the Minister is appealing his own determinations is not relevant to the
Proposed Question.
[35]
Turning to whether the
Proposed Question may dispose of the proceeding in its entirety, I agree with
the respondent that the Proposed Question is so lacking in merit that it will
not dispose of the hearing.
[36]
The appellants seek to
have the Determinations vacated on grounds that have nothing to do with whether
the Determinations are incorrect or invalid. This is contrary to
well-established principles on which this Court may vacate assessments.
[37]
The circumstances in
which this Court may vacate an assessment were recently summarized by Sharlow
J.A. in Ereiser v The Queen, 2013 FCA 20, at para 21, 22:
[21] Mr.
Ereiser is seeking from the Tax Court of Canada an order vacating the
reassessments under appeal. That is the appropriate remedy in an income tax
appeal for an assessment (including a reassessment) that is found not to be
valid, or that is found not to be correct. I use the term valid to describe an assessment made in compliance with
the procedural provisions of the Income Tax Act, and
correct to describe an assessment in which the
amount of tax assessed is based on the applicable provisions of the Income Tax Act, correctly interpreted and applied to the
relevant facts.
[22] The procedural
provisions of the Income Tax Act
include those relating to statutory limitation periods. Generally, those
provisions deprive the Minister of the legal authority to assess tax after the
expiry of a certain period of time ‑ the period defined in the Income
Tax Act as the
"normal reassessment period" - unless a statutory exception applies.
[38]
The appeal process for
partnership determinations is the same as for assessments “with such
modifications as the circumstances require” (s. 152(1.2)).
[39]
It is not appropriate to
depart from the well-established principles cited in Ereiser in respect
of determinations of partnership income or loss. The circumstances do not
require it, and to do so would be contrary to the scheme of the Act.
[40]
The Act contemplates
a separate objection and/or appeal procedure for every determination and
assessment. The Proposed Question seeks to challenge the validity of
reassessments of partners that have not been issued and which may never be
issued. The proper procedure for this issue is to dispute the validity of the reassessments
if and when they are issued.
[41]
The appellants may be
suggesting that the relief sought is appropriate because it would save the
expense of a complicated trial. It may be that these appeals could be moot if
subsequent reassessments of partners are statute barred. However, this is not a
circumstance that requires a modification to the well‑established principles
described in Ereiser.
[42]
For these reasons, I am
of the view that the Proposed Question has no reasonable chance of success, and
therefore it does not satisfy the condition in s. 58(1)(a) that it may
dispose of the proceeding, shorten the hearing, or save costs.
Conclusion
[43]
I would conclude that
it is not appropriate that the Proposed Question be set down for hearing.
[44]
The respondent shall
have its costs with respect to this proceeding, with one set of counsel fees
for both matters.
Signed at Winnipeg, Manitoba this 27th day of August
2013.
“J. M. Woods”
APPENDIX
Relevant legislative provisions
152.
(1.2) Provisions applicable - Paragraphs 56(1)(l) and 60(o),
this Division and Division J, as they relate to an assessment or a reassessment
and to assessing or reassessing tax, apply, with such modifications as the
circumstances require, to a determination or redetermination of an amount under
this Division or an amount deemed under section 122.61 or 126.1 to be an
overpayment on account of a taxpayer’s liability under this Part, except that
(a) subsections (1) and (2) do
not apply to determinations made under subsections (1.1) and (1.11);
(b) an original determination of
a taxpayer’s non-capital loss, net capital loss, restricted farm loss, farm
loss or limited partnership loss for a taxation year may be made by the
Minister only at the request of the taxpayer; and
(c) subsection 164(4.1) does not
apply to a determination made under subsection (1.4).
[…]
(1.4) Determination
in respect of a partnership
- The Minister may, within 3 years after the day that is the later of
(a) the day on or before which a
member of a partnership is, or but for subsection 220(2.1) would be, required
under section 229 of the Income Tax Regulations to make an information return for a fiscal period
of the partnership, and
(b) the day the return is filed,
determine
any income or loss of the partnership for the fiscal period and any deduction
or other amount, or any other matter, in respect of the partnership for the
fiscal period that is relevant in determining the income, taxable income or
taxable income earned in Canada of, tax or other amount payable by, or any
amount refundable to or deemed to have been paid or to have been an overpayment
by, any member of the partnership for any taxation year under this Part.
[…]
(1.7) Binding
effect of determination
- Where the Minister makes a determination under subsection (1.4) or a
redetermination in respect of a partnership,
(a) subject to the rights of
objection and appeal of the member of the partnership referred to in subsection
165(1.15) in respect of the determination or redetermination, the determination
or redetermination is binding on the Minister and each member of the
partnership for the purposes of calculating the income, taxable income or
taxable income earned in Canada of, tax or other amount payable by, or any
amount refundable to or deemed to have been paid or to have been an overpayment
by, the members for any taxation year under this Part; and
(b) notwithstanding subsections (4),
(4.01), (4.1) and (5), the Minister may, before the end of the day that is one
year after the day on which all rights of objection and appeal expire or are
determined in respect of the determination or redetermination, assess the tax,
interest, penalties or other amounts payable and determine an amount deemed to
have been paid or to have been an overpayment under this Part in respect of any
member of the partnership and any other taxpayer for any taxation year as may
be necessary to give effect to the determination or redetermination or a
decision of the Tax Court of Canada, the Federal Court of Appeal or the Supreme
Court of Canada.
(1.8) Time
to assess - Where,
as a result of representations made to the Minister that a person was a member
of a partnership in respect of a fiscal period, a determination is made under
subsection (1.4) for the period and the Minister, the Tax Court of Canada, the
Federal Court of Appeal or the Supreme Court of Canada concludes at a
subsequent time that the partnership did not exist for the period or that,
throughout the period, the person was not a member of the partnership, the
Minister may, notwithstanding subsections (4), (4.1) and (5), within one year
after that subsequent time, assess the tax, interest, penalties or other
amounts payable, or determine an amount deemed to have been paid or to have
been an overpayment under this Part, by any taxpayer for any taxation year, but
only to the extent that the assessment or determination can reasonably be
regarded
(a) as relating to any matter
that was relevant in the making of the determination made under subsection (1.4);
(b) as resulting from the
conclusion that the partnership did not exist for the period; or
(c) as resulting from the
conclusion that the person was, throughout the period, not a member of the
partnership.
152. (4) Assessment
and reassessment [limitation period] - The Minister may at any time make an assessment,
reassessment or additional assessment of tax for a taxation year, interest or
penalties, if any, payable under this Part by a taxpayer or notify in writing
any person by whom a return of income for a taxation year has been filed that
no tax is payable for the year, except that an assessment, reassessment or
additional assessment may be made after the taxpayer’s normal reassessment
period in respect of the year only if
(a) the taxpayer or person
filing the return
(i) has
made any misrepresentation that is attributable to neglect, carelessness or
wilful default or has committed any fraud in filing the return or in supplying
any information under this Act, or
(ii) has
filed with the Minister a waiver in prescribed form within the normal
reassessment period for the taxpayer in respect of the year;
[…]
165.
(1.15) Partnership
- Notwithstanding subsection (1), where the Minister makes a determination
under subsection 152(1.4) in respect of a fiscal period of a partnership, an
objection in respect of the determination may be made only by one member of the
partnership, and that member must be either
(a) designated for that purpose
in the information return made under section 229 of the Income Tax Regulations for the fiscal period; or
(b) otherwise expressly
authorized by the partnership to so act.
Email this Content