Date: 20091022
Docket: A-420-08
Citation:
2009 FCA 302
CORAM: NOËL J.A.
PELLETIER J.A.
TRUDEL J.A.
BETWEEN:
INNOVATIONS
ET INTÉGRATIONS
BRASSICOLES INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1]
This is an appeal from a judgment of Justice Tardif
of the Tax Court of Canada (the TCC judge), who quashed the notice of appeal
filed by the appellant on the basis that it was the wrong remedy. According to
the TCC judge, the applicable remedy under the circumstances was an appeal
before the Federal Court of Appeal.
[2]
Briefly stated, in an initial appeal, the
appellant chose to assert its rights before the Tax Court of Canada by electing
the informal procedure. Under this procedure, the amount that it could be refunded
could not exceed $12,000. In a second appeal filed before the Tax Court of
Canada, the appellant asked that this limit be raised and that it be refunded
an additional $7,000, to which it would have been entitled were it not for the
procedure chosen. The TCC judge relied on the doctrine of res judicata to
find that the only remedy available was an appeal before the Federal Court of
Appeal.
[3]
According to the appellant, which is represented
by one of its senior executives, the TCC judge erred in law. It asks this Court
to allow the appeal and order the refund of the excess amount, with interest.
FACTS
[4]
On December 9, 2003, the Minister of
National Revenue (the Minister) made an initial assessment in respect of the
appellant for its 2001 taxation year, disallowing the refundable investment tax
credit of more than $19,000 claimed for the year, on the basis that the
appellant’s activities did not constitute scientific research and experimental
development.
[5]
On June 23, 2004, the appellant filed an
initial appeal against this assessment before the Tax Court of Canada (appeal
number 2004-2805(IT)I). In its notice of appeal, the appellant
specifically asked that the informal procedure apply in respect of its appeal.
[6]
On August 31, 2004, the respondent sent the
appellant the reply to the notice of appeal. The letter accompanying that pleading
informed the appellant that, under the informal procedure, the Tax Court of
Canada could rule on its appeal only in an amount of tax not exceeding $12,000,
unless the appellant elected to have the general procedure apply in respect of its
appeal. The letter stated that the amount at issue in its appeal was
approximately $19,065.
[7]
The respondent indicated more formally in its
reply to the notice of appeal that it had noted the appellant’s election of the
informal procedure in respect of its appeal, even though the total amount of
tax at issue for its 2001 taxation year exceeded $12,000.
[8]
The hearing into the initial appeal took place
before Justice Bédard. The transcript shows that, on the first day of the
hearing, counsel for the respondent raised the fact that the appellant had
elected to have the informal procedure apply with respect to its appeal, even
though the amount at issue for its 2001 taxation year was approximately $19,000
(opening remarks, transcript of the hearing on February 28, 2005, in the appeal
2004-2805(IT)I, page 5, line 22, and page 8, line 15, Exhibit I‑1,
Appeal Book, Tab 7, pages 236 to 268, at pages 240 to 243).
[9]
Justice Bédard then made sure that the appellant
was aware of the $12,000 limit and confirmed at the hearing that, in the event
of a favourable judgment, the judgment would be limited to $12,000 (opening
remarks, transcript of the hearing on February 28, 2005, in the appeal
2004‑2805(IT)I, page 6, lines 12 to 14, and page 8,
lines 11 to 15, Exhibit I‑1, Appeal Book, Tab 7,
pages 236 to 268, at pages 241 and 243).
[10]
Before the end of the hearing, in a letter sent
to the Tax Court of Canada dated April 1, 2005, the appellant asked that,
given the $12,000 limit, the Court award it $7,000 in special costs to
take into account the amount that it could not claim.
[11]
By judgment dated September 25, 2005, the
Tax Court of Canada allowed the appeal and referred the assessment of the
appellant’s 2001 taxation year back to the Minister for reconsideration and
reassessment, in accordance with the reasons for judgment.
[12]
The Tax Court of Canada then amended its reasons
at the request of the parties to account for an agreement that had been
reached, and issued an amended judgment on December 1, 2005, still
allowing the appellant’s appeal.
[13]
On June 2, 2006, the Minister reassessed
the appellant for its 2001 taxation year, allowing it a $12,000 refundable
investment tax credit.
[14]
On August 29, 2006, the appellant served on
the Minister a notice of objection to this reassessment.
[15]
On November 14, 2006, the appellant sent a
letter to the Tax Court of Canada asking it to intervene in the implementation
of the amended judgment of December 1, 2005, so that the appellant might
obtain a refundable investment tax credit of $19,404 instead. The respondent objected
to this request in a letter dated December 7, 2006.
[16]
On December 20, 2006, the Tax Court of
Canada declined to grant that request on the grounds that the powers of the Tax
Court of Canada were spent and that it had been functus officio since
December 1, 2005.
[17]
On April 20, 2007, the Minister reassessed
the appellant for its 2001 taxation year. Under this reassessment, the
refundable tax credit remained at $12,000 as had been previously allowed to the
appellant under the June 2, 2006, assessment.
[18]
On July 18, 2007, the appellant filed a
second appeal to the Canada Tax Court (number 2007-3271(IT)I), this time
against the reassessment of April 20, 2007, again to contest the $12,000 limit
that the Minister had applied to the calculation of the refundable tax
investment on assessing.
DECISION OF
THE TAX COURT OF CANADA
[19]
The TCC judge began his analysis by noting that
the distinction between the informal procedure and the general procedure is not
trifling. This difference is reflected, among other things, in the costs that
can be allowed and the applicable rules of evidence (reasons, para. 7).
[20]
The TCC judge stated that the parties are
generally informed about the differences between the two schemes when the
amount is close to the $12,000 threshold. In the case at bar, the issue was
brought to the appellant’s attention several times: further to the appellant’s notice
of appeal, upon the filing of the reply to the notice of appeal and at the
hearing before Justice Bédard (reasons, para. 9).
[21]
The TCC judge then addressed the appellant’s
argument that it had not obtained all the information needed to make an
informed choice. The judge stated first that ignorance is not an excuse (reasons,
paras. 10 and 11). Moreover, the appellant’s agent, by his silence,
accepted the consequences of the informal procedure (ibidem).
[22]
According to the TCC judge, the appellant could
have appealed Justice Bédard’s judgment but did not do so (reasons, paras. 16
and 17). In the TCC judge’s view, that was the only possible remedy. In
the absence of such remedy, Justice Bédard’s decision was res judicata (reasons,
paras. 21, 26, 27 and 28).
[23]
The TCC judge concluded his analysis as follows
(reasons, para. 30):
The Appellant cannot, today, indirectly do
what it should have done within the time allotted by the Act. Consequently, the
Notice of Appeal is quashed.
ALLEGED
ERRORS
[24]
In support of the appeal, the appellant’s agent
contends that he could appeal to the Tax Court of Canada under subsection 164(4.1)
of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act). This
provision allows a taxpayer to ensure that an assessment issued following a
judgment of the Court is in accordance with that judgment.
[25]
As for the merits of the case, he reiterates the
argument that he had not been adequately informed of his rights. He also
criticizes Justice Bédard for failing to amend the pleading of his own motion
to allow the appellant to recover the full amount.
ANALYSIS AND
DECISION
[26]
As demonstrated below, the appellant could not
be granted an investment tax credit exceeding $12,000 under the informal
procedure. The only issue is therefore whether the appellant consented to the
application of the informal procedure in respect of its appeal before
Justice Bédard. If so, it cannot claim to be entitled to an amount
exceeding $12,000.
[27]
Indeed, under section 18.1 of the Tax
Court of Canada Act, R.S.C. 1985, c. T‑2 (the TCCA), every
judgment that allows an appeal to which the informal procedure applies shall be
deemed to include a statement that the “aggregate of all amounts” in issue not
be reduced by more than $12,000 or that the amount of the loss in issue not be
increased by more than $24,000, as the case may be. There is no limit to the
amount that the Tax Court of Canada may determine in an appeal heard under the
general procedure.
[28]
Moreover, section 2.1 of the TCCA provides
that the “aggregate of all amounts” means the total of all amounts assessed or
determined by the Minister under the Act, but does not include any amount of
interest or any amount of loss determined by the Minister.
[29]
The refundable investment tax credit, set out at
section 127.1 of the Act, is an amount determined by the Minister under
paragraph 152(1)(b) of the Act. Under subsection 152(1.2) of
the Act, the provisions relating to an opposition to and appeal from an
assessment apply to the determination, with such modifications as the
circumstances require.
[30]
The refundable investment tax credit of over $19,000
in issue therefore fell within the definition of “aggregate of all amounts”, at
section 2.1 of the TCCA, as an amount determined by the Minister under the
Act. Consequently, it was an amount referred to by section 18.1 of the
TCCA.
[31]
This section is a deeming provision: every
judgment that allows an appeal to which the informal procedure applies shall be
deemed to include a statement that the “aggregate of all amounts” in issue not
be reduced by more than $12,000, whether or not it is expressly mentioned in
the judgment.
[32]
The record discloses that the judgment amended
by Justice Bédard on December 1, 2005, was implemented by way of determination
on June 2, 2006, in accordance with subsection 164(4.1) of the Act.
Under subsection 165(1.1) of the Act, the appellant could object to the determination
implementing the amended judgment and could, under subsection 169(2) of
the Act, appeal the determination to the Tax Court of Canada. However, this
right is limited to ensuring that the deduction was in accordance with the judgment
made, which was subject to the $12,000 limit imposed by the Act.
[33]
After objecting to the determination of
June 2, 2006, the appellant did not exercise its right of appeal. Instead,
the appellant sent a letter to the Tax Court of Canada asking it to intervene
in the implementation of the amended judgment dated December 1, 2005, so
that the appellant might obtain a $19,404 tax credit.
[34]
In a letter dated December 20, 2006, signed
by a registry officer, the appellant received the following reply:
[translation]
. . . The Court rendered its
judgment on December 1, 2005. The powers of the Court are spent, and the
Court has been functus officio in respect of this appeal since
December 1, [2]005.
[35]
Following this refusal, another assessment was
issued, identical to the previous one, limiting the refund allowed to $12,000. I
have been unable to identify the provision according to which this last
assessment was issued, and counsel for the respondent was also unable to shed
light on this point. However, assuming it to be valid, which is the only
hypothesis that would allow the Court to hear this appeal, the issue facing the
appellant remains the same, since the determination is still the outcome of the
judgment that allowed the appellant’s appeal under the informal procedure.
[36]
The appellant therefore cannot succeed unless it
demonstrates that its appeal before Justice Bédard was not subject to the
informal procedure. In this regard, the appellant claims that it did not agree
to the informal procedure (appellant’s memorandum, pp. 15, 16 and 17)
and that, in any event, Justice Bédard had a duty under section 18.13
of the TCCA to order that the general procedure apply to its appeal (idem,
p. 19).
[37]
Regarding the first argument, as discussed
above, the evidence clearly shows that the appellant was informed on many
occasions that the informal procedure that it relied on reduced the amount that
it could be paid, if it were to succeed. The appellant cannot now argue that it
had acted without knowledge. In particular, the appellant was well aware of the
fact that the $12,000 limit applied to the tax credits it was claiming, as
evidenced by its letter dated April 1, 2005. In this letter, while its
appeal before Justice Bédard was still pending, the appellant asked that
the credits subject to this limit be remitted to it as costs.
[38]
As for the second argument, it is true that
section 18.13 of the TCCA required that Justice Bédard, on motion of
one of the parties, order that the general procedure apply with respect to the
appeal. However, no such motion was made.
[39]
Under that same section, Justice Bédard also had
the power to convert the procedure on his own motion. In this regard, after
noting that the appellant was perfectly aware of the consequences of its
choice, Justice Bédard was required to respect that choice.
[40]
I would dismiss the appeal with costs.
“Marc Noël”
“I agree.
J.D. Denis Pelletier J.A.”
“I agree.
Johanne Trudel J.A.”
Certified true
translation
Tu-Quynh Trinh
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