[1] This is an appeal by the Crown of interlocutory orders of the Tax Court of Canada (Imperial Oil Ltd. v. Canada, 2003 D.T.C. 179) dismissing the Crown's motion to strike out the notices of appeal of the two respondents, or to stay the appeals, because they challenge assessments that are based on income tax returns that have been accepted as filed by the respondents, or as changed at their request.

[2] The Crown contended in the Tax Court that electronically or mechanically generated assessments of income tax returns, resulting as in these cases in their acceptance as filed, are not "assessments" within the meaning of subsections 165(1) and 169(1) of the Income Tax Act which can be objected to, and appealed from if the Minister fails to respond to the notice of objection within 90 days. According to the Crown's argument, it would follow that the Tax Court has no jurisdiction to hear the appeals. Alternatively, if the Tax Court has jurisdiction, the appeals are an abuse of the process of the Tax Court.

[3] The Tax Court Judge gave lengthy and detailed reasons for rejecting the arguments made by the Crown in support of its motions. In our view, his analysis of each of the Crown's arguments is based on a sound interpretation of the relevant provisions of the Income Tax Act, which may be summarized as follows. Subsection 165(1) of the Income Tax Act gives every taxpayer the right to object to an assessment, subject to compliance with statutory time limits and other procedural requirements. If an objection is not dealt with within a specified time, subsection 169(1) gives the taxpayer the right to appeal to the Tax Court. The right to object and appeal cannot be denied or delayed except by some provision of the Income Tax Act.

[4] The Crown has made four principal arguments in this appeal.

[5] First, the Crown argues that a taxpayer should not be permitted to object to an assessment that accepts all claims made in the taxpayer's income tax return. This argument must be rejected. According to subsections 165(1) and 169(1) of the Income Tax Act, the right to object and appeal may be asserted when the Minister makes an assessment. These provisions make no distinction between an objection to an assessment that is inaccurate because of an act or omission of the taxpayer, and an objection to an assessment that is inaccurate because of an act or omission of the Minister, whether the result of an audit or not.

[6] Second, the Crown argues that taxpayers should not be permitted to object or appeal before the completion of the audit process, because the result is inconvenient and inefficient. This argument must be rejected because it would impose an extra-statutory limitation on the right to object and appeal. Nothing in the Income Tax Act requires a taxpayer to delay an objection or appeal to accommodate the administrative convenience of the Minister.

[7] Third, the Crown argues that permitting objections and appeals to a taxpayer's own filing diminishes the Minister's capacity to conduct audits. There is no basis for this argument. The Minister's right to audit and to reassess within the statutory limitation periods exists regardless of any ongoing objections and appeals. Nor do we accept that the Minister could be prejudiced by a plea of res judicata if an audit adjustment is made after the conclusion of the Tax Court appeal on an issue that could not have been before the Tax Court. The Minister's right to reassess within the statutory time limitations cannot be so limited. In addition, the res judicata principle offers built-in safeguards whereby the rule will not apply when justice so requires in special circumstances.

[8] Fourth, the Crown argues that permitting appeals to a taxpayer's own filing denies the Minister the procedural advantage of relying on "factual assumptions" in response to an income tax appeal in the Tax Court, which places on the appellant taxpayer the burden of proving that the factual assumption is false. The fallacy of this argument is demonstrated by this very case, in which certain foreign exchange losses are claimed for the first time at the objection stage. The entitlement to those losses is now an issue in the Tax Court appeal. The Minister has stated in the reply to the notice of appeal that the Minister has no knowledge of the foreign exchange losses and puts the respondents to the "strict proof thereof". The Crown can be in no better strategic position than that.

[9] The Minister has adopted a practice of issuing initial assessments very quickly, based on only a mechanical review or arithmetical check. According to material in the record, this practice is founded on sound policy considerations. However, the Income Tax Act does not require the Minister to make an initial assessment of every income tax return prior to a full examination. The statutory obligation of the Minister is to assess "with all due dispatch." That is an elastic standard that gives the Minister sufficient discretion to determine that a particular return should not be assessed until after a detailed review. As long as the necessary review proceeds at a pace that is reasonable in the circumstances, the Minister will not be in default of the statutory obligation to assess with all due dispatch.

[10] The administrative difficulties arising from the complex affairs of two large corporations have driven the Crown to propose statutory interpretations that are not only incorrect, but that have the potential to cause inordinate difficulties for taxpayers whose affairs are not complex. For example, it is reasonably common for taxpayers to file objections to assessments based on their own returns. This is routinely done, for example, if a taxpayer wishes to preserve the potential right of appeal while the Minister deals with a request to allow a deduction that the taxpayer simply forgot to claim. Alternatively, a taxpayer might choose to assert a controversial claim for the first time in a notice of objection because a negative outcome at that stage will not result in tax liability. Many such claims could be considered fairly without a complete audit.

[11] Here, the respondents are not the victims of an error. They have purposefully chosen tactics that place the Minister in an unfamiliar and unwelcome position. However, we do not accept the Crown's submission that a taxpayer that chooses to assert a statutory right to object to an assessment, and then to appeal, is abusing the process of the Tax Court.

[12] For the foregoing reasons, we have concluded that the Tax Court Judge was correct to dismiss the Crown's motion to strike out the appeal.

[13] The same reasons support the decision of the Tax Court Judge not to stay the proceedings. As he said, a stay is an extraordinary remedy, and the material presented to him did not justify such a step.

[14] We have not disregarded the possibility that, because it has not conducted a normal audit, the Crown may find itself in the position of requiring more than the usual time to complete the discovery processes permitted by the Tax Court Rules. Nothing in the decision under appeal would preclude the Crown from seeking extensions of time, either with the consent of the respondents or upon motion to the Tax Court, if the need arises. The Tax Court has authority to suspend or adjourn proceedings for the purpose of enabling the Minister to complete an audit that is necessary or likely to avoid wasteful or duplicative litigation. That authority must be exercised judicially, and a decision to exercise it or not to exercise it is subject to appeal. We are not willing to assume that it will not be so exercised by the Tax Court if a motion is brought seeking a suspension or an adjournment, and the motion is supported by appropriate evidence.

[15] For these reasons, these appeals will be dismissed.

(Sgd.) "Karen R. Sharlow"

J.A.

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-103-03 & A-104-03

STYLE OF CAUSE: Her Majesty the Queen v. Imperial Oil Limited and Imperial Oil Limited

PLACE OF HEARING: Vancouver, B.C.

DATE OF HEARING: June 25, 2003 - June 26, 2003

REASONS FOR JUDGMENT: LÉTOURNEAU, SHARLOW, MALONE JJ.A.

RENDERED FROM THE BENCH BY: SHARLOW, J.A.

APPEARANCES:

Mr. Luther P. Chambers, FOR THE APPELLANT

Mr. George Boyd Aitken &

Ms. Rhonda Nahorniak

Mr. Alnasir Meghji & FOR THE RESPONDENT

Mr. Gerald Grenon

SOLICITORS OF RECORD:

Mr. Morris Rosenberg FOR THE APPELLANT

Deputy Attorney General of Canada

Osler, Hoskin & Harcourt LLP FOR THE RESPONDENT

Toronto, Ontario

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Ths Queen v. Imperial Oil Ltd., 2003 FCA 289

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2003 FCA 289