Dockets:
A-297-13
A-296-13
Citation:
2014 FCA 161
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CORAM:
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DAWSON J.A.
TRUDEL J.A.
NEAR J.A.
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A-297-13
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BETWEEN:
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SENTINEL HILL PRODUCTIONS IV CORPORATION, IN ITS CAPACITY AS
DESIGNATED MEMBER OF SENTINEL HILL NO. 207 LIMITED PARTNERSHIP
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Appellant
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and
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HER MAJESTY THE QUEEN
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Respondent
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A-296-13
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BETWEEN:
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SENTINEL HILL PRODUCTIONS IV CORPORATION, IN ITS CAPACITY AS
DESIGNATED MEMBER OF SHAAE (2001) MASTER LIMITED PARTNERSHIP
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Appellant
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and
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HER MAJESTY THE QUEEN
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Respondent
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REASONS FOR JUDGMENT
DAWSON J.A.
[1]
Paragraph 58(1)(a) of the Tax Court of
Canada Rules (General Procedure), SOR/90-688a, allows a party to request
that the Tax Court determine, before the hearing of an appeal, a question of
law, a question of fact or a question of mixed fact and law. The requesting
party must persuade a judge of the Tax Court that such a determination may
dispose of all or part of the proceeding, substantially shorten the hearing, or
result in a substantial saving of costs.
[2]
The appellants in these consolidated appeals
sought to have the following question determined:
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”)
[3]
For reasons cited as 2013 TCC 267, a judge of
the Tax Court concluded that the proposed question should not be set down for
hearing. This is an appeal from that decision.
[4]
Among other reasons, the Judge concluded that
the proposed question had no reasonable chance of success and therefore would
not dispose of the proceeding, shorten the hearing, or save costs.
[5]
I see no error in the Judge’s finding on this
point. This finding is fatal to these appeals. I reach this conclusion for the
following reasons.
[6]
First, the proposed question is premised on the
unproven assumption that the partnerships did not exist during the relevant
periods. As the Judge noted in her reasons at paragraph 21, the existence of
the partnership is a disputed question. In her replies and amended replies to
the notices of appeal and amended notices of appeal, the Minister advanced
alternate positions as to whether the “partnerships”
were partnerships at law. It would be an academic exercise to answer the
proposed question before the issue of the existence of the partnership is
settled.
[7]
Second, a notice of determination issued under
subsection 152(1.4) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
(Act), does not make a partnership liable to pay taxes. Rather, it allows the
Minister to determine the income or losses of the partnership in order to
determine the tax payable by any member of that partnership. A notice of
determination, therefore, is simply a method of computing income at the
partnership level and binding the members of the partnership to that
computation. Determinations are subject to an objection and appeal procedure
that is similar to the procedure applicable to assessments (subsection 152
(1.2) of the Act).
[8]
As such, I agree with the Judge (reasons,
paragraphs 36 to 39) that the appellants seek to have the determinations
vacated on grounds that have nothing to do with whether they are incorrect or
invalid. This is contrary to well-established principles of law. The role of
the Tax Court in an appeal of an assessment under the Act, or a determination,
is to decide the validity and correctness of the assessment, or determination,
based on the relevant provisions of the Act and the facts giving rise to the
taxpayer's statutory liability (Ereiser v. Canada, 2013 FCA 20, 444 N.R.
64).
[9]
Third, I disagree that the Judge considered the
wrong question. The appellants argue that the Judge erred by considering that
the proposed question raised the issue of whether reassessments issued to
individual partners would be statute-barred. However, as explained below, it
was the appellants who first raised this issue.
[10]
As evidenced at paragraph 6 of the Judge’s
reasons, the notice of motion seeking determination of the question contains
five grounds on which the motion was based. Two of the grounds referenced
subsection 152(1.8) of the Act and asserted that the Minister was no longer
entitled to proceed further pursuant to the notices of determination issued to
the partnerships, or to issue any notices of reassessment to the members of the
partnership, because of the application of the limitation period found in
subsection 152(1.8). This position was reiterated in counsel’s letter of
February 12, 2013 which restated the proposed question.
[11]
In order to consider whether the question should
be answered, the Judge was required to consider the argument that formed the
foundation of the question.
[12]
Finally, I agree with counsel for the appellants
that it is not appropriate in the circumstances for this Court to answer the
proposed question, and the Court will not do so. That said, it is fair to
observe that the appellants’ argument appears to be difficult to sustain in
light of the statutory scheme. Specifically, subsection 152(1.4) permits the
Minister to issue a notice of determination when a partnership information
return is filed. The filing of such a return in effect constitutes a
representation that the entity is in fact and law a partnership.
[13]
Moreover, subsection 152(1.8) contemplates the
specific scenario where, notwithstanding that a representation was made that a
person was a member of a partnership, the Minister or a court of competent
jurisdiction concludes the partnership did not exist.
[14]
For these reasons, these appeals will be
dismissed with one set of costs. Pursuant to the consolidation order, a copy of
these reasons shall be placed in the incidental appeal file (A-296-13).
“Eleanor R. Dawson”
“I agree.
Johanne Trudel J.A.”
“I agree.
D.G. Near J.A.”
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