Citation: 2017 TCC 173
Date: 20170907
Dockets: 2012-3093(IT)G
2012-3094(IT)G
BETWEEN:
2078970 ONTARIO INC., IN ITS CAPACITY AS
DESIGNATED PARTNER OF LUX OPERATING LIMITED PARTNERSHIP,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent,
And
BETWEEN:
2078702 ONTARIO INC., IN ITS CAPACITY AS DESIGNATED
PARTNER OF LUX INVESTORS LIMITED PARTNERSHIP,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Visser
J.
INTRODUCTION
[1]
The applicant corporation 2078970 Ontario Inc. (“2078970”) is the general and designated
partner for the Lux Operating Limited Partnership (“Lux
OLP”) and the applicant corporation 2078702 Ontario
Inc. (“2078702”) is the general and designated partner for the Lux
Investor Limited Partnership (“Lux ILP”) in respect of their appeal of
partnership Notices of Determination issued by the Minister
of National Revenue (the “Minister”) pursuant to subsection 152(1.4) of
the Income Tax Act (Canada)
(the “Act”) and dated February 11, 2010, and February 25, 2010.
In the course of making these determinations, the
Minister concluded that neither partnership was a valid partnership at law and
accordingly determined that the losses reported by the two partnerships were
nil for the 2006, 2007 and 2008 fiscal periods at issue in the underlying
appeals. Although the Applicants argue that the partnerships are valid
partnerships, they argue, inter alia, that the corresponding Notices of
Determination issued by the Minster are procedurally invalid because the
Minister cannot issue a Notice of Determination pursuant to subsection 152(1.4)
of the Act in respect of a purported partnership where the Minister has
concluded (before issuing the Notices of Determination) that no valid
partnership exists.
[2]
In this respect, the Applicants have each
brought a motion under section 58 (“Rule 58”) of the Tax Court of
Canada Rules (General Procedure) (the “Rules”) to have the following
question (the “Question”) determined by this Court pursuant to Rule 58
prior to the hearing of the related appeals:
“Where the Minister has at all times concluded
that no partnership existed, can the Minister issue a valid Notice of
Determination in respect of that purported partnership under subsection
152(1.4) of the Act?”
[3]
There are two stages to a Rule 58 motion. In
this first stage, the Court must decide if an order will be granted that the
proposed Question be heard by this Court pursuant to Rule 58 at a subsequent
second stage hearing of the Question on its merits. The Respondent opposes the
motions on the basis that the Question does not meet the requirements of Rule
58(2), particularly because the Respondent argues it has no reasonable prospect
of success. For the reasons that follow, it is my view that the Applicants’
motions should be allowed and the Question should proceed to a stage two
hearing on its merits under Rule 58.
BACKGROUND FACTS
[4]
Lux OLP and Lux ILP are part of a multi-level
partnership financing structure which the Respondent described as follows in
its written submissions:
a. “In August 2005, a limited partnership, the Lux
Operating Limited Partnership (Lux OLP), was formed and purchased the assets of
an operating business, including a portfolio of intellectual property, from
Luxell Technologies Inc. (Luxell);
b. a second limited partnership, the Lux Investor Limited Partnership (Lux
ILP), was formed to become the limited partner in Lux OLP;
c. units of Lux ILP were sold to 58 outside investors as limited partners,
raising capital of $30,000,000, of which $4,000,000 was paid in cash and
$26,000,000 was paid by promissory notes (the Investor Notes). The Investor
Notes were payable in five annual instalments not commencing until January 31,
2008 (28 months later);
d. Lux ILP became the limited partner of Lux OLP and
contributed $30,000,000 for Lux OLP units ($4,000,000 in cash and $26,000,000
by assigning of the Investor Notes);
e. Lux OLP then purchased the assets from Luxell for
$29,000,000;
f.
the asset purchase was subject to an option granted
to Luxell to acquire the outstanding units of Lux OLP from Lux ILP - and
thereby to reacquire control of the business assets - for a minimum purchase
price of $26,000,000. The outside date for exercising the option was
January 31, 2008;
g. Lux OLP contracted with Luxell to operate the business using the assets
for Lux OLP's account in exchange for a service fee. Amounts owing to Luxell
were to be paid by promissory notes that would become payable only 36 months
after their date of issue (the Service Notes);
h. Lux [OLP] paid the $29,000,000 for Luxell's assets with cash of $3,000,000
and by an assignment of the Investor Notes with a face value of $26,000,000;
i.
Lux OLP began to issue Service Notes annually to
Luxell for fees relating to operating the business. The first Service Note did
not become payable until December 31, 2008 (40 months after the asset
purchase);
j.
in November 2007 (26 months after the asset
purchase), Luxell exercised its option to reacquire the units of Lux OLP from
Lux ILP for $26,000,000;
k. Luxell paid the $26,000,000 option price by assigning the Investor
Notes to Lux ILP;
l.
on January 7, 2008, Luxell wound up Lux OLP and cancelled
the Service Notes owing to itself, 11 months before the first note became
payable;
m. the investors who became limited partners in Lux ILP were never
required to pay the principal amount of the Investor Notes;
n. the amounts that Lux OLP deducted in computing income from the business
included CCA claimed in respect of intellectual property assets purchased from
Luxell and operating expenses incurred by Luxell under the service contract;
and
o.
from September 1, 2005 to January 7, 2008,
Lux OLP’s reported losses totaled $35,149,485, which were flowed up from Lux
OLP to Lux ILP and then allocated to the limited partners of Lux ILP who
deducted them in computing their income.”
LAW AND ANALYSIS
[5]
Rule 58 provides 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.
[6]
At paragraphs 10 to 25 of Paletta v. R.,
2016 TCC 171, Justice Owen provided the following overview of Rule 58 as it now
reads following changes thereto which came into effect in 2014:
“[10]
Rule 58 has been considered in a number of cases. However,
only a few cases have considered the most recent iteration of the rule, which
came into effect on February 7, 2014 (SOR/2014-26, s. 6). The
Regulatory Impact Analysis Statement describes the 2014 amendments to Rule 58
as follows:
To amend
sections 53 and 58 to regroup all matters where the Court may strike out a
pleading under section 53, and all matters relating to the determination of
questions of law, fact or mixed law and fact under section 58. As a consequence
of these changes, sections 59, 60, 61 and 62 are repealed.
[11] Accordingly,
current Rule 58 represents a consolidation of sections 58, 59, 60, 61 and 62 of
the Rules under a single rule, which is in some respects similar to, but in
other respects quite different from, the version of Rule 58 that it replaced.
The previous version stated:
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.[6]
[12]
In my view, the changes to the text and structure of Rule
58, when compared to the previous version, are sufficient to warrant a fresh
consideration of the rule as it now exists.
[13]
Rule 58 continues to describe a two-stage process.
Subsection 58(1) states that the Court may, in response to an
application by a party, grant an order that
1. a question of law, fact or mixed law and fact raised in a pleading, or
2.
a question as to the admissibility of any evidence,
be determined before the hearing.
[14]
Under subsection 58(2), the Court may grant such an
order if it appears that the determination of the question before the
hearing may
1. dispose of all or part of the proceeding,
2. result in a substantially shorter hearing, or
3. result in substantial savings in costs.
[15]
In the first stage, the Court determines whether an order
should be granted, having due regard to the requirements of subsections 58(1)
and (2), which are determined by applying the usual rules of statutory
interpretation, keeping in mind, however, subsection 4(1) of the Rules, which
requires that “[t]hese rules shall be liberally construed to secure the just,
most expeditious and least expensive determination of every proceeding on its
merits.”
[16]
With respect to the requirements in subsections 58(1) and
(2), subsection 58(1) requires that there be either (i) a question of law, fact
or mixed law and fact raised in a pleading, or (ii) a question as to the
admissibility of evidence.
[17]
In Canada (Director of Investigation and Research) v.
Southam Inc., [1997] 1 S.C.R. 748, the Supreme Court of Canada described
what constitutes a question of law, fact or mixed law and fact as follows (at
paragraph 35):
. . . Briefly stated, questions of law
are questions about what the correct legal test is; questions of fact are
questions about what actually took place between the parties; and questions of
mixed law and fact are questions about whether the facts satisfy the legal
tests. A simple example will illustrate these concepts. In the law of tort, the question what “negligence” means is a question of law. The
question whether the defendant did this or that is a question of fact. And,
once it has been decided that the applicable standard is one of negligence, the
question whether the defendant satisfied the appropriate standard of care is a
question of mixed law and fact. . .
[18]
The question of law, fact or mixed law and fact must have
been raised in the pleadings. Rule 58 does not provide a means to address such
questions that are not raised in the pleadings.[7]
[19]
The second, alternative, requirement in subsection 58(1)
was introduced with the 2014 amendments to Rule 58. It expands the scope of
Rule 58 to allow for questions regarding the admissibility of evidence. The
inclusion of this requirement confirms the broad scope of current Rule 58, as it
may now be used to address virtually any issue that could arise in a full
hearing of the appeal.
[20]
Subsection 58(2) requires only that “it appear” that the
Rule 58 hearing “may” lead to one or more of the specified outcomes. The word “may”
is used in two senses in subsection 58(2). The first sense is permissive and
this is also the sense in which it is so used in subsection 58(1). The
repetition of the permissive sense makes clear the fact that the decision to
grant an order is wholly in the discretion of the Court. In particular, the
fact that a question may meet the requirements in subsections 58(1) and (2) by
no means compels the Court to grant an order under Rule 58.
[21]
This discretionary aspect of the rule is entirely
consistent with the fact that the Tax Court of Canada has the implied authority
to control the process of the Court. In R. v. Cunningham, 2010
SCC 10, [2010] 1 S.C.R. 331, the Supreme Court of Canada stated:
Likewise in
the case of statutory courts, the authority to control the court’s process and
oversee the conduct of counsel is necessarily implied in the grant of power to
function as a court of law. This Court has affirmed that courts can apply a
“doctrine of jurisdiction by necessary implication” when determining the powers
of a statutory tribunal:
. . . the
powers conferred by an enabling statute are construed to include not only those
expressly granted but also, by implication, all powers which are practically
necessary for the accomplishment of the object intended to be secured by the
statutory regime . . . .
(ATCO Gas
and Pipelines Ltd. v. Alberta (Energy and Utilities Board), 2006 SCC 4, [2006]
1 S.C.R. 140, at para. 51)
Although
Bastarache J. was referring to an administrative tribunal, the same rule of
jurisdiction, by necessary implication, would apply to statutory courts.[8]
[22]
Apart from being reflective of the Court’s implied
authority to control its own process, the repetition of the permissive aspect
of Rule 58 reinforces the point that there may well be other considerations at
play that factor into the Court’s decision whether or not to grant an order.
The repeated use of permissive language in subsections 58(1) and (2) confirms
that the Court is not limited to considering only the requirements set out in
those subsections.[9]
[23]
The second sense of “may” used in subsection 58(2)
expresses possibility. Specifically, if “it appears” to the Judge hearing the
Rule 58 application that the determination of the question “may” (i.e., could
possibly) give rise to one or more of the three outcomes described in
subsection 58(2), then the Judge may (not must) grant the order.
[24]
The cases on the former version of Rule 58 are well
summarized by the Chief Justice in Suncor, supra. As the Chief Justice
observes, some cases under former Rule 58 have held that a question fails to
meet the requirement now in
subsection 58(2) if only one of two possible
answers would lead to the desired results.
[25]
I do not read these cases as setting a hard and fast rule
that must be applied to the current version of Rule 58. Moreover, the broad
discretionary language used in current subsection 58(2) supports the position
that a question should not automatically fail to meet the requirement in that
subsection because one possible answer to the question would not lead to one or
more of the desired results. Rather, the possibility of that answer should be
factored into the Court’s consideration of whether or not to exercise its
discretion to grant an order under Rule 58. In my view, such an approach
respects the broad discretionary language of subsection 58(2) and is consistent
with the mandate under subsection 4(1) of the Rules and the general principles
enunciated by the Supreme Court of Canada in Hryniak.”
[7]
I agree with Justice Owen’s overview of Rule 58
as it now reads. While earlier cases dealing with previous versions of Rule 58
may still be of assistance, they should be considered cautiously and
distinguished where necessitated by the changes to Rule 58.
[8]
At paragraphs 13 to 16 of Suncor Energy Inc.
v. The Queen, 2015 TCC 210, Chief Justice Rossiter provided the following
summary of the technical requirements that must be met under the first stage of
a Rule 58 motion:
“13 In McIntyre
v. R., 2014 TCC 111 (T.C.C. [General Procedure]) Justice Campbell held at
paragraph [23] that three technical requirements must be met under the first
stage of a Rule 58 motion:
(1) there are
questions of law, fact or mixed law and fact;
(2) they are raised
by the pleadings; and
(3) the questions
may dispose of all or part of the proceeding, may substantially shorten the
hearing of the appeal, or may result in a substantial savings of costs.
14 In Sentinel
Hill Productions IV Corp. v. R., 2013 TCC 267 (T.C.C. [General Procedure]),
Justice Woods held at paragraph [3] that the “main focus” of the first stage is
to determine whether the second and third requirements, above, are met. This
suggests that Justice Woods did not see the first requirement that the
questions be of law, fact, or mixed law and fact as important, perhaps because
every question must be either a question of law, fact, or mixed law and fact.
These are all the possibilities of what form a question could take.
15 Based on McIntyre
and Sentinel Hill, there are essentially only two requirements:
(1) the questions
are raised by the pleadings; and
(2) the questions
may dispose of all or part of the proceeding, may substantially shorten the
hearing of the appeal, or may result in a substantial savings of costs.
16 Also, it should
be noted that Campbell, in McIntyre, supra at paragraph [25] found that
beyond the technical requirements, “the Court has the discretion to consider
other factors, together with all the circumstances of the case”.”
[9]
In this case, the parties agree that the first
two requirements of a Rule 58 motion are met. In particular, they agree that
the Question is a question of law or mixed law and fact and that the Question
has been raised in the parties’ pleadings. I agree. In this case, the Question
raises a very narrow legal question about the validity of the issuance of
Notices of Determination in the context of a very narrow set of facts which
appear not to be in dispute.
It is also clear that the Question has been raised in the parties’ pleadings.
[10]
The parties disagree on the application of the
third requirement of a Rule 58 motion 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.” The Applicants
argue that the Question raises a threshold issue, and if the Question is
answered in the negative, the Applicants’ appeals must be allowed as the
underlying Notices of Determinations will be invalid. The Applicants also argue
that a trial on all of the merits of these two appeals would likely take 10-12
days, whereas given that there are no factual disputes in relation to the
determination of the Question, legal argument on that preliminary issue would
likely only take one half day. As a result, the Applicants’ argue that
answering the Question in the negative would dispose of all of the appeal and
would thus obviate the need for a potentially long trial and therefore result
in both a substantially shorter hearing and a substantial savings in costs.
[11]
Because the Question raises a preliminary issue
which must be addressed at trial if this Rule 58 motion is not allowed, the
Applicants further argue that answering the Question in the affirmative will
obviate the need to address that issue at trial because the issue would be res
judicata, and thus both shorten the trial, and the cost thereof, by a
similar amount of time and cost as the Rule 58 hearing.
[12]
The Applicants have noted that this Court has
been divided in the past as to whether the third requirement of a Rule 58
motion has been met in circumstances where the Question will only dispose of
part of the proceeding or shorten the hearing if it is answered in favour of
the Applicants, and argue that Rio Tinto Alcan Inc. v. The Queen and Paletta
support their position that the third requirement of a Rule 58 motion has been
met in the circumstances of this case under the current version of Rule 58.
[13]
While the Respondent appears to agree that the
Question relates to a preliminary issue to the hearing of the trial on its
merits,
the Respondent argues that the third requirement of a Rule 58 motion will not
be met for two reasons. Firstly, the Respondent argues that the Question will
only dispose of part of the proceeding or shorten the hearing if it is answered
in favour of the Applicants, and, citing Kwok v. The Queen and McIntyre
v. The Queen,
argues that this Court has previously held that the third requirement of a Rule
58 motion is not met where the Question will only dispose of all or part of the
proceeding or substantially shorten a hearing when answered in favour of the
Applicant.
[14]
I agree with the Applicants. In this case,
answering the Question in favour of the Applicants may invalidate the Notices
of Determination issued by the Minister and therefore may dispose of all or
part of the proceedings or result in a substantially shorter hearing or a
substantial savings of costs. In addition, if the Question is answered in
favour of the Respondent, the preliminary issue dealing with the validity of the
Notices of Determination will have been addressed and would therefore be res
judicata, and that preliminary part of the proceedings will therefore be
disposed of. The hearing of the appeals should therefore also be shortened by
an amount of time approximately equal to the time taken to argue the Question
at the Rule 58 stage two hearing. While in my view the Question would therefore
meet the three requirements when answered either way, I also agree with Justice
Owen in Paletta, at paragraph 25, and am of the view that the current
version of Rule 58 should not be read narrowly and does not set a hard and fast
rule that must be applied in each case.
[15]
As a second reason raised by the Respondent in
support of the Respondent’s position that the third requirement of a Rule 58
motion will not be met, the Respondent argues that the Question has no
reasonable prospect of success, and therefore cannot substantially shorten the
hearing. The Respondent cites Sentinel Hill in support
of this position both generally and specifically in relation the Question. The
Respondent also argues that the issue on appeal is the correctness of the
amount of the partnership losses in dispute as determined by the Minister, not
the Minister’s thought process or reasons, as it is open to the Minister to
advance an alternative basis of assessment in defending an appeal. The
Respondent further argues that subsection 152(1.4) of the Act clearly
provides that the Minister may issue a partnership determination where a
partnership return has been filed,
and that the Question presumes a threshold requirement for issuing a
partnership determination which is not supported in the Act.
[16]
The Respondent also argues that the Question
leads to an absurd interpretation of the partnership determination provisions
of the Act. In particular, while the Applicants argue that the two
partnerships are valid partnerships, they seek to invalidate the Minister’s
Notices of Determination on a procedural ground based on the Minister’s position
that the partnerships were not valid partnerships. The Respondent argues that
it would be absurd for the partnership determination provisions not to apply to
a partnership because the Minister wrongly believed the partnership was an
invalid partnership, and that the Applicant’s position undermines the purpose
of the partnership determination provisions.
[17]
While the Respondent acknowledges that an
assessment can be overturned both for being procedurally invalid and because it
is incorrect, the Respondent argues that subsection 152(1.2) of the Act
incorporates all of the procedural provisions in Divisions I (Returns,
Assessments, Payments and Appeals) and J (Appeals to the Tax Court and the
Federal Court of Appeal) as they relate to an assessment or to a reassessment
of tax and that they therefore apply to the partnership determination rules.
The Respondent also notes that it is open to the Minister to assess taxpayers,
such as trusts, where the Minister takes the positon the taxpayer does not
legally exist.
As such, the Respondent argues that there is no procedural invalidity to the
Notices of Determination issued in the two appeals at issue herein.
[18]
As the validity of the two partnerships is a
central issue in the Applicants’ Appeals, and those appeals raise complex
factual issues, the Respondent also argues that Rule 58 should not be used in
substitute for a full hearing of the appeals.
[19]
The Applicants argue that Sentinel Hill
can be distinguished from this case, as the Question does not raise any
irrelevant or peripheral questions and because the Minister has never concluded
in these appeals that a valid partnership existed, unlike in Sentinel Hill,
where the Minister changed assessing positons on appeal.
[20]
The Applicants also argue that there are a
number of important differences between the partnership determination rules and
the assessment rules applicable to taxpayers generally. Pursuant to subsection
152(1) of the Act, the Minister must assess the tax payable by a
taxpayer after the taxpayer files a return. While partnerships are generally
not subject to tax under the Act, they are required to file an annual
partnership return and taxpayer partners of partnerships are required to
include the income or loss from partnerships in computing their income annually.
The Applicants further argue that, pursuant to subsection 152(1.4), the
Minister may determine the income or loss of a partnership after a partnership
return is filed, but is not required to do so. Rather, the Minister may choose
to assess the taxpayer partners directly. The Applicants thus argue that the
Minister has two procedural routes available when deciding upon the correctness
of the income or loss reported by members of a partnership, and while the
partnership determination provisions provide for a procedural shortcut, they
are not mandatory but discretionary to the Minister. The Applicants also argue
that the Minister must first determine that a valid partnership exists before
issuing a partnership determination, and in this case, having concluded that
there was no valid partnership, the Minster should have assessed the taxpayer
partners of the partnerships instead of using the partnership determination
process.
[21]
I agree that there are a number of important
differences between Sentinel Hill and this case. In Sentinel Hill,
the Minister did not initially conclude that the partnership was invalid, but
rather raised that in the alternative on appeal. In this case, the Minster
initially concluded that no valid partnerships existed. In Sentinel Hill,
Justice Woods determined that the proposed question was not raised by the
applicant in the pleadings, whereas it is clear that the Question was raised in
the pleadings in this case.
[22]
There is also an important difference between
the proposed question in Sentinel Hill and the Question in this case.
The proposed question in Sentinel Hill was framed by Justice Woods at
paragraph 7 as follows:
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.
[23]
In this case, the Question clearly only relates
to procedural validity pursuant to subsection 152(1.4) of the Act, and
only relates to the validity of the Notices of Determination issued to the
partnerships, and importantly does not relate to assessments of the partners.
[24]
At paragraph 12 of the Federal Court of Appeal’s
decision in Sentinel Hill, Justice Dawson noted the following:
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.
[25]
While Justice Dawson’s comments on the
procedural validity of a Notice of Determination appear to address the
Question, I note that they were obiter. In light of the important differences
between Sentinel Hill and these Applications, I am of the view that the
Question has not previously been fully considered by either this Court or the
Federal Court of Appeal. As such, it is my view that the decision in Sentinel
Hill does not inevitably lead to the conclusion that the Question has no reasonable prospect of success.
[26]
Having concluded that the three requirements of
a Rule 58 stage one hearing have generally been met in this case, it is my view
that this case would be an appropriate case to advance to a stage two hearing
unless the Question has no reasonable prospect of success. It is important to
note that in considering whether the Question has no reasonable prospect of
success, it is not the role of this Court at a stage one hearing to answer the
Question or to consider it fully.
[27]
Subsections 152(1.4) to (1.9) of the Act are
set out in an Appendix hereto. In my view, the partnership determination
provisions, read in conjunction with the Act as a whole, clearly
establish that the Minster has two possible routes when assessing the income of
partners. In particular, the Minister may assess the partners directly or may
utilize the partner determination provisions where applicable. It is also worth
noting some differences between subsections 152(1.4) and 152(1.8). Subsection
152(1.4) references the Minister making a determination in respect of a
“partnership”, but does not explicitly reference the Minister making such a
determination where the Minister initially concludes there is no valid
partnership. Subsection 152(1.8) applies to allow the Minster to assess a
partner of a partnership where representations are made to the Minster that the
person was a member of the partnership and the Minster issued a notice of
determination, but the Minister (or the Courts) “concludes at a subsequent time
that the partnership did not exist”. Although it is my view that there is some
ambiguity as to how subsection 1542(1.8) would apply in any particular
scenario,
it arguably contemplates a scenario where the Minister initially issues a
notice of determination under subsection 152(1.4) on the basis that a
partnership did exist and subsequently concludes that it did not exist. It also
shows that “conclusions” of the Minster as to the existence or validity of a
partnership are relevant to at least some of the partnership determination
provisions.
[28]
Overall, considering the legislative scheme of
the partnership determination provisions, it is my view that it cannot be said
that the Question has no reasonable prospect of success.
CONCLUSION
[29]
Based on all of the foregoing reasons, the
Applicants’ motions are allowed with costs payable as determined by the Judge
presiding at the Rule 58 stage two hearing of the Question. The Question to be
determined at the Rule 58 stage two hearing will be as follows:
Where the Minister
has at all times concluded that no partnership existed, can the Minister issue
a valid Notice of Determination in respect of that purported partnership under
subsection 152(1.4) of the Act?
[30]
The following evidence shall be used at the
hearing of the Question:
(a) The Amended Notice of Appeal for each of the two Appeals;
(b) The Amended Reply for each of the two Appeals;
(c) The affidavits of Carole Lacapra sworn October 18, 2016 in support
of the two Applications; and
(d) Upon application, such other evidence as may be permitted by the judge
hearing the Rule 58 stage two hearing of the Question.
[31]
The Applicants’ factum shall be filed and served
30 days prior to the scheduled hearing date. The Respondent’s factum shall be
filed and served 15 days prior to the scheduled hearing date. The Applicants’
Reply to the Respondent’s factum, if any, shall be filed and served 7 days
prior to the scheduled hearing.
Signed
at Ottawa, Canada, this 7th day of September 2017.
“Henry
A. Visser”
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