Citation: 2023 TCC 179
Date: 20231222
Docket: 2021-742(IT)G
2021-1678(IT)G
BETWEEN:
WINDSOR CLINICAL RESEARCH INC.,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
REASONS FOR ORDER
Jorré J.
I. Introduction
[1] The Respondent has filed motions for an order granting leave of the Court to file the Amended Replies to the Notices of Appeal in each of these appeals, pursuant to section 54 of the Rules.
[2] The Appellant opposes the amendment.
[3] In the two years under appeal, the appellant filed its tax returns on the basis that certain projects that it carried out qualified as scientific research and experimental development for the purposes of the Income Tax Act.
[4] The Canada revenue agency assessed the appellant on the basis that certain of the claimed projects, or parts of the projects, did not qualify as scientific research and experimental development because they did not meet the requirements of the definition of “scientific research and experimental development”
contained in subsection 248(1) of the Income Tax Act.
[5] The proposed amendments in respect of the 2017 year appeal add some factual allegations at proposed paragraph 28: i) that, with respect to second part of part of Project 1 and with respect to Project 5, the work conducted was in the field of psychology rather than dermatology and ii) that the work was not completed in support of research in dermatology.
[6] In the grounds relied on section (Part C) of the proposed amended reply there are corresponding amendments adding submissions relating to the additional factual allegations and the definition of scientific research and experimental development in subsection 248(1) of the Act.
[7] The proposed amendments in respect of the 2019 taxation year are not substantially different in any respect that matters for the purpose of the motion. The analysis below is equally applicable to both appeals.
II. Analysis
(a) General Civil Litigation Considerations
[8] There are two aspects to these motions.
[9] The first relates to the question: when in civil litigation is it appropriate to allow an amendment? This first issue was not raised by the appellant in opposition to the motion and so I will deal with it very briefly.
[10] The principle is summarized in the following quotation from the decision of the Federal Court of Appeal in Canada v. Pomeroy Acquireco Ltd:
[…] The controlling principle is that an amendment should be allowed at any stage of an action if it assists in determining the real questions in controversy between the parties, provided it would not result in an injustice not compensable in costs and that it would serve the interests of justice. A court should give significant consideration to amendments which further the ability of the trial court to determine the questions in controversy … (Citations omitted.)
[11] Parties must also comply with the Rules of Court.
[12] The Appellant, apart from opposing the amendment, is not seeking any alternative remedy such as further discovery, if the motion is allowed.
[13] In terms of this first question there is no injustice or prejudice to the Appellant. The amendments allow fuller examination of the controversy.
(b) Tax Litigation Considerations
[14] This second aspect is this: are there specific tax litigation considerations limiting how the Respondent may defend an appeal? Considerations that may constrain amendments that are otherwise permissible under the general rules of civil litigation.
[15] The essence of the Appellant’s objection to the amendments is that they would deprive the Appellant of its right to rely on the specific approach taken by the auditors and appeal officers.
[16] Among other things, in its submissions the Respondent invoked subsection 152(9) of the Income Tax Act. I shall come back to that subsection. There are other matters that must be considered first.
[17] I do not agree with the Appellant.
[18] It is well established that on an appeal from an assessment there is a normal trial of the issues. The hearing in this court is not some form of judicial review.
[19] It is also clear that the ultimate issue on an appeal is: whether the amount of tax is too high, not the process or reasoning by which it was reached? It is also well settled that the Court can not increase the amount of tax assessed.
[20] Logically, it follows from this that neither party is bound by their approach prior to the court appeal.
[21] Some decades ago, it may have been that straightforward.
[22] With one exception I will come to below, this is true for Appellants. Subject to the general civil litigation considerations, they may raise new arguments and new issues not raised previously.
[23] The exception is with respect to “large corporations” as defined in the Income Tax Act.
[
24
]
With respect to the Respondent, limitations on what arguments and issues may be raised emerged from a number of court decisions. Notably, the Supreme Court of Canada said in Continental Bank of Canada that: “… The Crown is not permitted to advance a new basis for reassessment after the limitation period has expired. …”
[25] The Canadian Oxford English Dictionary, Second Edition 2004, defines basis as follows:
the foundation or support of something, esp. an idea or argument.
the main or determining principle or ingredient …
the starting point of a discussion.
[26] Similarly in Okanagan College Faculty Association v. Okanagan College (2013 BCCA 561 (CanLII) at paragraph 43) the British Columbia Court of Appeal in discussing the meaning of “basis of the decision or award” of an arbitration board under the Labour Relations Code states:
“… In other words, “the basis” of the award must mean the “main constituent”, not necessarily “every constituent” (at 298). …”
[27] I am not aware of a definition of “basis” in the context of income tax. However, while the context of the decision is somewhat different, given that the basis of the assessment limitation set out in Continental Bank stems from the limitation period for reassessing, the following comments of Rivoalen J.A. in Viterra Inc. v. Canada (2019 FCA 55 (CanLII) at paragraph 21) are relevant:
As concerns the second issue, that being whether the Judge erred in law in his interpretation of the Minister’s reassessing powers when considering an objection under the Excise Tax Act, the Judge made no order to this effect. Rather, the Judge undertook an analysis of subsection 298(3) of the Excise Tax Act and concluded that, although the wording is different than the wording of subsection 165(5) of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) Parliament’s intention is the same in both cases; that is, that the Minister cannot, after the expiry of the assessment period, increase the net tax of the registrant or take into account different transactions [than] the ones that formed the basis of the assessment that was made within the statutory reassessment period.
[28] In this case, based on the pleadings, the foundation or main constitution element of the assessment is that certain activities do not constitute scientific research or experimental development within the meaning of the Income Tax Act. The proposed amendments involve adding factual allegations in support of that. The proposed amendments do not constitute a new or additional basis of assessment.
[29] As a result there is no need to turn to subsection 152(9) of the Income Tax Act.
III. Conclusion
[30] Accordingly, the Amendments will be allowed.
Signed at Ottawa, Canada, this 22nd day of December 2023.
“G. Jorré”
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