Citation: 2007TCC44
Date: 20070122
Docket: 2006-136(IT)I
BETWEEN:
9089-6473 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] This is an appeal from a loss determination made
on June 3, 2004, under subsection 152(1.1) of the Income Tax Act
("the Act"), in respect of the Appellant's taxation year ended
November 30, 2001.
[2] The ground stated in the Notice of Appeal
questions the disallowance of the scientific research and experimental
development expenses, and especially, the resulting disallowance of a $9,844
refundable investment tax credit claimed in respect of that year.
[3] The Respondent filed an application to dismiss
the appeal on two grounds.
[4] The first ground was that the Appellant, a corporation
incorporated under Part 1A of the Companies Act, R.S.Q., c. C‑38,
was dissolved when it filed its notice of objection and Notice of Appeal. On
May 7, 2004, the Registraire des entreprises had struck off the
Appellant ex officio, thereby triggering its dissolution in accordance
with section 50 of the Act respecting the legal publicity of sole
proprietorships, partnerships and legal persons, R.S.Q., c. P‑45.
Since the Appellant was dissolved at the time that its notice of objection
and Notice of Appeal were filed, the Appellant did not, in the Respondent's
submission, have the legal capacity to sue.
[5] The second ground was that, even though the
instant appeal was against a loss determination, and the amount of the loss was
the only thing that could be appealed, the relief sought pertained to a
refundable investment tax credit which was disallowed by another assessment
that was not appealed from. Consequently, the Respondent submitted that this
Court does not have the power to grant the relief requested in the Notice of
Appeal.
[6] The hearing of this application was initially set
for August 2, 2005. After hearing the parties summarily, the
presiding judge adjourned the hearing of the appeal because Yves Bluteau, the
Appellant's agent, was unable to represent the Appellant adequately that day owing
to his mental health. The judge recommended that he retain counsel.
[7] The hearing of this application was rescheduled for
January 11, 2007 by order of this Court dated
November 24, 2006. On January 5, 2007, a few days before
the hearing, Yves Bluteau, the Appellant's agent, asked for more time so that,
with the help of an accountant, he could look after the formalities needed to
reactivate the Appellant's status with the Registraire des enterprises.
[8] By letter dated January 8, 2007, counsel for the
Respondent objected to the Appellant's application for a postponement on the
following grounds:
[TRANSLATION]
. . .
This letter is further to an application for a postponement which
was sent to us by the Appellant in the above-cited appeal, and which pertains
to the hearing of the Respondent's application to dismiss the appeal, set for January 11, 2007. A copy of the application
for a postponement is attached hereto.
The Respondent objects to the Appellant's application for a
postponement for the following reasons.
We understand that the sole ground of the Appellant's application
for a postponement is that a postponement is needed in order for the Appellant to
be able to complete the steps necessary to revoke the striking off of its
registration and to revive its legal status in accordance with sections 54 to
57 of the Act respecting the legal publicity of sole proprietorships,
partnerships and legal persons, R.S.Q., c. P‑45.
The Respondent's application to dismiss the appeal, which was filed
on July 19, 2006 and was served on the Appellant on
July 20, 2006, seeks to have the appeal dismissed on two grounds:
1. Since the Appellant was dissolved at the time that its notice of
objection and Notice of Appeal were filed in the Tax Court of Canada, and it
has still not taken measures to reverse this dissolution, it did not have the
legal capacity to lodge the instant appeal and still does not have the capacity
to sue or to pursue the instant appeal.
2. Since the Appellant is not asking for any relief in this appeal that
this Court has the power to grant it, this appeal has no basis and must therefore
fail.
Thus, the striking off of the Appellant's registration and the
resulting dissolution merely constitute the first of two grounds on which the
Respondent's application relies. The Respondent's second ground is that it
is impossible for the Appellant to obtain any relief whatsoever in the instant
appeal. The Respondent submits that it is in all the parties' interests that
this second ground be decided before the Appellant undertakes the steps and
incurs the expenses necessary to have its registration restored.
This second ground is set out in paragraphs 4 to 15 of the Notice of
the Application to dismiss the appeal. In summary, the Appellant appealed from
a loss determination that was made at the Appellant's request on
June 3, 2004, under subsection 152(1.1) of the Income Tax Act
(hereinafter "ITA"). Such a loss determination can only pertain to
the amount of a non-capital loss, net capital loss, restricted farm loss, farm
loss or limited partnership loss, as the case may be, incurred by the Appellant
for the taxation year in issue. The Appellant's application and the notice of
loss determination have been tendered as Exhibits R‑4 and R‑5,
respectively, in support of the sworn declaration of Gilles Bouchard dated
July 18, 2006.
However, as shown by the Notice of Appeal dated January 10, 2006, the only subject of the instant
appeal is the eligibility of the Appellant's scientific research and
experimental development project within the meaning of subsection 248(1)
of the ITA. But the sole consequence of a determination favourable to the
Appellant on this issue in the instant appeal would be a $16,500 reduction of
the non‑capital loss in relation to the amount currently determined, as
can be seen from the sworn statement of Pierre Brodeur dated July 18,
2006. The problem is that, in an appeal against a loss determination, the Court
cannot order the Minister of National Revenue ("the Minister")
to reduce a loss determination to an appellant's disadvantage.
The only favourable impact of a judgment on the eligibility of its
scientific research and experimental development project would pertain to the
refundable investment tax credit that it claimed in connection with its
project. However, on January 21, 2003, the Minister determined, under
paragraph 152(1)(b) and subsection 152(1.2) of the ITA, that the
Appellant was not entitled to its refundable investment tax credit.
The notice of determination was tendered as Exhibit R‑3 in
support of Gilles Bouchard's sworn declaration dated July 18, 2006.
And, as that declaration states, the Appellant never objected to or appealed
from the determination of January 21, 2003. Consequently, the
Appellant has no right to bring an appeal before this Court concerning the
refundable investment tax credit, and this Court cannot grant the Appellant the
relief associated with that credit.
Since the only point in issue in this appeal concerns the
eligibility of the Appellant's scientific research and experimental development
project within the meaning of subsection 248(1) of the ITA, and the Court
cannot grant it any relief even if the judgment is favourable to it on this
issue, this appeal has no basis and therefore must fail.
The Respondent submits that it is in all the parties' best interests
that the second ground be decided on January 11, 2006, in order to avoid any
additional costs or delay. Indeed, should the Court consider the second ground
meritorious, it must allow the Respondent's application and dismiss the
Appellant's appeal, thereby making it pointless for the Appellant to spend more
time and effort on measures to restore its registration.
[9] Later, on January 9, 2007, the Court notified the
Appellant's agent as follows:
[TRANSLATION]
. . .
This is regarding your letter of January 5, 2007, requesting a postponement
of the hearing of the application to dismiss the appeal, scheduled for January
11, 2007, in Montréal, Quebec.
Further to our telephone conversation today, this is to confirm that
the Court has denied your request for a postponement. Consequently, the parties
must be ready to proceed on Thursday, January 11, 2007, at 9:30 a.m., as
scheduled.
[10] At the hearing, the Appellant's agent said that he
did not understand the two grounds of the application, that he has no money
because he was unfairly taxed, and that he still requests a postponement of the
hearing of the application so that he can have the Appellant's dissolution
revoked.
[11] The Court accepts the proposal made by counsel for
the Respondent because it finds that it is in the interests of the
administration of justice. The Court will decide the application based solely
on the second point, and not on the first.
[12] Paragraphs 4 to 15 of the application read:
[TRANSLATION]
. . .
4. Moreover, since the instant appeal is from
a loss determination made on June 3, 2004, under subsection 152(1.1)
of the Income Tax Act (hereinafter "ITA"), only the
amount of the non-capital loss, net capital loss, restricted farm loss, farm
loss or limited partnership loss, as the case may be, incurred by the Appellant
for the taxation year ended November 20, 2001, can be the subject of the
instant appeal.
5. The grounds of the Appellant's appeal
pertain solely to the eligibility of its scientific research and experimental
development work for its taxation year ended November 30, 2001 (hereinafter
"SR&ED work").
6. The only potentially favourable impact
that a reassessment of the eligibility of its SR&ED work might have on the
Appellant pertains to the $9,844 refundable investment tax credit that it claimed
for its taxation year ended November 30, 2001.
7. However, the $9,844 refundable investment
tax credit claimed by the Appellant for its taxation year ended November 30,
2001 cannot be the subject of the instant appeal, because the instant appeal is
from a loss determination made in accordance with subsection 152(1.1) of the
ITA.
8. Indeed, in a notice of determination sent
to the Appellant on January 21, 2003, the Minister of National Revenue
(hereinafter "the Minister") determined that the Appellant was
not entitled to the $9,844 refundable income tax credit that it claimed for its
taxation year ended November 30, 2001.
9. The Appellant did not file a notice of
objection with the Minister and did not appeal to the Tax Court of Canada from
the determination, notice of which was sent to the Appellant on January 21, 2003.
10. The determination, notice of which was sent
to the Appellant on January 21, 2003, was made in accordance with
paragraph 152(1)(b) of the ITA and sent to the Appellant in accordance
with subsection 152(2) of the ITA, and consequently, under subsection 152(1.2)
of the ITA, the Appellant had a right of objection and a right of appeal to the
Tax Court of Canada from this determination, in keeping with the relevant
provisions of Divisions I and J of Part I of the ITA applicable to tax
assessments, with the necessary adjustments.
11. Since the Appellant did not file with the
Minister a notice of objection to the determination, notice of which was sent
to him on January 21, 2003, and the Appellant did not appeal from that
determination to the Tax Court of Canada, the disallowance of that
refundable investment tax credit, which the Appellant claimed for its taxation
year ended November 30, 2001, cannot be appealed in the instant appeal.
12. Thus, the impact of a judgment of this
Court concerning the eligibility of the Appellant's SR&ED work is limited
exclusively to the amount of the non‑capital loss determined by the
Minister in the loss determination notice dated June 3, 2004, since that
determination is the only subject matter in issue.
13. The only impact of the relief sought by the
Appellant concerning the evaluation of the eligibility of its SR&ED work on
the non-capital loss determined by the Minister in the loss determination notice
dated June 3, 2004, would be to reduce this loss by $16,500, thereby lowering
it from $39,197 (where it now stands under the notice of loss determination
dated June 3, 2004) to $22,697.
14. However, in a dispute concerning such an
assessment or loss determination, the Court cannot order the Minister to
increase an assessment or decrease a loss determination to the Appellant's
disadvantage.
15. Since this Court cannot grant any relief to
the Appellant, there is no basis for the instant appeal, which therefore cannot
succeed.
[13] Paragraphs 4 to 10 and 12 to 15 of Gilles Bouchard's
sworn declaration read:
[TRANSLATION]
4. I examined the relevant audit and
objection files and some relevant electronic files at the CRA concerning the
Appellant. Based on my examination, I have made the following findings.
5. The Appellant is a corporation
incorporated under Part 1A of the Companies Act, R.S.Q.,
c. C‑38, as shown by Exhibit R‑1 of this application, the
printout of the excerpt from the Registre des entreprises individuelles, des
sociétés et des personnes morales concerning the Appellant.
6. On or about May 31, 2002, the Appellant
filed a T2 tax return with the CRA for its taxation year ended November 30, 2001, a true copy of which
is attached to this application as Exhibit R‑2. In that return, the Appellant
(a) reported a net loss of $22,967 as well as
a non‑capital loss of $22,697 for the year, and
(b) claimed a refundable investment tax credit
of $9,844 under section 127.1 of the Income Tax Act (hereinafter
"ITA").
7. On January 21, 2003, in the same document,
the Minister of National Revenue (hereinafter "the Minister")
sent the Appellant, under subsections 152(1), 152(1.2) and 152(2) of the ITA,
(a) a notice stating that no tax was payable
for his taxation year ended November 30, 2001, as shown by
Exhibit R‑3 of this application, the electronic printout of the
notice, and
(b) a notice of determination by which the
Minister determined that the Appellant was not entitled to the $9,844 refundable
investment tax credit that it claimed under section 127.1 of the ITA for its
taxation year ended November 30, 2001, as shown by Exhibit R‑3
of this application, the electronic printout of the notice.
8. Despite my research and my careful
examination of the relevant audit and objection files at the CRA concerning the
Appellant, and of the relevant electronic records concerning the Appellant, I
was unable to find any evidence that the CRA received a notice of objection or notice of appeal concerning the
determination, notice of which was sent to the Appellant on
January 21, 2003.
9. The Appellant never filed a notice of
objection with the Minister, and never appealed to the Tax Court of Canada from
the determination, notice of which was sent to the Appellant on January 21,
2003, and in which the Minister determined that the Appellant was not entitled
to the $9,844 refundable investment tax credit that it had claimed for its
taxation year ended November 30, 2001.
10. On or about April 26, 2004, the Appellant
filed with the Minister, under subsection 152(1.1) of the ITA, a
request for a determination of its non-capital loss for its taxation year ended
November 30, 2001, as shown by Exhibit R‑4 of this
application, the true copy of the Appellant's request for a loss determination.
...
12. On June 3, 2004, the Minister sent the
Appellant a notice of loss determination in which he determined that the Appellant's
non‑capital loss was $39,179, as shown by Exhibit R‑5 of this
application, the true copy of the notice of loss determination.
13. On or about July 5, 2004, the Appellant
served on the Minister a notice of objection to the loss determination, notice
of which was sent to the Appellant on June 3, 2004, as shown by
Exhibit R‑6 of this application, a true copy of the Appellant's notice of
objection.
14. On October 13, 2005, the Minister confirmed
the loss determination, notice of which was sent to the Appellant on
June 3, 2004, as shown by Exhibit R‑7 of this application,
a true copy of the notification of confirmation.
15. On January 10, 2006, the Appellant filed a
notice of appeal in the Tax Court of Canada from the loss determination, notice
of which was sent to it on June 3, 2004, as shown by the Appellant's
notice of appeal in the court file.
[14] Pierre Brodeur's sworn declaration reads:
1. I am an auditor with the Canada Revenue
Agency (hereinafter "CRA")
office located at 3400 Jean‑Béraud Avenue, Laval, Quebec H7T 2Z2.
2. I audited the Appellant's file for its
taxation year ended November 30, 2001, and therefore have personal
knowledge of the Appellant's audit file relevant to the instant appeal.
3. As the auditor responsible for auditing
the Appellant's file for its taxation year ended November 30, 2001, I was
in charge of the Appellant's audit file relevant to the instant appeal and
therefore have personal knowledge of that file.
4. On or about May 31, 2002, the Appellant
filed a T2 income tax return in respect of its taxation year ended
November 30, 2001, a true copy of which is attached to this
application as Exhibit R‑2. In that return, the Appellant
(a) reported a net loss of $22,967 and a
non-capital loss of $22,697 for the year, and
(b) claimed a $9,844 refundable investment tax
credit under section 127.1 of the Income Tax Act (hereinafter
"ITA") that was completely attributable to scientific research and
experimental development expenses.
5. Specifically, the Appellant claimed
$28,125 in eligible scientific research and experimental development expenses for
the purpose of calculating the investment tax credit, as shown by
Exhibit R‑2 of this application, the true copy of the Appellant's T2
income tax return for its taxation year ended November 30, 2001, and as
detailed in Exhibit R‑8 of this application, the work sheets that I
prepared for the purposes of my audit.
6. On or about September 12, 2002, I began my
audit of the Appellant's file in connection with its taxation year ended
November 30, 2001.
7. On or about November 8, 2002, I received
the report of the scientific advisor in charge of assessing the eligibility of
the Appellant's scientific research and experimental development work. Following
his assessment, the advisor determined that the work in issue did not
constitute "scientific research and experimental development" within
the meaning of subsection 2900(1) of the Income Tax Regulations (hereinafter
"ITR").
8. Based on this assessment, I made the
following adjustments to the amounts reported by the Appellant in the income
tax return that it filed in connection with its taxation year ended November
30, 2001, as detailed in Exhibit R‑8 of this application, the work sheets
that I prepared for the purposes of my audit:
(a) an increase in both the net loss and the
non-capital loss reported by the Appellant for the year from $22,697 to
$39,197, and
(b) a complete disallowance of the $9,844
refundable investment tax credit claimed by the Appellant under section 127.1
of the ITA.
9. This $16,500 increase of the net loss and
non-capital loss for the year results from the disallowance of the $16,500
Quebec income tax credits that the Appellant had applied to offset its
scientific research and experimental development costs, as detailed in
Exhibit R‑8 of this application, the work sheets that I prepared for
the purposes of my audit.
10. If the Appellant's scientific research and
experimental development work had constituted "scientific research and
experimental development" within the meaning of subsection 2900(1) of
the ITR, both the net loss and the non‑capital loss of the Appellant for
the year would have been determined to be $22,697.
[15] The Court asked the Appellant's agent if he had
filed a notice of objection to the January 21, 2003, assessment of the
Appellant. He asserted strongly that he had filed such a notice. However, he
submitted no document supporting this assertion.
[16] Since each of the Respondent's assertions is
corroborated by a supporting document, I accept the Respondent's version of the
facts.
[17] The Court also asked the Respondent for additional
documents, namely the draft assessment concerning the SR&ED claim, which
was sent to the Appellant's agent and president on November 15, 2002, and was
produced as Exhibit I‑1; and Pierre Brodeur's T2020 commencing with
the opening of the file on September 12, 2002, and ending on
December 19, 2002 with a last note reading: [TRANSLATION] "We
have received no representations from the claimant. File closed." (Exhibit
I‑2).
Analysis and conclusion
[18] There are two
assessments in issue in the instant case. The first was made on
January 21, 2003. The second was made on June 3, 2004. The first disallowed the SR&ED project
and the investment tax credit. The second determined the amount of a loss under
subsection 152(1.1) of the Act. The first assessment was neither objected to
nor appealed.
[19] As far as the first
assessment is concerned, although the amount of tax assessed was zero, it was
not a "nil" assessment within the meaning of the case law. Since the
decision of this Court in Martens
v M.N.R., 88 DTC 1382, the courts have consistently held that an
assessment in respect of a refundable tax credit can be appealed. See Datacalc
Research Corp. v. The Queen, 2002 DTC 1479 and Interior Savings
Credit Union v. Canada, [2006] T.C.J. No 312 (QL).
[20] It was this
assessment that the Appellant should have appealed from in order to argue the
points that it wished to argue. By appealing from a loss determination, the
Appellant is now attempting to do indirectly that which it can no longer do
directly.
[21] Unfortunately, this
appeal concerning the loss determination has no valid purpose in law. The
purpose of the appeal is to reduce the amount of the determined losses. However,
a taxpayer has no right to launch an appeal that would increase his tax burden:
Bruner v. Canada, [2003] F.C.J. No. 144 (QL). Moreover, since
this appeal pertains to a loss determination, it cannot result in a refundable
tax credit because that issue was the subject of another assessment.
[22] The Respondent's
application is allowed and the Appellant's appeal is dismissed on the basis
that the appeal has no valid purpose in law.
Signed at Ottawa, Canada, this 22nd day of January 2007.
"Louise Lamarre Proulx"
Translation
certified true
on this 3rd day of
August 2007.
Brian McCordick,
Translator
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