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Citation: 2003TCC172
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Date:20030325
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Docket: 2002-2695(IT)G
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BETWEEN:
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INCO LIMITED,
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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 ORDER
Bell, J.T.C.C.
[1] The Appellant has filed a Notice
of Motion pursuant to section 58 of the Tax Court of Canada
Rules (General Procedure) ("Rules") for an Order
referring what it describes as a question of law raised in
paragraph 17(a) of the Notice of Appeal to a hearing for the
determination of that question.
[2] Section 58(1) of the Rules
reads:
A party may apply to the Court,
(a) for the
determination, before hearing, of a question of law 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,
...
and the Court may grant judgment accordingly.
[3] The issue described in paragraph
17(a) of the Notice of Appeal is:
whether the Minister determined the losses of 321821 in the
Letter such that the non-capital losses realized by 321821 in its
1996 taxation years are available to be applied by the Appellant
in its 2000 taxation year by virtue of paragraphs
88(1.1)(c) and (111)(1)(a) of the Act.
The letter referred to is quoted in numerical paragraph 5
below.
[4] The Respondent does not agree with
the Appellant that the question to be determined is one purely of
law within the meaning of section 58(1)(a) of the Rules.
This Court's present task is, therefore, to determine whether
the question posed by the Appellant for determination is a
question of law properly referable to a hearing for its
determination.
[5] Accordingly, the Appellant seeks a
hearing of its motion for an Order of this Court as to
whether:
(a) the letter from the Minister
is a Notice of Determination, and
(b) if so, that the determination of
that question before hearing may dispose of all or part of the
proceeding, substantially shorten the hearing or result in a
substantial saving of costs.
[6] Appellant's counsel referred
to the Notice of Appeal and allegations of fact therein that had
been admitted by the Respondent. Those facts are as follows:
1. On August 21, 1996, the
Appellant acquired all of the issued and outstanding shares of
321821 B.C. Ltd. ("321821"), formerly Diamond Field
Resources Inc. ("Inc."), a British Columbia
corporation.
2. Immediately following
this acquisition, the Appellant resolved to wind up 321821 and
commenced winding up into the Appellant. This winding up was
completed by dissolution of 321821 on December 11, 2001.
3. By virtue
of that winding up, any non-capital losses of 321821 for its
taxation years ending June 30, 1996 and August 21, 1996 would be
deemed by paragraph 88(1.1)(c) of the Income Tax
Act ("Act") to be non-capital losses of the
Appellant for its taxation year ending December 31, 1996.
Accordingly, any such non-capital losses would be available to
the Appellant to deduct in computing its taxable income for
taxation years ending after December 31, 1996.
4. By two separate letters
dated May 22, 1997, 321821 requested that the Minister of
National Revenue ("Minister") to determine its
non-capital losses for its taxation years ending June 30, 1996
and August 21, 1995 respectively.
5. The Surrey Taxation
Centre responded to 321821 by letter dated July 4, 1997 which
stated:
We are replying to your letter requesting the non-capital
losses available to the corporation for application against
taxable income in future years. We are pleased to offer the
following information for your records:
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Origin Year
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Amount Available
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Balance Forward
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1993
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$144,137.00
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$144,137.00
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1994
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2,450,430.00
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2,594,567.00
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1996(30/06)
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65,684,989.00
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68,279,556.00
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1996(21/08)
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131,933,429.00
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200,212,985.00
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We trust this information will help you.
6. The Appellant reported
a non-capital loss in the amount of $161,450,228.00 in its
December 31, 1997 taxation year.
7. The Appellant reported
a non-capital loss in the amount of $287,212,120.00 in its
December 31, 1998 taxation year.
8. On or before June 30,
2001 the Appellant filed its income tax return for its 2000
taxation year.
9. The Minister assessed
the Appellant's income tax return for its 2000 taxation year
on July 17, 2001.
[7] Appellant's counsel then
referred to paragraph 25(a) of the Reply to the Notice of Appeal
which reads as follows:
whether the letter from the Minister to 321821, dated July 4,
1997 constituted a determination of 321821's noncapital
losses for the 1993, 1994 and 1996 taxation years, within the
meaning of subsection 152(1.1) of the Income Tax Act.
and said that there was "no difference in the issue as
the parties have pleaded it."
[8] Appellant's counsel then
referred to paragraph 27 of the Reply to the Notice of Appeal
which reads as follows:
He says that the Minister's letter to 321821, dated July
4, 1997 did not constitute a determination of 321821's
noncapital losses, within the meaning of subsection 152(1.1) of
the Income Tax Act, in that the Minister did not thereby
ascertain 321821's said losses in amounts that were different
from those reported by 321821.
[9] Appellant's counsel then
submitted that, based on the pleadings, there are no facts in
dispute relevant to the question. He added that the sole question
is whether the letter constitutes a Notice of Determination. He
then said that that was a matter of argument on how
"152(1.1) and the related provisions work - a pure question
of law for a judge to hear."
[10] Appellant's counsel then referred
to the affidavit of Carme Lau ("Lau") filed by the
Respondent in support of its application on a different matter
before Associate Chief Judge Bowman. He then referred to his
cross-examination of Lau ending with this exchange:
Question: So there is no more audit work to be done on that
question, on whether there is a determination?
Answer: No.
Lau was, at the time of the affidavit, an officer of Canada
Customs and Revenue Agency.
[11] Appellant's counsel, with reference
to that cross-examination, said that it conclusively established
that there is nothing left to do "except for a
judge...to hear argument on whether that letter constitutes
a determination of loss."
[12] Counsel then said that he was required
by section 58 of the Rules to establish that the
determination of the question of law may dispose of all or part
of the proceedings. He submitted that determination of the
question of law sought would clearly so do.
[13] Respondent's counsel submitted that
the question was not appropriate for determination under section
58 of the Rules for three reasons:
1. The Order of this Court
by Associate Chief Judge Bowman on February 4, 2003 is under
appeal to the Federal Court of Appeal.
2. The issue is not one
purely of law but is one of mixed fact and law, the issue of fact
requiring evidence for its resolution.
3. A determination of the
issue would not substantially shorten the length of the trial or
result in a substantial saving of costs.
[14] When the Court referred to another
condition, namely whether it disposed of all or part of the
proceeding, counsel replied that he was also challenging
that.
[15] Respecting his first submission,
Respondent's counsel stated that if the Federal Court of
Appeal reversed Judge Bowman, the matters sought to be determined
would become academic because there would be no issue to be
tried.
[16] Respecting Counsel's second point
he stated that this determination involved a question of mixed
fact and law. He referred to the Reply to the Notice of Appeal
alleging that the non-capital losses "had not as yet been
ascertained." He said that whether the losses had been
ascertained was therefore in dispute and that evidence would be
required in order to resolve that dispute. The following exchange
took place:
HIS HONOUR: So you are saying that your own act was not
an ascertainment.
MR. CHAMBERS: Well, that's what we're saying,
yes. And no evidence is admissible. So you have two conflicting
allegations, the resolution of which requires evidence.
[17] Counsel also referred to subsection
152(1.1) of the Income Tax Act ("Act")
saying that it required that if there was such an ascertainment,
it must have been in amounts different from that reported by the
taxpayer in its own income tax return. He stated further that
there was no allegation in the Notice of Appeal "what 321821
reported its losses to be in its income tax returns."
Respondent's counsel, still in connection with the second
point, said:
There are certain administrative practices, information
circulars and information bulletins, information circulars, and
the understanding of the tax community of what constitutes a
notice of loss determination.
[18] He then stated that the question of
what constitutes a notice of loss determination is, in part, a
question of fact on which evidence would have to be introduced.
He then said that since section 58 of the Rules does not
allow the introduction of evidence it is not a proper question to
be determined.
[19] With respect to the third point, he
said that:
the entire noncapital loss issue would have to be revisited at
trial and in some detail, I submit to you. So, therefore, no
costs would be saved and the trial would not be appreciatively
shortened.
[20] He then referred to two cases
respecting section 58 applications, namely
Chutka et al. v. The Queen, 97 DTC 377 (T.C.C.)
and John N. Gregory v. The Queen, 2000 DTC 2027 (T.C.C.)
and 2000 DTC 6561 (F.C.A.). He also referred to Webster v.
R, [2002] 3 C.T.C. 326 (F.C.A.).
[21] In reply, Appellant's counsel, with
respect to the submission that, because of Judge Bowman's
Order, no hearing for determination of the question should be
made was brief. He submitted that this suggestion essentially
constituted an appeal from Judge Bowman's decision, that
Judge Bowman refused his request for a stay of proceedings and
that his Order should not be frustrated by the Court now granting
the Respondent's request.
[22] Respecting the second point,
Appellant's counsel said no question of difference remains
regarding amounts of losses claimed and amounts in the letter
above referred to. He said that the Minister did not ascertain
the losses in amounts different from those reported by
321821.
[23] He then said:
I admit that. The numbers we reported in their tax return are
identical to the numbers in the letter.
He also referred to the fact raised by him in his submission
that, as stated in Lau's affidavit, there was no more audit
work to be done in order for a determination to be made.
[24] He referred to Webster, which at
330 refers to Berneche v. R, (1991), 133 N.R. 232 (F.C.A.)
as follows:
In Berneche, supra, at paragraph 7, Mahoney J.A.
noted that the requirement that there be no dispute as to any
material fact is often stated in terms of an agreement or
admission of facts. However, agreement is not a requirement. The
Motions Judge may draw a conclusion that there are no material
facts in dispute, and such conclusion might be drawn from the
entire pleadings of the respondent on the motion, on the
assumption that what has been pleaded is true, much as in the
case of a motion to strike a statement of claim as disclosing no
reasonable cause of action.
ANALYSIS AND CONCLUSION
[25] I am satisfied that there is no fact
material to the determination of the question sought by the
Appellant to be determined under section 58 of the Rules
which is not presently agreed to by the parties.
[26] The Respondent's position with
respect to amounts of losses reported has no merit given the
statement by Appellant's counsel that those amounts were the
same as the amounts contained in the letter. The Respondent's
position respecting information circulars, interpretation
bulletins and practice of the tax community as to what
constitutes an ascertainment is not a matter which has any
relevance in the determination under section 58. That submission
is a signpost for the other two submissions.
[27] Firstly, the Respondent's
suggestion that reference under section 58 of the Rules
should not be made because Judge Bowman's Order is under
appeal is, in my estimation, an attempt to do "an end
run" around a previous Order of this Court, the application
for a stay of proceedings in that motion being denied.
[28] Secondly, no evidence is required in
order for the Court to answer the question being referred to it
under section 58, the facts agreed upon by the pleadings and
admission at the hearing of this motion being sufficient for such
determination.
[29] Thirdly, there is absolutely no merit
in the contention that no part of the proceeding would be
disposed of by the resolution of this question.
[30] Although the Appellant's Notice of
Motion referred to a second matter, namely leave of this Court to
admit the affidavit of Carme K. Lau to be used at the hearing of
the determination of the question of law, that matter was
abandoned by Appellant's counsel at the hearing
of this motion.
[31] Accordingly, the Appellant's motion
for a referral of the aforesaid question to a hearing as above
described, will be granted with costs payable forthwith by the
Respondent.
Signed at Ottawa, Canada this 25th day of March, 2003.
J.T.C.C.
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