Citation:
2016 TCC 165
Date: 20160705
Docket: 2015-1101(IT)G
BETWEEN:
BAKORP
MANAGEMENT LTD.,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
D'Arcy J.
[1]
The Respondent has brought a motion for an order
dismissing the appeal or, in the event this relief is not granted, an order
extending the time to file a reply to the Notice of Appeal to 60 days from the
date of my order. The Respondent is also asking for costs of $1,000 payable
forthwith.
[2]
The Appellant filed an appeal with this Court on
March 17, 2015. The appeal relates to the amount of non-capital losses that the
appellant is entitled to deduct in its taxation year ending on March 10, 1992
(the March 1992 Taxation Year).
[3]
The Notice of Appeal states the following with
respect to the Appellant’s filings with the Canada Revenue Agency regarding the
March 1992 Taxation Year and with respect to the Minister’s assessments:
11. On February
10, 2011, the Appellant filed its tax return for the March 1992 Taxation Year .
. .
. . .
13. . . . by
Notice of Assessment dated June 6, 2012 (the “Assessment”), the Minister
assessed the March 1992 Taxation Year to deny the deduction of the $439,581 of
NCLs [non-capital losses] that were carried forward to that year (and also
applied the ITCs [investment tax credits] which had not been included in the
computation of income as filed).
14. The
Assessment resulted in Part I taxes of $257,923 and a failure to file penalty
under subsection 162(1) of the Act in the amount of $43,846.
15. By notice of
objection dated September 4, 2012, the Appellant objected to the Assessment.
16. By
notification dated December 17, 2014, the Minister notified the Appellant of
the reduction to the failure to file penalty imposed in respect of the March
1992 Taxation Year. The notification further stated:
On June 26, 2013, a
reassessments [sic] was process [sic], as there was no tax
change, no notice of reassessment was issued. However, the failure to file
penalty was reduced by $22,400.00. This amount was applied against the balance
owing for the March 10, 1992 tax year-end.
17. The Appellant
hereby appeals the Assessment to this Court.
[4]
Paragraph 18 of the Appellant’s Notice of Appeal
states that the issue to be decided is as follows:
Was the
Appellant’s income properly calculated for the March 1992 Taxation Year?
Specifically, was the amount of NCLs [non-capital losses] available to be
carried forward and applied to the March 1992 Taxation Year understated by
$439,581?
[5]
It is clear from the Notice of Appeal that the
parties do not agree on the amount of non-capital losses the Appellant is
entitled to deduct under section 111 of the Income Tax Act (the Act). The
parties also disagree on the application of subsection 152(4.3).
[6]
In its Notice of Appeal the Appellant relies, in
part, on the following facts to support its legal argument:
3. The
Appellant and the Minister of National Revenue (the “Minister”) were involved
in extensive litigation regarding the reassessment of the Appellant’s 1989
taxation year (the “1989 Appeal”), the result of which would determine, inter
alia, the value of certain shares (the “Shares”) and the quantum of NCLs
[non-capital losses] that would be available to be carried forward.
. . .
8. Pursuant
to Amended Minutes of Settlement which were fully executed on April 15, 2010,
the Appellant and the Minister reached a settlement with regards to the 1989
Appeal. As a result of that settlement, the value of the Shares was determined
and the amount of the Appellant’s NCLs available to be carried forward was increased
(although not by the amount that the Appellant had sought).
9. Because
a smaller NCL carryforward balance resulted from the resolution of the 1989
Appeal, decisions needed to be made as to how best to apply the revised NCLs
that were available.
10. By written
request dated December 7, 2010 made pursuant to subsection 152(4.3) of the Act
(the “Request”), the Appellant requested that the Minister reduce the amount of
NCLs carried forward and applied by the Appellant in its taxation year ended
January 18, 1992 (the “January 1992 Taxation Year”) by $439,581 and, instead,
apply $74,312 of available investments [sic] tax credits (“ITCs”) in
that year; thereby preserving the NCLs for the March 1992 taxation Year.
11. On
February 10, 2011, the Appellant filed its tax return for the March 1992
Taxation Year based on the result of the 1989 Appeal and on the basis that the
Request would be granted in accordance with subsection 152(4.3) of the Act. On
these bases, the Appellant deducted $51,960,121 of NCLs (which amount included
the $439,581 of NCLs that the Appellant requested the Minister remove from the
January 1992 Taxation Year as described in paragraph 10 above).
12. By
letter dated November 23, 2011, the Minister, to the Appellant’s surprise,
denied the Request with the notable result being that the $439,581 of NCLs
carried forward from the Appellant’s 1989 taxation year continued to be applied
in the January 1992 Taxation Year.
The Respondent’s Position
[7]
It is the Respondent’s position that the
Appellant’s appeal should be dismissed because this Court lacks the requisite
jurisdiction to grant the relief sought by the Appellant.
[8]
The Respondent’s counsel, in her oral argument,
provided the following three reasons why this Court lacks the requisite
jurisdiction:
1. The jurisdiction of the Tax Court of Canada
excludes issuing an order of mandamus.
2. This Court does not have jurisdiction to
compel the Minister to reassess under subsection 152(4.3) of the Income Tax
Act.
3. The Tax Court of Canada has no jurisdiction
to make an order affecting a taxation year that is not before the Court.
[9]
The Respondent argued that the only way the
Court can allow the Appellant’s appeal is by ordering the Minister to reassess
the Appellant’s March 1992 Taxation Year on the basis that the $439,581 of
non-capital losses, that originated in its 1989 taxation year, no longer apply
to the Appellant’s January 1992 Taxation Year and are available to be applied
to its March 1992 Taxation Year.
[10]
In the Respondent’s view, such a result would
constitute issuing an order of mandamus against the Minister.
The Court’s Decision
[11]
For the following reasons, I will dismiss the
Respondent’s motion.
[12]
The Court does have jurisdiction to hear the
appeal and grant the relief requested by the Appellant.
[13]
The Minister, under section 152, assessed the
tax for the Appellant’s March 1992 Taxation Year. The Appellant subsequently
objected, under section 165, to the assessment. It is now appealing, under
section 169, in order to have the assessment varied. The determination of the
correctness of the assessment is within the jurisdiction of this Court. In
fact, this Court has exclusive jurisdiction to hear such an appeal. As noted by
the Federal Court of Appeal in JP Morgan Asset Management (Canada) Inc. v
Canada (National Revenue):
Validity of
assessments. The Tax Court has exclusive
jurisdiction to review the correctness of assessments by way of appeal to that
Court. Sections 165 and 169 of the Income Tax Act constitute a complete
appeal procedure that allows taxpayers to raise in the Tax Court all issues
relating to the correctness of the assessment, i.e. whether the assessment is
supported by the facts of the case and the applicable law. . .
[14]
The Respondent is in effect saying that the
Appellant did not have $439,581 of non-capital losses to apply to the March
1992 Taxation Year since the Minister did not grant the subsection 152(4.3)
request.
[15]
The Appellant disagrees; it argues in paragraph
21 of its Notice of Appeal that “by operation of the Act” the written request
dated December 7, 2010, made pursuant to subsection 152(4.3) of the Act,
resulted in the Appellant having an additional $439,581 of non-capital losses
available to be carried forward and applied in the March 1992 Taxation Year.
The Appellant in effect is arguing that, in light of the facts, no action is
required by the Minister; the non-capital losses exist under the Income Tax
Act.
[16]
The Appellant’s Notice of Appeal is a properly
framed appeal of an assessment. The Appellant is asking the Court to grant its
appeal on the basis of the application of the law to the relevant facts. It is
not asking the Court to review the decision of the Minister or issue an order
of mandamus. If I understand the Appellant’s argument correctly, the
Appellant is saying that the Minister’s decision is irrelevant in view of the
provisions of the Act.
[17]
The Appellant is asking the Court to determine
the amount it was entitled to deduct in the March 1992 Taxation Year in respect
of non-capital loss carry-forwards. Such an issue is properly before this
Court. As former Chief Justice Bowman stated in Aallcann Wood Suppliers Inc.
v. Canada. at paragraph 4,
. . . In
challenging the assessment for a year in which tax is payable on the basis that
the Minister has incorrectly ascertained the amount of a loss for a prior or
subsequent year that is available for deduction under section 111 in the
computation of the taxpayer’s taxable income for the year under appeal, the
taxpayer is requesting the Court to do precisely what the appeal procedures of the
Income Tax Act contemplate: to determine the correctness of an
assessment of tax by reviewing the correctness of one or more of the
constituent elements thereof, in this case the size of a loss available from
another year.
[18]
It seems to me that the Respondent is arguing
that the Court should dismiss the appeal on the basis that it has no chance of
success. However, since the Court’s rules do not provide for summary judgment,
the Respondent is in fact asking me to strike out the Appellant’s pleadings.
[19]
The Supreme Court of Canada stated the test for
striking out pleadings in R. v. Imperial Tobacco Canada Ltd.,[3]
as follows:
. . . This Court
has reiterated the test on many occasions. A claim will only be struck if it is
plain and obvious, assuming the facts pleaded to be true, that the pleading
discloses no reasonable cause of action: Odhavji Estate v. Woodhouse,
2003 SCC 69, [2003] 3 S.C.R. 263, at para. 15; Hunt v. Carey Canada Inc.,
[1990] 2 S.C.R. 959, at p. 980. Another way of putting the test is that the claim
has no reasonable prospect of success. Where a reasonable prospect of success
exists, the matter should be allowed to proceed to trial: see, generally,
Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83; Odhavji
Estate; Hunt; Attorney General of Canada v. Inuit Tapirisat of
Canada, [1980] 2 S.C.R. 735.
[20]
Is it plain and obvious, assuming the facts
pleaded to be true, that the Appellant’s pleadings disclose no reasonable cause
of action?
[21]
No, the Appellant has appealed an assessment on
the basis of its interpretation of specific provisions of the Act, particularly
sections 3 and 111 and subsections 152(4.3), 152(4.4) and 162(1). It is not for
the motion judge to determine the merits of the Appellant’s legal argument.
[22]
The parties will place before the Court the
relevant facts and their interpretation of the law. The trial judge will then
decide, using those facts and applying his or her view of the law, the amount
of non-capital losses the Appellant is entitled to deduct in its March 1992
Taxation year. It may very well be the case that the Appellant is not entitled
to claim the $439,581 of non-capital losses when determining its taxable income
for the March 1992 Taxation Year. If so, the trial judge will determine that
the assessment is correct and dismiss the appeal.
[23]
For the foregoing reasons the motion is
dismissed. The Appellant is awarded costs of $2,000.
[24]
The Respondent has sixty days from the date of
this order to file her reply to the Notice of Appeal.
Signed at Antigonish, Nova Scotia, this 5th
day of July 2016.
“S. D’Arcy”
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