Citation: 2014 TCC 288
Date: 20141007
Dockets: 2012-1020(IT)G,
2012-4808(IT)G
BETWEEN:
RIO
TINTO ALCAN INC.,
Applicant,
and
HER
MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR ORDER
Favreau J.
[1]
The applicant brought two motions to obtain orders of the Court that confirm that
the reassessments made against it for the taxation years ending December 31,
2006, and October 31, 2007, constitute additional assessments and not
reassessments vacating the previous assessments.
[2]
The distinction between “reassessments” and “additional assessments”
is important for the applicant to ensure that the requirements set out in
subsections 165(1.11) and 169(2.1) of the Income
Tax Act, R.S.C. (1985) c. 1 (5th Supp.), as amended (Act), are met in the
context of its notice of objection and its appeals to the Tax Court of Canada.
[3]
Because the applicant was a large corporation
during the taxation years in dispute, specific requirements apply to objections
made by it. Those requirements are set out at subsection 165(1.11) of the Act
and its failure to comply could result in it losing its right to appeal to the
Tax Court of Canada. Subsection 165(1.11) reads as follows:
Objections by
large corporations — Where a corporation that was a
large corporation in a taxation year (within the meaning assigned by subsection
225.1(8)) objects to an assessment under this Part for the year, the notice of
objection shall
(a) reasonably describe each issue to be
decided;
(b) specify in respect of each issue, the relief sought,
expressed as the amount of a change in a balance (within the meaning assigned
by subsection 152(4.4)) or a balance of undeducted outlays, expenses or other
amounts of the corporation; and
(c) provide facts and reasons relied on by the corporation
in respect of each issue.
[4]
Subsection 169(2.1) specifies that only an issue
raised in a notice of objection that meets the requirements of subsection 165(1.11)
may be appealed to the Tax Court of Canada. Subsection 169(2.1) reads as
follows:
Limitation on
appeals by large corporations — Notwithstanding
subsections 69(1) and 169(2), where a corporation that was a large corporation
in a taxation year (within the meaning assigned by subsection 225.1(8)) served
a notice of objection to an assessment under this Part for the year, the
corporation may appeal to the Tax Court of Canada to have the assessment
vacated or varied only with respect to
(a) an issue in respect of which the corporation has
complied with subsection 165(1.11) in the notice, or
(b) an issue described in subsection 165(1.14) where the
corporation did not, because of subsection 165(7), serve a notice of objection
to the assessment that gave rise to the issue
and, in the case of an issue described in paragraph 169(2.1)(a),
the corporation may so appeal only with respect to the relief sought in respect
of the issue as specified by the corporation in the notice.
[5]
However, subsection 165(7) of the Act sets out
that a notice of objection to a reassessment or to an additional assessment is
not required when the reassessment or additional assessment concerns an issue addressed
in the notice of objection served to an assessment. Subsection 165(7) reads as
follows:
Notice of
objection not required — Where a taxpayer has
served in accordance with this section a notice of objection to an assessment
and thereafter the Minister reassesses the tax, interest, penalties or other
amount in respect of which the notice of objection was served or makes an
additional assessment in respect thereof and sends to the taxpayer a notice of
the reassessment or of the additional assessment, as the case may be, the
taxpayer may, without serving a notice of objection to the reassessment or
additional assessment,
(a) appeal therefrom to the Tax Court of Canada in
accordance with section 169; or
(b) amend any appeal to the Tax Court of Canada that has
been instituted with respect to the assessment by joining thereto an appeal in
respect of the reassessment or the additional assessment in such manner and on
such terms, if any, as the Tax Court of Canada directs.
A. Facts relating to the taxation year ending December 31, 2006 - docket
2012-1020(IT)G
[6]
The applicant is currently conducting an appeal
to the Tax Court of Canada (docket 2012-1020(IT)G) from an assessment of it by
the Minister of National Revenue (Minister) made on July 14, 2011, for the 2006
taxation year (first assessment).
[7]
The examinations for discovery were completed by
the parties before April 2, 2013, regarding the most important part of the
appeal, that is, the audit process and the eligibility of the expenses claimed as
scientific research and experimental development expenditures incurred by the applicant
and disallowed by the first assessment. The undertakings in that respect have
almost all been completed.
[8]
On April 19, 2013, the Minister assessed the applicant
again for its 2006 taxation year (second assessment) to disallow the foreign
affiliate losses deducted by the applicant.
[9]
On July 18, 2013, the applicant served on the
Minister a notice of objection to the second assessment on the ground that is
was an additional assessment and not a reassessment.
[10]
According to the respondent, the applicant’s assessment
dated April 19, 2013, made under subparagraph 152(4)(b)(iii) of the
Act for the 2006 taxation year is a reassessment and not an additional
assessment.
[11]
The respondent’s position is based on Monique Poirier’s
affidavit, filed pursuant to section 68 of the Rules. Ms. Poirier also
completed form T7W-C explaining the changes made to the applicant’s taxable
income. Said form T7W-C was filed as an exhibit to the Canada Revenue Agency
(CRA) auditor’s affidavit.
[12]
As stated in form T7W-C, the starting point for
the reassessment dated April 19, 2013, is the [Translation] “previously assessed net income for income tax purposes” in the amount of $1,694,939,106, which included the adjustments
made by the previous assessment dated July 14, 2011, for the applicant’s 2006
taxation year. No change was made to those adjustments.
[13]
An amount of $1,681,804 was added to the [Translation] “previously assessed net income for income
tax purposes” as “foreign accrual property income” under
subsection 91(1) of the Act. Because the deduction set out in subsection 91(4)
of the Act in the amount of $281,696 was disallowed, $1,963,500 was added to the applicant’s income. The applicant’s revised
net income for income tax purposes was established at $1,696,902,606.
[14]
From the revised net income amount, taxable
dividends, non-capital losses, capital losses and donations were subtracted to
the effect that the applicant’s revised taxable income for its 2006 taxation
year was $169,828,709.
[15]
The case law and the doctrine are in agreement
in a situation where the revised taxable income of a taxpayer was increased
taking into account previous adjustments, in that that is a very clear
indication for characterizing the assessment as a “reassessment”
instead of an “additional assessment”.
[16]
Parent v. Canada,
[2003] T.C.J. No. 445 (TCC)(QL), Walkem v. M.N.R., 71 DTC 5288 (F.C.T.D.)
and Lucien Rémillard v. Her Majesty the Queen, 2011 TCC 327 answer the
question raised by the applicant in its motion and enable the Court to find
that the assessment dated April 19, 2013, is indeed a reassessment.
[17]
Similarly, doctrinal authors who have
discussed the distinction between a “reassessment”
and an “additional assessment” consider that the
increase in total taxable income on a notice of assessment indicates that it is
a reassessment and not an additional assessment (see in this regard C. Campbell,
whose treatise entitled Administration of Income Tax
2013 was cited by the Supreme Court of Canada in Agence du Revenu
v. Services Environnementaux AES, [2013] 3 S.C.R. p. 859, (2013) page 398;
B. Russell, “Assessments, Reassessments and
Waivers, 2012 Tax Dispute Resolution Compliance and Administration”, Conference
Report (Toronto: Canadian Tax Foundation, 2013) 26: 1-15; and D. Smith “Reassessments,
Waivers, Amended Returns and Refunds”, Corporate Management Tax Conference
1988, at page 8:8).
[18]
Since, by its
notice of objection dated July 18, 2013, the applicant duly objected to the adjustments
that were the subject of the reassessment made on April 19, 2013, for the 2006
taxation year and the requirements set out in subsections 165(1.11) and
169(2.1) of the Act were met, the Court authorizes the applicant to amend, by
January 7, 2015, its notice of appeal to challenge its reassessment for the
2006 taxation year, in accordance with section 54 of the Rules.
B. Facts related to the taxation year ending October 31, 2007 - docket 2012‑4808(IT)G
[19]
The reassessments dated September 3, and October
3, 2013, were made by the Minister after an adjustment request from the applicant
and those reassessments resulted in a decrease in the tax payable by the applicant.
[20]
Under the reassessment dated September 3, 2013, the
total federal tax to be paid by the applicant under Part I of the Act was
decreased by $5,492,114 with respect to the taxes payable according to the
reassessment dated May 11, 2012.
[21]
According to the reassessment dated October 3,
2013, the total amount of federal tax to be paid by the applicant under Part I of
the Act was decreased by an additional $1,053,087 with respect to the amount of
tax payable according to the reassessment dated May 11, 2012.
[22]
Following those reassessments dated September 3,
2013, and October 3, 2013, the tax payable on the income under Part I of the Act
went from $99,413,327 to $92,867,526, according to the reassessment dated May 11,
2012.
[23]
According to the above-mentioned principles in
section A for the 2006 taxation year, the reassessments made on September 3,
2013, and October 3, 2013, regarding the taxation year ending October 31, 2007,
are “reassessments”.
[24]
On November 29, 2013, the applicant served a
notice of objection to the reassessments dated September 3 and October 3, 2013,
with respect to the taxation year ending October 31, 2007. The notice of
objection specifically refers to the reassessments dated September 3 and
October 3 in its title and at paragraphs 221, 262 to 268 and 432. However,
paragraphs 262 to 268 do not contain a sufficiently detailed description
of the adjustments made by the Minister to make the reassessments dated
September 3 and October 3, 2013.
[25]
Paragraph 264 of the notice of objection
states that an amount of $18,356,946 was added to the applicant’s income as “foreign accrual property income” but there is no
specification that the changes were made to the applicant’s 2005 taxation year.
The inclusion of that $18,356,946 in the applicant’s income for the 2005
taxation year resulted in a decrease of $15,664,647 in the “non-capital loss balance” for the 2005 taxation year.
Consequently, that had an impact on the amount of “non-capital
losses” that the applicant may apply to the 2007 taxation year under
paragraph 111(1)(a) of the Act.
[26]
During the hearing, counsel for the respondent
suggested that the applicant specify in its notice of objection the relief
described in the previous paragraph, as stated in subsection 165(1.11) of the
Act, to enable it to appeal the adjustments in the reassessments dated
September 3, and October 3, 2013, to the Tax Court of Canada.
[27]
In the light of the foregoing, the Court
authorizes the applicant to amend, by January 7, 2015, its notice of appeal to
challenge its reassessments for the 2007 taxation year, in accordance with
section 54 of the Rules, as long as the applicant first specifies in its
notice of objection the relief sought with respect to the reassessments dated
September 3, and October 3, 2013.
[28]
For these reasons, the applicant’s motions are
dismissed without costs.
Signed at Ottawa, Canada, this 7th day of October 2014.
“Réal Favreau”
Translation certified true
on this 18th day of June 2015
François Brunet, Revisor
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