Date: 20220426

Docket: A-318-20

Citation: 2022 FCA 70

Heard by online video conference hosted by the Registry on February 15, 2022.

Judgment delivered at Ottawa, Ontario, on April 26, 2022.

Date: 20220426

Docket: A-318-20

Citation: 2022 FCA 70

REASONS FOR JUDGMENT

WEBB J.A.

[1] This appeal and cross-appeal arise as a result of the response provided by the Tax Court of Canada to a question submitted under Rule 58 of the Tax Court of Canada Rules (General Procedure), SOR/90-688a. The question was:

Where the Minister of National Revenue has exercised her discretion pursuant to subsection 247(10) of the Income Tax Act (“ITA”) to deny a taxpayer’s request for a downward transfer pricing adjustment, is that a decision falling outside the exclusive original jurisdiction granted to the Tax Court of Canada under section 12 of the Tax Court of Canada Act and section 171 of the ITA?

[2] This question arose in the context of the appeal commenced by Dow Chemical Canada ULC (Dow) in relation to the reassessment of its 2006 taxation year.

[3] The Tax Court (2020 TCC 139) provided the following answer to this question:

1. The Court has determined that where the Minister has decided, pursuant to subsection 247(10) of the Income Tax Act (Canada) [the ITA], to deny a taxpayer’s request for a downward transfer pricing adjustment, that decision is not outside the exclusive original jurisdiction granted to the Court under section 12 of the Tax Court of Canada Act and section 171 of the ITA provided that the assessment resulting from that decision has been properly appealed to the Court…

[4] The Crown, in its appeal to this Court, is asking that the question as posed by the parties be answered in the affirmative. In its cross-appeal, Dow is seeking an amended response. In Dow’s view, the decision of the Minister of National Revenue (the Minister) under subsection 247(10) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the ITA) is within the exclusive jurisdiction of the Tax Court of Canada, regardless of whether an assessment has been issued.

[5] For the reasons that follow, I would allow the appeal and answer the question as originally posed under Rule 58 in the affirmative, as the Federal Court has the jurisdiction to judicially review the Minister’s opinion rendered under subsection 247(10) of the ITA. I would dismiss the cross-appeal.

I. Background

[6] The parties submitted a Statement of Agreed Facts to the Tax Court for the purposes of the Rule 58 proceeding.

[7] On December 14, 2011, the Minister reassessed Dow’s 2006 taxation year by adding approximately $307 million to its income, as a result of certain transfer pricing adjustments made under section 247 of the ITA in relation to intercompany transactions involving Dow and Dow Europe GmbH (DowEur), a Swiss operating company with whom Dow was not dealing at arm’s length.

[8] Dow served a notice of objection to the reassessment that included the additional amounts in its income. Following the filing of the notice of objection, the Minister sent a proposal letter, dated March 9, 2012, which included a proposed increase to the interest expense claimed by Dow for 2006 and 2007 in relation to amounts that it had borrowed from DowEur.

[9] Paragraphs 17 to 19 of the Statement of Agreed Facts stipulate:

17. On December 11, 2012, the Minister issued another proposal letter to [Dow], in which the Minister advised that its previous proposal to increase the interest expense taken with respect to the DowEur Loan Amounts for [Dow’s] 2006 taxation year would not be made due to the application of the limitation period in the Canada-Switzerland Tax Treaty.

18. By that same letter, the Minister advised [Dow] that the proposed downward transfer pricing adjustment in respect of the interest expense taken with respect to the DowEur Loan Amounts for [Dow’s] 2007 taxation year would be implemented.

19. By Notices of Reassessment dated December 12, 2012, [Dow’s] 2006 and 2007 taxation years were reassessed as outlined in the letter of December 11, 2012.

[10] Although the Crown submitted, at the hearing of this appeal, that the reassessments issued on December 12, 2012 did not reflect what was stated in the letter dated December 11, 2012, this is contrary to the facts that the parties had agreed upon. The parties agreed that Dow’s 2006 taxation year was reassessed on December 12, 2012, as outlined in the letter dated the previous day. Therefore, this reassessment reflected the Minister’s decision to not allow the reduction in income for 2006 based on the increased interest expense. The reassessment issued on December 12, 2012 for Dow’s 2007 taxation year reflected the reduction in income based on the increased interest expense.

[11] On January 14, 2013, Dow submitted a request to the Minister to reduce its income by the increased interest expense that had been identified in the letter dated March 9, 2012 for its 2006 taxation year. The Minister, by a letter dated February 11, 2013, denied this request. On March 11, 2013, Dow sought judicial review of this decision in the Federal Court.

[12] Dow also objected to the reassessment dated December 12, 2012, respecting its 2006 taxation year. Dow was subsequently reassessed on December 14, 2015 and again on April 13, 2017, for its 2006 taxation year. None of the reassessments included the additional interest expense for 2006 that was identified in the letter dated March 9, 2012. The reassessment dated April 13, 2017 is the reassessment that is the subject of the appeal to the Tax Court.

II. Decision of the Tax Court

[13] The Tax Court Judge addressed a number of arguments that the parties had raised. The first argument was whether there was a right of appeal from the Minister’s decision under subsection 247(10) of the ITA, as a result of the application of subsection 247(11) of the ITA. The Tax Court Judge rejected Dow’s submissions that the provisions of subsection 247(11) of the ITA resulted in the Minister’s decision under subsection 247(10) of the ITA having the same objection and appeal rights that apply when an assessment is issued.

[14] The Tax Court Judge then considered the Tax Court’s appellate jurisdiction. As part of this analysis, the Tax Court Judge considered various decisions from the Exchequer Court of Canada and the Privy Council addressing appeals under the Income War Tax Act, R.S.C. 1927, c. 97. Under that statute, there were provisions that granted the Minister the discretion to make certain decisions that would have a direct impact on the income of taxpayers. The Tax Court Judge, in paragraph 144 of her reasons, set out her conclusions based on her review of the Exchequer Court and Privy Council decisions under the Income War Tax Act:

[144] A review of the jurisprudence leads me to conclude that, where a taxpayer claims an entitlement to a downward transfer pricing adjustment, the Minister’s decision under subsection 247(10), like the decisions the Minister was required to make under the IWTA, has to be made by the Minister before any assessment of a taxpayer’s taxes can be made. That decision must be made judicially, i.e., in accordance with proper legal principles. If it is not, then the resulting assessment is incorrect. Thus, on an appeal of the resulting assessment, under its appellate jurisdiction, the Tax Court is both permitted and required to review the manner in which the Minister came to her determination under subsection 247(10).

[15] The Tax Court Judge also considered the provisions of the Employment Insurance Act, S.C. 1996, c. 23 (the EI Act) related to appeals from a ruling on insurability. She found (at paragraph 152 of her reasons) that the appeal rights under the EI Act are consistent with the scope of the Tax Court’s appellate jurisdiction over an assessment, as interpreted by the Exchequer Court and the Privy Council.

[16] Furthermore, the Tax Court Judge compared the remedies that would be available to the Tax Court and the Federal Court and determined that:

[167] Where a taxpayer disagrees with the Minister's decision under subsection 247(10), “the ‘essential character’ of the relief sought is the setting aside of an assessment”, and that is beyond the powers of the Federal Court.

[footnote reference omitted]

[17] The Tax Court Judge acknowledged that the Federal Court has judicial review jurisdiction to review decisions of the Minister related to the waiver or cancellation of penalties or interest under subsection 220(3.1) of the ITA. As noted by the Tax Court Judge, subsection 165(1.2) of the ITA provides that no objection may be made by a taxpayer to an assessment made under subsection 220(3.1) of the ITA, and hence no appeal would lie to the Tax Court in relation to such assessment.

[18] The Tax Court Judge noted, in paragraphs 183 and 184 of her reasons, that there are other Parts of the ITA that include provisions granting the Minister the discretion to waive or cancel tax that would otherwise be imposed. Subsection 165(1.2) of the ITA (which prohibits a taxpayer from making an objection to an assessment issued under subsection 220(3.1) of the ITA) does not include a reference to any assessment arising under these other provisions. However, as noted by the Tax Court Judge, many cases related to the exercise of the Minister’s discretion under these other provisions have proceeded to the Federal Court by way of judicial review. Since these provisions were not part of the Rule 58 question, the Tax Court Judge did not comment on the jurisdiction of the Tax Court in relation to these other provisions.

[19] In any event, the Tax Court Judge distinguished the discretionary decisions of the Minister to waive tax, interest or penalties (including subsection 220(3.1) and the other provisions referenced at paragraphs 183 and 184 of her reasons) from the opinion rendered under subsection 247(10) of the ITA, on the basis that the Minister’s discretion to waive tax, interest or penalties is only exercised after a correct assessment is made. In her view, “where a taxpayer claims and establishes a downward transfer pricing adjustment, the determination under subsection 247(10) is not permissive - it must be made and it must be made before a correct assessment can be issued” (paragraph 191 of her reasons, emphasis added by the Tax Court Judge).

[20] The Tax Court Judge also noted that the determination under subsection 247(10) of the ITA is not made with respect to a particular amount. Rather, the discretionary decision is whether it is appropriate that the taxpayer’s income be reduced by the amount that has been identified as a downward adjustment under subsection 247(2) of the ITA. The discretionary decision does not relate to the actual amount of such adjustment. As she noted in paragraph 208:

… But, that discretion must be exercised on proper grounds before a correct assessment can be made. As a result, the manner in which that discretion is exercised is reviewable on an appeal of the resulting assessment. The amount of the downward transfer pricing adjustment is not something the Minister determines but that does not remove the matter from the Tax Court's jurisdiction.

[emphasis added by the Tax Court Judge]

[21] As a result, the Tax Court Judge provided the modified response to the Rule 58 question as indicated above.

III. Issue and Standard of Review

[22] The question as posed is a question of law. The question seeks to delineate the exclusive jurisdiction of the Tax Court, and, in particular, whether the Minister’s decision under subsection 247(10) of the ITA is outside the exclusive jurisdiction granted to the Tax Court. Since this is a question of law, the standard of review is correctness (Housen v. Nikolaisen, 2002 SCC 33).

IV. Analysis

[23] The transfer pricing rules are set out in section 247 of the ITA. One component of these rules is the adjustment made to certain amounts where a taxpayer and a non-resident person, who are not dealing with each other at arm’s length, have agreed upon terms and conditions that differ from the terms and conditions that would have been agreed upon by persons dealing with each other at arm’s length. Paragraph 247(2)(c) of the ITA provides that the amounts will be adjusted to reflect the terms and conditions that would have been agreed upon by persons dealing with each other at arm’s length. As noted above, the application of the transfer pricing rules in subsection 247(2) of the ITA in this case resulted in a significant increase in Dow’s income for 2006.

[24] However, the application of the same rules, i.e. the determination of what terms and conditions would have been reached between persons dealing with each other at arm’s length, would, in this matter, also result in a decrease in Dow’s income for 2006, as an additional amount that would have been paid as interest was identified. Subsection 247(2) of the ITA does not distinguish between an adjustment that would increase income and one that would decrease income. If, as in this case, an amount is identified that would decrease the income of the taxpayer, subsection 247(10) of the ITA provides that this downward adjustment is not to be made “unless, in the opinion of the Minister, the circumstances are such that it would be appropriate that the adjustment be made”:

[25] The Minister’s opinion in this case is that the circumstances are not such that it would be appropriate to reduce Dow’s income for 2006 by the amount of the additional interest expense that was identified as a downward adjustment under subsection 247(2) of the ITA.

[26] The issue in this appeal is not the appropriateness of this opinion, but whether this opinion is outside the exclusive jurisdiction of the Tax Court. The opinion will be outside the exclusive jurisdiction of the Tax Court if the Federal Court has the jurisdiction to judicially review the Minister’s opinion.

A. Relevant Statutory Provisions

[27] Section 12 of the Tax Court of Canada Act, R.S.C. 1985, c. T-2, sets out the exclusive jurisdiction granted to the Tax Court. While the Tax Court is granted exclusive original jurisdiction in relation to a number of statutes, the only statute that is relevant in this appeal is the ITA. Subsection 12(1) of the Tax Court of Canada Act grants the Tax Court the following exclusive original jurisdiction to the Tax Court on matters arising under the ITA:

[28] The jurisdictional question in this appeal does not relate to a reference to the Tax Court. Therefore, the relevant part of subsection 12(1) of the Tax Court of Canada Act is the jurisdiction granted to the Tax Court to hear and determine appeals. Section 12 limits the right to hear and determine appeals to only those appeals to the Tax Court provided in the ITA.

[29] In the question as posed, the parties referred to section 171 of the ITA. However, this section sets out the remedies the Tax Court may grant on hearing an appeal. Section 169 of the ITA is the section that provides for an appeal to the Tax Court where a taxpayer has served a notice of objection to an assessment. The appeal granted by subsection 169(1) of the ITA is an “appeal to the Tax Court of Canada to have the assessment vacated or varied”.

[30] The limited remedies that the Tax Court may grant in disposing of an appeal are set out in subsection 171(1) of the ITA:

[31] The Federal Court is also granted exclusive original jurisdiction under subsection 18(1) of the Federal Courts Act, R.S.C. 1985, c. F-7, to grant certain remedies:

[32] The remedies contemplated by this subsection “may be obtained only on an application for judicial review made under section 18.1” (subsection 18(3) of the Federal Courts Act). Subsection 18.1(1) of the Federal Courts Act provides “[a]n application for judicial review may be made by the Attorney General of Canada or by anyone directly affected by the matter in respect of which relief is sought” and subsection 18.1(3) of that Act sets out the powers granted to the Federal Court on an application for judicial review:

[33] Section 18.5 of the Federal Courts Act provides a limitation on the jurisdiction of the Federal Court when a right of appeal is expressly granted by another Act of Parliament:

[34] The result of these provisions is that if the ITA expressly provides for an appeal from the opinion of the Minister rendered under subsection 247(10) of the ITA, that appeal would be within the exclusive jurisdiction of the Tax Court. However, if the ITA does not expressly provide for an appeal of that opinion to the Tax Court, the Federal Court would retain jurisdiction to judicially review that opinion.

B. Subsection 247(11) of the ITA

[35] Dow argued that subsection 247(11) of the ITA provides for a separate right of appeal from the Minister’s opinion rendered under subsection 247(10) of the ITA.

[36] Subsection 247(11) of the ITA stipulates:

[37] The sections listed in subsection 247(11) of the ITA include the sections related to the assessment of tax, objections and appeals to the Tax Court.

[38] The opinion in question is not, in and of itself, an assessment, although the opinion, if favourable to the taxpayer, would result in a reduction in income and hence a reduction in the tax payable by that taxpayer.

[39] I agree with the Tax Court Judge, generally for the reasons that she gave, that subsection 247(11) of the ITA does not provide for a separate right of appeal from this opinion.

[40] The determination that this opinion does not give rise to a separate right of appeal leads to the conclusion that the ITA does not expressly provide an appeal of this decision. Since section 18.5 of the Federal Courts Act only excludes the Federal Court from reviewing a decision when another Act expressly provides a right of appeal, this determination would lead to the finding that section 18.5 of the Federal Courts Act is not a bar to the Federal Court judicially reviewing this decision of the Minister.

C. The Decisions of the Exchequer Court and the Privy Council

[41] The Tax Court Judge completed a detailed review of certain decisions of the Exchequer Court of Canada and the Privy Council. These decisions arose under the Income War Tax Act. In these decisions, the Courts were not considering the different jurisdiction of the Federal Court and the Tax Court that exists today.

[42] In any event, two cases of note are Pure Spring Co. Ltd. v. Minister of National Revenue, [1946] Ex. CR. 471, [1947] 1 D.L.R. 501 (a decision of the Exchequer Court) and Minister of National Revenue v. Wrights’ Canadian Ropes Ltd. (1946), [1947] A.C. 109, [1947] 1 D.L.R. 721 (a decision of the Privy Council).

[43] The appeals in both cases arose as a result of a disallowance of an expense by the Minister under what was then subsection 6(2) of the Income War Tax Act:

6(2) The Minister may disallow any expense which he in his discretion may determine to be in excess of what is reasonable or normal for the business carried on by the taxpayer, or which was incurred in respect of any transaction or operation which in his opinion has unduly or artificially reduced the income.

[44] In Pure Spring, Thorson, P. referred to an earlier decision that he had rendered in Nicholson Ltd. v. Minister of National Revenue, [1945] Ex C.R. 191, [1945] 4 D.L.R. 683, and summarized his finding, at pages 524 - 525, as follows:

After a review of the provisions of the Act relating to appeals the Court held that the appeal provided by the Income War Tax Act is not an appeal from any decision of the Minister but an appeal from the assessment made by him in the course of his functions in respect thereof; and that the right of appeal to the Court conferred by the Act does not carry with it any right of appeal from the Minister's determination in his discretion under s. 6(2). …

[45] Thorson, P. then referred to a decision from the Supreme Court of New South Wales that was cited by counsel for Pure Spring in which that Court reviewed the opinion of the Commissioner and allowed an appeal on the basis that the Court did not agree with the opinion expressed by the Commissioner.

[46] However, as noted by Thorson, P., the Australian statute provided not only a right of appeal from any assessment, but also an appeal from any opinion, decision or determination of the Commissioner under certain sections (including the one in issue in that case), whether in the exercise of discretion conferred upon the Commissioner or otherwise. This specific right of appeal from any underlying decision was not present in the Income War Tax Act, nor is it present in the ITA.

[47] Thorson, P. reiterated, at page 529, his conclusion that there is no right of appeal from the Minister’s determination that was made in his discretion:

In my opinion, it is quite clear that, under the Income War Tax Act as it stands, there is no right of appeal to the Court from the Minister's determination in his discretion under s. 6(2).

[48] By contrast, in the subsequent decision of the Privy Council in Wrights’ Ropes, the Privy Council did substitute its opinion for that of the Minister. The Minister had exercised his discretion to deny certain amounts claimed as commission expenses. The Privy Council considered the language of subsection 6(2) of the Income War Tax Act and the right of appeal to the Exchequer Court. The Privy Council noted that under subsection 6(2) of the Income War Tax Act, the Minister was the judge of what was reasonable or normal. The Privy Council found that the right of appeal to the Exchequer Court must have been intended to be an effective right and that the Court could, within certain limits, review the decision of the Minister and determine whether that decision was appropriate.

[49] Based on the evidence that was presented to the Court, the Privy Council found that there was no basis to justify the denial of the expense by the Minister. In determining the terms of the order that would be granted, the Privy Council referred to the inherent jurisdiction of the Court to grant an order compelling the Minister to reassess to allow the particular deduction.

[50] The decision of the Privy Council would appear to support the finding of the Tax Court Judge in this case. However, this decision was rendered in relation to the right of appeal to the Exchequer Court and not the right of appeal to the Tax Court. The issue in this appeal relates to the jurisdiction of the Tax Court and the Federal Court, not the jurisdiction of the Exchequer Court as it related to appeals under the Income War Tax Act.

D. The EI Act

[51] The Tax Court Judge referred to appeals under the EI Act as support for her finding that the Minister’s opinion rendered under subsection 247(10) of the ITA is within the exclusive jurisdiction of the Tax Court.

[52] Under the EI Act, if an employer and employee are related (within the meaning of the ITA), that employment will not be insurable employment unless the Minister “is satisfied that, having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is reasonable to conclude that they would have entered into a substantially similar contract of employment if they had been dealing with each other at arm’s length” (paragraph 5(3)(b)).

[53] The same provision was also in the predecessor statute – the Unemployment Insurance Act, R.S.C. 1985, c. U-1, subparagraph 3(2)(c)(ii) (the UI Act).

[54] Therefore, the Minister under the UI Act had (and under the EI Act has) the discretion to determine if the employment of a particular person by another person with whom the employee is not dealing at arm’s length is nonetheless insurable employment.

[55] The Tax Court Judge referred to a number of decisions of this Court that addressed the scope of the Tax Court’s appellate jurisdiction when determining an appeal to that Court arising as a result of a determination made by the Minister concerning the insurability of certain employment. In particular, the Tax Court quoted the following passage from paragraph 18 of Tignish Auto Parts Inc. v. Minister of National Revenue (1994), 185 N.R. 73 (FCA):

Once the Tax Court is of the view that the Minister's determination cannot stand, its power to “vary” under subsection 70(2) of the Act implies it can exercise fully the powers given to the Minister by the Act. There is, in my view, no reason to distinguish between a quasi-judicial decision rendered by the Minister . . . and a discretionary one. …

[emphasis added by the Tax Court Judge]

[56] Tignish Auto Parts arose under the UI Act. All of the other cases cited by the Tax Court Judge (except Valente v. Canada (Minister of National Revenue), 2003 FCA 132) also arose under the UI Act. Valente is a brief one paragraph decision of this Court which referred to earlier decisions arising under the UI Act. There are also other decisions of this Court under the EI Act (that were not cited by the Tax Court Judge) but which continue to rely on the decisions rendered under the UI Act (e.g. Bélanger v. (Canada) Minister of National Revenue, 2003 FCA 455, Quigley Electric Ltd. v. (Canada) Minister of National Revenue, 2003 FCA 461, and Denis v. (Canada) Minister of National Revenue, 2004 FCA 26).

[57] Since the Tax Court Judge relied on Tignish Auto Parts for the proposition that the Tax Court could vary the decision made by the Minister concerning whether employment by a related person is insurable employment, the applicable provisions of the UI Act will be examined and compared to the provisions of the ITA setting out the rights of appeal to the Tax Court and the powers granted to the Tax Court under the ITA.

[58] Section 61 of the UI Act addressed the determination of questions arising under that statute. In particular, subsections 61(1), (3) and (6) of the UI Act provided as follows:

[59] The question of whether certain employment was insurable employment could have arisen either indirectly under paragraph 61(1)(a), in relation to whether the employer or the employee was required to pay the applicable premium, or directly under paragraph 61(3)(a). In either case, the determination of the question was to be made by the Minister. The question of whether the employment of a person by a related person was insurable employment would depend on whether the Minister was satisfied that, having regard to all the circumstances of employment, they would have entered into a similar contract of employment if they were dealing with each other at arm’s length.

[60] An appeal from the determination or the decision of the Minister could have been made to the Tax Court under section 70 of the UI Act:

[61] The remedies granted to the Tax Court included the remedy to vary the determination made by the Minister under Section 61 of the UI Act. This presumably would include the right to vary the determination of insurability made by the Minister, which, for related persons, would include the determination of whether in all the circumstances they would have entered into a substantially similar contract of employment if they had been dealing with each other at arm’s length.

[62] In contrast, under the ITA the appeal right granted under section 169 of the ITA is the right to “appeal to the Tax Court of Canada to have the assessment vacated or varied”. The only remedial powers granted to the Tax Court under section 171 of the ITA are to vacate the assessment, vary the assessment, or refer the assessment back to the Minister for reconsideration and reassessment. The assessment, as noted below, is the product of the process of determining a taxpayer’s liability under the ITA and not the process itself. As discussed further below, the powers granted to the Tax Court under the ITA would not include the power to vary the Minister’s opinion or to compel the Minister to provide a certain opinion under subsection 247(10) of the ITA.

[63] As a result, the decisions decided under the UI Act do not support a finding that the Tax Court can review (and, if appropriate, set aside or vary) an opinion rendered by the Minister under subsection 247(10) of the ITA.

E. The Remedies that may be Granted by the Tax Court versus the Federal Court

[64] In my view, the resolution of this appeal turns on the different remedies that may be granted by the Tax Court and the Federal Court. At the conclusion of her reasons, the Tax Court Judge stated:

[213] The ITA provides a right to appeal an assessment. On the appeal of an assessment, can the appeal be allowed on the basis that the Minister did not exercise her power under subsection 247(10) correctly? I conclude that the answer is yes. Where the Minister did not exercise the discretion at all, or exercised it on incorrect principles, the assessment cannot be said to be correct. Consideration of the correctness of an assessment is within the exclusive jurisdiction of the Tax Court.

[214] This conclusion is consistent with prior jurisprudence on the scope of appellate jurisdiction on the appeal of an assessment. It also accords with the desirability of avoiding parallel proceedings in the Tax Court and the Federal Court. The Tax Court will address all challenges to the correctness of the assessment made after the transfer pricing provisions have been applied, including whether the conditions for their application are met, the amount of any adjustments, the liability for penalties and whether the Minister exercised her discretion properly. Once the Tax Court decides to allow an appeal of an assessment on the basis that the Minister did not act properly in exercising her discretion, the powers available to it under section 171 provide it with the relevant remedies.

[footnote reference omitted]

[65] The Tax Court Judge found that the Tax Court could review the Minister’s opinion and, if the Tax Court should find that this opinion is not valid (based on the applicable standard of review), the Tax Court could then grant the remedies available to the Tax Court under section 171 of the ITA, which the Tax Court Judge described as the “relevant remedies”.

[66] However, the remedies available to the Tax Court may not be adequate. Dow’s ultimate objective in this matter is to have a reassessment based on a reduction in income that reflects the downward adjustment. The question is what remedies may be required to achieve this objective, assuming that Dow is successful in establishing that this result is warranted in this case?

[67] The parties agree that subsection 247(10) of the ITA is unique. This subsection imposes a condition on an adjustment that would otherwise be required to be made under subsection 247(2) of the ITA, if that adjustment would reduce the income of a taxpayer. This downward adjustment to the income of the taxpayer can only be made if, “in the opinion of the Minister, the circumstances are such that it would be appropriate that the adjustment be made”. It is therefore a condition that this opinion of the Minister be obtained in order for the adjustment to be made.

[68] Since a downward adjustment can only be made under subsection 247(2) of the ITA if the Minister provides the appropriate opinion, either:

• (a) the absence of an opinion; or

• (b) an opinion that the circumstances are such that it would not be appropriate to make the adjustment

would result in the downward adjustment not being made. The only condition that would result in the downward adjustment being made to Dow’s income is the favourable opinion of the Minister that the circumstances are such that it would be appropriate to make the adjustment.

[69] The Tax Court only has three options available to it under subsection 171(1) of the ITA if the appeal to the Tax Court is allowed:

• (a) vacate the assessment;

• (b) vary the assessment; or

• (c) refer the assessment back to the Minister for reconsideration and reassessment.

[70] The reassessment under appeal includes various adjustments made to Dow’s income. For the purposes of this Rule 58 question, the only focus is on the downward adjustment. Vacating the entire reassessment (which may include other adjustments that are valid) to only address the one issue concerning this downward adjustment is not a viable option.

[71] The only remedies that warrant consideration are the right to vary the assessment or refer the assessment back to the Minister for reconsideration and reassessment.

(1) The Minister’s Opinion is not an Assessment

[72] The remedies are directed at the assessment. In Main Rehabilitation Co. v. Canada, 2004 FCA 403, this Court described what is in issue in an appeal to the Tax Court:

[8] This is because what is in issue in an appeal pursuant to section 169 is the validity of the assessment and not the process by which it is established (see for instance [The] Queen v. [The] Consumers’ Gas Company Ltd. 87 D.T.C. 5008 (F.C.A.) at p. 5012). Put another way, the question is not whether the CCRA officials exercised their powers properly, but whether the amounts assessed can be shown to be properly owing under the Act (Ludco Enterprises Ltd. v. R. [1996] 3 C.T.C. 74 (F.C.A.) at p. 84).

[73] In Main Rehabilitation, the taxpayer claimed in its pleadings that the assessment should be stayed as an abuse of process as a result of an alleged faulty audit conducted by the then Canada Customs and Revenue Agency (CCRA). Subsection 247(10) of the Act was not in issue in Main Rehabilitation. Therefore, the reference to the question of whether the officials of the CCRA exercised their powers properly does not necessarily mean that this comment was directed at the exercise by the Minister of his or her power to grant the opinion contemplated by subsection 247(10) of the ITA.

[74] In the subsequent case of Canada v. Anchor Pointe Energy Ltd., 2007 FCA 188, at paragraphs 32 - 33, this Court found that what is under appeal to the Tax Court is the product of the process of determining a taxpayer’s liability under the ITA and not the process itself.

[75] In order to calculate the amount of tax owing by Dow for its 2006 taxation year, it is necessary to first determine its taxable income for that year, since the taxes payable are based on the amount of taxable income (subsection 123(1) of the ITA). Allowing the downward adjustment or not allowing the downward adjustment will have a direct impact on Dow’s taxable income and, hence, its tax liability. However, the determination of whether in the circumstances it is appropriate that the downward adjustment be made was delegated by Parliament to the Minister. The Minister’s opinion under subsection 247(10) of the ITA is a separate decision of the Minister that precludes the reduction in income unless the opinion is that the circumstances are such that it is appropriate to allow the downward adjustment. In order for the Tax Court to vary or set aside the product of the assessment, i.e. the amount of taxes payable by Dow for 2006, the opinion rendered by the Minister would have to be changed from an unfavourable opinion to one that is favourable to Dow.

[76] The requirement of a favourable opinion before the downward adjustment can be made distinguishes this provision from other provisions of the ITA where amounts claimed by taxpayers can be adjusted to amounts that are reasonable in the circumstances. For example, section 67 of the ITA limits expenses to the amounts that are “reasonable in the circumstances”. Because the restriction set out in section 67 of the ITA is based on what is reasonable in the circumstances (and not what, in the opinion of the Minister, is reasonable in the circumstances), the issue of what is reasonable in the circumstances is a matter for determination by the Tax Court on an appeal from an assessment that reflects an adjustment under section 67 of the ITA to amounts claimed by a taxpayer.

[77] In my view, the remedies granted to the Tax Court under subsection 171(1) of the ITA do not extend to the power to vary the opinion of the Minister rendered under subsection 247(10) of the ITA or to quash this opinion. The Tax Court can only vacate, vary or refer an assessment back to the Minister. The opinion rendered by the Minister under subsection 247(10) of the ITA is not an assessment, although it will affect an assessment. The Tax Court does not have the power that is granted to the Federal Court under subsection 18.1(3) of the Federal Courts Act on an application for judicial review to quash a decision of the Minister.

(2) Inherent Jurisdiction and Implied Jurisdiction

[78] Since the Tax Court does not have the explicit authority to vary or quash the opinion, if the Tax Court has such authority it must be implicit.

[79] In Windsor (City) v. Canadian Transit Co., 2016 SCC 54, at paragraph 33, the Supreme Court of Canada found that the Federal Court does not have any inherent jurisdiction, but rather only the jurisdiction conferred on it by statute. Since the Tax Court is also a statutory court, this finding applies equally to the Tax Court. Therefore, there is no inherent jurisdiction that would allow the Tax Court to vary or quash the Minister’s opinion.

[80] Although the Tax Court does not have any inherent jurisdiction, it does have an implied jurisdiction by necessary implication. In R. v. Cunningham, 2010 SCC 10, at paragraph 19, the Supreme Court of Canada confirmed that statutory courts have an implied jurisdiction by necessary implication to carry out the functions of a court. Since the Tax Court is a statutory court, it also has this implied jurisdiction. Therefore, “… the powers conferred by an enabling statute are construed to include not only those expressly granted but also, by implication, all powers which are practically necessary for the accomplishment of the object intended to be secured by the statutory regime …” (ATCO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities Board), 2006 SCC 4, at paragraph 51).

[81] However, in my view, the power conferred by Parliament on the Tax Court to determine the correctness of an assessment does not, by implication, include the power to vary or quash the opinion rendered by the Minister under subsection 247(10) of the ITA. The only jurisdiction conferred on the Tax Court by the ITA is the jurisdiction to provide a remedy that directly impacts the assessment. The Tax Court can vacate an assessment, vary an assessment or refer the assessment back to the Minister. All of the remedies apply only to the assessment.

[82] It is also not necessary that the Tax Court have the power to quash the opinion rendered by the Minister under subsection 247(10) of the ITA, as the Federal Court is granted the power to quash a decision of the Minister under subsection 18.1(3) of the Federal Courts Act. While it may be more convenient if the Tax Court could quash the opinion of the Minister (as the Tax Court will be addressing the appeal of the assessment that would be varied if the opinion is changed) it is not necessary that it have this power.

(3) Can the Tax Court Refer an Assessment Back to the Minister Without Quashing the Minister’s Opinion?

[83] Since Parliament delegated the authority to render this opinion to the Minister, the Minister has the jurisdiction to render this opinion. Parliament chose the Minister and not the Tax Court as the person who would determine if the circumstances are such that it is appropriate that the downward adjustment be made. As a result, the validity of the opinion is more properly a matter for judicial review in the Federal Court, which has the power to quash the opinion, if appropriate.

[84] Since the Tax Court does not have the power to quash an opinion rendered under subsection 247(10) of the Act, it will remain valid, unless it is quashed by the Federal Court on judicial review (Harelkin v. University of Regina, [1979] 2 S.C.R. 561, at 583-584, 96 D.L.R. (3d) 14).

[85] The Supreme Court of Canada, in Canada (Attorney General) v. TeleZone Inc., 2010 SCC 62 and Canada (Attorney General) v. McArthur, 2010 SCC 63, acknowledged that the Ontario Superior Court could not quash a decision of a federal tribunal. However, the Supreme Court held that the Ontario Superior Court could hear a claim for damages arising as a result of a decision of a federal tribunal, without first having that decision quashed by the Federal Court.

[86] However, in both TeleZone and McArthur, the plaintiffs were not seeking to set aside the decision of the applicable federal tribunal. As noted by the Supreme Court in paragraph 79, “TeleZone's causes of action in contract, tort and equity are predicated on the finality of that decision”. While in McArthur the validity of the decision that Mr. McArthur be confined to solitary confinement would have been relevant to his claim for damages, he was not seeking to set this decision aside as he had completed his time in prison before he commenced his action.

[87] In this case, the barrier to having a reassessment that reflects the downward adjustment to Dow’s income is the absence of a favourable opinion of the Minister under subsection 247(10) of the ITA. Even if the Tax Court could review the opinion without quashing it, since the existing opinion would remain in place (and therefore there would not be an opinion of the Minister that it would be appropriate to make the downward adjustment), on what basis could the assessment be referred back to the Minister? Without the opinion of the Minister that it is appropriate to make the downward adjustment, the assessment (which does not reflect this downward adjustment) is correct.

(4) Directed Verdict

[88] There is another remedy that is only available to the Federal Court that is a relevant consideration – the power to grant a directed verdict, i.e. the power to substitute its opinion for the opinion of the Minister.

[89] If it should turn out that this is one of those rare cases where ultimately a directed verdict should be rendered by a court (and there is nothing in the record to suggest that this is the case or would be the case), the authority to render a directed verdict is part of the general law of mandamus (Canada (Public Safety and Emergency Preparedness) v. LeBon, 2013 FCA 55, at paragraph 13). The Federal Court (per subsection 18(1) of the Federal Courts Act) has the exclusive original jurisdiction to issue a writ of mandamus. The Tax Court cannot grant a mandatory order (mandamus) that the opinion of the Minister is to be a favourable opinion under subsection 247(10) of the ITA, with the result that the downward adjustment should be made to Dow’s income for its 2006 taxation year.

(5) Conclusion on Remedies

[90] As noted by Justice Stratas in Canada (National Revenue) v. JP Morgan Asset Management (Canada) Inc., 2013 FCA 250, a judicial review application can be made to the Federal Court when that Court can provide the remedy that is being sought (which would include mandamus). The remedy being sought in this appeal consists of two components – a favourable opinion concerning the availability of the downward adjustment and a reassessment that reflects this downward adjustment.

[91] Since:

• (a) the Federal Court is the only court that quash the Minister’s opinion and, if necessary, compel the Minister to render the opinion that the circumstances are such that it is appropriate to reduce Dow’s income by the downward adjustment; and

• (b) the Tax Court is the only court that can vary an assessment or refer an assessment back to the Minister for reconsideration and reassessment;

the remedies available to both courts may be required if Dow is to succeed.

[92] As a result, the opinion rendered by the Minister under subsection 247(10) of the ITA is outside the exclusive jurisdiction of the Tax Court.

V. Cross-appeal

[93] In the cross-appeal, Dow is seeking a variation in the Order that was granted by the Tax Court. The variation that is sought is that the opinion rendered by the Minister under subsection 247(10) of the ITA is not outside the exclusive jurisdiction of the Tax Court:

a. if an assessment resulting from that decision has been properly appealed to the Tax Court; or

b. if there is no assessment resulting from that decision, on the basis that references to “assessment” or “notice of assessment” in sections 165, 166.1 to 167 and Part J of the ITA refer to “the Minister’s decision pursuant to subsection 247(10)”, in accordance with subsection 247(11) of the ITA.

[94] Since Dow has appealed the assessment of its 2006 taxation year to the Tax Court, Dow, in the cross-appeal, is seeking to expand the situations in which the finding by the Tax Court would apply to include a scenario, as outlined in paragraph (b) above, that was not present in the facts as submitted to the Tax Court.

[95] Rule 58 is intended to allow the Tax Court to determine questions that “may dispose of all or part of the proceeding or result in a substantially shorter hearing or a substantial saving of costs”. It is not intended to be used to pose hypothetical questions that do not arise from the facts as presented to the Court. Since the cross-appeal only raised a hypothetical question that was not based on the facts as presented to the Court, in my view, it is not a proper cross-appeal.

[96] In any event, since I have concluded that the Minister’s opinion rendered under subsection 247(10) of the ITA is not within the exclusive jurisdiction of the Tax Court, the requested variation is moot.

VI. Conclusion

[97] As a result, I would allow the appeal and dismiss the cross-appeal. I would set aside the Order granted by the Tax Court. Granting the Order that the Tax Court should have issued, I would answer the question as posed by the parties in the affirmative. I would award costs to the Crown in relation to this appeal and not award any costs in relation to the Rule 58 proceeding in the Tax Court.

“Wyman W. Webb”

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

APPEAL FROM AN ORDER OF THE TAX COURT OF CANADA

DATED DECEMBER 18, 2020, CITATION NO. 2020 TCC 139

APPEARANCES:

SOLICITORS OF RECORD: