(1)-(3.1)

The taxpayer (“RTA”) carried on scientific research and experimental development (“SR&ED”) directly and also as a result of SR&ED carried out by a closely-held Canadian corporation ("AAI") on behalf of it and the other AAI shareholders. AAI was being audited by the Québec Tax Services Office ("TSO") of CRA, whereas RTA was audited by the Montreal TSO.

The audit by the Québec TSO of the AAI expenditures (reported as SR&ED) for 2006 and 2007 had not yet been completed when (in 2011) the end of the normal reassessment period for the 2006 taxation year was getting close. The Montreal TSO requested that RTA execute a “waiver” for the 2006 and 2007 years, which was in highly unusual form (i.e., it contemplated that RTA’s SR&ED claims for its share of all the relevant AAI expenditures would be denied, and contemplated that RTA would be further reassessed following completion of the Québec TSO audit of AAI to allow whatever portion of its share of those expenditures that was indicated by that audit.) RTA refused to sign the waiver, as it would have required RTA to file notices of objection to protect its rights - and its proposal that a waiver in conventional form be provided was rejected.

CRA then proceeded to reassess the RTA 2006 and 2007 taxation years within the normal reassessment periods. The reassessments allowed directly incurred SR&ED expenditures of RTA (thereby implementing a previous accord with RTA), but denied RTA’s share of all the expenditures incurred through AAI. RTA filed notices of objection following the expiry of the 90-day periods in s. 169(1)(b), contending that the reassessments were invalid.

In response to an RTA submission that the Minister, before reassessing, had not yet commenced an examination of RTA’s SR&ED expenditures incurred through AAI, as required by s. 152(1), D'Auray J:

• found that an examination of the 2006 and 2007 AAI expenditures claimed as SR&ED had commenced in the sense that, two years before the reassessments, the Québec TSO had requested SR&ED-related information from AAI which AAI had not yet provided (on the grounds that it was duplicative of information already provided respecting audits of previous years);
• stated (at paras. 134, 140) that in Golini v. The Queen, 2013 TCC 293, C. Miller J: “had concluded that a reassessment will be considered valid if the intention of the Minister at the time of [its] making…was to pursue verification;” and had found that that “there is no law…to the effect that a protective assessment is invalid if issued for the sole purpose of leaving the door open to conduct or continue an audit” (- and she went on to indicate that Karda was similiar); and
• noted (at para. 129) that it was necessary to issue the reassessments in order to implement the accord with RTA respecting its directly incurred SR&ED expenditures.

Respecting an RTA submisssion that, under s. 152(1), the MInister was required to make a determination of the amount of tax before issuing the reassessments, D'Auray J stated (at para 154, Tax Interpretations translation):

In my view, RTA confuses the validity and correctness of an assessment. … [I]n ... Golini ... Miller J. … explained that in the Anchor Pointe decision the Federal Court of Appeal considered the correctness of the assessment as the product of the examination, and not the validity of the assessment as the process. …

Accordingly, the reassessments were valid.

CRA accepted a voluntary disclosure by Sifto Canada that it had undercharged on its sales of rock salt to a U.S. affiliate, and reassessed accordingly. Sifto Canada and the parent of its U.S. affiliate (which used consolidated returns) then applied to the Canadian and U.S. competent authorities for the higher transfer price to be accepted, so that the income of the U.S. parent could be reduced accordingly. The two competent authorities agreed to this, and CRA then entered into a letter agreement with Sifto Canada where it agreed with the adjustment. Only then did CRA audit Sifto Canada, which resulted in it reassessing Sifto Canada on the basis that the transfer prices should have been even higher. CRA asserted that the competent authority proceedings did not result in binding agreements between Sifto Canada and CRA and, even if they did, they did not fix the arm’s length transfer price – so that CRA was not only authorized, but was required, by the ITA to issue the post-audit reassessments once in possession of the new audit information.

In finding that the agreements were binding on CRA, Owen J stated (at para. 140) that “the Court in Galway simply acknowledges that the terms of the settlement must be such that a court could give a judgment on the same basis as the settlement,” and (at para. 142) that ”I can see no basis on which to conclude that the agreement reached by the Minister and the IRS was indefensible on the facts and the law.”

The applicant objected to the denial of his claim to the Ontario new housing rebate, and he then accepted a CRA offer to refund the difference between his claim and amounts previously credited to him. When CRA tried to implement this settlement agreement, it discovered that the applicant was not entitled to any further rebate as he had purchased the house before the relevant entitlement date (June 18, 2009). The applicant filed an application under the Federal Court Act for enforcement of the settlement agreement.

After finding that he lacked the jurisdiction to consider the application (as it represented a "collateral attack on the validity of the tax reassessment"), Gascon J referred to the Galway and Cohen line of cases, and stated (at para. 54) that "the Agency was required to revoke the settlement agreement since no legal or factual basis supports Mr. Sood's claim to the provincial new housing rebate."

See summary under Federal Court Act, s. 18.5.

Assessments made by the ARQ of the taxpayer for its 2006 and 2007 taxation years, after it had been dissolved in connection with voluntary dissolution proceedings for its winding-up into its parent, were invalid. Godbout J stated (at paras. 31, 45-48, TI translation):

[I]n this case, when the Enterprise Registrar issued a certificate of dissolution in accordance with the provisions of the Business Corporations Act certifying that the business corporation Mines d'Or Wesdome Inc. had ceased to exist on March 14, 2011, it no longer existed. …

It is provided that in such a case, by virtue of the dissolution of a business corporation, its rights and obligations become those of its sole shareholder, which becomes a party to any judicial or administrative proceeding to which the dissolved corporation was a party.

It is section 313 [of the QBCA] which so provides…[and under] which the legislator effects an indemnity obligation on the sole shareholder respecting the dissolved corporation.

When the Revenue Agency issued its Notice of Assessment of March 15, 2011 of Mines d'Or Wesdome Inc., it thereby issued a Notice of Assessment of a business corporation which no longer existed at that time, and it could not ignore that it was held by a sole shareholder at that time, Wesdome Gold Mines Ltd.

The Court must therefore pronounce its invalidity as the Agency had not addressed such Notice of Assessment to the right legal entity.

In 2007 the Minister reassessed the 1994 to 1997 taxation years of the taxpayer ("Bolton"). For 1996, the Minister added $602,998 in alleged unreported sales to Bolton's reported income of $1,260,074 (for a total of $1,863,072) but later conceded, in the Notice of Reply, that Bolton's income had been overstated by $403,219 at most.

Bolton offered to settle on the basis of the Minister vacating the reassessments of its 1994, 1995 and 1997 taxation years, and varying the reassessment for 1996 "in order to add $403,219 to Bolton's income." The Minister treated "Bolton's income" as referring to its income as reassessed rather than as reported, and accordingly reassessed in 2012 by adding $403,219 to the $1,863,072 of income assessed in 2007.

Campbell J vacated the 2012 reassessment, and varied the (reinstated) 2007 assessment to reduce the income inclusion from $602,998 to $403,219. The 2012 reassessment was void on any of the following bases:

• As per Galway and CIBC, the Minister had no authority to assess a taxpayer for an amount lacking a "factual or legal basis" (para. 22).
• The Minister had no authority to issue the 2012 reassessment, as "the principle that the Minister may not increase tax from a previous reassessment, is a general limitation placed on the Minister's ability, as well as the Court's, to increase an assessment of tax" (para. 33).
• Having regard to the "factual matrix, surrounding the settlement offer," the Minister's interpretation of its terms could not prevail - so that Bolton's agreement under the settlement agreement did not satisfy the requirement under s. 169(3) for it to consent to the addition of the phantom income to its income (para. 44).

The settlement was enforceable in its own right. The Minister argued (in the alternative) that there was no "meeting of the minds" to form a settlement contract, but Campbell J held the Minister to what she had objectively negotiated for and agreed to, which was Bolton's interpretation (para. 47). As per the terms of the settlement, the reassessments for the 1994, 1995 and 1997 years were vacated.

Woods J. found that the Crown was not estopped from applying s. 118.61(4) to reduce the taxpayer's unused tuition, textbook and education tax credits, even though relevant tax form (T1 schedule 11) had failed to include that subsection in its computations and even though it appeared that many taxpayers had, because of the error in the form, avoided having their credits reduced by operation of that subsection. Estoppel can bind the Crown on a misrepresentation of fact, but not of law (para. 15). Moreover, estoppel cannot preclude an exercise of statutory duty (para. 17). Woods J. dismissed the taxpayer's appeal but recommended he apply for discretionary relief.

The taxpayers submitted that the court should give effect to their legitimate expectation that the test as to individual residency contained in an Inland Revenue booklet, which was more favourable than that in the ordinary law, should be applied to them. This submission was rejected on the ground that the booklet communicated a requirement for "a distinct break" from the UK (para. 45), which the taxpayers had not satisfied. Before so concluding , Lord Wilson SCJ discussed the power of the Commissioners to make administrative concessions, stating (at para. 26):

The primary duty of the Revenue is to collect taxes which are properly payable in accordance with current legislation but it is also responsible for managing the tax system: see s 1 of the Taxes Management Act 1970. Inherent in the duty of management is a wide discretion. Although the discretion is bound by the primary duty, ... it is lawful for the Revenue to make concessions in relation to individual cases or types of case which will, or may, result in the non-collection of tax lawfully due provided that they are made with a view to obtaining overall for the national exchequer the highest net practicable return: see IRC v National Federation of Self-Employed and Small Businesses Ltd. [1981] 2 All ER 93 at 101, [1982] AC 617 at 636 per Lord Diplock.

The Court had the jurisdiction to consider the computation of the payment of interest on refunds payable under the Act to the taxpayer in connection with an appeal from an assessment of Part XIII tax and interest.

Dussault T.C.J. indicated (at p. 690) that accepting the administrative policy of the Minister in that case respecting the computation of safe income (a policy that was not clearly based on the terms used by Parliament) would be tantamount to an inappropriate attribution of a legislative character to departmental directives, and would have the effect of inappropriately treating the Minister as having the power to apply an administrative policy as though it were an independent source of law.

Bonner TCJ. found that the "with all due dispatch" requirement contained in s. 152(1) applied only to the initial examination of the taxpayer's return and the initial assessment of tax for that taxation year, and not to reassessments made pursuant to waivers (although he went on to indicate that he could think of no good reason that a waiver ought to be construed as conferring on the Minister a right to defer reassessing action beyond the period reasonably in all the circumstances of the case).

The taxpayers, along with numerous other individuals, had in their 1986 taxation years, purchased interest in limited partnerships whose units were marketed to them by a tax promoter. They waited approximately three years for a reassessment following an initial assessment which disallowed their share of the partnership losses and which followed notification by Revenue Canada that their returns would be held in abeyance pending verification of such losses. This delay was found to be acceptable given that the taxpayers had voluntarily entered into the "maze" represented by the partnerships, given that the promoter had stalled throughout the audits and failed to supply documents and information requested by Revenue Canada and that, when the taxpayers finally asked for their reassessments, they got them in a timely fashion and in a valid form.

Before going on to find that the Minister could not be estopped from assessing the taxpayer for interest and penalties properly payable by the taxpayer pursuant to ss.161(1) and 163(2), Sobier TCJ. quoted s. 152(1) and stated (at p. 596):

"These words are mandatory and impose an obligation on the Minister to assess not only taxes but penalties and interest as well."

Before finding that a delay of one and one-half years in assessing the taxpayer's return did not satisfy the "with all due dispatch" requirement in the absence of any evidence of special circumstances relating to the taxpayer's return that would justify a delay of this length, Christie A.C.J. stated (p. 1437):

"I believe that if there is a delay that prima facie indicates a failure to examine and assess a return with all due dispatch as required under subsection 152(1) of the Act there is an onus on their respondent to establish by evidence pertaining to the manner in which that return was dealt with that the delay was not unreasonable."

In dealing with a submission that a Revenue Canada official had given the taxpayer some assurance that the taxpayer would not be assessed under s. 227.1, Mogan J. stated (p. 1270):

"... I doubt that any official of Revenue Canada has authority to promise a taxpayer that he will not be assessed under a specific section of the Income Tax Act if, upon a fair review of the facts, that taxpayer appears to be liable under that specific section."

Bonner TCJ. questioned the validity of purported notices of assessment of the taxpayer (under section 227.1) which were uninformative and somewhat misleading.

In vacating an assessment of the taxpayer pursuant to s. 227.1 of the Act and corresponding provisions of the Income Tax Act (Ontario), the Unemployment Insurance Act (Canada) and the Canada Pension Plan Act which informed the taxpayer of the aggregate sum assessed under those statutes without giving a breakdown, Rip TCJ. stated (p. 1027):

"... in enacting section 152 of the Act, Parliament required the notice of assessment to inform the person to whom it is sent of the amount of the tax the Minister has assessed under authority of that statute. ... An assessment, therefore, is not complete unless the notice is given in such manner that the taxpayer knows the amount of tax assessed under the appropriate statute."

In finding that the Inland Revenue had the power to compromise claims for back duty where no assessment had been mailed and appealed against, notwithstanding the absence of an explicit statement in the relevant legislation of its power to do so, Bingham L.J. stated (pages 118-119):

"If in an appropriate case the Revenue reasonably considers that the public interest in collecting taxes will be better served by informal compromise with the taxpayer than by exercising the full rigour of its coercive powers, such compromise seems to me to fall well within the wide managerial discretion of the body to whose care and management the collection of tax is committed."

[C.R: 220(1)]

An assessment issued pursuant to s. 227(10) by a supervisor within a collections branch was invalid, as the individual was not one of the individuals designated in Regulation 900.

Inland Revenue correspondence respecting whether the uplift on redemption of certain U.S.-dollar index-linked bonds would be taxable on income account or capital account, which was communicated without the knowledge of the Inland Revenue among Lloyd's underwriters, did not bind the Inland Revenue with respect to transactions not described in the correspondence. In order for a statement by Revenue of its position to be binding upon it, the taxpayer "must give full details of the specific transaction on which he seeks the Revenue's ruling," the taxpayer "should indicate the use he intends to make of any ruling given," and "it is necessary that the ruling or statement relied upon should be clear, unambiguous and devoid of relevant qualification."

An original assessment which was made more than six years after the mailing by the taxpayer of its return was vacated in the absence of any evidence to explain this delay. "[S]ubsection 152(1) is a provision which is intended primarily to protect the individual taxpayer by bringing certainty to his financial affairs at the earliest reasonably possible time."

Lord Templeman stated: "that the Commissioners are guilty of 'unfairness' amounting to an abuse of power if by taking [special assessment] action under sec. 460 their conduct would, in the case of an authority other than Crown authority, entitle the appellant to an injunction or damages based on breach of contract or estoppel by representation. In principle I see no reason why the appellant should not be entitled to judicial review of a decision taken by the Commissioners if that decision is unfair to the appellant because the conduct of the Commissioners is equivalent to a breach of contract or a breach of representation."

When the Legislature imposes a tax, it is the duty of the authorized officer (subject to administrative common sense) to assess that tax upon all those who are liable to it by law. Although amendments to the Gasoline Tax Act (B.C.) imposed a special retroactive tax to be paid by every purchaser of gasoline for his own use, no attempt was made to collect the tax from anyone other than Air Canada and two other airlines. The assessment of Air Canada accordingly was capricious, discriminatory and "unsporting", and was quashed as being illegal.

The Minister had not been correct in taking the position that because the taxpayer had not requested a loss determination for its 1988 taxation year under s. 152(1.1), it was precluded from challenging the Minister's computation of its 1988 loss for purposes of determining the amount of its taxable income for its 1985, 1986, 1987 and 1989 taxation years.

The taxpayer took the position that a letter of Revenue Canada indicating the amount of non-capital losses of the taxpayer for specified years, which were the amounts as filed by the taxpayer, was a determination of loss made under s. 152(1.2), with the result that such determination was binding on the Minister. Sarchuk J. found that neither s. 152(1.2) nor s. 152(4) empowered the Minister to issue a notice of loss determination. Such a notice could only be issued under s. 152(1.1) where the determination of the Minister differed from that of the taxpayer. S.152(1.1) had clearly been intended to deal with the scenario where a nil assessment had been issued so that, in the absence of s. 152(1.1), the taxpayer would have no right of appeal from a nil assessment.

The taxpayer was a member of a partnership which, through its counsel, entered into a settlement agreement with the Minister on March 31, 2004 (the last day on which the CRA could issue a determination pursuant to s. 152(1.4)) with the CRA issuing such determination on the same day. The partnership filed a Notice of Objection to the March determination, withdrew the objection on November 10, 2004 and then on August 22, 2005, the CRA issued notices of reassessment against the taxpayer.

The taxpayer was unsuccessful in his submission that his rights to object to the determination "expired or were determined" on March 31, 2004, so that the reassessment made on August 22, 2005 was more than one year later and out of time. After noting that the settlement letter of March 31, 2004 was prior to the Minister's determination (at para. 16), it was "difficult to see how a right of objection or appeal can be said to have 'expired' or been 'determined' before it has ever even come into existence", Hugessen, D.J. noted (at para. 18) that one would not talk of something expiring... if that thing had never come into being in the first place". Furthermore, the Settlement Agreement did not bind the Minister nor the taxpayer.

The Minister made an assessment under s. 152(1.11) on the basis that the GAAR applied to reduce the paid-up capital of shares of a Canadian holding company ("Holdings") from $167 million to $475,000, and about ten days later assessed on the basis that previous purported distributions of about $104 million of paid-up capital ("PUC") by Holdings were subject to Part XIII tax.

Boyle, J. intimated in obiter dicta that he would have been inclined to find that s. 152(1.12) precluded the assessment under s. 152(1.11). Respecting the Minister's argument that the Minister's redetermination of PUC was not relevant only to the preceding taxation years as it had the effect of eliminating $62.5 million of PUC otherwise available for future transactions, Boyle, J. stated (at para. 27) that "the contrary argument is that the determined amount, being $475,000, was relevant only for the prior years since the entire $475,000 determined PUC amount had been fully returned in prior years." Furthermore, "instinctively, it seems that retroactive determinations, like retroactive tax legislation, should be avoided except in cases where the legislator has clearly and unambiguously set out its intent to impose or permit the tax to be imposed retroactively."

Notices of reassessment that were sent by registered mail by the Minister were returned by the post office, with the envelopes marked "unclaimed". After the period for reassessment expired, Revenue Canada sent out the notices of reassessment by ordinary mail with an explanation that the notices, when originally mailed, had been undeliverable "due to an address change". In fact, the taxpayer at all relevant times had been at the same address.

In these circumstances, Teskey J. found that "the onus is on the Minister to prove that the Notices were sent to the proper address", which he had failed to do. Accordingly, the taxpayer had not been reassessed within the period for doing so.