Section 165

It was proposed that the applicant (“LMGI”), which was a Netherlands private limited company that was wholly-owned by a Luxembourg public limited company, be merged into its sister company (“LMA”), which was a Luxembourg private limited liability company. The merger was to occur in accordance with the Dutch and Luxembourg cross-border merger laws and the EU Consolidated Company Law Directive. Accordingly, there would be a transfer of the assets and liabilities of LMGI by universal succession of title to LMA as the surviving company and LMGI, as the disappearing company, would cease to exist. LMGI had been assessed for $90 million in Australian capital gains tax and interest on its sale of shares of an Australian company (it had filed objections on the basis that there was no such liability) and had sold the balance of the shares in years for which it had not yet filed returns.

The merger agreement stipulated a condition precedent that the Federal Court confirm that LMA as legal successor would be able to exercise all objection or appeal rights in the current or future proceedings. Before providing such declaration, Davies J stated, based on the expert testimony (at para. 17):

Under European law, Luxembourg law and Dutch law, pursuant to the principle of universal succession … all liabilities of LMGI to tax, including under foreign law (that is, the relevant Australian tax acts), will transfer to LMA by operation of law pursuant to the principle of universal succession upon completion of the merger, as will the rights and obligations of LMGI in respect of such tax liabilities … .

In particular, she noted (at para. 14) the “emphatic” testimony of the Luxembourg law expert that the transfer by universal succession of liabilities “necessarily also entails the transfer of all rights attaching to such liabilities.”

Regarding her acceptance in this regard of “Luxembourg law and Dutch law [which] apply the same principle of universal succession to cross-border mergers” (para. 22), she stated (at paras. 21- 22):

Where a question arises under Australian law as to the status of foreign entity, Australian common law choice of law rules look to the law of incorporation of the entity to determine questions of the entity’s status … Metliss [1958] AC 509 … .

…[T[he determination of the “status” of LMA will include the question as to the legal consequences of the merger with respect to the tax debts of LMGI and any future tax liabilities pursuant to the principles of universal succession.

She concluded (at para. 24):

In consequence, the tax liabilities of LMGI will be assumed by LMA as a result of the merger. Moreover, LMA, as the “taxpayer” under s 175A of the Income Tax Assessment Act 1936 (Cth) … will be entitled to object against assessments which have been issued to LMGI, or which are issued to LMA in its place, and will be “the person” entitled to appeal … in relation to objections from those assessments … . Although those liabilities and obligations (on the one hand) and rights and capacities (on the other) arise under Australian law and are governed by Australian law, Australian law will recognise the operation of Dutch and/or Luxembourg law following the merger as having clothed LMA with the necessary attributes or identity to subject it to those obligations and liabilities and to enable it to exercise those rights and capacities for the purposes of Australia’s tax acts.

On May 11, 2015, the taxpayer was sent a letter by Mr. Payne of CRA informing him that he would be reassessed to disallow approximately $49,000 in business expenses. The taxpayer immediately contacted Mr. Payne to explain that he had already sent the requested documents twice to CRA, and would now promptly refax them to Mr. Payne, which he did. On May 19, 2015 the CRA issued the notices of reassessment. After a phone call from a CRA Collections Officer in early 2018, the taxpayer prepared and sent notices of objection the two year in issue, which were rejected as having been received more than one year and 90 days after the date of the notices of reassessment.

In finding that the taxpayer’s fax to Mr. Payne did not qualify as a notice of objection, and that the taxpayer was out of time for an extension under s. 166.2(5)(a), Sommerfeldt J stated (at paras 17, 18):

…[T]o be a notice of objection, a document “must include an actual objection to an assessment,” or at least some indication that the particular taxpayer is objecting to an assessment.

… [The taxpayer's] letter of April 27, 2015 … does not contain any statement taking issue with the CRA’s categorization of those expenses. … Unfortunately, I have been unable to find anything in the letter to indicate that [the taxpayer] ... was objecting to a reassessment.

Sommerfeldt J further stated (at paras 23-24) that in light of McClelland, 2004 FCA 315 (“a Notice of Objection must be sent to the Chief of Appeals”), “the fax sent by [the taxpayer] ... to Mr. Payne in May 2015 was not validly served.”

However, he went on to note (at para 34):

Like Justice Woods in Persaud, I am of the view that a notice of objection prepared in response to a proposal letter, which informs a taxpayer that a reassessment is about to be issued, may, if validly served on a Chief of Appeals, constitute a valid notice of objection in respect of the reassessment when it is subsequently issued.

A notice of reassessment of the Quebec estate of Winifred Straessle for its 1992 to 1996 taxation years was sent to the (age 82) daughter (Mrs. Hansen) of Winifred Straessle as the “liquidator of the Estate”. In her objection and subsequent appeal, Mrs. Hansen stated that the estate had been wound-up and that she had never been, an executor, liquidator, trustee or administrator of the Estate. In response, the Crown sought to quash her appeal under Rules 53(3)(b) and (c) on the basis that that the person who filed the Notice of Appeal (Mrs. Hansen) lacked the legal capacity to commence proceeding of the estate.

In finding that Mrs. Hansen could object to and appeal the reassessment in her capacity of heir, notwithstanding that she had not been an executor or other legal representative, Lafleur J stated (at paras 38-40, 43-44):

[T]he word “heir” found in the definition of “person”, the meaning of which is determined in accordance with the applicable private law, does not necessarily have the same meaning as the word “heir” found in the definition of “legal representative of a taxpayer” as defined under subsection 248(1): in order for an “heir” to be a “legal representative of a taxpayer” under that latter definition, the heir must administer, wind-up, control or deal in a representative or fiduciary capacity with the property of the Estate.

Furthermore, if we were to refer to the definition of “legal representative of a taxpayer” found in subsection 248(1) to interpret the word “heir” in the definition of “person”, there would be no need to make reference to “heir” in that latter definition since the definition of “legal representative of a taxpayer” already makes reference to an “heir”. …

[T]he definition of “legal representative of a taxpayer” found in subsection 248(1) does not apply to determine who is a “person” under the Act. …

…Mrs. Hansen qualifies as an heir of the Estate and she is, therefore, a “person” and a “taxpayer” as defined under subsection 248(1). Accordingly, Mrs. Hansen can object to the Reassessments under section 165 and initiate an appeal to this Court under section 169.

I would add that Parliament cannot have intended that an assessment be immune to a judicial challenge.

The taxpayer was reassessed to include in his income‎ a Registered Education Savings Plan benefit but with the CRA deducting a corresponding amount of unclaimed education‑related deductions. This resulted in a nil assessment for income tax, but $2.10 of interest was included on the assessment notice. On the taxpayer’s appeal, the Minister raised a preliminary objection that the taxpayer was contesting a nil assessment.

Boyle J dismissed the Minister’s objection, finding (at para 5):

On its face, the reassessment of the Appellant was not a nil assessment. An amount of interest was assessed by the CRA in its reassessment of him. Assessed interest, as opposed to post-assessment accrued interest, forms part of the assessment. As it is not a nil assessment, an appeal can proceed.

CRA sent the taxpayer a letter on 15 September 2010 indicating that they had completed an audit and that no amount would be allowed for his claim of a charitable gift. He mailed a notice of objection on 30 September 2010, but was not actually sent a notice of reassessment until 24 January 2011.

Woods J found that the 30 September 2010 letter constituted an objection to the 24 January 2011 assessment, as s. 165(1) does not require that the notice of assessment precede the notice of objection. However, she did not have jurisdiction to grant declaratory relief, and therefore could not declare that a notice of objection had been filed.

After the normal reassessment period for assessing its 2002 to 2005 taxation years had passed, the taxpayer requested the Minister to reassess those years to allow capital cost allowance for its pipelines on the basis they were Class 6 rather than Class 1 assets. In denying the taxpayer's application for an extension of the time to file notices of objection for those years, D'Auray J stated (at para. 21):

[T]he Minister does not have to accept or act upon an amended return and reassess a taxpayer.

The taxpayer reported $42,000 of employment income on his return, and received a refund of approximately $4,000 based on $13,000 of source deductions (including $11,000 of income tax) having been withheld. CRA later concluded that no deductions had been made - therefore, the taxpayer was reassessed on the basis that his income was the $29,000 he actually received, so that the amount of tax shown on the reassessment was less than that in the original assessment. However, as his account was no longer credited for source deductions, his refund was denied an a balance of taxes owing was shown.

The taxpayer sought an order vacating the reassessment and leaving the original assessment (on $42,000) in place on the basis that the employer had deducted but failed to remit $11,000 of deductions.

C Miller J found that the Tax Court lacked the authority to make such an order. Firstly, whether deductions have in fact been collected is a matter for the Federal Court, not the Tax Court. However, C Miler J found that there was nothing to preclude him from making a finding of fact confirming that the taxpayer received net pay (para. 26).

Secondly, C Miller J found that "it is well-settled that the Court cannot increase the assessment under appeal" (para. 30). This follows from the principles that the Minister may not appeal an assessment, and that allowing an increase to such an assessment would constitute an "indirect" appeal (paras. 28-29).

Although the taxpayer did not receive the notice of assessment in question, the 90 day period nonetheless began to run from the day of mailing of the notice of assessment.

A letter completed on letterhead of the taxpayer requesting that the Deputy Minister of Finance intervene to have the matter settled without a "formal legal appeal" was not a valid notice of objection.

A British Columbia company that had been dissolved and which had not been restored had its appeal dismissed on the ground that it did not exist. The Queen v. Sarraf, 94 DTC 6229 (FCA) was distinguished on the ground that the dissolved corporation in that case benefited from s. 241(1) of the Business Corporations Act (Ontario) and on the ground that Rule 58(3)(c) of the Tax Court of Canada rules had not been referred to.

Bowman T.C.J. noted that the invalidity of a purported assessment could quite properly be raised in a notice of objection (contrary to an allegation of the Agency). Furthermore, because it was found in Marzetti v. Marzetti, [1994] 2 S.C.R. 765 that a refund of tax in most circumstances belongs to the bankrupt, a right to object to or appeal from an assessment with a view to obtaining such a refund was not properly divisible among the bankrupt's creditors and a bankrupt could pursue such an objection or appeal in his or her own name.

The plaintiffs, who were members of a public interest group coalition, had no standing to challenge an advance tax ruling issued by Revenue Canada. Third-party challenges to assessments are not permitted, and this principle should be extended to an advance tax ruling.

The taxpayer was not bound by an alleged agreement it made with a Minister as to the portion of expenditures made by it that would qualify as SR&ED. The jurisprudence established that the Minister was free to repudiate such agreements, and it would be indefensible if the taxpayer were unilaterally bound by such agreements. Furthermore, the lack of capacity of the Minister to make such settlements implied that they were non-binding agreements.

On the evidence, McArthur TCJ. accepted that the taxpayer did not receive a reassessment. Consequently, the burden of proof shifted to the Crown to satisfy the Court that the reassessment had been mailed to the taxpayer, which it failed to do.

An assessment which a junior collections official had typed up and sent to the taxpayer was found to have been made by the Minister given that the Deputy Minister was an official authorized under Regulation 900, and the assessment was done in accordance with procedures controlled by the Deputy Minister and by officials acting according to his directions. In any event, there was implied authority accorded to the Deputy Minister to subdelegate to the collections official.

The Minister assessed the taxpayer well after it had been dissolved by articles of dissolution. Bonner J. dismissed an application by the taxpayer for an order allowing its appeal on the ground that the reassessments were nullities. "No corporation that has been dissolved exists for the purpose of the conduct of litigation unless the proceeding falls within the ambit of provisions similar to paragraph 24(1)(a) or (b) of the Business Corporations Act" (which did not apply because the appeal was brought by, rather than against, the taxpayer.

(Comment: Canada Tax Letter, No. 354.)

The respondent acquired shares after the death of his fellow shareholder pursuant to a shareholders' agreement which gave him the right to purchase shares from the estate at a price of $600 per share, subject to adjustment if the taxing authorities should determine that the shares had a higher value. When he acquired the shares, it was further agreed that he would have the right to "intervene" with the appropriate authorities. It was held that when the respondent later intervened, he was an agent of the estate and could therefore represent it in the filing of a notice of objection and an appeal.

S.165(1.2) precluded the taxpayer from objecting to an assessment made beyond the normal reassessment period pursuant to s. 152(4.2). Angers, J. stated (at para. 16) that: "the reasoning behind [this prohibition] is that a reassessment under subsection 152(4.2) is made at the Minister's discretion."

The Minster assessed taxpayer on the basis that its Barbados subsidiary (GBL) had realized $473 million of foreign accrual property income (FAPI) between 2001 and 2010. In its notice of objection, the taxpayer stated in its reasons that the business of GBL was not an investment business given that it was a foreign bank as described in s. 2 of the Bank Act (with the wording used adverting to the foreign bank reference in s. 2(a) of that definition rather than the reference in s. 2(c) to an entity named a “bank” and providing financial services) and that it satisfied the regulated foreign bank exception in the investment business definition in that it employed “more than five full-time employees” in that regulated business.

In rejecting a Crown submission that the taxpayer was precluded from submitting that it was a s. 2(c) bank or used the equivalent of more than five full time employees, C Miller J stated (at para. 184) that the purpose of the s. 165(1.11) rule is that “the Minister knows the nature of the dispute and the quantum of tax at issue” (para. 184), that the Crown was requiring him to “look into the minutia of what is meant by a reasonable description of an issue” (para. 187), that the Crown “knew full well that there would be considerable evidence as to what GBL did … which encompasses activities that might constitute the provision of financial services (part of the Bank Act, subsection (2(c)) definition” (para. 190) and that “whether there was the equivalent of five full-time employees is subsumed into the employee issue generally” (para. 190).

The taxpayer was found not to have served a notice of objection given that he had sent it by ordinary mail rather than registered mail and had addressed it to the "Taxation Centre Surrey" rather than to the Minister of National Revenue for Taxation in Ottawa.

A letter that the taxpayer sent to Revenue Canada to the attention of a member of Public Affairs Department, rather than to the Chief of Appeals, nonetheless was found to be a notice of objection for purposes of s. 165, having in mind the thrust of the Fairness Package.

The taxpayer, was reassessed within the normal reassessment period (for two years) or pursuant to a waiver (for the other year) to deny expenses claimed by him in computing income from his law practice, and filed notices of objection on a timely basis. The ARQ then took over three years to consider the objections, and the reassessed to allow a portion of the disallowed expenses, and waived interest for 16 months of that period regarding the expenses that continued to be denied. The taxpayer timely appealed such reassessments.

In finding that the taxpayer had no remedy based on such “delay” of over three years, the Court stated (at paras. 44-45, 54, TaxInterpretations translation):

The TAA [Tax Administration Act] provides two remedies if the case does not proceed. First, the taxpayer is under no obligation to wait for the outcome of the examination of the objection. The taxpayer has the right, as early as 180 days after sending the Notice of Objection, to appeal to the Court of Québec without waiting for the Minister's decision.

Alternatively, if the delay is prejudicial to the taxpayer because of the accrual of interest, the taxpayer may request the Minister to exercise his or her discretion under TA [Taxation Act] section 94.1 to waive all or part of the interest. …

The time limits for the assessment and collection of the tax debt are all expressly provided for in the TA and the TAA. The fact that no time limit is set for the assessment in response to a Notice of Objection is a deliberate choice by the legislature and is understandable. Importing the three-year limitation period of C.C.Q. [ Civil Code of Quebec] Article 2925 is unnecessary and would undermine the regime established by the legislature.

Regarding the obligation of the Minister in TAA s. 93.1.6 [similar to ITA s. 165(3)] to reconsider the objected to assessment “with all due dispatch,” the Court stated (at para. 57):

The Court of Quebec, like the Tax Court of Canada, has made it clear on numerous occasions that its powers do not include the power to set aside a notice of assessment on the basis that the Minister has not acted with dispatch.

Before going on to grant the taxpayer’s claim for a disability tax credit for her 2014 taxation year (but not the three earlier years), Jorré DJ noted that the Minister in her Notice of Confirmation had indicated that the taxpayer was eligible for the DTC for her 2015 and later years even though the Notice of Confirmation was dated before her filing-due date for her 2015 year, and stated obiter:

[I]t would be surprising if on a proper interpretation the relevant statutory provisions gave the Minister the power to make a determination with respect to future eligibility. However, I can see nothing that would prevent the Minister from determining that the person was eligible in certain past years and informing the person that the Minister’s present intention was to assume that the person would continue to be eligible for certain future years.

In response to an objection filed in 2006 by the taxpayer (“Air Canada”), with a lawyer having consistently been the contact person with ARQ, ARQ informed Air Canada (with a copy to the lawyer) on October 10, 2013 that it would be reassessing Air Canada at a somewhat lower level than previously. That reassessment was sent on October 30, 3013 to the (usual) Air Canada head office address in Montreal, but without any copy being sent to the lawyer. The Montreal office sent the notice of reassessment to the Air Canada Winnipeg office, which dealt with tax matters, but which did not deal with the notice. It was not until May 14, 2014 that the lawyer communicated with the ARQ, and was informed of the October 30 reassessment, after which Air Canada launched an appeal pursuant to s. 93.1.13 of the Tax Administration Act (Quebec), which provided for an extension of the 90-day appeal period from a decision under s. 93.1.6. S. 93.1.13 provided that “the application shall be granted if the person demonstrates that it was impossible in fact for that person to act and that the application was filed as soon as circumstances permitted.”

The Court stated (at paras. 16, 17, TI translation):

Given the nature of the dispute…(the contesting of a notice of objection)and the process under the terms of which the respondent arrived at its decision in response to the objection of the taxpayer pursuant to a notice of objection…, the process implies exchanges with the taxpayer or, as the case may be, its designated representative, given the importance of the decision for the taxpayer and the procedure chosen by the respondent, who itself recognized the right of the taxpayer to be represented, one can conclude that equitable procedures require the respondent to communicate its decision not only to the taxpayer, but also to its representative for dispute purposes, or , at the least, to warn the latter of the decision rendered. This , among other things, conforms the legitimate expectations of one who has elected to be represented by another, and furthermore to be represented by counsel. …

Thus, when section 93.1.6 of the T.A.A. provides that, in the case of an objection to an assessment, “the Minister shall (…) reconsider the assessment and (…) make a reassessment, and send the Minister's decision to the person by mail,” one should instead read “to the person and to its designated representative, if any”… .

Notwithstanding that ARQ thus had made a procedural error, the Court nonetheless declined to grant an extension of the 90-day appeal period under the more stringent Quebec equivalent of s. 166.2, which required that the taxpayer demonstrate that “it was impossible in fact” for the it to appeal promptly. Air Canada, in the absence of any evidence as to why nothing had happened after the reassessment was forwarded to Winnipeg, had not established due diligence.

The passage of approximately one year from the time the taxpayer filed his notice of objection to the issuance by the Minister of a notice of confirmation was consistent with the Minister reconsidering the reassessment with due dispatch given the difficulties encountered in obtaining the required information from the taxpayer (who wanted everything to be put in writing).

After noting that if the Minister had failed to act with all due dispatch in confirming the taxpayers' reassessments they would have become void, Stone J.A. noted (at p. 5665) that "the appellants can scarcely be heard to complaint of undue delays on the part of the Minister when, had they wished to do so, they could have attacked his reassessments in the Tax Court of Canada notwithstanding that they had not yet received his confirmations".

S.23(7) of the Venture Capital Tax Credit Act (Saskatchewan) provided:

"On receipt of the Notice of Objection, the Minister shall with all due dispatch: (a) reconsider the proposal objected to and confirm, vary or abandon the proposal ..."

It was found that the Minister had not complied with this requirement when in excess of one year was taken to respond to the taxpayer's Notice of Objection to a notice purporting to revoke its registration as a venture capital corporation given that the Government presented no evidence to explain or justify this delay. Gunn J. further found that the requirement in s. 23(7) was mandatory, and that the notice of revocation was void due to the Minister's failure to deal with it with due dispatch.

Beaubier, J. followed the decision in Apfelbaum v. MNR, 91 DTC 800 in finding that the right to appeal pursuant to s. 169(1) was the taxpayer's remedy for any alleged delay by the Crown. In any event, the actions of Revenue Canada were conducted with due dispatch given the multitude of similar cases that were involved, and the complexity of those cases.

The only remedy of the taxpayer for a failure of the Minister to consider his objection with all due dispatch was to appeal under paragraph 169(a). In any event, the 28-month delay of the Minister in this case was reasonable in light of the high degree of complexity and significant amounts associated with the transactions in question, as was apparent from a reading of the pleadings.

CRA reassessed a company well beyond the normal reassessment period in order to allow input tax credits, which it previously had denied within the normal reassessment period (being GST on fees charged by the investment manager for employee pension plans), but made an offsetting addition of GST to the reassessment on the basis that the company was resupplying the investment management services to the pension plans and had failed to charge GST on the fees therefor imputed by CRA.

CRA argued unsuccessfully that ETA s. 298(3) was less limiting than ITA s. 165(5), so that CRA was “not precluded from reassessing on the basis of different transactions or even from increasing net tax.” D'Arcy J instead found that s. 298(3) was quite similar to s. 165(5), stating that CRA could not use it “to increase the net tax of the GST registrant or to take into account different transactions that the ones that formed the basis of the reassessment that was made within the statutory reassessment period.”

However, here it was unclear that the reassessment of the resupply did not relate to the same transaction as the previous assessment of the third-party manager supplies, so that he left it to the trial judge to sort this out (this being a Rule 58 application that was devoid of evidence).

The Minister assessed the taxpayer for his 2004 taxation year within the normal reassessment period on the basis that the taxpayer had realized a gain on income rather than capital account on selling equipment to his corporation and that the cost of the transferred equipment was lower than reported. After the taxpayer objected, the Minister made an additional reassessment beyond the normal reassessment period to include additional income in the taxpayer's hands on the basis that the transferred equipment had a higher fair market value than the sale price.

The Minister argued that s. 165(5) validated the second reassessment as the taxpayer had previously filed a notice of objection. Hogan J found that Anchor Point establishes that s. 165(5) cannot be used to add income in a reassessment made beyond the normal reassessment period. As the Crown also did not advance any evidence of "neglect" etc. by the taxpayer, the second reassessment was statute-barred.

In dealing with proposed assessments of the taxpayers beyond the normal reassessment period, Bowman C.J. stated (at para. 7):

"If the otherwise statute-barred 2001 reassessments cannot be justified under subsections 152(4) and (4.01), the 2003 reassessments in response to the Notices of Objection must also fall. The reason is self-evident: assume a statute-barred assessment is issued and the taxpayer objects on the basis that the assessment is out of time. Could the Minister of National Revenue cure the defect by issuing a reassessment in response to the objection under subsection 165(3) and rely on subsection 165(5)? The question answers itself."

Unbeknownst to counsel for the Crown, the reassessment which was the subject of the appeal had been replaced by a more recent one. Lamarre Proulx TCJ allowed an amendment to the pleadings so that the appeal was from the most recent reassessment.