Section 169

The taxpayer was dissolved on April 21, 2017 for a failure to file returns. Similarly to the corresponding provision of the Ontario Business Corporations Act considered in 1455257 Ontario, s. 219(2)(a) of the Corporations Act of Manitoba provided that a proceeding commenced by a corporation before its dissolution could be continued as if it had not been dissolved. Before its dissolution, the taxpayer had brought an application (to which its proposed Notice of Appeal was attached) to extend the time for launching an appeal, which was granted by the Tax Court on May 26, 2017. The Notice of Appeal was immediately filed that same day. In this case, the Respondent had brought a motion to quash the appeal on the basis that the taxpayer, as a dissolved corporation, lacked the capacity to initiate the appeal.

In granting the Crown’s motion, MacPhee J stated (at paras 10, 11, 12, and 13):

The Appellant argues that in filing an Application in December 2015 [under subparagraph 18.29(1)(3)(vii) of the Tax Court of Canada Act], an originating document had been filed prior to the Appellant being dissolved… . I do not accept this position. …

As noted in 1455257, a proceeding is instituted before the Tax Court by filing “[a]n originating document” as prescribed by the Tax Court of Canada Rules (General Procedure).

Pursuant to the Tax Court of Canada Rules (General Procedure), an originating document means a document that is filed under section 21 of the Tax Court of Canada Act … . The only document filed by the Appellant under section 21 … was the Notice of Appeal, which was filed on May 26, 2017, a little more than a month after the corporation was dissolved.

… Subsection 242(1) of the Manitoba CA does not allow a dissolved corporation to initiate a civil procedure. …

The taxpayer (Mobile) objected to a notice of reassessment (no. 1144) and filed an appeal to the Court of Quebec following an adverse response to the objection by the ARQ. However, 12 days after the filing of this appeal, the ARQ issued a fresh reassessment (no. 1386), which effectively was a consolidation of no. 1144, which denied claimed legal expenses, and another reassessment which allowed the carryforward of losses. Mobile did not object to the second reassessment. However, Mobile and the ARQ subsequently signed a protocol reaffirming the points in contention for all the reassessed years – and subsequently to that, the notice of appeal was amended to reference the second notice of reassessment (no. 1386).

Cameron J noted that although there thus in substance had been no new reassessment denying the legal expenses, the jurisprudence “makes no distinction between a reassessment which consolidates a decision under objection with a new element not heretofore the object of an objection and the simple act of issuing a new notice of reassessment to communicate the decision on the objection, without adding a new element” (para. 23, TaxInterpretations translation). He further stated (at para. 34):

[F]rom the receipt of the notice of reassessment, the taxpayer had 90 days to object to it, not in order to contest something new … but to reiterate his contesting of the subject of the notice no. 1144, being the assessment already under appeal.

In finding that, in light inter alia of the signed protocol, Mobile should be considered to have objected to the second reassessment (no. 1380), Cameron JCQ stated (at para. 44):

The Minister … not only had acknowledged receipt of the written statement of the intention of the taxpayer to object to the assessment in force in 2012, but he agreed with the opposing party and with the Court to bring the debate to an early hearing on its subject matter. It would therefore be difficult for the Minister to argue that he has not received written notice of objection to Notice of Assessment No. 1386 as he has agreed in writing that the contest is about the subject matter of that assessment.

The amendment to Mobile’s notice of appeal was accepted, and the appeal was valid.

In each of the 2001 and 2002 taxation years, the taxpayer made a donation to the John McKellar Charitable Foundation (the “Foundation”) and claimed the corresponding tax credits, which were disallowed by the Canada Revenue Agency (the “CRA”). The taxpayer duly serviced notices of objection for both taxation years. In 2012, the taxpayer sent two separate emails to his representative, one with a copy of the 2001 Notice of Confirmation (NOC) and the other with a copy of the 2002 NOC. The representative mistakenly forwarded only the 2001 NOC to the taxpayer’s counsel, who then prepared a notice of appeal (NOA) in respect of the 2001 reassessment only. The taxpayer sought to amend the previously filed NOA so that the 2002 Reassessment would also be part of the appeal instituted by the taxpayer in 2012.

Lafleur J declined to extend the Wells case, and dismissed the motion, stating (at para 36, 37, and 39):

… I fail to see in the omission of the mention of the 2002 taxation year and the 2002 Reassessment in the Notice of Appeal a mere clerical error. I am of the view that the addition of the 2002 Reassessment to the Notice of Appeal would be a fundamental measure.

… I am aware that the underlying facts are similar and it would be improbable for the Appellant to have decided to appeal from the 2001 Reassessment without appealing from the 2002 Reassessment. However, that is of no relevance.

… I am of the view that the principles governing amendments of pleadings have no application in the present case. Divisions I and J of the Act provide for detailed mechanisms for objecting to and appealing from income tax assessments. The Appellant should abide by these mechanisms in order to appeal from the 2002 Reassessment and more particularly, with sections 169 and 167 of the Act, if such an application is necessary.

Boyle J found that the doctrine that a taxpayer cannot appeal a nil assessment does not apply to a notice of assessment which assesses nil tax but also includes interest (in this case, $2.10).

CRA determined to not grant a waiver of withholding under Reg. 105 from fees to be paid to the appellants in connection with a proposed performance in Canada. The appellants filed Notice of Objection and filed appeals in the Tax Court on the basis that they thereby had been assessed.

After stating (at para. 22) that “if a withholding of tax is not an assessment, a waiver authorizing a Canadian taxpayer to not withhold the 15% on the fees payable to a non-resident is also not an assessment,” Favreau J stated (at paras. 26-7):

The Appellants submitted that CRA made a determination that they were liable to pay tax in Canada and that, this determination was equivalent to an assessment. I do not agree… .[A] waiver is not a determination of the tax liability of a non-resident but it is a decision with regards to giving permission to a Canadian taxpayer or a non-resident payor to not withhold taxes on amounts payable to a non-resident. The tax liability of the non-resident can only be determined by an assessment after a review of his or her tax return.

…[T]he Appellants will always have the opportunity to turn themselves to the Federal Court of Canada in order to force the Minister to change its decision as stated by Justice Bowie in Kravetsky.

The taxpayer changed his address after filing his appeal with the Tax Court. He notified CRA of the change but not the Tax Court. He failed to attend a hearing, resulting in default judgment for the Minister.

Rossiter ACJ granted the taxpayer's motion to set aside the default judgment, despite that the motion was brought eighteen months after the judgment, well beyond the 30-day limit in s. 140(2) of the Rules (which the Tax Court has the discretion to extend pursuant to Rule 12(1)). The taxpayer reasonably believed that his appeal was being held in abeyance pending the outcome of related cases, and none of the other relevant factors (e.g. prejudice to other litigants, merit of the appeal) gave a compelling reason not to set aside judgment, especially given the significant prejudice to the taxpayer if the appeal did not proceed (para. 18).

Favreau J found that the Minister had failed to establish that the 90 day limitations period had commenced on 19 February 2012 because she had brought no specific evidence of having mailed the notice of reassessment. It was especially appropriate to require such specific evidence in the present case, where the assessment was sent by registered mail (para. 16).

Favreau J further noted that the taxpayer's receipt of a statement of account on 2 March 2012, showing that a reassessment was issued on 19 February 2012, did not have the effect of validating the reassessment (para. 17).

Subsequent to the taxpayer's appeal of reassessments, fresh reassessments (to which the taxpayer filed fresh objections) were made which superceded the earlier ones. Rip CJ found (at para. 9) that "since all previous assessments are nullities as a result of the earlier reassessments having been displaced, so must the appeals from these assessments be nullities."

The taxpayer was the subsidiary trust of an income fund. As part of a plan of arrangement to in effect replace the income fund by a public corporation ("Seafoods Inc."), the taxpayer was wound-up into the income fund, and the income fund was wound up into Seafoods Inc., in each case, in reliance on the rollover provisions of s. 88(1), as modified by s. 88.1(2). All liabilities of the taxpayer were assumed by the income fund on the taxpayer's winding-up, and it was dissolved; and similarly (it would appear) on the winding-up of the income fund.

D'Arcy J. dismissed the taxpayer's motion to have the appellant in the taxpayer's appeal (which had been filed four months before its winding-up) changed to Seafoods Inc.. (The motion was made under s. 29 of the Rules.) He stated (at paras. 29, 32):

In my view, an agreement by which a party assumes another party's tax liability cannot be binding on the Minister.

...

That Seafoods Inc. may now have the legal obligation, as between itself and the Trust, to pay any income tax debt of the Trust does not change the fact that any such debt is still owed by the Trust to the Crown. Further, the assumption/assignment of any such debt does not result in the transfer by the Trust of its rights of appeal in respect of the relevant assessments.

D'Arcy J. declined to decide whether the taxpayer itself could continue the appeal in light of its winding up, because that issue was not before the Court and the evidence was inadequate.

The taxpayer alleged that his employer had under-reported source deductions on his T4 slips. D'arcy J. found that the Tax Court of Canada lacked jurisdiction to hear the case. The Tax Court may only hear appeals from an assessment - matters pertaining to the "tax payable" in a taxation year. The taxpayer's appeal concerned tax collection - a matter of "tax owing" - and that is outside the Tax Court's authority.

Woods, J., in dismissing the taxpayer's appeal, applied the finding in Main Rehabilitation Co. Ltd. v. The Queen, 2004 DTC 6763, that "the Tax Court does not have the jurisdiction to set aside an assessment on the basis of an abusive process at common law or in breach of section 7 of the Charter."

The Crown had failed to discharge the onus on it to show that the reassessment in question, which allegedly started the one year and ninety-day period running, had been mailed to the correct address.

The taxpayer filed a valid notice of objection when it objected to an assessment of its 2004 taxation year, even though it was not objecting to the amount of tax assessed and, instead, was objecting to the calculation by the Minister of its preferred rate amount. The assessment was not a nil assessment and, in any event, it had been found that tax credits may be appealed in a nil assessment year.

After the Minister issued a Notice of Confirmation of a previous reassessment of the taxpayer that reflected additional income alleged to arise from a particular transaction, the Minister issued a further reassessment which also included tax arising from alleged shareholder benefits conferred on the taxpayer. Mogan T.C.J. found that as this further reassessment fixed the tax liability of the taxpayer for the year rather than merely an amount of tax in addition to that which had already been assessed, the previous reassessment was rendered a nullity. The taxpayer was given until a specified date to file an amended notice of appeal challenging the subsequent reassessment, failing which the previously commenced appeal would be quashed.

An argument of the Crown that a taxpayer is not entitled to object to an assessment based on its own return of income or an assessment that does not result in an adverse adjustment, was rejected. Bowman A.C.J. stated (at p. 183) that:

"There must be very compelling reasons to find that a taxpayer's rights under the Income Tax Act are implicitly restricted where the rights are explicitly conferred and no restrictions are explicitly expressed."

In affirming this finding, Sharlow JA stated (at para. 5):

According to subsections 165(1) and 169(1) of the Income Tax Act, the right to object and appeal may be asserted when the Minister makes an assessment. These provisions make no distinction between an objection to an assessment that is inaccurate because of an act or omission of the taxpayer, and an objection to an assessment that is inaccurate because of an act or omission of the Minister, whether the result of an audit or not.

The taxpayer had donated an art work in the 1994 taxation year. The notice of appeal which was filed by the appellant made reference to a reassessment for the 1995 taxation year only, but the amount indicated included taxes owing for both the 1994 and 1995 taxation years. Tardif J granted the taxpayer’s motion for leave to amend on the ground that the purpose of the motion was not to amend the notice of appeal to add a new taxation year after the expiry of the time period prescribed by the Act to appeal but was:

essentially to complete and clarify that which is implicit from the whole of the facts described in the Notice of Appeal. In other words, the purpose of the motion [was] not to gain the right to add a fundamental element since the whole of the facts alleged implies the reality that was not expressly stated, that is, the reference to 1994. This interpretation is moreover in keeping and consistent with the progress of the case since the filing of the notice of objection dated July 28, 1997 (paras. 16 and 17).

Before going on to find that the taxpayer had not appealed on a timely basis as required by the provisions of the Retail Sales Tax Act, Caputo, J. stated (at p. 5478) that:

"Therefore it would appear that a party loses his statutory right of appeal if he misses a statutory deadline for making that appeal."

In its Notice of Objection, the taxpayer (a large corporation) raised the issue as to whether expenses incurred by it in connection with a hostile bid “were deductible in the computation of the income of Alcan for the period” and listed various paragraphs of s. 20(1) including s. 20(1)(e), but without otherwise advancing any argument that the expenses were deductible under s. 20(1)(e) – which it did not do until it provided written arguments after the completion of the Tax Court hearing.

Hogan J stated (at paras. 198-200):

Citing paragraph 20(1)(e) in the Notice of Objection, without more, does not reasonably describe the issue of entitlement to deduct the Disputed Expenses under that paragraph.

Even if the issue had been reasonably described by the Appellant, the Appellant did not satisfy the condition set out in paragraph 165(1.11)(c), which requires a large corporation to provide the facts and reasons relied upon in respect of each issue. Bakorp indicates that simply listing a provision as a provision that is being relied upon does not identify the legal argument being put forward under that provision. ...

Leaving aside the Large Corporation Rule, procedural fairness alone dictates that the Appellant should not be allowed to raise this issue at this late stage. The Appellant never advised the Respondent that it would raise this issue. … Furthermore, the Appellant did not raise this argument during the hearing.

Boyle J found that all that is required respecting issue identification is that the Minister (as opposed to a third party, such as a Tax Court Justice) "be able to understand the scope and quantum of the issue from its description in the notice of objection" – so that it was sufficient for the notice of objection to reference a description of the issues previously provided to CRA.

See summary under ETA s. 306.1(1).

The taxpayer (a large corporation) objected on the basis that stock option surrender payments were fully deductible under s. 9, whereas its notices of appeal also advanced deductibility under ss. 20(1)(e), 20(1)(b), and 111(5.2) in the alternative.

After observing (at para. 11) that "if the proposed additional argument would result in the large corporation seeking completely different relief than was previously sought, the courts are more likely to consider the argument to be a new issue rather than a reason," Graham J found (respecting ss. 165(1.11)(a) and 169(2.1)(a)) that the taxpayer's s. 20(1)(e) argument was were merely a change in reasons, not in the issues (i.e. deductibility). However, the taxpayer's ss. 20(1)(b) and 111(5.2) arguments raised a new issue given that a s. 111(5.2) deduction would be in respect of the taxpayer's full cumulative eligible capital balance rather than only the surrender payments at issue here.

Respecting the requirement in s. 165(1.11)(b) to specify relief, that requested under s. 20(1)(e) for the particular years was less than that sought under s. 9(1). Graham J found (at para. 23) that "if a certain amount of relief is specified in a Notice of Objection, a less favourable amount of relief is automatically included," noting (at para. 24) that "if a large corporation's appeal involves numerous small expenses…it would be unreasonable to expect the large corporation to express its relief sought… on an expense-by-expense basis."

Graham J identified a gap in the legislation where the Minister confirms assessments of a large corporation, but on an entirely different basis than in the original assessment. He stated that it may be appropriate to allow the taxpayer to appeal in such a situation, but that issue did not arise here where the Minister was maintaining the original basis of assessment and was merely adding additional explanations regarding ss. 20(1)(b) and 111(5.2).

The taxpayer was a specified person and raised in its Notice of Appeal in the Tax Court of Canada the issue of due diligence with respect to automatic penalties under the ETA upon being assessed for additional net tax. In Telus' appeal before the Tax Court, the Crown moved to strike the amendments to the Notice of Appeal originally filed which added the issue of the due diligence defence to the penalties.

In finding for the Crown, Desjardins JA stated (at para. 21):

[T]he issue of due diligence was never raised in any notice of objection. The respondent's request to vacate "associated interest and penalties", which was mentioned only in its notice of objection to the reassessment, was not a reference to the issue of due diligence but was consequential to the reduction of interest and penalty flowing from the requested reduction of the net tax adjustments. The respondent cannot therefore raise due diligence in its amended notice of appeal before the Tax Court.

The taxpayer unsuccessfully submitted that because it had appealed to the Tax Court pursuant to s. 165(7)(a) rather than filing a Notice of Objection to a reassessment of the Minister following its initial notice of objection for the taxation year in question, it was not precluded by s. 165(1.11) and s. 169(2.1) from raising an issue not raised in its initial Notice of Objection. Sheridan J. stated (at p. 620) that she was unable to identify "any support for Newmont's argument that paragraph 165(7)(a) creates [a] substantive right of appeal; it merely relieves the still-dissatisfied taxpayer of the obligation to continue to object until the Minister finally confirms his most recent reassessment".

A group settlement reached in respect of the appeals of a large group of taxpayers including the taxpayer allowed a deduction of losses in a specified amount for their 1995 and 1996 taxation year, allowed interest expense claims for various periods and allowed “any consequential claims by me for the carryforward or carryback of any losses resulting from the reassessments set forth above.” Without further communication with the taxpayer, the Minister carried back the resulting non-capital loss of the taxpayer of $303,374 to his 1992 and 1993 taxation years. The taxpayer objected on the basis that this carryback was done without giving him a choice as to the application of the loss, and that he would have applied the loss to years under appeal, i.e. 1997 and 1998.

After noting (at para. 18) that “the starting point is that it is the taxpayer’s choice as to the application of available non-capital losses” and (at para. 21) that the wording of the settlement agreement did “not suggest an express or implied direction from the appellant as to how to apply the loss, nor a waiver of his ability to choose,” Wong J stated (at para. 24) before allowing the taxpayer’s appeal:

[I]t cannot be inferred that the Minister sought the appellant’s directions, nor that the appellant gave directions or acquiesced to the Minister’s loss applications. There was no basis for the Minister to impose the allocation she did because she could not assume that the appellant’s original carrybacks to 1992 and 1993 meant his intentions would be the same post-settlement (and over 13 years later).

The taxpayer was allocated losses for the initial years of his membership of three LPs and income-account gains for a subsequent year. CRA initially reassessed to deny both the taxpayer’s allocated losses and to reverse the subsequent year’s gains allocation on the basis that the LPs did not exist (i.e., on the basis that the partners were not carrying on business in common with a view to profit). A subsequent settlement agreement provided for the reinstatement of much of the losses but was silent on the treatment of the gains (although it did reference an ability of CRA to reassess to make “consequential” adjustments).

In agreeing to the settlement, the taxpayer provided a waiver of any right of appeal an implementing assessment. Sommerfeldt J indicated (at para. 22) that, even in the absence of s. 169(2.2) “a waiver of a right of appeal against a tax assessment is valid,” but that “if a settlement-implementing reassessment is not in keeping with the agreement that the taxpayer and the fiscal authority have reached, a waiver of the right to appeal will not preclude the taxpayer from appealing in respect of the aspect of the reassessment that does not coincide with the settlement agreement,” and noted that in light of Sattva, regard must be had to the factual matrix surrounding the settlement agreement in interpreting its terms (including the reference to permitted “consequential adjustments” by the Minister).

Each of the taxpayers, whose credits for participating in a gifting tax shelter had been denied, had signed an Agreement to be Bound and Waiver of Objection and Appeal Rights (the “Waivers”) agreeing to be bound by the final decision in Mariano. The lead taxpayer in this case took the position that the Waivers were not enforceable because a) there was no valid consideration exchanged for the taxpayer’s promise; b) the CRA created conditions whereby the taxpayer’s consent was not fully informed; and c) the Waivers were obtained by way of undue pressure brought to bear on the taxpayer by the CRA.

Respecting the first issue, Rossiter CJ stated (at paras 15 and 16):

W.J. Alan & Company Limited v El Nasr Export & Import Company, [1972] 2 QB 189, [1972] 2 All ER 127 … held that no consideration needed to be moving from the party which benefits from the waiver. …

…If I am in error … that [no] consideration is required, I am of the view that there is good and valid consideration flowing to the Appellant. The Appellant received the benefit of not having to spend any time or effort or cost because her appeal did not proceed … [and] the Respondent held the Appellant’s objections in abeyance, and ensured the Appellant’s assessments would be confirmed in accordance with the lead case.

After referring to the statement in Saskatchewan River Bungalows, [1994] 2 S.C.R. 490 at para. 20 that “Waiver will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of rights; and (2) an unequivocal and conscious intention to abandon them.” Rossiter CJ found that this test was satisfied here, stating (at para. 19) that although the letter was “poorly worded… if read in its entirety … there is a sufficient and adequate explanation in the letter [such] that a person would have full knowledge of the rights being waived” and (at para. 23) “the Appellant knew or ought to have known what she was signing.”

Respecting “undue pressure,” he stated (at para 26):

The case law … appears to point quite strongly that where CRA says to the Appellant either sign the waiver or we will close the file that is not undue pressure (McGonagle v The Queen, 2009 TCC 168... .

Accordingly, all 27 taxpayers were bound by the Waivers.

In finding that a waiver signed by the taxpayer of his rights to appeal, which he had agreed to in a meeting with CRA where it agreed to waive gross negligence penalties, was binding on the taxpayers, Woods, J. noted (at para. 68) that the evidence did not establish that there was "an inequity of bargaining power due to ignorance, need or distress" and that there was not a sufficient evidentiary foundation for her to conclude that the settlement was more favourable to the government than to the taxpayer.

In its 2003 taxation year, the taxpayer’s parent (Henro) transferred 84 acres of Alberta land to it on a s. 85(1) rollover basis. The taxpayer then sold the land and realized a capital gain. Its 2003 return reported that gain and was assessed as filed, later in 2003. In 2009, the taxpayer purported to deliver a waiver of the normal reassessment period for its 2002 year. In 2010, after assessing Henro on the basis that the land was inventory, so that its drop-down occurred on a non-rollover basis, the Minister assessed the taxpayer to reduce its 2003 capital gain to nil and made a payment to the taxpayer of $2.6M comprising a refund of the 2003 capital gains tax of $1.8M plus refund interest.

In 2014, the Minister and Henro entered into a settlement agreement pursuant to s. 169(3) to which the taxpayer also was a signatory. It provided that CRA would reinstate the 2003 capital gain in computing the taxpayer’s 2003 income, and reduce Henro’s business income for 2003 by the same amount. The Minister assessed the taxpayer in 2015 for the indicated taxable capital gains plus a return of the refund interest and for arrears interest.

Smith J found that the 2010 reassessment was void because the waiver purportedly permitting it had been given beyond the normal reassessment period. Accordingly, the settlement agreement only related to (valid) proceedings against Henro and not against the taxpayer. It followed that “the taxpayer” whose consent was referred to in s. 169(3) was Henro and not the taxpayer. Accordingly, the 2015 assessment of the taxpayer was void to the extent that it purported to implement the terms of settlement pursuant to s. 169(3), and the taxpayer was not precluded by s. 165(1.2) from objecting to the 2015 reassessment of it.

The taxpayer (and about 1200 other investors) was assessed on the basis that three limited partnerships in which he had invested did not exist (as the partners were not carrying on business in common with a view to profit), with the result that losses that had been allocated to him by the LPs for initial years (e.g., 1995 and 1996, and (income account) gains that were so allocated to him for subsequent years (e.g., 1997 and 1998), were excluded from the revised computation of his income for those years. In 2012, the taxpayer accepted (in connection with waiving any right of appeal pertaining to the 1995 and subsequent years) a settlement agreement which provided that much of the LP losses allocated to the investors would be allowed and that related interest and carrying expenses personally incurred by them also would be allowed and that capital gains from the dispositions of their units would be included in the computation of their income – but was silent as to the treatment of the gains that had been allocated to them by the LPs. Pursuant to the settlement agreement, CRA reassessed to allow the agreed losses for 1995 and 1996 and to include LP gains in the income of the taxpayer for 1997 and 1998. At issue was the taxpayer’s appeal of the inclusion of his computed share of LP gains for 1998.

Sommerfeldt J indicated (at para. 22) that, even in the absence of s. 169(2.2) “a waiver of a right of appeal against a tax assessment is valid,” but that “if a settlement-implementing reassessment is not in keeping with the agreement that the taxpayer and the fiscal authority have reached, a waiver of the right to appeal will not preclude the taxpayer from appealing in respect of the aspect of the reassessment that does not coincide with the settlement agreement,” and noted that in light of Sattva, regard must be had to the factual matrix surrounding the settlement agreement in interpreting its terms (including the reference to permitted “consequential adjustments” by the Minister), He then found that CRA’s reassessment was consistent with the settlement agreement, stating (at para. 42) that:

[T]he Settlement is premised on the recognition of the existence of the Partnerships … . A logical result or inference (i.e., a consequence) of this premise is that the losses and gains allocated by the Partnerships are also to be recognized. In other words, recognizing the gains was a result or consequence of the recognition of the existence of the Partnerships, such that the inclusion of the gains in computing Mr. Savics’ income for 1998 was, for the purposes of … the Minutes … a consequential adjustment. It would be inconsistent to recognize the existence of the Partnerships and to deduct the losses allocated by the Partnerships, but not to include the gains allocated by the Partnerships. …

Furthermore, given that “Galway precludes a taxpayer and the Crown from arriving at a settlement that has no basis in the ITA” (para. 43), and in light of the valid existence of the LPs, “a settlement that did not recognize the inclusion of those gains in his income for 1998 would be indefensible on the facts” (para. 45).

At issue was the quantum of non-capital loss that was available for carry-forward for deduction in the taxation year (“TY”) of the taxpayer (“CBS”) ended on March 7, 2007. Following a CBS appeal and protracted negotiations with the Justice lawyer, CBS and Justice executed Minutes of Settlement including a Schedule specifying the portion of a $23.4 million non-capital loss to be allowed for the March 7, 2007 TY and a net capital loss to be denied for the subsequent TY. However, shortly thereafter, the Justice lawyer:

advised CBS counsel that “Contrary to its prior understanding, the CRA has recently discovered that there are no non-capital losses available for carry forward to the taxation years under appeal” and cannot issue reassessments contrary to the provisions of the Income Tax Act.

After finding that a settlement agreement had been reached (given the parties’ mutual intention to create legal relations, the flowing of consideration, sufficiently clear terms, and a matching on all essential terms), Lyons J went on to note (at para. 62) that:

University Hill … reaffirmed the principles in Galway and CIBC and commented that settling the quantum of expenses is not an all or nothing function and involved a compromise of facts, therefore, “the Court will only interfere if the agreed‑upon facts clearly have no bearing to reality.”

In finding that this “bearing to reality” test was satisfied, she stated (at paras. 77 and 78):

I … find that the [non-capital loss] existed and was available for carry-forward to the March 2007 TY having flowed from the Pool from years prior to the 2007 Years that had been reassessed by the Minister based on the CRA records which included CBS’ filings.

I conclude that the agreed fact in the Minutes - that the $24,366,301 is available - is grounded in objective reality. As such, the agreement to reassess on that basis is defensible on the facts (and the law) and the agreement is therefore binding, valid and enforceable against the Minister.

After the taxpayer had appealed reassessments (for unreported income totalling $3,128,324) to the Tax Court, an out-of-court settlement document was signed by Ms. Tremblay (the taxpayer’s counsel), with reassessments pursuant to s. 169(3) then following. The taxpayer argued inter alia that no consent had been made by him personally as required under s. 169(3).

D’Auray J found that Ms. Tremblay had been given a mandate to settle, made clear by an email response from the taxpayer that stating: “accepted ok” (para 35). D’Auray J further stated (at para 42):

In my view, when a party is represented by counsel, such counsel, for the purpose of settling an appeal, may consent in writing on behalf of the taxpayer in order for the Minister to issue a reassessment.

Scott JA in the Court of Appeal agreed with this finding, stating (at para. 6) that

[T]he counsel of record…was entitled to provide, for the purpose of executing the [settlement] Agreement, the "consent in writing" referred to in subsection 169(3).

D'Auray J also stated (at para. 44):

Subsection 169(3) of the Act does not require an out-of-court settlement signed by both parties. Subsection 169(3) of the Act states: “The Minister may at any time reassess, with the consent in writing of the taxpayer.” The procedure under 169(3) is different from a Consent to Judgment pursuant to section 170 of the Tax Court of Canada Rules (General Procedure) where both parties have to consent in writing.

In 2007 the Minister reassessed the 1996 taxation year of the taxpayer ("Bolton") by adding $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 that Bolton's income had been overstated by $403,219 at most.

The Minister subsequently accepted a Bolton offer to settle by varying the 2007 reassessment "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 by adding $403,219 to the $1,863,072 of income assessed in 2007.

In response to a Crown submission that s. 169(3), by overriding s. 152(5), permits the parties to enter into settlements which increases the tax from a previous assessment, Campbell J stated (at para. 33) that "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."

Moreover, 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 sole shareholder of the company paid the $96,124.78 amount demanded by Canada Customs for under-reported amounts on importation, and then claimed an ITC for the amount shown as GST. S. D’Arcy J. found that $17,039 of this amount was collected by Canada Customs as GST paid on importation and that when the shareholder paid the amount in question, he did so as agent of the company, so that it was entitled to the ITC.

As well, D’Arcy J. found that the Customs correspondence constituted the documentation required by s.169(4), and that the documentation requirements of the Input Tax Credit Information (GST/HST) Regulations do not apply to Division III tax on importations, stating (at para. 26):

It is clear from the wording of the regulations that the regulations are only intended to apply to tax paid by a recipient to a supplier under Division II of the GST Act. The regulations do not apply to tax collected by Canada Customs under Division III of the GST Act.