Section 174

Subsection 174(1) - Common questions

Cases

Canada v. ACI Properties Ltd., 2014 DTC 5036 [at 6718], 2014 FCA 45

Minister need not have uncertainty in her views

CRA reassessed the taxpayer (ACI) on the basis that a receipt of $1.95 million which another company (AFT) had treated as a deductible management fee but which ACI had treated as a capital receipt from the disposition of a joint venture interest, was fee income to ACI. Following ACI's appeal of the reassessment, the Minister brought an application under s. 174 to determine which of the two characterizations was correct.

The s. 174 procedure was available. Pelletier JA found (contrary to Daruwala) that the posing of the s. 174 question "need not have arisen as a result of any doubt in the Minister's mind as to the position to be taken in assessing one or the other of the taxpayers" (para. 13) and that a sufficient motivation was to avoid "inconsistent decisions and inconsistent assessments between parties to a single transaction" (para. 16).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Abuse of Process trumping of tactical advantage not an abuse of process 144
Tax Topics - Income Tax Act - Section 174 - Subsection 174(3) 3rd party added to existing appeal under s. 174(3)(b) 193

Quemet Corp. v. The Queen, 79 DTC 5330, [1979] CTC 414 (FCTD)

It was alleged by the Minister that one corporation ("Quemet") never made purchases which it had claimed to have made from a second corporation ("Magog") and, in the alternative, if Magog did in fact receive sales revenues from Quemet, then Magog did not make bona fide purchases from third parties to set off as expenses against Magog's revenues. It was held that there was a sufficient interconnection between the alleged transactions of Quemet and Magog to add Magog, at the request of the Crown, to the action between Quemet and the Crown.

See Also

Daruwala v. The Queen, 2012 TCC 116 (Informal Procedure)

A family ("the Daruwalas") claimed a rebate of GST that had been charged to them on their purchase of a home, which the Minister denied based on a finding that the residence did not qualify as used residential accommodation. The taxpayer appealed on the ground that the builder ("TRG") had previously allowed an undisclosed third party to occupy the residence. The Minister brought an application under s. 311 of the Excise Tax Act to have the Daruwalas' and TRG's GST liability decided as a common question. The Minister had not proposed to reassess TRG.

Bocock J dismissed the Minister's application. Based on the similarities between s. 311 of the Excise Tax Act and s. 174 of the Income Tax Act, he stated (at paras. 11-12):

From Brenneur [a s. 174 decision], the following questions may be posed in respect of the factual record;

1. Has the Applicant provided the Court with evidence of independent communication by the taxing authority to the proposed assessee or some other reasonable indication that it may reassess the proposed assessee?;

2. What evidence has been submitted of an actual or proposed investigation, review or survey of the proposed assessee's affairs, history or file in the context or in pursuance of a proposed reassessment?; or

3. What submissions have been made regarding the expected efficiencies to be gained from joining a proposed and actual assessment into a single question for the Court to determine prior to the otherwise pending hearing of the single appeal?

Factually, in respect of the proposed assessee, TRG, the Applicant has:

1. provided no representations or evidence of any direct communication to TRG of any possible reassessment or any grounds or basis for same;

2. disclosed no results, facts or conclusions arising from any conduct of a review of TRG's files in order for the Minister to assess the likelihood of any proposed reassessment; and

3. disclosed no reasonable, tangible or theoretical efficiencies to be gained from the prior determination of the question, rather than simply proceeding with the otherwise pending hearing of the single appeal.

Brenneur v. The Queen, 2010 TCC 610

The Minister denied the taxpayer's deduction of amounts alleged to have been paid in cash to an individual ("Batalha") for his work in the taxpayer's computer technology consulting business. Batalha claimed that he was paid substantially less than the alleged amounts. At the time of the application, a reassessment of Batalha to include the larger receipts alleged by the taxpayer would have been outside the normal reassessment period. The Minister applied under s. 174 to have Batalha joined to the proceedings.

Boyle J dismissed the Minister's application. Section 174 permits the Court to order a reference in respect of taxpayers who have been assessed in respect of a common question arising out of the same circumstances or in respect of taxpayers for whom such an assessment is proposed. The Minister was only contingently or conditionally considering reassessing Batalha. Boyle J stated (at para. 35):

I am not satisfied that such a contingent intention to consider reassessing a taxpayer constitutes a proposed assessment of that taxpayer for the purposes of section 174. ... It does not seem appropriate that each time that occurs the CRA should have the right to ask the Court to consider making the witness a party to the tax proceeding. ... While it may be appropriate in a close or grey‑area case to permit the CRA to ask the Court to consider ordering a reference, this hardly seems appropriate where the CRA, after investigation, has concluded clearly in one direction and not the other.

Subsection 174(3) - Determination of question by Tax Court

Cases

Canada v. ACI Properties Ltd., 2014 DTC 5036 [at 6718], 2014 FCA 45

3rd party added to existing appeal under s. 174(3)(b)

CRA reassessed the taxpayer (ACI) on the basis that a receipt of $1.95 million which another company (AFT) had treated as a deductible management fee but which ACI had treated as a capital receipt from the disposition of a joint venture interest, was fee income to ACI. Following ACI's appeal of the reassessment, the Minister brought an application under s. 174 to determine which of the two characterizations was correct.

ACI was concerned that distinct s. 174 proceedings would cause it to lose a tactical advantage relating to the particular assumptions previously made (and pleaded) by the Minister. After noting (at para. 25) that "the fact that steps taken by the Minister…deprive the appellant of a tactical advantage is not, in and of itself, an abuse of process," Pelletier JA indicated that while s. 174(3)(a) appeared to contemplate such a distinct proceeding, this case instead was acknowledged to fall under s. 174(3)(b). This would permit "having ACI's appeal proceed in the normal course" (para. 29) with AFT being "added as a party to ACI's appeal, subject to such directions as the court may make as to the conduct of the appeal in light of AFT's joinder" (para. 30).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Abuse of Process trumping of tactical advantage not an abuse of process 144
Tax Topics - Income Tax Act - Section 174 - Subsection 174(1) Minister need not have uncertainty in her views 137

Zoel Chicoine Inc. v. The Queen, 82 DTC 6311, [1981] CTC 421 (FCTD)

see also 87 DTC 5409, [1987] 2 CTC 240

Notwithstanding the desire of counsel both for the taxpayer and the Crown to limit discussion to the narrow question before the Court, the Court is entitled "to widen the discussion sufficiently to embrace the true nature of the transaction [under consideration] and the circumstances surrounding it".

See Also

Boguski v. The Queen, 2018 TCC 236

s. 174 application denied as being inefficient, unfair to the unrepresented taxpayers and an abusive end run around Rule 58 jurisprudence

The taxpayers who claimed Canadian development expenses (“CDE”) respecting mining rights the taxpayers purchased from Royal Crown Gold Reserve Inc. D’Arcy J previously had directed that certain of the appeals proceed under the Court’s lead case rules (in Rule 146.1) – there were two lead cases under the general procedure and 23 informal appeals were held in abeyance. In the case of 67 taxpayers who did not agree to be bound by the lead cases, the Minister filed this s. 174 application.

After excluding quite a number of the named taxpayers on the grounds that the Minister had failed to establish that they had filed valid notices of objection to denials of CDE for the indicated taxation years, this still left 42 taxpayers as to whom D’Arcy J determined (at para. 75) that directing a hearing of the s. 174 question to be “significantly more expensive and time-consuming than proceedings that would otherwise occur under the Court’s Lead Case Rules” given the large number of participants, the likely confusion for the self-represented litigants and the effective requirement for them to travel to Winnipeg for a hearing rather than having any appeal held close to home.

After noting (at para. 93) that the Court does not normally grant a Rule 58 order “when there is a factual issue that cannot be addressed by an agreed statement of fact (i.e., the current situation before the Court),” D’Arcy J concluded (at para. 94):

[B]ringing an application that is inconsistent with the Court’s ruling with respect to the Lead Cases, and which would circumvent the Court’s previous rulings with respect to Rule 58 is an abuse of process.

Paragraph 174(3)(b)

Cases

A.G. Canada v. Matador Inc., 80 DTC 6022, [1980] CTC 51 (FCA)

Once an order has been made under s. 174(3)(b) "the tribunal must, in addition to disposing of the appeal, make a determination in respect of the question raised by the Minister." Such determination may be appealed.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 68 81

Subsection 174(4.1) - Appeal

Cases

Re Stern, 85 DTC 5002, [1984] CTC 647 (FCTD)

The Tax Review Board made a determination pursuant to s. 174(3) that payments made by a husband to his wife were non-deductible to him pursuant to s. 60(b) and non-taxable to her pursuant to s. 56(1)(b). After the husband's appeal and the expiry of the 120 day period referred to in ss.172(1) and 175(2), leave was granted to the Crown to require the wife to participate by joinder in the action. "The original determination of [the] question in favour of one taxpayer and against the other, does not destroy the common feature of the question upon appeal."