Section 306.1

Subsection 306.1(1)


Canada v. Telus Communications (Edmonton) Inc., 2005 FCA 159

due diligence defence not raised

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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 169 - Subsection 169(2.1) due diligence defence not raised 174

See Also

Club Intrawest v. The Queen, 2016 TCC 149, varied 2017 FCA 151

objecting to quantum was sufficient particularity
varied on other grounds

The Appellant charged annual time share maintenance fees to its individual members in October of each year, but charged its two members who were corporate developers on a monthly basis. In assessing the Appellant for various October reporting periods in respect of GST that the Appellant had not charged on the maintenance fees, CRA included the annual amount of the fees charged to the developers. After finding that this method did not comply with s. 168(1), D’Arcy J stated (at paras. 341-342):

Counsel for the Respondent argued that section 306.1 precluded the Appellant from raising this issue, since the Appellant is a specified person as defined in section 301 and did not raise the calculation of its net tax issue in its notice of objection.

I do not accept this argument. The Minister, under subsection 296(1), assessed the Appellant’s net tax for each October reporting period. In my view, the Appellant raised the application of section 225(1) as soon as it objected to the amount of the net tax it was assessed.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency annual fees charged by non-share corporation to its members were not reimbursements for expenses incurred by it as their agent 377
Tax Topics - Excise Tax Act - Section 142 - Subsection 142(1) - Paragraph 142(1)(d) s. 142(1)(d) only applies to a supply exclusively re real property 632
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Service payment of condo operating expenses was a service 211
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of covering all time share operating costs 172
Tax Topics - Excise Tax Act - Section 168 - Subsection 168(1) GST collectible based on invoicing times 79
Tax Topics - General Concepts - Ownership beneficial owner did not transfer property risk 183
Tax Topics - General Concepts - Evidence foreign law assumed the same 101

Ford Motor Company of Canada Limited v. The Queen, 2015 TCC 39

issues raised in Objection were understandable in light of previous materials provided to CRA

The appellant, a "specified person" under ETA s. 301, referred in its notice of objection to requests it had made to an auditor in the course of a CRA audit to allow unclaimed input tax credits and to allow foreign exchange adjustments. Although in neither case was the nature of the requested adjustments specified, those particulars had previously been communicated to CRA (i.e., ITCs for specified unclaimed items - and a change to a more accurate methodology for FX translation, which CRA resisted on "consistency" grounds). The requested adjustments' amounts were precisely specified in the notice of objection.

The Minister moved to essentially disallow raising the issues in the notice of appeal. After noting (at para. 50) that there were "no discernible differences to the courts' approach, analysis or application" of the ITA large corporation and ETA specified person rules, and before dismissing the Crown's motion, Boyle J stated (at paras. 57, 59):

It is the Minister who needs to be able to understand the scope and quantum of the issue from its description in the notice of objection. The reader of a notice of objection who should reasonably be able to understand or recognize the particular issue from the contents of the notice of objection is not the hypothetical reasonable Canadian, nor is it a Tax Court judge.

...The evidence in this case wholly satisfies me that both objectively and subjectively the Minister should have and did understand from the Notice of Objection filed by the Appellant that these two specific issues which had been specifically raised during the audit which gave rise to the reassessment, were being objected to.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 169 - Subsection 169(2.1) Minister was presumed to understand the scope and quantum of issues that had been raised during audit 80

British Columbia Transit v. The Queen, [2006] GSTC 103, 2006 TCC 437

additional reasons can be raised in Notice of Appeal

After having incurred substantial GST in acquiring a transit system for exempt use, the appellant commenced to lease the system to another municipal transit entity for rent of $1 per year, but with the lessee being obligated to pay municipal taxes imposed on the leased premises (which amounted to around $2 million per year). C Miller J found that this lease represented a supply of the system for consideration other than nominal consideration (so that there was a change of use under ss. 209(2) and 199(3) entitling the appellant to recover the basic tax content of this asset), on the basis that the municipal tax obligation represented valuable consideration. Before so concluding, C Miller J noted that the Notice of Objection had not referred to the property taxes, and found that the appellant was not precluded from relying on this fact, stating (at paras. 40, 42):

There is no change to the amount at issue before me from what was set out in the Notice of Objection, nor has the issue changed. The issue has always been the entitlement to the ITCs.

…[I]t is the issue and quantum that is of significance to the Minister, not the facts and reasons that the Respondent points to as the failure. …[A]t the 1994 Tax Conference Mr. Beith went on to say…:

[I]n contrast to the requirements with respect to issue and quantum, additional facts and reasons can be raised in appeals.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(1.1) lease consideration not nominal because of property tax obligation 174
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(3) lessor required to demonstrate taxable-supply-for-consideration purpose 148
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) lease consideration not nominal because of property tax obligation 61

Paragraph 306.1(1)(a)

See Also

Jayco, Inc. v. The Queen, 2018 TCC 34

issue of multiple supplies not raised in Notice of Objection (or Notice of Appeal)

The appellant (Jayco), a U.S.-resident registrant and a specified person, was assessed on the basis that its sales of recreational vehicles to Canadian dealers were made in Canada and that the consideration therefor included its freight transportation charges included on its invoices. In agreeing with the Crown that Jayco was precluded from raising at trial a submission that it was making a separate supply of (international) freight transportation services, D’Auray J stated (at paras. 66, 68):

Since Jayco did not raise the issue in its Notice of Appeal, it was not entitled to do so at trial. …

[Furthermore] … a specified person is not allowed to raise an issue in its Notice of Appeal, unless the issue was first raised in its Notice of Objection. Here, Jayco had not raised the issue of the taxability of freight transportation service in its Notice of Objection.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 142 - Subsection 142(1) - Paragraph 142(1)(a) under the UCC goods were delivered by a U.S. manufacturer outside Canada/”symbolical” delivery can occur under a bill of lading 595
Tax Topics - General Concepts - Agency statement in agreement that taxpayer was not an agent was not followed in practice 142

Subsection 306.1(2)

Administrative Policy

27 February 2020 Report of the Quebec Ombudsman entitled "“So that taxpayers’ rights are upheld in payment arrangement proposals with Revenu Québec”

Quebec Ombudsperson criticizes the ARQ for not following the Galway principle in settlement agreements

Extract from Conclusions

The rules that Revenu Québec must follow to enter into a valid transaction at the administrative stage are numerous and demanding. Revenu Québec must ensure that:

  • The conditions particular to the transaction are respected;
  • The taxpayers have given free and informed consent to it;
  • The process is carried out in keeping with the duty to act fairly.

Further to the investigation it conducted, the Québec Ombudsman concluded that Revenu Québec had not instituted adequate means for ensuring that these rules are followed. It is crucial that Revenu Québec establish clear guidelines for the transaction process. These guidelines must be built into its policies, directives and other rules of a similar nature. Moreover, so that these rules are known and uniformly applied, Revenu Québec must provide work instructions and reference tools that fulfil these requirements and train the staff authorized to enter into transactions

8 Recommendations

R1 Modify fiscal Directive CMO-2976 on transactions and any other work instructions concerning transactions to exclude the possibility of entering into them when:

  • The evidence on record is insufficient to support Revenu Québec’s position;
  • The work required by Revenu Québec to constitute adequate evidence is disproportionate to the benefits it can derive from it;
  • Revenu Québec’s single goal is to avoid an unfavourable decision

R2 Establish clear guidelines to ensure that taxpayers’ rights are upheld throughout the transaction process, which should provide that:

  • Taxpayers have at hand all relevant and useful information for making an informed decision.
  • Taxpayers understand this information;
  • Taxpayers have had the opportunity to complete their file and presenttheir observations;
  • Taxpayers understand the consequences of the transaction and waiving of judicial recourse;
  • Taxpayers freely consent to the agreement in the absence of any constraints;
  • A decision can be rendered on the basis of a complete file if negotiations do not lead to an agreement;
  • The terms of the agreement comply with the law;
  • Concessions are reciprocal.

R-3 Train all staff who are authorized to enter into transactions, including team leaders and managers.

R-4 Establish a uniform prior-approval procedure to ensure that files likely to involve transactions are complete and that they can qualify for such a proposal.

R-5 Establish an administrative review mechanism for transactions whose validity is questioned by taxpayers.

R-6 Establish a file system within each section authorized to enter into such agreements for identifying proposed or finalized transactions.

R-7 Produce guidelines within each section authorized to enter into such agreements for documenting proposed or finalized transactions.

R-8 Publish the relevant data concerning transactions that have been finalized at the administrative stage.

The Québec Ombudsman asked Revenu Québec to, by April 30, 2020, send it an action plan and timeline for implementing its recommendations and, subsequently, a copy of the modifications that will be made to Directive CMO-2976 concerning transactions and to any other documents before they take effect.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 169 - Subsection 169(3) direction to the ARQ as to the principles to be followed in reaching settlements 168