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Federal Tax - Assessments. Nagel v. Canada
In Nagel v. Canada (Fed CA, 2024) the Federal Court of Appeal dismissed an appeal from the Tax Court, here "that (i) dismissed her motion to strike the amended replies of the respondent, ..., and (ii) quashed those appeals.".
Here the court notes that the Tax Court lacks appeal jurisdiction over nil assessments:[6] The standards of review set out in Housen also apply to Ms. Nagel’s argument that the Tax Court erred in quashing her appeals before that court. In that regard, we note that the Tax Court lacks jurisdiction to entertain an appeal of a nil assessment: see Nagel v. Canada, 2022 FCA 51, 2022 D.T.C. 5039 at para. 11 (Nagel 2022).
[7] Turning to the notices of determination in issue, they concern Ms. Nagel’s eligibility with respect to the Nova Scotia Affordable Living Tax Credit (NSALTC) and the Goods and Services/Harmonized Sales Tax Credit (GSTC) in view of her province of residence. Though Ms. Nagel lives in Nova Scotia, she claims residency in Saskatchewan. As indicated in Nagel 2022 at paras. 17 and following, the Tax Court has no jurisdiction to determine issues concerning provincial income tax matters, like the NSALTC. .... . Dow Chemical Canada ULC v. Canada
In Dow Chemical Canada ULC v. Canada (SCC, 2024) the Supreme Court of Canada dismissed an FCA appeal (which in turn was from a Tax Court appeal), of an income tax assessment involving 'transfer pricing adjustment' [under ITA s.247(2)].
Here the court considers reviews (both appeal and JR) of income tax assessments:[46] Plainly, when preparing an assessment, the Minister does not exercise any discretion. As Stratas J.A. explained, “[w]here the facts and the law demonstrate liability for tax, the Minister must issue an assessment” (JP Morgan Asset Management (Canada) Inc. v. Canada (National Revenue), 2013 FCA 250, [2014] 2 F.C.R. 557, at para. 77; see also Ludmer v. Canada, 1994 CanLII 3547 (FCA), [1995] 2 F.C. 3 (C.A.), at p. 17). As Professor Annick Provencher has observed, “a discretionary decision of the minister could undergo judicial review. However, assessments do not generally require such discretion” (“Fifty Years of Taxation at the Federal Court of Appeal and the Federal Court”, in M. Valois et al., eds., The Federal Court of Appeal and the Federal Court: 50 Years of History (2021), 543, at p. 551). Indeed, this Court has confirmed that the Minister’s preparation of an assessment is not an exercise of discretion because “taxpayers should have confidence that the Minister is administering and enforcing the same tax laws in the same way for everyone” (Collins Family Trust, at para. 25). While the ITA empowers the Minister to exercise discretion in some matters, including over whether to issue downward transfer pricing adjustments under s. 247(10), these discretionary decisions are not assessments nor are they part of assessments. When the Minister makes discretionary decisions, she provides her opinion, guided by policy considerations. This is a task that is fundamentally different than the non-discretionary act of preparing an assessment. Accordingly, when a court reviews the Minister’s opinion reflecting these policy considerations, it should do so on the basis of reasonableness rather than the statutory standard of de novo correctness that applies to assessments.
[47] The Tax Court’s jurisdiction under s. 169 of the ITA is thus limited to reviewing the correctness of assessments, which as I will explain, it does through a statutory de novo review process. Since assessments are non-discretionary acts by the Minister, “[i]t is trite to say . . . that [the Tax Court] is not a court of equity with jurisdiction to review the Minister’s discretionary decisions” (Fazal v. R., 2020 TCC 137, [2021] G.S.T.C. 5, at para. 30; see also Azzopardi v. The King, 2023 TCC 51, [2023] 4 C.T.C. 2049, at para. 33; Callahan v. The King, 2023 TCC 172, [2024] 2 C.T.C. 2001, at para. 27). The question on an appeal of an assessment to the Tax Court is not about the conduct of the Minister in preparing the assessment, but rather about the correctness of the Minister’s determination of the amount of tax owing, applying the rules in the ITA to the facts as she finds them.
[48] The Tax Court’s jurisdiction over the correctness of assessments includes matters such as the validity of assessments and the admissibility of evidence in support of assessments. While the Tax Court’s jurisdiction is limited to reviewing the correctness of the product of the assessments, certain procedural defects — those that result only in an incorrect assessment — can be “cured” because the Tax Court will perform a de novo review of the assessment. This led Stratas J.A. to observe that “[t]o the extent the Minister ignored, disregarded, suppressed or misapprehended evidence, an appeal under the general procedure in the Tax Court is an adequate, curative remedy” (JP Morgan, at para. 82). But he recalled that “[t]he Tax Court does not have jurisdiction on an appeal to set aside an assessment on the basis of reprehensible conduct by the Minister leading up to the assessment, such as abuse of power or unfairness”, therefore in such a circumstance, “the bar in section 18.5 of the Federal Courts Act against judicial review in the Federal Court does not apply” (para. 83). Stratas J.A.’s view is reflected in this Court’s reasons in Addison SCC, at para. 8:It is not disputed that the Minister belongs to the class of persons and entities that fall within the Federal Court’s jurisdiction under s. 18.5. Judicial review is available, provided the matter is not otherwise appealable. It is also available to control abuses of power, including abusive delay. Fact-specific remedies may be crafted to address the wrongs or problems raised by a particular case. [Emphasis added.] [49] In Iris Technologies Inc. v. Canada (Attorney General), 2024 SCC 24, a case argued before this Court on the same day as this appeal, the Federal Court of Appeal helpfully explained that the Tax Court does not have jurisdiction where the true purpose of an application for judicial review is to “seek practical relief against the exercise of a discretion” by the Minister (Canada (Attorney General) v. Iris Technologies Inc., 2022 FCA 101, [2022] 1 F.C.R. 401, at para. 13). Accordingly, the Federal Court of Appeal held in Iris that in respect of the exercise of ministerial discretion, the statutory rule ousting Federal Court jurisdiction in judicial review in favour of the Tax Court does not apply. This explains, as Rennie J.A. observed, why the outcome of the Federal Court of Appeal’s decision in the case at bar was favourable to the Federal Court’s jurisdiction where the discretionary ministerial decision under s. 247(10) of the ITA was at the centre of the jurisdictional debate (ibid.).
[50] Unlike the non-discretionary determinations that make up an assessment, s. 247(10) empowers the Minister to play a fundamentally different role, which does not require her to apply the facts and the law in exactly the same way to every taxpayer. Her decision is based on policy considerations rather than the strict application of the law to the facts. The character of her discretionary decision-making is, in this way, fundamentally different from the exercise of assessing tax liability.
[51] Section 247(10) provides that certain transfer pricing adjustments shall not be made unless “in the opinion of the Minister, the circumstances are such that it would be appropriate that the adjustment be made”. The subsection makes clear that the opinion of the Minister is a condition that may be relevant to the calculation of the transfer pricing adjustment and may in turn affect tax liability. Indeed, s. 247(10) has been described as “a strange statutory rule” that “operates to increase or decrease income” based on “the discretion of the government”, that is, the Minister’s opinion as to the appropriateness of the adjustment (N. Boidman, “Recent Developments in Canadian Transfer Pricing” (2003), 55 Tax Exec. 208, at p. 210; see also M. Przysuski, “Transfer Pricing Legislation in Canada” (2005), 7:3 Corp. Bus. Tax’n Monthly 23, at p. 26; F. Vincent and I. M. Freedman, “Transfer Pricing in Canada: The Arm’s-Length Principle and the New Rules” (1997), 45 Can. Tax J. 1213, at p. 1234).
[52] Section 247(10) must be understood alongside the non-discretionary rule in s. 247(2) of the ITA. When the conditions of s. 247(2) are met, the Minister must issue an upward adjustment of the taxpayer’s income to reflect “‘. . . the amounts that would have been determined if’ the parties to the transaction had been dealing at arm’s length” (F. Vincent and M. Ranger, Transfer Pricing in Canada (2018), at p. 320). These upward adjustments “are not discretionary” (ibid.). By contrast, s. 247(10) allows the Minister, in her discretion, to decide whether a downward adjustment is appropriate in the circumstances, which is “an exception to the mandatory character of subsection 247(2)” (ibid.). The Minister may make her decision under s. 247(10) before or after an assessment is issued. In addition, the Minister might decide not to exercise her discretion under s. 247(10) at all. If the Minister refuses to exercise her discretion, “there is virtually no recourse for the taxpayer, short of obtaining a writ of mandamus” in the Federal Court (p. 326).
[53] It cannot be said that the Minister must exercise discretion under s. 247(10) in order for tax liability to be calculated correctly under the ITA. The general non-discretionary rule, which the Crown accurately characterizes as the “default position”, is that a downward transfer pricing adjustment, according to the text of s. 247(10), “shall not be made under s. 247(2)” (R.F., at para. 112). Properly interpreted, the words “shall not” (in French, “ne peut être”) are to be construed as prohibitive. The Court of Appeal was right to say that if s. 247(2) would result in a downward transfer pricing adjustment, the general rule in s. 247(10) provides that the adjustment is not to be made (para. 24). Only when the Minister has formed the opinion that the adjustment is appropriate will the general prohibitive rule be displaced and the downward transfer pricing adjustment be made (s. 247(10) ITA). If the Minister has not exercised the discretion afforded under s. 247(10), she is not of the opinion that an adjustment is appropriate, and the general rule therefore applies. If the Minister has been asked to exercise her discretion and has concluded that the adjustment is not appropriate, the general rule continues to apply. In my view, it would be wrong to ignore the clear statutory default rule in s. 247(10) that tax liability must be calculated without making downward transfer pricing adjustments. Section 247(10) prohibits downward adjustments, subject to the discretion of the Minister. In keeping with Parliament’s design “[t]axpayers have no entitlement to a downward adjustment” (R.F., at para. 107). It is only when the Minister is of the opinion that the adjustment is appropriate that the default statutory rule ceases to apply. Said respectfully, the Tax Court judge therefore erred in characterizing the discretion in s. 247(10) as one that had to be exercised in order to calculate tax liability correctly (paras. 182, 196 and 199). This interpretation overlooks the default rule put in place by Parliament and imposes a new burden on the Minister to fully consider the appropriateness of downward adjustments even where no request has been made by the taxpayer.
[54] Recognizing this interpretive error is especially important because, according to the Tax Court judge, “[a]lthough the ITA contains very few provisions that give the Minister a discretion that affects the amount of a taxpayer’s income or taxable income, subsection 247(10) is not the only provision of that nature” (para. 192). The Tax Court judge cited examples such as ss. 91(2), 111(1.1)(c) and 125(7) of the ITA, but did not propose an exhaustive list as, she said, only s. 247(10) was at issue (para. 196). The Tax Court judge would have left additional jurisdictional questions about these similar exercises of discretion unresolved (paras. 195-96). If this Court were to adopt the Tax Court judge’s erroneous characterization of s. 247(10) it would be both imprudent and likely prompt future litigation about such provisions, whether in the ITA or other tax legislation.
[55] With this in mind, under s. 247(10), it is for the Minister to come to the “opinion” that (in French, “si le ministre estime que”) the circumstances are appropriate for an adjustment based on policy considerations that she considers to be appropriate (see generally Vincent and Ranger, at pp. 321-22). The question put to the Tax Court itself demonstrates Dow’s understanding that the decision is discretionary. It states: “Where the Minister of National Revenue has exercised her discretion pursuant to subsection 247(10) . . .” (emphasis added). This language stands in contrast with the non-discretionary rule for transfer pricing adjustments in s. 247(2) that applies in the absence of ministerial discretion. I agree with the Crown that s. 247(10) is a delegated decision-making power that allows the Minister to come to her opinion based on “policy considerations, including considerations of fairness” (R.F., at para. 61). The Crown further explains that the relevant circumstances alluded to in s. 247(10) include such policy considerations as possible international double taxation, or double non-taxation based on the tax treatment in a foreign jurisdiction (para. 118; see also Vincent and Ranger, at p. 16). . Dow Chemical Canada ULC v. Canada
In Dow Chemical Canada ULC v. Canada (SCC, 2024) the Supreme Court of Canada dismissed an FCA appeal (which in turn was from a Tax Court appeal), of an income tax assessment involving 'transfer pricing adjustment' [under ITA s.247(2)].
Here the court reviews the nature of an income tax assessment:(1) The Settled Meaning of an Assessment Under the Income Tax Act
[43] A tax assessment is, as this Court’s jurisprudence confirms, a purely non-discretionary determination by the Minister of the taxpayer’s tax liability for a particular taxation year (Okalta Oils, at pp. 825-26; see also C. Campbell, Administration of Income Tax 2023 (2023), at pp. 405-8 and 414; Anchor Pointe Energy, at para. 33). This definition of “assessment” is consonant with the ITA itself (see ss. 152(1) and 248(1)) and amply reflected in the jurisprudence of the Federal Court of Appeal. This meaning of “assessment” was confirmed by this Court as recently as 2022 (see Canada (Attorney General) v. Collins Family Trust, 2022 SCC 26, at paras. 25-26). The amount of tax owing — the product of the process of determining a taxpayer’s tax liability for the relevant taxation year — “flows from the Income Tax Act itself” (The Queen v. Wesbrook Management Ltd., 96 DTC 6590 (F.C.A.), at p. 6591). Section 152(3) of the ITA makes explicit that tax liability is unaffected even if the assessment is incorrect, incomplete or has not been made at all.
[44] In Okalta Oils, this Court did not hold that anything at all that is “ultimately related to an amount claimed” is part of an assessment (p. 826). Instead, Fauteux J., as he then was, wrote for the Court that an assessment is the amount of tax at issue, not the process that resulted in the determination of that amount:It is the contention of the respondent that, construed as it should be, the word “assessment”, in sections 69a and 69b [of the IWTA], means the actual amount of tax which the taxpayer is called upon to pay by the decision of the Minister, and not the method by which the assessed tax is arrived at; with the result that if no amount of tax is claimed, there being no assessment within the meaning of the sections, there is therefore no right of appeal from the decision of the Minister to the Income Tax Appeal Board.
In Commissioners for General Purposes of Income Tax for City of London and Gibbs and Others, [[1942] A.C. 402 (H.L.),] Viscount Simon L.C., in reference to the word “assessment” said, at page 406: —The word “assessment” is used in our income tax code in more than one sense. Sometimes, by “assessment” is meant the fixing of the sum taken to represent the actual profit for the purpose of charging tax on it, but in another context the “assessment” may mean the actual sum in tax which the taxpayer is liable to pay on his profits. That the latter meaning attached to the word “assessment”, under the Act as it stood before the establishment of the Income Tax Appeal Board and the enactment of Part VIIIA — wherein the above sections are to be found — in substitution to Part VIII, is made clear by the wording of section 58(1) of the latter Part, reading: —58(1). Any person who objects to the amount at which he is assessed . . . Under these provisions, there was no assessment if there was no tax claimed. Any other objection but one ultimately related to an amount claimed was lacking the object giving rise to the right of appeal from the decision of the Minister to the Board. [Underlining added; pp. 825-26.] [45] In preparing an assessment, the Minister’s role is simply to determine what the law requires the taxpayer to pay “by applying a fixed statutory formula to the amount of the person’s taxable income for that year, and the amount of a person’s taxable income is a function of the events that occurred before the end of that year” (Addison & Leyen Ltd. v. Canada, 2006 FCA 107, [2006] 4 F.C.R. 532, at para. 38, rev’d on other grounds 2007 SCC 33, [2007] 2 S.C.R. 793 (“Addison SCC”); see also Anchor Pointe Energy, at para. 33, cited by Webb J.A., at para. 74). In other words, the tax owing is understood as resulting from rules in the ITA by operation of law (see Ereiser v. Minister of National Revenue, 2013 FCA 20, 444 N.R. 64, at para. 31; Main Rehabilitation, at para. 8). This is in keeping with the Court’s judgment in Okalta Oils.
[46] Plainly, when preparing an assessment, the Minister does not exercise any discretion. As Stratas J.A. explained, “[w]here the facts and the law demonstrate liability for tax, the Minister must issue an assessment” (JP Morgan Asset Management (Canada) Inc. v. Canada (National Revenue), 2013 FCA 250, [2014] 2 F.C.R. 557, at para. 77; see also Ludmer v. Canada, 1994 CanLII 3547 (FCA), [1995] 2 F.C. 3 (C.A.), at p. 17). As Professor Annick Provencher has observed, “a discretionary decision of the minister could undergo judicial review. However, assessments do not generally require such discretion” (“Fifty Years of Taxation at the Federal Court of Appeal and the Federal Court”, in M. Valois et al., eds., The Federal Court of Appeal and the Federal Court: 50 Years of History (2021), 543, at p. 551). Indeed, this Court has confirmed that the Minister’s preparation of an assessment is not an exercise of discretion because “taxpayers should have confidence that the Minister is administering and enforcing the same tax laws in the same way for everyone” (Collins Family Trust, at para. 25). While the ITA empowers the Minister to exercise discretion in some matters, including over whether to issue downward transfer pricing adjustments under s. 247(10), these discretionary decisions are not assessments nor are they part of assessments. When the Minister makes discretionary decisions, she provides her opinion, guided by policy considerations. This is a task that is fundamentally different than the non-discretionary act of preparing an assessment. Accordingly, when a court reviews the Minister’s opinion reflecting these policy considerations, it should do so on the basis of reasonableness rather than the statutory standard of de novo correctness that applies to assessments. . Yadgar v. The King
In Yadgar v. The King (Fed CA, 2024) the Federal Court of Appeal dismisses an appeal against a Tax Court ruling that upheld past annual assessments and penalties, here argued on limitation ("statute-barred") grounds:[3] The Tax Court dismissed the appeal. It found that the assessments were not statute barred because the appellant’s failure to include the shareholder appropriations in his income was a misrepresentation due to carelessness or neglect. In this regard, the Court found that the appellant did not exercise reasonable care to report the proper amount of income. ....
[4] The appellant had testified that he knew very little about taxes and simply relied on his accountant to prepare the returns based on the financial information he had provided. The suggestion was that the misrepresentation in the returns was the fault of the accountant and not the appellant.
[5] The Tax Court determined that it was not sufficient to simply rely on the accountant without asking any questions. The Court noted that the appellant was a very successful business owner in Canada who had previously graduated from high school and studied physics for two years at university in his home country of Afghanistan. Further, the Court commented that the amount of income that was not reported far exceeded the income that was reported. In the four years at issue, the total unreported income was over $500,000 and the income actually reported in the returns in that period was less than $40,000.
[6] In this Court, the appellant submits that it is not possible to properly review the Tax Court decision because that Court was not able to provide a transcript. However, we are not satisfied that a transcript is necessary in this particular case. The basis for the Tax Court’s conclusion was succinctly stated at paragraph 35 of its reasons: "“[T]he Appellant cannot simply throw his hands up and say that he blindly relied on his accountant, without making any attempt at seeking a better understanding of his obligations and without making any effort to verify the accuracy of the income reported in his income tax returns.” "This conclusion is well supported by facts that are supported without a transcript. A transcript is unnecessary. . Hud v. Canada
In Hud v. Canada (Fed CA, 2024) the Federal Court of Appeal granted a motion to summarily dismiss (effectively quash) an appeal from the Tax Court, where the Federal Rules do not have any express quashing authority.
Here the court considers the role of the Minister of National Revenue in assessing a taxpayer, their 'assumption' system, appeals to the Tax Court and errors made by the appellant at that appeal stage:[27] Before I address these alleged errors, an explanation about the role of the Minister’s assumptions may be helpful.
[28] When assessing a taxpayer, the Minister makes certain assumptions. The Minister’s assumptions underlying the assessment must be described in the reply to the appellant’s notice of appeal in the Tax Court: Tax Court of Canada Rules (Informal Procedure), SOR/90-688b, s. 6(1)(d). To succeed before the Tax Court, a taxpayer has the onus of demolishing those assumptions (Lacroix v. Canada, 2008 FCA 241 at para. 18; Hickman Motors Ltd. v. Canada, 1997 CanLII 357 (SCC), [1997] 2 S.C.R. 336, 148 D.L.R. (4th) 1 at paras. 92-93), or establishing that, even if true, they do not support the assessment under appeal.
[29] To demolish the assumptions, the taxpayer must convince the Tax Court, on a balance of probabilities, that the assumptions are incorrect, typically by leading relevant, credible evidence that does so. If the Tax Court is not convinced that the Minister’s assumptions of fact are incorrect, it is obliged to treat those assumptions as true: Pollock v. R. (1993), 161 N.R. 232, 94 D.T.C 6050 (F.C.A.) at para. 21.
[30] Here, in the absence of returns from the appellant, the Minister made assumptions about the amount of income he earned based on information obtained from other sources. The Minister also assumed the appellant had not filed tax returns for 2017, 2018 and 2019. The Minister assessed tax on that income and late filing penalties.
[31] With that context, I return to the three errors alleged by the appellant.
[32] I cannot agree that the Tax Court assumed the appellant’s taxable income was the same as income. (Here, I understand the appellant to mean "“net income”" and "“gross income”", respectively, because the only deduction he raised before the Tax Court was depreciation—capital cost allowance in tax terms—which is a deduction in computing income, not taxable income.) Rather, the effect of the Minister’s assumptions is that the Minister assumed that the appellant’s income and net income were the same. Put another way, the Minister assumed the appellant had income from three sources in amounts specified. The Minister computed the appellant’s liability for taxes on the basis that those amounts constituted his only income and that he had no depreciation deduction.
[33] Before the Tax Court, the appellant conceded that he received income of the nature assessed. Although he was not certain the amounts were correct, he led no evidence to dispute them. While he asserted an entitlement to depreciation, the Tax Court described that evidence as not "“cogent”." In other words, based on the totality of the evidence, the Tax Court was not persuaded, on a balance of probabilities, that the Minister’s assumptions or the assessments concerning his income were incorrect.
[34] If the appellant believed the income amounts were incorrect, that he had a balance entitling him to capital cost allowance, or that other assumptions of fact underlying the assessments were wrong, the time to lead evidence to establish that was before the Tax Court. An appeal based on this first alleged error has no prospect of success.
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[39] Where an assessment of income tax is appealed to the Tax Court, the only issue before the Tax Court is the validity of the assessment based on the relevant provisions of the Income Tax Act: Main Rehabilitation Co. v. Canada, 2004 FCA 403 at para. 8; Ereiser v. Canada, 2013 FCA 20 at para. 31. It is "“clear that the Tax Court of Canada does not have the jurisdiction to cancel an established assessment based on improper conduct by the Minister”" (Robertson v. Canada, 2017 FCA 168 at para. 59) or any other government representative, even if that conduct is proven and might be viewed as "“reprehensible conduct…such as abuse of power or unfairness”": JP Morgan Asset Management (Canada) Inc. v. Canada (National Revenue), 2013 FCA 250 at para. 83, and cases there cited.
[40] Thus, an appeal based on the Tax Court’s failure to take into account the appellant’s allegations regarding the seizure of his property has no prospect of success.
[41] "The third alleged error is that the Tax Court ordered the appellant to file returns for the 2020, 2021, and 2022 taxation years. While in the course of its oral reasons, the Tax Court urged the appellant to file those returns, it did not order him to do so. The Tax Court’s clear motivation was to warn the appellant that failure to file them could result in further assessments of penalties for failure to file. Importantly, the Tax Court’s judgment does not order the appellant to file tax returns; it only dismisses "“the appeal from the assessment made under the Income Tax Act for the 2017, 2018 and 2019 taxation years…without costs.”" An appeal alleging the Tax Court erred in making an order it did not make has no prospect of success."
C. Did the Tax Court’s Judgment Address the Relevant Taxation Years?
[42] I must address one final point. The appellant’s notice of appeal filed with the Tax Court purported to appeal his 2012 to 2023 taxation years. However, the Tax Court judgment clearly only addresses assessments of the 2017, 2018 and 2019 taxation years. While the appellant claims this was an error, he cannot appeal assessments of taxation years to the Tax Court simply by listing them on his notice of appeal.
[43] An assessment may be appealed to the Tax Court only after a notice of objection to that assessment has been filed with the Canada Revenue Agency: Income Tax Act, s. 169(1). Moreover, the time within which an objection may be filed is limited: Income Tax Act, ss. 165, 166.1(1), 166.2(1).
[44] I have carefully read the transcript of the proceeding before the Tax Court, the notice of appeal filed in the Tax Court, and the Minister’s reply to that notice of appeal. I am satisfied that the only taxation years properly before the Tax Court were the 2017, 2018 and 2019 taxation years. Obviously, his 2022 and 2023 assessment could not be before the Tax Court given he filed his notice of appeal on April 6, 2023.
[45] However, even if the other taxation years referred to in his notice of appeal were properly before the Tax Court, the Tax Court’s judgment only dismisses the appeals of the 2017, 2018 and 2019 assessments. Had they properly been before the Tax Court, nothing in the decision under appeal suggests they are not still before it.
[46] Thus, an appeal based on the Tax Court’s failure to address any other taxation years has no prospect of success. . Iris Technologies Inc. v. Canada
In Iris Technologies Inc. v. Canada (Fed CA, 2023) the Federal Court of Appeal considered the (surprisingly non-existent) evidentiary basis that can underlie an Excise Tax Act (and ITA as well) assessment. Here, the issue arose in the context of a R170.1 motion ['Judgments on Admissions or Certain Documentary Evidence'] under the Tax Court of Canada Rules (General Procedure):
[4] Iris appealed the assessments to the Tax Court and moved for judgment to allow its appeal under Rule 170.1. Paragraph (a) of Rule 170.1 provides that a party may apply for judgment “upon any admission in the pleadings or other documents filed in the Court, or in the examination of another party […] without waiting for the determination of any other question between the parties.”
[5] The basis of Iris’ motion, and of the appeal before this Court, is that during cross-examination at the Federal Court, the affiant testified that the Minister had not completed the audit when she issued the notices of assessment, thereby admitting that the Minister made no findings of fact to support her assessments. Iris argues that without a factual foundation, the assessments were “made contrary to law”: Appellant’s memorandum of fact and law, at para.
[6] The Tax Court reviewed the evidence and concluded that there was no clear admission, if any, which would eliminate controversy between the parties for the purposes of Rule 170.1. In this regard, the Tax Court noted that the cross-examination of the affiant should not be considered an examination of another party under paragraph (a) of Rule 170.1 since the affiant was not testifying on behalf of the Minister in the course of the appeal before the Tax Court. With respect to the argument that the assessments lacked a factual foundation and thus, were contrary to law, the Tax Court stated that the Minister often does not have a complete factual matrix within which she must act. The Court added that subsection 299(3) of the Act deems an assessment to be valid and binding, subject to being vacated on an objection or appeal. On that basis, and relying on this Court’s decision in Canada v. Lux Operating Limited Partnership, 2020 FCA 162, the Tax Court concluded that the issue of the validity of the assessments should proceed to trial on its merits.
....
[8] We would add that the Supreme Court of Canada’s decision in Western Minerals Ltd. v. Minister of National Revenue, 1962 CanLII 70 (SCC), [1962] S.C.R. 592, 34 D.L.R. (2d) 163 [Western] supports the conclusion that an assessment remains valid even if the Minister has not completed, or even begun, her audit. In so concluding, the Supreme Court agreed with the following comments:[T]here is no standard in the [Income Tax] Act or elsewhere, either express or implied, fixing the essential requirements of an assessment. It is exclusively for the Minister to decide how [s]he should, in any given case, ascertain and fix the liability of a taxpayer. The extent of the investigation [s]he should make, if any, is for [her] to decide.(Western at p. 596.) [9] While Western was decided in the context of the Income Tax Act, its reasoning applies to the Excise Tax Act. We do not see Western as being inconsistent with J.P. Morgan Asset Management (Canada) Inc. v. Canada (National Revenue), 2013 FCA 250, [2014] 2 F.C.R. 557.
[10] Even if there was a clear admission that the Minister made no findings of fact in assessing, the Minister would bear the burden of proving at trial facts to support the assessments: Loewen v. R., 2004 FCA 146, [2004] 4 F.C.R. 3 at para. 11. The admission would not, in itself, determine the input tax credits, if any, to which Iris is entitled. What matters here is the determination of the input tax credits—not the Minister’s mental process: R. v. Riendeau, 1991 CanLII 14206 (FCA), [1991] 2 C.T.C. 64, 45 D.T.C. 1416 (Fed. C.A.) at para. 4. This requires a trial.
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