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Federal Tax - Assessments

. 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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