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Federal Tax - Reassessments. Canada v. Csak [waiver of limitation]
In Canada v. Csak (Fed CA, 2025) the Federal Court of Appeal allowed a Crown appeal, this from a Tax Court ruling "concerning the respondent’s liability, pursuant to subsection 160(1) [SS: 'Tax liability re property transferred not at arm’s length']".
Here the court considered the use of a ITA s.152(4)(a)(ii) 'waiver' of extend a re-assessment time limitation:B. The application of section 26 of the Interpretation Act to the filing of a waiver
[25] The appellant submits that the Tax Court erred in law when it concluded that the reassessment for the 1989 tax year was statute-barred. There was no dispute that the reassessment for that year was issued after the end of the normal reassessment period. The issue before the Tax Court was whether a waiver had been timely filed pursuant to subparagraph 152(4)(a)(ii) of the ITA, allowing the Minister to reassess when it did. The respondent, relying on the reasons and conclusion of the Tax Court, says that the 1989 waiver was filed late and the reassessment for the year was statute-barred.
[26] Subsection 152(4) of the ITA allows the Minister to assess or reassess a taxation year after the normal reassessment period in certain listed scenarios. Subparagraph 152(4)(a)(ii) concerns the filing of a waiver within the normal reassessment period and provides:"(4) The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, except that an assessment, reassessment or additional assessment may be made after the taxpayer’s normal reassessment period in respect of the year only if "
"(4)"" Le ministre peut établir une cotisation, une nouvelle cotisation ou une cotisation supplémentaire concernant l’impôt pour une année d’imposition, ainsi que les intérêts ou les pénalités, qui sont payables par un contribuable en vertu de la présente partie ou donner avis par écrit qu’aucun impôt n’est payable pour l’année à toute personne qui a produit une déclaration de revenu pour une année d’imposition. Pareille cotisation ne peut être établie après l’expiration de la période normale de nouvelle cotisation applicable au contribuable pour l’année que dans les cas suivants : "
"(a) the taxpayer or person filing the return "
"a)"" le contribuable ou la personne produisant la déclaration : "
"… "
"[…] "
"(ii) has filed with the Minister a waiver in prescribed form within the normal reassessment period for the taxpayer in respect of the year; "
"(ii)"" soit a présenté au ministre une renonciation, selon le formulaire prescrit, au cours de la période normale de nouvelle cotisation applicable au contribuable pour l’année;" ....
[37] A waiver filed under subparagraph 152(4)(a)(ii) has been described as a "“bargain”" between the taxpayer and the Minister that provides benefits to both. The taxpayer foregoes the benefit of the normal reassessment period for the matter specified in the waiver and the Minister acquires the right to reassess after the normal assessment period, but only with respect to the matter specified in the waiver: Canada v. Honeywell Limited, 2007 FCA 22 at para. 32; Mitchell v. Canada (Attorney General), 2002 FCA 407 at para. 40 (Mitchell); CAL Investments Ltd. v. Canada (T.D.), 1990 CanLII 12969 (FC), [1991] 1 F.C. 199 at 213-214, 44 D.T.C. 6556 (CAL Investments).
[38] The potential benefits to the taxpayer include additional time to consider the proposed adjustments and make submissions that may change the Minister’s proposed assessing position, a delayed reassessment, and a reduction in the amount of a reassessment, due to a resolution of issues in the intervening period: Bailey v. The Minister of National Revenue, 1989 CanLII 10039 (TCC), [1989] 2 C.T.C. 2177 at 2181-2182, 43 D.T.C. 416. While the filing of a waiver does not guarantee any outcome for the taxpayer, as the Minister may reassess based on the waiver at any time, it provides a taxpayer with the possibility of these outcomes which are not attainable without filing a waiver. Further, an assessment issued under subparagraph 152(4)(a)(ii) is limited to the issues described in the waiver, resulting in a narrowing of the dispute between the taxpayer and the Minister that may also benefit the taxpayer: CAL Investments at 213-214.
....
[46] Subparagraph 152(4)(a)(ii) provides that the Minister may reassess after the end of the normal reassessment period if "“the taxpayer has filed with the Minister a waiver in prescribed form within the normal reassessment period”". If a taxpayer wishes to obtain the potential benefits of filing a waiver, it must be filed before the end of the normal reassessment period. A waiver filed later is invalid: 984274 Alberta Inc. v. The Queen, 2019 TCC 85 at paras. 43 and 49; rev’d on other grounds 2020 FCA 125.
[47] Perhaps the Tax Court’s conclusion stems from a focus on the benefits to the Minister of a waiver, and not on those to the taxpayer. In any case, I do not see how a statutory provision that provides that the doing of a thing will only be valid if done by a certain date does not impose a "“time limited”" for doing the thing. I do not view the time limited for filing a waiver as conceptually different for this purpose from the deadlines for filing a notice of objection or notice of appeal: subsection 165(1) and subsection 169(1) of the ITA, respectively. The Tax Court has applied section 26 of the Interpretation Act to extend the time for filing both: Nach v. The Queen, 2000 CanLII 284 (TCC), [2000] 4 C.T.C. 2388 at paras. 8-10 regarding a notice of objection and Leibovich v. The Queen, 2016 TCC 6 at para. 6 regarding a notice of appeal.
[48] Subparagraph 152(4)(a)(ii) is found in subsection 152(4) which provides a list of situations in which the Minister may reassess after the expiry of the normal reassessment period. Given this context, there is undeniable logic in applying section 26 of the Interpretation Act to extend the time for filing a waiver in the same manner and with the same effect as it does to extend the Minister’s time to reassess. When the normal reassessment period does not end on a holiday, the deadline to file a waiver is the same day as the last day that the Minister can reassess. It would be illogical for a mismatch in these deadlines to arise only because and only when the end of the normal reassessment period falls on a holiday.
[49] As already noted, the purpose of a waiver is to "“permit the Minister to issue a favourable reassessment…or provide more time in which to resolve a matter in dispute before a reassessment is made”": 1984 Department of Finance, Technical Notes, ss. 152(4.1) and 152(4). Applying section 26 of the Interpretation Act to extend the time for filing a waiver and thus allow the parties more time to achieve those objectives is consistent with the purpose of subparagraph 152(4)(a)(ii). . Canada v. Csak
In Canada v. Csak (Fed CA, 2025) the Federal Court of Appeal allowed a Crown appeal, this from a Tax Court ruling "concerning the respondent’s liability, pursuant to subsection 160(1) [SS: 'Tax liability re property transferred not at arm’s length']".
The court considered whether income tax re-assessments for 1988-1991, already appealed and dismissed at the Tax Court in 2006, could be re-litigated - here on the argument that the CRA's 1988-1991 re-assessments were limitation-barred. This occured as an aspect of a spouse's defence against 2012 arm's-length ITA s.160(1) collection assessment against her, which was the immediate appeal (from the Tax Court) being heard now:[7] The Tax Court did not accept that the respondent had provided consideration for the property but allowed the appeal on the basis that the reassessments for the 1988 and 1989 tax years were statute-barred. The reassessments for those years had been issued after the end of the normal reassessment period. Pursuant to subparagraph 152(4)(a)(ii) of the ITA, the Minister is permitted to reassess after the normal reassessment period if a taxpayer timely files a waiver. The burden of proof was on the Minister to establish that the reassessments were not statute-barred. While waivers for both years had been filed, the Tax Court found insufficient evidence that the 1988 waiver had been timely filed and concluded that the 1989 waiver had been filed one day late.
[8] .... Before this Court, the appellant contests the Tax Court’s conclusion on the respondent’s ability to challenge the underlying reassessments and the Tax Court’s determination that the reassessment for the 1989 tax year was statute-barred. ....
....
A. The respondent’s ability to challenge the underlying reassessments
[10] The appellant submits that the Tax Court erred in law by allowing the respondent to challenge the validity of the underlying reassessments for the 1988 and 1989 tax years. It says that the validity and correctness of those reassessments were upheld in the earlier Tax Court proceeding in Makuz. The appellant submits that this Court’s decision in Gaucher v. Canada, 2000 CanLII 16513 (FCA), 2000 D.T.C. 6678, [2001] 1 C.T.C. 125 (F.C.A.) (Gaucher) is distinguishable, and that allowing the respondent to challenge the underlying assessments in her appeal is an abuse of process. The Tax Court rejected this argument.
[11] Gaucher, which was confirmed in Canada v. 594710 British Columbia Ltd., 2018 FCA 166, establishes that a taxpayer assessed by way of a derivative assessment under subsection 160(1) of the ITA may challenge the underlying assessment on which the derivative assessment is based.
[12] In Gaucher, the appellant was assessed under subsection 160(1) regarding a tax assessment of her former husband that had been confirmed in a proceeding at the Tax Court. The appellant challenged the subsection 160(1) assessment on the grounds that the underlying assessment was statute-barred, an argument that had not been raised by her former husband in his appeal. The Tax Court determined that it was not open to the appellant to raise the defence. This Court overturned that decision, concluding:[6] I am of the respectful view that the Tax Court Judge was in error in coming to this conclusion. It is a basic rule of natural justice that, barring a statutory provision to the contrary, a person who is not a party to litigation cannot be bound by a judgment between other parties. The appellant was not a party to the reassessment proceedings between the Minister and her former husband. Those proceedings did not purport to impose any liability on her. While she may have been a witness in those proceedings, she was not a party, and hence could not in those proceedings raise defences to her former husband’s assessment.
[7] When the Minister issues a derivative assessment under subsection 160(1), a special statutory provision is invoked entitling the Minister to seek payment from a second person for the tax assessed against the primary tax payer. That second person must have a full right of defence to challenge the assessment made against her, including an attack on the primary assessment on which the second person’s assessment is based. [13] The appellant attempts to distinguish Gaucher on the facts, as it did at the Tax Court. It submits that the respondent became involved in the Tax Court proceeding in Makuz after the death of her spouse, was responsible for making litigation decisions as the executrix of her late husband’s estate and was subject to discovery in that capacity. While the appellant acknowledges that the respondent was not herself a party to that litigation, it says that she could have raised the statute-barred argument. It distinguishes Gaucher on this basis since the appellant in that case "“could not”" raise defences to her former husband’s assessment: Gaucher at para. 6.
[14] Here, the Tax Court found that the respondent’s involvement in the Makuz group litigation was in a representative capacity only (as executrix of her late husband’s estate) and began approximately six years after the litigation had commenced. The Tax Court found that the respondent attended one meeting and paid legal fees but did not understand the nature of the appeal. The Tax Court concluded that for the respondent to be held responsible for raising the statute-barred issue in Makuz after her husband’s death was "“simply not tenable”": Reasons at paras. 95 and 101.
[15] Based on these findings, I do not accept the appellant’s arguments to distinguish Gaucher on the facts. The Tax Court correctly concluded that Gaucher supports the respondent’s ability to raise the statute-barred defence against her subsection 160(1) assessment.
[16] At the Tax Court, the appellant submitted that issue estoppel and abuse of process were grounds precluding the respondent from raising the statute-barred issue. The Tax Court found this "“misguided”" in light of Gaucher but addressed the submissions. The appellant does not appeal the Tax Court’s conclusions on issue estoppel but says that the conclusions on abuse of process were in error. It says that even if Gaucher applies (which it does not concede), an abuse of process argument was not before the Court in Gaucher, and accordingly, the decision does not give the respondent carte blanche to relitigate the underlying assessments.
[17] I acknowledge that there may be cases where, even if Gaucher applies to support a challenge of the underlying assessment, the circumstances of the challenge amount to an abuse of process. That is not the case here.
[18] The doctrine of abuse of process is rooted in a court’s inherent jurisdiction to prevent misuse of its process that would be unfair to a party or otherwise bring the administration of justice into disrepute. It is a discretionary remedy, characterized by its flexibility and unencumbered by the specific requirements of concepts such as issue estoppel: Law Society of Saskatchewan v. Abrametz, 2022 SCC 29 at para. 35; Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63 at paras. 35 and 37 (C.U.P.E.).
[19] Abuse of process by relitigation may exist where the parties are not the same (which is required to establish issue estoppel) but the litigation is found to be, in essence, an attempt to revisit the "“same issue”" as in a prior proceeding: C.U.P.E. at para. 37. Allowing the litigation to proceed may be considered to violate important principles such as judicial economy, consistency, finality and the integrity of the administration of justice: C.U.P.E. at para. 37.
[20] The appellant submits that although the statute-barred issue was not argued in Makuz, it goes to the validity of the underlying reassessments and the Tax Court implicitly accepted the validity of those reassessments when it confirmed their correctness. It says that the respondent is relitigating an issue decided by the Tax Court.
[21] The Tax Court determined, and I agree, that whether an assessment is statute-barred (and therefore null and void) is a separate issue from whether an assessment is correct: Reasons at paras. 107-109; see also Ereiser v. Canada, 2013 FCA 20 at para. 21; Rio Tinto Alcan Inc. v. The Queen, 2017 TCC 67 at paras. 154 and 173. The Tax Court concluded that the principle of abuse of process did not preclude the respondent from raising the statute-barred issue.
[22] I acknowledge the appellant’s argument that the validity of an assessment must be established before its correctness comes into play. In this way, it could be said that the validity of the underlying reassessments was effectively, although not explicitly, determined in Makuz. Nonetheless, it does not lead me to conclude that there is an abuse of process in this case.
[23] Ultimately, there must be a balancing of interests. In some cases, the second litigation may enhance the integrity of the judicial system because fairness dictates that the original result should not be binding in the new context: C.U.P.E. at para. 52; Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44 at para. 80. Here, the statute-barred issue in respect of the underlying reassessments was not before the Tax Court in Makuz, the respondent was not a party to that litigation and the Tax Court determined that it was "“untenable”" to expect her to have raised the issue. The respondent’s personal liability is now at issue. Fairness and respect for the "“basic rule of natural justice”" referred to in Gaucher outweigh concerns for possible inconsistency in the decisions.
[24] I conclude that the respondent is not precluded from raising the statute-barred issue for the underlying reassessments of the 1988 and 1989 taxation years. This ends the analysis for the 1988 tax year. As the Tax Court determined that there was insufficient evidence that a waiver was timely filed for that year, and the reassessment was issued after the end of the normal reassessment period, it was statute-barred. Whether the reassessment for the 1989 tax year was statute-barred turns on the analysis below. . 2093271 Ontario Inc. v. Canada
In 2093271 Ontario Inc. v. Canada (Fed CA, 2024) the Federal Court of Appeal considered (and dismissed) an appeal from the Tax Court, which had in turn dismissed an appeal of income tax re-assessments. In these quotes the court considers several issues respecting "management fee expenses" invoices as business deductions:[3] On the advice of their tax advisor, the appellants claimed deductions for management fee expenses. The Tax Court found that there were no written or oral agreements for the provision of management services. It further found that the tax advisor determined the amounts charged each year. These amounts were not based on any measurable factors, but rather on the amount of the paying company’s income. In almost all cases, invoices were issued on the last day of the paying company’s taxation year. The invoices contained no detail as to the services provided or who had provided them. In response to Mr. Bonin’s inquiry of the appellants’ tax advisor concerning the claimed deductions, the tax advisor stated that they were "“okay.”"
[4] The appeals to the Tax Court raised three issues: (1) whether the amounts claimed as management fees were deductible in computing income under paragraph 18(1)(a) of the ITA; (2) whether the appellants were liable for gross negligence penalties under subsection 163(2) on the basis that they were wilfully blind or grossly negligent with respect to the false statements in their claims to deduct management fees; and (3) whether reassessments of certain taxation years of some of the appellants, which would otherwise be statute-barred as falling beyond the normal reassessment period, were open to the Minister under subparagraph 152(4)(a)(i) because those appellants had made misrepresentations attributable to "“neglect, carelessness or wilful default.”"
[5] The Tax Court determined that (1) the amounts claimed were not deductible; (2) the appellants were liable for gross negligence penalties; and (3) the Minister had validly opened up the taxation years in question. The appellants submit that the Tax Court erred in law in addressing each of the three issues. We can see no reviewable error.
[6] In alleging error on the first issue, the appellants submit that the Tax Court failed to consider all the relevant facts, and confined itself to considering only Mr. Bonin’s testimony and certain financial statements. The reasons of the Tax Court do not bear out this submission. The Tax Court also expressly considered, among other things, the absence of contracts for the management services, the invoices on which the appellants relied, and the evidence of a bookkeeper. Moreover, first instance courts are presumed to have considered and assessed all of the evidence before them: Mahjoub v. Canada (Citizenship and Immigration), 2017 FCA 157 at paras. 67-69.
[7] In challenging the decision on the second issue, the appellants acknowledge that the Tax Court recognized the correct test for wilful blindness, but submit that the Court failed to apply it. That test, as the Tax Court stated (at page 13 of its reasons), is subjective in nature, and authorizes the Court to impute knowledge to a taxpayer "“in circumstances where the taxpayer becomes aware of the need for inquiry but declines to make the inquiry because the taxpayer does not want to know, or studiously avoids, the truth”": Wynter v. Canada, 2017 FCA 195 at paras. 13, 16; Canada v. Paletta, 2022 FCA 86 at para. 66. The Tax Court found (at pages 16 and 17 of its reasons) that the appellants made only minimal inquiries, despite the "“several red flags that ought to have aroused further suspicion and caused further inquiry.”"
[8] The appellants submit that the Tax Court should have concluded, applying the correct test, that there was no wilful blindness, "“because there is no evidence that Mr. Bonin had any suspicion that the claim for management fees expense [sic] was a false statement”" (Appellants’ memorandum, p. 11). The appellants further submit that the Tax Court erred by relying on its finding (at page 15 of its reasons) that "“[a] businessman like Mr. Bonin ought to have questioned further”" without finding actual suspicion on Mr. Bonin’s part. However, this phrase, and the statement that the "“red flags … ought to have aroused further suspicion”" (emphasis added), supply the requisite finding of suspicion. While the appellants also appear to challenge the Tax Court’s finding based on the weight it assigned to the evidence, it is not this Court’s role on appeal to reweigh it.
[9] Although, as the Tax Court noted, its finding on wilful blindness meant that the appellants also met the threshold for opening up an otherwise statute-barred year, it nonetheless went on to address the third issue, and the question of gross negligence.
[10] The appellants say that, in doing so, the Tax Court failed to apply the proper test for gross negligence. They rely in particular on the statement of the test in Venne v. The Queen, 1984 CanLII 5717 (FC), [1984] C.T.C. 223. But the Tax Court specifically referred to Venne, and the Tax Court’s statement of the test is both not inconsistent with Venne and consistent with this Court’s more recent statements; see, for example, Wynter at paras. 18-21 and Paletta at paras. 65-68. Indeed, in the specific part of the Tax Court’s statement of the test with which the appellants take issue, at page 18 of its reasons, the Court recites verbatim this Court’s statement of the test in another recent decision, Deyab v. Canada, 2020 FCA 222 at para. 62. We see no reviewable error in the Tax Court’s statement of the test for gross negligence. . Freedman v. Canada
In Freedman v. Canada (Fed CA, 2023) the Federal Court of Appeal set our briefly the test for extending the time to make an income tax re-assessment:[4] We are all of the view that the Judge correctly identified and applied the two-step approach to determine whether the appellants could be reassessed beyond the normal reassessment period pursuant to subparagraph 152(4)(a)(i) of the Act (Vine v. Canada, 2015 FCA 125, [2015] 4 F.C.R. 698). In a detailed and thorough analysis, the Judge considered the evidence before him and found that the proceeds of dispositions of shares had been misrepresented on the appellants’ respective 2006 income tax returns, and that these misrepresentations were attributable to carelessness and neglect within the meaning of subparagraph 152(4)(a)(i) of the Act (Judge’s Reasons at para 96). We all agree with his conclusions for essentially the same reasons. . Peach v. Canada
In Peach v. Canada (Fed CA, 2022) the Federal Court of Appeal considered CRA's extension of re-assessment beyond the normal three years:[11] First, the Tax Court did not err in finding that the Minister was entitled to reassess the appellant beyond the normal reassessment period. To reassess a taxpayer after the normal three-year reassessment period under subparagraph 152(4)(a)(i) of the Act, the Minister must establish that the taxpayer made a "“misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act.”" The Tax Court correctly identified the governing legal test and noted that the onus was on the Minister to prove that the appellant’s conduct satisfied the statutory requirement (Reasons at paras. 71-73).
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