Section 171

CRA had found that the applicant's research into solutions for Sick Building Syndrome based on air treatment qualified for scientific research and experimental development credits. In proceeding to develop related products, the applicant employed several individuals on terms that their compensation be based "solely on the work done that meets the requirements of SR&ED." The applicant applied the presumed SR&ED credits towards payroll remittances. CRA found that the work did not qualify, and the taxpayer applied to have the employment contracts rescinded or declared void ab initio.

McKelvey J dismissed the application on jurisdictional grounds. "[R]escission, if granted, would serve to alter the essence of the litigation before the TCC" (para. 26). She did not address the applicant's argument that the application was essentially for equitable relief (the equitable doctrine of rescission being broader than the common law doctrine of void ab initio), which the Tax Court has no jurisdiction to grant - although she went on to find, in the alternative, that such relief should not be granted in any event (see summary under General Concepts - Rescission).

The trial judge's reasons essentially paraphrased: an agreed statement of facts, the Minister's assertions, a copy of the Minister's framing of the issues, and (very briefly) the taxpayer's and (somewhat more extensively) the Minister's arguments. The two closing paragraphs stated "I agree with the reasoning outlined by [Minister's counsel] in his argument" and "the appeals are dismissed, with costs."

The Court found that the trial judge's reasons were inadequate, failed to satisfy the taxpayer's right to procedural fairness and remitted the matter back to the Tax Court for redetermination by a different judge. The Court applied the "functional approach" set out in R. v. R.E.M., 2008 SCC 51, which provides (at R.E.M. para. 25):

[The functional approach requires] reasons sufficient to perform the functions reasons serve - to inform the parties of the basis of the verdict, to provide public accountability and permit meaningful appeal. The functional approach does not require more than will accomplish these objectives.

In the present circumstances the trial judge's reasons did not serve their proper function:

• The reasons failed to account for the competing theories put before the court. The judge accepted, without explanation, the Minister's framing of issues and ignored the taxpayer's.
• The Minister's reasons that the trial judge "agreed" with were internally inconsistent. They relied on different characterizations of events, and it was unclear which the trial judge had chosen (or that he had chosen any at all).
• The judge failed to reference any of the viva voce evidence adduced by the taxpayer in a three day trial, so that there was no basis for an appellate court to know which evidence had been rejected by him.
• The trial judge rejected a supposed taxpayer argument that the taxpayer had not made, suggesting that the judge had not understood the issues before him.

The trial Judge on her own initiative, without this issue being raised in the pleadings or argued, had found that an investment by the taxpayer was a sham. Malone J.A. found that this amounted to a violation of a principle of natural justice and set aside the judgment.

Absent the finding of the Tax Court judge that a convertible hedge is a separate property, the appeals of the taxpayer would have been allowed. Therefore, this finding constitute an impermissible new basis of assessment after the limitation period for assessing had expired.

The Tax Court Judge had erred in finding the taxpayer liable on a basis different from that in the Minister's notice of reassessment which was at issue in the tax appeal. The reassessment was quashed.

The Minister reassessed the taxpayer in accordance with a Federal Court judgment issued pursuant to a consent to judgment (as subsequently varied). The taxpayer objected to the reassessment on the basis that it did not properly compute its logging tax credit. In dismissing the taxpayer's appeal, Garon TCJ. noted that the reassessment accorded in every respect with the consent judgment and (at p. 433):

"If this Court were permitted to consider and decide a question that has not been examined and the decision rendered following a consent to judgment by the parties, it would follow that this Court would have the power vary its own judgment. We know that it is clearly recognized that a court of justice may vary one of its judgments only in certain quite specific circumstances that are described in ... Gunnar Mining ..."

A reassessment, which was in the same amount as a previous assessment except that it assessed accrued interest, was therefore a reassessment rather than an additional assessment within the meaning of the Abrahams case, and thereby rendered the first assessment void. However, the voiding of the first assessment did not affect the validity of collection proceedings which had been undertaken pursuant to that unpaid assessment.

Until such time as a formal decision pursuant to s. 171(4) has been made, the judge has the power to reconsider his decision as to the disposition of the case. After the making of a formal decision, he can amend it to correct an error (in this case, allowing the appeal when it was apparent from the judge's amended reasons for judgment that he intended to dismiss the appeal).

"If Parliament had intended to provide that one means of disposing of an appeal could be by way of filing a notice of discontinuance, it would have been an easy matter to so provide in the statute." The taxpayer, after advising the Tax Review Board in writing that his appeal was withdrawn, was entitled to have his appeal heard by the Board, because the Board had not responded to the letter of withdrawal by issuing a judgment.

The taxpayer filed a notice of appeal to an assessment by the Minister which reflected a disallowance of a portion of the taxpayer's capital cost allowance claims on the basis that the taxpayer's business was principally mining, so that the taxpayer was not eligible to treat the depreciable assets in question as being Class 19 assets. After filing his Reply, the Minister later sought to amend the Reply by seeking, in the alternative, the denial of capital cost allowance claims made by the taxpayer on another class of assets ("Schedule E assets") on the basis that if (contrary to the Minister's submission) the taxpayer's business was not principally that of mining, those assets were not eligible (Schedule E) assets.

In allowing this amendment, Cattanach J. indicated that the Minister, through this amendment, was not seeking to increase the amount of his assessment, but merely reducing the amount of the downward adjustment in the Minister's assessment if it were found that the basis of the Minister's assessment was wrong.