(4.01)-(9)

The taxpayers lived on a reserve and were employed at a sawmill built on former reserve land, which had been ceded for the sake of establishing the sawmill. The taxpayers' assessments for 1985-2002 were made on the basis that, as the taxpayers did not work on reserve land, their income was not exempt under s. 87 of the Indian Act. In the Boubard decision in 2008, it was found that s. 87 did apply and the taxpayers' assessments for 2000-2002 were varied. The taxpayers then applied in 2009 for discretionary relief under s. 152(4.2) of the Income Tax Act in respect of the remaining years. (The version of s. 152(4.2) in force during the relevant years did not have a limitations period.) The application was denied in respect of 1985-1998 on the basis that the Minister would presumably not have exempted the taxpayers' employment income from tax in those years.

The Federal Court judge granted the taxpayers' appeal on the basis that, because the Minister purported to ground its decision on the "state of the law" at the time, the Minister's decision was unreasonable if it was incorrect in law - which it was, on the basis of the Court's decision in Boubard.

The Court of Appeal granted the Minister's appeal. Although the question of correctness of the Minister's 1985-1998 assessments was relevant, the question in issue was whether the Minister's decision in 2009 to deny relief was reasonable. (In fact, the trial judge did base his decision on the latter question - see para. 13 of the TCC decision - but it is not clear that this issue was raised in the appeal.) Stratas J.A. stated (at paras. 44-45):

[W]here the decision-maker is considering a discretionary matter that is based primarily on factual and policy matters having very little legal content, the range of possible, acceptable outcomes open to the decision-maker can be expected to be quite broad. ...

[W]here the decision-maker is considering a discretionary matter that has greater legal content, the range of possible, acceptable outcomes open to the decision-maker might be narrower. Legal matters, as opposed to factual or policy matters, admit of fewer possible, acceptable outcomes.

The Minister's methodology and conclusions, which were based on "the state of the law" before 1999, were within this narrower range of acceptable outcomes. Stratas J.A. stated (at para. 61):

[The Minister's] methodology of conducting a year-by-year examination of the state of the law is supported by the wording of subsection 152(4.2) of the Income Tax Act. If the Delegate adopted a methodology that were contrary to subsection 152(4.2), her exercise of discretion would fall outside the range of acceptability and defensibility. But that is not the case here.

The taxpayer participated in a government fishing licence retirement program in which he was paid a lump sum to surrender his commercial fishing licence and retire from fishing. CRA advised participants that the licence was a capital asset and therefore the entire payment was a taxable capital gain, and the taxpayer filed his return on that basis. A subsequent CRA external interpretation indicated that the payment was income from a business. CRA subsequently settled with other taxpayers on the basis that the 50% allocated to the fishing licence was a capital gain, and the other 50% was not taxable at all; a position affirmed by a subsequent Tax Court decision (the correctness of the 50/50 division between the licence and the retirement agreement had not itself been raised by either party). The taxpayer applied under s. 152(4.2) for a correction to his taxes, noting the difference in treatment.

The Assistant Director and Director at the first and second levels of the review denied the application, citing that the taxpayer could have filed an objection before the deadline and had not done so, and that CRA does not change a taxpayer's tax treatment only because of a settlement or court decision arrived at with another taxpayer. Heneghan J. found that the Director's decision should be referred back for redetermination. The decision had breached the taxpayer's right to procedural fairness, as the reasons given were not responsive to the taxpayer's claim of different treatment. In addition to the procedural problems, the decision itself "fail[ed] to meet the standard of reasonableness because the reasons lack[ed] justification, transparency, and intelligibility." (Para. 75.) Heneghan J. stated (at para. 84):

[T]he Minister is not entitled to make settlements with taxpayers that do not have a principled basis in law. In December 2003, in connection with a number of fish harvesters, the CRA offered to treat half of their [licence retirement program] payments as non-taxable, and the other half as capital gains. In order to do so, that offer must have accorded with the CRA's understanding of the Act and its application to the [licence retirement program] payments.

Before going on to find that the Minister's decision not to accept amended returns was not unreasonable, Russell, J. noted (at para. 24) that "the Supreme Court of Canada in Dunsmuir v. New Brunswick, 2008 SCC 9, recently collapsed the patent unreasonableness and reasonableness simpliciter standards into one standard of reasonableness, leaving now only two standards of review: reasonableness and correctness". Russell, J. also noted that the Minister's powers to reassess after the normal reassessment period under s. 152(4.2) did not extend to corporations.

In the decision on behalf of the Minister not to re-open two statute-barred taxation years of the taxpayer to allow the deduction of expenses, the Minister's representative indicated that the expenses were incurred during 1991 and 1992 instead and that no taxes were owing for the 1991 taxation year. As this reasoning did not take into account that additional expenses in 1990 and 1991 would have an impact on future years for which the taxpayer had duly filed a notice of objection, the matter was referred back to the Minister for re-determination.

The decision of the Minister to deny the taxpayer's claim for additional expenses was remitted for reconsideration given that the Minister's representative had determined that there was no need to conduct a review of the taxpayer's materials in support of the claim on the basis of an erroneous view that the taxpayer was requesting deduction for expenses that already had been deducted.

In reversing the trial judge, Pratte J.A. noted that the respondents were given a full opportunity to make representations to support their request and (at p. 5122) that "the law is clear that, save in exceptional cases, fairness does not require an oral hearing".

The Minister reassessed the taxpayer's 1987 taxation year on the basis that the replacement property rollover was not available in that year, so that the taxpayer realized a taxable capital gain in that year, and on the basis of the resulting increase in the taxpayer's RDTOH account, paid a dividend refund to the taxpayer in respect of his 1991 taxation year. The taxpayer's appeal of the 1987 taxation year assessment was subsequently allowed, and almost one year later, the Minister purported to make a reassessment under s. 152(4.3) of the taxpayer's 1991 taxation year disallowing the dividend refund.

Noël J.A. found that s. 152(4.3) was not available to accomplish this. Noël J.A. noted that the set-off provisions of s. 129(2) gave rise to an actual payment of the dividend refund, rather than to a "deemed payment" of those taxes, and that the dividend refund did not operate by way of a "tax credit."

The taxpayer successfully appealed from reassessments denying the deduction of interest by it on a participating bond for its 1987 and 1988 taxation years, but did not file objections or waivers with respect to reassessments denying the deduction of interest on the bond for its 1989-1991 taxation years. Following a successful appeal for the taxpayer's 1987 and 1988 taxation years, the Minister reassessed the 1989 to 1991 taxation years to allow the deduction of non-capital losses resulting from the successful appeal, but not allowing the deduction of participating interest for those years.

The Court rejected the taxpayer's submission that s. 152(4.3) required the Minister, when determining the "balance", to go behind the dollar amount of the adjustment and to also give effect to the reason for the change in the income, namely, the deductibility of the participating interest payments made in those years. Evans J.A. stated (at p. 5087) that

"The 'balance of a taxpayer for a taxation year' suggests a sum: a numerical calculation ... To refer to the taxpayer's balance' would surely be an odd way for Parliament to express an intention that the Minister must look beyond the computation and consider the principles on which it is based."

The Minister took the position on audit that a loan made by a Netherlands Antilles subsidiary of the taxpayer ("Honeywell N.V.") to a Netherlands subsidiary ("B.V.") of the taxpayer's U.S. parent violated the policy underlying clause 95(2)(a)(ii)(b) because that clause was intended only to avoid fapi treatment of loans made to foreign affiliates of a Canadian based multinational corporation. The Minister received a waiver respecting "interest income being reassessed under paragraph 12(1)(c) of the Income Tax Act, by reason of the application of section 245 of the Income Tax Act."

The Minister was precluded from amending his Reply (well after the expiry of the normal reassessment period) to allege that the funds lent by Honeywell N.V. to B.V. were not used in an active business of B.V., so that the exemption in clause 95(2)(a)(ii)(B) was not available irrespective of the general anti-avoidance rule in section 245. Noël J.A. stated (at p. 5077) that:

"Including interest in Honeywell's income under paragraph 12(1)(c) because of a GAAR re-characterization is entirely different from including the interest income of Honeywell N.V., its foreign affiliate, in Honeywell's income pursuant to the FAPI rules as the Crown now tries to assert ... ."

Pelletier J.A. stated (in obiter dicta at p. 6375):

"Subsection 152(4.01) restricts the right of reassessment within the extended reassessment period to the subject matter which gave rise to the right to reassess outside the normal reassessment period. It is therefore to the same effect as the final paragraphs of the former subsection 152(4)."

After the Minister had assessed predecessors of the taxpayer on the basis that amounts paid by them to purchase seismic data exceeded the fair market value of the data, so that the full purchase price did not qualify as CEE, the taxpayer filed Notices of Objection. The Minister then issued Notifications of Confirmation which, based on the subsequently-decided decision in Global Communications, found that none of the purchase qualified for treatment as CEE (although the Minister did not purport to increase the tax payable by the taxpayer).

Rothstein J.A. stated (at para. 33) that he was "unable to agree" with the analysis of Rip J. in the Tax Court that the expiry of the normal reassessment period was stayed or extended until the Minister took action under s. 165(5) as "the implication of such an interpretation is that because a taxpayer files a Notice of Objection, the Minister has an unlimited time to reassess the taxpayer to increase tax payable after the normal reassessment period." Although s. 165(5) allowed the Minister to reassess after the expiry of the normal reassessment period where a Notice of Objection had been filed, in light of s. 152(5) the Minister could not so reassess as to include in the taxpayer's income amounts that were not included in an assessment or reassessment made within the normal reassessment period. Here, however, the effect of the Minister's Notice of Confirmation was not to include additional amounts in the taxpayer's income.

The taxpayer was successful in obtaining an order of mandamus directing the Minister to carry back a large capital loss it had reported in its 1988 income tax return to its three preceding taxation years. Revenue Canada then advised the taxpayer that it was reassessing those taxation years, but with no change to his taxable income for those years because the 1988 loss had been disallowed.

After first finding against the taxpayer on the ground that the Court had no jurisdiction to deal with the matter, Rothstein J. went on to indicate in light inter alia of the wording of s. 153(7) that the words "take into account" in s. 152(6) meant "to consider" rather than to "allow". Accordingly, the Minister was not obliged to allow the requested deduction.

The taxpayer was unable to carry back business losses because he did not file an amended return within the statutory time limit (nor at any subsequent time.)

Within the time limit for doing so the taxpayer filed an amended return for its 1952 taxation year in which it carried back a loss from its 1953 taxation year. In finding that the taxpayer was later precluded (following a reassessment of its 1952 taxation year and following the expiry of the time limit referred to in s. 42(4A) of the pre-1972 Act from filing a further amended return for its 1952 taxation year, Judson J. (with whom the majority concurred on this point) stated (p. 1246):

"The mere fact of a re-assessment in 1955 does not open the matter of tax liability at large and compel the Minister to re-assess in accordance with an amended return made out of time, according to the above quoted section. Under this legislation, if a taxpayer wishes to carry back business losses, he must file his amended return within the statutory time limit. Otherwise, the Minister cannot be compelled to accept the amended return."

Heald J.A. adopted the explanation of President Thorson in Dezura v. MNR, [1947] CTC 375 at 378 (Ex Ct) of the effect of s. 152(7).

The taxpayer did not file any income tax returns on the ground, later established in court to be unfounded, that he was exempt from tax. He was assessed for the taxation years 1960 to 1964, but not 1959, on the basis that a S.20(1)(n) (then, S.85B(1)(d)) reserve should be deducted from his profit from a 1959 sale of land, and included in the income of those subsequent years pursuant to s. 12(1)(e)(ii) (then, S.85B(1)(e)). It was held that because he had the option of including the full amount of the profit in his 1959 income, and the record did not disclose that there had been an assessment for the 1959 year, that no part of the profit made in 1959 could be included in his income for the subsequent years.

The 2002 to 2008 taxation years of the taxpayer were assessed for its failure to withhold Part XIII tax. The taxpayer (in addition to objecting under s. 165) sought to have the assessments for the earlier (2002-2004) years set aside, on an application for judicial review in the Federal Court, on the basis that it was contrary to the Minister's policy to go back more than two years on audit.

Stratas JA found that each of the following grounds was a sufficient basis for dismissing the application:

• the notice of application failed to state a "cognizable administrative law claim," as "changes in policies or departures from policies ... do not constitute an abuse of discretion..." (para. 75, similarly para. 108);
• the Federal Court was barred from considering the claim by s. 18.5 of the Federal Courts Act, as ITA ss. 165 and 169 "constitute a complete appeal procedure that allows taxpayers to rise in the Tax Court all issues relating to the correctness of the assessments" (para. 82, similarly para. 110); and
• the Federal Court could not grant the relief sought: "If the 'essential character' of the relief sought is the setting aside of an assessment, it must be struck" (para. 93), as "only the Tax Court can grant this relief: subsection 152(8)" (para. 111).

Stratas JA gave (at para. 98) oversight of political or racial targeting through selective assessments as "examples of judicial reviews that might avoid the three objections to judicial review," and stated (at para. 101) that judicial review "is a tool of last resort."

In granting a motion of the Crown to strike out a Statement of Claim of the taxpayer, which sought damages against the Crown on the basis that the Crown had engaged in deliberate conduct to deny the taxpayer the benefit of the law, Décary J.A. noted (at p. 6516) that "it is settled law that the Federal Court does not have jurisdiction to award damages or grant any other relief that is sought on the basis of an invalid reassessment of tax unless the reassessment has been overturned by the Tax Court", and that "it is settled law that the Tax Court of Canada does not have jurisdiction to set aside an assessment on the basis of abuse of process or abuse of power ...".

A notice of reassessment of the taxpayer for $1.3 million disclosed that figure in the refund box rather than the balance unpaid box. In finding that the taxpayer could take no refuge in s. 152(8) in seeking to recover the $1.3 million, Robertson J.A. indicated that the error was in the notice of assessment and not in an assessment; and the error was apparent on the face of the document.

In finding that the taxpayer was not liable under s. 159(3) following the winding-up of its subsidiary for income tax liabilities of the subsidiary that had not been reassessed within the normal reassessment period, Hugessen J.A. stated (at p. 6592):

"While it may be the case, as argued by the appellant, that a person who is made liable for the taxes due by another is able to dispute the other's liability even when the latter could no longer himself have done so, that does not alter the fact that an assessment, until validly varied, binds both the Minister and the taxpayer in respect of whom it is issued."

An assessment that erroneously referred to the taxation year of the taxpayers ending on January 2, 1987 rather than December 31, 1986 was deemed to be valid under s. 152(8).

A reassessment of a director in respect of the aggregate amount of source deductions which the corporation had failed to make under the Act and three other statutes which did not separately disclose the amounts purportedly owing under each statute, and that referred for further details to an assessment which had been made on the corporation, nonetheless was valid in light of ss.152(3) and (8) of the Act and the fact that it contained all the essential ingredients for a notice of assessment.

Assessments which had never been successfully attacked pursuant to the Income Tax Act could not be collaterally attacked through application for a declaration that the income in question was exempt from tax, given the provisions of s. 152(8)

In rejecting an argument on behalf of the taxpayer that a reassessment which was issued beyond the time limit established by s. 152(4) was nonetheless valid until vacated by a court order and, therefore, had the effect of nullifying a previous reassessment, Stone J.A. stated (p. 6233):

"It seems to me that [s.152(8)] is not addressed to a situation where an assessment is issued out of time but rather to a situation where an assessment is issued in time but contains an 'error, defect or omission' or that such is contained in any proceeding under the Act relating to it."

Notwithstanding that the Minister had reassessed previous taxation years of the taxpayer on the basis that a gain had been realized by the taxpayer on income account rather than capital account, in its 1979 taxation year the taxpayer filed its return on the basis that the inclusion of its previous year's reserve, and the deduction of a further reserve, should be done under paragraph 40(1)(a) rather than paragraph 20(1)(n). In rejecting an argument that the taxpayer was compelled in its 1979 return to accept the Minister's view of the previous sale as being on capital account, MacGuigan J. found that subsection 152(8) deals only with the correction of errors, defects or ommissions in reassessments, and does not deem all reassessments to be valid and binding.

A notice of assessment was not a nullity by virtue of the fact that it was issued in the name of the estate of the taxpayer, rather than in the name of the taxpayer. The executor was not confused by the notice of assessment and understood it to relate to the taxpayer's terminal year return and not to the estate's return.

After being reassessed by the Minister, the taxpayer correctly noted in his Notice of Objection that the reassessments were based upon a repealed provision of the Act (s.74(5)). In his Notice of Confirmation, the Minister relied on ss.3, 9(1), 152 and 248 of the Act.

After reviewing jurisprudence to the effect "that an assessment may be valid although the reason assigned by the Minister for making it may be erroneous", Jerome A.C.J. stated:

"Sections 152(3), 152(8) and 166 combined clearly indicate that this error by the Minister of National Revenue is far from fatal. The cases only limit these sections where there is substantial and fundamental error ... The Minister has not committed an error of sufficient seriousness to put it into the same category as cases like Optical Recording."

The taxpayers were assessed under s. 163(2), convicted under s. 239(1), and then challenged their assessments under s. 163(2) as being contrary to the prohibition under s. 11(h) of the Charter for being punished for the same offence "again". It was held that the taxpayers effectively had been "punished" under s. 163(2) at the time of their assessments:

"I would be hard put to accept the proposition, without authority to support it, that a taxpayer, against from a valid and binding assessment has been made and penalties imposed, which he has paid, has not been 'punished' until such time as the taxpayer exhausts all available appeal processes."

The request of a trustee in bankruptcy for Revenue Canada working papers to back up an assessment "was fully answered by the notice of assessment."

The issuance of a reassessment in the name of a predecessor corporation rather than the amalgamated corporation was a defect which was not cured by ss.152(3), 152(8) or 116.

An argument in an appeal from a reassessment of the taxpayer's 1969 income tax that since a reserve should not have been claimed in 1968, the amount of the reserve was not includible in 1969 income was found to be "not so much a direct challenge to the validity of the 1968 assessment (which was not appealed and is long since closed) as it [was] an attempt to argue a legal effect in computing 1969 income from what the appellant says ought to have been done in reporting 1968 income. I think it may be legitimately advanced notwithstanding that the 1968 taxation year of the appellant is plainly a closed book."

Irregularities in an assessment notice that do not either confuse or prejudice the taxpayer (such as referring to the Department of National Revenue as Revenue Canada, Taxation, and using the name of the former rather than the present Deputy Minister) do not render it invalid but in any event such irregularities would be cured by s. 152(8).

The Minister invoked the general anti-avoidance rule to reassess the taxpayer on a series of surplus-stripping transactions. The taxpayer had subscribed for common shares of a new subsidiary for approximately $5.6 million, which then declared a stock dividend in the form of preferred shares having $56 of paid-up capital and a $5.6 million redemption price. Consequently, the value of the common shares was largely eliminated. The taxpayer disposed of the common shares in consideration for their depleted value and reported a business loss.

The trial judge rejected the Minister's argument that the transactions were abusive of the Income Tax Act as a whole. On appeal to the Court of Appeal, the Minister raised several new arguments, including that:

1. the transactions were abusive of ss. 3, 4, 9 and 111, an underlying policy of which is that business loss claims should reflect actual losses;
2. the taxpayer's purported losses were not business losses, given that the shares were not acquired as inventory or as part of and adventure or concern in the nature of trade (see "Rollover and other non-trading transactions"); and
3. to the extent that the taxpayer had any losses, they were capital in nature.

The Court found that, pursuant to s. 152(9), the Minister was free to introduce the first argument at the Court of Appeal but not the second and third. While the first argument entailed a pure question of law, the latter arguments entailed mixed questions of fact and law "for which an evidentiary basis was not established in the Tax Court of Canada" (para. 37).

The Court of Appeal proceeded to grant the Minister's appeal based on the first argument, but awarded costs to the taxpayer.

The Court of Appeal affirmed the decision at trial to allow the Minister to file a memorandum of fact and law after the hearing ended. Subsection 138(1) of the Tax Court of Canada Rules gives a judge broad discretion to "reopen a hearing before judgment has been pronounced for such purposes and upon such terms as are just." Moreover, the existence of s. 152(9) supports the notion that the Minister should be allowed to advance alternative arguments except where the taxpayer is no longer able to adduce relevant evidence or where allowing the arguments would otherwise be inappropriate. In the present circumstances, the harm to the taxpayer had been adequately addressed with a cost award.

After reassessing the taxpayers to include receipts for termination of a non-competition agreement in their income as business income, the Minister was entitled to amend replies to notices of appeal to, in the alternative, include three quarters of the receipts in the taxpayers' income as eligible capital amounts or as taxable capital gains. The arguments in question were announced well before the trial began and no prejudice was argued by counsel for the taxpayer (para. 35).

Subsection 152(9) could not be construed as allowing the Minister to make, after the expiry of the normal reassessment period, an amendment to his Reply that was not a "matter" specified in a waiver granted to him before the expiry of the normal reassessment period.

The Crown was permitted to defend a reassessment it had made of the taxpayer (disallowing a portion of the taxpayer's capital cost allowance claims) on the basis of an argument that it asserted in its pleadings following the expiry of the time limit for reassessments, namely, an argument that the taxpayer was not entitled to deduct any capital cost allowance because it had not acquired its interest in the property in question for an income-producing purpose, so that the reassessment reducing the allowable capital cost allowance claims of the taxpayer was correct.

After the Minister had assessed predecessors of the taxpayer on the basis that amounts paid by them to purchase seismic data exceeded the fair market value of the data, so that the full purchase price did not qualify as CEE, the taxpayer filed Notices of Objection. The Minister then issued Notifications of Confirmation which, based on the subsequently-decided decision in Global Communications, found that none of the purchase qualified for treatment as CEE (although the Minister did not purport to increase the tax payable by the taxpayer).

In finding that s. 152(9) did not preclude the Minister from issuing a Notice of Confirmation on this basis, Rothstein J.A. noted (at para. 40) that the confirmation did not have the effect of introducing a new transaction in that the Minister instead was only relying on an additional argument in support of denial of the CEE deductions that originally had been denied by the Minister.