Ford Motor Company of Canada Limited v. The Queen

Ford Motor Company of Canada Limited v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2015-02-18
Neutral citation
2015 TCC 39
File numbers
2012-1779(GST)G
Judges and Taxing Officers
Patrick J. Boyle
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2012-1779(GST)G
BETWEEN:
FORD MOTOR COMPANY OF CANADA, LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard on January 23, 2015 at Toronto, Ontario.
Before: The Honourable Justice Patrick Boyle
Appearances:
Counsel for the Appellant:
Robert G. Kreklewetz
John G. Bassindale
Counsel for the Respondent:
Catherine M.G. McIntyre
ORDER
Having heard the Respondent’s motion to strike portions of the Appellant’s Amended Notice of Appeal pursuant to section 65 of the Tax Court of Canada Rules (General Procedure);
IT IS ORDERED THAT:
1. The Respondent’s motion is dismissed in accordance with the attached Reasons for Order.
2. The Respondent will be allowed 60 days from the date hereof to file its Reply to the Amended Notice of Appeal.
3. Costs of this motion are awarded to the Appellant, payable by the Respondent, in any event of the cause. If the parties cannot agree on the amount of costs within 30 days, the parties are to have a further 30 days to make written submissions thereon.
Signed at Ottawa, Canada, this 18th day of February 2015.
“Patrick Boyle”
Boyle J.
Citation: 2015 TCC 39
Date: 20150218
Docket: 2012-1779(GST)G
BETWEEN:
FORD MOTOR COMPANY OF CANADA, LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Boyle J.
[1] In this motion the Respondent is challenging whether certain of the issues raised in the Appellant’s Amended Notice of Appeal were issues identified in, and reasonably described in, the Appellant’s Notice of Objection to the underlying assessment as required by the so-called “specified person” rules in sections 301 and 306.1 of the Excise Tax Act (the “ETA”). It is not disputed that Ford Canada is a specified person as defined in subsection 301(1) of the ETA.
[2] This is one of a number of similar motions brought by the Crown challenging notices of appeal filed by Ford Motor Company of Canada, Limited (“Ford Canada”) and related Ford companies under the ETA. The other motions are being held in abeyance pending the decision in this case. This motion was brought prior to the Crown filing a Reply in response to the Amended Notice of Appeal.
[3] The specific issue to be decided on this motion is whether Ford Canada’s Notice of Objection “reasonably describes each issue to be decided” as required by paragraph 301(1.2)(a). In this motion the Crown is not challenging whether Ford Canada’s Notice of Objection complied with paragraph 301(1.2)(b) dealing with the quantum of each issue. The Crown’s position with respect to compliance with paragraph 301(1.2)(c), which requires that the facts and reasons relied on be provided, is slightly more nuanced. The Crown is not in its motion disputing that a notice of appeal can include facts and reasons not provided in the notice of objection, however the Respondent maintains that the provision of additional facts not set out in the notice of objection cannot be used to help determine whether the notice of objection identifies an issue and reasonably describes it for purposes of complying with paragraph 301(1.2)(a).
A. Facts
[4] The evidence in this motion went in by way of affidavits. The Respondent filed the Affidavit of Catherine Rissanen, a Litigation Officer with the Canada Revenue Agency (“CRA”), to establish that Ford Canada was a specified person. The Respondent also filed the Affidavit of Alan Seenan, the CRA Appeals Officer who had carriage of the Notice of Objection in question. The Appellant filed the affidavit of Barbara Hoffmann who is responsible for indirect tax compliance at Ford Canada.
The Amended Notice of Appeal: [5] The impugned paragraphs of the Amended Notice of Appeal relate to two of the three matters raised in the Amended Notice of Appeal. The first is a claim for additional input tax credits (“ITCs”) in the amount of $498,386 not claimed by Ford Canada when initially filing its returns. As described below, this amount is the remainder of subsequently identified unclaimed ITCs requested by Ford Canada during the audit net of what was allowed by CRA at the Objection stage.
[6] The second question involves Ford Canada’s ability to revise the foreign exchange conversion methodology used by it in computing ITCs for its US$ denominated inputs from that used by it when initially filing its returns.
The Reassessment: [7] The Notice of Reassessment in question is a single page. It is comprised principally of numbers alongside various summary descriptions of no more than four words. It states that “The details of your assessment are shown on the Statement of Audit Adjustments”.
[8] Since a GST/HST Notice of Reassessment only provides a skeletal description and summary of the adjustments made in a reassessment, and a Statement of Audit Adjustments is a contemporaneous CRA document relating to and referred to in the reassessment, the Relevant Statement of Audit Adjustments might often prove to be a useful and sensible document to review and consider as it would clarify how CRA chose to describe items upon reassessing that the taxpayer is responding to in its objection.
[9] I assume that it was simply not relevant in this particular case as the Appellant is not objecting to or appealing unfavourable adjustments made by the auditor, but favourable adjustments requested by the Appellant of the auditor for which the auditor did not make any reassessment.[1]
[10] The Notice of Reassessment indicates Ford Canada’s “Net Tax Assessed” in the period was almost 2 billion dollars and that the “Total Adjustments for Assessment Period” was approximately $4,000,000. The adjustments are summarized as “Adjustments to GST/HST” approximately $500,000, “Adjustments to ITC” approximately $3,500,000, and “Adjustments to GEN” approximately $60,000.
The Notice of Objection: [11] Ford Canada’s Notice of Objection addresses these issues as follows:
1. Objection of denial of right to be audited to net tax[2]
Facts and Background
Ford Motor Company of Canada, Limited (Ford) underwent a GST audit for the period October 1 1996 to June 30 1999. Before the audit was completed, Ford informed the auditor that we had discovered several areas where there were (1) unclaimed ITCs […] and (3) foreign exchange adjustments related to the audit period. Ford requested that these items be taken into consideration before the audit was completed and the Notice of Assessment was raised.
A Notice of Assessment was issued without providing Ford an opportunity to review the final assessment amounts. Ford’s request to include the items indicated above as part of the audit was not acted upon by the auditor – none of these items was included as an offset in the Notice of Assessment.
Unclaimed ITCs
Unclaimed ITCs related to taxable purchases made during the audit period totalled $760,195.71 and were not taken into consideration during the audit.
[…]
Foreign Exchange Adjustment
Many of Ford’s expenditures were contracted in foreign currencies.
Before the audit was completed, Ford sought to adjust their foreign exchange conversion methodology to comply with ETA legislation, regulations, and policy statements. The value for consideration of foreign dollar ITCs was converted to Canadian currency using Bank of Canada rates on the day consideration for the supply was made. This resulted in additional ITCs of $1,095,712.24 for the audit period.
Reasons for Objection
[…]
Conclusion
Ford should have been given the opportunity to review the final audit adjustments before the Notice of Assessment was issued.
Section 296 clearly directs the Minister to assess the net tax of a taxpayer.
Section 296(2) clearly directs the Minister to take unclaimed ITCs into consideration. Section 296(2.1) directs the Minister to apply allowable rebates against the net tax amount. Section 159 and GST Memoranda 300-7-10 outline the options available to a taxpayer in determining the Canadian currency amount of a foreign currency transaction.
Ford’s request that the unclaimed ITCs … and the Foreign Exchange Adjustments be taken into consideration in assessing the net tax amount should have been granted.
Relief Sought
Unclaimed ITCs
Ford respectfully requests that the Minister take the allowable credits into account and reduce the assessed amount accordingly.
[…]
Foreign Exchange Adjustments
Ford respectfully requests that the foreign exchange conversion methodology be adjusted to comply with ETA legislation, regulations, and policy statements.
The Report on Objection: [12] The Report on Objection was prepared by Mr. Seenan, the Appeals Officer, and signed off on by his Team Leader and the Chief of Appeals. This report describes the matters raised by Ford Canada in its Notice of Objection as follows:
(1) ISSUES RAISED BY OBJECTOR
a. Denial of right to be audited to net tax
- Unclaimed Input Tax Credits of $760,195.71
[…]
- Foreign Exchange Adjustment $1,095,712.24
[…]
(2) REVIEW OF EACH VALID ISSUE UNDER OBJECTION
Part a: Unclaimed Credits
(I) BASIS OF (RE)ASSESSMENT
(a) Facts
1. Unclaimed ITCs – Audit did not consider any unclaimed credits.
[…]
2. Foreign Exchange Adjustment – Audit did not consider this adjustment.
[…]
(II) REASONS FOR OBJECTION
(a) Facts
1. Ford Motor Company of Canada Limited (‘Ford Motor’) underwent a GST audit for the period October 1, 1996 to June 30, 1999. Before the audit was completed, Ford Motor informed the auditor that they had discovered several areas where there were unclaimed ITCs, […] and foreign exchange adjustments related to the audit period. Ford Motor requested that these items be taken into consideration before the audit was completed and a Notice of Assessment was raised.
A Notice of Assessment was issued without providing Ford an opportunity to review the final assessment amounts. Ford’s request to include the items indicated as part of the audit was not acted upon by the auditor – none of these items were included as an offset in the Notice of Assessment.
2. Unclaimed ITCs – Unclaimed ITCs related to taxable purchases made during the audit period totalled $760,195.71 were not taken into consideration during the audit.
[…]
4. Foreign Exchange Adjustment – Many of Ford Motor’s expenditures were contracted in foreign currencies. Before the audit was completed, Ford Motor sought to adjust their foreign exchange conversion methodology to comply with ETA legislation, regulations, and policy statements. The value for consideration of foreign dollar ITCs was converted to Canadian currency using Bank of Canada rates on the day consideration for the supply was made. This resulted in additional ITCs of $1,095,712,24 for the audit period.
Ford Motor respectfully request that the foreign exchange conversion methodology be adjusted to comply with ETA legislation, regulations, and policy statements.
(III) APPEALS DECISION
(a) Facts
1. Unclaimed ITCs
A referral was sent to the Audit Division of the Hamilton TSO to review the request to allow additional ITCs of $760,195.72. A review was done and the Audit Large File Section in the Hamilton TSO recommended allowing additional ITCs of $261,809.42. Adjustment discussed and agreed upon between Barbara Hoffmann at Ford Motor and Reg Owens/Kelle Patterson, CRA Hamilton Audit Division on April 28, 2004.
[…]
3. Foreign Exchange Adjustment
A referral was sent to the Audit Division of the Hamilton TSO to review the request to allow an additional ITC for foreign exchange adjustment of $1,095,712.24. A review was done and the Audit Large File Section in the Hamilton TSO recommended allowing additional ITCs of $849,286.72.
Audits explanation is as follows: The registrant records invoices received in US funds using a bookkeeping rate dictated by the US head office. The ETA is very specific as to what the acceptable exchange rates are that can be used to translate the US to Canadian funds and what methods are acceptable. The rate being used by the registrant in their books and records is clearly unacceptable. Nevertheless, the auditor checked with Rulings and received an informal opinion that ITCs claimed do not have to correspond to the value posted in the books and records and the claim could not be denied for this reason.
Audit recommended to allow additional ITCs of $849,286.72. Adjustment discussed and agreed upon between Barbara Hoffmann at Ford Motor and Reg Owens/Kelle Patterson, CRA Hamilton Audit Division on April 28, 2004.
Appeals further reviewed this issue and recommends not to allow any additional ITCs based on the foreign conversions. FMCC is asking to retroactively change its method of converting foreign currency to Canadian currency. FMCC claimed an ITC on all of its foreign purchases.
In this case the conversion method originally used by FMCC to calculate an ITC is not in dispute and technically the Minister may accept the method used since is was used consistently.
It should be noted that it was FMCC who decided which rate it would use to convert its foreign transactions and the method FMCC used to convert its foreign transactions to Canadian currency was not challenged by CRA. It has been used consistently by FMCC for the past several years.
[…]
(b) Law
1. Unclaimed ITCs
Subsection 296(2) of the ETA allows for unclaimed credits. This subsection requires the Minister to take allowable unclaimed credits into account when assessing the net tax for the particular reporting period.
[…]
3. Foreign Exchange Adjustment
1. Section 159 of the ETA deals with situations where payment for a supply is expressed in foreign currency. For purposes of calculating any GST payable, the value of consideration is determined by reference to the Canadian dollar equivalent on the date consideration is payable. The section also permits the Minister to accept a different method of determining the exchange value currency.
[…]
2. Section 159 of the ETA reads,
- Where the consideration for a supply is expressed in a foreign currency, the value of the consideration shall, for the purposes of this Part, be computed on the basis of the value of that foreign currency in Canadian currency on the day the tax is payable, or on such other day as is acceptable to the Minister.
The ETA does not specifically state the source that must be used to translate foreign currency to Canadian currency, and the Minister is given the discretion to accept the conversion on a date other than the day the tax is payable.
[13] Paragraphs 3 through 5 refer to the Minister’s delegation of powers, and to CRA publications dealing with acceptable exchange rates and foreign currency values. Paragraph 6 deals with the definition of “amount” in section 123 of the ETA. Paragraph 7 reproduces subsection 296(2) of the ETA dealing with unclaimed credits. This part ends with paragraph 8 which reads as follows:
8. Since the ITC on the property or services have already been claimed by the registrant subsection 296(2) does not apply and the Minister is not required to allow this additional credit.
CRA’s Decision on Objection: [14] CRA issued its decision on Ford Canada’s objection by letter dated February 7, 2012. The Objection was allowed, in part, and the adjustments allowed are reflected in the further reassessments which form the basis of the Amended Notice of Appeal in this Court.
[15] The Decision on Objection addresses the two relevant matters as follows:
The basis of your objection is as follows:
1) whether the unclaimed input tax credits in the amount of $760,195.71 should have been taken into consideration during the audit to reduce the net tax assessed
[…]
3) whether the retroactive change to the foreign exchange conversion methodology should have been taken into consideration during the audit to reduce the net tax assessed in the amount of $1,095,712.24
[…]
Issue No. 1:
You have requested that the Minister allow you additional input tax credits in the amount of $760,195.72. A review [of] the facts and documents submitted indicated that you are entitled to additional input tax credits in the amount of $261,809.42 which was agreed upon by your Frankie Fenton in her letter dated January 17, 2006. Therefore, the GST/HST return(s) will be adjusted accordingly. (See Schedule “A” attached).
Subsection 296(2) of the Excise Tax Act authorizes the Minister to take into account an allowable credit (i.e., an input tax credit or deduction that was not previously claimed by the person) when the Minister assesses the net tax of a person for a particular reporting period.
[…]
Issue No. 3:
Section 159 of the ETA states that, where the consideration for a supply is expressed in a foreign currency, the value of the consideration shall, for the purposes of this Part, be computed on the basis of the value of that foreign currency in Canadian currency on the day the tax is payable, or on such other day as is acceptable to the Minister.
The ETA does not specifically state the source that must be used to translate foreign currency to Canadian currency. However, Policy Statement P-222 states that to convert from foreign currency into Canadian currency for the purposes of Part IX of the ETA, a person may only use the rate of exchange from:
• the source used for an actual conversion;
• the source the person typically uses for actual conversions;
• a Canadian chartered bank;
• the Bank of Canada; or
• the rate provided by the Customs Branch of the Department for purposes of converting the value of duty of imported goods.
When a source other than the source used for an actual transaction is selected, that source must be used consistently and for a reasonable period of time (such as one year).
When converting foreign currency into Canadian dollar, Ford Motor Company of Canada, Limited used an exchange rate dictated by its US head office. This rate was never in dispute and was accepted by both Ford Motor Company of Canada, Limited and the Canada Revenue Agency.
Based on the foregoing facts and law, your request that the foreign exchange methodology be be (sic) adjusted to allow you additional input tax credits in the amount of $1,095,712.24 is disallowed.
The Seenan Affidavit: [16] The relevant portions of the Seenan Affidavit are as follows:
4. The Appellant filed a Notice of Objection dated February 21, 2003. A copy of the Notice of Objection is attached hereto and marked as Exhibit “B” to this Affidavit.
5. At Objections the Appellant raised issues which may be summarized as follows:
Item Issue
1) whether the unclaimed ITCs in the amount of $760,195.71 should have been taken into consideration during the audit to reduce the net tax;
[…]
3) whether the retroactive change to the foreign exchange conversion methodology should have been taken into consideration to reduce the net tax assessed in the amount of $1,095,712.24;
[…]
6. The Appellant provided additional information by letters dated June 8, 2005, January 17, 2006, August 30, 2011 and November 15, 2011. A copy of these letters are attached hereto and marked as Exhibits “C”, “D”, “E”, and “F” respectively to this Affidavit.
[17] I note that none of the letters referred to in paragraph 6 of the Seenan Affidavit included any additional information whatsoever regarding either the unclaimed ITC matter or the foreign exchange conversion matter. They all dealt with one or both of two separate matters identified in the Notice of Objection.
[18] The Seenan Affidavit continued:
7. During my review at Objections, I considered all of the issues raised by the Appellant in its Notice of Objection. A copy of the Report on Objection is attached hereto and marked as Exhibit “G” to this Affidavit.
[…]
9. By letter dated February 7, 2012, the Minister advised the Appellant that the amount of $260,809.42 was allowed with respect to the unclaimed ITCs (item 1 in the chart above) but that all of the remaining issues were confirmed. A copy of this letter is attached hereto and marked Exhibit “H” to this Affidavit.
B. The Law [19] The relevant provisions of the GST/HST Legislation in the ETA provide:
301 [Notice of objection] --
(1) Meaning of “specified person” -- Where an assessment is issued to a person in respect of net tax for a reporting period of the person, […] for the purposes of this section, the person is a “specified person ” in respect of the assessment or a notice of objection to the assessment if
[…]
301 (1) Personne déterminée -- Pour l'application du présent article, la personne à l'égard de laquelle est établie une cotisation au titre de la taxe nette pour sa période de déclaration, […] est une personne déterminée relativement à la cotisation ou à un avis d'opposition à celle-ci si, selon le cas :
[…]
(b) […] the person's threshold amounts, determined in accordance with subsection 249(1), exceed $6 million for both the person's fiscal year that includes the reporting period and the person's previous fiscal year.
b) […] le montant déterminant qui lui est applicable, déterminé en conformité avec le paragraphe 249(1), dépasse 6 000 000 $ pour son exercice qui comprend cette période ainsi que pour son exercice précédent.
(1.1) Objection to assessment -- Any person who has been assessed and who objects to the assessment may, within ninety days after the day notice of the assessment is sent to the person, file with the Minister a notice of objection in the prescribed form and manner setting out the reasons for the objection and all relevant facts.
(1.1) Opposition à la cotisation -- La personne qui fait opposition à la cotisation établie à son égard peut, dans les 90 jours suivant le jour où l'avis de cotisation lui est envoyé, présenter au ministre un avis d'opposition, en la forme et selon les modalités déterminées par celui-ci, exposant les motifs de son opposition et tous les faits pertinents.
(1.2) Issue to be decided [must be specified] -- Where a person objects to an assessment in respect of which the person is a specified person, the notice of objection shall
(1.2) Question à trancher -- L'avis d'opposition que produit une personne qui est une personne déterminée relativement à une cotisation doit contenir les éléments suivants pour chaque question à trancher
(a) reasonably describe each issue to be decided;
a) une description suffisante;
(b) specify in respect of each issue the relief sought, expressed as the change in any amount that is relevant for the purposes of the assessment; and
b) le redressement demandé, sous la forme du montant qui représente le changement apporté à un montant à prendre en compte aux fins de la cotisation;
(c) provide the facts and reasons relied on by the person in respect of each issue.
c) les motifs et les faits sur lesquels se fonde la personne.
306.1 (1) Limitation on appeals to the Tax Court -- Despite sections 302 and 306, if a person to which subsection 301(1.2) or (1.21) applies has filed a notice of objection to an assessment, the person may appeal to the Tax Court to have the assessment vacated, or a reassessment made, only with respect to
306.1 (1) Restriction touchant les appels à la Cour canadienne de l'impôt -- Malgré les articles 302 et 306, la personne à laquelle le paragraphe 301(1.2) ou (1.21) s'applique qui produit un avis d'opposition à une cotisation ne peut interjeter appel devant la Cour canadienne de l'impôt pour faire annuler la cotisation, ou en faire établir une nouvelle, qu'à l'égard des questions suivantes :
(a) an issue in respect of which the person has complied with subsection 301(1.2) or (1.21) in the notice, or
[…]
a) une question relativement à laquelle elle s'est conformée au paragraphe 301(1.2) ou (1.21) dans l'avis, mais seulement à l'égard du redressement, tel qu'il est exposé dans l'avis, qu'elle demande relativement à cette question;
[Je souligne.]
and, in the case of an issue described in paragraph (a), the person may so appeal only with respect to the relief sought in respect of the issue as specified by the person in the notice.
[Emphasis added.]
[20] The parallel provisions of the Income Tax Act (the “ITA”) are found in sections 165 and 169. As some of the relevant jurisprudence considers the ITA provisions, they are set out below:
165(1.11) Objections by large corporations -- Where a corporation that was a large corporation in a taxation year (within the meaning assigned by subsection 225.1(8)) objects to an assessment under this Part for the year, the notice of objection shall
165(1.11) Oppositions par les grandes sociétés -- Dans le cas où une société qui était une grande société au cours d'une année d'imposition, au sens du paragraphe 225.1(8), s'oppose à une cotisation établie en vertu de la présente partie pour l'année, l'avis d'opposition doit, à la fois :
(a) reasonably describe each issue to be decided;
a) donner une description suffisante de chaque question à trancher;
(b) specify in respect of each issue, the relief sought, expressed as the amount of a change in a balance (within the meaning assigned by subsection 152(4.4)) or a balance of undeducted outlays, expenses or other amounts of the corporation; and
b) préciser, pour chaque question, le redressement demandé, sous la forme du montant qui représente la modification d'un solde, au sens du paragraphe 152(4.4), ou d'un solde de dépenses ou autres montants non déduits applicable à la société;
(c) provide facts and reasons relied on by the corporation in respect of each issue.
c) fournir, pour chaque question, les motifs et les faits sur lesquels se fonde la société.
169(2.1) Limitation on appeals by large corporations -- Notwithstanding subsections (1) and (2), where a corporation that was a large corporation in a taxation year (within the meaning assigned by subsection 225.1(8)) served a notice of objection to an assessment under this Part for the year, the corporation may appeal to the Tax Court of Canada to have the assessment vacated or varied only with respect to
(a) an issue in respect of which the corporation has complied with subsection 165(1.11) in the notice, or
169(2.1) Restrictions touchant l'appel d'une grande société -- Malgré les paragraphes (1) et (2), la société qui était une grande société au cours d'une année d'imposition, au sens du paragraphe 225.1(8) et qui signifie un avis d'opposition à une cotisation établie en vertu de la présente partie pour l'année ne peut interjeter appel devant la Cour canadienne de l'impôt pour faire annuler ou modifier la cotisation qu'à l'égard des questions suivantes:
a) une question relativement à laquelle elle s'est conformée au paragraphe 165(1.11) dans l'avis, mais seulement à l'égard du redressement, tel qu'il est exposé dans l'avis, qu'elle demande relativement à cette question;
[…] and, in the case of an issue described in paragraph (a), the corporation may so appeal only with respect to the relief sought in respect of the issue as specified by the corporation in the notice.
[21] The Technical Notes that accompanied the 1995 introduction of the ITA provisions provide:
165(1.11)-(1.14) Feb. 1995 TN: Section 165 provides rules governing a taxpayer’s right to object to an assessment or determination by the Minister of National Revenue of tax, interest, penalties and certain other amounts under the Act.
New subsection 165(1.11) requires large corporations to reasonably describe the issues under dispute, to specify the amount of relief sought in respect of each issue, and to provide facts and reasons in support of the objection. In addition, under new subsections 165(1.13) and (1.14) only those issues and related relief set out in a valid notice of objection may be the subject of a further objection or an appeal taken before the courts. New issues raised by Revenue Canada on a subsequent reassessment may be the subject of a separate objection, which will itself be required to satisfy the new requirements in section 165.
New subsection 165(1.11) provides a number of requirements for notices of objection served by large corporations. A corporation’s notice of objection must comply with the requirements if the objection is from an assessment of a taxation year in which the corporation is a large corporation within the meaning of subsection 225.1(8). Under that provision, a corporation is a large corporation in a particular taxation year if tax under Part I.3 is payable by it for the particular year or if, at the end of the year, it is related to a corporation that is itself a large corporation.
Paragraph 165(1.11)(a) states that a corporation must reasonably describe each issue which is to be decided.
Paragraph 165(1.11)(b) requires a notice of objection to specify the relief sought by the taxpayer in respect of each issue in the notice. The relief sought may be expressed as a change in a “balance” of the taxpayer as defined in subsection 152(4.4), which includes references to a taxpayer’s income, taxable income, taxable income earned in Canada, loss for the year, or the tax or any amount payable by the taxpayer for the year. The relief sought may also be expressed as a change in a balance of undeducted outlays, expenses or other amounts of the taxpayer. The provision is not intended to require a taxpayer to calculate all of the potential effects that interdependent or related issues may have on each other, but only that the relief sought in respect of a particular issue be quantified in isolation of any other issues in a notice of objection.
Paragraph 165(1.11)(c) requires a notice of objection to include a statement of facts and reasons which could be relied upon by a taxpayer. Additional facts or reasons may be raised by a taxpayer subsequent to the filing of a notice of objection.
Any notice of objection served before 1995 may be revised to meet the new requirements if the taxpayer submits the required information to a Chief of Appeals in a district office or taxation centre of the Department of National Revenue before March 1995.
New subsection 165(1.12) allows the Minister of National Revenue to request the taxpayer to specify the required information with respect to an issue where it was not specified in the notice of objection. If the taxpayer specifies the information in writing within 60 days of the request, it will be treated as having been specified in the notice of objection.
New subsection 165(1.13) precludes large corporations from raising new issues or revising the relief sought with respect to an issue in an objection to an assessment made under subsection 165(3) except where the assessment was made pursuant to a notice of objection to another assessment made under any of the provisions or circumstances referred to in paragraph 165(1.1)(a). Subsection 165(1.1) already restricts objections to assessments made under any of the provisions or circumstances referred to in paragraph 165(1.1)(a).
New subsection 165(1.14) provides that the limitation in subsection 165(1.13) does not apply to limit a taxpayer’s right to object to a new issue raised for the first time by Revenue Canada in an assessment made under subsection 165(3).
[Emphasis added.]
[22] In Potash Corp. of Saskatchewan Inc., 2003 FCA 471 the Federal Court of Appeal considered the following portions of the paper “Draft Legislation on Income Tax Objections and Appeals” by R.M. Beith at the 1994 Annual Conference of the Canadian Tax Foundation:[3]
4 The Large Corporation Rules were enacted in 1995 to discourage large corporations from engaging in a full reconstruction of their income tax returns for a particular year, after the objection or appeal process had started, based on developing interpretations and the outcome of court decisions in litigation involving other taxpayers. The reasons for these subsections are well-stated by R. M. Beith in his paper entitled "Draft Legislation on Income Tax Objections and Appeals" as outlined in the Report of Proceedings of the Forty-Sixth Tax Conference, 1994 Conference Report (Toronto: Canadian Tax Foundation, 1995), 34:2.
One of the reasons for the legislation is to identify disputed issues much sooner so that a taxation year's ultimate tax liability can be determined in a timely way.
Owing to the complexity of the law and the number of issues, for many years a number of large corporations have had some of their taxation years left open through outstanding notices of objection or appeals, so that they have been able to raise new issues based on emerging interpretations and the outcome of court decisions challenged by other taxpayers.
Recently, a particular problem was identified by the auditor general and the Public Accounts Committee. A case dealing with the calculation of the "resource allowance" which was decided against the department, resulted in claims not only based on the particular facts decided by the court but in respect of a new issue concerning the calculation of the "resource allowance". These claims, both directly and indirectly from the court decision, involved significant amounts of tax and interests.
In summary, it is essential that revenues be more predictable and therefore that potential liabilities be identified and resolved within a more reasonable time.
Simply put, Parliament wants the Minister of National Revenue (the Minister) to be able to assess at the earliest possible date both the nature and quantum of pending tax litigation and its potential fiscal impact.
[Emphasis added.]
[23] There have been several decisions from the Federal Court of Appeal and several from this Court considering these ETA or ITA restrictions. A Supreme Court of Canada leave application was turned down in Potash. An appeal is pending before the Federal Court of Appeal in another. A review of these decisions shows they are consistent, clear, logical and capable of being applied. From these existing decisions general conclusions and observations on the interpretation and on the application of the designated person/large corporation restrictions can be clearly identified.
Telus Communications: [24] In Telus Communications (Edmonton) Inc. v. Canada, 2005 FCA 159 the taxpayer was a specified person and raised in its Notice of Appeal in the Tax Court of Canada the issue of due diligence with respect to automatic penalties under the ETA upon being assessed for additional net tax. The taxpayer’s Objection did not mention the penalties assessed, although they would be automatically reduced to the extent Telus was successful on the merits of the issue(s) objected to. Telus’ Objection was partially successful and it was reassessed. Telus filed a second Objection repeating the substantive grounds raised in the first Objection and requesting the remaining adjustments be vacated “along with the associated interest and penalties”.
[25] In Telus’ appeal before the Tax Court of Canada, the Crown moved to strike the amendments to the Notice of Appeal originally filed which added the issue of the due diligence defence to the penalties. The Crown had already filed its Reply to the Amended Notice of Appeal and the issue before the courts was whether the Crown was precluded from seeking to strike something to which it had already responded and joined issue with (sometimes referred to as pleading over). Justice O’Connor dismissed the Crown’s motion on the basis that it was too late, the Crown having already joined issue. The Federal Court of Appeal reversed the trial judge. Justice Desjardins wrote for the Court:
17 I find that, notwithstanding the pleadings, the Tax Court, in an appeal involving a "specified person", has no jurisdiction to deal with an issue that was not properly raised in the notice of objection.
18 A person who is a "specified person" has the right to object to any or all assessment issues. In doing so, however, it must file a notice of objection which accords with the requirements of subsections 301(1.2) of the Act. That is, the issue must be reasonably described, it must be quantified, and it must be supported by a statement of facts and reasons.
19 A person who is a "specified person" may also object to a reassessment made by the Minister after considering the notice of objection, but only with respect to the issues raised in a prior notice of objection or new issues raised in a reassessment (subsections 301(1.4) and (1.5) of the Act).
20 Identical restrictions apply in the case of an appeal to the Tax Court. Under section 302 of the Act, a person cannot appeal unless he first serves the Minister with a notice of objection within the prescribed time limits. This right of appeal is further restricted for specified persons by subsection 306.1(1) of the Act in that the specified person may appeal to the Tax Court only with regard to an issue properly raised in its notice of objection and only with respect to the relief sought in respect of that issue as specified in the notice of objection. An issue is properly raised in a notice of objection only by complying with subsection 301(1.2) (subject to the exception in subsection 301(1.5) which has no application in this case).
21 In the case at bar, the issue of due diligence was never raised in any notice of objection. The respondent's request to vacate "associated interest and penalties", which was mentioned only in its notice of objection to the reassessment, was not a reference to the issue of due diligence but was consequential to the reduction of interest and penalty flowing from the requested reduction of the net tax adjustments. The respondent cannot therefore raise due diligence in its amended amended notice of appeal before the Tax Court.
[Emphasis added.]
Potash Corporation: [26] The taxpayer in Potash was a “large corporation” pursuing an ITA appeal. In its tax return for the year in question the corporation claimed amounts in respect of the “resource allowance” and “earned depletion”. Under the ITA both resource allowance and earned depletion are determined by a formula that includes “resource profits”. Resource profits are computed by a prescribed formula that involves many factual elements. The reassessments excluded a number of specific items/categories of income from the taxpayer’s computation of resource profits and these were described by category, amount and taxation year in a schedule attached to the reassessments. In its objections the taxpayer described the specific items of miscellaneous income that it sought to have included in its resource profits because such income was related to and interconnected with the business of producing and marketing potash. The taxpayer’s objections identified that this in turn directly affected the amounts of its resource allowance and earned depletion. The taxpayer described such miscellaneous income items using the same terms and amounts that the Minister of National Revenue (the “Minister”) had used in the schedule to the reassessments.
[27] The taxpayer’s Notice of Appeal in the Tax Court of Canada substantially repeated what was in the objections relating to the computation of resource profits, with the same particulars. Prior to the trial the taxpayer sought to amend its Notice of Appeal to add additional miscellaneous income items that it could also identify as having not been included by it in computing its resource profits in its returns.
[28] In this Court, Justice Beaubier allowed the motion to amend on the basis the new items of miscellaneous income satisfied the requirements of the large corporation rules.
[29] In reversing the trial judge Justice Malone wrote for the Federal Court of Appeal:
19 In this case the Judge commenced his statutory analysis from the position that the Large Corporation Rules should be interpreted strictly because they “derogate from and restrict the broad ability of taxpayers to … appeal assessments”. That was an incorrect approach. The Supreme Court of Canada has rejected the strict construction of taxation statutes, […]
[…]
In my view, the Judge’s