When drafting a notice of objection for a large corporation, it is essential to ensure that you cover all of the issues in dispute between your client and the CRA. If you fail to cover all of the issues, your client’s ability to contest them at the Tax Court could be curtailed. Newmont Canada Limited v. The Queen, 2005 TCC 143, is a harsh reminder of this possibility.
Subsections 165(1.11) and 169 (2.1) of the Income Tax Act (“Actâ€) 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 appeal process had commenced, based on developing interpretations and the outcome of court decisions involving other taxpayers. The Minister of Finance wanted a process that streamlined the determination of the ultimate tax liability of large corporations and accordingly enacted subsections 165(1.11) and 169(2.1) of the Act.
The right to object to an assessment (or reassessment) is contained in subsection 165(1) which provides that a taxpayer may, within the time permitted, serve on the Minister “…a notice of objection in writing, setting out the reasons for the objection and all relevant facts.†However, where a taxpayer is a large corporation, subsection 165(1.11) imposes more stringent requirements. A large corporation pursuant to subsection 165(1.11) is required to include in the objection to an assessment (a) a reasonable description of each issue to be decided; (b) specify in respect of each issue, the relief sought; and (c) provide the facts and reasons relied on by the corporation in respect of each issue.
The decision of the Tax Court of Canada in Newmont Canada Limited v. The Queen, 2005 TCC 143, is a harsh reminder of the consequences of failing to comply within the provisions of subsection 165(1.11) of the Act. In Newmont, the taxpayer was a “large corporation†within the meaning of subsection 225.1(8) of the Act. Newmont attempted to raise a new issue (“Gold Issueâ€) in respect of it’s 1990, 1991 and 1992 taxation years Notice of Appeal to the Tax Court of Canada that it had not raised in its notice of objection filed for the same taxation years.
The Minister applied to the Tax Court of Canada for an order to strike out the portion of the Notice of Appeal that related to the Gold Issue. The Minister had issued an assessment for the Taxpayer’s 1992 taxation year, the Taxpayer filed an objection, however the Minister, as a consequence of the objection, issued a notice of reassessment varying the Taxpayer’s 1992 taxation year and not a notice of confirmation. The Taxpayer appealed to the Tax Court of Canada pursuant to subsection 165(7) of the Act and included the Gold Issue in the appeal.
The Taxpayer defended its inclusion of the Gold Issue in the content of the appeal with two main arguments. The Taxpayer’s first argument was that it’s 1992 appeal was brought under subsection 165(7), not subsection 169(1), and that accordingly, the restriction is subsection 169(2.1) of the Act (the requirement to have filed an objection in accordance with subsection 165(1.11) of the Act) was not applicable. The Taxpayer argued that there was no language in subsection 165(7) to either restrict appeals by large corporation or to “link†such appeals to subsection 169(2.1). The Tax Court of Canada was not convinced by the Taxpayer’s statutory interpretation. The Court held that the case law is quite clear, a taxpayer’s right to appeal an assessment is “rooted†in section 169. The Court held that although paragraph 165(7)(a) permits a taxpayer to dispense with serving another notice of objection and to proceed with an appeal to the Tax Court of Canada, the clear wording of the provision directs such an appeal to be in accordance with section 169 of the Act.
The Taxpayer’s second argument provided that even if its’ right to appeal in 1992 is found in subsection 169(1), rather than subsection 165(7), subsection 169(2.1) does not apply because the provision only applies where the assessment being appealed to the Tax Court of Canada has been the subject of a notice of objection. The consequence of the Minister in issuing the reassessment was to nullify the original reassessment and the objection filed by the Minister. Once again the Court rejected the Taxpayer’s argument. The Court held that the reassessment issued as a result of the notice of objection nullified the earlier reassessment but did not nullify the objection filed by the Taxpayer. The Taxpayer has filed an appeal to the Federal Court of Appeal.
The Newmont case is a reminder to those practitioners who act on behalf of large corporations to be thorough and careful in drafting notices of objection. The restrictions contained in subsection 165(1.1) can result in difficult consequences to the large corporation. Unfortunately, the case law to date has supported a narrow and strict approach to the interpretation of subsection 165(1.11) (see also The Queen v. Potash Corp. of Saskatchewan, 2003 FCA 471.)
[This article by John Loukidelis and Joseph Monaco originally appeared in the September, 2005 issue of The Bottom Line.]
