http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/232609/index.do
Cougar Helicopters Inc. v. The Queen (June 30, 2017 – 2017 TCC 126, Lyons J.).
Précis: The taxpayer moved for a determination under Rule 58(1) whether the reassessment under appeal was void ab initio because it was not accompanied by an allegation that the Appellant made any misrepresentation or committed any fraud in filing its tax returns or in supplying any other information under the Act for its 2011 taxation year ended December 31, 2011. The Tax Court dismissed the application on the basis, inter alia, that an allegation of misrepresentation or fraud was implicit in the issuance of an otherwise statute-barred reassessment. As a result the application was dismissed with costs to the Crown in any event of the cause.
Decision: The taxpayer’s 2011 taxation year was originally assessed at nil. After an audit in 2015 it was reassessed to deny roughly $13 million in expenses. The taxpayer brought this application pursuant to Rule 58(1):
[1] Cougar Helicopters Inc. (“Cougar”) brought a motion under Rule 58 of the Tax Court of Canada Rules (General Procedure) (the “Rules”) for a question of mixed law and fact (the “Question”) to be determined before the hearing of its appeal. The Question stated is:
Whether the Reassessment is void ab initio because it was issued beyond the normal reassessment period and was not accompanied by any allegation that the Appellant made any misrepresentation or committed any fraud in filing its tax returns or in supplying in any other information under the Act for the Taxation Year.
[2] The Reassessment is the Notice of Reassessment dated July 29, 2015 (“Reassessment”), the Act is the Income Tax Act (the “Act”) and the Taxation Year ended on December 31, 2011 (“2011”).
[3] Cougar contends that if the Question is allowed to be determined, it will result in the disposition of its appeal or substantially shorten the hearing and result in substantial cost savings. The respondent disagrees and says a determination of the Question in the circumstances would be inappropriate, largely because of the contested material facts and credibility issues and would be prejudicial to the respondent.
[Footnotes omitted]
In the first place the Court found that the taxpayer’s argument that the Crown must give “notice” of an allegation of misrepresentation or fraud as overly ambiguous:
[54] I agree with the respondent that “notice” is a broad term and comes in many forms. Phrasing the Question such that “notice” of allegations of fraud would be required becomes unclear.
…
[56] Notably, an affirmative answer to the Question would add a requirement to the Act without Parliament’s input obliging the Minister to notify a taxpayer at the time of or prior to issuing the Reassessment of the allegations of misrepresentation or fraud in order to validly reassess a taxpayer beyond the normal assessment period.
[57] Based on the foregoing, I find the Question to be vague in nature and suffers from ambiguity. It is not appropriate in my opinion for a Rule 58 determination.
Moreover the Court found that the case law suggested that the issuance of a notice of reassessment outside the statutory limit carried a necessary implication of misrepresentation or fraud and therefore the hearing would not result in the disposition of the appeal or savings in time or costs:
[62] The Court in Canadian Marconi found that the Minister had no power to reassess Canadian Marconi’s tax returns for the 1977 to 1981 taxation years:
Absent a waiver as provided by subparagraph 152(4)(a)(ii), an allegation of misrepresentation or fraud is implicit in an out-of-time reassessment.
Where the Minister alleges, expressly or implicitly, misrepresentation or fraud, there is nothing offensive in putting a taxpayer on notice that he must object to an out-of-time reassessment. It is, with respect, quite otherwise absent an allegation of fraud or misrepresentation. An obvious policy consideration nourishes the distinction in treatment.
[63] Even if Cougar’s circumstances show that it did not receive notice, Canadian Marconi appears to suggest that when the Minister issues a statute‑barred reassessment, she implicitly alleges misrepresentation or fraud.
[64] In assessing merit as a factor, I find that the Question has no reasonable chance of success because the Question is based on an unproven assumption, it is flawed and misrepresentation appears to be implicit upon the issuance of a reassessment.
[65] Based on the foregoing, I conclude that the Question would not dispose of the proceeding, substantially shorten the hearing or result in a substantial cost savings. The Question is not appropriate for a determination hearing under the more abbreviated Rule 58 process. Rather, the circumstances warrant a full trial with the opportunity to tender and test evidence thereby affording evidentiary protections to obtain a fair and just decision. The motion is dismissed.
[Footnote omitted]
As a result the application was dismissed with costs to the Crown in any event of the cause.