http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/108127/index.do
Ford Motor Company of Canada, Limited v. The Queen (February 18, 2015 – 2015 TCC 39, Boyle J.).
Précis: This is a decision on a motion by the Crown to strike portions of the Amended Notice of Appeal on the basis that they offended what are generically known as the large corporation rules (while this is a GST appeal essentially the same provisions apply to income tax appeals). This motion was in fact a test case for motions in several other appeals of Ford and related Ford companies. The impugned provisions contained factual allegations in support of the appellant’s attempt to recover input tax credits not claimed on filing and to change the foreign exchange conversion method used in computing its input tax credits. The Crown argued that the impugned factual allegations were not specifically raised in the underlying notice of objection and therefore could not be used to determine whether the taxpayer had complied with paragraph 301(1.2)(a) of the
Excise Tax Act, i.e., identified the issue and reasonably described it. After extensively reviewing the jurisprudence (both GST and income tax) interpreting the large corporation rules the Court concluded that the taxpayer had identified and reasonably described the two issues in its notice of objection. On the evidence adduced on the motion CRA, in processing the objection, clearly understood the issues, did a detailed analysis and did not ask for any additional explanation. Thus the Court dismissed the Crown’s motion. Moreover the Court concluded that CRA’s attack on the pleadings was opportunistic, i.e., attempting to turn a statutory provision designed as a shield for the fisc into a sword with which to attack taxpayers. As a result the Crown was ordered to pay costs of the motion in any event of the cause.
Copies of the Amended Notice of Appeal and the Crown’s Amended Notice of Motion in PDF form are found below:
Ford Motor Company of Canada Limited – Amended Notice of Appeal
Ford Motor Company of Canada, Limited – Amended Notice of Motion
Decision: In this Motion the Crown sought to strike certain provisions of Ford Motor’s Amended Notice of Appeal on the basis that it had not complied, at the Notice of Objection Level, with what are generically known as the large corporations rules:
[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).
The provisions the Crown sought to strike related to additional unclaimed ITCs and the method of computing foreign exchange conversions for determining ITCs.
[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 Court reviewed the history of the assessment and objection processes, the statutory provisions and the case law in considerable detail.
The Court concluded that the rules under the
Excise Tax Act and the
Income Tax Act were essentially the same:
[50] There appears to be very little difference in the texts of the ITA’s large corporation rules and the ETA’s specified person rules. The differences do not appear at all material. There is no apparent reason to approach or apply the two sets of rules differently. There are cases decided under each set of rules with no discernible differences to the courts’ approach, analysis or application.
[51] It can be noted that the English texts’ requirement that each issue be reasonably described is expressed in the French version as each question to be settled must have a sufficient description. While the provisions do not themselves set out what it is that the description must be reasonable or sufficient enough to attain, the Federal Court of Appeal’s decisions have settled this having regard to the purpose of the provisions.
The requirement was not to describe an issue “exactly”, rather it had to be described reasonably or sufficiently:
[54] A taxpayer subject to the large corporation/specified person rules is not expected or required to describe the issue exactly, it is only required to describe it reasonably or sufficiently. What is reasonable will depend upon on each case’s particular facts as it involves determining the degree of specificity needed for the Minister to know each issue to be decided. That may be done by referring to the disputed item(s) in the same fashion as the Minister did when reassessing or auditing, as that can be expected to give the Minister sufficient certainty of the issue objected to. It may be done by specifying the particular elements of a defined tax term that require determination by the Minister (
Potash).
[55] A sufficient description of an issue is one that will allow the Minister to determine what is actually in dispute. A reasonable description of the issue will allow for the quantification of the effect that its resolution will have on the taxpayer. A reasonably described issue should satisfy the purpose of the provisions – that the Minister know the nature and quantum of disputed taxes at the objection stage. In particular circumstances, a reasonable description may require the taxpayer to commit to a particular interpretation or application of a provision in the ITA or the ETA (
Bakorp).
On the evidence CRA knew precisely what these issues were at the Notice of Objection stage, was able to react to the Objections in considerable detail and did not ask Ford Motor for any additional explanation of the issues:
[59] The evidence in this case wholly satisfies me that both objectively and subjectively the Minister should have and did understand from the Notice of Objection filed by the Appellant that these two specific issues which had been specifically raised during the audit which gave rise to the reassessment, were being objected to.
[60] The description of the unclaimed ITC issue from the Notice of Objection is set out above. It identifies this issue as relating to input tax credits on taxable purchases in the relevant period that had been identified as unclaimed and that had been requested by the Appellant of the CRA auditor to be allowed as a credit before reassessing net tax.
[61] The description of the foreign exchange adjustment issue in the Notice of Objection is set out above. It identifies this issue as relating to the conversion into Canadian dollars of all of its foreign currency denominated supplied inputs in the period for purposes of computing its ITCs. It specifies the precise methodology Ford Canada sought to have used, and that this had been requested by the Appellant of the CRA auditor to be allowed as an additional credit before reassessing net tax.
[62] The Notice of Objection describes Ford Canada’s rights to have its unclaimed ITCs recognized and to use the appropriate foreign exchange conversion methodology in computing ITCs on foreign denominated inputs as part of its right to be audited to net tax. It identifies a precise amount – to the penny – for each of these issues. It does not specifically describe each individual supplied input transaction for either of these issues.
[Footnotes omitted]
…
[70] Most significantly, it is evident in this case from the Seenan Affidavit [an affidavit of the CRA Appeals Officer which was filed on the Motion by the Crown] that the Appeals Officer having carriage of the Objection (i) could understand and summarize the issues raised in Ford Canada’s Objection; (ii) did not seek additional information from Ford Canada relating to the unclaimed ITCs issue or the foreign exchange adjustment issue; and (iii) was able to consider these two issues and all of the others raised in the Objection and deal with them. He went on to write the Report on Objection and the Notice of Decision, and further reassessments followed. The Appeals Officer’s Report on Objection indicates he referred the unclaimed ITCs of $760,195.71 to the Audit Division of the Hamilton Taxation Services office to be reviewed. This was done to a level of detail that resulted in further ITCs being allowed in the specific amount of $261,809.42. The Notice of Decision says that this specific adjustment was allowed based upon “a review of the facts and documents” submitted.
As a result the Court dismissed the Crown’s motion.
In addition Justice Boyle awarded costs against the Crown in any event of the cause for what he termed their “opportunistic” use of the large corporation rules:
[73] This appears to be a case of the Respondent trying opportunistically to use the large corporation/specified person rules, whose purpose and design are to protect and shield the fisc, as a sword against the taxpayer. This is also a case where there is no dispute about the factual evidence on the motion. The existing jurisprudence from this Court and the Federal Court of Appeal on the question involved in this motion of what is a reasonably described issue for purposes of the large corporation/specified person rules is quite clear, recent and consistent.
[74] In such circumstances, 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.