Sky High v. R. – TCC: Court “suspends” section 160 appeal citing inherent jurisdiction

Bill Innes on Current Tax Cases

http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/98482/index.do

Les Productions Sky High Courage Inc. v. The Queen (November 7, 2014 – 2014 TCC 333, Jorré J.).

Précis: This decision involved two appeals and was heard on common evidence. The appeal of Les Productions Sky High Courage Inc. (“Sky High”) dealt with the denial of a film production tax credit of roughly $227,000. The appeal of the Samson Family Trust dealt with a section 160 assessment in respect of the gratuitous transfer of a residence worth $296,000 to the Trust by Mr. Carl Samson at a time when he owed income taxes of approximately $594,000. The Crown moved to dismiss both appeals for failure to comply with court orders and for want of prosecution. Both appeals had a long history of non-compliance. The Court dismissed the Sky High appeal with costs of $1,000. The Court however “suspended” the Trust appeal acting under its inherent jurisdiction to control its process. Carl Samson’s appeal of his own tax liability was still before the Court. The Trust appeal was suspended pending the resolution of the Carl Samson appeal. Once that appeal was resolved the Trust would be permitted to continue its appeal but only to the extent that Carl Samson’s liability was reduced; it could not pursue any other grounds of appeal such as arguing that it was not related to Carl Samson. In view of the Trust’s prior non-compliance the Court awarded costs of $4,000 against the Trust payable by January 1, 2015.

Decision: This decision involved two appeals and was heard on common evidence. The appeal of Sky High dealt with the denial of a film production tax credit of roughly $227,000. The appeal of the Samson Family Trust dealt with a section 160 assessment in respect of the gratuitous transfer of a residence worth $296,000 to the Trust by Mr. Carl Samson at a time when he owed income taxes of approximately $594,000. The Crown moved to dismiss both appeals for failure to comply with court orders and for want of prosecution. Both appeals had a long history of non-compliance. The Court dismissed the Sky High appeal with costs of $1,000.

The interesting aspect of this case is that although the Trust was non-compliant throughout its liability was predicated on that of Carl Samson who still had an appeal pending before the Court:

[31] In the circumstances, I agree with the respondent that it would be appropriate to dismiss the appeal except for one hesitation.

[32] My hesitation is as follows. One of the elements required for the assessment under section 160 is the existence of Carl Samson’s debt. However, at the time of the hearing, Carl Samson’s appeal was still pending before this Court as he challenged his assessment.

[33] If Carl Samson is ultimately successful to such a degree that the trust’s assessment would logically have to be reduced, it would appear to me to be unfair not to adjust or vacate the trust’s assessment accordingly.

[34] Submissions were made by the respondent that if I dismissed the trust’s appeal and Carl Samson was ultimately successful with the logical consequence that the trust’s assessment would have to be adjusted, a remedy would be available to the trust by way of judicial review given the nature of section 160 of the Act, which is a collection mechanism and, in particular, of paragraph 160(3)(b) which provides that payment by Carl Samson would, to a sufficient degree, reduce the trust’s debt.

[35] I have concluded that while it was not necessary for me to decide whether the trust would have another remedy if I dismissed the appeal, the ultimate outcome in Carl Samson’s appeal was such that it would be logical to adjust the trust’s assessment.

[Footnotes omitted]

In order to deal with this potential problem the Court took the unusual step of invoking the Court’s inherent jurisdiction to control it own process and “suspended” the Trust appeal rather than dismissing it:

[36] Although this Court is a statutory court, it is also a superior court of record. The law is quite clear that a court has the inherent power to control its process. Of course, that power is subject to any statutory provision that applies to the court and to the rules of the court. However, this power to control its process is still very important, especially in situations not provided for in the rules.

[37] Accordingly, this Court may issue an order that sanctions the trust in such a way that the practical effect is almost identical to a dismissal of the appeal, while keeping open the possibility of adjusting the assessment if Carl Samson is successful to a degree that would render the adjustment of the trust’s assessment logical.

[38] Accordingly, with respect to the fiducie familiale Samson, the Court orders as follows:

The proceedings are suspended, and

(a) if Carl Samson’s appeal is dismissed and the time period for appealing the decision has elapsed, the respondent may bring a motion to dismiss, and the appeal will be dismissed once the Court is satisfied that the appeal of Carl Samson is dismissed and that the appeal period has elapsed; or

(b) if Carl Samson’s appeal is ultimately allowed, the trust may proceed with its appeal, but solely to argue that the adjustment of Carl Samson’s debt means that the trust’s assessment must be adjusted or vacated; the trust will not be able to rely on any other ground in support of its appeal. For example, the trust will not be able to claim that there is no relationship between the trust and Carl Samson.

[Footnotes omitted]

The Court did however award $4,000 in costs payable to the Crown by the Trust by January 1, 2015.