http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/145956/index.do
Bakorp Management Ltd. v. The Queen (July 5, 2016 – 2016 TCC 165, D’Arcy J.).
Précis: This decision involves an appeal from an assessment of the taxpayer’s taxation year ending on March 10, 1992 (the “1992 taxation year”). The taxpayer applied pursuant to subsection 152(4.1) of the Income Tax Act to carry forward non-capital losses to its 1992 taxation year. It filed its return for the 1992 taxation year assuming that the Minister would grant the request but subsequently found that the Minister refused the request and issued an assessment not allowing the losses. The taxpayer duly objected and when the assessment was confirmed appealed to the Tax Court. The Minister sought to dismiss the appeal on the basis that the Tax Court lacked jurisdiction to entertain the appeal because what the taxpayer was, in substance, asking for was in the nature of a mandamus compelling the Minister to allow the loss carry forward claimed. The Tax Court held that it was not “plain and obvious” that the appeal could not succeed, The issue should be left for the trial judge to determine. The taxpayer was awarded costs fixed at $2,000 on the motion and the Minister was given 60 days to file a Reply.
Decision: The argument underlying the taxpayer’s appeal was set out succinctly in its Notice of Appeal:
[6] In its Notice of Appeal the Appellant relies, in part, on the following facts to support its legal argument:
3. The Appellant and the Minister of National Revenue (the “Minister”) were involved in extensive litigation regarding the reassessment of the Appellant’s 1989 taxation year (the “1989 Appeal”), the result of which would determine, inter alia, the value of certain shares (the “Shares”) and the quantum of NCLs [non-capital losses] that would be available to be carried forward.
. . .
8. Pursuant to Amended Minutes of Settlement which were fully executed on April 15, 2010, the Appellant and the Minister reached a settlement with regards to the 1989 Appeal. As a result of that settlement, the value of the Shares was determined and the amount of the Appellant’s NCLs available to be carried forward was increased (although not by the amount that the Appellant had sought).
9. Because a smaller NCL carryforward balance resulted from the resolution of the 1989 Appeal, decisions needed to be made as to how best to apply the revised NCLs that were available.
10. By written request dated December 7, 2010 made pursuant to subsection 152(4.3) of the Act (the “Request”), the Appellant requested that the Minister reduce the amount of NCLs carried forward and applied by the Appellant in its taxation year ended January 18, 1992 (the “January 1992 Taxation Year”) by $439,581 and, instead, apply $74,312 of available investments [sic] tax credits (“ITCs”) in that year; thereby preserving the NCLs for the March 1992 taxation Year.
11. On February 10, 2011, the Appellant filed its tax return for the March 1992 Taxation Year based on the result of the 1989 Appeal and on the basis that the Request would be granted in accordance with subsection 152(4.3) of the Act. On these bases, the Appellant deducted $51,960,121 of NCLs (which amount included the $439,581 of NCLs that the Appellant requested the Minister remove from the January 1992 Taxation Year as described in paragraph 10 above).
12. By letter dated November 23, 2011, the Minister, to the Appellant’s surprise, denied the Request with the notable result being that the $439,581 of NCLs carried forward from the Appellant’s 1989 taxation year continued to be applied in the January 1992 Taxation Year.
The notice of assessment of its 1992 taxation year denying the losses claimed was subsequently issued dated June 6, 2012.
The Minister took the position that the Tax Court was without jurisdiction since what the taxpayer was really asking for was in the nature of mandamus:
[8] The Respondent’s counsel, in her oral argument, provided the following three reasons why this Court lacks the requisite jurisdiction:
1. The jurisdiction of the Tax Court of Canada excludes issuing an order of mandamus.
2. This Court does not have jurisdiction to compel the Minister to reassess under subsection 152(4.3) of the Income Tax Act.
3. The Tax Court of Canada has no jurisdiction to make an order affecting a taxation year that is not before the Court.
The Tax Court held that what the Minister was, in substance, asking for was to have the Notice of Appeal struck however the Minister could not on this motion meet the test for such relief:
[18] It seems to me that the Respondent is arguing that the Court should dismiss the appeal on the basis that it has no chance of success. However, since the Court’s rules do not provide for summary judgment, the Respondent is in fact asking me to strike out the Appellant’s pleadings.
[19] The Supreme Court of Canada stated the test for striking out pleadings in R. v. Imperial Tobacco Canada Ltd., as follows:
. . . This Court has reiterated the test on many occasions. A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action: Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263, at para. 15; Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, at p. 980. Another way of putting the test is that the claim has no reasonable prospect of success. Where a reasonable prospect of success exists, the matter should be allowed to proceed to trial: see, generally, Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83; Odhavji Estate; Hunt; Attorney General of Canada v. Inuit Tapirisat of Canada, [1980] 2 S.C.R. 735.
[20] Is it plain and obvious, assuming the facts pleaded to be true, that the Appellant’s pleadings disclose no reasonable cause of action?
[21] No, the Appellant has appealed an assessment on the basis of its interpretation of specific provisions of the Act, particularly sections 3 and 111 and subsections 152(4.3), 152(4.4) and 162(1). It is not for the motion judge to determine the merits of the Appellant’s legal argument.
[22] The parties will place before the Court the relevant facts and their interpretation of the law. The trial judge will then decide, using those facts and applying his or her view of the law, the amount of non-capital losses the Appellant is entitled to deduct in its March 1992 Taxation year. It may very well be the case that the Appellant is not entitled to claim the $439,581 of non-capital losses when determining its taxable income for the March 1992 Taxation Year. If so, the trial judge will determine that the assessment is correct and dismiss the appeal.
[Footnote omitted]
The Tax Court accordingly dismissed the Minister’s motion. The taxpayer was awarded costs fixed at $2,000 on the motion and the Minister was given 60 days to file a Reply.