http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/232398/index.do
Binder Capital Corp. v. Canada (National Revenue) (June 30, 2017 – 2017 FC 642, Campbell J.).
Précis: The two applicant corporations had each applied for a dividend refund pursuant to section 129 of the Income Tax Act (the “Act”). In each case CRA denied the refund on the basis that the necessary returns had not been filed within the period of three years from the end of the taxation year in question. The applicants argued that CRA’s failure to grant relief from the three year limitation period in section 129 of the Act was unreasonable and sought judicial review of that decision. The Crown argued that the Federal Court did not have jurisdiction to interpret the operation of section 129. The Crown argued that the Tax Court had exclusive jurisdiction of such questions. The Federal Court accepted the Crown’s argument on the dividend refunds. The Court however allowed, on consent, the applicants’ applications on the question of interest and penalties arising from the late filing of returns and referred the matters back to the Minister for fresh consideration by another delegate.
Decision: This decision is yet another example of the delicate balance between the jurisdiction of the Federal Court over aspects of the Act and that of the Tax Court. The positions of the parties were clearly delineated:
[19] The Applicants argue that the Minister’s decision is unreasonable because there is no limit placed on the Minister’s discretion to provide relief with respect to the three-year limit in s. 129(1):
29. The Minister has the statutory authority under subsection 220(2.1) to waive the filing requirement under subsection 129(1), so that she can make the dividend refund.
30. Subsection 220(2.1) broadly states that "[w]here any provision of this Act or a regulation requires a person to file a prescribed form ... the Minister may waive the requirement" [Emphasis added].
31. The applicant's position is that subsection 129(1) [a provision of the Act] requires a corporation [a person (see Act, s. 248(1)] to file an income tax return [a prescribed form (see: Act, s.150(1)(a)]. This means that the provision falls squarely within the scope of subsection 220(2.1).
32. Once the Minister waives the requirement to file the return under subsection 129(1), the applicant is relieved from having to meet the three year time period and the Minister is no longer barred from making the dividend refund.
33. The Minister also has the statutory authority under subsection 220(3) to extend the time to file a return, so that she can make the dividend refund.
34. Subsection 220(3) states without qualification that "[t]he Minister may at any time extend the time for making a return under this Act" [Emphasis added].
35. The applicant's position is that subsection 129(1) contains a requirement to file an income tax return within a three year time period, which may be extended by subsection 220(3). Once the discretion is exercised, the preamble of subsection 129(1) can accordingly be re-read as:
129 (1) Where a return of a corporation’s income under this Part for a taxation year is made within [x] years after the end of the year, […]
36. If the [x] is 5, representing an extension of 2 years from the original 3, then the applicant’s return will satisfy the filing requirement and the-re will be no impediment for granting it the dividend refund.
(BAR, p. 160-161; repeated almost verbatim in BBAR, p. 377-378)
[20] The Minister disputes the Applicants’ position that ss. 220(2.1) and (3) apply to s. 129(1). As to this Court’s authority to decide the dispute, the Minister’s primary argument is that:
The issues raised [by the Applicants] are within the jurisdiction of the Tax Court of Canada and not within the jurisdiction of this Court as the [Applicants seek] to challenge the correctness of an assessment and the Minister’s interpretation of a section of the Income Tax Act.
(Binder Respondent’s Record, p. 277-278, para. 27; Bonnybrook Respondent’s Record, p. 311, para 33)
The Court held that great caution was required in the examination of this issue:
[21] Caution is required in addressing the Minister’s argument. As noted by the Supreme Court in Canada v Addison & Leyen Ltd., 2007 SCC 33 at paragraph 11:
Reviewing courts should be very cautious in authorizing judicial review in such circumstances. The integrity and efficacy of the system of tax assessments and appeals should be preserved. Parliament has set up a complex structure to deal with a multitude of tax-related claims and this structure relies on an independent and specialized court, the Tax Court of Canada. Judicial review should not be used to develop a new form of incidental litigation designed to circumvent the system of tax appeals established by Parliament and the jurisdiction of the Tax Court. Judicial review should remain a remedy of last resort in this context.
Finally the Court found that it was bound by a prior decision of the Federal Court of Appeal:
[22] In my opinion, to address the application of the Minister’s discretion with respect to s. 129, it is first necessary to establish that the Minister’s discretion applies to s. 129. I find that establishing whether the Minister’s discretion applies to s. 129 is a jurisdictional question with respect to an interpretation of the ITA which is not within this Court’s authority to decide. I also find that, as advanced by the Minister, the Federal Court of Appeal’s decision in 1057513 Ontario Inc. v. Canada, 2015 FCA 207 (105) supports this conclusion.
[23] In 105, Justice Bocock in the Tax Court made the following statutory interpretation finding:
[…] the failure to file a tax return within 3 years from the end of the taxation year during which the dividend was paid precluded the Appellant from receiving the dividend refund for that year.
(105, para. 1)
[24] Justice Webb, speaking for the FCA, concurred with Justice Bocock:
However, it is a condition for either paragraph 129(a) or (b) that the corporation’s return for the particular year for which it will be claiming the refund must be filed within 3 years after the end of this year. If the return is not filed within this three year period, neither paragraph (a) nor paragraph (b) is applicable. Since the Appellant did not file its tax returns for any of its 1997 to 2004 taxation years within three years from the end of any of these taxation years, the provisions of paragraphs (a) and (b) of subsection 129(1) are not applicable and the Minister is neither obligated nor empowered, under subsection 129(1) of the Act, to pay the dividend refund amount to the Appellant for any of these years.
In this appeal the Appellant essentially repeated the arguments that it made before the Tax Court Judge. We are not persuaded that, under the applicable statutory interpretation principles, the Tax Court Judge committed any error in concluding that the requirement to file tax returns within three years from the end of the taxation year in which the dividend is paid as set out in subsection 129(1) of the Act is a condition that must be satisfied in order for the Appellant to receive the dividend refund under this subsection.
(105, paras 4-5)
[25] In my opinion, the FCA’s decision in 105 is a binding precedent. The interpretation of s. 129 is for the Tax Court to decide.
Thus the Federal Court accepted the Crown’s argument on the dividend refunds. The Court however allowed, on consent, the applicants’ applications on the question of interest and penalties arising from the later filing of returns and referred the matters back to the Minister for fresh consideration by another delegate.
The Court is to hear further argument on costs.