http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/73266/index.do 
Devon Canada Corporation v. The Queen (August 29, 2014 – 2014 TCC 255) involved the Crown’s attempt to strike portions of the Notices of Appeal of Devon Canada Corporation on the basis that the issues had not been raised in its underlying Notices of Objection and therefore offended what is often referred to as the Large Corporation Rule.
The first few paragraphs of the decision set the matter out in a nutshell:
[2] Devon was formed as a result of a number of amalgamations. In 2001, two of Devon’s predecessor companies made significant payments to their employees in exchange for those employees surrendering various share purchase options (the “Surrender Payments”). The predecessor companies deducted the Surrender Payments on current account in their respective year ends. The Minister of National Revenue reassessed Devon to deny the deductions. Devon objected to the reassessments. The Minister issued Notices of Confirmation and Devon appealed.
[3] In its Notices of Appeal, Devon raises the following arguments:
(a) Devon’s primary argument is that the Surrender Payments are deductible as current expenses under subsection 9(1) of the
Income Tax Act.
(b) In the alternative, Devon argues that the Surrender Payments are eligible capital expenditures that, once added to cumulative eligible capital, would result in deductions pursuant to paragraph 20(1)(b). It further argues that, due to the fact that there were acquisitions of control of both of the predecessor companies during the taxation periods in which the Surrender Payments were made, subsection 111(5.2) applies to cause significant additional deductions of cumulative eligible capital.
(c) In the further alternative, Devon claims that the Surrender Payments are financing expenses deductible under paragraph 20(1)(e).
[4] Devon was a large corporation in the years in question. Accordingly, subsection 169(2.1) limits the issues and relief upon which Devon may appeal to those issues and the related relief in respect of which Devon complied with subsection 165(1.11) in its Notices of Objection. The Respondent seeks to strike the portions of Devon’s Notices of Appeal dealing with its two alternative arguments on the basis that Devon did not comply with subsection 165(1.11) in respect of those arguments.
[Footnote omitted]
Devon’s Notices of Objection set out the issues as follows:
[13] Devon’s Notices of Objection make no reference to paragraphs 20(1)(b) and (e) or subsection 111(5.2). The issue and statutory provisions are described as follows in one of the Notices of Objection:
ISSUE TO BE DECIDED
The issue to be decided is whether the Stock Option payment of $20,884,041 is a deductible business expense under section 9 and not denied by section 18 of the Act for [predecessor company’s] February 11, 2001 tax year, thus reducing the taxable income by an amount of $15,663,031 ($20,884,041 less an associated resource allowance adjustment of $5,221,010).
STATUTORY PROVISIONS RELIED ON
[Predecessor company] relies on, inter alia, subsections 3, 9, and paragraph 20(1)(v.1) of the Act.
[Footnote omitted]
It appears that subsequent to the filing of the Notice of Objection Devon filed a Supplemental Memorandum outlining its position and that Supplemental Memorandum included references to paragraphs 20(1)(b) and (e) and subsection 111(5.2). That Supplemental Memorandum formed part of its argument concerning the application of subsection 165(1.11).
The court first concluded that the financing expense argument under paragraph 20(1)(e) was not a new issue but rather a further reason for supporting the deduction of the Surrender Payments:
[17] Having concluded that the sole issue has always been the deductibility of the Surrender Payments, I must now consider whether the alternative arguments put forward by Devon fall within that sole issue.
[18] I will consider Devon’s paragraph 20(1)(e) argument first. The Minister denied the deduction of the Surrender Payments on the basis that they were capital in nature and thus that paragraph 18(1)(b) precluded their deduction. Devon’s primary argument is that paragraph 18(1)(b) does not apply because the Surrender Payments were on income account. Paragraph 20(1)(e) is an exception to paragraph 18(1)(b). It simply permits certain types of financing expenses to be deducted despite the fact that they would otherwise be on capital account. In essence, Devon’s primary argument is that the Surrender Payments were on income account because that was their nature and its alternative argument is that they were on income account because paragraph 20(1)(e) says so. Devon’s paragraph 20(1)(e) argument is therefore nothing more than an alternative reason why the Minister should permit the deduction of the Surrender Payments. There is nothing in the themes that have emerged from the caselaw that would cause me to question this conclusion. In fact, Devon’s case falls squarely in line with the reasoning in the decisions in Canadian Imperial Bank of Commerce and British Columbia Transit.
However the court rejected the taxpayer’s argument that paragraph 20(1)(b) and subsection 111(5.2) were similarly merely new reasons:
[19] I will now turn to Devon’s paragraph 20(1)(b) and subsection 111(5.2) argument. If Devon were simply claiming a deduction in respect of the Surrender Payments under paragraph 20(1)(b), I would accept that no new issue was being raised for the same reasons that I reached that conclusion in respect of the paragraph 20(1)(e) argument as paragraph 20(1)(b) is simply another exception to paragraph 18(1)(b). However, this is not what Devon is doing. Devon is also claiming a deduction under subsection 111(5.2). That deduction is not optional. It must be claimed if certain preconditions are met. The preconditions have been met in Devon’s case. As a result, if Devon convinced a trial judge that the Surrender Payments should be added to its cumulative eligible capital, subsection 111(5.2) would cause Devon to be entitled to a deduction in respect of other amounts in its cumulative eligible capital that are totally unrelated to the Surrender Payments. The Federal Court of Appeal was clear in Potash that there will be a new issue if a taxpayer attempts to deduct additional amounts even if those amounts fall within the same category of deductions. Based on the foregoing, I find that Devon’s paragraph 20(1)(b) and subsection 111(5.2) alternative argument is a new issue that cannot be raised at appeal.
The court also rejected the argument that the Supplemental Memorandum was somehow effective to amend the original Notices of Objection:
[20] In reaching this conclusion on the paragraph 20(1)(b) and subsection 111(5.2) argument, I have given consideration to Devon’s submission that the Supplemental Memo had the effect of amending its Notices of Objection to include the argument. I do not accept Devon’s position. There is no mechanism in the Act that would permit a large corporation to amend its Notice of Objection. Reading in such a mechanism would defeat the entire purpose of the large corporation rules.
Returning to paragraph 20(1)(e) the court concluded that the Notices of Objection adequately specified the relief sought even though that provision was not mentioned in them:
[24] This approach is logical. If a large corporation’s appeal involves numerous small expenses some of which may ultimately be allowed and some of which may not, it would be unreasonable to expect the large corporation to express its relief sought in its Notice of Objection on an expense-by-expense basis. It would seem to be sufficient if the large corporation simply stated the total relief sought; it being understood that the relief would decrease for every expense it was not permitted to deduct. Similarly, an absurd result would ensue if a large corporation were expected to express alternative relief in a valuation case. I cannot imagine that Parliament would have intended a large corporation to have to state that it would like $X of relief if a certain asset was valued at $4,000,000 (being the valuation favoured by the large corporation), $Y of relief if the asset was valued at $3,999,999, $Z of relief if the asset was valued at $3,999,998 and so on all the way down to whatever value the Minister believed the asset to be worth.
[25] I do not see a significant difference between the foregoing examples and Devon’s situation. Devon seeks to deduct the Settlement Payments. Deduction under paragraph 20(1)(e) would result in less relief in the years in question but I do not think that it was necessary for Devon to spell that relief out in detail.
[26] Based on the foregoing, I find that Devon’s paragraph 20(1)(e) argument complies with the requirement to specify the relief sought.
Finally the court turned to Devon’s argument that where the Minister confirms an assessment on a new basis the taxpayer is free to appeal to the courts on that basis notwithstanding the restrictions in subsection 169(2.1). The court essentially found that the point was moot since that had not been the case in this appeal:
[31] While there may be an argument to be made for that type of relief in a different case, this is not an appropriate case to do so. This is not a case where the Minister has abandoned the original basis of assessment and substituted a new one. The Minister still maintains that its original basis of assessment is correct. The Minister merely added the additional explanation regarding paragraph 20(1)(b) and subsection 111(5.2) to address the points raised by Devon in the Supplemental Memo. In fact, the Notices of Confirmation only mention those provisions when describing the arguments raised by Devon. The stated reason for confirming the reassessments is paragraph 18(1)(b). While the Reports on Objection make it clear that the Minister considered Devon’s argument, they in no way indicate that the Minister abandoned the Minister’s original argument.
[32] Based on the foregoing, I am not prepared to allow Devon to appeal the paragraph 20(1)(b) and subsection 111(5.2) issue on the basis of this alternative submission.
As a result the court struck the portions of the Notices of Appeal relating to paragraph 20(1)(b) and subsection 111(5.2) but left the references to paragraph 20(1)(e) intact.
As there was mixed success costs were awarded in the cause.