http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/212603/index.do
Easy Way Cattle Oilers Ltd. v. Canada (November 28, 2016 – 2016 FCA 301, Nadon (author), Rennie, de Montigny, JJ. A.).
Précis: The Tax Court decision in this matter was blogged earlier on this site. Easy Way was denied SR&ED credits in respect of its 2008 taxation year. Put quite simply it filed a Form T2SCH31 (“Schedule 31”) on August 16, 2010 when CRA took the position that the deadline for filing was 46 days earlier, i.e., June 30, 2010.
Easy Way argued that Schedule 31 was not a “prescribed form” that it was required to file on or before June 30, 2010 under the terms of the definition of “investment tax credit” contained in subparagraph 127(9)(m) of the Income Tax Act (the “Act”). The facts of this case were not complex, the Schedule 31 had not been filed on or before June 30 , 2010:
[2] Most of the relevant facts are contained in the Partial Agreed Statement of Facts, which states the following:
a) The Appellant’s corporate tax year end date is December 31st;
b) The Appellant’s corporate taxation year end for 2008 was December 31, 2008;
c) The filing due date for the Appellant’s T2 Corporate Income Tax Return for the 2008 taxation year was June 30, 2009;
d) The Appellant filed its T2 Corporate Income Tax Return for the 2008 taxation year on September 30, 2009;
e) The Appellant’s T2 Corporate Income Tax Return for the 2008 taxation year was initially assessed on October 5, 2009;
f) The deadline for the Appellant to file a completed Form T661 relative to the Appellant’s 2008 SR & ED claim was June 30, 2010;
g) The deadline for the Appellant to claim Investment Tax Credits in relation to its claim for SR & ED was June 30, 2010;
h) The Appellant, by its accountants, BDO Canada LLP, filed a completed Form T661 with the Canada Revenue Agency (CRA) in support of its 2008 SR & ED claim on June 30, 2010;
i) The Appellant, by its accountants, BDO Canada LLP, filed a completed Form T2SCH31 with the CRA in support of its claim for Investment Tax Credits on August 16, 2010;
j) The CRA denied the Appellant’s claim for an SR & ED Investment Tax Credit by Corporation Notice of Reassessment issued to the Appellant on March 7, 2011.
[Excerpt from Tax Court decision.]
The Tax Court found that Schedule 31 was indeed a prescribed form and had been filed late. As a result the appeal was dismissed with costs.
The taxpayer appealed to the Federal Court of Appeal arguing that any delay in filing the Schedule 31 was cured by section 32 of the Interpretation Act:
32 Where a form is prescribed, deviations from that form, not affecting the substance or calculated to mislead, do not invalidate the form used.
The Federal Court of Appeal rejected this argument holding that the required information was filed late and, accordingly, dismissed the appeal with costs.
Decision: The Federal Court of Appeal rejected the argument that section 32 of the Interpretation Act served to cure the late filing of Schedule 31:
[12] First, the prescribed Form and Form T661 serve different purposes notwithstanding that some of the information contained therein may overlap. The purpose of Form T661, as stated on the form itself, is to provide technical information regarding SR and ED projects, to calculate the SR and ED expenditures, and to calculate those expenditures which would qualify as SR and ED expenditures for investment tax credits should such credits be claimed. The stated purpose of the prescribed Form is, inter alia, for a corporation to claim investment tax credits in regard to SR and ED expenditures.
[13] Second, the clear intent of section 32 of the Interpretation Act is, in my respectful view, to avoid penalizing a taxpayer who has complied substantively with a statutory provision which requires the filing of a prescribed form containing prescribed information. In other words, section 32 applies where the taxpayer has filed the prescribed information, but has not used the prescribed Form to do so. Nonetheless, the taxpayer has substantially complied with the requirements of the form by providing the Minister the information which the Minister needs in regard to the taxpayer’s claim. In this case, there can be no doubt that the appellant did not file the prescribed information by June 30, 2010. In other words, the appellant had not filed any form setting out the prescribed information for the purpose of claiming an investment tax credit in relation to its SR and ED expenditures by the deadline.
[14] What the appellant seeks, in my respectful view, is to transform its Form T661 and its T2 corporate income tax return into a prescribed Form filed by June 30, 2010. The respondent, at paragraph 40 of its memorandum of fact and law, correctly explains the appellant’s approach as follows:
The appellant is attempting to convert the information in the T2 and the Form T661 that the Minister could have used to calculate the appellant’s investment tax credits into a stand-alone application for ITCs [investment tax credits], equivalent to Schedule 31 [the prescribed Form] but defective only in form. This is over-reaching.
[15] In the respondent’s view, should the appellant’s approach herein be approved by this Court, the Minister would have to second guess a taxpayer’s intention with regard to investment tax credits when processing that taxpayer’s Form T661 which, as I have already indicated, serves an entirely different purpose. In other words, the Minister, upon being apprised of the taxpayer’s intention after the deadline, would then have to look back at the taxpayer’s files and make the calculations which the taxpayer ought to have made when filing the prescribed form. Clearly, such an approach cannot be right.
[16] In my respectful opinion, it is the taxpayer’s responsibility to inform the Minister whether it is claiming an investment tax credit in relation to SR and ED expenditures. The way to communicate that intention to the Minister is for the taxpayer to file the prescribed Form containing the prescribed information by the prescribed deadline. In this case, the appellant did not communicate its intention of claiming an investment tax credit in regard to its SR and ED expenditures before it filed the prescribed Form on August 16, 2010.
[17] Consequently, section 32 of the Interpretation Act cannot help the appellant. On the facts of this case, the appellant’s failure to file the prescribed Form by June 30, 2010, or any other form in compliance with the requirements of paragraph 127(9)(m), is fatal to its appeal of the Minister’s reassessment of its 2008 taxation year.
As a result the taxpayer’s appeal was dismissed with costs.