https://decisia.lexum.com/tcc-cci/decisions/en/item/309478/index.do
Stewart v. The Queen (April 23, 2018 – 2018 TCC 75, D’Auray J.).
Précis: The taxpayers were all partners of TSI I Limited Partnership (“TSI”). TSI had an appeal in the Tax Court arising out of the same issues raised in the appeals of the taxpayers but filed a Notice of Discontinuance with the Tax Court on May 2, 2016 and the appeal was deemed to be dismissed on June 24, 2016 pursuant to subsection 16.2(2) of the Tax Court of Canada Act (the “TCC Act”). As a consequence the Crown moved to strike the appeals of the individual partners on the basis that it would amount to an abuse of process to allow them to continue with their appeals. The Tax Court agreed and struck the appeals with one set of costs to the Crown.
Decision: The taxpayers’ position was that although they could not dispute the computation of losses at the partnership level, they were entitled to dispute the validity of the determinations on the basis that they were out of time:
[21] The appellants concede that because TSI discontinued its appeal, subsection 152(1.7) of the ITA results in the loss determinations being binding on the Minister and on each partner with respect to the correctness of the amounts. However, they argue that subsection 152(1.7) of the ITA does not bind the partners with respect to challenging the validity of the Minister’s determinations namely, whether the determinations were made in compliance with the procedural provisions of the ITA.
[22] The appellant’s position is that these procedural provisions were not complied with as TSI filed its information returns in 2002. Under subsection 152(4.1) of the ITA, the Minister had until 2005, namely three years from the filing of the information returns to issue the determinations. As the determinations were not issued until 2006, they were outside the prescribed time limit.
The Crown, on the other hand, argued it would amount to an abuse of process to allow the appellants to proceed after a discontinuance by the partnership:
[19] The respondent argues that if I were to deny her Motion to strike the Notices of Appeal and allow the appellants to argue that the determinations of losses made by the Minister were statute-barred, it would lead to a situation where the appellants would be entitled to deduct losses that do not exist at the partnership level. For the respondent, this situation would be contrary to the provisions of the ITA dealing with partnerships, which are designed to provide consistency between the determination at the partnership level and what the partners are entitled to claim as losses. Under these provisions, if no losses are available at the partnership level, then the partners are not entitled to deduct any losses.
[20] The respondent also argues that allowing the appellants’ appeals to proceed would be an abuse of the Court’s process. The respondent states that on May 2, 2017, the respondent was ready to argue the TSI’s appeal, namely to advance the position that the determinations of losses made by Minister were correct in law and were not statute-barred. Instead, TSI chose to file a Notice of Discontinuance. Accordingly, by law the appeal of TSI is deemed to be dismissed. Therefore, the determinations are valid and binding on all the partners and they are no longer able to raise the issue that the determinations are not valid because they were statute-barred. To allow the litigation to proceed would be an abuse of process as it would amount to re-litigating the same issue.
The Tax Court accepted the Crown’s position:
[51] In her written submissions, the respondent referred to the decision of the Federal Court of Appeal in Scarola. In an unanimous decision, Justice Letourneau stated that section 16.2 of the TCC Act was enacted to preserve the integrity of the legal system and to ensure the finality of decisions. He added that a dismissal pursuant to section 16.2 of the TCC Act produces the same effect as a judgment of dismissal by this Court:
[21] An appeal discontinued is, pursuant to subsection 16.2(2), an appeal dismissed. An appeal dismissed is an appeal disposed of, and an appeal which has been disposed of no longer exists: see Lehner v. M.N.R., 97 D.T.C. 5270, at page 5271 per Pratte J.A. (F.C.A.). Subsection 16.2(2) operates to turn the filing of a discontinuance into a constructive dismissal akin to an actual dismissal. In other words, the discontinuance of an appeal, as a result of that subsection, takes on all of the properties of a dismissal. It produces the same effect as a judgment of dismissal by the Court, albeit that effect is obtained by sheer operation of the legal fiction. In either case, the powers of the Court are spent: the decision maker is functus officio. A dismissal, deemed or actual, is a final determination which closes the matter, barring some vitiating circumstances such as fraud or some statutory authority allowing the decision maker to retain or recapture the lost authority.
[52] According to Scarola, barring some vitiating circumstances such as fraud or some statutory authority allowing the decision maker to retain or recapture the lost authority, a dismissal under section 16.2 of the TCC Act carries the same effect as a judgment of dismissal by the Court. As a result, since in this motion, no vitiating circumstances were advanced by the appellants, they are effectively trying to re-argue an issue that is deemed to have been adjudicated and dismissed by the Court at the partnership level.
[53] As I have stated, the issue of whether the determinations are statute-barred could have been raised and argued by TSI in its appeal which was to be heard on May 2, 2017, as the statutory bar issue present in the TSI appeal is identical to the issue that the partners would now like to proceed with in their appeals. Instead, TSI chose to discontinue its appeal. It would be an abuse of process if the partners of TSI were now allowed to raise the same issue that TSI itself could have raised but chose not to.
[54] Therefore, taking into account the principles enunciated in C.U.P.E. and the consequences of a dismissal under section 16.2 of the TCC Act as explained in Scarola, I am of the view that it would be an abuse of process if the appellants were allowed to argue that the determinations made by the Minister were statute‑barred.
[55] Therefore, the Motion of the respondent to strike the Notices of Appeal of the appellants is allowed and the Notices of Appeal of the appellants are struck.
[Footnotes omitted]
The Court awarded one set of costs in favour of the Crown.