http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/71215/index.do
Bakorp Management Ltd. v. Canada (April 24, 2014 – 2014 FCA 104) was an appeal from a decision of the Tax Court which dismissed the taxpayer’s appeal on the basis that the notice of appeal did not comport with the rule respecting appeals by large corporations. The dispute concerned a dividend of $52,912,264 reported by the taxpayer in its 1995 taxation year. The Minister reduced the dividend reported by $25,332,237 resulting in a reduction of the Part IV tax payable. Both the Tax Court and the Federal Court of Appeal found that the relief sought by the taxpayer in its notice of objection was to increase the amount of the dividend received in 1995 to the amount originally reported. The Minister confirmed the reduction of the dividend and the taxpayer filed a notice of appeal in the tax court. That notice of appeal claimed that the entire dividend reported in 1995 should have been included in its 1993 taxation year, thereby reducing the Part IV tax payable in 1995.
[35] When the notice of objection is read as a whole, it is clear that Bakorp was taking the position that it had filed its Part IV return correctly and hence Bakorp was submitting that it should be paying more Part IV tax than was reassessed by the Minister. In paragraph 13 of the notice of objection, Bakorp provided a reconciliation of how Bakorp had accounted for the redemption proceeds in filing its returns under the Act. In particular for its 1995 taxation year Bakorp stated that it had reported $52,912,264 as a deemed dividend on its T2S(3). It also seems clear that Bakorp was taking the position that amounts were to be reported as any questions or disputes related to the adjustments to the amount to be paid on the redemption of the shares were resolved. Therefore, the issue in respect of which Bakorp complied with the provisions of subsection 165(1.11) of the Act, was the issue of whether Bakorp was correct in concluding that it had received $52,912,264 in dividends in 1995 for the purposes of Part IV on the basis that any question or dispute in relation to such amount had then been resolved. In this case the quantification of the amount is part of the description of the issue.
[36] Therefore, Bakorp was restricted to being able to only appeal in respect of this issue. However, this is not the issue that is raised in the notice of appeal. Paragraphs 13 to 16 of the notice of appeal are as follows:
Part III – Issues
13. The issue with respect to the Assessment is whether the 1995 Receipt is properly taxable in the Appellant’s 1995 Year.
Part IV – Statutory Provisions
14. The appellant relies on, inter alia, section 3, subsections 84 (3) and 84 (7) of the ITA.
Part V – Reasons Which the Appellant Intends to Submit
15. The Deemed Dividend, including the 1995 Receipt, was payable to the Appellant in the 1993 Year and, therefore, should be included in the Appellant’s taxable income for the 1993 Year.
16. There is no basis under the ITA upon which the 1995 Receipt can be included in the Appellant’s taxable income for the 1995 Year.
Bakorp took the position that the notice of objection properly identified the “issue” as the amount of the redemption proceeds received in 1995:
[18] Bakorp submits in paragraph 39 of its memorandum of fact and law that:
[s]ubsection 165(1.11) does not require that the issue be conflated with the reasons and the relief sought. To the contrary, these elements of the objection are dealt with separate and apart from one another in paragraphs (a), (b), and (c) respectively. The description of the “issue” is to remain solely that: a description of the “point in question”.
[19] Bakorp submits in paragraph 45 of its memorandum of fact and law that:
As this Court explained in Potash, a large corporation must describe the issue so that the Minister knows what issue is to be decided. Here, as made clear in the notice of confirmation, the Minister knew that the debate is about the “share redemption proceeds added to income as a deemed dividend”. That is the point in question.
The court rejected this interpretation:
[28] A general statement or question related to an amount that is to be determined for the purposes of the Act that would not allow the Minister to determine what is actually in dispute will not be a sufficient description of the issue. The examples cited as inadequate descriptions of an issue are a description of the issue as the computation of resource allowance or resource profits. In a similar vein, Justice Jorré of the Tax Court of Canada in
Canadian Imperial Bank of Commerce v. The Queen, 2013 TCC 170 in dealing with the corresponding provisions in the
Excise Tax Act, R.S.C. 1985, c. E-15, stated that a general description of the issue as the correct amount of tax owing would not be sufficient.
[29] Paragraph 165(1.11)(b) of the Act provides that, in relation to each issue, the relief sought must be specified as a change in the balance of the items listed. This means that the issue must be reasonably described in a manner that would result in such quantification as a specified amount. For example, describing an issue as the computation of resource profits would not be sufficient as it would not be possible to ascertain from this description the specific change in any balance that is being requested. If however, the particular element of the computation that is in dispute is reasonably described, then the effect that the resolution of the dispute would have on the income of the corporation is capable of being quantified.
…
[33] A description of the issue as “the correct amount of dividends that Bakorp received in 1995” does not lead to any quantification of the change in any balance other than as a range from nil to $52,912,264 as the amount of the dividend that Bakorp received in its 1995 taxation year. This description of the issue does not indicate anything about the question that must be answered to resolve this dispute.
[34] The purpose of subsection 165(1.11) of the Act would be frustrated if this satisfied the requirement of a reasonable description of the issue. In this case, the reassessment is under Part IV of the Act. Part IV only imposes a tax on certain corporations that have received dividends. In this case there is no dispute that Bakorp was a private corporation and that it was not connected with 968649 Ontario Limited at any time during Bakorp’s 1995 taxation year. Therefore, the only matter that could arise in relation to Part IV tax for 1995 would be the amount of the dividends that Bakorp had received in its 1995 taxation year. If the issue is simply the correct amount of dividends that Bakorp had received in 1995, this would mean that subsection 165(1.11) of the Act (as it applies for the purposes of Part IV) does not impose any requirement on a large corporation other than the requirement to object. This would also not satisfy the purpose of allowing the Minister to know the nature and quantum of tax litigation at the earliest possible date.
The court also rejected Bakorp’s argument that it had intended to make the case that subsection 84(3) deemed that dividend in question to have been received in 1993, not 1995:
[42] In my view, a reasonable description of the issue of the effect of subsection 84(3) of the Act on when dividends would be deemed to be received on a redemption of shares would have been a description that would have alerted the Minister to this legal argument related to the interpretation of subsection 84(3) of the Act. This would mean something more than simply listing subsection 84(3) as one of the three provisions that would be relied upon. It is, however, clear that this issue arising as a result of this legal argument was not raised in the notice of objection that had been filed by Bakorp and that Bakorp was not relying on this issue in its notice of objection. If Bakorp’s interpretation of the legal argument is correct and the full amount of the deemed dividend that was eventually paid was received by Bakorp in 1993 when the shares were redeemed (and I do not express any opinion on whether this argument is correct), the result would have been irreconcilable with the position that was taken by Bakorp in its notice of objection.
[43] I agree with the Tax Court judge that the issue that Bakorp is attempting to raise in its notice of appeal is not an issue in respect of which Bakorp has complied with the provisions of subsection 165(1.11) of the Act.
The court also concluded that the relief sought was not the same as that described in the notice of objection:
[47] The relief requested in the notice of appeal was simply to allow the appeal. Since the appeal was based on the argument that the Part IV tax liability was reassessed in the wrong year, Bakorp was really asking the Court to either vary the reassessment or refer the matter back to the minister for reconsideration and reassessment to eliminate any Part IV tax liability for 1995. Since the purpose of subsections 165(1.11) and 169(2.1) of the Act is to allow the Minister to assess the potential fiscal impact of tax disputes, the relief sought in both the notice of objection and the notice of appeal must be similar with respect to the impact of such relief on the government. Asking for a full refund of all Part IV tax paid in relation to 1995, cannot be said to be the relief identified in the notice of objection, in which Bakorp was not asking for a full refund of all Part IV tax paid in 1995 but rather was asking to pay more Part IV tax that had been reassessed. The appeal in this case is not in respect of the relief that was sought in the notice of objection.
[48] It should be noted that in this case Bakorp attempted to change the issue under appeal and the remedy sought. It remains an open question, as noted in paragraph 27 of
Potash Corporation of Saskatchewan, whether a large corporation would be allowed to change the amount specified as the remedy sought to an amount more favourable to such corporation if the issue remains unchanged. It would seem that a large corporation should be allowed, if the issue is not changed, to change the amount specified as the remedy sought to an amount that is less favourable to such corporation as this change would still be consistent with the purpose of the provisions.
In the result Bakorp’s appeal was dismissed with costs.