http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/66933/index.do 
Canada v. ACI Properties Ltd.[1] (February 18, 2014) was an appeal by the Crown from an unsuccessful application to have a common question determined by the Tax Court:
[1] In April 2003, AFT Properties Inc. (AFT) paid $1.95 million to ACI Properties Ltd. (ACI) pursuant to a series of contracts between the two companies. For purposes of tax filings, AFT deducted this payment in computing its business income while ACI recorded the payment as a capital gain on the disposition of an interest in a joint venture.
[2] In 2006-2007 the Minister audited both ACI and AFT. One of the issues in these audits was the proper characterization of the 2003 payment. While the auditor assigned to this task agreed with ACI’s characterization of the payment as the proceeds of disposition of capital property, the Rulings Directorate of the Canada Revenue Agency, which exercises internal oversight, was of the view that the payment was income in ACI’s hands and not a capital gain. In 2008, the Minister reassessed ACI accordingly. AFT’s assessment was not disturbed.
[3] ACI’s appeal from the 2008 reassessment is currently before the Tax Court of Canada. The sole issue in that appeal is the proper characterization of the $1.95 million payment. In the course of that appeal, the Minister brought an application for the determination of a common question pursuant to section 174 of the
Income Tax Act, R.S.C. 1985 c. 1 (5th Supp.) (the Act). AFT consents to be joined in the reference should the Minister’s application succeed. The proposed question is as follows:
What is the proper characterization of the $1.95 million payment from AFT to ACI in April 2003? Was the payment in respect of management fees or other remuneration for services provided by ACI to AFT or was the payment for an interest that ACI had in a joint venture with AFT which was capital property that ACI disposed of to AFT? This is the sole issue to be determined in ACI’s appeal.
[4] In a decision cited as 2013 TCC 101 (the Decision), Justice Bocock of the Tax Court dismissed the application on the basis that the Minister’s prior assessment of ACI, without any evidence of doubt or ambivalence on her part, precludes her from seeking a determination of a common question under section 174 of the Act. The Minister now appeals to this Court.
The Federal Court of Appeal held that the Tax Court had applied the wrong test in determining whether there was a common question:
[10] The first question then is whether section 174 is applicable. The Tax Court Judge’s analysis is based on the premise that there must be some doubt or ambivalence on the Minister’s part as to the correct answer to the proposed question sufficient to justify a proposed assessment before section 174 can apply: see Decision at paragraphs 14-16. The Tax Court Judge found support for this premise in an earlier case,
Brenneur v. Canada, 2010 TCC 610 (
Brenneur) in which the Tax Court took the position that section 174 did not apply if there was no proposed reassessment. In that case, the Court found that a contingent intention to reassess a second taxpayer in the event that the position taken by the Minister with respect to a first taxpayer did not prevail was not a “proposed reassessment” for the purposes of section 174: see
Brenneur, at paragraphs 34-35.
[11] The Tax Court adopted this interpretation in
Daruwala v. Canada, 2012 TCC 116 (
Daruwala), a case in which section 311 of the
Excise Tax Act, R.S.C. 1985 c. E-15, a provision that mirrors section 174, was in issue. Expanding on the reasoning in
Brenneur, the Court in
Daruwala set out three questions, the answers to which were indicative of whether the conditions for the application of section 174 were present. Those questions were:
– Has the applicant provided the Court with evidence of independent communication by the taxing authority to the proposed assessee or some other reasonable indication that it may reassess the proposed assessee?
– What evidence has been submitted of an actual or proposed investigation, review or survey of the proposed assessee’s affairs, history or file in the context or in pursuance of a proposed asssessment?
– What submissions have been made regarding the expected efficiencies to be gained from joining a proposed and actual assessment into a single question for the Court to determine prior to the otherwise pending hearing of the single appeal?
Daruwala at paragraph 11
[12] The Tax Court Judge then applied these questions to the facts of this case. In doing so, he applied the wrong test and erred in law. The conditions for the application of section 174 are set out in subsection 174(3) of the statute: there must be “a question set out in an application under this section [that] is common to assessments or proposed assessments in respect of two or more taxpayers who have been served with a copy of the application.”
…
[17] In
Brenneur, the Tax Court held that references under section 174 were to be encouraged in appropriate circumstances because “they encourage the efficient use of the Court’s resources, avoid the risk of inconsistent Court decisions and of separate proceedings, ensure that the Court hears relevant evidence, and ensure the collection of taxes that are properly due”: see Brenneur, at paragraph 36. In my view, this accurately reflects the objectives that Parliament sought to achieve when it enacted section 174.
[18] I am therefore of the view that the Tax Court Judge erred in applying the wrong test to determine if section 174 applied to the facts of this case. Since all parties are agreed that the appeal presently before the Tax Court is a single issue appeal, and since AFT is the other party to the contracts giving rise to the dispute, it is clear that the proposed question is common to both ACI’s and AFT’s assessments for the taxation year in question. As a result, I find that the conditions for the application of section 174 are met.
The court concluded that the order sought should be made:
[22] It should first be noted that subsection 174(1) of the Act sets out the factors with respect to which the Minister must be satisfied prior to making an application for determination of a common question. If the Minister is satisfied that those conditions are met, the Act allows him to make the application, subject only to considerations of bad faith and abuse of process that are absent here.
[23] It should also be noted, once more, that, apart from considerations related to the normal reassessment period, nothing prevents the Minister from reassessing a second taxpayer on the basis of a successful appeal by a first party. As a result, there is nothing untoward about the Minister using section 174 to streamline that process.
[24] The line of reasoning suggested by ACI’s counsel leads to the question of whether the Court should decline to make the order sought because its effect would be to deprive ACI of a tactical advantage in the litigation. Counsel believes that he will be able to demolish the Minister’s assumptions and thereby shift the burden of proof to the Minister (see Hickman Motors Ltd v. Canada, [1997] 2 S.C.R. 336 at paragraph 94), a burden that he believes the Minister will be unable to discharge.
[25] The fact that steps taken by the Minister in a proceeding deprive the appellant of a tactical advantage is not, in and of itself, an abuse of process, as alleged by counsel for ACI. The public interest in income tax appeals requires that the Court be able to able to decide those appeals on the basis of the correct facts and in the most expeditious, least expensive way: see
Continental Bank Leasing Corporation et al. v. The Queen, 93 D.T.C. In any event, the loss of a tactical advantage decried by counsel for ACI may, for the reasons set out below, be more apparent than real. That said, where a party invokes procedural measures in circumstances which do amount to abuse of process, the Tax Court, as master of its own procedure, may act so as to protect the integrity of its process. This is not such a case.
[26] As a result, I am of the view that ACI has not identified any issue that would justify the Tax Court judge in refusing to grant the order sought by the Minister.
As to the procedure to be followed by the Tax Court, the Federal Court of Appeal ordered that AFT be joined as a party to ACI’s appeal:
[30] Since ACI has not shown why the Minister’s motion should not be granted, AFT should be added as a party to ACI’s appeal, subject to such directions as the Court may make as to the conduct of the appeal in light of AFT’s joinder. In those circumstances, the contents of the notice given by Minister appear to me to be adequate.
[31] Different considerations may apply where the Minister seeks to have the common question determined pursuant to paragraph 174(3)(a). Since that question does not arise on these facts, I leave it to be answered when it does.
[32] As a result, I would allow the appeal with costs, allow the Minister’s motion for the determination of a common question on the terms requested by the Minister and return the matter to the Tax Court Judge for directions as to the conduct of ACI’s appeal in light of AFT’s joinder as a party.
Comment: This decision provides useful guidance on the procedures and standards applicable in the somewhat uncommon area of “common question” applications.
[1] 2014 FCA 45.