http://decision.tcc-cci.gc.ca/en/2013/2013tcc267/2013tcc267.html 
Sentinel Hill Productions IV Corporation et al. v. The Queen[1] (August 27, 2013) is a complex case that raises some very thorny procedural issues. The appellants were partners authorized to appeal notices of determination made under subsection 152(4.1)[2] of the
Income Tax Act[3] in respect of their respective partnerships. In reply to their notices of appeal the Crown pleaded, in part, that the partnerships did not exist during the taxation years in question. The Crown further confirmed that position on discovery. The appellants then brought an application pursuant to paragraph 58(1)(a) of the
Tax Court of Canada Rules (General Procedure):
58. (1) A party may apply to the Court,
(a) for the determination, before hearing, of a question of law, a question of fact or a question of mixed law and fact raised by a pleading in a proceeding where the determination of the question may dispose of all or part of the proceeding, substantially shorten the hearing or result in a substantial saving of costs,
The question they posed for the court was as follows:
[5] The question that the appellants seek to have determined (the “Proposed Question”) is reproduced below from a letter to the Court dated February 12, 2013:
Whether the notices of determination (“Partnership Determinations”) issued under subsection 152(1.4) of the
Income Tax Act (“ITA”) should be vacated and the appeals consequently allowed (subparagraph 170(1)(b)(i), of the ITA) since the Minister concluded at a subsequent time (on or prior to March 31, 2010), after the time the Partnership Determinations were issued, that Sentinel Hill No. 207 Limited Partnership and SHAAE (2001) Master Limited Partnership (the “Partnerships”) and the 72 other limited partnerships did not exist for the fiscal years ended December 31, 2001 and December 31, 2002 (the “Periods”).
On its face then this would seem to be quite a reasonable question to ask the court, i.e, can a notice of determination stand in respect of a non-existent partnership? The wrinkle however was to be found in the appellant’s grounds for their application:
(a) On March 29, 2005 and March 30, 2005, the Minister issued notices of determination to the Partnership pursuant to subsection 152(1.4) of the Act;
(b) The reply to the notice of appeal and the amended reply to the notice of appeal filed by the Respondent clearly confirmed that, prior to filing the reply to the notice of appeal and the amended reply to the notice of appeal, the Minister had concluded that the Partnership did not exist for the Periods;
(c) It was confirmed during the course of examination for discovery of Mr. Duff that the reply to the notice of appeal and the amended reply to the notice of appeal accurately reflected the Minister’s position that the Partnership did not exist for the Periods;
(d) Once the Minister had concluded that the Partnership did not exist for the Periods, the Minister was permitted in accordance with subsection 152(1.8) of the Act to issue notices of reassessment to the members of the Partnership in lieu of the notices of determination issued to the Partnership provided that such notices of reassessment were issued within one year of such conclusion; and
(e) Since the Minister had concluded that the Partnership did not exist for the Periods on or before the date that the reply to the notice of appeal or amended reply to the notice of appeal was filed, more than one year has elapsed since the Minister made such conclusion, and therefore, the Minister is no longer entitled to (i) proceed further pursuant to the notices of determination issued to the Partnership or (ii) issue any notices of reassessment to the members of the Partnership.
[Emphasis added]
Thus it would appear that the underlying thrust of the application was to attempt to obtain a finding that the subsection 152(1.8) of the Act operated to preclude assessments against the persons making up the non-existent partnerships since the Minister was out of time:
(1.8) Time to assess – Where, as a result of representations made to the Minister that a person was a member of a partnership in respect of a fiscal period, a determination is made under subsection (1.4) for the period and the Minister, the Tax Court of Canada, the Federal Court of Appeal or the Supreme Court of Canada concludes at a subsequent time that the partnership did not exist for the period or that, throughout the period, the person was not a member of the partnership, the Minister may, notwithstanding subsections (4), (4.1) and (5), within one year after that subsequent time, assess the tax, interest, penalties or other amounts payable, or determine an amount deemed to have been paid or to have been an overpayment under this Part, by any taxpayer for any taxation year, but only to the extent that the assessment or determination can reasonably be regarded
(a) as relating to any matter that was relevant in the making of the determination made under subsection (1.4);
(b) as resulting from the conclusion that the partnership did not exist for the period; or
(c) as resulting from the conclusion that the person was, throughout the period, not a member of the partnership.
The court, not surprisingly, took issue with this approach:
[40] The Act contemplates a separate objection and/or appeal procedure for every determination and assessment. The Proposed Question seeks to challenge the validity of reassessments of partners that have not been issued and which may never be issued. The proper procedure for this issue is to dispute the validity of the reassessments if and when they are issued.
The court further held that the Proposed Question was inappropriate because it raised issues not raised in the pleadings:
[29] In this case, the Proposed Question raises issues of whether reassessments of partners are now statute barred, and whether the Determinations should therefore be vacated. Neither of these are raised as issues in the pleadings.
[30] The appellants submit that the phrase “by a pleading” is broader than “in a pleading” and that it is not necessary that the Proposed Question be raised as an issue in a pleading.
[31] I do not agree. A purposive interpretation of s. 58(1)(a) suggests that the Proposed Question must be properly raised as an issue in the pleading. For reasons of fairness, issues in an appeal are generally limited to those that are raised in the pleadings. The language used in paragraph 58(1)(a) ensures that this principle is not by-passed by bringing a motion under this provision. It is not an appropriate use of s. 58(1)(a) to raise a new issue through this procedure.
The court concluded that the application was devoid of merit since it would not operate to shorten the proceedings:
[33] I would first comment on a submission made orally by counsel for the appellants that it is nonsense for the respondent to argue that the Partnerships did not exist because it is contrary to the Determinations. The argument appears to be that the Minister is in effect appealing his own determinations.
[34] The problem with this submission is that it has nothing to do with the Proposed Question. The Proposed Question raises a statute bar issue that is entirely different from the issue of whether the respondent’s position does not support the Determinations. Whether the Minister is appealing his own determinations is not relevant to the Proposed Question.
[35] Turning to whether the Proposed Question may dispose of the proceeding in its entirety, I agree with the respondent that the Proposed Question is so lacking in merit that it will not dispose of the hearing.
[36] The appellants seek to have the Determinations vacated on grounds that have nothing to do with whether the Determinations are incorrect or invalid. This is contrary to well-established principles on which this Court may vacate assessments.
[37] The circumstances in which this Court may vacate an assessment were recently summarized by Sharlow J.A. in
Ereiser v The Queen, 2013 FCA 20, at para 21, 22:
[21] Mr. Ereiser is seeking from the Tax Court of Canada an order vacating the reassessments under appeal. That is the appropriate remedy in an income tax appeal for an assessment (including a reassessment) that is found not to be valid, or that is found not to be correct. I use the term valid to describe an assessment made in compliance with the procedural provisions of the
Income Tax Act, and correct to describe an assessment in which the amount of tax assessed is based on the applicable provisions of the
Income Tax Act, correctly interpreted and applied to the relevant facts.
[22] The procedural provisions of the
Income Tax Act include those relating to statutory limitation periods. Generally, those provisions deprive the Minister of the legal authority to assess tax after the expiry of a certain period of time ‑ the period defined in the
Income Tax Act as the “normal reassessment period” – unless a statutory exception applies.
[38] The appeal process for partnership determinations is the same as for assessments “with such modifications as the circumstances require” (s. 152(1.2)).
In the result, the appellants’ application was dismissed and, it would seem, the appeal will proceed to trial absent this decision being reversed on appeal.
Comment: If this matter is appealed it will be interesting to see how an appellate court will deal with the underlying issue of a determination in respect of a non-existent entity. One would think that this aspect of the matter was squarely raised by the Crown’s pleading that the partnerships did not exist. The question of whether assessments of the “partners” are statute-barred appears to be a bit of a red herring – a matter to be resolved at a different time and place. However that an appeal of a determination should proceed to trial where the Crown has pleaded and confirmed under oath that the partnerships did not exist at the operative times seems to pose public policy issues.
[1] 2013 TCC 267.
[2] (1.4) Determination in respect of a partnership – The Minister may, within 3 years after the day that is the later of
(a) the day on or before which a member of a partnership is, or but for subsection 220(2.1) would be, required under section 229 of the Income Tax Regulations to make an information return for a fiscal period of the partnership, and
(b) the day the return is filed,
determine any income or loss of the partnership for the fiscal period and any deduction or other amount, or any other matter, in respect of the partnership for the fiscal period that is relevant in determining the income, taxable income or taxable income earned in Canada of, tax or other amount payable by, or any amount refundable to or deemed to have been paid or to have been an overpayment by, any member of the partnership for any taxation year under this Part.
[3] R.S.C. 1985, c. 1 (5th Supp.), as amended (the “Act”).