[1] This is an appeal of an assessment of tax (GST) under the Excise Tax Act (the Act) R.S.C. 1985 c. F-15) . The question to be decided is whether the appellant is precluded from obtaining from the Tax Court of Canada an order striking part of the respondent's amended amended notice of appeal considering that, in reply, the appellant has "pleaded over" an issue raised by the respondent before the Tax Court but not raised in its notice of objection before the Minister of National Revenue (the Minister).

[2] It is common ground that the respondent is a "specified person" within the meaning of subsection 301(1) of the Act and as such is subject to subsections 301(1.1), (1.2), (1.3), (1.4), (1.5) and 306.1(1) of the Act. The specified person rules in this Act parallel the large corporation rules in the Income Tax Act (R.S.C. 1985, c-1 (5^th Supp.)). The history of those provisions was described in Potash Corp. of Saskatchewan Inc. v. R. ((2003) 313 N.R. 325 (FCA) para. 4).

[3] The relevant sections in the Act read:

Objections and Appeals

Meaning of "specified person"

301. (1) Where an assessment is issued to a person in respect of net tax for a reporting period of the person, an amount (other than net tax) that became payable or remittable by the person during a reporting period of the person or a rebate of an amount paid or remitted by the person during a reporting period of the person, for the purposes of this section, the person is a "specified person" in respect of the assessment or a notice of objection to the assessment if

(a) the person was a listed financial institution described in any of subparagraphs 149(1)(a)(i) to (x) during that reporting period; or

(b) the person was not a charity during that reporting period and the person's threshold amounts, determined in accordance with subsection 249(1), exceed $6 million for both the person's fiscal year that includes the reporting period and the person's previous fiscal year.

Objection to assessment

(1.1) Any person who has been assessed and who objects to the assessment may, within ninety days after the day notice of the assessment is sent to the person, file with the Minister a notice of objection in the prescribed form and manner setting out the reasons for the objection and all relevant facts.

Issue to be decided

(1.2) Where a person objects to an assessment in respect of which the person is a specified person, the notice of objection shall

(a) reasonably describe each issue to be decided;

(b) specify in respect of each issue the relief sought, expressed as the change in any amount that is relevant for the purposes of the assessment; and

Late compliance

(1.3) Notwithstanding subsection (1.2), where a notice of objection filed by a person to whom that subsection applies does not include the information required by paragraph (1.2)(b) or (c) in respect of an issue to be decided that is described in the notice, the Minister may in writing request the person to provide the information, and those paragraphs shall be deemed to be complied with in respect of the issue if, within 60 days after the request is made, the person submits the information in writing to the Minister.

Limitation on objections

(1.4) Notwithstanding subsection (1.1), where a person has filed a notice of objection to an assessment (in this subsection referred to as the "earlier assessment") in respect of which the person is a specified person and the Minister makes a particular assessment under subsection (3) pursuant to the notice of objection, except where the earlier assessment was made under subsection 274(8) or in accordance with an order of a court vacating, varying or restoring an assessment or referring an assessment back to the Minister for reconsideration and reassessment, the person may object to the particular assessment in respect of an issue

(a) only if the person complied with subsection (1.2) in the notice with respect to that issue; and

(b) only with respect to the relief sought in respect of that issue as specified by the person in the notice.

Limitation on objections

Application of subsection (1.4)

(1.5) Where a person has filed a notice of objection to an assessment (in this subsection referred to as the "earlier assessment") and the Minister makes a particular assessment under subsection (3) pursuant to the notice of objection, subsection (1.4) does not limit the right of the person to object to the particular assessment in respect of an issue that was part of the particular assessment and not part of the earlier assessment

....

Appeal to Tax Court

302. Where a person files a notice of objection to an assessment and the Minister sends to the person a notice of a reassessment or an additional assessment, in respect of any matter dealt with in the notice of objection, the person may, within ninety days after the day the notice of reassessment or additional assessment was sent by the Minister,

(a) appeal therefrom to the Tax Court; or

(b) where an appeal has already been instituted in respect of the matter, amend the appeal by joining thereto an appeal in respect of the reassessment or additional assessment in such manner and on such terms as the Tax Court directs.

1990, c. 45, s. 12.

Limitation on appeals to the Tax Court

306.1 (1) Notwithstanding sections 302 and 306, where a person has filed a notice of objection to an assessment in respect of which the person is a specified person (within the meaning assigned by subsection 301(1)), the person may appeal to the Tax Court to have the assessment vacated, or a reassessment made, only with respect to

(a) an issue in respect of which the person has complied with subsection 301(1.2) in the notice, or

(b) an issue described in subsection 301(1.5) where the person was not required to file a notice of objection to the assessment that gave rise to the issue

and, in the case of an issue described in paragraph (a), the person may so appeal only with respect to the relief sought in respect of the issue as specified by the person in the notice.

[emphasis added]

Opposition et appels

Personne déterminée

301. (1) Pour l'application du présent article, la personne à l'égard de laquelle est établie une cotisation au titre de la taxe nette pour sa période de déclaration, d'un montant (autre que la taxe nette) qui est devenu à payer ou à verser par elle au cours d'une telle période ou du remboursement d'un montant qu'elle a payé ou versé au cours d'une telle période est une personne déterminée relativement à la cotisation ou à un avis d'opposition à celle-ci si, selon le cas :

a) elle est une institution financière désignée visée à l'un des sous-alinéas 149(1)a)(i) à (x) au cours de la période en question;

b) elle n'était pas un organisme de bienfaisance au cours de la période en question et le montant déterminant qui lui est applicable, déterminé en conformité avec le paragraphe 249(1), dépasse 6 000 000 $ pour son exercice qui comprend cette période ainsi que pour son exercice précédent.

Opposition à la cotisation

(1.1) La personne qui fait opposition à la cotisation établie à son égard peut, dans les 90 jours suivant le jour où l'avis de cotisation lui est envoyé, présenter au ministre un avis d'opposition, en la forme et selon les modalités déterminées par celui-ci, exposant les motifs de son opposition et tous les faits pertinents.

Question à trancher

(1.2) L'avis d'opposition que produit une personne qui est une personne déterminée relativement à une cotisation doit contenir les éléments suivants pour chaque question à trancher :

a) une description suffisante;

b) le redressement demandé, sous la forme du montant qui représente le changement apporté à un montant à prendre en compte aux fins de la cotisation;

c) les motifs et les faits sur lesquels se fonde la personne.

Observation tardive

(1.3) Malgré le paragraphe (1.2), dans le cas où un avis d'opposition produit par une personne à laquelle ce paragraphe s'applique ne contient pas les renseignements requis selon les alinéas (1.2)b) ou c) relativement à une question à trancher qui est décrite dans l'avis, le ministre peut demander par écrit à la personne de fournir ces renseignements. La personne est réputée s'être conformée à ces alinéas relativement à la question à trancher si, dans les 60 jours suivant la date de la demande par le ministre, elle communique par écrit les renseignements requis au ministre.

Restrictions touchant les oppositions

(1.4) Malgré le paragraphe (1.1), lorsqu'une personne a produit un avis d'opposition à une cotisation (appelée « cotisation antérieure » au présent paragraphe) relativement à laquelle elle est une personne déterminée et que le ministre établit, en application du paragraphe (3), une cotisation donnée par suite de l'avis, sauf si la cotisation antérieure a été établie en application du paragraphe 274(8) ou en conformité avec l'ordonnance d'un tribunal qui annule, modifie ou rétablit une cotisation ou renvoie une cotisation au ministre pour nouvel examen et nouvelle cotisation, la personne peut faire opposition à la cotisation donnée relativement à une question à trancher :

a) seulement si, relativement à cette question, elle s'est conformée au paragraphe (1.2) dans l'avis;

b) seulement à l'égard du redressement, tel qu'il est exposé dans l'avis, qu'elle demande relativement à cette question.

Application du paragraphe (1.4)

(1.5) Lorsqu'une personne a produit un avis d'opposition à une cotisation (appelée « cotisation antérieure » au présent paragraphe) et que le ministre établit, en application du paragraphe (3), une cotisation donnée par suite de l'avis, le paragraphe (1.4) n'a pas pour effet de limiter le droit de la personne de s'opposer à la cotisation donnée relativement à une question sur laquelle porte cette cotisation mais non la cotisation antérieure.

...

Appel à la Cour canadienne de l'impôt

302. La personne, ayant présenté un avis d'opposition à une cotisation, à qui le ministre a envoyé un avis de nouvelle cotisation ou de cotisation supplémentaire concernant l'objet de l'avis d'opposition peut, dans les 90 jours suivant cet envoi :

a) interjeter appel devant la Cour canadienne de l'impôt;

b) si un appel a déjà été interjeté, modifier cet appel en y joignant un appel concernant la nouvelle cotisation ou la cotisation supplémentaire, en la forme et selon les modalités fixées par cette cour.

1990, ch. 45, art. 12

Restriction touchant les appels à la Cour canadienne de l'impôt

306.1 (1) Malgré les articles 302 et 306, la personne qui produit un avis d'opposition à une cotisation relativement à laquelle elle est une personne déterminée, au sens du paragraphe 301(1), ne peut interjeter appel devant la Cour canadienne de l'impôt pour faire annuler la cotisation, ou en faire établir une nouvelle, qu'à l'égard des questions suivantes :

a) une question relativement à laquelle elle s'est conformée au paragraphe 301(1.2) dans l'avis, mais seulement à l'égard du redressement, tel qu'il est exposé dans l'avis, qu'elle demande relativement à cette question;

b) une question visée au paragraphe 301(1.5), dans le cas où elle n'était pas tenue de produire un avis d'opposition à la cotisation qui a donné lieu à la question.

[je souligne]

[4] On October 22, 1999, the Minister assessed the respondent for additional net tax in the amount of $2,277,632.28 that the respondent had not reported, for interest of $605,793.00 and for penalty of $768,169.55. The penalty was applied automatically pursuant to subsection 280(1) of the Act.

[5] The respondent filed a notice of objection challenging the October 22, 1999 assessment on a number of grounds. Although the imposition of the penalty is not specifically challenged, it is common ground that the penalty is in issue in the sense that it would be reduced automatically if and to the extent that the tax assessed in the October 22, 1999 assessment is reduced.

[6] As a result of the notice of objection, the Minister reassessed the respondent on May 25, 2000, reducing the tax previously assessed and, of course, the related penalty.

[7] On the same date, the respondent filed a notice of objection to the reassessment, repeating the substantive grounds in the first notice of objection (except those that had been allowed), and requesting that these adjustments be vacated "along with the associated interest and penalties". This refers to the automatic adjustment of the penalty that will occur if and to the extent that the notice of objection succeeds. No specific issues were raised with respect to the imposition of the penalty.

[8] The Minister confirmed the May 25, 2000 reassessment. On March 10, 2003, the respondent filed a notice of appeal, raising the same issues it had raised in the May 25, 2000, notice of objection. No mention was made of the penalty.

[9] The respondent subsequently filed an amended notice of appeal, for the first time attempting to assert the due diligence defence first recognized by this Court in Canada (Attorney General) v. Consolidated Canadian Contractors Inc. (1998), 231 N.R. 91 (F.C.A.). This was done by:

(a) adding paragraph 17(e) to state that the reassessment under appeal includes penalties;

(b) adding paragraph 32.1, which reads, "At all material times, and specifically during the period in issue, [a corporate predecessor of Telus] exercised care, diligence and skill in computing and reporting its net tax."

(c) adding paragraph 33(e), which formally challenges whether "the Minister correctly assessed the Penalties against [the corporate predecessor of Telus] and specifically whether [the corporate predecessor of Telus] exercised the required degree of skill, care and diligence in computing and reporting its net tax."

(d) adding paragraph 38.1, which states, "With respect to the Penalties, the Appellant states that it exercised the required degree of skill, care and diligence in computing and reporting its net tax. As such the Minister improperly assessed penalties under subsection 280(1) of the Act."

An amended amended notice of appeal was filed, with further amendments not relevant to this appeal.

[10] The appellant filed a reply to the amended amended notice of appeal, and responded to the issue of due diligence.

[11] The appellant brought an application under rule 53 of the Tax Court of Canada Rules (General Procedure) (SOR/90-688a) for an order to strike the paragraphs in which the respondent had raised the defence of due diligence. The appellant stated that the "specified person" rules in the Act precluded the respondent from appealing this new issue, and that the fact that the respondent did so constituted an abuse of the process of the Court.

[12] The Tax Court Judge (Telus Communications (Edmonton) Inc. v. Canada, [2004] G.S.T.C. 94 (T.C.C.)) rejected the motion on the ground that the appellant (respondent before the Tax Court) had joined issue on the question of penalty and that, having done so, it could not argue that the impugned paragraphs constituted an abuse of process. The Tax Court Judge wrote:

[1] The Respondent in the Reply [para. 25 (ff), 26(e) and 33] to the Amended Amended Notice of Appeal has joined issue on the question of penalties, which is the subject matter if the paragraphs the Appellant seeks to strike

[2] Consequently in my opinion the said paragraphs do not constitute an abuse of the process of the Court. Therefore the Motion is dismissed. It is also my views that the matters raised in the Motion should later be determined by the trial judge.

...

[13] The concept of "pleading over", alluded to by the Tax Court Judge, is found in the decision of this Court in Nabisco Brands Ltd. v. Proctor & Gamble (1985), 5 C.P.R. (3d) 417 (F.C.A.) where Urie J. said (p. 418):

There is an additional reason for dismissing the appeal in our view. While Rule 419(1), Federal Court Rules, undoubtedly permits the court to strike out anything in a pleading at any stage of a proceeding, it seems clear that, at least in so far as cls. (b) to (f) of Rule 419(1) are concerned, it will not do so when, as here, the party seeking to strike has already pleaded to the allegations contained in the impugned paragraph (Montreuil v. The Queen, [1976] 1 F.C. 528 at p. 529).

[14] In Montreuil v. The Queen, [1976] 1 F.C. 528 at 529, Addy J. explained the concept of "pleading over" as follows:

In so far as the first ground relied on by counsel for the defendant is concerned, the general defence raised in reply to the statement of claim is fatal to it; when a party pleads in reply to allegations contained in the opponent's pleading without raising an objection in law to the form or content of the pleading, he may not subsequently raise an objection to the opponent's pleading, without withdrawing or altering his own pleading, submitted in reply to that against which he is objecting (see Dominion Sugar Co. v. Newman ...). The Federal Court Rule 419(1)(b) to (f) inclusive must be interpreted in light of this basic principle.

[15] At the time the Court rendered its decision in Nabisco, paragraph 419(1)(f) of the Federal Court Rules read:

Striking out Pleadings

Rule 419. (1) The Court may at any stage of an action order any pleading or anything in any pleading to be struck out, with or without leave to amend, on the ground that

...

(f) it is otherwise an abuse of the process of the Court,

and may order the action to be stayed or dismissed or judgment to be entered accordingly.

Radiation des plaidoiries

Règle 419. (1) La Cour pourra, à tout stade d'une action ordonner la radiation de tout ou partie d'une plaidoirie avec ou sans permission d'amendement, au motif

...

(f) qu'elle constitue par ailleurs un emploi abusif des procédures de la Cour,

et elle peut ordonner que l'action soit suspendue ou rejetée ou qu'un jugement soit enregistré en conséquence.

[16] Considering that paragraph 419(1)(f) of the Federal Court Rules is the equivalent to paragraph 53(c) of the Tax Court of Canada Rules (General Procedures), the respondent says that the Tax Court Judge did not err and that the appellant cannot in its motion invoke abuse of process, since it has responded in its reply to the issue of due diligence raised by the respondent.

[17] I find that, notwithstanding the pleadings, the Tax Court, in an appeal involving a "specified person", has no jurisdiction to deal with an issue that was not properly raised in the notice of objection.

[18] A person who is a "specified person" has the right to object to any or all assessment issues. In doing so, however, it must file a notice of objection which accords with the requirements of subsections 301(1.2) of the Act. That is, the issue must be reasonably described, it must be quantified, and it must be supported by a statement of facts and reasons.

[19] A person who is a "specified person" may also object to a reassessment made by the Minister after considering the notice of objection, but only with respect to the issues raised in a prior notice of objection or new issues raised in a reassessment (subsections 301(1.4) and (1.5) of the Act).

[20] Identical restrictions apply in the case of an appeal to the Tax Court. Under section 302 of the Act, a person cannot appeal unless he first serves the Minister with a notice of objection within the prescribed time limits. This right of appeal is further restricted for specified persons by subsection 306.1(1) of the Act in that the specified person may appeal to the Tax Court only with regard to an issue properly raised in its notice of objection and only with respect to the relief sought in respect of that issue as specified in the notice of objection. An issue is properly raised in a notice of objection only by complying with subsection 301(1.2) (subject to the exception in subsection 301(1.5) which has no application in this case).

[21] In the case at bar, the issue of due diligence was never raised in any notice of objection. The respondent's request to vacate "associated interest and penalties", which was mentioned only in its notice of objection to the reassessment, was not a reference to the issue of due diligence but was consequential to the reduction of interest and penalty flowing from the requested reduction of the net tax adjustments. The respondent cannot therefore raise due diligence in its amended amended notice of appeal before the Tax Court.

[22] The respondent submits that parties must raise issues in their pleadings if they want the Court to determine them. It says that the Minister's failure to plead an objection based on subsection 306.1(1) of the Act and to bring forward the requisite facts to support that objection is fatal to the his motion to strike. The respondent draws an analogy with the case of Kibale v. Canada (1990), 123 N.R. 153 (F.C.A.). There, the Crown attempted to strike out the statement of claim on the basis that the claim had not been initiated within the limitation period. Pratte JA for the Court stated (at para. 3):

[3] ... On the other hand, a statute of limitations under the common law does not terminate the cause of action, but only gives the defendant a procedural means of defence that he may choose not to employ and must, should he choose to employ it, plead in his defence (see Rule 409). In other words, a plaintiff is not, in writing his declaration, obligated to allege all the facts demonstrating that his action was brought in due time. A plaintiff is not obligated to foresee all the arguments the adverse party might bring against him. He can wait until the defence is filed and, should the defendant argue that the action is late, plead in reply any facts disclosing, in his opinion, that it is not late. It follows that, as Collier J. held in Hanna et al. v. The Queen (1986), 9 F.T.R. 124, a defendant must plead a statute of limitations in his defence; he cannot do so in a motion to strike out under Rule 419...

[23] It is meaningless to draw an analogy with the rules applicable in the case of a statute of limitations. The conduct of the parties cannot govern when the jurisdiction of the Tax Court is denied by statute (R. v. Krahenbil. [2000] 3 C.T.C. 178 (FCA)).

[24] The respondent further submits that rule 53 of the Tax Court of Canada Rules (General Procedure) cannot be invoked. The Minister, it says, should have proceeded under rule 58(1)(b) of the Tax Court of Canada Rules (General Procedure) dealing with the determination of questions of mixed law and fact. It adds that the question as to whether the respondent has complied with subsection 301(1.2) is a question of mixed fact and law. I am reminded that in Weider v. Beco Industries (1976), 29 C.P.R. (2d) 175 (FCTD) at 176, Mahoney J. observed that " ... pleading a cause of action that is beyond the Court's jurisdiction to adjudicate is a clear abuse of process ...". The appellant's motion under rule 53 of the Tax Court of Canada Rules (General Procedure) was therefore in order.

[25] The appeal should be allowed with costs in this Court and in the Tax Court of Canada, the decision of the Tax Court of Canada should be set aside, and paragraphs 32.1, 33(e), 38.1 and 39(e) of the respondent's amended amended notice of appeal should be struck.

(s) "Alice Desjardins"

J.A.

"I agree.

Robert Décary J.A."

"I agree.

K. Sharlow J.A."

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-369-04

STYLE OF CAUSE: THE QUEEN v. TELUS COMMUNICATIONS

(EDMONTON) INC.

PLACE OF HEARING: Calgary, Alberta

DATE OF HEARING: April 21, 2005

REASONS FOR ORDER : Desjardins J.A.

CONCURRED IN BY: Décary J.A.

Sharlow J.A.

DATED: May 6, 2005

APPEARANCES:

Ms. Margaret A. Irving FOR THE APPELLANT

Mr. Michel Bourque FOR THE RESPONDENT

SOLICITORS OF RECORD:

John H. Sims, Q.C. FOR THE APPELLANT

Deputy Attorney General of Canada

Edmonton, AB

Bennett Jones LLP FOR THE RESPONDENT

Calgary, AB

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