Date: 20030128
Docket: 1999-5096(IT)G
BETWEEN:
POTASH CORPORATION OF SASKATCHEWAN INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard on January 24, 2003 at Toronto, Ontario, by
the Honourable Judge D.W. Beaubier
Counsel for the Appellant: Guy Du Pont
Counsel for the Respondent: Wendy Burnham
REASONS FOR ORDER
Beaubier, J.T.C.C.
[1] This motion by the Appellant was heard at Toronto, Ontario on January 24, 2003.
[2] It is a motion pursuant to Rule 54 of the Income Tax Act that leave be granted to amend the Notice of Appeal to add claims of amounts and to amend numbers already referred to, so as to increase them.
[3] Subsections 165(1.11) and (1.12) apply to Notices of Objection by "large corporations". The Appellant is a large corporation. The subsections read:
165(1.11) Where a corporation that was a large corporation in a taxation year (within the meaning assigned by subsection 225.1(8)) objects to an assessment under this Part for the year, 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 amount of a change in a balance (within the meaning assigned by subsection 152(4.4)) or a balance of undeducted outlays, expenses or other amounts of the corporation; and
(c) provide facts and reasons relied on by the corporation in respect of each issue.
165(1.12) Notwithstanding subsection (1.11), where a notice of objection served by a corporation to which that subsection applies does not include the information required by paragraph (1.11)(b) or (c) in respect of an issue to be decided that is described in the notice, the Minister may in writing request the corporation 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 corporation submits the information in writing to a Chief of Appeals referred to in subsection (2).
Thereupon, subsection 169(2.1) applies to the appeal by a large corporation. It reads:
169(2.1) Notwithstanding subsections (1) and (2), where a corporation that was a large corporation in a taxation year (within the meaning assigned by subsection 225.1(8)) served a notice of objection to an assessment under this Part for the year, the corporation may appeal to the Tax Court of Canada to have the assessment vacated or varied only with respect to
(a) an issue in respect of which the corporation has complied with subsection 165(1.11) in the notice, or
(b) an issue described in subsection 165(1.14) where the corporation did not, because of subsection 165(7), serve 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 corporation may so appeal only with respect to the relief sought in respect of the issue as specified by the corporation in the notice.
[4] These subsections derogate from and restrict the broad ability of taxpayers to file a Notice of Objection to, and to appeal assessments. Generally Canada Customs and Revenue Agency ("CCRA") has years in which to assess a taxpayer. The taxpayer then has 90 days in which to file a Notice of Objection. CCRA may then take years to reassess, whereupon the taxpayer has 90 days in which to file a Notice of Appeal. Those time limits apply to large corporation appellants. As a result, in the Court's view, the subsections quoted should be interpreted strictly.
[5] Subsection 165(1.11) states that the Notice of Objection "shall":
(a) 1. "reasonably describe" -
That is an objective standard which the description is to meet. It need not be exact.
2. "each issue" -
The issue is the legal matter which the taxpayer contests with CCRA. It is not required to be described exactly, but if it was, it could be expressed in section numbers of the Income Tax Act, or in words taken from or paraphrased from those sections.
(b) 1. "specify ... the relief sought" -
This paragraph contains a reference to "balance" (within the meaning assigned by subsection 152(4.4)). In my view that reference assists in determining the degree of specificity. Using 152(4.4), the taxpayer is to specify whether the relief sought relates to its income, or its taxable income, or its taxable income earned in Canada, or any loss of the taxpayer, or the tax or other amount payable by, or any amount of refundable or any amount deemed to have been paid, or any amount deemed to have been an overpayment by the taxpayer. There may be other relief to be sought. But the ones referred to are stated in subsection 152(4.4).
2. "expressed as an amount of change in a balance ... or a balance ... of undeducted outlays, expenses or other amounts ..." -
The word "expressed" governs the remainder of the paragraph. The first definition of "express" in the Shorter Oxford Dictionary, 3rd Edition is:
The action of expressing; an instance of this.
In other words, the "amounts", etc. which the paragraph requires to be expressed are merely examples.
3. "Amount" is defined in the Income Tax Act to be a sum of money. But "amount" is not final. Its first usage in paragraph (b) is "the amount of a change in a balance". The question which arises is: balance of what? The "what" is the "relief" sought, and not the exact amount. Moreover, in the course of the objection process, the "amount" might very well change. It is not a frozen figure.
4. Nor is the French wording of paragraph (b) materially different so as to vary the meaning ascribed herein to the English wording.
5. If the foregoing is not the case, the Notice of Objection could simply state "relief sought" and then the "amount".
(c) Thereupon, the Appellant need not specify. It need only "provide facts and reasons relied on ... in respect of each issue". It should be noted that an amount or number is a fact.
[6] A large corporation need only specify the relief sought in respect to each issue. That is, the relief sought at the time of the objection. It is often the case that after a Notice of Objection has been filed and reassessed, the amount in dispute will change.
[7] If the reassessment is not satisfactory, the Appellant may appeal. Subsection 169(2.1) permits the appeal:
1. only with respect to
(a) an issue described in 165(1.11)(a) ... and
2. only with respect to the relief sought as specified in the Notice of Objection.
[8] The Appellant has appealed respecting its 1993, 1994, 1995 and 1996 taxation years. The Notices of Objection are exhibited to the Affidavit of Jan Reinhart, Chief of Appeals, dated January 17, 2003 as Exhibit (Tabs G, H, I and J, respectively). Using the 1993 Notice (Exhibit G):
1. The issues are described as -
I. Resource Tax Reductions, for which Relief Sought is a reduction in net income and a reduction in the non-capital loss.
II. Saskatoon Building Lease Expenses, for which Relief Sought is a reduction in net income and a reduction in the non-capital loss.
III. Part I.3, Tax, for which Relief Sought "is a reduction in the Part I.3 tax payable of $864,734.00 x .225% = $1,945.66".
IV. Resource Allowance, for which Relief Sought is a reduction in "net income of the taxpayer of $323,405.69, which is 25% of the miscellaneous income amounts, with a corresponding reduction in the amount of non-capital loss".
[9] The other Notices of Objection are similarly organized and phrased.
[10] In each year issue I of Resource Tax Reductions was raised. The proposed amendments respecting this include rental income of $29,565 in 1996; farm income of $518,497 in 1996; miscellaneous income of various sums (e.g. Lanigan $26,062 and $49,567) in 1993 and 1995; and foreign exchange of $3,855,967 in 1995.
[11] The amendments requested arose in part from a response to give undertakings from a question in the Examination for Discovery of the Appellant's officer to
Advise what amounts of income earned by Potash Corporation of Saskatchewan Inc. during the years under appeal were not included in its calculations of resource profits?
As a consequence of this undertaking, the Appellant determined that 1995 Foreign Exchange of $3,855,967, should have been included in its calculations of resource profits. The previous particulars in the Notice of Objection for 1995 that relate to this are described in paragraphs 9 and 10 of the Respondent's written argument. They read:
9. The relief sought in the Appellant's Notice of Objection for 1995 is as follows:
Relief Sought
The relief sought is a reduction in the 1995 net income of the taxpayer of $3,821,473.20, which is the sum of the resource allowance of $2,183,698.97 (25% of the total of the miscellaneous income amounts), and the deduction for earned depletion of $1,637,774.23 (25% of the total of the miscellaneous income amounts minus the resource allowance).
The "miscellaneous income amounts" were set out in the Statement of Facts as follows:
Farm Income - $297,682.00, Rental Income - $26,597.00,
Management Fee from Saskterra - $708,320.00,
Management Fee from Transport - $186,000.00,
Miscellaneous Income - $192,455.00, Interest Income from Head Office (remaining 90%) - $2,825,581.00, Interest Income from PCS Sales - $3,820,790.26, Port Lease - $636,000.00, and New Brunswick Grant Income -
$41,370.64 for a total of $8,734,795.90.
10. For 1995, the Appellant is now seeking to amend its Notice of Appeal to claim relief based not on $8,734,795.90, but on $12,590,762.90, which increases the relief sought by an additional $963,991 (being 25% of the difference between $8,734,795.90 and $12,590,762.90).
[12] 1995 was chosen as an example because the Notice of Objection did not particularize the title "Foreign Exchange" or include its number of $3,855,967. Apparently the Issue and Relief Sought did not trigger an inquiry from the Respondent under subsection 165(1.12). But it did bring about the question in the Examination for Discovery. Respecting this matter, pursuant to subsection 169(2.1), the Appellant "may so appeal only with respect to the relief sought as specified by the corporation in the notice".
[13] As described in paragraph [11] hereof, the 1995 Notice of Objection asks for a relief of "a reduction in the 1995 net income of the taxpayer". That has not changed as a result of the proposed amendment. Only the amount sought has changed.
[14] In the Reply to the Notice of Appeal, the Respondent did not refer to the particulars itemized in the Notices of Objection for 1995 as specified, or as "relief". Rather, they are referred to as "amounts identified". Moreover the assumptions made no reference to the amounts. In the "D. Grounds Relied On and Relief Sought", the global amounts for each year were described.
[15] Paragraph 165(1.11)(b) requires the specifics at the time of the Notice of Objection. Subsection 169(2.1) limits the requirement in the appeal to the relief sought. It does not reverse the last lines of (2.1) to read "only with respect to the amount of a change of balance or a balance of undeducted outlays, expenses or other amounts of the corporation as specified in the Notice of Objection". That is because the amounts (etc.) will almost always change during the objection process.
[16] Thus the general issues to be decided and the relief sought in the Notice of Appeal cannot be expanded upon. But, for example, the "amount of a change", "balance of undeducted outlays", "expenses", or "other amounts" may be changed by the Appellant. Just as it might appeal a reassessment and claim relief respecting a lesser amount, so it may appeal and claim relief respecting a greater amount. At the appeal level, a lawyer, or another professional adviser may be instructed for the first time and only then might the Appellant (even a large corporation) realize that it has a rightful claim to a greater amount.
[17] It may very well be that in a long assessment process, the law will change. If the law changes (as the Income Tax Act may and has, even retroactively) it can be to the Minister of National Revenue's advantage, so that stretching out the assessment process works to the taxpayer's detriment, as it might work to its advantage. There is nothing unfair if it changes to the Appellant's advantage. (Moreover the Minister of National Revenue has the right to exercise control over possible extended time periods by proceeding expeditiously.) The extended time periods can be to the taxpayer's disadvantage from another point of view. A large corporation may have a problematic balance sheet with a large potential tax liability over a number of fiscal years. That can affect its borrowing power, its bond rating and the value of its shares. In some circumstances, it could put it out of business.
[18] The chronology of the appeal is as follows:
1. 1999 - Notice of Appeal filed.
April 1, 2000 - Reply filed.
2. May 14, 2002 - Status Hearing occurred.
3. September 18 and 19, 2002 - Respondent's counsel examined the Appellant's officer for Discovery. (The Status Hearing's Order for Examinations for Discovery had an expiry date of September 30, 2002.) Respondent's counsel asked specific questions which resulted in undertakings to provide information.
4. When preparing the undertakings, the numbers omitted were discovered to have application to the Relief claimed. The Court takes note of the fact that Respondent's counsel was able, from the material she had, to divine the possibility that the items or numbers now in dispute might exist.
5. October 31, 2002 - The undertakings had to be given.
6. November 5, 2002 - Settlement discussion occurred between the parties which referred to the numbers and items now in dispute.
7. November 15, 2002 - An offer of settlement was made by the Appellant to the Respondent which included the numbers in dispute.
8. January 3, 2003 - Respondent rejected the offer.
9. January 14, 2003 - This motion was made.
10. February 6, 2003 - Trial is to occur.
[19] The Appellant's counsel submitted written argument, the essentials of which are:
1. There is no surprise.
2. It is just that the amendments occur.
3. The Bill of Rights, paragraph 2(e) entitles the Appellant to a "fair hearing".
It is not necessary to deal with the Bill of Rights argument.
[20] On the evidence described, the Respondent is not surprised.
[21] If the amendments are not granted, the Appellant will lose the right to proceed with these claims and/or will incur further expense relating to them. Moreover, they are integral to the claims before the Court. For this reason, in the words of Bowman, J. in Continental Bank Leasing Corporation v. The Queen, 93 DTC 298 at 302, and according to the common law, the amendments should be allowed in "fairness, common sense and the interest that the Courts have that justice be done". That is the case here.
[22] The Order granting the motion will issue accordingly.
[23] In the event that the motion was to be granted, Respondent's counsel indicated that other matters including Examination for Discovery and a request for adjournment of the hearing would arise. Therefore, in view of the above findings, this motion is adjourned to a telephone conference call to occur at 1:00 p.m. Ottawa time, Thursday, January 30, 2003 for further argument and an order respecting matters of procedure and further scheduling arising from these Reasons for Order.
Signed at Saskatoon, Saskatchewan, this 28th day of January, 2003.
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"D.W. Beaubier" |
J.T.C.C.
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COURT FILE NO.: |
1999-5096(IT)G |
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STYLE OF CAUSE: |
Potash Corporation of Saskatchewan Inc. v. Her Majesty the Queen |
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PLACE OF MOTION |
Toronto, Ontario |
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DATE OF MOTION |
January 24, 2003 |
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REASONS FOR ORDER BY: |
The Honourable Judge D. W. Beaubier |
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DATE OF REASONS FOR ORDER |
January 28, 2003 |
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APPEARANCES: |
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Counsel for the Appellant: |
Guy Du Pont |
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Counsel for the Respondent: |
Wendy Burnham |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Guy Du Pont |
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Firm: |
Davies, Ward, Phillips & Vineberg |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |