Category Archives: Jurisdiciton

Jurisdiction of the Tax Court – Sas Ansari

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Jurisdiction of the Tax Court of Canada

Bakcorp Management Ltd v The Queen, 2016 TCC 165

This was a motion brought by the Crown to dismiss the taxpayer’s appeal to the Tax Court of Canada on the basis that the Court lacked jurisdiction over the matter.

The Court held that so long as the matter was properly framed as an appeal of the correctness of an assessment, variation of an assessment would not be an order of mandamus and would clearly be in the TCC’s power.  It does not matter that the determination of a tax year’s appeal requires consideration of tax years not before the court so long as the correctness of the assessment depends on matters in other tax years that are constituent elements of the matters affecting the tax year before the court.

FACTS

The taxpayer filed its 1992 tax return in 2011, relying on ITA s 152(4.3), in which it claimed non-capital losses carried forward to that year from 1989. By Notice of Assessment issued in 2012, the CRA denied the deductions carried forward. The taxpayer objected to the assessment and then appealed to the TCC.

The taxpayer, in its notice of appeal, asked the court whether the income calculation for the 1992 tax year was correct.  The Crown brought a motion to dismiss the appeal on the basis that the the taxpayer was asking for an order or mandamus compelling the Minister to re-assess under 152(4.3) of the Income Tax Act.

ANALYSIS

The Court dismissed the Crown’s arguments and asserted that the TCC had jurisdiction.  The Minister assessed the taxpayer’s 1992 tax year and the Appellant objected under s 165 and appealed under s 169 seeking to have that assessment varied. The correctness of the assessment id within the exclusive jurisdiction of the TCC – JP Morgan Asset Management (Canada) Inc. v Canada (National Revenue), 2013 FCA 250.

Basically, the Minister was arguing that the taxpayer did not have non-capital losses to carry forward and as such did not grant the 152(4.3) request. The Taxpayer disagreed and argued that the non-capital losses exist by operation of the ITA and no action is required by the Minister to bring those losses into existence.

The Court noted that the appeal is properly framed as an appeal of the assessment and is asking the court to apply the facts to the law to determine the correctness of the assessment. Should the court agree with the taxpayer, it has the power to vary the assessment. This is not an order of mandamus.

Additionally, even though the losses being carried forward occurred in 1989, a year not before the court, this does not affect the power of the Court to determine the correctness of an assessment before it that draws on facts in other tax years. in Aallcann Wood Suppliers Inc. v. Canada. at paragraph 4, [1994] T.C.J. No 280 , it was said:

. . . In challenging the assessment for a year in which tax is payable on the basis that the Minister has incorrectly ascertained the amount of a loss for a prior or subsequent year that is available for deduction under section 111 in the computation of the taxpayer’s taxable income for the year under appeal, the taxpayer is requesting the Court to do precisely what the appeal procedures of the Income Tax Act contemplate: to determine the correctness of an assessment of tax by reviewing the correctness of one or more of the constituent elements thereof, in this case the size of a loss available from another year.

– Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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Extra-territorial Jurisdiction of the CRA – Sas Ansari

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Extra-territorial Jurisdiction of the CRA

Oroville Reman & Reload Inc v Canada, 2016 TCC 75

At issue was whether Canada can issue a Notice of Assessment pursuant to the Softwood Lumber Products Export Charge Act, 2006, to a US company that has never engaged in or carried on business in Canada.

Though the specific question in this case is unlikely to be of general interest, the analysis of the jurisdiction of the CRA is.  Please see the NOTE at the end of this post.

ANALYSIS

The court identified three kinds of jurisdiction recognised in international law, each with its own set of pre-conditions:

  • Prescriptive – this is legislative of substantive jurisdiction that grants the power to make rules, issue commands, or grant authorizations that are binding;
  • Enforcement – the power to use coercive means to ensure that “rules are followed, commands are executed or entitlements are upheld” – in short, to give effects to its use of prescriptive jurisdiction; and
  • Adjudicative – the power of a state’s courts to resolve disputes and interpret the relevant law through issuance of binding decisions.

The Court had to determine what jurisdiction was exercised when the CRA sent correspondence to the Appellant. This is because the exercise of prescriptive jurisdiction can occur extraterritorially but the exercise of enforcement extraterritorially, in a foreign state, only with that state’s consent.

The court held that enforcement jurisdiction occurs right after prescriptive jurisdiction ends, which is where the enactment received royal assent. However, the court left for another day the question of the classification of the action of the CRA in issuing a Notice of Assessment was the exercise of enforcement jurisdiction. However, it appears that this Court, if required to decide the case, would have held that the issuance of a NOA would be the exercise of enforcement jurisdiction.

The Court went on to address the “presumption of conformity with international law” and “the presumption against extraterritoriality” – two cannons of statutory interpretation.  These two presumptions can, if breached, be displaced by a statute’s unequivocal intent to violate the presumptions (para 30).  The presumptions are:

  • Presumption of Conformity – the presumption that legislation will conform to international law, and therefore with the state’s international obligations, absent the statute clearly compelling the alternate result;
  • Presumption against extraterritoriality – the presumption that legislation is meant to have legal effect only within a state’s territory.

There are 5 grounds of jurisdiction: Territoriality, nationality, passive, protective, and universal.  The Court held that the only ground possible in this case was the territoriality principle which requires a “real and substantial link” between Canada and the activities giving rise to the claim for tax (para 38).  The relevant factors are set out in Society of Composers, Authors and Music Publishers of Canada v Canadian Assn of Internet Providers, 2004 SCC 45, in the context of the Copyright Act.

The Court considered the following factors as supporting a lack of a real and substantial link:

  • taxpayer was never registered or continued in any jurisdiction in Canada;
  • taxpayer has no facilities, assets, or operations in Canada;
  • taxpayer did not arrange for transportation of goods out of Canada;
  • the deposits, the refund of which engages the tax in question, were paid to the government of the USA

In this case, the presumption is breached, and the Court had to look at the statute to see whether the breach was authorized by the statute either expressly or by necessary implication.  This is a high bar – In Metcalfe v Yamaha Motor Powered Products Co2012 ABCA 240.  

The Court did not find that the intention of extraterritorial effect was “manifest” in the statute, or that the purpose of the statute would be frustrated if the provision was not given extraterritorial effect – Alberta Government Telephones v Canada (Canadian Radio-Television and Telecommunications Commission), [1989] 2 SCR 225.  The Court said (para 55):

It is my view that in order for tax legislation to have effect on a taxpayer, the government must bring the taxpayer’s conduct, and the taxpayer, within the four corners of the statute.

NOTE: The decision here relies, in part, on the historical presumption that taxing legislation be interpreted most stringently than other types of legislation. This approach to interpreting tax legislation has been called into question by various SCC decisions.  For more on the interpretation of tax legislation see HERE.

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