3964191 CANADA INC. Applicant v. HER MAJESTY THE QUEEN, 2020 FC 894

Date: 20200914 Docket: 20-T-32 Citation: 2020 FC 894 Ottawa, Ontario, September 14, 2020 PRESENT: The Honourable Mr. Justice Roy BETWEEN: 3964191 CANADA INC. Applicant and HER MAJESTY THE QUEEN Respondent ORDER AND REASONS [ 1 ] The applicant seeks, through a motion in writing under rule 369 of the Federal Courts Rules , SOR/98-106 , an extension of time in order to file an application for judicial review of a decision of the Minister of National Revenue who refused the taxpayer a reassessment. The Attorney General opposes the motion for extension of time. I.

Criteria for extension of time [ 2 ] Motions for extension of time are governed by the overarching consideration that the interests of justice be served.

In the assessment of the exercise of discretion to allow an extension of time, the Court considers generally four criteria: 1) is there a continuing intention to pursue the matter? 2) is there some potential merit? 3) has the respondent been prejudiced for the delay? 4) is there a reasonable explanation for the delay? [ 3 ] As the Federal Court of Appeal found in Canada (Attorney General) v Larkman , 2012 FCA 204 , 433 NR 184, the four criteria do not need to be met for an extension to be granted.

Indeed the strength of one may compensate for the weakness of another criterion: [62] These questions guide the Court in determining whether the granting of an extension of time is in the interests of justice: Grewal, supra at pages 277-278. The importance of each question depends upon the circumstances of each case. Further, not all of these four questions need be resolved in the moving party’s favour.

For example, “a compelling explanation for the delay may lead to a positive response even if the case against the judgment appears weak, and equally a strong case may counterbalance a less satisfactory justification for the delay”: Grewal , at page 282. In certain cases, particularly in unusual cases, other questions may be relevant. The overriding consideration is that the interests of justice be served. See generally Grewal , at pages 278-279; Canada (Minister of Human Resources Development) v. Hogervorst , 2007 FCA 41 at paragraph 33 ; Huard v.

Canada (Attorney General) , 2007 FC 195 , 89 Admin LR (4th) 1. (See also, among others, Akanda Innovation Inc. v The Queen , 2018 FCA 200 ). II. Facts [ 4 ] The applicant wishes to come to this Court in order to challenge the decision of the Minister of National Revenue (the “Minister”) to refuse to process its amended corporate income tax return for the year ending November 30, 2014. The decision to be challenged came on November 29, 2019. The application for judicial review is dated June 29, 2020, although the motion for extension of time is dated July 14, 2020 and is date-stamped in our Court on July 27.

An application for judicial review shall be made within 30 days from the day the decision to be reviewed has been communicated ( s. 18.1(2) Federal Courts Act , RSC, 1985, c F-7 ). Thus, there is a need for the applicant to be granted an extension of time for an application for judicial review to be made. [ 5 ] The tax issue which is at the heart of assessments, and reassessments, is with respect to a joint venture to which the applicant participated in India.

The applicant sought to have recognized as business losses a total amount of $1,225,310: transferred funds:$432,265.82 provision of equipment from inventory:$793,044.22 [ 6 ] On December 12, 2014, the applicant was reassessed for its taxation years ending March 31, 2010, March 31, 2011, March 31, 2012 and March 31, 2013. An objection was filed and the Minister confirmed its reassessment. The applicant appealed to the Tax Court of Canada.

[ 7 ] In its Notice of Application for judicial review, the applicant states that its shares were sold to " “Pacific Surgical” " on December 3, 2014 through a shared purchase agreement. 3964191 Canada Inc., the corporate entity, was already the subject of a review by the Canada Review Agency in respect of the amounts claimed as business expenses. [ 8 ] It appears that the joint venture failed and that the transferred funds were never paid back. The applicant advances that the equipment was lost (according to the record before the Court, the joint venture was concerned with the opening of an MRI clinic in India).

The Notice of Application states that the applicant claimed the aggregate of the " “transferred funds” " and the " “value of the equipment lost” " in its income tax return for the year 2012. [ 9 ] The appeals before the Tax Court of Canada (for taxation years ending March 31, 2010, March 31, 2011, March 31, 2012 and March 31, 2013) were the subject of a judgment on consent on April 17, 2019.

The said judgment, which is to be found in the respondent’s record, provides specifically: The appeal of the reassessment raised December 30, 2014 in respect of the Appellant’s taxation year ending March 31, 2012 is dismissed. The appeal in respect of the Appellant’s taxation year ending March 31, 2013 is dismissed. According to the consent to judgment dated April 12, 2019, there was agreement between the taxpayer and the Minister as to the following: 1.

For the taxation year ending March 31, 2010, pursuant to ss. 18(1) of the Income Tax Act , R.S.C., 1985 c.1 (5th Supp ) (the “ Act ”, the Appellant shall be entitled to additional business expenses in the amount of $289,185.87. 2. For the taxation year ending March 31, 2011, pursuant to ss. 18(1) of the Act , the Appellant shall be entitled to additional business expenses in the amount of $143,079.95. 3. There shall be no relief nor reassessment pursuant to this consent to judgment, for the taxation year ending March 31, 2012. 4.

There shall be no relief nor reassessment pursuant to this consent to judgment, for the taxation year ending March 31, 2013. 5. The Appellant is entitled to no further relief. Thus, amounts totalling $432,265.82, the total of the transferred funds, were granted as business expenses in taxation years ending March 31, 2010 and March 31, 2011, with the appeals with respect to the other two years being dismissed, the applicant in this Court being " “entitled to no further relief” " . [ 10 ] It appears that the applicant’s taxation period ending on November 30, 2014 was initially assessed on March 27, 2015.

On November 4, 2019, some four and one-half years later, the applicant sought to have a T2 Adjustment Request for the period ending November 30, 2014 considered to reflect " “the appropriate inventory adjustment” " as a result of the " “demise of the joint venture” " (letter of counsel to the Canada Revenue Agency (CRA), Exhibit C to the affidavit of David Lapenat). Neither the letter from counsel nor the amended tax return refers to the consent judgment and its effect on a provision for the alleged inventory lost. III. The Minister’s decision [ 11 ] The Minister decision came on November 29, 2019.

The request for a new assessment was denied because of the limitation period provided for at

section 152 of the Income Tax Act (RSC, 1985, c 1 (5th Supp .)). The decision reads as follows: Under subsection 152(4) of the “ Income Tax Act ,” we may reassess a corporation return for a particular tax year if we receive the request within three years before the end of the normal reassessment period. This period begins on the date of the original “Notice of Assessment” or a notification that no tax was payable for a tax year, and ends three years from this date for a Canadian-controlled private corporation, or four years from this date for all other corporations.

Since we originally assessed the November 30, 2014 return on March 27, 2015, and we received your request on November 6, 2019, we cannot process your adjustment as you requested. [ 12 ] The applicant contends that an extension of time in order to file its Notice of Application, which alleges a failure to observe procedural fairness, erroneous findings of fact, a failure to give adequate reasons and an error in law in making the decision, is appropriate in view of the four criteria stemming from the case law in the federal courts for extension of time. IV.

The applicant’s argument [ 13 ] It is claimed that the applicant displayed a continuing intention to seek judicial review: it became aware of the Minister’s decision of November 29, 2019 only on May 28, 2020 when the CEO (chief executive officer) of Pacific Surgical Inc., the entity that purchased the shares of the applicant, forwarded the decision to the person said to handle the claim on behalf of the applicant.

The circumstances under which this occurred are left without explanation and there is no affidavit evidence from anyone at Pacific Surgical Inc. [ 14 ] There is some merit to the application, claims the applicant. The memorandum of the fact and law says very little about the merit, other than the grounds invoked for judicial review are a sufficient basis to consider the application. However, the grounds of review do not go beyond the general categories found at paragraphs 18.1(4) (b), and (

c) and (

d) of the Federal Courts Act . One other ground is

stated, i.e. that the reasons given by the Minister are inadequate. [ 15 ] The applicant simply states that it has no knowledge of any prejudice that would be suffered by the respondent. As for the explanation for the delay, the applicant relies on its contention that the CEO of the firm to which the applicant’s shares were sold did not see fit, for five months, to forward the Minister’s correspondence. V.

The Minister’s position [ 16 ] A somewhat more granular picture emerges from the memorandum of fact and law submitted on behalf of the respondent. [ 17 ] First, a Notice of assessment for taxation year 2014 of the applicant was in fact dealt with and issued on March 27, 2015: the Minister states that there was no Notice of objection or any attempt to be granted an extension of time in order to file an objection. There has not been a further reassessment in respect of the 2014 taxation year.

It is only on November 4, 2019, more than four years after the assessment of March 2015, that the applicant sought to reopen the matter and filed an amended request for the taxation year 2014: that explains the decision of November 29, 2019, which raises subsection 152(4) of the Income Tax Act as the time limitation for processing the requested adjustment. [ 18 ] The taxpayer involved in this matter is 3964191 Canada Inc., and no one else. It is not disputed that the decision was communicated to it on November 29, 2019.

There is no doubt that a judicial review application, in June 2020 or July, is well beyond the thirty-day period provided at paragraph 18.2(2) of the Federal Courts Act . An order extending the time is therefore required. [ 19 ] The respondent takes issue with the explanation given for the delay.

Furthermore, the Minister argues that there is no prospect of success and hence no merit to the application; indeed it constitutes a collateral attack on the Tax Court judgment disposing of the issue and which followed the parties’ agreement on a consent to judgment. [ 20 ] The respondent argues that the applicant has not given any explanation for why it waited until May 2020 to forward the Minister’s decision in view of the alleged agreement according to which the new shareholder, Pacific Surgical Inc., would have agreed to leave to the former controlling mind and shareholder of 3964191 Canada Inc. to " “manage any dealings with the CRA with respect to the consequences as a result of the failure of the joint venture including any filings, discussions, objection or appeal” " (Notice of Application, para 7).

There is no explanation on the part of the applicant, claims the Minister, offered to explain the facts around the delay. [ 21 ] Taxation year 2014 was assessed by the Minister on March 27, 2015. 3964191 Canada Inc. could have objected to the assessment. It did not. The Minister claims that his power to reassess is generally limited to the normal reassessment period. The position is encapsulated at paragraph 32 of the Minister’s factum: 32.

The Respondent submits that there are no exceptions applicable in this case, and the Minister could only reassess the Applicant within its normal reassessment period that ended three years after the date of the original Notice of Reassessment, which would be on or about March 26, 2018. In other words, the position is perfectly justified and there is not any potential merit to the application. [ 22 ] Perhaps anticipating the argument, the respondent goes on to argue that paragraph 169(3) of the Income Tax Act does not provide any relief.

He states that the provision requires that the reassessment be for the " “purpose of disposing of an appeal made under a provision of this Act ” " , which appeal is not present with regard to taxation year 2014. The only appeal before the Tax Court was that which was disposed of on April 17, 2019, appeals for taxation years ending March 31, 2010, March 31, 2011, March 31, 2012 and March 31, 2013. The judgment was rendered following the terms of a consent to judgment.

There was never any indication that the applicant could then ask for a reassessment by claiming the loss of the equipment in year 2014, instead of 2012. [ 23 ] Second, the respondent contends that the matter has been disposed of in the judgment of the Tax Court. No relief was granted for the 2012, 2013 taxation years. The applicant states at paragraph 3 of its Notice of Motion that " “(t)hose appeals were resolved by allowing the Applicant some of the expenses incurred” " .

Thus, the respondent relies on paragraph 4 of the Notice of Motion before the Court where the applicant declares that " “the amount claimed in respect of lost inventory due to the Joint Venture in India was not allowed in those years” " . The same information in the Notice of Application where it is conceded, at paragraph 8, that " “(i)n filing its income tax return for the 2012 year, the Applicant claimed the aggregate amount of the funds advanced and the value of the equipment lost as a bad debt expense”.

" This, says the respondent, constitutes a collateral attack because the issue has already been the subject of adjudication. The respondent concludes thus: 50. In this case, the T2 Amendment Request has the specific object of claiming a deduction that had not been allowed in the judgment that was rendered by the Tax Court of Canada in accordance with the Consent to Judgment. The Applicant wanted to avoid the repercussions of the agreement the parties reached to resolve the appeal before the Court. VI. The applicant’s reply [ 24 ] The applicant replied.

It expands on its explanation for the delay and it argues more extensively that the application has some merit. [ 25 ] As for the explanation, the applicant says that the Canada Revenue Agency acknowledged that the former shareholder had the carriage of these tax matters on behalf of the corporate entity. The evidence offered in support is the affidavit of the previous shareholder who claims that there existed an agreement between the old and the new shareholder according to which he would manage any dealings with CRA.

As evidence that CRA knew of the arrangement and accepted it, the affiant offers the front page of the transcript of the examination for discovery which bears the mention " “Examination for Discovery of David Lapenat, on behalf of the Respondent” " . I

note that there is no indication of the capacity in which the affiant was appearing; it continues to be unclear why the Minister should have provided anyone other than the corporate entity with its decision to deny the reassessment. The taxpayer is 3964191 Canada Inc. and it is the entity which received the decision. [ 26 ] The applicant agrees that the Minister has a broad discretion to accept what it calls " “late-filed returns when prompted by a taxpayer to amend a return” " (factum in reply, para 9).

The applicant does not address paragraph 152(4) of the Income Tax Act : that is surprising because it is at the heart of the Minister’s decision and it was forcefully presented by the respondent in his memorandum of fact and law. [ 27 ] Instead, under its reply to the argument that the judicial review constitutes a collateral attack, the applicant relies on subsection 169(3) of the Income Tax Act . In spite of what would seem to be a clear statement in the subsection (“Notwithstanding

section 152, for the purpose of disposing of an appeal made under a provision of this Act …”), the applicant asserts boldly that " “(t)he filing of a Notice of Objection on Appeal is not a precondition for a taxation year to be addressed pursuant to 169(3) of the Act ” " (factum in reply, para 29). No authority is offered by the applicant in support of what appears to be a bold proposition.

I have not been able to find any explanation of how subsection 169(3) could operate in the absence of an appeal. [ 28 ] The reply also seeks to argue the case on its merits in suggesting that the consent to judgment, which granted only $432,265.82 (the transferred funds), did not in reality deny the inventory adjustment. The applicant contends that the inventory adjustment may have been denied for years 2011 and 2012, but the consent for judgment is silent on the amounts and the denial was solely with respect to those years.

Furthermore, the applicant now claims that the equipment was conclusively lost during the taxation year 2014, after the period covered by the Tax Court judgment. In other words, having argued that the inventory was lost in 2012 (applicant’s factum, para 10), the applicant contends that the loss was in fact incurred in 2014. VII. Discussion [ 29 ] In my estimation, the applicant failed to explain the delay between the decisions and its attempt to seek judicial review of the Minister’s decision.

The applicant, the corporate entity, received the Minister’s decision to deny a reassessment for taxation year 2014 around November 29, 2019. The request for reassessment had been made on November 4, 2019, barely three weeks earlier. The applicant has to provide an explanation to account for why its Notice of Application came 7 months later. It seems to me that the explanation that the Minister ought to have known that his decision should have been sent also to the previous shareholder falls short of the mark.

The only evidence before the Court is the letter of November 4, 2019, which ostensibly accompanies the T2 Adjustment Request and the Adjustment Request, which references an agreement according to which payment of a refund by CRA would be made to the former shareholder. The Minister’s argument that there is no explanation for the seven months it took the applicant to send the November 29, 2019 decision is well taken. At best, the applicant argues that the decision ought to have been sent to counsel representing the previous shareholders.

Indeed the only legal relationship is between the Minister and the corporate entity. There is no evidence on this record coming from the applicant other than a letter of May 29, 2020 to " “confirm that the enclosed correspondence is being submitted on behalf of the Corporation” " and that counsel for the previous shareholder is authorized to be contacted with respect to the amended return filed for the taxation year ended November 30, 2014 . There is no explanation for the delay.

Nevertheless, if the only issue were the explanation for the delay, but there was a relatively strong case on the merit, I would not have denied an extension of time: the interests of justice would require that an extension be granted for the matter to be properly debated. [ 30 ] There must be a demonstration made that there is some potential merit to the application. On this front, there are many difficulties. [ 31 ] The Notice of assessment for year 2014 was issued on March 27, 2015. There was no objection or appeal on the part of the taxpayer: in fact, there was no reassessment.

It is only after an agreement was reached between the parties with respect to taxation years ending at the end of March 2010, 2011, 2012 and 2013, on April 12, 2019, which gave rise to the judgment of April 17, 2019 of the Tax Court, that the applicant sought to amend its tax return already dealt with since March 2015. That was done on November 4, 2019, many months after the April 17, 2019, in order to claim lost inventory in fiscal year 2014 after the Tax Court decision had evidently denied the value of the equipment lost as bad debt.

It bears repeating that the Application for judicial review acknowledged that " “(i)n filing its income tax return for the 2012 year, the Applicant claimed the aggregate amount of the funds advanced and the value of the equipment lost as a bad debt expense” " (para 8). The same concession is made in the applicant’s factum (para 10). On its face, the Tax Court judgment of April 17, 2019 dismissed the appeals for taxation years ending March 31, 2012 and March 31, 2013.

Moreover, the parties agreed that " “(t)here shall be no relief nor reassessment pursuant to this consent to judgment, for the taxation year ending March 31, 2012” " in their consent to judgment . The same clause exists for the taxation year ending March 31, 2013. " “The applicant is entitled to no further relief”, " says the consent to judgment.

In spite of that, the applicant claimed " “transferred inventory which was lost as a result of the failure of the venture” " (T2 Amended tax return) in the year ending in November 2014. [ 32 ] In order to claim some potential merit to its application, and thus that it would be in the interests of justice for an extension of time to be granted, the applicant had to address squarely the issue which is at the heart of the decision it wants reviewed: given subsection 152(4) of the Income Tax Act , the Minister says " “we may reassess a corporation return for a particular tax year if we receive the request within three years before the end of the normal reassessment period” " .

Being outside that limitation period, " “we cannot process your adjustment as you requested” " . The applicant had to address the issue in its written representations. It did not address it. The issue was clearly put by the Minister in his decision of November 29, 2019 and it is front and center. The respondent did not deal with the issue in his memorandum of fact and law.

It chose to ignore it again in its reply. [ 33 ] If the applicant was not on notice that the issue was square and center originally, wich is unlikely given that the Minister’s decision starts with " “Under Subsection 152(4) of the “ Income Tax Act ” ” " , it could not be mistaken once the Minister’s factum was considered. Yet, the applicant produced a 42-paragraph reply without even mentioning subsection 152(4) . [ 34 ] Instead the applicant sought to rely on paragraph 169(3) , which had been raised by the Minister in his submissions.

The paragraph speaks in terms of disposing of an appeal made under the Income Tax Act . The only appeals launched by the applicant were resolved in April 2019 and the reassessments were completed on July 22, 2019: there is no appeal under the Income Tax Act to be disposed of. If there is a counter-argument, it was not presented by the applicant in its two sets of arguments. As a result, there has not been any

demonstration that there is some potential merit to this application for judicial review. Subsection 152(4) of the Income Tax Act stands tall, as it was not even addressed by the applicant. Without an argument about the application of the provision, there is nothing to support the contention that there is potential merit to the case. The applicant failed its burden. [ 35 ] The respondent submitted that the judicial review application constitutes a collateral attack to the judgment of the Tax Court of April 17, 2019.

Evidently, the argument is that the matter of the lost inventory had been addressed and decided in the April 17, 2019 decision.

The difference between the parties appears to be that the applicant now claims the lost inventory should have been considered in taxation year 2014 while the respondent argues that the matter was resolved by the Tax Court judgment. [ 36 ] I note that the applicant sought to amend its tax return to claim the lost inventory after it had entered into an agreement, confirmed by a judgment of the Tax Court that appears to have dismissed its appeal for the year in which it concedes it claimed the value of the equipment as a bad debt expense.

As such, it is less than clear that the applicant had a continuing interest to pursue an application concerning taxation year 2014 as there was nothing done between March 2015 and November 2019 to claim that loss during that year. What this suggests rather is that the applicant once denied a remedy about the lost inventory in years 2012 and 2013, tried 4 years after the 2014 assessment to raise the issue. It is difficult to agree that there was a continuing intention to claim for a loss in 2014 when it is only in November 2019 that the matter is raised for the first time.

What is clearer is that the applicant was intent on having the lost inventory recognized as a bad debt. [ 37 ] On this record, it is not perfectly clear what the scope of the agreement between the parties was. Was the matter completely resolved or was it resolved only to the extent an appeal with respect to the equipment lost in 2012 was dismissed, leaving open the possibility to claim the same bad debt expense, but for a different year.

That would appear to be less than likely, especially after the parties had agreed that the " “(a)ppellant is entitled to no further relief” " but the record does not allow to reach a definitive conclusion. The fact that the expense was claimed for preceding years, and the applicant sought to have it claimed after its appeal was dismissed in 2019 suggests that the matter was meant to be resolved. However, without a more fulsome record, it would have been hazardous to conclude definitively one way or the other.

Given that there is not some potential merit to the application in view of subsection 152(4) of the Income Tax Act , the issue of the collateral attack need not be addressed further. [ 38 ] Finally, one observation. The Federal Court of Appeal invites the Court to go beyond words and understand what is truly the matter before it: is this a tax matter which should be addressed by the Tax Court or is it an administrative law matter properly before the Federal Court?

In Canada (National Revenue) v JP Morgan Asset Management (Canada) Inc. , 2013 FCA 250 , [2014] 2 FCR 557, we read: [49] Armed with sophisticated wordsmithing tools and cunning minds, skilful pleaders can make Tax Court matters sound like administrative law matters when they are nothing of the sort. When those pleaders illegitimately succeed, they frustrate Parliament’s intention to have the Tax Court exclusively decide Tax Court matters.

Therefore, in considering a motion to strike, the Court must read the notice of application with a view to understanding the real essence of the application. [ 39 ] In my view, the lack of potential merit with an explanation for the delay not supported by evidence lead to a conclusion that it is not in the interests of justice to extend the time for an application for judicial review to be filed in this mater. Time limits exist in the public interest; they bring finality to administrative decisions ( Lesly v Canada (Citizenship and Immigration) , 2018 FC 272 ).

Cogent explanations for delays must be supported by evidence and underlying applications must have some merit. In the result, the motion for an extension of time to file a Notice of Application for Judicial Review must be dismissed. With costs to the respondent. ORDER in 20-T-32 THIS COURT ORDERS : 1 . The motion for an extension of time to file a Notice of Application for judicial review is dismissed. 2 .

Costs are granted to the respondent. “Yvan Roy” Judge FEDERAL COURT SOLICITORS OF RECORD DOCKET: 20-T-32 STYLE OF CAUSE: 396491 CANADA INC. v HER MAJESTY THE QUEEN PLACE OF HEARING: MOTION IN WRITING CONSIDERED AT OTTAWA (ONTARIO) PURSUANT TO RULE 369 OF THE FEDERAL COURTS RULES ORDER AND REASONS: ROY J. DATED: SEPTEMBER 14, 2020 APPEARANCES :

George Boyd Aitken For The Applicant Andrée-Anne Lavoie For The Respondent WRITTEN REPRESENTATIONS BY : George Boyd Aitken Professional Corporation Ottawa, Ontario For The Applicant Attorney General of Canada Ottawa, Ontario For The Respondent