Federal Appeal


Taxation

INCOME TAX

Decision striking portions of taxpayer’s notice of appeal was reversed in part

Predecessor corporations made deductions for payments to employees for surrender of share options. Minister assessed taxpayer under Income Tax Act, denying deductions as current expense. Taxpayer appealed. Minister’s motion to strike certain portions of claim was granted in part. Certain portions of notices of appeal struck. Trial judge found sole issue set out in notices of objection was whether taxpayer could deduct payments on current account. Trial judge found notices of objection proposed one reason why deduction should be permitted but that did not preclude corporation from raising other reasons in its notices of appeal. Trial judge found some alternate arguments by corporation were new reasons, not new issues. Trial judge found arguments that payments were deductible on income account due to operation of s. 20(1)(e) of Tax Act were alternative reasons. Trial judge found argument that payments were deductible under ss. 20(1)(b) and 111(5.2) was new issue and not alternate argument, as operation of s. 111(5.2) would entitle taxpayer to deductions unrelated to payments at issue. Trial judge found s. 111(5.2) was not optional and was required to be claimed if preconditions met. Trial judge found taxpayer not entitled to make arguments based on s. 20(1)(b) on ground that minister assessed large corporation in respect of certain issues, large corporation objected and minister confirmed assessment, but on different basis trial judge found minister had not abandoned original basis of assessment. Trial judge found relief sought was adequately described as required by large corporation rules in s. 165(1.11)(b) of Act. Taxpayer and Crown appealed. Appeal by taxpayer allowed, appeal by Crown dismissed. Taxpayer entitled to appeal. Taxpayer was seeking to claim deduction under s. 9 of Act in computing income or loss of its predecessors, and surrender payments were not on account of capital and therefore deduction of such payments would not have been denied as result of s. 18(1)(b) of Act. Notice of objection did not encompass alternative and inconsistent arguments related to s. 20(1)(b) and (e) of Act, which were new arguments. New deductions claimed were based on different premise (payments on account of capital versus current expense) and on different statutory provisions. However, Canada Revenue Agency acting on behalf of minister, responded in relation to merits of submissions with respect to s. 20(1)(b) and (e) and minister, in notices of confirmation, stating that basis of objection included argument that predecessors of taxpayer should be entitled to deduction under s. 20(1)(b) of Act. Minister explicitly accepted that issue related to s. 20(1)(b) of Act was part of objection. Minister accepted additional submissions at objection stage and treated them as part of objection, and submissions should be considered to be part of notice of objection for purposes of s. 169(2.1) of Act.

Devon Canada Corp. v. R. (Oct. 8, 2015, F.C.A., Johanne Trudel J.A., Wyman W. Webb J.A., and Donald J. Rennie J.A., File No. A-388-14, A-389-14, A-390-14, A-391-14) Decision at 243 A.C.W.S. (3d) 758 was reversed in part.  258 A.C.W.S. (3d) 238.

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