Since 1995, the Large Corporation Rules found in subsections
165(1.11), 169(2.1) and 152(4.4) of the Income Tax Act
(Canada) have applied to discourage large corporations from
objecting to tax assessments as a means of keeping tax years
"open". In Bakorp Management Ltd. v. The
Queen, 2013 TCC 29, the Minister brought a motion to
dismiss the corporation's tax appeal on the basis that it
failed to comply with the Large Corporation Rules. Basically, these
rules require that an objection fled by a large corporation must
reasonably describe each issue to be decided and, for each issue,
must specify the relief sought as the amount of change in a
balance. The rules also limit the issues and relief sought in a
subsequent appeal to those set out in the objection. The locus
classicus on the interpretation of these provisions is the
decision of the Federal Court of Appeal in The Queen v. Potash Corporation of Saskatchewan
Inc., 2003 FCA 471.
In Bakorp, the corporation owned shares of another
corporation that were redeemed in 1992 for $338M. As the proceeds
from the redemption were received over a number of years, Bakorp
reported in 1995 the portion of the deemed dividend related to
proceeds received in 1995. The Minister reassessed Bakorp's
1995 tax year to reduce the deemed dividend from $53M to $25M, a
reduction of $28M. The corporation objected to the Minister's
reassessment and the Minister confirmed the reassessment. The
corporation then filed a Notice of Appeal taking the position that
the $28M deemed dividend remaining in its 1995 income was actually
received in 1993 and should be included in the corporation's
1993 tax year, not the 1995 year.
The Minister was, no doubt, surprised by Bakorp's position
to reduce the 1995 deemed dividend to zero. In response, the
Minister brought a motion to dismiss the corporation's appeal,
arguing that the issue and relief set out in the Notice of Appeal
were not those set out in the Notice of Objection.
Bakorp argued that it had complied with the Large Corporation
Rules because the issue in both its objection and appeal was,
fundamentally, the amount of deemed dividend to be included in its
1995 income. The Court disagreed noting that it could not
"imagine a fuller reconstruction than making a 180 degree turn
in what is to be included in income." In the Court's view,
applying such a general approach to identifying the issue would
render the Large Corporation Rules meaningless. In respect of
specifying the relief sought, the Court was not prepared to accept
that a complete reversal from wanting $53M included in income to
wanting nothing included in income could be seen as complying with
the Large Corporation Rules.
As a notice of appeal has been filed with the
Federal Court of Appeal, the Tax Court's reasoning will not be
the last word in this particular matter. However, it is safe to say
that the Bakorp decision is a timely reminder that
large corporations must take particular care in preparing a
Notice of Objection. Failure to do so may seriously impact a later
appeal to the Tax Court of Canada.
Dentons is a global firm driven to provide you with the
competitive edge in an increasingly complex and interconnected
marketplace. We were formed by the March 2013 combination of
international law firm Salans LLP, Canadian law firm Fraser Milner
Casgrain LLP (FMC) and international law firm SNR Denton.
Dentons is built on the solid foundations of three highly
regarded law firms. Each built its outstanding reputation and
valued clientele by responding to the local, regional and national
needs of a broad spectrum of clients of all sizes –
individuals; entrepreneurs; small businesses and start-ups; local,
regional and national governments and government agencies; and
mid-sized and larger private and public corporations, including
international and global entities.
Now clients benefit from more than 2,500 lawyers and
professionals in 79 locations in 52 countries across Africa, Asia
Pacific, Canada, Central Asia, Europe, the Middle East, Russia and
the CIS, the UK and the US who are committed to challenging the
status quo to offer creative, actionable business and legal
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances. Specific Questions relating to
this article should be addressed directly to the author.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
On Thursday, September 22, 2016, Dentons hosted a panel discussion about the management of liabilities and risks associated with environmental crises, including potential liabilities for directors and officers and provided insight into risk and liability techniques associated with environmental crisis management.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).