Introduction - Taxpayer filed motion for determination under rule 58
In Matthew Macisaac Consulting Inc. v HMQ, Matthew Macisaac Consulting Inc. (the Appellant) brought a motion for determination of the following questions pursuant to section 58 of the Tax Court of Canada Rules (general procedure):
- Whether a misrepresentation under s.152(4)(a)(i) of the Income Tax Act means a misrepresentation of fact or mixed law and fact;
- Whether the characterization of gains as being on capital versus income account is a question of mixed law and fact, and therefore outside the meaning of s.152(4)(a)(i) of the Income Tax Act; and
- Whether the statute-barred reassessments are invalid.
Rule 58 is a useful mechanism to resolve a dispute in the Tax Court without a full-blown trial. Under Rule 58, a party can apply to the Tax Court for the pre-trial determination of a question of law, fact or mixed law and fact, and the court may grant judgement accordingly. The motion application was made on the basis that it may potentially shorten the hearing and the parties had not yet exchanged lists of documents or conducted examinations for discovery. After reviewing case law, the Tax Court of Canada dismissed the motion.
The CRA disagreed with the taxpayer regarding whether questions proposed by the Appellant may shorten the hearing
The Appellant was reassessed by the Canada Revenue Agency (CRA) for the 2005, 2006 and 2008 to 2014 taxation years and the period from 2005 -2011 which were beyond the normal reassessment period under s.152(4)(a)(i) of the Income Tax Act on the basis that the Appellant made misrepresentations attributable to neglect, carelessness or wilful default. The issues under appeal were as follows:
- The statute-barred issue with respect to 2005, 2006, and 2008 - 2011;
- Whether proceeds from the disposition of shares in an offshore fund were on account of income or capital gain; and
- Whether dividends payable in 2005 and the period from 2008 to 2014 exceeded the Appellant's capital dividend account balance under Part III of the Income Tax Act.
The Appellant submitted that the questions set out in its motion required the Tax Court to determine whether a difference of opinion between the Appellant and the CRA on the characterization of gains as income versus capital was a misrepresentation captured by s.152(4)(a)(i) of the Income Tax Act. The Appellant also submitted that the French version said the issue was one of mixed law and fact. The CRA, on the other hand, held the position that it was unclear as to whether the determination of these questions would shorten the hearing.
Questions regarding rule 58 must be evaluated based on the related circumstance
The Tax Court of Canada concluded that the three proposed questions were essentially three parts of a single questions. Because the answer to the first question determined the other two, the tax court focused on the first question only. After examining the relevant provision in both the English and French version of the Income Tax Act, the Tax Court of Canada ruled that the first question was not suitable for determination under rule 58 of the Tax Court rules and it should properly remain with the trier of fact to determine in conjunction with the related substantive issues.
The Tax Court judge reviewed case law and cited the decision in Pasquale Paletta v Her Majesty the Queen, 2016 TCC 171. In that case, examinations for discovery had not been held yet in the appeal and the tax court ruled that "whether the conceded misrepresentation is attributable to neglect, carelessness or wilful default cannot be resolved without an appreciated of all of the circumstances surrounding the filing positions taken by the Appellant in his returns for the Taxation Years". Therefore, the tax judge adopted the same position in the present case and ruled that the proposed approach by the Appellant would not provide a fair and just adjudication of the statute-barred issue. The Tax Court also differentiated the decision in Rio Tinto in which a similar question could be determined without considering the underlying facts. Because the tax court reached a negative response to the Appellant's first question, it decided that it was not necessary to examine the other two questions.
Pro tax tips - whether a misrepresentation means fact only or mixed law and fact depends on the trier of facts
In this case, the Appellant was unsuccessful because examinations for discovery had not been held yet and the factual circumstances had not been determined, therefore the tax court decided it could not resolve the proposed question regarding misrepresentation without an appreciation of the whole circumstances. Thus, it is critical for a taxpayer to consult with an experienced Canadian tax lawyer who understands the tax litigation process in order to file motions at the appropriate time to speed up the litigation process and avoid necessary cost.
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