October 07, 2011

Sherway Centre Limited (Appellant) v. Her Majesty the Queen (Respondent)

Tax Court of Canada
2001 DTC 1021
November 9,2001

(Court File No. 1999-5087(IT)G.)

Appeals — Consequential reassessments — Corporate taxpayer not serving Notices of Objection to certain reassessments for 1989, 1990 and 1991 disallowing the deduction of certain participating interest — Taxpayer, however, had appealed successfully to the Federal Court of Appeal on the participating interest deductibility issue for 1987 and 1988, and Minister issuing consequential reassessments giving effect to that Court’s decision — Minister also issuing consequential reassessments (concerning the applicability of certain non-capital loss balances) for 1989, 1990 and 1991 under subsection 152(4.3) of the Act — Whether, in appealing from the said consequential reassessments for 1989, 1990 and 1991 (which had been made under subsection 152(4.3) of the Act), taxpayer entitled, without having filed Notices of Objection to the said initial reassessments for 1989, 1990, and 1991, to raise the deductibility of the participating interest issue for 1989, 1990 and 1991 — Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, as amended, ss. 111(1), 111(8), 152(1), 152(1.1), 152(1.2), 152(4.3), 152(4.4), 152(8) and 169.

On June 20, 1994, the Minister reassessed the corporate taxpayer for 1989, 1990, and 1991 to disallow the deduction of what was called participating interest. The taxpayer did not serve Notices of Objection to these reassessments. It had, however, appealed successfully to the Tax Court of Canada (Bonner, T.C.C.J., affirmed by the Federal Court of Appeal) on the participating interest deductibility issue for 1987 and 1988. As a result, the Minister had issued consequential reassessments giving effect to those Courts’ decisions (respecting 1987 and 1988). In addition, on February 10, 1999, the Minister issued further consequential reassessments (concerning the applicability of certain non-capital loss balances) for 1989, 1990 and 1991 under subsection 152(4.3) of the Act. The taxpayer filed Notices of Objection to these consequential reassessments (for 1989, 1990 and 1991), and, having heard nothing from the Minister, appealed to the Tax Court of Canada, alleging that it was entitled to deduct participating interest for 1989, 1990 and 1991. The Minister’s position was that, had the taxpayer filed waivers or Notices of Objection to the June 20, 1994 reassessments (which had specifically disallowed the participating interest deductions for 1989, 1990 and 1991), it would have been entitled to reassessments (allowing those deductions for those years) as requested in its appeal. In the Minister’s view, however, the taxpayer had failed to do this, so that no such reassessments should be forthcoming.

Held: The taxpayer’s appeal was dismissed. The issue was whether, having failed to object to the reassessments for 1989, 1990 and 1991 which were issued on June 20, 1994, and absent waivers for those years, the taxpayer could now, by the present appeals from the reassessments made on February 10, 1999 under subsection 152(4.3), have the benefit of deducting the participating interest for those three years. The only reassessment available was under subsection 152(4.3) of the Act. Those reassessments, however, are, by the terms of that subsection, limited to that which “can reasonably be considered to relate to the change in the particular balance of the taxpayer for the particular year”. In the instant case, therefore, it was limited to reflecting a change in the income, taxable income, loss, or the tax payable by the taxpayer for 1987 or 1988 arising out of the reassessments of those years to implement the judgment of Bonner, T.C.C.J. of the Tax Court which had been affirmed by the Federal Court of Appeal (see subsection 152(4.4) of the Act). However, a change in a balance of the taxpayer for 1987 or 1988 could not reasonably be said to be related to a change in his income for 1989, 1990 or 1991. In making the reassessments now under appeal, therefore, the Minister did all that subsection 152(4.3) either required or permitted. Nor could the principle enunciated in New St. James Limited v. M.N.R. apply here (despite the attempt of taxpayer’s counsel to rely thereon). The taxpayer’s 1989, 1990 and 1991 taxation years were not loss years, so that there was no question of correcting an error by the Minister in computing its non-capital losses. The taxpayer had income in those years, it was assessed, and it let its rights of objection and appeal expire. The New St. James principle did not emerge to revive rights that had been permitted to expire. As a result of all of the foregoing, the taxpayer’s appeals had to be dismissed, which was unfortunate given Bonner, T.C.C.J.’s decision which was affirmed on appeal on the substantive issue. However, this result flowed directly from the taxpayer’s failure to exercise its rights. The Minister’s reassessments were affirmed accordingly.