On September 20, 2019, the Federal Court of Appeal (“FCA”) released its decision in Tedesco v. Canada (2019 FCA 325) (“Tedesco”), overturning the decision at the TCC of Canada (“TCC”) (heard as Stewart v. The Queen, 2018 TCC 75). The FCA, in finding that an appeal discontinued at TCC is not equivalent to a determination of the issues as though the appeal was actually heard, brings needed clarity to the interpretation of subsection 16.2(2) of the Tax Court of Canada Act (R.S.C., 1985, c. T-2) (the “TCC Act”).
The facts of the case involve a partnership – TSI I Limited Partnership (“TSI”) – which allocated certain losses to its partners in the 2000 and 2001 taxation years. The losses were used by the individual partners of TSI in determining their individual income for those years. The Minister of National Revenue (the “Minister”) subsequently determined that TSI did not have losses available in the 2000 and 2001 taxation years and issued notices of determination to TSI accordingly. The notices of determination were later confirmed by notices of confirmation.
As a result of the disallowed losses to TSI, the Minister also reassessed the individual partners for the relevant taxation year in which their respective share of the TSI losses were claimed. These reassessments were also subsequently confirmed by the Minister.
TSI and each individual partner filed notices of appeal to the TCC. Given the number of appeals filed, it was agreed that TSI’s appeal would proceed first. A few days before the scheduled hearing, TSI’s counsel notified the TCC that TSI intended to discontinue its appeal. The discontinuance was made pursuant to subsection 16.2(1) of the TCC Act such that the appeal was deemed to be dismissed pursuant to subsection 16.2(2). Immediately following the discontinuance of TSI’s appeal, the Minster brought a motion to strike the notices of appeal of the individual partners.
At the TCC, the Minister’s motion to strike was granted on the basis that if the individual partners were permitted to argue the issues raised in TSI’s appeal, it would effectively enable re-litigation of TSI’s appeal resulting in an abuse of process by re-litigation. In this regard, the TCC Judge found that the discontinuance of an appeal by application of subsection 16.2(2) of the TCC Act meant any issues raised in that appeal would be “deemed to have been adjudicated and dismissed by the Court”. In support of this position, the TCC Judge relied on the Federal Court of Appeal’s comments in Canada (Attorney General) v. Scarola, 2003 FCA 157,  4 F.C. 645 (“Scarola”).
In disagreeing with the TCC, the FCA noted that subsection 16.2(2) of the TCC Act simply provides that a discontinued appeal is deemed to be dismissed, and no more. The FCA concluded that nothing in the words of subsection 16.2(2) of the TCC Act, or the FCA’s comments in Scarola supported the TCC’s findings.
As a result, although the issue raised in TSI’s appeal was the same as that of the individual partners’ appeals, the reality was that the issue never received judicial determination. Consequently, no abuse of process would result from litigating the issue in the individual partners’ appeals.
Overall, this case is a welcome correction to the TCC’s decision. Had the TCC’s decision been upheld, every issued raised by an appellant in an appeal would be deemed to have been determined by a court where, for whatever reason, the appeal was discontinued.