1218395 Ontario, 2017 FCA 121: a dissolved corporation's tax appeals stay quashed and its new evidence is refused

2017 FCA 121 · Federal Court of Appeal

Author: Sas Tullo

This is a short procedural decision of the Federal Court of Appeal, delivered from the bench, about a corporation that tried to fight GST and income tax assessments years after its Ontario charter had been revoked. The Tax Court had quashed the appeals because a dissolved corporation has no legal status to litigate and the company had not revived itself within the time the court allowed. On appeal the company asked to file new evidence suggesting that the Canada Revenue Agency had been behind Ontario’s refusal to consent to its revival. The Court of Appeal refused the evidence and dismissed the appeal with costs. The case matters to anyone who lets a corporation lapse while a tax dispute is pending: the appeal does not outlive the corporation.

Facts

The appellant, 1218395 Ontario Inc., had appealed to the Tax Court of Canada from assessments under Part IX of the Excise Tax Act for the 2001 reporting periods and from reassessments under the Income Tax Act for its 1998 to 2005 taxation years (para 1). Its corporate charter had been revoked under the Ontario Business Corporations Act on or about March 27, 2006, and the notices of appeal were filed in 2011 (para 3). By an Order of November 18, 2015, the Tax Court gave the appellant a period, later extended by the three additional months it requested, to revive its charter, failing which the appeals would be quashed (paras 3 and 13).

On February 8, 2016, Graham J. held a telephone conference to ascertain the status of the matter. The appellant’s representatives described earlier attempts to revive the company in 2012 and in March 2015, and said the appellant had hoped the CRA could help change the view of the Ontario Minister of Finance, who was apparently refusing consent because of outstanding provincial tax (para 4). When the appellant sought a further extension, the Tax Court asked what concrete steps had been taken since November 18, 2015, and refused because insufficient efforts had been deployed since then (para 5). The appeals were quashed by Order dated February 19, 2016 (para 3 and the court-site header).

Before the Court of Appeal the appellant moved under Rule 351 of the Federal Courts Rules for leave to file new evidence (para 2). The proposed evidence consisted mostly of material already in the appellant’s possession on February 8, 2016, together with information about a 2008 agreement under which the CRA administers and enforces Ontario taxes, and correspondence between counsel about what the respondent’s side knew of the appellant’s applications under the OBCA (para 9). The decision under appeal is not reviewed here.

Issues

The Court addressed two questions: whether to exercise its discretion under Rule 351 to admit new evidence that, as the appellant acknowledged, did not meet the usual test (paras 2 and 10); and whether, with or without that evidence, intervention in the Tax Court’s decision to quash the appeals was justified (paras 7 and 14).

Holding

The motion for leave to file new evidence and the appeal were both dismissed, with costs fixed at $1,000 all inclusive (para 14). The new evidence did not substantiate the allegation against the CRA, and the record supported the Tax Court’s conclusion that the appellant had not been diligent (paras 6, 11, and 13).

The court’s reasoning

Gauthier J.A., for a unanimous panel, held that “on the record before it, it was open to the TCC to conclude as it did”, which was not really disputed (para 6). The appellant’s real complaint was that the Tax Court had decided on inadequate information because the CRA had not disclosed its role in the Ontario Minister’s refusal (para 7).

That complaint depended on the new evidence, so the Court turned to Rule 351, which permits leave, in special circumstances, to present evidence on a question of fact. The appellant conceded that the material did not meet the usual test and asked the Court to exercise its residual discretion to avoid a miscarriage of justice (para 10). The Court found that the material provided little more than what the parties had already conveyed to the Tax Court and did not support the appellant’s “bald allegation” that the CRA was responsible for blocking the revival; at most it raised a line of inquiry on an issue the appellant’s own employee had already identified (paras 8 and 11). Nothing in the 2008 agreement extended the CRA’s delegated powers to consenting to articles of revival under the OBCA; the Corporations Tax Act was silent; and the only provision on such consent was section 6 of Ontario Regulation 289/00 (para 11). Nor was the Court satisfied that the CRA had withheld anything that could have materially affected the Tax Court’s view of the appellant’s diligence (para 11).

On the governing principle, the Court stated that it must exercise its discretion under Rule 351 with great care and that whatever residual discretion remains when the applicable test is not met “must be used only in the clearest cases where the interest of justice requires it”, concluding that this was not such a case (para 12). Finally, the appellant had known for many years that it had to revive its charter, had been warned that its appeals would be quashed if this was not done by February 12, 2016, had done nothing before the telephone conference beyond writing to the Ontario Ministry of Finance, and had offered no evidence of a serious plan for obtaining the Minister’s consent (para 13). Even with the new evidence, intervention was not justified (para 14).

Practical implications

The decision does not analyse any provision of the Income Tax Act or the Excise Tax Act; its lessons are procedural. First, a corporation whose charter has been revoked cannot prosecute a tax appeal, and the Tax Court will fix a deadline for revival and enforce it. In my view the decision confirms that a taxpayer in this position must treat revival as the first step in the litigation rather than a formality to be attended to later.

Second, where provincial consent is a condition of revival, as it was here under section 6 of Ontario Regulation 289/00 (para 11), the dispute with the provincial authority must be pursued on its own footing; the federal tax appeal will not be kept alive while it unfolds. The theory that the CRA stood behind the province’s refusal failed for want of evidence (para 11), a reminder that assertions about the conduct of the tax authority carry no weight unless the record supports them.

Third, the decision restates the narrowness of Rule 351: the ordinary test was not met, and any residual discretion is confined to the clearest cases (para 12). Evidence that was available at first instance and not put forward will rarely qualify. The current text of Rule 351 on the Department of Justice site still allows leave only in special circumstances and does not appear to have been amended since the decision. Whether an appeal was taken is not verified here.

For a company facing assessments after it has been dissolved, the practical course is to revive first and litigate second, and to document every step taken towards revival so that any request for more time rests on evidence rather than hope.

This comment is general information, not legal advice. The law may have changed since the decision; check the current text in the tax wiki.

Citation and links

1218395 Ontario Inc. v. Canada, 2017 FCA 121. Judgment delivered from the bench at Toronto on June 13, 2017, by Gauthier J.A. for a panel of Gauthier, de Montigny, and Woods JJ.A. Appeal from an Order of Graham J. of the Tax Court of Canada dated February 19, 2016, in dockets 2011-759(GST)G and 2011-769(IT)G (unreported; no neutral citation is given in the reasons). Reasons on the Federal Court of Appeal’s site. Also on CanLII. Rule 351 of the Federal Courts Rules, SOR/98-106.