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Bonnybrook Industrial Park Development Co. Ltd. v. Canada (National Revenue), 2018 FCA 136 — CRA has power to extend filing time limit indefinitely

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This is a disturbing decision from an extremely fine judge of the Federal Court of Appeal.

ITA s. 129(1) allows refunds of tax a corporation has paid on passive sources of income, once the corporation pays a dividend to its shareholders.   The refund is not allowed, though, unless the corporation has filed its tax return “within 3 years after the end of the year”.  

Here, Bonnybrook asked CRA to use its taxpayer relief power under ITA s.  220(3) to allow its dividend refund by extending the time for filing its return.  CRA refused.  Bonnybrook sought judicial review at the Federal Court, was refused, and appealed to the Federal Court of Appeal. The FCA allowed the appeal by a 2:1 majority.  

The gist of Justice Woods’ majority decision is this:

“[40]  The CRA’s view expressed above is that the taxpayer relief provisions cannot affect a filing requirement which restricts the issuance of a dividend refund. The problem with this reasoning is that this is exactly what the taxpayer relief provisions are intended to do — enable the Minister to provide relief from strict filing requirements.

 “[41]  There is no question that the text, context and purpose of subsection 129(1) of the Act is to require a tax return to be filed within three years.  … “

The problem with Justice Woods’ decision is that s. 129(1) does not create a filing requirement. It does not require the taxpayer to file a return. It simply measures a right to a dividend refund by whether or not a return was filed within three years of the year-end. 

As CRA had said, only s. 150(1) creates a filing requirement for the corporation.  S. 129(1)  simply uses the tax year and the date the return was filed as a measure of the time within which a refund can be claimed.

Interestingly, Justice Woods looked at ss. 152(4.2) and 164(1.5) which explicitly extend deadlines for reassessment and for refunds in the case of individuals, as long as those individuals request that change within 10 years after the tax year. She finds the fact that Parliament introduced these rules says nothing about its view of the scope of s. 220(3).  Effectively, in her reasoning, these rules were needless. CRA already had the power to extend both deadlines.

If that power existed, in Parliament’s view, why did it need the rules? Why did it limit the rules to individuals? Worse,  based on Justice Woods’ reasons: (a) a corporation can ask CRA to extend the time for reassessing, if it wishes it, under s. 152, notwithstanding that it is excluded from s. 152(4.2) and without filing a waiver. (b) a corporation can ask CRA to allow a refund under s. 164, despite filing its return more than three years after the tax year and regardless of the fact that s. 164(1.5) only applies to individuals.

And there’s more: individuals who miss the 10-year time limits under ss. 152(4.2) and 164(1.5) can ask CRA to rely on its general power under s. 220(3) to get the same result more than the explicitly allowed 10 years after the tax year.  

These 2 rules in ss. 152 and 164 seem to have no practical relevance at all, given the FCA’s view of the breadth of s. 220(3).  

One might now expect an expansion of the number of taxpayer relief applications to include applications by corporations for extensions of the time limits under ss. 164 and 129, and, perhaps, for extensions of the time to file amendments to T2 corporate tax returns.  If so, that increase would delay processing of all taxpayer relief requests or impose further personnel demands on CRA.  And one would expect more judicial review applications with consequent extra burden on the Federal Court and Federal Court of Appeal. Else, the Department of Finance will have to add an explicit list of exceptions to s. 220(3).  

Bonnybrook Industrial Park Development Co. Ltd. v. Canada (National Revenue), 2018 FCA 136 

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