Rio Tinto refused to sign waivers for 2006 and 2007. So CRA reassessed to allow Rio Tinto’s own claims for SRED but not Rio Tinto’s claims for SRED carried on by AAI in which it had an interest. The reason for the problem was that Rio Tinto was audited out of Montréal but AAI was audited out of Québec. The Québec audit was not done when the normal reassessment period was about to expire (for at least the 2006 tax year.)
(There had been a similar deal worked out for waivers for 2003 to 2005. But when it came to the 2006 and 2007 tax years, a new representative, Deloitte (De Luca), was involved. He refused to agree to the same approach. The trouble unfurled from that decision. [102])
Rio Tinto wanted to say that the reassessments were invalid because the Montréal auditor had not properly assessed its AAI claim when the reassessments were made. Perhaps Rio Tinto wanted to get to the position that CRA would have missed the normal reassessment period and therefore the original assessments would stand (and presumably those included the AAI SRED at the full amounts Rio Tinto wanted).
This rule 58 motion came before Justice D’Auray. She did not like Rio Tinto’s position.
Rio Tinto’s argument was that this:
“A taxpayer has a right to know the basis of an assessment, i.e. the facts on which the Minister relied to establish it.”[33]
Rio Tinto also said that the auditor had an obligation to accept its restricted waiver, which would apply only for the issues related to the AAI claims. [34] (She had refused, insisting on her own waiver form.)
(CRA was willing to allow a portion of AAI claims that matched those accorded to other investors in AAI. Evidently, Rio Tinto wanted more.)
As Rio Tinto framed the case, it was not about 152(4) (late reassessments) but 152(1) and the Minister’s duty to assess “with all due dispatch”. (The Crown’s position was that the case should focus on 152(4).)
“The Minister must, with all due dispatch, examine the taxpayer’s tax return, assess the tax and determine … the amount of any refund or … the amount of tax deemed to have been paid.” [51]
Rio Tinto’s complaint was that when the Minister reassessed it, the Québec office had not yet started (or at least that is what Rio Tinto said) the audit of AAI’s 2006 and 2007 tax years, which audits would underlie a fair assessment of Rio Tinto’s 2006 and 2007 tax years. [57] But the court disagreed with Rio Tinto’s interpretation of the events. The Québec audit had started two years earlier [81, 84, 126] and delays were AAI’s fault. The fact that the Montréal auditor was not involved in that AAI audit did not matter. [127]
I am not sure why any of these procedural points matters. I thought this point was well-settled, i.e. that CRA has no obligation to be especially fastidious in its audits. D’Auray seems to have agreed, referring to paragraphs 23-25 of Golini v. The Queen, 2013 TCC 293 (C Miller); also, Karda v. Canada, 2006 FCA 238 (upholding a similar decision from C. Miller):
“[2] … In our view, having requested additional information from the appellant and not having received that information, and having requested a waiver from the appellant which the appellant refused to give, the Minister was clearly entitled to issue a reassessment to protect his rights prior to the expiry of the three-year period.”
And Western Minerals Ltd. v Minister of National Revenue, [1962] RSC 592 [SCC]:
“Held: That it is not for the Court or anyone else to prescribe what the intensity of the examination of a taxpayer’s return in any given case should be. That is exclusively a matter for the Minister, acting through his appropriate officers, to decide.” (Cited at paragraph 146.)
A related issue was whether the failure to determine the precise tax payable rendered the assessment invalid. The court said no, relying in part on Ereiser c La Reine, 2013 CAF 20.
The only issue in this motion was whether the reassessments were valid; as the cases above say, they were. Whether they were correct was not before D’Auray on his rule 58 motion. The fact that the Minister did not have all the facts related to the AAI claims might mean that the reassessments were wrong, but not invalid. [156]
Despite all those views on 152(1), which responded to Rio Tinto’s position, the Court agreed with CRA that it was really 152(4) that applied. Nothing in that latter subsection requires the Minister to act with all due dispatch or to meet the other conditions in subsection 152(1). [169, 171]
In any case, D’Auray J concluded that section 166 would correct any irregularity caught by s. 152(1)’s directory rules (such as the obligation to assess with all due dispatch). [189] And s. 152(8) validated protective assessments (relying on Golini). [190, 191] (But these corrective rules cannot allow CRA to make late reassessments or to validate assessments that were not sent to the taxpayer. [192, 193])
There is also a second part of this case that deals with the rather technical point falling out of s. 152(4.01), which restricts late reassessments to the matters for which the extended period is allowed. Here, there were late reassessments related to transactions with non-residents, for which the limitation period is an extra three years (i.e., six years or seven years for a non-CCPC such as Rio Tinto).
In an earlier decision on a procedural point, Favreau had said that the reassessments made to include income attributable to transactions with non-residents were new reassessments and not “additional reassessments”. Rio Tinto’s point was that those new reassessments included not only the transactions with non-residents but also the SRED reassessments. So, said Rio Tinto, the new reassessments were invalid because they were made late and covered more than the non-resident transactions. (Amounts covered by waivers were also included and subject to the same scheme of the Act.)
Rio Tinto said that if the CRA wanted to keep the earlier SRED reassessments, it had to make additional assessments and not reassessments that added the non-resident related amounts to the prior SRED reassessed amounts. D’Auray J did not agree.
In responding to Rio Tinto’s position, D’Auray J also gives a helpful explanation of the overlap between 152(5) and 152(4.01), noting that 152(5) is still relevant for reassessments made to give effect to an objection. [252, FN 34] 152(5) also, for her, illuminated the application of 152(4.01) by clarifying that the restrictions only apply to “any amount that was not included in computing the taxpayer’s income for the purpose of an assessment, reassessment or additional assessment made under this Part before the end of the period.” [254]. That formula of wording, she said, was implicit in 152(4.01). [257]