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Tax Court Proper Forum for Determining Whether Notice of Assessment Mailed

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Whether a notice of assessment was mailed or not has important legal consequences for taxpayers.  There is an irrebuttable presumption of receipt of the notice of assessment by a taxpayer once it is mailed by the Minister (S,248(7)(a) of the Income Tax Act (“ITA”)); a notice of objection must be served on the Minister within 90 days of the date on which the notice of assessment was mailed (s.165(1)); upon receipt of a notice objection, the Minister is obliged to reconsider the assessment and vacate, confirm or vary the assessment or reassess and to notify the taxpayer of its decision (s. 165(3)); and the taxpayer may appeal the assessment to the Tax Court of Canada (“TCC”) if the Minister has not vacated or confirmed the assessment or reassessed within 90 days of receiving the notice of objection (s. 169(1)). Parallel provisions are found in the Excise Tax Act.

The application of the deemed receipt provision in subsection 248(7) is critical, because it starts the entire chain that is the appeals process. But what happens when a notice of assessment, which was allegedly mailed by the Minister, was never received by a taxpayer?

In the recent Federal Court of Appeal (“FCA”) decision in MNR v. Conocophillips Canada Resources Corp. (2014 FCA 297), what happens was discussed in the context of the expected jurisdiction of the Federal Court or the TCC to decide the matter.

The facts in Conocophillips were pretty straight forward.  The case involved a dispute about whether an income tax notice of reassessment was mailed on November 7, 2008.  The Minister alleged that the notice of reassessment (“Assessment”) was so mailed.  The taxpayer alleged that it never received the Assessment and that it first learned of the Assessment on April 14, 2010 – many years after the due date for the notice of objection.

After being provided with a copy of the Assessment, the taxpayer filed a notice of objection on June 7, 2010 (“Objection”).  The Minister refused to consider the Objection on the basis that the Objection was not filed within the 90-day objection period and an application for extension of time had not be made with the Minister within the year following the alleged mailing of the Assessment.

The taxpayer made a judicial review application to the Federal Court, with the purpose of setting aside the Minister’s rejection of the Objection (i.e., “forcing” the Minister to consider the Objection) so that it could appeal to the TCC should it disagree with the Minister’s consideration of the Objection.

The Minister opposed the application on the grounds that the subject matter was within the exclusive jurisdiction of the TCC and that the Minister’s decision was reasonable. 

At the Federal Court, the application for judicial review was granted.  The Federal Court concluded that it had jurisdiction as the taxpayer had no other adequate legal remedy (in its view, no appeal was available to the TCC because a condition precedent to the operation of s. 169(1)(b) of the ITA was not met), and the application was not to challenge the Assessment’s validity but to review the Minister’s decision to reject the Objection.  The Federal Court also considered the Minister’s decision unreasonable as the Minster failed to provide sufficient evidence to support a finding that the Assessment was in fact mailed on November 7, 2008.  The Minister appealed to the FCA on the jurisdictional point.

The FCA ultimately reversed the Federal Court, and dismissed the application for judicial review, concluding that only the TCC had proper jurisdiction to hear the matter.  In the FCA’s view, the Federal Court had jurisdiction only where there was no permitted appeal to the TCC.  The FCA determined that the proper recourse was in fact for the taxpayer to commence an appeal to the TCC under s. 169(1)(b) of the ITA, after 90 days had elapsed following the filing of the Objection, which would then give the TCC the jurisdiction to determine whether the Objection was filed on a timely basis, and address whether or not the Assessment was in fact mailed to the taxpayer as alleged by the Minister.  Alternatively, the taxpayer could request that the question of the timeliness of the Objection be determined before the trial (pursuant to Rule 58(1) of the Tax Court of Canada Rules (General Procedure)).

The FCA stated that the ministerial obligation to reconsider an assessment was triggered when served with a notice objection – it did not matter whether the notice of objection was served within the statutory time frame.

By way of commentary, and on one level of analysis, the FCA decision provides some helpful clarification that the obligation of the Minister to reconsider the assessment when served with the notice of objection does not hinge on whether or not the notice of objection is served within the statutory time frame.  Furthermore, the taxpayer’s right to appeal to the TCC is not be affected by the Minister’s decision with respect to the timeliness of the notice of objection.  However, in order to avoid uncertainties in this area (including the challenge to overcome the irrebuttable presumption of receipt of a notice of assessment once it is mailed), it is advisable for taxpayers to actively monitor issuance of notices of reassessment by the Minister and to object by filing timely notices of objection. 

On a second level of analysis, one sees the difficulty that a taxpayer – and taxpayer’s counsel – often face on applications for judicial review in respect of taxation matters.   Section 18.5 of the Federal Courts Act prohibits an application for judicial review to the Federal Court if the matter can be heard by the TCC on an appeal to that Court, and several recent decisions of the FCA (e.g., JP Morgan (2013 FCA 250), Sifto (2014 FCA 140)) have discussed the difficulties associated with understanding these lines of demarcation, often overturning the Federal Court’s initial decision on the matter.    If trial judges have difficulty sorting out which court has jurisdiction, it is time for clarifying amendments to the appropriate jurisdictional provisions of the governing statutes to eliminate these sorts of problems.

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