Total Energy Services Inc. v. The Queen (2019)
*** This information is presented for educational purposes only and does not constitute legal advice. You should retain legal counsel if you require legal advice regarding your individual tax situation. ***
Total Energy Services Inc. v. The Queen (2019)
Key Lessons / Points
- Be familiar with the General Anti-Avoidance Rule (GAAR) set out in Section 245 in the Income Tax Act.
- In this case, the individuals in control of the Appellant and related beneficiaries and trusts performed a variety of transactions which were perceived to be completed with the intent to avoid the payment of taxes under Section 245 of the Income Tax Act.
Fiscal Years in Question
2010, 2011
Court Heard In
Tax Court of Canada (Vancouver, BC)
Dates Heard
October 16, 2017
Neutral Citation
2019 TCC 112
Docket
2016-367(IT)G
Amount Under Dispute
Not specified
Decision
[25] Based on all of the foregoing, the Appellant’s Motion is dismissed in accordance with the above reasons. Costs in respect of this Motion shall be payable by the Appellant to the Respondent in any event of the cause.
Summary
The Appellant, Total Energy Services Inc. (“TESI”) is a body corporate and is the ultimate successor of the conversion of the Total Energy Services Trust from a trust to a corporation, which occurred on May 20, 2009. The conversion was required due to the October 31, 2006, announcement by the Minister of Finance of a new distribution tax for specified investment flow-through trusts (“SIFTs”). Legislation was later implemented to allow conversions of a SIFT on a tax-deferred basis to a corporation (the “SIFT Conversion Rules”). The Appellant used certain tax attributes (relating to capital and non-capital losses, ITCs and SR&ED expenditures of Xillix) in its December 31, 2010 and December 31, 2011 taxation years which were denied by the CRA in 2015 on the basis of the general anti-avoidance rule (GAAR). The judge ruled that the documents requested by the Appellant in their appeal were not relevant to their case and the Respondent was not required to share them with the Appellant. The appeal was dismissed with costs.
Key Excerpts
[1] Total Energy Services Inc. (“TESI”) is a body corporate and is the ultimate successor of the conversion of the Total Energy Services Trust from a trust to a corporation, which occurred on May 20, 2009, pursuant to a plan of arrangement (the “Conversion Transactions”). The conversion was effectively necessitated by the October 31, 2006, announcement by the Minister of Finance of a new distribution tax for specified investment flow through trusts (“SIFTs”), later accompanied by legislation to allow conversions of a SIFT on a tax-deferred basis to a corporation (the “SIFT Conversion Rules”). As a result of the Conversion Transactions and certain other transactions (the “CCAA Transactions”) undertaken pursuant to the Companies’ Creditors Arrangement Act (the “CCAA”) with respect to Xillix Technologies Corp. (which was renamed Biomerge Industries Ltd.), TESI utilized certain tax attributes (relating to capital and non-capital losses, ITCs and SR&ED expenditures of Xillix) in its December 31, 2010 and December 31, 2011 taxation years.
[2] By Notices of Reassessment (the “Reassessments”) issued by the Minister of National Revenue (the “Minister”) pursuant to the Income Tax Act (the “Act”) [1] on August 27, 2015, the Minister disallowed certain non-capital losses, net capital losses and SR&ED expenditures claimed by the Appellant in its 2010 and 2011 taxation years [2] on the basis that the general anti-avoidance rule (the “GAAR”) set out in section 245 of the Act applied to the CCAA Transactions and the Conversion Transactions. In this respect, the Minister alleged that the CCAA Transactions and the Conversion Transactions were structured in a manner to circumvent subsections 111(4), 111(5), 37(6.1) and 127(9.1) and the general policy of the Act regarding tax attribute trading and to defeat the underlying policy of the SIFT Conversion Rules, including subsections 85.1(8), 107(3) and 107(3.1). The Appellant has appealed the Reassessments to this Court on the basis that the GAAR did not apply and that the Reassessments were issued outside of the normal reassessment period. In respect of the application of the GAAR, the Appellant argues, inter alia, that the introduction of paragraph 256(7)(c.1) [3] two years after the Conversion Transactions reflects a change in policy under the Act regarding tax attribute trading in the context of the SIFT Conversion Rules, and that therefore the GAAR should not apply in the circumstances of the underlying appeals in this case.
[11] It is clear therefore, that the GAAR is at issue in the underlying appeal in this case, and that the Minister has pleaded the policies relied on in applying the GAAR to the Appellant in issuing the Reassessments.
[12] In summary, the Appellant argued that it is entitled to production of the Refused Documents in order to probe whether they are relevant to establishing the general policy behind the provisions under examination and whether the addition of paragraph 256(7)(c.1) to the Act constitutes a clarification or a change in such policy. The Appellant also argues that there is no bright line test, and that in light of the similarities between this case and the Superior Plus cases, the Appellant should be entitled to the same disclosure as Superior Plus, even if the documents were not in the Minister’s audit file or considered by the auditor in this case.
[15] I disagree with the Respondent, however, that the above case law establishes a fixed demarcation line with respect to disclosure in a GAAR appeal. There may be other instances where relevance may be established in the context of a particular GAAR appeal. However, the mere fact that some of the Refused Documents were ordered disclosed by this Court to another taxpayer in the context of that other taxpayer’s appeal of a GAAR reassessment does not establish sufficient relevance in the context of this Appeal to require production of a Refused Document that would otherwise not be required to be disclosed at discovery.
[18] Nevertheless, production of documents at discovery must be decided on a case-by-case basis (Lehigh) and the fact that production was ordered in Superior #1 does not necessarily mean that the same conclusion should be reached in this instance. Thus, although many of the Refused Documents that are at issue in this Motion are the same as the ones which were ordered to be disclosed in Superior #1, it is my view that they are not necessarily relevant in the context of this Appeal.
[20] In this case, there is no evidence that any of the Refused Documents have any connexion with the Appellant’s audit. As such, it is my view that they could not help the Appellant determine what policy was applied by the Minister or lead to a train of inquiry which could help it advance its case.
Link to Full Ruling
View the full report here.
Related Ruling
Total Energy Services Inc. v. The Queen (2019) – Current