United Equities Ltd. v. Canada
A-1466-92
Robertson J.A.
21/12/94
25 pp.
Appeal from trial judgment allowing appeal from Tax Court's dismissal of appeal from Minister's disallowance of $100,000 Scientific Research Tax Credit (SRTC) -- In 1983, introduction of programme to stimulate funding of scientific research by enabling corporation to transfer right to SRTC to investor -- Respondent invested in Acadia Saw Mills' project for mobile saw, for which respondent to receive SRTC -- On May 31, 1984 Acadia received $200,000 from respondent in return for debenture in amount of $114,000 -- Contract requiring Acadia to designate $200,000 for purposes of SRTC thereby creating tax credit of $100,000 -- Debenture redeemed June 1, 1984 at par -- "Quick flip" resulted in respondent purchasing $100,000 tax credit for $86,000 while Acadia retaining $100,000 refundable tax liability -- Under Income Tax Act, s. 194(7), designation form to be filed on or before June 30, 1984 -- Documents to permit designation of tax credit not filed on time -- Following October 15, 1985 inquiry by Revenue Canada, solicitor for Acadia Saw Mills forwarding misplaced documents same day -- On December 23, 1985 Acadia Saw Mills forwarding to solicitor letter dated November 18, 1985 from Revenue Canada signed by member of Part VIII Group responsible for processing forms supplied by research companies -- November 18 letter returning designation because of late filing, while indicating if forms resubmitted and late filing penalty paid within 30 days, designation would be accepted as having been timely filed -- Acadia Saw Mills not forwarding letter until after time allowed lapsed -- Solicitor concluding on basis of s. 194(7), Acadia Saw Mills having ninety days to comply -- On January 15, 1986 resubmitting form, $8,000 penalty -- Moratorium placed on programme on October 10, 1984 partly because of "quick flip" and fact such transactions perfectly valid -- November 18 letter premised on June 28 internal memorandum setting out procedure for dealing with late filing of designation forms, collection of penalties -- By July 29, 1985 under covering inter-departmental memorandum, drafts of "Minister's notice" letters circulated with instructions for preparation, signature by Assistant Deputy Minister and for sending by double registered mail -- No letter modelled on draft, and no letter signed by Assistant Deputy Minister ever sent to Acadia Saw Mills -- Acadia Saw Mills failed to make eligible research expenditures -- In February 1987 Department determining if monies not expended on research late designation not to be accepted -- Trial Judge concluding (1) timely filing of information returns not condition precedent to late filing of designation as provided for in s. 194(7), provided Minister giving notice designation, payment of penalty must be made on or before 90 days after mailing of notice; (2) November 18 letter constituting notice by Minister within s. 194(7) -- Appeal allowed -- (1) Timely filing of information returns not condition precedent to late filing of designation forms where Minister giving notice under. s. 194(7) -- In absence of exception clause, timely filing of information return condition precedent to making late designation -- Provisions of Act governing SRTCs intended to encourage otherwise risky private investment in research, development projects -- S. 194(7) curative provision intended to provide relief against forfeiture of intended tax benefits -- Without legislative mechanism for allowing late filing, designating company and investor may forfeit right to create, purchase tax credit respectively -- Narrow interpretation not furthering legislative aim as such construction reducing possibility of investors and designating companies obtaining relief from forfeiture -- Liberal construction giving Minister discretion to develop policies taking into account competing interests of Canadian taxpayers and innocent investors and to refuse to send notice where interests of former should prevail over latter -- Filing of information returns not critical to administration of s. 194(7) -- Act not specifying need or time for filing information returns, matter dealt with by regulation -- Designating company's failure to file required information returns not undermining Minister's ability to exercise powers under s. 194(7) -- (2) November 18 letter not Minister's notice within s. 194(7) -- No one in Part VIII Group had express statutory authority to issue Minister's notice under s. 194(7) -- Common law doctrine of implied delegation inapplicable -- June 28 internal memorandum expressly negating authority of Part VIII Group to deal with cases in which both designation, information returns not filed on time -- Memorandum requiring attached draft letter forwarded to delinquent corporation requiring compliance and outlining action to be taken in event letter not resulting in compliance within 30 days -- Expressly contemplating Minister's notice to be sent if no response to 30-day letter received -- November 18 letter merely 30-day notice, mistakenly sent pursuant to departmental policy, seeking payment of penalty arising from late filing of designation form -- Trial Judge apparently perceived issue in terms of whether letter purported to be Minister's notice and acted upon accordingly and therefore should be treated as one -- Failed to determine whether anyone in Part VIII Groups authorized to issue Minister's notices -- Income Tax Act, S.C. 1970-71-72, c. 63, s. 194(7) (as enacted by S.C. 1984, c. 1, s. 95).