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mercredi 13 mars 2013

The Superior Court’s Jurisdiction in Tax Matters


Par Sarah D. Pinsonnault
Revenu Québec

Although the Quebec Superior Court is a court of “original general jurisdiction”, pursuant to section 31 of the Civil Code of Procedure (“C.C.P.”), it cannot hear a suit if another court has exclusive jurisdiction over the matter in question. In the recent case Stephkan Holdings Inc. c. Canada Revenue Agency, 2013 QCCS 643, the Petitioners are thus prevented from circumventing the federal tax system by objecting to a federal income tax assessment before the Superior Court, because it is the Tax Court of Canada that has the “exclusive original jurisdiction” over this subject matter in accordance with section 12(1) of the Tax Court of Canada Act.

Background


The Petitioners and the Canada Revenue Agency (“CRA”) signed a settlement agreement, whose terms “provided that there would be “no adjustment to taxable income” for certain tax years” under the condition that the Petitioners carried out certain actions. Despite having performed the latter, the Petitioners were nevertheless re-assessed for certain of the years in question.

The Petitioners decided to submit, before the Superior Court of Quebec, a motion seeking the homologation of the settlement agreement.

In response, the CRA presented a Motion for Preliminary Exception, by virtue of section 163 C.C.P., alleging that the Superior Court lacks the jurisdiction and authority to hear this matter. Ultimately, the CRA put forth the argument that the Petitioners were, in seeking the homologation of the settlement agreement, trying to contest the validity of the tax assessments. In doing so, the CRA claimed that the Petitioners were circumventing the tax assessment appeal process prescribed, by Parliament, under the subsections 165(1) and 169(1) of the Income Tax Act.

Decision

Finally, the presiding judge, Justice Mark G. Peacock, granted the CRA’s Motion to Decline Jurisdiction in accordance with the Supreme Court of Canada’s guiding principle established in Canada c. Addison & Leyen Ltd., 2007 CSC 33:

“[15] This Court interprets Canada v. Addison & Leyen Ltd.[10] to require the following. The Taxpayers should first of all object to the impugned assessments to the Minister. If unsuccessful, the impugned assessment could be contested before the Tax Court of Canada, with the Taxpayers raising the Settlement Agreement as a defence. This specialized court is in the best position to ensure a uniformity of jurisprudence in this complex area by adjudicating on these inextricably connected issues: the validity of the Settlement Agreement and the impugned assessments. Whereas the Superior Court could only hear the homologation application, the Tax Court of Canada has the necessary jurisdiction to hear the whole matter, including the legal effect of the Settlement Agreement on the impugned assessments.

[16] To dismiss the C.R.A.’s Motion for Declinatory Exception and permit this case to be heard on the merits of the homologation would run counter to the Supreme Court of Canada’s guiding principle in Canada v. Addison & Leyen Ltd. and would not be a judicious use of the court’s resources – nor those of the federal government who otherwise may have to provide the legal representation for the C.R.A. before the Tax Court of Canada and the Superior Court.”

To read this decision in its entirety, click here.
 

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