Federal Court Of Appeal Blocks Crown From Reneging On Tax Settlement

CBS Canada1 confirmed that the Crown is bound by its settlement agreements with taxpayers. A deal is a deal. The case has other important ramifications for future tax disputes and is recommended reading for anyone who practices tax and tax dispute resolution.

Background

The Federal Court of Appeal ("FCA") upheld the 2018 Tax Court of Canada ("TCC") enforcement of a settlement agreement negotiated over the course of several months between CBS Canada Holdings Co. ("CBS") and the Crown. After lengthy consideration, the Crown signed binding minutes of settlement, then tried to renege after the CRA supposedly concluded that non-capital losses ("NCLs") included in the settlement were unavailable. The NCLs were incurred by CBS's predecessor companies. CBS and its predecessors amalgamated on March 8, 2007 and, as a result, the amalgamated CBS had two year-ends in 2007 (March 7 and December 31). CBS deducted NCLs carried forward in the amounts of $25,751,078 and $7,557,852 for each of the 2007 year-ends, respectively. The CRA reassessed CBS, allowing NCLs of only $893,260 and $382,594 for each of the respective 2007 year-ends. CBS appealed, eventually offering to concede certain amounts with some NCLs being allowed and applied. As noted, the Crown considered and signed off on the settlement following negotiations involving the CRA conducted over the course of months. The CRA then refused to issue the resulting reassessments and tried to weasel out of the deal.

CBS brought a motion and the TCC enforced the settlement, despite the Crown's plea that the settlement agreement was "factually indefensible with no bearing in reality, therefore, illegal and non-binding on the Minister". The TCC concluded that the agreed facts in the minutes of settlement were grounded in objective reality, defensible on the facts and law and the settlement agreement was therefore binding, valid and enforceable. The Crown appealed to the FCA.

Issues in the Appeal

The three issues before the FCA were whether:

(1) the TCC had erred in allowing CBS' appeal and enforcing the settlement;

(2) the reassessment outlined in the settlement agreement resulted in an impermissible increase in tax payable; and

(3) the TCC had jurisdiction to hear CBS' motion.

Discussion Private practitioners may at times be ill at ease when settling TCC appeals, cognizant of the risk that the Crown might change its mind and try to renege, citing the "principled basis" doctrine.2 CBS Canada is significant...