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The uncertain future of the Tax Court of Canada’s Practice Note No. 23 “Preliminary Ruling Docket” in the new COVID-19 reality

On December 12, 2019, the Tax Court of Canada (the “Tax Court”) introduced “Practice Note No. 23: Preliminary Ruling Docket Procedure ” (the “Practice Note”)– a pilot project intended to provide parties with a non-binding opinion of a Tax Court judge. As the Procedure was intended to be a pilot project, the Tax Court had significantly circumscribed what kinds of appeals may be eligible for the Preliminary Ruling Docket.

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The uncertain future of the Tax Court of Canada’s Practice Note No. 23 “Preliminary Ruling Docket” in the new COVID-19 reality

September 2nd, 2020

By Milosz Zak, Associate, and Boris Stanislav, Associate, Farber Tax Law

On December 12, 2019, the Tax Court of Canada (the “Tax Court”) introduced “Practice Note No. 23: Preliminary Ruling Docket Procedure” (the “Practice Note”)1“Preliminary Ruling Docket Procedure”, Practice Note No. 23, TCC, December 12, 2019, <https://www.tcc-cci.gc.ca/tcc-cci_Eng/Process/practice23.html>. – a pilot project intended to provide parties with a non-binding opinion of a Tax Court judge.

Under section 12 of the Tax Court of Canada Act,2 Tax Court of Canada Act, RSC, 1985, c T-2), section 12. the Tax Court has exclusive original jurisdiction to hear and determine references and appeals to the Tax Court on matters related to a variety of legislation, and most notably the Income Tax Act3 Income Tax Act, RSC, 1985, c 1 (5th Supp). and the Excise Tax Act.4 Excise Tax Act, RSC, 1985, c. E-15. As a result, on occasion, the Tax Court issues “Practice Notes”, which are meant to assist parties to uniformly adhere to the Tax Court of Canada Rules (General Procedure) (the “Rules”).5Tax Court of Canada Rules (General Procedure), SOR/90-688a, <https://laws-lois.justice.gc.ca/eng/regulations/SOR-90-688a/>.

In this way, the Tax Court introduced the Practice Note, and intended for hearings to run in Toronto and Vancouver for one year, commencing on January 1, 2020. The purpose of the preliminary ruling docket procedure (the “Procedure”) was to expedite the litigation process and make litigation in the Tax Court less expensive. After the one-year pilot period, the Tax Court would assess and decide if this approach is effective and whether it ought to continue.

The Procedure directs litigants to first submit a joint application to the Tax Court and if the applicants meet the stringent requirements posed by the Practice Note, their appeals will be heard and parties will receive a non-binding preliminary ruling on their appeals from a Tax Court judge.

The judge presiding over the hearing will not preside over the future trial if there is one,6“Preliminary Ruling Docket Procedure”, Practice Note No. 23, TCC, December 12, 2019, paragraphs 14(a)(i)–(iii), <https://www.tcc-cci.gc.ca/tcc-cci_Eng/Process/practice23.html>. if the parties continue the appeal, notwithstanding the non-binding ruling.

After parties receive the non-binding ruling issued within 60 days of the completion of the preliminary ruling hearing pursuant to section 12 of the Practice Note,7“Preliminary Ruling Docket Procedure”, Practice Note No. 23, TCC, December 12, 2019, section 12, <https://www.tcc-cci.gc.ca/tcc-cci_Eng/Process/practice23.html>. the parties should have a better understanding of the strength and weaknesses of their respective positions, whether they ought to attempt to settle,8“Preliminary Ruling Docket Procedure”, Practice Note No. 23, TCC, December 12, 2019, subsection 13(a), <https://www.tcc-cci.gc.ca/tcc-cci_Eng/Process/practice23.html>. or continue through the costly litigation process all the way up to a trial.

Timing anomalies: The effects of the COVID-19 pandemic on Practice Note No. 23

As the Procedure was intended to be a pilot project, the Tax Court had significantly circumscribed what kinds of appeals may be eligible for the Preliminary Ruling Docket. Although most tax litigators may recognize circumstances where it may be appropriate to expedite an appeal through the Preliminary Ruling Docket (i.e. thereby making buy-in by the opposing counsel through the requisite joint application a non-issue), the necessity to bring the application within 120 days of the close of pleadings may create anomalies.

Firstly, for appeals in which the pleadings closed before September 3, 2019 (i.e. that is 120 days before the commencement date of January 1, 2020), the Preliminary Ruling Docket would have never been available. Similarly, if the program is now to run until December 31, 2021, pursuant to the July 8, 2020 Notice to the Public and the Profession,9Notice to the Public and the Profession, TCC, July 8, 2020, <https://www.tcc-cci.gc.ca/tcc-cci/pdf/Notice%20to%20the%20Public%20and%20the%20Profession-%20July%208,%202020-EN.pdf>. the close of pleadings and the joint application for the Preliminary Ruling Docket will have to have been filed before the start of the holiday break beginning on December 21, 2021. Should the Tax Court cease operations once more on account of a second wave, litigants may not be able to effectively utilize the Procedure.

The novel factor of this Practice Note means that not all tax counsels understood its potential benefits and drawbacks in the first few months of 2020. As the program was announced right before the December 2019 break, it is conceivable that in the first weeks of 2020, there were many appeals which technically fit the criteria described in the Practice Note,10“Preliminary Ruling Docket Procedure”, Practice Note No. 23, TCC, December 12, 2019, sections 4, 5, <https://www.tcc-cci.gc.ca/tcc-cci_Eng/Process/practice23.html>. but subsequently crossed the 120 days limitation period.

To complicate matters further, because the onset of the COVID-19 pandemic caused the Tax Court to suspend operations on March 13, 2020,11Notice to the Public and the Profession, TCC, March 13, 2020, <https://www.tcc-cci.gc.ca/tcc-cci/pdf/Covid%20English.pdf>. the Tax Court would never have had the same amount of time to assess the effectiveness of the Practice Note. There is no indication that the exclusion of the period from March 13, 2020 to September 13, 2020 from the computation of time, mandated by the July 27, 2020, federal Time Limits and Other Periods Act (COVID-19)12Time Limits and Other Periods Act (COVID-19), SC 2020, c 11, s 11, <http://canlii.ca/t/54qbp>. with which the Tax Court aligned itself with in its August 14, 2020 Notice to the Public and the Profession,13Notice to the Public and the Profession, TCC, August 14, 2020, <https://www.tcc-cci.gc.ca/tcc-cci/pdf/Notice%20to%20the%20Public%20and%20Profession-%20August%2014,%202020-EN.pdf>. extends to the Practice Note, save for the rescheduling of the end of the pilot project for December 31, 2021.

Notwithstanding any amendments to the time limits, the 120-day rule for joint applications runs 120 days from the close of pleadings, which, pursuant to the Rules is either when an Appellant files and serves an Answer or when the time for the filing and serving of an Answer has expired.14Tax Court of Canada Rules (General Procedure), SOR/90-688a, rule 46 <https://laws-lois.justice.gc.ca/eng/regulations/SOR-90-688a/page-4.html#h-927556>. As the filing and serving of Replies, a precursor to an Answer, has been effectively delayed, the 120-day rule has also been effectively delayed and therefore the appellants who may want to utilise the Practice Note may benefit from the current delay and rescheduling of the end of the Practice Note so as to enable them to utilize the Procedure. However, given the current backlog of trials in the Tax Court hinted at in “Practice Note No. 24: Fast-track Settlement Conferences”, combined with the pilot period ending December 31, 2021, even if parties wish to pursue this avenue, it may be unlikely that the Tax Court will in fact hear appeals pursuant to the Practice Note prior to December 31, 2021.

References

[1] “Preliminary Ruling Docket Procedure”, Practice Note No. 23, TCC, December 12, 2019, <https://www.tcc-cci.gc.ca/tcc-cci_Eng/Process/practice23.html>.

[2] Tax Court of Canada Act, RSC, 1985, c T-2), section 12.

[3] Income Tax Act, RSC, 1985, c 1 (5th Supp).

[4] Excise Tax Act, RSC, 1985, c. E-15.

[5] Tax Court of Canada Rules (General Procedure), SOR/90-688a, <https://laws-lois.justice.gc.ca/eng/regulations/SOR-90-688a/>.

[6] “Preliminary Ruling Docket Procedure”, Practice Note No. 23, TCC, December 12, 2019, paragraphs 14(a)(i)–(iii), <https://www.tcc-cci.gc.ca/tcc-cci_Eng/Process/practice23.html>.

[7] “Preliminary Ruling Docket Procedure”, Practice Note No. 23, TCC, December 12, 2019, section 12, <https://www.tcc-cci.gc.ca/tcc-cci_Eng/Process/practice23.html>.

[8] “Preliminary Ruling Docket Procedure”, Practice Note No. 23, TCC, December 12, 2019, subsection 13(a), <https://www.tcc-cci.gc.ca/tcc-cci_Eng/Process/practice23.html>.

[9] Notice to the Public and the Profession, TCC, July 8, 2020, <https://www.tcc-cci.gc.ca/tcc-cci/pdf/Notice%20to%20the%20Public%20and%20the%20Profession-%20July%208,%202020-EN.pdf>.

[10] “Preliminary Ruling Docket Procedure”, Practice Note No. 23, TCC, December 12, 2019, sections 4, 5, <https://www.tcc-cci.gc.ca/tcc-cci_Eng/Process/practice23.html>.

[11] Notice to the Public and the Profession, TCC, March 13, 2020, <https://www.tcc-cci.gc.ca/tcc-cci/pdf/Covid%20English.pdf>.

[12] Time Limits and Other Periods Act (COVID-19), SC 2020, c 11, s 11, <http://canlii.ca/t/54qbp>.

[13] Notice to the Public and the Profession, TCC, August 14, 2020, <https://www.tcc-cci.gc.ca/tcc-cci/pdf/Notice%20to%20the%20Public%20and%20Profession-%20August%2014,%202020-EN.pdf>.

[14] Tax Court of Canada Rules (General Procedure), SOR/90-688a, rule 46 <https://laws-lois.justice.gc.ca/eng/regulations/SOR-90-688a/page-4.html#h-927556>.

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