Federal Court of Appeal Rules Crown Must Honour Settlement Agreement with Taxpayer - Canada v. CBS Canada Holdings Co.

  • 06 avril 2020
  • Amit Ummat

Summary

A corporate taxpayer entered into a settlement with the Crown to reallocate its non-capital losses in the 2007 tax year. After signing the agreement but before the reassessments were issued, the Crown tried to resile from the settlement agreement. The taxpayer brought a motion before the Tax Court of Canada (“TCC”) for an order enforcing the settlement agreement. The TCC ruled in favour of the taxpayer. The Crown appealed to the Federal Court of Appeal (“FCA”) and the taxpayer prevailed again. 

Background

In 2002, Viacom Canada was formed following the amalgamation of several companies. In 2006, Viacom Canada’s name was changed to CBS Canada Holdings Co. (“CBS”). On March 8, 2007, CBS was involved in an amalgamation with several other related corporations, resulting in  two taxation year-ends of March 7, 2007 and December 31, 2007. In its income tax returns for each of those years, CBS deducted a non-capital loss in computing its income. CBS claimed these were incurred by its predecessors in prior years and available for carry-forward in the amounts of $25,751,078 and $7,557,852, respectively. The Minister reassessed the 2007 taxation years and reduced the non-capital losses available to carry-forward as $893,260 for March 2007 and $382,594 for December 2007. The Minister denied the remaining non-capital loss amounts claimed on the basis that such amounts were less than reported by CBS’ predecessors. In 2013, CBS appealed the reassessments. 

During the litigation, CBS offered to settle the appeal, by carrying forward approximately $24 million of other non-capital losses (not the amounts in dispute) from prior years to the March 2007 taxation year. The Crown eventually agreed to accept the offer (with a minor change not relevant to this case). Minutes of Settlement were circulated, revised, and eventually signed by both CBS and the Crown.

Several weeks later, the Crown advised CBS that contrary to its prior understanding, no non-capital losses were available for carry forward to the taxation years under appeal. After many procedural steps ensued, CBS filed a motion at the TCC to enforce the settlement.

The only issue was whether the Minutes entered into and signed by both parties constituted a valid and binding settlement agreement.