Legal Resurrection: Tax Appeals and Dissolved Corporations
In the height of tax season, corporations are reminded that regardless of their dissolved status, the government will always get its due. Dissolution does not offer protection against a tax assessment, and second, the dissolved status of a corporation must be addressed before a court is able to hear a corporation’s legal appeal.
In 1455257 Ontario Inc. v Canada, 2016 FCA 100, the Federal Court of Appeal (“FCA”) offers a straightforward analysis of the proper process for a dissolved corporation to challenge a civil action.
The case at issue focused on a company, “1455257 Ontario Inc.”, which incorporated in 2000 and was later dissolved in 2007. In 2010, three years after the company’s dissolution, the Canada Revenue Agency (“CRA”) issued a notice of assessment for the dissolved company because of taxes still owed to the CRA. The numbered company sought to challenge this notice by appealing to the Tax Court of Canada (“TCC”) but when it reached that level, the TCC determined that the dissolved company lacked the ability to initiate an appeal.
The key issue at the FCA was whether the TCC erred in denying the dissolved corporation the ability to challenge the notice of assessment. Instead, the TCC adjourned the matter for 60 days to give the company time to revive its corporate status and properly initiate a review of the CRA notice.
Essentially, the case came down to process and, specifically, whether the dissolved corporation’s actions to seek a review was technically the continuation of a legal proceeding or the initiation of a legal proceeding. This distinction would be critical to determining whether the dissolved corporation would have to revive its corporate status in order to pursue a challenge to the assessment notice.
Under Ontario’s Business Corporations Act, RSO 1990, c B16, subsections 241 (5) and 242 (1) outline that the corporation has the ability to revive itself as if it had never been dissolved and that civil, criminal, or administrative actions can be brought against a corporation as if it had not been resolved.
These important provisions were the central focus of the TCC in its review of previous case law.
In particular, the TCC found that while older jurisprudence would seem to suggest that revival was not necessary to challenge a decision, the wording of the legislation had been changed to require revival as a prerequisite for appealing a notice from the CRA. As such, in this scenario, the TCC overruled those previous decisions and instituted an adjournment to give the numbered corporation an opportunity to revive itself before pursuing a review.
The FCA ultimately sided with the outcome at the trial level court, but for different reasons. Writing for a unanimous court, Justice Dawson found that the numbered corporation in this case did require revival, but not because current legislation was significantly different from previous legislation. In fact, the court found that the two pieces legislation were identical in substance.
Instead, the appeal court made a procedural argument. According to the Tax Court of Canada Act, RSC, 1985, c T-2, a proceeding begins by the filing of an originating document. In the present case, the CRA notice of assessment was not the originating process. Instead, the originating process occurred when the corporation filed documents with the TCC. Therefore, since the corporation initiated filing with the TCC, it was this action that triggered the requirement that corporate status be revived.
It is unclear why the corporation decided against following the dictate of the TCC to use the adjournment period to revive itself. Instead, representatives for the corporation presented arguments for why it should not have to go though the revival process.
The corporation went even further to argue that it would actually be unfair to require revival since this prerequisite did not apply to all corporations. This argument brought attention to the fact that not all dissolved corporations in Ontario could apply for revival. Examples of corporations that fall into this category include those that voluntarily dissolved, that were dissolved for cause, and those that dissolved more than 20 years before the requested revival time.
The essential point made was that the discriminatory treatment of particular types of corporations should suffice in removing revival as a requirement. To leave the legislation in tact would inevitably lead to a situation where a “non revivable” corporation could never challenge an administrative decision. This clearly puts certain corporations at a disadvantage by denying access to a fundamental legal tool: the right of appeal.
However, the FCA was able to skirt this argument by responding that even if certain corporations cannot be revived through traditional means, there are other avenues, such as a Private Act of the Ontario Legislature, which could accommodate and grant a revival in unique circumstances.
In the end, the corporation was required to abide by the legislation and seek revival before they could initiate a proceeding. This case clarifies the expectations of corporations in similar predicaments when seeking legal recourse after dissolution. When in doubt, revival is best.