Forestales v. Canada

Forestales v. Canada Court (s) Database Federal Court of Appeal Decisions Date 2006-01-26 Neutral citation 2006 FCA 35 File numbers A-58-05 Decision Content Date: 20060126 Docket: A-58-05 Citation: 2006 FCA 35 CORAM: LÉTOURNEAU J.A. NOËL J.A. NADON J.A. BETWEEN: MAYA FORESTALES S.A. Appellant and HER MAJESTY THE QUEEN Respondent Hearing held at Québec, Quebec, on January 26, 2006. Judgment delivered from the bench at Québec, Québec, on January 26, 2006. REASONS FOR JUDGMENT OF THE COURT BY: NOËL J.A. Date: 20060126 Docket: A-58-05 Citation: 2006 FCA 35 CORAM: LÉTOURNEAU J.A. NOËL J.A. NADON J.A. BETWEEN: MAYA FORESTALES S.A. Appellant and HER MAJESTY THE QUEEN Respondent REASONS FOR JUDGMENT OF THE COURT (Delivered from the bench at Québec, Quebec, on January 26, 2006.) NOËL J.A. [1] This is an appeal from a decision rendered by Mr. Justice Dussault of the Tax Court of Canada on January 19, 2005, upholding in part the notices of assessment established in respect of the appellant for the taxation years 1994 to 1998. Dussault J. concluded that the appellant was deemed to have been carrying on a business in Canada within the meaning of section 253 of the Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, (“Act”). [2] Under paragraph 253(b) of the Act, a non-resident person is deemed to have been carrying on a business in Canada if he, she or it: solicits orders or offers anything for sale in Canada through an agent or servant, whether the contract or transaction is to be completed inside or outside Canada or partly in and partly outside Canada or elle sollicite des commandes ou offre en vente quoique ce soit par l’entremise d’un mandataire ou préposé, que le contrat ou l’opération ait dû être parachevé au Canada ou à l’étranger ou en partie au Canada et en partie à l’étranger; [3] After having studied the evidence, Dussault J. concluded that the appellant had solicited investments in Canada through an agent during the years in question and was accordingly subject to Canadian income tax for that part of its income attributable to the business carried on Canada. [4] On this point, the notices of assessment were established on the basis of an estimate of the gross sales made in Canada, because the appellant refused to file income tax returns for the relevant years in spite of repeated demands by the Minister. At the hearing held before Dussault J., the Minister admitted that an amount equal to 12.5% of these sales had been paid as commissions in Canada and that these commissions had to be deducted from the assessed estimated income. Dussault J. confirmed the accordingly reduced assessments. [5] Before us, the appellant admitted that it had done business in Canada during the period in question and had earned income. However, the appellant criticizes Dussault J. for not having reduced the assessed income according to the percentage of business conducted in Costa Rica and in Canada. According to the appellant, Dussault J. had the facts required to make this distinction and erred in law in refusing to do so. [6] Having said this, the appellant cited numerous excerpts from the testimony of its agent in Canada, showing that most of its activities took place in Costa Rica. [7] However, as the trial judge explained at paragraph 44 of the reasons for decision: The appellant has consistently refused to file income tax returns in Canada for the years in issue, and the assessments were made merely on the basis of its gross sales, moreover using information obtained from third parties. Subject to the respondent's admission that 12.5 % of the total sales was paid out as commissions and that the appellant can use this as a deduction, the appellant provided no evidence of any kind whatsoever to establish in a different way the taxable income earned in Canada through activities included in the presumption in paragraph 253(b) of the Act. There is no way for the tax authorities to reasonably allocate the income when the taxpayer itself refuses to provide the necessary information, and there is no way for those authorities to grant deductions that the taxpayer never claimed because it refused to file the tax returns required. [Emphasis added.] [8] In our view, this is a full answer to the appellant’s arguments. [9] No decision has to be rendered here as to whether the appellant has activities in Costa Rica. Dussault J. acknowledged that the appellant most probably earned part of its income there. The question is to determine on the basis of accounting data the proportion of the total income earned by the appellant which is reasonably attributable to its Canadian operations. This exercise cannot be done in a factual vacuum. [10] Considering the appellant refused to co-operate in any way and chose not to disclose any figures, it cannot complain today that its income was established on the basis of an estimate. [11] The appeal will be dismissed with costs. “Marc Noël” Judge Certified true translation Michael Palles FEDERAL COURT OF APPEAL SOLICITORS OF RECORD DOCKET: A-58-05 STYLE OF CAUSE: MAYA FORESTALES v. HER MAJESTY THE QUEEN PLACE OF HEARING: Québec, Quebec DATE OF HEARING: January 26, 2006 REASONS FOR JUDGMENT BY: Létourneau J.A. Noël J.A. Nadon J.A. DELIVERED AT THE HEARING: Noël J.A. APPEARANCES: François Daigle FOR THE APPELLANT Marie Bélanger FOR THE RESPONDENT SOLICITORS OF RECORD: Heenan Blaikie Trois-Rivières, Quebec FOR THE APPELLANT John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Ontario FOR THE RESPONDENT