Source: http://taxinterpretations.com/tax-topics/general-concepts/estoppel
Timestamp: 2019-04-21 07:00:47+00:00

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A representation of conduct amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation is made.
An act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation is made.
Detriment to such person as a consequence of the act or omission.
Estoppel is no longer merely a rule of evidence. It is a rule of substantive law: Halsbury's Laws of England, 4th Ed. Vol. 16, p. 840, paragraph 951. Lord Denning calls it "a principle of justice and of equity: orgate Mercantile Co. Ltd. v. Twitchings  1 QB 225 at 241. It is sometimes said that estoppel does not lie against the Crown. The statement is not accurate and seems to stem from a misapplication of the term estoppel. The principle of estoppel binds the Crown, as do other principles of law. Estoppel in pais, as it applies to the Crown, involves representations of fact made by officials of the Crown and relied and acted on by the subject to his or her detriment: Robertson v. Minister of Pensions  1 KB 227; The Queen v. Langille, 77 DTC 5086. The earlier cases are fully reviewed by Cameron J. in Woon v. MNR; 50 DTC 871. The doctrine has no application where a particular interpretation of a statute has been communicated to a subject by an official of the government, relied upon by that subject to his or her detriment and then withdrawn or changed by the government. In such a case a taxpayer sometimes seeks to invoke the doctrine of estoppel. It is inappropriate to do so not because such representations give rise to an estoppel that does not bind the Crown, but rather, because no estoppel can arise where such representations are not in accordance with the law. Although estoppel is now a principle of substantive law it had its origins in the law of evidence and as such relates to representations of fact. It has no role to play where questions of interpretation of the law are involved, because estoppels cannot override the law: Maritime Electric Co. v. General Dairies Ltd.  AC 610; MNR v. Inland Industries Ltd., 72 DTC 6013; Stickel v. MNR, 72 DTC 6178; Granger v. C.E.I.C.  3 FC 70."
Where a taxpayer has made a misrepresentation of fact upon which the Agency has detrimentally relied, the taxpayer will be precluded from resiling therefrom. Examples include representing in a return that a partnership does (or does not) exist (Hnatiuk, Desrochers)or failing to disclose an item of income. There is not considered to be detrimental reliance by the Agency where there is a subsequent disclosure of facts that would permit it to reassess within a statute-barred period (Cornforth). Estoppel also does not apply where the alleged misrepresentation relates to an issue of legal interpretation whose presence should have been apparent to the Agency (e.g., capital gains versus income treatment - Stremler).
The taxpayer's tax appeal was based on an alleged exemption, in an aboriginal treaty ("Treaty 8"), from all taxation. The motions judge found that he was bound by the legal finding in Benoit that there was no such exemption in Treaty 8, and granted the Minister's motion to strike references to Treaty 8 from the taxpayer's pleadings.
Webb JA reversed the motion judge's decision. Benoit made a factual conclusion, on whether "the Aboriginal signatories understood that they would be exempted from taxation for any reason," finding that there was "insufficient evidence" to support this view - therefore, the question was not whether stare decisis applied on the findings of law in Benoit, but rather whether issue estoppel applied on the findings of fact (para. 21).
Issue estoppel did not apply. Although the issue was the same, there was no evidence that any litigant in Benoit was the present taxpayer or his privy.
The taxpayers sought to show that the Minister's decision to allow an interest deduction for their taxation years prior to 1981 constituted an admission that was binding respecting the subsequent taxation years, and that in reliance on this initial approach of the Minister the taxpayers organized their affairs so as to continue to benefit from the interest deduction. The Court of Appeal affirmed the finding of the trial judge that evidence of these facts was not admissible on the ground that they did not disclose a reasonable cause of action. Chevalier D.J. noted (at p. 5314) that "the situation here is not one in which before doing something, namely obtaining an interest-bearing loan, the appellant sought and obtained from the Department a formal assurance that they would benefit from deductibility of that interest".
The taxpayer was not estopped from taking the position, for the first time, in his 1984 return that personal-use real estate had been converted into real estate inventory in 1981 (with the result that the taxpayer was able to deduct subsequently incurred expenses and a loss attributable to a decline in the property's value between the 1981 and 1984) given that at the time of filing the taxpayer's 1984 return, the Minister still had 14 months in which to consider the taxpayer's position and reassess 1981 if he choose to do so.
"It is clear that no estoppel arises in relation to the discharge of statutory responsibilities, and even where an officer of the department concerned has given advice in writing, that may not be relied upon as the basis for a claim of estoppel. Particularly is this so in regard to income tax assessments, for the Act itself provides for assessment and later variations by the Minister by reassessments."
Revenue Canada illegally told the taxpayer that collection of the amount payable by the taxpayer pursuant to s. 195(2) would not be attempted provided that the taxpayer was able to satisfy Revenue Canada that its liability would be eliminated at the end of the year by virtue of making eligible expenditures. Later, while the taxpayer was demonstrating to Revenue Canada that it had fulfilled this requirement, the Crown commenced collection proceedings without warning. It was held that "the respondents, by illegal abuse of authority and false inducements, [were] clearly estopped from taking any benefit from their sudden garnishments of the applicant's accounts".
The fact that prior to the 1974 taxation year, the Department had permitted the taxpayer's predecessor corporations to deduct certain types of development expenses did not establish that this was normal commercial and business practice, nor did it estop the Department from adopting a different position for the 1974 taxation year.
The appellant and its shareholder, by continuing to indicate to the public at large that the shareholder rather than the appellant was the owner of horses, were later estopped from suing for damages for wrongful seizure of those horses by the Department of National Revenue which honestly but mistakenly believed, in reliance on those public representations, that the horses were owned by the shareholder and other judgment debtors of the Crown and were thus available for seizure.
Although the taxpayer represented in his returns that no partnership existed between him and his wife, the Minister in assessing on the basis that no partnership existed, did not rely on that representation. The taxpayer accordingly was not estopped from contending that a partnership existed.
The taxpayer was estopped from changing its method of accounting for holdbacks and uncertified progress claims after the taxation year in question had become statute-barred. The principle that estoppel cannot override a statutory provision, did not apply because both accounting methods were permitted by the Act.
A trustee gave evidence that he was assured by Departmental "officials that if the estate did not deduct from its income [pursuant to s. 104(6)] the amount paid to the beneficiary then the beneficiary would not be liable therefor and that he acted upon that advice and assurance." It was noted that "estoppel was not pleaded but in any event it is not open to the plaintiff to set up an estoppel to prevent the operation of a statute."
The taxpayer, in 1966, agreed to withdraw his notice of objection in relation to his 1964 taxation year provided that the Minister reduce the portion of 1964 sales proceeds of $70,500 allocated to building from $46,625 to $44,625. The taxpayer was not estopped with respect to later taxation years from taking the position for capital cost allowance and terminal loss purposes that the full $70,500 purchase price should have been allocated to the land. It had not been proven that the taxpayer had made any representations of fact to the Minister, and the Minister had not acted to his detriment as a result of the alleged representations of the taxpayer.
"This is a text book example of estoppel by representation. The Plaintiff having represented that the partnership income was distributed in a certain way, the Minister of National Revenue having acted on that representation and, by so doing, is now finding himself statute barred from taxing the partnership income as the Plaintiff now says it was distributed, the Plaintiff cannot deny the truth of his original representation."
A corporation (“Garmeco”) had made timely claims for input tax credits for GST on legal invoices (based on alleged advice of a CRA official that it was the right person to make the claims), but was found by the Tax Court of Canada not to be entitled to them. A subsidiary of Garmeco (“IHI”) then claimed the ITCs on the basis that the Tax Court judgment had found that it was the right party to make the claims.
[T]he assertion (unchallenged by the Respondent) that a CRA officer several years ago advised IHI and Garmeco that the subject ITCs should be claimed by Garmeco (as was in fact done, as discussed), does not assist IHI in this appeal. Jurisprudence has well established that estoppel cannot override the law. “The doctrine [of estoppel in pais] had no application where a particular interpretation of a statute had been communicated to a subject by an official of the government, relied upon by that subject to his or her detriment and then withdrawn or changed by the government.” (Goldstein v. Her Majesty, 96 DTC 1029 (TCC) at 1034.) Thus, a taxpayer claiming reliance on errant advice by a CRA official does not help IHI. The law must be applied, notwithstanding that an official responsible for administering the law misinterpreted it in communicating to a taxpayer.
A private corporation that sold eligible capital property in 2008 declared a capital dividend in the year in an amount which included the untaxed portion of this sale receipt. This was a mistake, as the addition to the capital dividend account for this amount does not occur until the beginning of the following year. When CRA discovered this mistake a number of years later, it indicated that it would not assess the corporation for Part III tax provided that the mistake was rectified through an order of the Quebec Superior Court.
CRA might have contemplated a court order that merely changed the dividend due dates. Only a small portion of the dividend made payable in 2008 was actually paid in 2008, so that the CDA addition from the sale was not needed to cover that dividend payment. Accordingly, all that was necessary to remedy the problem for the Superior Court to declare the payable date for most of the dividend to be on or after January 1, 2009.
What the corporation instead sought and obtained was a Court order dated January 6, 2014 that retroactively annulled the dividend and ordered the individual shareholder to repay the dividend, which he then did, and with a fresh capital dividend then being declared and paid. The corporation’s counsel sought this nullification order notwithstanding that CRA, on being apprised of this nullification plan, had a number of months previously assessed the individual under s. 15(2).
Favreau J upheld the s. 15(2) assessment, on the basis that he considered that the dividend payments gave rise to indebtedness of the individual to the corporation under the unjust enrichment principle.
The CRA informed counsel for the appellant as of March 1, 2013 that it intended to reassess the appellant and offered him the opportunity to delay the assessment to a date subsequent to the judgment of the Court and to be able to discuss the findings of the judgment. The appellant declined the offer … .
The concept of estoppel is a common law concept that has no equivalent in Quebec civil law. The only type of estoppel that would be of interest to us in this case, if this concept were applicable in Quebec, would be estoppel because of the conduct of the parties, specifically that of the CRA. Given the findings in the preceding paragraph, I do not see how estoppel in the conduct of the CRA could apply in the circumstances.
The appellants and Mr. Adam Stelmaszynski were convicted on two counts of fraud and two counts of attempted fraud for claiming false ITCs in GST returns, thereby committing offences contrary to paragraph 327(1)(d) of the ETA. Mr Stelmaszynski’s appeal of his conviction to the Ontario Court of Appeal was dismissed.
 The doctrine of issue estoppel should only be applied in a tax appeal in this Court in respect of a prior criminal tax evasion conviction in clear cases. It should not be applied indiscriminately once the preconditions are met. The Court should be satisfied that the issue of quantum in each particular taxation year was decided in the criminal proceedings.
Favreau J. found that as the trial jury’s verdict indicated it was satisfied that amounts alleged in indictment had been proven by the Crown, that quantum requirements had therefore been met. The real purpose of these appeals appeared to be relitigation of the criminal case, and failure to apply issue estoppel would violate principles of judicial economy, consistency and finality and integrity of administration of justice.
A debtor transferred assets to an affiliated creditor in order to repay debt of approximately $170 million owing by it. However, the conveyance only included partnership interests worth $158 million and did not include the balance of the debtor's assets of $12 million (the "Other Assets"). CRA assessed on the basis that the debt forgiveness rules applied to the debtor in the amount of $12 million as its debt had been settled in full on the repayment of an inadequate amount.
The Applicant had been relying on the non-transfer of the Other Assets to seek a tax benefit, and now seeks the transfer of such assets to obtain a different one. Rectification is a discretionary equitable remedy… . "He who seeks equity must do equity"…[B]y taking advantage of the capital cost allowance of the Other Assets, instead of immediately seeking a rectification order, I find [the debtor] undertook a course of conduct akin to acquiescence, precluding the remedy it now seeks.
The taxpayer's employer, General Motors of Canada Limited, assigned a new vehicle to the taxpayer and about 350 other senior managers or executives no less frequently than every three months for their personal and business use, but on the basis that they would identify shortcomings in the models and promote them to friends and acquaintances. The Director of Accounting and Collections Division of Revenue Canada, Taxation authorized GM in 1982 to use a simplified method for calculating the value of employee benefits, based on the average cost of all GM passenger vehicles sold in Canada and assuming 50% personal use of all vehicles in the pool. The Minister reassessed the taxpayer for 2008 and 2009 on a basis less favourable than the method in the 1982 authorization.
...[A]n approval should not be set aside by the courts too readily on grounds that it is contrary to law. Latitude should be given to the approval unless it is clearly not supportable by the law. The administration of the tax system would be significantly adversely affected if this were not the case.
The authorization when made in 1982 was not contrary to law, as it "provided a reasonable determination of employee benefits" (para. 41). However, it was clearly invalidated by the enactment of s. 6(1)(k) in 1993 "to provide a specific rule for operating expenses" (para. 47). Furthermore, there had been a material change in factual circumstances (i.e., the turnover of vehicles in 1982 had been more frequent) (para. 49).
Whether one looks at this situation through the lens of res judicata or issue estoppel, the result is the same. ... The matter has been finally decided.
The taxpayer's husband was reassessed in 2002 to include $500,000 in income, but died intestate in 2007 before his appeal was heard. His estate discontinued the appeal, and the taxpayer was assessed personally in 2011 to give effect to the $500,000 inclusion. One of the taxpayer's grounds for appeal was essentially to challenge the initial $500,000 assessment. The Minister moved to strike those arguments from pleadings, as the appeal of that assessment was abandoned in 2008.
C Miller J declined to strike the pleadings challenging the initial assessment. It was not plain and obvious that they would fail - it was unclear that issue estoppel would apply (stating, at para. 8, that there was "a contentious issue as to whether a discontinuance of a matter, without further judicial determination, meets one of the requirements") and, even if it did, a judge would still have discretion to hear the issue for reasons of justice and fairness (para. 8).
The taxpayer had been convicted of tax evasion by the Ontario Superior Court. He appealed his assessment of those same taxation years to the Tax Court, arguing on Charter grounds that the evidence against him had been collected in an unconstitutional manner. Pizzitelli J granted the Minister's motion to dismiss the appeal because, among other reasons, issue estoppel applied. Agreeing to hear the Charter arguments would put the Tax Court in the "ridiculous" position of essentially hearing an appeal from the Ontario Superior Court (para. 34).
The taxpayer had succeeded in an appeal from a prior taxation year, in which the taxpayer's motor vehicle expenses were deductible under s. 8(1)(h.1) in respect of his substitute teaching job. D'Auray J. found that neither the res judicata doctrine nor issue estoppel could block the Minister from denying the taxpayer's s. 8(1)(h.1) deductions in subsequent years. Res judicata cannot apply between appeals involving different taxation years because each taxation year is a different cause of action.
Issue estoppel did not apply because the Minister had new evidence (a witness for the school board). D'Auray J. noted that, "since in income tax appeals we often deal with recurring issues," it would be inappropriate to apply issue estoppel to prevent the Minister (or the taxpayer) from introducing new evidence simply because a deduction was allowed or disallowed previously (para. 80).
In a prior decision, the Tax Court had found that the taxpayer's directors were protected from liability for unremitted source deductions under s. 227.1(1) because they had a due diligence defence under s. 227.1(3). The question in the present case was whether the taxpayer would be liable under s. 227(9)(b). The taxpayer argued that its reassessment should be barred, because the question of source deduction liability on the present facts had already been settled by the prior Tax Court decision.
Bowie J. found that the Minister's reassessment was not barred by issue estoppel. In issue estoppel, the case must involve the same parties and the same issue. The present case engaged a different party (the taxpayer rather than its directors) and a different issue (s. 227(9) liability rather than s. 227.1(1) liability). Neither did the doctrine of res judicata bar the Minister's reassessment - the change in issues and parties meant that the present case could not be construed as a relitigation of the prior decision.
The doctrine of issue estoppel barred the Minister from asserting in the Federal Court that Ministerial review requests made by the taxpayer were filed late, given that the Tax Court had already found that the requests for Ministerial review of assessments were not filed late.
The taxpayer was convicted by the Ontario Court of Justice under s. 239 for misrepresenting his income. The Minister then reassessed the taxpayer's tax under s. 163(2). The taxpayer brought an appeal against the reassessment.
Lamarre J. granted the Minister's motion to quash the appeal. The taxpayer had introduced no new evidence that would undermine the conclusions reached by the Ontario Court of Justice. Applying Golden, Lamarre J. found that the taxpayer was estopped from relitigating the Ontario court's findings.
Issue estoppel applied to preclude the taxpayer from litigating before the Tax Court the question whether an amount of $34,000 should have been included in his income. Although the finding of a jury that he had committed tax evasion in respect of this amount did not turn on the particular quantum of the amount that he had failed to report, that quantum was part of the sentencing process made by the judge in that criminal proceeding. Furthermore, given that there had been proof of criminal mens rea beyond a reasonable doubt, this satisfied the onus on the Crown respecting the s. 163(2) gross negligence penalty.
It also would have been an abuse of process for the taxpayer's wife to re-litigate whether a $217,000 shareholder loan should be included in her income given that the only alleged unfairness was that in the criminal proceedings, there had been an agreement that Mr. and Mrs. Golden would be treated as one taxpayer, so that no particular finding was made as to whose income the amount should be included in.
Before going on to reject the taxpayer's argument respecting estoppel, Tardif J. found (at p. 3179) that the doctrine of estoppel cannot be applied to cases from Quebec, and that the case before him was to be reviewed instead in light of Article 1457 of the CCQ (which was essentially to the same effect as the doctrine of estoppel in Pais).
After referring to the principle that no estoppel can arise where representations made are not in accordance with the law, Bowman C.J. found that advice given to the taxpayer by officials in the local office could not bind the Court.
"... Appellants' description of the properties as capital is a statement of law and not fact. A representation of law is not grounds for estoppel."
The taxpayer was estopped from disputing the existence of a partnership between her and her husband, having previously induced the Minister to assess on the basis that such a partnership existed.
"The question is not whether the Crown is bound by an earlier interpretation upon which a taxpayer has relied. It is more to the point to say that the courts, who have an obligation to decide cases in accordance with the law, are not bound by representations, opinions or admissions on the law expressed or made by the parties."
The doctrine of promissory estoppel was found to be inapplicable to supposed agreements of the Minister not to assess penalties and interest, as well as to the taxes themselves.
"... A representor need only intend that the representee act upon the representation in some way, and not in any particular way, to plant the seeds of estoppel. In addition, a representation need not be given wilfully as long as the representation is of such a character to induce a reasonable and prudent person to believe that it was meant to be acted on or it was made under such circumstances that he should have known that it was both natural and probable that it would be acted on."
In obiter dicta, Lord Russell of Killowen "venture[d] to doubt the ability of the Crown ... having levied a tax on the basis that the transaction was a dealing in capital, then to assert that it can indirectly, by counteraction be treated as giving rise to taxable income."
Discussion of Sentinel Hill Decision.

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