1-855-658-6698

Devon Canada Corporation v. Canada, 2015 FCA 214

November 15, 2025 by SpenceDrake Tax Law Expenses, General, Notice of Objection
Home | Expenses | Devon Canada Corporation v. Canada, 2015 FCA 214

Devon Canada Corporation v. Canada, 2015 FCA 214

Devon Canada Corporation v. Canada, 2015 FCA 214 (CanLII) [Devon] concerns the scope of what comprises a Notice of Objection under the Large Corporation Rule in s. 169(2.1). The Federal Court of Appeal (“FCA”) held that the reference to “notice of objection” in s. 169(2.1) includes amendments or additional submissions.

Large Corporation

Devon Canada is a “large corporation” as per subsection 225.1(8) of the Income Tax Act, RSC 1985, c 1 (5th Supp) (“ITA”). A large corporation has taxable capital employed in Canada, along with its related corporations, above $10 million in a taxation year. 

The Canada Revenue Agency (“CRA”) and Devon Canada, the Appellant, were in a dispute over the deductibility of stock option surrender payments. In the Notice of Reassessment, the Minister held the surrender payments were on account of capital and therefore not deductible under paragraph 18(1)(b) of the ITA. The Appellant filed a Notice of Objection, at first limiting its argument to whether the payments were deductible as current expenses in computing profit or loss under section 9 of the ITA (Income or Loss from a Business or Property).

Imperial Tobacco Canada Limited v. The Queen, 2011 FCA 308

Devon and the CRA agreed to hold the objection in abeyance pending the outcome of Imperial Tobacco Canada Limited v. Canada, 2011 FCA 308 (CanLII) [Tobacco]. The decision in Tobacco held that surrender payments made to employees for their surrender of stock options was on account of capital. After the Supreme Court of Canada denied leave to appeal in Tobacco, the Appellant submitted alternative arguments as per paragraphs 20(1)(b) and 20(1)(e). Devon Canada argued that the payments were eligible capital expenditures deductible under paragraph 20(1)(b), or, alternatively, financing expenses deductible under paragraph 20(1)(e).

The Minister rejected both arguments under paragraphs 20(1)(b) and 20(1)(e). And in the Notice of Confirmation, when stating “[t]he basis of your objection is that…,” the CRA referred to both the original objection and the supplementary submission. This indicated that the CRA considered both the original objection arguments and the supplementary submissions.

Tax Court of Canada Appeal

Devon Canada appealed to the Tax Court, advancing arguments under section 9 and under paragraphs 20(1)(b) and 20(1)(e) of the ITA. The Minister moved to strike the latter two. Under paragraphs 165(1.11) and 169(2.1) of the ITA, a large corporation may appeal only those issues raised in its Notice of Objection. The Minister argued that the paragraph 20(1)(b) and 20(1)(e) issues had not been raised in the originally filed Notice of Objection and therefore should be struck.

The Tax Court did not strike the paragraph 20(1)(e) argument. The Tax Court reasoned that the Minister had denied the deductions on the basis that the payments were capital in nature and therefore precluded by paragraph 18(1)(b). Devon Canada’s primary argument was that the payments were on income account. Paragraph 20(1)(e), as an exception to 18(1)(b), permits certain financing expenses to be deducted despite their capital nature. Accordingly, the Appellant’s 20(1)(e) position was an alternative ground for allowing the deduction and should not be struck.

However, the Tax Court struck the paragraph 20(1)(b) argument on the basis that the cumulative eligible capital pool deduction had been raised only in the supplementary submission, not in the original objection, and that only the original objection falls within the scope of a Notice of Objection under the Large Corporation Rule in s. 169(2.1).

Federal Court of Appeal

The Federal Court of Appeal (“FCA”) first held that the arguments under paragraphs 20(1)(b) and 20(1)(e) of the Act are separate from the original objection under section 9. The FCA stated that neither subsection 20(1)(b) nor 20(1)(e) permits deductions in computing profit or loss for the purposes of section 9. Instead, they may allow deductions in computing income or loss for the purposes of the ITA and are therefore distinct issues.

The FCA cited the decision in Canada v. Potash Corp. of Saskatchewan, 2003 FCA 471 (CanLII), when explaining that the Large Corporation Rules in subsections 165(1.11) and 169(2.1) were enacted to ensure the Minister knows, at the objection stage, the issues under dispute. The FCA concluded at para. 30 that “[t]he interpretation of the reference to ‘notice of objection’ in subsection 169(2.1) of the Act that would be harmonious with the Act, is that this ‘notice of objection’ would include any amendments or additional submissions that are accepted by the Minister.” 

In part, because the CRA, while this matter was still at the objection stage, considered the additional submissions and treated them as part of the objection, the FCA held they formed part of the Notice of Objection for the purposes of subsection 169(2.1). Devon Canada was therefore entitled to appeal the related issues to the Tax Court of Canada.

 

SpenceDrake Tax Law – Tax Lawyers

 

Disclaimer

Each article/blog post is only meant to provide general information. It is posted on a specific date. Laws and rules change. Please know that it may be out of date. It is not meant to provide legal advice, and it does not provide legal advice. It cannot be relied on. Every tax situation is unique, and that may mean situations differ from this article/blog. If you have legal questions, please consult a lawyer.