In a recent unanimous decision of the full bench in 1068754 Alberta Ltd v Quebec (Agence du revenue) (1068754 Alberta Ltd.), the Supreme Court of Canada has upheld Quebec tax officials’ authority to demand information from a national bank that operates in multiple provinces including Quebec and Alberta, thereby asserting that different branches of the same corporation are still one legal person.
Unlike other provinces, Quebec collects its own income tax and the requirement to pay taxes depends on the residency of a person (legal or natural). Determining residency can be a complex legal analysis and requires a substantial amount of factual information. In 1068754 Alberta Ltd., Quebec tax officials were determining if a trust, which is a legal person, was a resident of Quebec. For this inquiry, they had to collect information from the national bank and, accordingly, they sent a formal demand letter to the bank location in Calgary because under the federal Bank Act s. 462(2), the demand letter is required to be sent to the branch where the account is located. The trust challenged this demand letter since Quebec’s Tax Administration Act said that the tax officials only have power within the province and any action outside the province would be ultra vires or “extraterritorial”.
Both lower courts (namely, the Quebec Court of Appeal and the Superior Court) ruled that the tax officials have the authority to send a demand letter to the Alberta branch and the Supreme Court agreed. The Supreme Court explained that the tax officials have power over the national bank because the bank operated in Quebec and the tax officials have power over anyone operating in their province. The Bank Act merely outlined the procedure of fixing notice to the bank as a corporation.
The Supreme Court further explained that the process of fixing the notice does not amount to exercising coercive powers outside the province because the actual enforcement of the order would be done within provincial boundaries. The tax officials in Quebec could impose penalties on the Quebec branch for non-compliance with the demand letter pursuant to s. 39.2 of the Tax Administration Act. As a result, the demand letter would still be enforceable within Quebec’s borders.
This decision impacts corporations that have branches in different provinces regardless of where the head office is located. Under Quebec’s Tax Administration Act, corporations, as a whole, can be presumed to be fixed with formal notice as long as a branch of the corporation is served. As the Supreme Court explained, “[t]he bank, as a corporation, is a single entity; its branches are treated as distinct only for limited and specific purposes.” The Supreme Court further explained that, “One is not required to conceptualize the bank and its branches as separate entities to achieve this purpose. Instead, s. 462(2) is premised on the idea that a branch is part of the bank. This is exemplified by the fact that nothing further is required from a branch upon receiving a document under s. 462(2) for the bank to be fixed with notice; the entities are one and the same.”
This decision likely does not impact subsidiary corporations as they would be considered a different legal person. To fix notice on a parent corporation after serving the subsidiary corporation would be to completely disregard separate legal personalities of shareholders and corporation, a fundamental rule of corporate law. To disregard this separate entity, also known as the corporate veil, requires a high threshold to be met under Canadian corporate law and the legal test and rules in this area are complicated.
The author would like to thank Shahroz Ahmad, summer student, for his assistance in preparing this legal update.
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