Bakorp Confirms That Large Corporation Objections Define the Outcome

Key Takeaways

• Subsection 165(1.11) of the Income Tax Act requires a large corporation to specify in its Notice of Objection the issues, relevant facts, and relief sought.
• Bakorp Management Ltd. framed its objection around the amount included in 1995, treating that year as the operative taxation year for the dispute.
• When it later advanced a different timing theory, the Court treated it as a new issue and dismissed the appeal without addressing the substantive tax question.

The Situation

Bakorp, a large corporation under the ITA , faced tax arising from a deemed dividend on a share redemption. Although the redemption occurred in 1993, amounts were reported across 1993, 1994, and 1995. After the Minister reduced the 1995 inclusion, Bakorp filed a Notice of Objection asserting that its original, higher reporting for 1995 was correct.

Under subsection 165(1.11), the objection required Bakorp to specify its issues and relief with precision. By framing the dispute around the amount included in 1995, Bakorp treated that year as the operative taxation year for the case. On appeal, it argued that no amount should have been included in 1995. The Federal Court of Appeal dismissed the appeal without examining the underlying tax analysis.

Statutory Framework

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What Subsection 165(1.11) Requires of Large Corporations

Subsection 165(1.11) of the Income Tax Act requires a large corporation to set out in its Notice of Objection:

• each issue to be decided
• the relevant facts for each issue
• the relief sought

On appeal, the corporation is generally confined to those specified issues.

The Minister may defend the reassessment within that defined scope. The corporation may not expand it.

The statute places the burden of early precision on the taxpayer. After the notice of objection is filed, the description of the dispute becomes the outer limit of the case.

What Made the Difference

The large corporation regime limits an appeal to the issues specified in the objection. By framing the dispute around the 1995 income amount, Bakorp narrowed the case to that premise. Its later argument depended on a different premise: that 1995 was the wrong year. The Court concluded that this shift introduced a new issue beyond the statutory scope of the objection. The legislation, not the tax theory, determined the result.

The Signal for Business Leaders

The large corporation rules create a structural constraint. The corporation must define its case early and with specificity, and the Court confines the appeal to that defined frame. When the initial position rests on a settled theory, later arguments remain within scope. When the theory changes after the objection is filed, the statute often bars expansion, leaving the taxpayer confined to the original framing.

In these disputes, the early definition set out in the notice of objection will determine whether the Tax Court ever reviews the taxpayer's substantive position.

Case Reference: Bakorp Management Ltd. v. HMQ, 2014 FCA 104