The Supreme Court of British Columbia has ruled that the Canada Revenue Agency (CRA) was wrong to reassess Wesbild Capital Corp. years after it had accepted its tax return, ordering it to pay millions in taxes.

Specifically, the court found in favour of the corporation, which sought a summary judgment against the CRA, ruling that it was wrong to reassess the company’s 2002 tax return in 2011.

According to the decision, the company was created in 2001 as part of a tax plan designed to avoid millions of dollars in corporate taxes arising from the sale of its shares in Future Shop Ltd. to Best Buy Inc., which generated capital gains of more than $330 million. In December 2011, more than eight years after Wesbild filed its 2002 tax return, the company was reassessed and ordered to pay $12.3 million in taxes.

Wesbild appealed the reassessment to the court and brought an application to decide the preliminary issue of whether the government was barred from issuing the reassessment in the first place. Normally, the limitation period for reassessment would have expired in 2006 unless the government could prove that there was a misrepresentation on the return.

Ultimately, the court concluded that there was no misrepresentation on the return and the CRA was not in a position to reassess outside of the normal reassessment period. Moreover, it also found that the CRA could not establish neglect, or carelessness, on the part of the company that would justify a reassessment.

“Wesbild’s filing position was fairly and fully disclosed to the CRA, and the CRA was more than able to respond within the normal reassessment period in the event that it wished to challenge that position on the basis of the arguments raised on this application, or otherwise,” states Madam Justice Fitzpatrick in the decision.

“The failure by the Minister to reassess Wesbild within the limitation period can in no way be attributed to any negligent misrepresentation by Wesbild,” she adds. “As such, the objectives of finality and certainty dictate that the reassessment is statute-barred and of no effect.”

As a result, the court allowed the company’s appeal and vacated the reassessment as being statute-barred. It also ruled that Wesbild “is entitled to be paid the refund interest to which it is entitled under the B.C. Act.”

In addition, the court ordered that Wesbild is entitled to its costs in the case, but noted that the firm has indicated it might seek special costs against the government on the basis that its “conduct in this action has been reprehensible.” In that case, a further hearing would have to be held.