The taxpayer established at the Tax Court that certain employee share bonuses were deductible after the Crown had already conceded that employee cash bonuses were deductible. The taxpayer had previously made a settlement offer on the basis that cash bonuses paid by some of its non-Canadian subsidiaries were non-deductible, with the balance of the bonuses at issue being deductible. The taxpayer argued that it was entitled to enhanced recovery of its costs running from the time of the rejected settlement offer.
In rejecting, this position Blais CJ found, following Galway, that the Minister lacked the legal ability to accept settlement offers that were incompatible with her interpretation of the Act, stating (at para. 29):
[T]he Judge correctly concluded the Crown could not compromise with respect to the share bonuses because the assessing policy of the Canada Revenue Agency was that any issuance of shares to employees of a corporation under a salary bonus or stock bonus plan constituted an agreement falling within the ambit of section 7... .As such, an employer could not deduct laid out costs incurred in respect of such an agreement (see IT-113R4). Being of this view of the law, the Minister was obliged to assess in accordance with the law as he understood it (See Cohen...).
Blais CJ also noted that there was no duty on the Minister to provide reasons for rejecting a settlement (para. 33).