The taxpayers lived on a reserve and were employed at a sawmill built on former reserve land, which had been ceded for the sake of establishing the sawmill. The taxpayers' assessments for 1985-2002 were made on the basis that, as the taxpayers did not work on reserve land, their income was not exempt under s. 87 of the Indian Act. In the Boubard decision in 2008, it was found that s. 87 did apply and the taxpayers' assessments for 2000-2002 were varied. The taxpayers then applied in 2009 for discretionary relief under s. 152(4.2) of the Income Tax Act in respect of the remaining years. (The version of s. 152(4.2) in force during the relevant years did not have a limitations period.) The application was denied in respect of 1985-1998 on the basis that the Minister would presumably not have exempted the taxpayers' employment income from tax in those years.
The Federal Court judge granted the taxpayers' appeal on the basis that, because the Minister purported to ground its decision on the "state of the law" at the time, the Minister's decision was unreasonable if it was incorrect in law - which it was, on the basis of the Court's decision in Boubard.
The Court of Appeal granted the Minister's appeal. Although the question of correctness of the Minister's 1985-1998 assessments was relevant, the question in issue was whether the Minister's decision in 2009 to deny relief was reasonable. (In fact, the trial judge did base his decision on the latter question - see para. 13 of the TCC decision - but it is not clear that this issue was raised in the appeal.) Stratas J.A. stated (at paras. 44-45):
[W]here the decision-maker is considering a discretionary matter that is based primarily on factual and policy matters having very little legal content, the range of possible, acceptable outcomes open to the decision-maker can be expected to be quite broad. ...
[W]here the decision-maker is considering a discretionary matter that has greater legal content, the range of possible, acceptable outcomes open to the decision-maker might be narrower. Legal matters, as opposed to factual or policy matters, admit of fewer possible, acceptable outcomes.
The Minister's methodology and conclusions, which were based on "the state of the law" before 1999, were within this narrower range of acceptable outcomes. Stratas J.A. stated (at para. 61):
[The Minister's] methodology of conducting a year-by-year examination of the state of the law is supported by the wording of subsection 152(4.2) of the Income Tax Act. If the Delegate adopted a methodology that were contrary to subsection 152(4.2), her exercise of discretion would fall outside the range of acceptability and defensibility. But that is not the case here.