The taxpayer's Federal Court motion alleged that the Minister had accepted disclosures made by it respecting the transfer prices of rock salt it sold to a related US corporation in 2004-2006 as meeting the requirements of the voluntary disclosure program. Subsequently, the Minister entered into agreements with the taxpayer to settle its income tax liability for 2004-2006, based on mutual agreement with the United States taxing authorities under Articles IX and XXVI of the Convention. The Minister subsequently informed the taxpayer that she did not consider herself bound by the agreements and reassessed the taxpayer, including for penalties under s. 247(3).
In the Federal Court the taxpayer sought a declaration that the penalty assessments were "invalid and unenforceable," and also appealed the reassessments to the Tax Court.
Sharlow JA confirmed the decision of the Federal Court to dismiss the Minister's motion to strike out the taxpayer's application. The Minister's decision not to grant relief from penalties was an exercise of discretion under s. 220(3.1), which is clearly reviewable by the Federal Court. While the Federal Court could not invalidate the reassessments as only the Tax Court had the jurisdiction to determine whether all of the statutory conditions for imposition of a penalty had been met (para. 22), the Federal Court had a range of options including "a declaration that the penalties should not have been assessed in the face of the valid voluntary disclosure" (para. 25).