Navigating Jurisdictional Boundaries: Implications of Recent Supreme Court of Canada Decisions on Tax Disputes

By: Amit Ummat and Alisha Butani

On June 28, 2024, the Supreme Court of Canada (“SCC”) released concurrent judgments in Dow Chemical Canada ULC v. Canada 2024 SCC 23 (“Dow Chemical”) and Iris Technologies Inc. v. Canada 2024 SCC 24 (“Iris Technologies”). These decisions offered clarity regarding the jurisdictional boundaries between the Federal Court of Canada (“FC”) and the Tax Court of Canada (“TCC”) in tax disputes as delineated by their respective enabling statutes. This clarity is valuable for potentially simplifying the process for future disputes, especially those concerning transfer pricing adjustments and procedural elements of a tax assessment.

Dow Chemical

Dow Chemical Canada ULC, a Canadian resident corporation, (“Dow Canada”) sought a favorable transfer pricing adjustment under subsection 247(10) of the Income Tax Act R.S.C., 1985, c. 1 (5th Supp.) (“Income Tax Act”) for a loan agreement transaction with a Swiss affiliate. The Minister of National Revenue (“Minister”) reassessed Dow Canada by applying the transfer pricing rules in subsection 247(2) of the Income Tax Act, leading to a substantial increase in Dow Canada’s income for the 2006 tax year. The Minister also denied the downward transfer pricing adjustment. Disagreeing with the Minister’s decision, Dow Canada initiated legal proceedings in both the TCC and the FC, requesting the FC proceedings be held in abeyance.

The TCC held it had jurisdiction to hear Dow Canada’s case because the Minister’s discretionary decision under subsection 247(10) of the Income Tax Act was central to the assessment against Dow Canada and goes directly to the assessment’s correctness. However, the Federal Court of Appeal (“FCA”) overturned the TCC’s ruling, stating that jurisdiction to judicially review the Minister’s discretionary decisions under subsection 247(10) of the Income Tax Act rests exclusively with the FC.

The conflicting decisions of the TCC and FCA led to the SCC being tasked with deciding whether the TCC or the FC is the appropriate forum to challenge the Minister’s discretionary decision under subsection 247(10) of the Income Tax Act.

In a split decision of 4-3 the SCC ruled that the FC is the appropriate forum to challenge a Minister’s discretionary decision under subsection 247(10) of the Income Tax Act. This determination was based on the FC’s exclusive jurisdiction for judicial review outlined in subsection 18(1) of the Federal Courts Act, R.S.C., 1985, c. F-7. The FC, unlike the TCC possesses the jurisdiction to apply the necessary standard of review and administer/apply appropriate administrative legal remedies.

The SCC majority explained that although a Minister’s decision under subsection 247(10) of the Income Tax Act may directly affect and is inextricably connected to a taxpayer’s assessment, it does not constitute part of the assessment. Moreover, treating the Minister’s decision “as part of an assessment for the purposes of the appeal provision would in practice result in new bifurcated streams of review and give rise to new issues regarding the Federal Court’s jurisdiction that could well provoke further litigation” (paragraph 92 of Case). For instance, it could jeopardize a taxpayer’s right to object to an assessment if the Minister denies a downward transfer pricing adjustment after the objection period has elapsed and a new assessment has not been issued.

Conversely, the dissenting judges of the SCC asserted that the appeal should be allowed and Dow Canada’s challenge regarding the Minister’s discretionary decision under subsection 247(10) of the Income Tax Act should be heard by the TCC. The primary reason for the dissenting SCC judge’s decision was: “Unlike other discretionary powers that the Minister has under the ITA, the exercise of the power the Minister has under s. 247(10) is not permissive when a downward adjustment is sought and/or established. This power must be exercised to determine the amount of tax liability. Since a decision under s. 247(10) directly impacts the amount of income and taxable income and precedes the determination of the ultimate amount of tax owing, such a decision is inextricably linked to the assessment. Therefore, in its essential nature, a taxpayer’s objection to the Minister’s decision to deny a downward transfer pricing adjustment pertains to the amount of tax owing” (paragraph 131 of Case).

Iris Technologies

Iris Technologies Inc., a Canadian telecommunications company, (“Iris Technologies”) filed Goods and Services Tax (“GST”) return claiming tax refunds under the Excise Tax Act R.S.C., 1985, c. E-15 (“Excise Tax Act”). The Minister issued an assessment to Iris Technologies denying the tax refunds and imposed penalties on Iris Technologies. Disputing this assessment, Iris Technologies filed an application for judicial review against the Minister. The judicial review application alleged that “there had been a breach of procedural fairness during the audit and assessment process and that assessments had been issued without an evidentiary foundation and for an improper purpose” (paragraph 61 of Case).

The Attorney General of Canada (“AG”) moved to strike the judicial review application. The Case Management judge dismissed the AG’s motion, which resulted in the AG subsequently appealing that decision to the FC. The FC dismissed the AG’s appeal, but that decision was overturned by the FCA. Iris Technologies, disagreeing with the FCA’s ruling, appealed to the SCC.

In a split decision of 4-3 the SCC dismissed the appeal determining that the matter should instead be brought before the TCC. This is because the TCC has jurisdiction under section 302 of the Excise Tax Act over the correctness of a Minister’s assessment of net tax pursuant to the Excise Tax Act. The Minister’s assessment of net tax under the Excise Tax Act is a non-discretionary determination based on statute, rather than an exercise of discretionary power.

The SCC determined that two of the three claims raised by Iris Technologies in its judicial review application, namely those pertaining to procedural fairness and lack of evidentiary foundation, fall under the exclusive jurisdiction of the TCC. This is because these claims do not challenge the Minister’s exercise of discretion, but rather contest the correctness of the Minister’s assessment.  Regarding the third claim in the judicial review application, which alleges that the Minister acted with improper purpose, the SCC acknowledged that in certain circumstances, such a claim could be grounds for a judicial review application. However, in this instance, the SCC ruled that Iris Technologies failed to substantiate this claim in their judicial application and therefore it should be struck.


In conclusion, both Dow Chemical and Iris Technologies delineate jurisdictional distinctions between the FC and TCC, which will aid in streamlining the adjudication process for future tax disputes. Furthermore, these decisions are a step toward enhancing procedural clarity.