Brydges v. Kinsman, 90 DTC 6463, [1990] 2 CTC 208 (FCTD)

McNair, J.:—This proceeding originates from the applicants’ motion under section 18 of the Federal Court Act for an order to review and set aside a decertification order or revocation made by the respondent, Jeremy K.B. Kinsman, in respect of the previous certification of a videotape series called "Reed Travel Library" as a Class 12 asset under the Income Tax Regulations, as well as the purported delegation by the Minister of Communications to the said respondent under which he professed to act in decertifying the videotapes.

In the year 1981 the applicants invested in the Reed Travel Library, a videotaped informational series, by purchasing undivided ownership interests represented by library units. On September 22, 1981, Revenue Canada issued an advance income tax ruling at the request of the Reed Travel Library and the prospective purchasers of undivided ownership interests therein. Revenue Canada ruled, inter alia, as follows:

A. We confirm that the Programs will qualify as Certified Short Productions for purposes of the definition of that expression in subsection 1104(2) of the Income Tax Regulations and will fall within Class 12 of Schedule Il to the Regulations.

B. Provided that the principal photography of all Programs is completed by December 31, 1981 the Purchasers of the Library Units will, by virtue of their ownership of undivided interests in the Programs on December 31, 1981, be considered to own Class 12 depreciable properties at the end of their 1981 taxation years, assuming such taxation years end on December 31, 1981.

D. We confirm that the interests of the Purchasers in the Programs will not be subject to the “leasing property" rules contained in subsection 1100(15) of the Regulations, with the result that the Purchasers who own Library Units at the end of their 1981 taxation years will be entitled to deduct capital cost allowance in computing their income for tax purposes in respect of the 1981 taxation year up to a maximum of 100% of the cost of their Library Units even if there were to be no income generated from the Programs during the 1981 taxation year provided that the Principal Photography of all the Programs is completed by December 31, 1981. However, if Principal Photography is not completed prior to January 1, 1982, the capital cost allowance that Purchasers may claim in their 1981 taxation year will be less than the cost of their Library Units and will be calculated in accordance with Regulation 1100(21) (a).

The concluding portion of the ruling contained the following qualification, viz.:

The above rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R dated December 18, 1978 issued by the Department of National Revenue, Taxation and are binding so long as the certification of the Programs as “Certified Short Productions" is not revoked by the Minister of Communications and the proposed transactions are completed by December 31, 1981.

On September 9, 1982 the Minister of Communications certified the Reed Travel Library as a certified short production video, pursuant to subsection 1104(2) of the Income Tax Regulations, C.R.C. 1978, c. 945, as amended. The formal certificate was accompanied by a letter of the same date from the Minister to Mr. Donald W. Reed stating, inter alia, as follows:

This certificate is issued conditionally on the basis of information provided in Part A of application form CCA-S. Part B of the form must be completed and submitted to the Canadian Film and Videotape Certification Office within one year of completion of taping, that is, by December 28, 1982 in order to confirm this certificate. I would like you to note that failure to complete Part B of the form or to provide the necessary documentation to prove that you have fulfilled the criteria outlined in the Regulations will be reason to revoke the certificate.

When submitting the Part B application, it would be appreciated if a selection of the programs could be forwarded to the Certification Office. They will be returned within a few days of receipt.

Sometime in 1983, the date is uncertain, the producer of the Reed Travel Library, Donald W. Reed, was charged and convicted of fraud and forced into bankruptcy. Seemingly, some of the unit holders were able to acquire ownership of the 400 videotapes of the Reed Travel Library in late 1983. They spent the next four years or so in trying to protect their interest in the tapes and to maximize their depreciation write-off. There were numerous contacts between Revenue Canada and the Department of Communications and the investors regarding the status of the Reed Travel Library. By September 16, 1986, matters had reached the point where the program manager of the Certification Office, Carl McMullin, was writing Peter Parkolub, Audit Division, Revenue Canada, to advise that the series of videotapes was incomplete and that it was impossible to confirm the Part A application, whereby a revocation of the certificate numbers would be recommended. However, the likelihood of revocation was not something of which the applicants were totally unaware. Earlier, by letter of February 10, 1986, Mr. McMullin had advised the applicants’ solicitor that an agreement under consideration between the parties did not "represent a sufficient indication of completion for the series to be confirmed as certified Canadian production under Section 1104(2) of the Income Tax Regulations”. The letter went on to state, inter alia, as follows:

Consequently, the CFVCO (Canadian Film and Videotape Certification Office) concludes that it is not possible to confirm Provisional Approval of the Reed Travel Series on the strength of this agreement. The decision is based on the fact that there is no real guarantee of completion and the time frame of two years for possible completion is too indefinite. In addition, no clear incentive for finishing the series is offered or any real penalty for failing to complete is presented to the distributors by the Unitholders.

Sometime between then and August 1, 1986 Mr. McMullin and Mr. Parkolub attended in Toronto to view the Reed Travel Library series of videotapes. Based on this viewing Mr. McMullin concluded that it would not be unreasonable to consider that principal taping had been completed, but subject to the qualification that considerable work would be required to attain the final stage of production and distribution in order to qualify for the maximum 100 per cent capital cost allowance. On August 18, 1986 Mr. Parkolub wrote the Certification Office, for the attention of Mr. McMullin, to advise that Revenue Canada was "going to allow the tapes to qualify as a valid Class 10 asset and was willing to waive the leasing property rules”. He went on to point out that the majority of the taxpayers were satisfied with this approach.

Mr. McMullin responded by the aforementioned letter dated September 16, 1986 wherein he advised that the Certification Office had reached the conclusion that the existing series could not be confirmed as a certified production for several reasons, which he proceeded to outline. The concluding portion of the letter indicated that the office was going to recommend the revocation of the certificate numbers, but would "withhold notifying the producers in order to allow individual investors some opportunity to review their files with Revenue Canada". According to the affidavit of Bill Blahun, Chief of Appeals for the Edmonton District Office, Revenue Canada, Taxation, a form letter dated October 6, 1986 was sent to each of the taxpayers by the audit division of Revenue Canada advising them of the disallowance of all Class 12 claims for the Reed Travel Library and the alternative proposal decision to consider the same as a Class 10 asset, but with the removal of the “leasing property" restrictions. The letter enclosed forms to facilitate the switch in approach, which were explained in some detail.

In 1987 and 1988, the Minister of National Revenue reassessed the applicants' 1981 income tax returns in accordance with the letter of October 6, 1986. All of the applicants filed notices of objection to the disallowance of their Class 12 capital cost allowance claims in respect of the Reed Travel Library. Before the Minister had vacated, confirmed or varied the reassessments, the respondent Jeremy Kinsman, Assistant Deputy Minister, Cultural Affairs and Broadcasting, informed the applicants' solicitor by letter dated August 24, 1988

. . . that the 400 episodes in the short videotape series Reed Travel Library (1981), have not met all the criteria of Subsection 1104(2) of the Income Tax Regulations. The Provisional Approval 53702-54101 issued on September 9, 1982 which was based on the information submitted in the application for Provisional Approval and which was conditional upon submission of a completed application for Certification, is now revoked.

Therefore based on the information provided by you in the application for certification, I regret that none of the 400 episodes in the videotape series Reed Travel Library (1981) has qualified for 100% Capital Cost Allowance in respect of Class 12 of Schedule Il of the Income Tax Regulations.

According to counsel for the applicants, the Minister of National Revenue, almost immediately after Mr. Kinsman had made the decertification order, confirmed the reassessments. Notices of appeal in respect of those reassessments apparently have now been filed by all of the applicants in the Tax Court of Canada. In those notices, the appellants claim firstly that the Minister is bound by Revenue Canada's advance ruling. Secondly, they argue that their undivided interests met all of the requirements of a Class 12 asset in 1981 and subsequent years, and further that the Minister’s reassessment comes more than three years from the date of mailing of a notice of the original assessment for the subject taxation year and no waiver in the prescribed form was filed within three years of the mailing of the said notice.

At the hearing of this application before me, counsel for the respondents stressed the point that this case did not concern the applicants' income tax reassessments per se. In his submission, it involved simply a determination of the status of their investment and a review of the administrative decision of the respondent, Jeremy K.B. Kinsman, an administrative decision-maker in the Department of Communications. Counsel for the applicants agreed that the matter in issue was the legality of the administrative decision to decertify and that the case had nothing to do with income tax reassessments and appeals therefrom. On further reflection following the hearing, I came to the view that the case did indeed raise a serious jurisdictional question which both counsel had perhaps overlooked or over-simplified, namely, the effect of section 29 of the Federal Court Act on the availability of section 18 relief. The law is clear that the consent or agreement of the parties cannot confer jurisdiction on a court where none in fact exists. Accordingly, I invited counsel to address the jurisdictional point by way of written submissions.

Not surprisingly, counsel for the applicants argued that section 29 of the Federal Court Act should not be used to insulate the respondents from judicial review and to exclude the applicants from their right of redress by the court. Relying on the decisions of Optical Recording Corp. v. Canada, [1987] 1 F.C. 339; [1986] 2 C.T.C. 325; 86 D.T.C. 6465 (F.C.T.D.), and WTC Western Technologies Corp. v. M.N.R., [1986] 1 C.T.C. 110; 86 D.T.C. 6027 (EC.T.D.), he submitted that in income tax cases the courts have restricted the application of section 29 of the Federal Court Act to decisions made by the Minister of National Revenue and to appeals as to the merits of those decisions and the authority of the Minister to make them. He further contended that where violation of process is the issue, the courts have protected those affected through the medium of adequate judicial review. Finally, he made the point that in those cases in which section 29 was applied, the specific and identifiable decisions in issue concerned assessments made by the Minister of National Revenue. Counsel for the respondents reversed his original position as to the nature of this case. He argues now that the appeal provisions of the Income Tax Act should be interpreted in such a way as to favour the appellate court, namely, the Tax Court of Canada, as having jurisdiction to determine the validity of Mr. Kinsman's decision as part of any appeal.

On the basis of the statutory provisions and the relevant jurisprudence, I am compelled to conclude that this court does not have jurisdiction to entertain this application for relief in the nature of certiorari. Section 29 of the Federal Court Act, at the time the motion was instituted, read as follows:

29. Notwithstanding sections 18 and 28, where provision is expressly made by an Act of Parliament for an appeal as such to the Federal Court, to the Supreme Court, to the Governor in Council or to the Treasury Board from a decision or order of a federal board, commission or other tribunal made by or in the course of proceedings before that board, commission or tribunal, that decision or order is not, to the extent that it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with, except to the extent and in the manner provided for in that Act.

It is true that the applicants in the present case have framed their legal challenge as an attack on the legality of the administrative decision to decertify the Reed Travel Library as a Class 12 asset. It is also true that the decertification order was made after the Minister of National Revenue had already reassessed the applicants' 1981 income tax returns on the factual assumption that their investment could not be considered a Class 12 asset. Nevertheless, the evidence is clear that the reassessments were made only on the basis of correspondence received from the Department of Communications regarding the incompleteness of the Reed Travel Library. Moreover, it is obvious that the applicants are not disputing the Kinsman decision as something contained in an isolated vacuum, but rather because it results in tax consequences unfavourable to them. For these reasons, I consider that the applicants’ case against the decertification order is really nothing more than a challenge to the Minister of National Revenue's reassessments, and that the jurisdictional issue therefore falls to be determined on that basis.

There is conflicting judicial opinion in this court on the availability of section 18 relief where income tax assessments are challenged, and I have reviewed the decisions in WIC Western Technologies, supra; Optical Recording, supra; Devor v. M.N.R., [1988] 2 C.T.C. 155; 88 D.T.C. 6370; and Special Risks Holdings Inc. v. The Queen, [1988] 2 C.T.C. 244; 88 D.T.C. 6444. In my view, however, the proper result in this case is dictated by the judgment of the Federal Court of Appeal in M.N.R. v. Parsons, [1984] 2 F.C. 331; [1984] 2 C.T.C. 352; 84 D.T.C. 6345, and the jurisprudence at the Trial Division level following that decision: see, for example, Gibbs v. M.N.R., [1984] C.T.C. 434; 84 D.T.C. 6418; Bechthold Resources Ltd. v. M.N.R., [1986] 1 C.T.C. 195; 86 D.T.C. 6065; Hart et al. v. M.N.R., [1986] 2 C.T.C. 63; 86 D.T.C. 6335; and Danielson v. M.N.R., [1986] 2 C.T.C. 341; 86 D.T.C. 6495.

In Parsons, the Court of Appeal held that section 29 of the Federal Court Act deprived the Trial Division of jurisdiction to entertain section 18 proceedings where an appeal from the assessment being challenged was provided for in the Income Tax Act. Pratte, J. stated as follows (at pages 352-53 (D.T.C. 6346)):

We are all of opinion that the appeal must succeed on the narrow ground that the only way in which the assessments made against the respondents could be challenged was that provided for in sections 169 and following of the Income Tax Act. This, in our view, clearly results from section 29 of the Federal Court Act.

The learned judge of first instance held that, in this case, section 29 did not deprive the Trial Division of the jurisdiction to grant the application made by the respondents under section 18 of the Federal Court Act because, in his view, the appeal provided for in the Income Tax Act was restricted to questions of "quantum and liability” while the respondents' application raised the more fundamental question of the Minister’s legal authority to make the assessments. We cannot agree with that distinction. The right of appeal given by the Income Tax Act is not subject to any such limitations.

In our view, the Income Tax Act expressly provides for an appeal as such to the Federal Court from assessments made by the Minister; it follows, according to section 29 of the Federal Court Act, that those assessments may not be reviewed, restrained or set aside by the Court in the exercise of its jurisdiction under sections 18 and 28 of the Federal Court Act.

I see no reason why the matters the applicants seek to have reviewed in the present proceeding could not have been raised as part of their appeal from the Minister's reassessments as provided for in the Income Tax Act, regardless of whether such appeal was taken to the Federal Court or the Tax Court of Canada. The present section 29 of the Federal Court Act was amended by S.C. 1988, c. 61, s. 12 to specifically include the Tax Court of Canada among the courts and other bodies to whom an appeal might be made, but apparently this amendment has not yet been proclaimed in force. The fact that the taxpayers in the present instance chose to appeal their reassessments to the Tax Court of Canada rather than the Federal Court is not sufficient, in my view, to confer a jurisdiction on that latter court which does not otherwise exist. The question of the legality of the decertification order, in my view, forms part and parcel of the subject reassessments and to that extent was appealable matter under the provisions of the Income Tax Act. Consequently, the review or setting aside of such order is expressly precluded by section 29 of the Federal Court Act.

In the result, I find that this Court lacks jurisdiction to entertain the present application, and the same is hereby dismissed. I make no award of costs by reason of the special circumstance that the respondents initially took the position that the matter was reviewable under section 18 of the Federal Court Act and only came to change their tune afterwards, when the jurisdictional issue was raised.

Application dismissed.