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Citation: 2003TCC392
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Date: 20030610
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Docket: 1999-4937(IT)G
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BETWEEN:
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CONSTANTIN DELLO,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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Reasons For Judgment
(on preliminary questions of law submitted pursuant
to paragraph 58(1)(a)
of the Tax Court of Canada Rules (General
Procedure))
P.R. Dussault, J.T.C.C.
[1] The appellant instituted an appeal
from assessments made by the Minister of National Revenue (the
"Minister") under the Income Tax Act (the
"Act") for the 1991, 1992, 1993 and 1994
taxation years. While the challenge concerns a number of points,
the appellant essentially contends that the income assessed in
his hands, that was derived mainly from a business operated under
the firm name "Les Consultants Acad Enr." (hereinafter
the "business"), is not his, but that of a business
corporation named Structures Condello Inc. - Condello Structures
Inc. (hereinafter the "Corporation"). In assessing the
appellant, the Minister assumed that the Corporation did not
exist in law during the years at issue and, accordingly, that it
was the appellant himself who had operated the business during
those years.
[2] Considering that a decision on
that point might dispose of all or part of the proceeding,
substantially shorten the hearing or result in a substantial
saving of costs, and relying on section 58 of the Tax
Court of Canada Rules (General Procedure), the parties agreed
to ask the Court to rule on the following questions:
Question 1:
Was the corporation, upon [the] issuance of [a] certificate of
revival (Feb. 1998), retroactively capable of carrying-on
[sic] a business and earning taxable income for taxation
years 1991, 1992, 1993 and 1994?
Question 2:
Did the Minister of National Revenue have an acquired right to
assess the income tax in the name of the Appellant as the sole
proprietor of the business as opposed to the corporation during
taxation years 1991 to 1994?
In that context, the parties agreed on the following
facts:
1. Condello
Structures Inc., of which the Appellant was the sole shareholder
and administrator, was incorporated in 1979 under the
C.B.C.A.
It was not carrying [on a] business at the time of it being
dissolved for failure to file annual returns in 1984, August
10th.
2. An
application for revival was prepared in November 1990, but was
incomplete and pending the filing of additional documents, and no
certificate of revival was issued until February 1998.
3. A
reassessment for taxation year 1991 was issued in 1994
attributing income of the business in the hands of the Appellant
and further reassessments were issued in [sic] the 5th of
June 1998 to the same effect for the years 1991 to 1994 inclusive
which are the object of the appeal.
The parties agree that further evidence can be called to
supplement the facts agreed upon pursuant to Rule
58(2)(a) of the Tax Court of Canada Rules
(General Procedure).
[3] As indicated, the parties also
agreed to file further evidence, which was done through the
testimony of the appellant, of Stanley Schulman, a chartered
accountant, and of Denis Poliquin, an auditor with the
Canada Customs and Revenue Agency, as well as through the filing
of a certain number of documents.
[4] The appellant testified concerning
the circumstances of the Corporation's incorporation in 1979,
the reasons why it remained dormant for a number of years, its
dissolution in 1984 for failure to file annual returns, the wish
to revive the Corporation and the steps taken to that end in
1990, as well as those taken in communicating with Revenue Canada
in 1991 regarding source deductions and the collection of the
goods and services tax ("GST"). In his testimony he
also spoke of the use of the business's firm name during the
same period by both him and the Corporation, of the assessments
and, lastly, of the obtaining of the certificate of revival in
February 1998.
[5] Mr. Schulman testified with
respect to the steps taken in 1990 to revive the Corporation,
which steps did not achieve the desired result at that time. He
stated that he had initially sent certain documents to Consumer
and Corporate Affairs Canada, together with the fees payable
(11 cheques of $30 each), and that he had completed and
forwarded the missing documents that were required. According to
him, in a subsequent conversation with an official, that official
had stated that, failing a new deficiency notice, it could be
assumed that the Corporation was in good standing. I will simply
comment here that Mr. Schulman should have known that it was
essential to obtain a certificate of revival, which was the very
purpose of his efforts. Although the cheques sent in payment of
the fees were cashed, no certificate was issued at the time since
certain requirements had still not been met.
[6] Mr. Poliquin gave testimony
on an initial audit conducted by another person in respect of the
1991 taxation year, then on his own audit covering all the years
at issue, on the returns filed by the appellant in his own name
and in the Corporation's, and on the assessments that were
made against the appellant given that the Corporation did not
exist in law.
[7] The exhibits were obviously filed
in support of the testimony given during the examination-in-chief
and cross-examination of the witnesses.
[8] While the additional evidence was
useful in attempting to explain the causes of the imbroglio, they
nevertheless do not alter the legal realities of the situation.
Neither the belief that the Corporation had been revived in 1990
nor Revenue Canada's issuing, in 1991, of an employer number
and a number for GST collection purposes actually revived the
Corporation, which had been dissolved since 1984. Only the
certificate of revival obtained in February 1998 was able to
produce that effect. Moreover, the first question raised relates
strictly to the obtaining of that certificate in February
1998.
[9] The legal effects of obtaining a
certificate of revival are set out in subsection 209(4) of
the Canada Business Corporations Act, R.S.C. 1985,
c. C-44. That provision was amended by S.C. 2001,
c. 14, s. 102, which now provides that revival has
retroactive effect. In the instant case, however, the certificate
of revival was obtained in February 1998, and thus it is the
wording existing at that time that is applicable.
Subsection 209(4) then read as follows:
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(4) [Rights preserved] A body corporate is
revived as a corporation under this Act on the date shown
on the certificate of revival, and thereafter the
corporation, subject to such reasonable terms as may be
imposed by the Director and to the rights acquired by any
person after its dissolution, has all the rights and
privileges and is liable for the obligations that it would
have had if it had not been dissolved.
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(4) [Maintien des droits] La personne morale
est reconstituée en société
régie par la présente loi à la date
figurant sur le certificat et recouvre dès lors,
sous réserve des modalités raisonnables
imposées par le directeur et des droits acquis
après sa dissolution par toute personne, ses droits,
privilèges et obligations antérieurs.
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[10] Counsel for the appellant relies mainly
on the decision in Helcor Enterprises Ltd. v. Moore &
James Food Services Ltd., [1990] 5 W.W.R. 596, in
contending that subsection 209(4) of the Canada Business
Corporations Act must be interpreted as having retroactive
effect. In that case, the Manitoba Court of Queen's Bench
held that the use of the word "thereafter" in
subsection 202(2) of the The Corporations Act, R.S.M.
1987, c. C225, a provision similar to
subsection 209(4), did not preclude retroactivity because of
the very broad wording of the last part of that provision. The
Court therefore upheld Helcor's right to sue Moore &
James Food Services Ltd. for breach of contract, even though that
right had come into existence after Helcor had been dissolved and
before it was revived. The Court thus ruled that Helcor could
exercise that right as of the date of its revival. It should be
noted that Helcor was carrying on a business at the time it was
dissolved for failure to file its annual returns and that it
continued to do so despite its dissolution for what was
considered a relatively minor violation of The Corporations
Act. Hanssen J. wrote as follows at page 603 of the
decision:
I am satisfied that the effect of s. 202 was not only to
restore Helcor's corporate existence but to restore its
corporate activity during the period of time during which it was
dissolved. As a result of its revival, Helcor "has all the
rights and privileges and is liable for the obligations that
it would have had if it had not been dissolved (emphasis
mine). If it had not been dissolved, it would have had the right
to sue Moore & James for breach of contract. Accordingly, it
is now entitled to maintain its action against Moore & James
for breach of contract even though the breach occurred after
Helcor was dissolved and before it was revived.
[11] At the federal level, moreover, most
writers and the predominant case law attribute no retroactive
effect to subsection 209(4) of the Canada Business
Corporations Act. On this point, reference may be made in
particular to Henri-Louis Fortin's article
entitled "Liquidation volontaire et recours en
matière d'impôt" (1993), Revue de
planification fiscale et successorale, vol. 15,
page 711, in which he states at page 734:
[TRANSLATION]
The clearly prevailing view in the case law and in legal
writings82 is that revival under the CBCA does
not have retroactive effect, in view of the word
"thereafter" used in subsection 209(4).
Consequently, the revival could not validate, after the fact, a
proceeding undertaken by the corporation between the date of its
dissolution and that of its revival.
82 Maurice and
Paul MARTEL, La compagnie au Québec: les
aspects juridiques, vol. 1 (Montréal: Wilson
& Lafleur/Martel, 1993), p. 950.1 and the case law
cited; FRASER & STEWART, Company Law of Canada,
6th ed., by Harry Sutherland (Toronto: Carswell, 1993),
pp. 639 ff. Contra: Michel PERREAULT,
"Problèmes courants en droit corporatif et
correctifs", (1991), vol. 2, Cours de
perfectionnement du Notariat 469, par. 109, at
page 504; André MORISSET and Jean TURGEON,
Droit corporatif canadien et québécois,
Farnham, Publications CCH/FM, loose leaf, par. 37-620,
at pages 3,167 ff.
[12] In La compagnie au
Québec,vol. 1, Les aspects juridiques
(Montréal: Éditions Wilson & Lafleur, Martel
Ltée), page 34-61, Maurice and Paul Martel
write:
[TRANSLATION]
. . . Prior to the reform of 2001, the Act provided that
"thereafter" the corporation had all the rights and
privileges and was liable for the obligations that it would have
had if it had not been dissolved, which ruled out any fully
retroactive effect287. . . .
287 Cf.
subsection 241(5) of the Business Corporations Act of
Ontario, the retroactive effect of which was first affirmed
(Re Time Square Cinema Ltd., (1977) 25 C.B.R.
n.s. 189 (Ont. S.C.); Re Zangelo Investments Ltd.,
(1987) 57 O.R. (2d) 510 (H.C.), (1988) 63 O.R.
(2d) 542 (C.A.)), then denied (Swale Investments Ltd. v.
National Bank of Greece (Canada), (1997) 37 B.L.R. (2d)
324 (Ont. Gen. Div.), [1998] O.J. No. 5383 (C.A.)). Cf. also
sections 262 and 263 of the Company Act of British
Columbia, under which provisions a retroactive effect is
possible, depending on the wording of the revival order:
Natural Nectar Products Canada Ltd. v. Theodor, (1991)
49 B.L.R. 56 (B.C.C.A.); Pacific Produce Co. v. Lonsdale
Farm Market Ltd., (1992) 11 C.B.R. (3d) 240 (B.C.S.C.);
Canadian Sports Specialists Inc. v. Philippon, (1990)
66 D.L.R. (4th) 188 (B.C.S.C.).
[13] As to the case law, the decision in
Computerized Meetings & Hotel Systems Ltd. v.
Moore (1982), 141 D.L.R. (3d) 306, on which counsel for
the respondent mainly relies, appears to be authoritative and has
been applied a number of times both in Quebec and elsewhere. In
that decision, the Court held that subsection 209(4) (which
at the time was subsection 202(4), S.C.
1974-75-76, c. 33, as amended by S.C.
1978-79, c. 9, subsection 64(2)) had no
retroactive effect, so that a legal action commenced while the
plaintiff corporation was dissolved was a nullity, since that
corporation was not at the time an entity that could sue or be
sued and since the effects of subsection 209(4), not being
retroactive, could validate neither the writ of summons issued
nor the plaintiff corporation's action commenced while it was
dissolved.
[14] A decision to the same effect was
affirmed by the Quebec Court of Appeal in Les Entreprises
Jacques Lebeau Inc. c. Compagnie d'assurance Victoria du
Canada et al., [1996] A.Q. no 2570 (Q.L.). Counsel for the
respondent also relies on the decisions in
Pierre M. Lépine Construction Exquise inc. c.
2750-6245 Québec inc., [1998] A.Q. no 3451
(Q.L.), and Wolf Offshore Transport Ltd. v. Sulzer Canada
Inc., [1992] N.J. No. 82 (Q.L.), in asserting that the
use of the words "thereafter" in English and
"dès lors" in French may allow a
corporation to regain the rights it had prior to its dissolution,
while recognizing that it cannot validly act to preserve those
rights while it is dissolved. In those two decisions, reference
is made to other judgments also to the same effect.
[15] In the judgment in Wolf Offshore
Transport Ltd., supra, the following comments appear
at page 2:
This means that had this corporation entered into any
contracts or commenced any actions, or defended any actions prior
to its being dissolved [it] could, on being revived, continue
these actions. It does not, however, extend any capacity to
the company to make good anything which may have been initiated
during the time it was dissolved. The company could not contract
when it was dissolved. The company could not commence an action
when it was dissolved. A dissolved company is akin to a deceased
person. It has no capacity to do anything. It is nothing. A
person which is nonexistent could hardly be said to do
anything. If it had a right of action prior to dissolution,
it would have that right on being revived unless statute barred.
The action could be commenced when the company was revived.
(Emphasis added.)
[16] The decision in Swale Investments
Ltd. v. National Bank of Greece (Canada), [1997] O.J.
No. 4997 (Q.L.), also provides an analysis of the
similarities between the Ontario statute and the federal statute,
and the same conclusion is reached.
[17] The principle that a certificate of
revival has no retroactive effect and accordingly does not give a
business corporation the capacity to act legally when it is
dissolved, and thus non-existent, means that one cannot
artificially confer on it the capacity to act legally or
attribute to it an activity, including the activity of operating
a business, with the legal consequences and, more particularly,
the tax consequences which that entails, for a period when the
corporation in fact had no legal existence. An activity simply
cannot be artificially attributed to a non-existent
corporate entity.
[18] This conclusion seems all the more
obvious where such a corporation never carried on any activity or
operated any business whatever before it was dissolved, as is
here the case. There are thus very few previous rights,
privileges and obligations of which a certificate of revival will
allow the recovery from the moment it is obtained.
[19] Counsel for the appellant pointed out
on a number of occasions the appellant's good faith, but also
referred to the actions of Revenue Canada representatives, who,
in 1999, among other things, assigned the Corporation an employer
number for source deduction purposes and a GST registration
number. In the opinion of counsel for the respondent, the facts
noted by counsel for the appellant are of such a nature as to
suggest an argument based on the doctrine of estoppel or of
"fin de non-recevoir", although that argument was not
directly advanced. I would simply say that if there is in fact
any issue in this regard, it has nothing to do with the question
stated by counsel for the parties.
[20] In his written arguments, counsel for
the appellant raises certain additional points based on the
existence of a counter-letter or of an apparent contract that
might have existed between the appellant and the Corporation, or
on the fact that the appellant may have actually acted as the
Corporation's agent during the period when the Corporation
was dissolved. Counsel for the appellant also refers to certain
decisions advocating that economic realities be considered. On
the one hand, here again, the points raised have nothing to do
with the question submitted, which concerns only the certificate
of revival obtained. On the other hand, it is well settled that
economic realities cannot supplant legal realities (Shell
Canada Ltd. v. Canada, [1999] 3 S.C.R. 622,
par. 39, McLachlin J., and Singleton v. Canada,
[2001] 2 S.C.R. 1046, par. 27, Major J.).
[21] In view of the above, I must therefore
answer question 1 in the negative.
[22] As to question 2, I find its very
wording ambiguous. First, it is drafted in terms which clearly
refer to the wording of subsection 209(4) of the Canada
Business Corporations Act, since counsel for the parties have
chosen to use the words "acquired right". At first
glance, the rights acquired by third parties while a business
corporation was dissolved, and which subsection 209(4) is
intended to protect, are the rights they have acquired against
the dissolved corporation during the period when it was
dissolved. However, counsel for the respondent interprets that
provision as protecting the rights acquired by third parties not
only against the revived corporation, but also against any other
person. This interpretation leads him to conclude that the
Minister of National Revenue still was entitled to assess the
appellant as the owner of the business during the 1991 to 1994
taxation years. I do not believe that subsection 209(4) can
be interpreted so broadly, precisely because this provision makes
the rights that a dissolved corporation may regain from the
moment it is revived subject to those that third parties may have
acquired.
[23] Moreover, if I understand correctly the
argument of counsel for the appellant, the Minister lost the
right to assess the appellant the moment the latter informed
officials of the Corporation's existence in 1991 and those
officials assigned the Corporation an employer number and a GST
registration number and even initially assisted the appellant in
completing certain forms with respect to the source deductions to
be made by the Corporation. To put the argument another way, I
will use the words of counsel for the appellant himself, who
states that [translation] "the tax authorities cannot argue
a kind of 'ignorance' as regards their knowledge or as to
the identity of the entity operating the business in
question". Counsel for the appellant goes on to state that
[translation] "even if the tax authorities had been kept
completely in the dark as to the operations of Structures
Condello Inc., the attribution of the income generated in the
circumstances remains a question of fact preventing the tax
authorities from assessing whomever it appears in the
circumstances to be most advantageous to the Department to
assess."
[24] I must admit to having some difficulty
grasping the actual gist of the arguments put forward by counsel
for the appellant. I will make only two comments. The first is
that, in 1991, it was the appellant himself who wrongly informed
the tax authorities that the Corporation existed. The second is
that the attribution of income to a person, whether a natural
person or a corporation, is not solely a question of fact, but is
also a question of law.
[25] I believe that the answer to the second
question lies, at least in part, in the answer to the first. The
certificate of revival obtained in February 1998 did not have the
effect of reviving the Corporation during the years at issue.
From 1991 to 1994, the Corporation was quite simply non-existent.
It therefore did not have the capacity to act and, thus, to
operate or own a business. The income earned accordingly belongs
to the person who generated that income through his activity,
that is to say to the person who operated the business, even if
that person claims to have done so for and on behalf of the
Corporation, which was dissolved at the time and which, in
February 1998, had not been retroactively revived. In the
circumstances, that person can only be the appellant himself.
[26] As counsel for the respondent rightly
emphasized, a taxpayer's tax liability results from the
application of the Act, not from the assessment itself,
which merely confirms the existence of that liability
(The Queen v. Simard-Beaudry Inc. et al., [1971] F.C.
396, 71 DTC 5511 (F.C.T.D.) and The Queen v. The Sands
Motor Hotel Ltd., [1984] C.T.C. 615 (Sask. Q.B.)). Moreover,
subsection 152(3) of the Act provides as follows:
Liability for the tax under this Part is not affected by an
incorrect or incomplete assessment or by the fact that no
assessment has been made.
[27] The fact that the assessments for the
years 1991 to 1994, which are here in issue, were made in June
1998, that is, a few months after the certificate of revival of
the Corporation was obtained, in no way alters the
appellant's tax liability with respect to the income
generated by the operation of the business during the years at
issue. Consequently, the Minister retained his right to assess
the appellant in respect of that income. However, I find that
this is not, strictly speaking, an "acquired right"
which would as it were be protected by subsection 209(4) of
the Canada Business Corporations Act. The Minister's
right to assess a taxpayer is simply a right. It is conferred by
section 152 of the Act and may be exercised in
accordance with the conditions and within the limits set by that
provision.
[28] In concluding on this point, I think it
important to refer to subsection 152(7) of the Act,
which reads as follows:
The Minister is not bound by a return or information supplied by
or on behalf of a taxpayer and, in making an assessment, may,
notwithstanding a return or information so supplied or if no
return has been filed, assess the tax payable under this
Part.
[29] In my view, the Minister may always
assess the taxpayer whom he considers to have earned the income.
In case of dispute, it will fall to be determined, as is here the
case, whether the assessment is valid in that respect.
[30] The answer to question 2 is
therefore affirmative, although, as I have just emphasized, I
consider that the right involved is not strictly speaking an
"acquired right". In the circumstances, the Minister
consequently had the right to assess the appellant, as opposed to
the Corporation, as sole proprietor of the business during the
1991 to 1994 taxation years.
[31] The hearing of these appeals from the
assessments made with respect to the appellant for the 1991 to
1994 taxation years will therefore proceed on the basis of the
answers given to the two preliminary questions submitted to the
Court.
[32] Costs in the cause.
Signed at Ottawa, Canada, this 10th day of June 2003.
J.T.C.C.
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