Bowater Mersey Paper Co. Ltd. v. The Queen, 86 DTC 6293, [1986] 1 CTC 535 (FCTD), rev'd 87 DTC 5382, [1987] 2 CTC 159 (FCA)

Martin, J.:—This matter came on for hearing at Halifax, Nova Scotia on the 11th day of February 1986. The defendant applies for an order pursuant to Rule 341 of the Federal Court Rules dismissing the plaintiff’s appeal from notices of reassessment issued by the Minister of National Revenue under the Income Tax Act in relation to the plaintiff’s income tax for its 1981 and 1982 taxation years. The defendant's application is made on the grounds that as the operative reassessments for those years claim no federal tax payable, the assessments are "nil" assessments from which there is no appeal.

Prior to this hearing the parties filed a statement of agreed facts. The statement discloses that the plaintiff was reassessed for its 1981 and 1982 taxation years and on January 4, 1984 notices of reassessment were sent to the plaintiff indicating federal taxes payable for each year in excess of $2 million.

After January 4, 1984 the plaintiff was again reassessed. By the second reassessment there was carried back to its 1981 and 1982 taxation years an investment tax credit from the plaintiff’s 1983 taxation year pursuant to subsection 127(5) of the Act. The tax credit offset the federal tax payable for 1981 and 1982 and on March 6, 1984, notices of reassessment (the nil reassessments) were sent to the plaintiff indicating that no federal taxes were payable.

In April of 1984 the plaintiff filed notices of objection to the January 4, 1984 notices of reassessment and in February of 1985 the defendant issued a notice of confirmation with respect to the January 4, 1984 notices of reassessment confirming that those assessments had been made in accordance with the provisions of the Act in that the capital cost of a pipeline owned by the plaintiff had been properly determined to be property of Class 2 of Schedule II of the Income Tax Regulations and not of Class 29 as originally claimed by the plaintiff for the purpose of capital cost allowance.

In April of 1985 the plaintiff commenced these proceedings and the defendant brought on this motion on February 11, 1986. The plaintiff submits that the January 4, 1984 reassessments are not rendered a nullity by reason of the March 6, 1984 nil reassessments because the issue of substance (the reclassification of the pipeline) raised by the original reassessments remains unanswered and is not dealt with in the second reassessment.

The issue is not, as counsel for the Minister has stated it, whether there can be an appeal from a nil assessment. Several of the cases cited make it clear that there can be no such appeal. It is sufficient to quote the decision of Fauteux, J. in Okalta Oils Ltd. v. M.N.R., [1955] C.T.C. 271 at 273-4; 55 D.T.C. 1176 at 1177

A right of appeal is a right of exception which exists only when given by statute. Under section 69c(1) of the Income War Tax Act, a right of appeal to the Exchequer Court is given from the decision. of the Income Tax Appeal Board; and under section 69b(1), a taxpayer who has served a notice of objection to an assessment under section 69a may, after “the Minister has confirmed the assessment or re-assessed”, appeal to the Income Tax Appeal Board “to have such assessment vacated or varied.”

It is the contention of the respondent that, construed as it should be, the word “assessment”, in sections 69a and 69b, means the actual amount of tax which the taxpayer is called upon to pay by the decision of the Minister, and not the method by which the assessed tax is arrived at; with the result that if no amountof tax is claimed, there being no assessment within the meaning of the sections, there is therefore no right of appeal from the decision of the Minister to the Income Tax Appeal Board.

In Commissioners for General Purposes of Income Tax for City of London and Gibbs and Others, [1942] A.C. 402, Viscount Simon, L.C., in reference to the word “assessment” said, at page 406:

The word “assessment” is used in our income tax code in more than one sense. Sometimes, by “assessment” is meant the fixing of the sum taken to represent the actual profit for the purpose of charging tax on it, but in another context the “assessment” may mean the actual sum in tax which the taxpayer is liable to pay on his profits.

That the latter meaning attached to the word “assessment”, under the Act as it stood before the establishment of the Income Tax Appeal Board and the enactment of Part VIIIA — wherein the above sections are to be found — in substitution to Part VIII, is made clear by the wording of section 58(1) of the latter Part, reading:

“58(1). Any person who objects to the amount at which he is assessed .. .”

Under these provisions, there was no assessment if there was no tax claimed. Any other objection but one ultimately related to an amount claimed was lacking the object giving rise to the right of appeal from the decision of the Minister to the Board.

Rather the issue, as I appreciate it, is whether the March 6, 1984 notices of reassessment (or reassessments giving rise to the March 6, 1984 notices) replace and nullify the prior reassessments to the extent that the appeal process initiated by the notices of objection to the prior reassessments can no longer proceed.

Counsel for the Minister submitted that the nil reassessments have that effect and cites Coleman C. Abrahams (No. 1) v. M.N.R., [1966] C.T.C. 690; 66 D.T.C. 5451 as authority in support of her contention.

In that case Jackett, P. dealt with the effect of a subsequent assessment for the same taxation year at 692 (D.T.C. 5452)

Assuming that the second re-assessment is valid, it follows, in my view, that the first re-assessment is displaced and becomes a nullity. The taxpayer cannot be liable on an original assessment as well as on a re-assessment. It would be different if one assessment for a year were followed by an “additional” assessment for that year. Where, however, the “re-assessment” purports to fix the taxpayer's total tax for the year, and not merely an amount of tax in addition to that which has already been assessed, the previous assessment must automatically become null.

I am, therefore, of opinion that, since the second re-assessment was made, there is no relief that the Court could grant on the appeal from the first reassessment because the assessment appealed from had ceased to exist. There is no assessment, therefore, that the Court could vacate, vary or refer back to the Minister. When the second re-assessment was made, this appeal should have been discontinued or an application should have been made to have it quashed.

At first glance the Abrahams case would appear to put an end to the plaintiff’s position, for in the present matter, as in that case, there are subsequent reassessments for the same taxation years which purport to fix the plaintiff’s total tax for those years.

Nor would the plaintiff be able to take advantage of subsection 165(7) of the Act which was added after the Abrahams decision, for the plaintiff’s notices of objection were served after the March 6, 1984 reassessments and not before, which would be a condition of continuing the appeal against the January 4,1984 notices of reassessment.

It would appear that under this provision the Abrahams and Walkem cases would have been decided differently for in both those cases the later reassessments which nullified the earlier ones were made after the notices of objection were served. In the present case, however, the notices of objection to the first assessments were not served until after the nil assessments had been made. Accordingly subsection 165(7) has no application to the present case and the principle set out in the Abrahams and Walkem cases remains applicable.

However the proposition that a subsequent reassessment for the same taxation year nullifies and replaces a previous assessment for the same year is not without some limitations. Jackett, P. (supra) dealt with the “additional” assessment exception to the rule. In this matter the March 6, 1984 reassessments are not “additional” reassessments as contemplated by Jackett, P. and thus that exception is not applicable to the circumstances in this case.

In Mary E. Walkem v. M.N.R., [1971] C.T.C. 513; 71 D.T.C. 5288, Mr. Jus- tice Walsh found against the taxpayer on the grounds that the subsequent reassessment, which purported to fix the taxpayer's total tax for the taxation year under consideration and was not an “additional” assessment, having replaced and annulled the earlier assessments precluded the taxpayer from continuing her appeal from her prior assessment. Although his finding appears to support the Minister's position in this matter, Mr. Justice Walsh posited another exception to the rule in Abrahams when he found at 520 (D.T.C. 5292)

.. . On the contrary, I find that the real distinction lies, as implied in the Abrahams case (supra), in deciding whether or not the new re-assessment completely replaces all previous assessments or re-assessments so that there is no longer any issue before the Board or Court on those previous assessments or re-assessments, in which case the Board or Court no longer has any jurisdiction to hear the original appeal, or whether on the other hand, it is merely an additional assessment for an additional amount, which may perhaps even be based on a different issue, in which case the original assessment or re-assessment has not been replaced and the issue arising out of it can still be litigated leaving to a later date the hearing of an appeal against the second re-assessment unless by agreement they are joined for hearing.

[Emphasis added. I

This exception should be considered in conjunction with the observations of Thorson, P. in Morch v. M.N.R., [1949] C.T.C. 250 at 258; 49 D.T.C. 649 at 653

. . . It is well to keep in mind that the notice of assessment is not the same thing as the assessment. The former is merely a piece of paper whereas the latter is an important administrative Act within the exclusive function of the Minister, the character of which was discussed fully in Pure Springs Company Limited v. Minister of National Revenue, [1946] Ex. C.R. 471 at 498; [1946] C.T.C. 169 at p. 178. It is not the sending of the notice of assessment that makes the amount referred to in section 48(3) payable. It merely fixes the time for its payment. The amount itself is payable under the assessments made by the Minister, as the words “unpaid amount thereof indicate.

In the light of the portions of these two decisions quoted above, can it be said that the nil reassessments of March 6, 1984 are reassessments the nature of which have the effect of replacing and nullifying the January 6, 1984 reassessments? I think not.

The January 6, 1984 reassessments reclassified one of the plaintiffs assets so that the capital cost allowance claimed by the plaintiff for the taxation years under consideration was reduced and the plaintiff’s taxable income increased. The issue raised by the plaintiff in its notices of objection is whether that asset was properly reclassified. If the plaintiff cannot proceed with its appeal from the January 4, 1984 reassessments that issue will remain outstanding and unresolved. If I have correctly interpreted the decision of Mr. Justice Walsh in the Walkem case that fact alone would be sufficient to allow the plaintiff’s action to continue.

Added to that reason is the conclusion I have reached with respect to the March 6, 1984 nil reassessments. Those notices, it will be recalled, were issued as a result of the application of an uncontested tax credit available to the plaintiff should it elect to have it applied to its taxable income in the taxation years under consideration. The actual application of the credit to those years was no more “an important administrative Act” than would be the entry of a credit to the plaintiff’s tax account for the payment of that account in cash.

Accordingly, while the March 6, 1984 nil reassessments purport to fix the plaintiffs taxable income for the 1981 and 1982 taxation years, and are not in the nature of “additional” reassessments contemplated by Jackett, P. in the Abrahams case, they do nothing to resolve the real issue raised by the notices of objection to the January 4, 1984 reassessments. Furthermore while the March 6, 1984 notices purport to be notices of reassessments, there were in fact no actual reassessments by the Minister of the plaintiffs taxable income the nature of which would have the effect of replacing and nullifying the January 4, 1984 reassessments and, as a consequence, terminating the plaintiffs right to continue its appeal from them.

While it is not conclusive, the notice of confirmation issued by the defendant in February of 1985 tends to support the conclusion to which I have come. This notice, referring to the formal objections made by the plaintiff, can only be referable to the January 4, 1984 reassessments. If, as contended by counsel for the defendant, the January 4 reassessments were nullified and replaced by the March 6, 1984 nil assessments, the defendant's obligation to act under the provisions of subsection 165(3) of the Act would no longer apply. Granted, the defendant's obligation to act on the prior reassessments would remain if the plaintiff had served its notices of objection prior to the issuance of the subsequent reassessments, but those are not the circumstances in this matter. In this case the notices of objection were served after the March 6, 1984 nil reassessments and the notice of confirmation was issued almost a year later. This course of action, in my view, indicates an intention on the part of the defendant to treat the January 4, 1984 reassessments as valid and subsisting.

Counsel for the plaintiff also takes issue with the characterization of the March 6 reassessments as “nil” assessments on the grounds that a tax is payable. In this respect he points out that they each indicate a provincial tax payable under the Income Tax Act of the Province of Nova Scotia (R.S.N.S. 1967, c. 134). As the provincial tax is calculated by reference to taxable income under the federal Income Tax Act he claims that the amount cannot be a nil assessment within the meaning of the Okalta Oils decision (supra).

Counsel for the defendant submits that the taxable income determined under the provisions of the federal Act is simply a yardstick or reference by which the provincial income tax is calculated and does not alter the nature of the "nil" assessment for the purposes of her motion.

As I have already found that the plaintiff's right to proceed on the issues raised in its notices of objection to the January 4, 1984 notices of reassessment should continue it is not necessary for me to consider this second issue.

Order

It is ordered that the defendant’s motion to dismiss the within action be denied with costs to the plaintiff.

Application denied.