The Queen v. United Equities Ltd., 95 DTC 5042, [1995] 1 CTC 164 (FCA)

Robertson J.A.:-This is an appeal from a decision of the Trial Division, [1992] 2 C.T.C. 214, 92 D.T.C. 6572 (F.C.T.D.), allowing an appeal by trial de novo from a decision of the Tax Court of Canada, [1989] 2 C.T.C. 2171, 89 D.T.C. 391 (T.C.C.). The success of this appeal hinges initially on the interpretation of subsection 194(7) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the "Act"), which provides for the late filing of forms related to scientific research tax credits ("SRTCs"). Briefly stated, the appellant contends that the learned trial judge erred in concluding that that subsection permits the Minister of National Revenue (the "Minister") to grant discretionary relief against the consequences of late filing by issuing a Minister’s notice requesting compliance within 90 days. Alternatively, the appellant contends that he erred in concluding that a Minister’s notice had been issued and complied with and therefore the respondent is entitled to a $100,000 SRTC. The relevant facts are not in dispute.

Facts

In 1993, the federal government introduced a program to stimulate funding of scientific research by enabling a corporation to transfer its right to a SRTC to an investor when it could not itself benefit from such a credit or finance the intended project. In this case, under an agreement between Acadia Saw Mills Ltd. ("Acadia Saw Mills") and the respondent, the latter agreed to invest in the former’s project for a mobile saw, for which the respondent was to receive a SRTC. On May 31, 1984, Acadia Saw Mills received $200,000 from the respondent in return for a debenture in the amount of $114,000. Pursuant to their contract, Acadia Saw Mills was to designate $200,000 for purposes of the SRTC thereby creating a tax credit of $100,000 (50 per cent of the amount so designated). The debenture was redeemed on June 1, 1984 at par. The "quick flip" resulted in the respon dent purchasing a $100,000 tax credit for $86,000 while Acadia Saw Mills retained a $100,000 refundable tax liability. Under the scheme, that tax was refundable at the rate of $1 for every $2 spent on eligible research.

Due to inadvertence on the part of the solicitor for Acadia Saw Mills, and in breach of the parties’ contract, the documents that were required to be filed to permit the designation of the tax credit were not filed within the prescribed time. Under subsection 194(4) of the Act, the designation form (Form T2113) was to be filed on or before June 30, 1984. The information returns (T2114 and T2114 Supplementary) were to be filed on or before February 28, 1985 pursuant to subsections 205(1) and 226(2) of the Income Tax Regulations.

Following an inquiry from a local office of Revenue Canada on October 17, 1985, the solicitor for Acadia Saw Mills discovered that the original forms were still in his file. On the same day, the misplaced documents were forwarded to Revenue Canada.

On December 23, 1985 the solicitor received from Acadia Saw Mills a letter dated November 18, 1985 addressed to it from Revenue Canada, Taxation in Ottawa, signed on behalf of D. Dexter by E. Moffat of the Parts VII, VIII Tax Group (the ’’Part VIII Group"). That group was responsible for processing of forms supplied by research companies such as Acadia Saw Mills. The November 18 letter returned the designation that had been forwarded on October 17, 1985 because of the late filing while indicating that if it were resubmitted and the prescribed late-filing penalty paid within 30 days, the designation would be accepted as having been timely filed. As the November 18 letter had not been forwarded by Acadia Saw Mills to its solicitor until December 23, 1985, the time allowed had lapsed. Nonetheless, the solicitor concluded that on the basis of subsection 194(7), Acadia Saw Mills had 90 days in which to comply with the November 18 letter.

On January 15, 1986, the solicitor resubmitted the designation form together with the $8,000 penalty. The solicitor’s covering letter and enclosure were acknowledged by letter dated February 10, 1986. That letter specifically noted that the acknowledgment should not be regarded as confirmation that the designation was valid. It was not until June 6, 1986 that the solicitor for Acadia Saw Mills was advised by the section head of the Part VIII Group that the prescribed forms were not filed according to the provisions of the Act.

As is well known today, more often than not the creative side of the scheme lay in the financing and not the intended research. As a result, a moratorium was placed on the program on October 10, 1984 partly because of the prevalence of the "quick flip" and the fact that such transactions were perfectly valid; see [1992] 2 C.T.C. 3813 and Canada v. Loewen, [1994] 2 C.T.C. 75, 94 D.T.C. 6265 (F.C.A.).

Because of unanticipated difficulties in administering the tax scheme, and throughout the period the solicitor for Acadia Saw Mills was seeking to file late the required forms, the Department was attempting to develop and implement policies for dealing with SRTCs. It was not until 1985 that a procedure would be put into place whereby the Department would be able to tie in an investor’s claim for a SRTC with research companies which failed to file the prescribed forms.

On June 28, 1985, an internal memorandum of Revenue Canada was circulated calling for revisions to procedures for dealing with problem cases and, in particular, with respect to those involving the late filing of designation forms. The November 18 letter was premised on this memorandum and will be dealt with more extensively below as it relates directly to one of the issues raised on this appeal.

By July 29, 1985, under a covering interdepartmental memorandum, drafts of the "Minister’s notice" letters were circulated with instructions for their preparation and signature by the Assistant Deputy Minister and for sending by double registered mail. Each of the drafts were written so as to respond to particular circumstances. Included among them was a draft letter directing the late filing of outstanding information returns. No letter modelled on this draft, and no letter signed by an Assistant Deputy Minister was ever sent to Acadia Saw Mills.

In 1985, procedures were also put into place for auditing research companies. As a result of such an audit conducted on July 3, 1986, it was found that Acadia Saw Mills had failed to make eligible research expenditures and with the death of its president in the summer of 1986, it was doubted that any such work would be undertaken in the future.

In February 1987, the Department established criteria by which "technically invalid designations" could be accepted in order to clear affected investors’ returns (approximately 700 unassessed TI returns were being held pending decisions on the validity of the designations). Subject to certain exceptions, it was decided that in those cases where both the designation form and the information returns were filed late, then the late-filed designation would be accepted provided that eligible research expenditures had been carried out to offset the tax liability. If moneys had not been expended on research, the late designation was not to be accepted. The evidence at trial indicated that had Acadia Saw Mills incurred eligible research and development expenditures then the late-filed designation would have been filed as valid and the tax credit would have been allowed in accordance with the prevailing policy.

It is common ground that filing of the designation form was fundamental to the respondent’s entitlement to the SRTC. In light of the Minister’s decision that Acadia Saw Mills’ designation was late and therefore invalid, the Minister reassessed the respondent and disallowed the $100,000 SRTC which had been claimed in respect of its 1984 taxation year and a claimed carryback with respect to a portion thereof for the 1983 taxation year. The respondent’s appeal to the Tax Court of Canada was dismissed. On appeal by trial de novo, two issues were pursued before the trial judge.

Decision below

The respondent argued that timely filing of information returns is not a condition precedent to late filing of a designation, as provided for in subsection 194(7), provided the Minister has given notice that a designation and payment of the penalty prescribed is made on or before 90 days after mailing of the notice. Alternatively, the respondent argued that the November 18 letter constituted notice and that Acadia Saw Mills, having filed the designation and paid the penalty within 90 days of the date of that letter, had met the requirements of subsection 194(7). That subsection reads as follows:

194(7) Where a taxable Canadian corporation that issued a share or debt obligation or granted a right under a scientific research financing contract does not designate an amount under subsection (4) in respect of the share, debt obligation or right on or before the day on which such designation was required by that subsection, the corporation shall be deemed to have made the designation on that day if

(a) the corporation has filed with the Minister a prescribed information return relating to the scientific research tax credit in respect of the share, debt obligation or right within the time that it would have been so required to file the return had the designation been filed on that day, and

(b) within three years after that day, the corporation has

(i) designated an amount in respect of the share, debt obligation or right by filing a prescribed form with the Minister, and

(ii) paid to the Receiver General an amount that is a reasonable estimate of the amount of the penalty payable by the corporation for the late designation in respect of the share, debt obligation or right;

except that, where the Minister has mailed a notice to the corporation that a designation has not been made in respect of the share, debt obligation or right under subsection (4), the designation and payment described in paragraph (b) must be made by the corporation on or before the day that is 90 days after the day of such mailing.

[Emphasis added.]

On the first issue, the trial judge concluded that timely filing of information returns is not a condition precedent to late filing of a designation where the Minister has mailed a notice as contemplated in the last paragraph (the "exception clause") of subsection 194(7). On the second issue, he concluded that the November 18 letter constituted a notice by the Minister within the meaning of subsection 194(7). The appeal was allowed and the reassessments by the Minister were vacated. I turn now to the extensive and thorough reasoning offered by the learned trial judge in arriving at the first of his two conclusions.

With respect to the proper interpretation of subsection 194(7), the trial judge based his decision on four considerations: (1) the structure of the subsection; (2) the general purposes of the legislation; (3) the administrative policy that had been adopted by the Minister in February, 1987; and (4) the applicable rules of statutory construction.

As to structure, the trial judge observed that the last paragraph of subsection 194(7), relating to a Minister’s notice, operated as an exception to the whole first part of the subsection, ’’and it provides an alternative to the designating [Acadia Saw Mills’] right to file late, where the Minister has mailed a notice that a designation has not been made [as required by] subsection 194(4)". At [1992] 2 C.T.C. 213, 92 D.T.C. 6572, at page 222 (D.T.C. 6578) he reasoned:

First, the structure of subsection 194(7) sets out an introductory clause relating to late filing of a designation and following the word "if" at the end of that clause it sets out two conditions in paragraphs (a) and (b), the latter of which concludes with a semicolon, the first and only semicolon used in the provision. (For the record I note that the semicolon appears in the English text of the Act but not in the French text where a comma is used.) This much of subsection 194(7), in my view, clearly gives a right to a corporation filing late to have its designation filed and deemed to have been made at the proper time if it meets conditions in paragraphs (a) and (b). The balance of the subsection, from the word "except" to the end, continues not as a visible part of paragraph

(b) but rather as a part of the main subsection, for it does not continue after the semicolon (or comma in the French text) at the end of paragraph (b), but it continues on a new line at the left margin of the introductory clause, not the margin of paragraphs (a) and (b). In my view the exception clause relates to the whole of the first part of the subsection, not merely to paragraph (b), and it provides an alternative to the designating company’s right to file late, where the Minister has mailed a notice that a designation has not been made under subsection 194(4). True, the exception clause refers to paragraph (b) and not to

(a) of the subsection, but the whole of the subsection is concerned with late filing of the designation, not with late filing of information forms. Thus, it is not surprising that the exception clause makes no reference to paragraph (a); there was no need to do so.

The trial judge went on to emphasize the fact that nowhere in the Act is provision made for the need or the time for filing of information returns, a matter dealt with by regulations. The only reference to filing of information returns in section 194 appears in subsection (7).

The trial judge then focused on the construction of subsection 194(7) in relation to the general purposes of the Act as it pertains to SRTCs. That purpose was identified in terms of encouraging private investment in otherwise risky endeavours. The late-filing provisions were intended to protect the investor and an opportunity to establish the tax liability of the designating company. In the view of the trial judge (at page 223 (D.T.C. 6579)):

...it was not intended to provide an opportunity for the Minister to elect to deny recognition of an SRTC and to ignore the tax liability of the designating company simply because that liability had not been established by timely filing of prescribed forms. Late filing of the designation and payment of the penalty were intended to overcome the defect of failure to file the designation on time. Otherwise opportunity for late filing would not have been provided.

The trial judge went on to deal with the fact that Revenue Canada’s own administrative policies ultimately adopted were inconsistent with the position being advanced by the Crown. The policy guidelines established in February 1987, would effectively allow for late filing of designation forms even though the information returns had not been filed on time. As noted earlier, under the Department’s policy, the late filing of information returns was not a condition precedent to the late filing of a designation form, provided that the designating company had incurred eligible research expenditures. The fact that the respondent was unable to take advantage of this policy because of the failure of Acadia Saw Mills to make the required expenditures attracted the following critical analysis (at page 223 (D.T.C. 6579) ):

However commendable its intentions, Revenue Canada really had no authority to treat the two cases differently if the law were, as it is now urged by the Crown, that filing information returns in a timely fashion was a condition precedent to any late filing of a designation. If that were the law, Revenue Canada’s treatment of those cases where eligible research expenditures were made, accepting a late-filed designation even though information returns had not been filed on time, would constitute a dispensing, or suspending of the law in those cases, an authority not vested in the Minister.

To the trial judge, the Department’s policy could only be justified on the construction urged by the respondent. At the same time, he expressly acknowledged that departmental policy could not be determinative of the legal construction to be given to the words of the Act. At page 224 (D.T.C. 6580) he concluded:

Nonetheless, where that practice is not inconsistent with the terms of the Act construed in light of its purposes, it is, in my view, worth noting that, and also that another construction, here urged by the Crown, is inconsistent with the Department’s own practice.

Finally, the trial judge held that subsection 194(7), at the very least, gave rise to an ambiguity and, as a general principle, ambiguities in the Act are to be resolved in favour of the taxpayer. In his view, the principle invoked in Johns-Manville Canada Inc. v. The Queen, [1985] 2 S.C.R. 46, [1985] 2 C.T.C. Ill, 85 D.T.C. 5373, supported the conclusion he had reached.

On the second main issue, the trial judge held that the November 18 letter constituted notice by the Minister sufficient to trigger the above exception. It was noted that the exception clause does not establish particulars for the form of the notice but only that notice be mailed by the Minister. The trial judge held that subsection 194(7) does not require any particular form for a Minister’s notice. Applying Stephens v. The Queen, [1987] 1 C.T.C. 88, 87 D.T.C. 5024 (F.C.A.), he reasoned that the November 18 letter constituted a Minister’s notice under subsection 194(7). At page 226 (D.T.C. 6582) he stated:

In my view the circumstances here are analogous to those in Stephens and the form of the notice is irrelevant provided that the information it contains makes the taxpayer aware "that a designation has not been made in respect of the share, debt obligation or right under subsection 194(4)", as the Act provides.

In conclusion, the trial judge held that as Acadia Saw Mills had complied with the notice mailed to it within 90 days, the designation was validly filed. Thus, the respondent was entitled to claim the $100,000 SRTC for the 1984 taxation year and the claimed carryback.

Issues

The appellant submits that the trial judge erred in concluding that the timely filing of a prescribed information return is not a condition precedent to the late filing of a designation under subsection 194(7). In the alternative, the appellant submits that the trial judge erred in concluding that the November 18 letter constituted a Minister’s notice sufficient to trigger the exception clause. While the analysis I offer below confirms the decision of the trial judge on the first issue, it is my respectful opinion that the November 18 letter cannot be deemed a Minister’s notice within the contemplation of that subsection. In the circumstances, I must address both issues.

A. Interpretation of the exception clause

It is common ground that without the exception clause, two conditions would have to be met to make a late designation: (a) timely filing of the information returns; and (b) filing the designation together with the penalty within three years. Thus, in the absence of the exception clause, the timely filing of the information returns is a condition precedent to making a late designation. The appellant’s argument hinges on the understanding that this result is not changed by the exception clause.

The appellant argues that the exception clause refers only to condition (b) and its purpose is to allow the Minister to reduce from three years to 90 days the period in which a corporation has to file a late designation. Moreover, the appellant maintains that the timely filing of information returns is critical to the late- filing scheme. Without such a document, the Minister has no way of knowing that a designation has been made. In short, without the information returns the Minister cannot exercise his right to reduce the late-filing date from three years to 90 days. Correlatively, the appellant maintains that the interpretation adopted by the trial judge leads to the following "absurd result" (appellant’s factum, paragraphs 34-35):

If the Minister does nothing, the timely filing of the information return is a condition precedent to making a late designation. However, if the Minister triggers the exception clause by mailing a notice, all that the corporation need do is (i) designate an amount by filing the prescribed form, and (ii) pay the penalty. Thus, the corporation would be able to make its late designation without filing information returns at all.

Information returns are important documents. With SRTCs, the T2114 Summary is the only picture Revenue Canada has of the total transaction.

[Emphasis added.]

In effect, I take the appellant’s argument to be that if only one of two interpretations of a statutory provision brings about a "workable and practical result" then that is the one to be preferred; see Berardinelli v. Ontario Housing Corp., [1979] 1 S.C.R. 275, 90 D.L.R. (3d) 481. In view of the "absurd result" which supposedly flows from the trial judge’s construction, counsel for the appellant insists that subsection 194(7) admits of only one reasonable and practical construction. The appellant also takes exception to the trial judge’s reliance on the decision of the Supreme Court in Johns-Manville to the effect that any ambiguity in a taxing statute should be resolved in favour of the taxpayer. I shall deal with this objection first.

Recently, the Supreme Court has had the opportunity to comment on the meaning that should be attributed to Estey J.’s observations in Johns-Manville. In Québec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secours, [1994] S.C.J. No. 78, Gonthier J. stated:

Two comments should be made to give Estey J.’s observations their full meaning: first, recourse to the presumption in the taxpayer’s favour is indicated when a court is compelled to choose between two valid interpretations, and second, this presumption is clearly residual and should play an exceptional part in the interpretation of tax legislation.

Gonthier J. went on to summarize the principles of interpretation applicable to tax legislation. At page 16 he stated:

The rules formulated in the preceding pages, some of which were relied on recently in Symes v. Canada, [1993] 4 S.C.R. 695, [1994] 1 C.T.C. 40, 94 D.T.C. 6001, may be summarized as follows:

-The interpretation of tax legislation should follow the ordinary rules of interpretation;

A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach;

The teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions;

Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute;

Only a reasonable doubt, not resolved by the ordinary rules of inter- pretation, will be settled by recourse to the residual presumption in favour of the taxpayer.

In my view, the trial judge did not apply Johns-Manville in a manner which conflicts with the analysis offered by Gonthier J. At page 225 (D.T.C. 6580) the trial judge concluded that the principle stated therein simply supported the conclusion he had reached:

I have noted that in the Tax Court decision Her Honour Judge Kempo declined to apply that principle [in Johns-Manville], having found no ambiguity and no lack of explicitness in the words used in subsection 194(7). I reach a different conclusion based on my construction of that provision in light of the general purposes of the legislation in relation to SRTCs and the purpose, as I see it, of subsection 194(7) itself. As in the case of the parties’ positions, this illustrates a difference in the interpretation of the subsection as applied to the facts of this case, the different interpretations each supported by reasons. That is an ambiguity in common parlance, and clearly indicates that the words used lack explicitness. In my view, the principle enunciated in Johns Manville supports the conclusion I have reached.

[Emphasis added. I

Having dispensed with this preliminary issue, it is still necessary to determine whether a strict or liberal interpretation of subsection 194(7) should be adopted in accordance with the law as stated in Notre-Dame de Bon-Secours. As Gonthier J. stated, a legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it. That purpose must be identified in light of the context of the statute, its objective and legislative intent.

The trial judge rightly noted that the provisions of the Act governing SRTCs are intended to encourage otherwise risky private investment in research and development projects, and it is in this context that subsection 194(7) must be interpreted. In my opinion, that subsection is a curative provision intended to provide relief against forfeiture of intended tax benefits. Without a legislative mechanism for allowing late filing, the designating company and the investor may forfeit the right to create and purchase a tax credit respectively.

As in the present case, an investor who did everything that was required of it under the Act could still lose its SRTC because of an inadvertent late filing of information returns by the designating company. Since subsection 194(7) is a curative provision, I do not see how a narrow interpretation of that provision would further the legislative aim of encouraging investment, when such a construction reduces the possibility of investors and designating companies obtaining relief from forfeiture.

A liberal construction, that is to say one that the subsection can reasonably bear and is consistent with legislative objectives, has the effect of giving the Minister the discretion to develop policies which take into account the competing interests of Canadian taxpayers and innocent investors and to refuse to send a notice where it is found that the interests of the former should prevail over the latter. When viewed in this light, it seems that the most reasonable construction, and one that is in accord with the objects and purposes of the legislation, is that adopted by the trial judge. As I see it, a liberal construction of subsection 194(7) lends legitimacy to and achieves the same ends as the departmental policy implemented in February, 1987 dealing with the disposition of "technically invalid designations"-a policy which could conceivably be subject to legal challenge; see trial judge’s reasons (at page 223 (D.T.C. 6579)) dealt with earlier.

Regardless of how one wishes to characterize the trial judge’s interpretation of subsection 194(7), that interpretation does not, in my view, lead to an unworkable and impractical result. This takes me to the nub of the appellant’s argument, namely that filing of information returns is critical to the administration of subsection 194(7). Like the trial judge, I do not find this argument persuasive once it is learned that "no provision of the Act specifies the need or time for filing information returns, a matter dealt with by regulation" (per MacKay J. at page 223 (D.T.C. 6578-79)). If the information returns are as critical as suggested by the appellant, then surely the Act would have emphasised the need for their filing.

The appellant’s argument loses its appeal even further if one compares, for example, the content of the designation form (Form 172113, Appeal Book, Vol. II, at page 199) with the summary information return (Form T2114, Appeal Book, Vol. II, at page 200). That comparison reveals two single-page documents containing virtually identical information. During oral argument, counsel for the appellant noted that the latter document would differ from the former had there been multiple investors. Presumably, the submission of multiple designation forms would have achieved the same result.

As to the argument that a Minister’s notice cannot issue until such time as he receives the information returns, I note three facts. First, in this case the Department learned of the failure to file the designation without an information return having been filed. Second, the information returns in question did not have to be filed until eight months after the designation was filed. Normally, one would expect that documents which are supposedly critical to the administration of a taxing scheme will be subject to a requirement that they be filed prior to or at the same time as other required documents. Third, in 1985, procedures were put into place whereby the Department was able to tie an investor’s claim for a SRTC with that of the corresponding designating company, notwithstanding the failure to file the required information returns. In my opinion, a designating company’s failure to file such documents did not and does not undermine the Minister’s ability to exercise his powers under subsection 194(7) of the Act.

Finally, I turn to the appellant’s contention that the trial judge’s interpretation leads to an "absurd result", in cases where a Minister’s notice issues, because there is still no obligation on the designating company to file the required information returns. While it is true that the exception clause refers only to the designation form itself, I do not find the argument that the filing of the information returns is a condition precedent to the application of the exception clause persuasive, once it is recognized that the information returns are not essential to the administration of the scheme. I do not believe a designating company would object to providing these documents if requested by the Minister pursuant to a notice issued under subsection 194(7).

For these reasons, and given the fact that the appellant did not challenge the trial judge’s incisive analysis based on the structure of subsection 194(7), I am of the view that the timely filing of the information returns is not a condition precedent to the late filing of designation forms where the Minister gives notice under subsection 194(7). I turn now to the more troublesome issue of whether the November 18 letter constitutes a Minister’s notice under that subsection.

B. The Minister’s notice

Even if the timely filing of an information return is not a condition precedent to sending a Minister’s notice, the appellant submits that the trial judge erred in concluding that the Minister mailed to Acadia Saw Mills a notice within the meaning of the exception clause of subsection 194(7). Simply stated, the appellant’s position is that the November 18 letter from the Part VIII Group at the Ottawa Taxation Centre is not a Minister’s notice.

The first argument advanced by the appellant is that no one in the Part VIII Group possessed the express statutory authority to issue a Minister’s notice. Although the respondent does not take exception to this conclusion, it is helpful to outline the reason underlying this consensus before turning to the issue on which the parties have expressed conflicting views.

While subsection 194(7) requires that a notice be mailed by the Minister, it would be unreasonable to expect that it would be personally mailed or issued by the Minister. Section 220 of the Act provides that the Deputy Minister of National Revenue (Taxation) may exercise all the powers and perform the duties of the Minister. Pursuant to subsection 900(1) of the Income Tax Regulations, an Assistant Deputy Minister of National Revenue (Taxation) may do likewise. In fact, it was not until July 1987 that the Regulations were amended so as to authorize expressly a director of a Taxation Centre to exercise the powers of the Minister under subsection 194(7); see paragraph 900(10)(b) of the Regulations.

It is clear that at the time the November 18 letter was issued, no one in the Part VIII Group was expressly empowered by statute to issue a notice on behalf of the Minister. Indeed, the November 18 letter does not purport to be from the Minister, Deputy Minister or an Assistant Deputy Minister, the only persons authorized to act on behalf of the Minister at that time. In this respect, the facts of this case are substantially different from those in The Queen v. B.M. Enterprises Ltd., [1992] 2 C.T.C. 115, 92 D.T.C. 6463 (F.C.T.D.), a case relied on by the respondent.

In B.M. Enterprises, the question was whether a Minister’s notice of assessment, issued pursuant to subsection 227(10) of the Act, had been issued by the proper person. The notice, which was under the printed name of the Deputy Minister, was actually sent out by a collection officer who was acting in accordance with procedures controlled by the Deputy Minister and by officials acting under his directions. In these circumstances, the trial judge held that it was appropriate to consider the issuing of the assessment as the act of the Deputy Minister himself, even though he had not personally reviewed the file. Though counsel for the respondent placed significant reliance on the reasoning in B.M. Enterprises, it is obvious that it has no application to the case at bar. On the facts, the November 18 letter does not even purport to be from a person authorized by statute.

The respondent’s alternative contention, and one that builds on the analysis provided in B.M. Enterprises, is that the common law principle of implied delegation is applicable. The respondent maintains that the Minister in fact delegated the "function of mailing" the notice under subsection 194(7) to the head of the Part VIII Group. As to evidence of actual delegation, it was urged that the November 18 letter was sent pursuant to the policy memorandum of June 25, 1985 issued by the section chief of the "Corporation and Trust Assessing Program" to the section chief of the Part VIII Group. The respondent admits that while the evidence does not indicate that the Minister personally approved the memorandum, "it was widely circulated within the Minister’s department, and was intended to outline in detail the procedures to be followed with respect to late filings of designations" (respondent’s memorandum, paragraph 47). Before turning to the flaws in the respondent’s argument, it is necessary to canvass briefly the elements of the common law principle invoked by the respondent.

The principle of implied delegation states that when an Act provides for a power to be exercised by a Minister, that Minister may possess an implied right to delegate the exercise of that power to responsible officers within his or her Department; see The Queen v. Harrison, [1977] 1 S.C.R. 238, 66 D.L.R. (3d) 660, at page 245 (D.L.R. 665). However, in cases where there is a so-called "legislative code" of delegations it has been asked whether the common law principle is displaced and therefore a Minister is no longer empowered to delegate duties to officials not authorized by the legislation. I am aware that in Doyle v. M.N.R., [1989] 2 C.T.C. 270, 89 D.T.C. 5483 (F.C.T.D.), Reed J. concluded that the Minister of National Revenue had the implied authority to expressly delegate powers to those not authorized by the Act or Regulations; see also B.M. Enterprises, supra, and compare with Ramawad v. Minister of Manpower & Immigration, [1978] 2 S.C.R. 375, 81 D.L.R. (3d) 687, at page 381 (D.L.R. 691). In my opinion, however, it is unnecessary to address this particular issue since there is no evidence that the Minister either expressly or impliedly delegated the power to issue Minister’s notices under subsection 194(7) to anyone within the Part VIII Group.

Pursuant to the July 29, 1985 inter-departmental memorandum, the role of the Part VIII Group was limited to preparing draft Minister’s notices, on the Assistant Deputy Minister’s letterhead, and forwarding these drafts to the "Assessing Division" within head office for appropriate consideration. Furthermore, an examination of the June 25, 1985 memorandum, relied on by the respondent, reveals that the Part VIII Group was to play no role in the issuance of Minister’s notices. The following analysis establishes that the doctrine of implied delegation is inapplicable to the case at hand.

The internal memorandum of June 28, 1985 deals solely with the late filing of designation forms and the collection of penalties. Furthermore, it expressly negates the authority of Part VIII Group to deal with cases in which both the designation and information returns were not filed on time. The memorandum requires that an attached draft letter be forwarded to the delinquent corporation requiring compliance and outlining the action to be taken in the event that a letter does not result in compliance within 30 days. Reproduced below are the relevant sections of the memorandum in question (Appeal Book, Vol. II, pages 232-33, Revenue Canada, Taxation Memorandum dated June 28, 1985):

Part VIII Tax Policies The purpose of this memorandum is to inform you of revisions to procedures and to provide you with the policies you requested during our meeting of April 2, 1985, specifically concerning items 2, 3, 4, 5, 6, 7, and 8 of the meeting report. The remainder of the solutions to the problems outlined in the report have either been incorporated in TOM 67 instructions or have been relayed to the responsible function for their action.

Item 2 and 3 Attached are copies of letters which reflect our revised policy on advising corporations of the filing requirements of designations form T2113. It will be our policy in cases where a late-filing penalty is not paid on filing, the designation form is incomplete or not filed to:

(1) Advise the corporations of the filing requirements and consequences of non-compliance by letter and allow them 30 days to comply.

(2) Where a corporation files a summary without a designation, proceed with a request to file a designation letter within 10-15 days of due date identified fro the supplementary.

(3) If no reply is received within 30 days, a second letter, the "Minister’s notice" under subsection 194(7) will be prepared by PGRT. The drafts of these letters are currently being reviewed by Legal Services. They will be forwarded to you as soon as they are received.

All late-filed designations, where the information return is also late filed must not be assessed until approved by Audit. The referral procedures to Audit are currently being developed. All affected designations must be stockpiled until further notice. [Emphasis added. I]

As is apparent, the memorandum expressly contemplates a further notice-a Minister’s notice-to be sent if no response to the 30-day letter is received. However, this procedure was applicable only in respect of late filings of designation forms. In cases where both the designation and information returns had not been filed on time, no action was to be taken until "approved by Audit" and of course further constraints were placed on the authority of the Part VIII Group as reflected in the July 29, 1985 memorandum.

The June 28, 1985 memorandum simply does not reflect a departmental policy authorizing the issuance of Minister’s notices and, in particular, the issuance of such notices where both the designation form and information returns were filed late. Furthermore, it is apparent that the November 18 letter, based on the draft letter attached to the June 28, 1985 memorandum, was intended to serve as a 30-day notice, not a Minister’s notice, and was issued contrary to policy guidelines. The November 18 letter, on letterhead of Revenue Canada, Taxation, Toronto Centre, Ottawa, reads as follows:

Enclosed is form T2113 filed in respect of a designation made under subsection 194(4) of the Income Tax Act in respect of securities issued in May, 1984.

As specified in subsection 194(4) of the Income Tax Act, the designation on prescribed form T2113 must be filed on or before the later of:

(a) the last day of the month immediately following the month in which the corporation issued the security and

(b) April 18, 1984.

The designation for the securities issued in May, 1984 should have been filed not later than June 30, 1984.

Subsection 194(7) of the Income Tax Act provides that the designation may be filed later than the due date, provided the prescribed information return T2114 Summary is filed by the end of February in the year following the year of issue of the share, debt obligation or right granted and an estimate of the penalty amount referred to in subsection 194(8), is both calculated and remitted.

The envelope containing your designation was postmarked October 17, 1985 and no remittance appears to have been made in respect of the penalty. Consequently, the designation in question cannot be considered to be filed as a valid designation in accordance with subsection 194(7) as the applicable penalty of $8,000 has not been remitted.

The enclosed form T2113 will be accepted as filed on the original filing date if it is re-submitted with the applicable penalty payment within 30 days of the mailing of this letter. Failure to submit the requested penalty payment with the enclosed T2113 will result in an invalid designation and the disallowance of tax credits claimed by investors.

When making the required remittance and for any future enquiries, please use the reference "Part VIII Identification Number" RT430189.

[Emphasis added.]

In conclusion, I find that no one in the Part VIII Group had the authority to issue a Minister’s notice under subsection 194(7). The November 18 letter did not emanate, nor did it purport to emanate, from the Minister or any other official who had the authority to issue a Minister’s notice. Rather, the November 18 letter was merely a 30-day notice, mistakenly sent pursuant to departmental policy, seeking payment of a penalty arising from the late filing of a designation form. I hasten to add that the respondent’s argument that the 30-day notice should be treated as a 90-day Minister’s notice loses its persuasiveness once it is acknowledged that Acadia Saw Mills had not even complied with the limitation period prescribed in the former document.

The trial judge appears to have perceived the issue in terms of whether the letter purported to be a Minister’s notice and was acted upon accordingly and, therefore, should be treated as one. In so doing, he failed to determine whether anyone within the Part VIII Group was authorized to issue Minister’s notices. In my respectful opinion, the circumstances of this case are not analogous to those in Stephens as was found by the trial judge.

In Stephens, the taxpayer contended that five notices of assessment issued by the Minister under subsection 152(2) of the Act were void because all of the notices were issued on forms bearing the name "Revenue Canada, Taxation" rather than "Department of Revenue" and because four of the five had the printed signature of a person who was not the incumbent Deputy Minister at the time of the mailing of the notice. Both the Trial and Appeal Divisions of this Court determined that the notices were valid. The facts of this case differ materially from Stephens. There the issue was not whether the issuance of the assessments was properly authorized by the Minister, but whether the Minister’s notices of assessment satisfied the requirements of the Act. As was pointed out by this Court, the fact that the assessments bore the printed signature of a person who had ceased to be the Deputy Minister was of no consequence since, in any event, the Act did not require that notices of assessment be signed by anyone.

For these reasons, I am of the opinion that the appeal must be allowed with costs and the reassessments of the Minister restored.

Appeal allowed.