MacIsaac v. The Queen, 83 DTC 5258, [1983] CTC 213 (FCTD)

Nitikman, D J:—On April 14, 1982 plaintiff, a resident of the City of Regina, in Saskatchewan, filed a statement of claim against the defendant in respect of income tax assessments issued against him for the 1977 and 1979 taxation years. The facts, as set out in the pleadings, are that in 1977 he borrowed $44,000 from GRB Holdings Ltd, a private corporation with its head office in Regina, which is 48 per cent owned by him. Plaintiff did not repay said loan within the period required under the Income Tax Act and said loan becomes treated as income. The corporation owed the plaintiff $3,589, leaving a resulting income balance of $40,411. Plaintiff did not include said income in his 1977 income tax return, but included it in his 1979 return.

It is not in dispute that subject to certain adjustments in plaintiff's tax returns for both the taxation years 1977 and 1979 were assessed on the basis of the returns filed and that subsequent adjustments were made in the 1977 taxation assessment and reassessed accordingly. Paragraphs 5 to 9, both inclusive, of the plaintiff’s statement of claim read:

5. The Plaintiff alleges the Defendant verbally agreed in the early part of 1981 that the Plaintiff did have the right under the Income Tax Act to have the said sum of $40,411.00 treated as income to him in the year 1977 being the year in which the said loan was obtained and undertook to adjust the Plaintiff's tax return accordingly.

6. The Plaintiff further says that this matter was first brought to the attention of the Defendant on or about the 26th day of November, AD 1980 being the time at which the Plaintiff became aware of his right to treat the said sum as income to him in 1977 rather than 1979.

7. The plaintiff further says that he relied on chartered accountants who prepared the tax return for the corporation and a different firm of chartered accountants who prepared his personal return to advise him on these matters but he was not so advised.

8. The Plaintiff states that notwithstanding the verbal commitments made to the Plaintiff in paragraph 5 hereof the Defendant refused or neglects to make the adjustments favourable to the Plaintiff and continues to demand payment from third parties pursuant to a Third Party Demand issued under the Income Tax Act.

9. The Plaintiff says that the Defendant knew full well from its own records that the amount involved was a loan as stated but now insists that the Plaintiff prove it was a loan, and in addition the Defendant has accused the Plaintiff of not disclosing a Capital gain on the sale of farm land in the year 1978, an allegation which has no basis on fact and could never be substantiated, all of which tend to show the Defendant is acting in bad faith, is not prepared to perform its duty to the Plaintiff, will not observe the law and is denying the Plaintiff natural justice.

Plaintiff seeks inter alia the following relief:

1. The issuance of a Writ of Prohibition or relief in the nature of prohibition directed against the Defendant to prohibit the Defendant from collecting further taxes from the Plaintiff based on the 1979 return as filed.

2. The issuance of a Writ of Mandamus or relief in the nature of Mandamus directed against the Defendant to require the Defendant to exclude the sum of $40,411.00 from the 1979 return and to include the said sum of $40,411.00 in the Plaintiff’s 1977 return.

3. The issuance of an injunction or relief in the nature of an injunction directed against the Defendant restraining the Defendant from issuing Third Party Demands against the Plaintiff.

4. A declaration that the Plaintiff is entitled to have his Income Tax returns amended to reflect his true taxable positions in the year 1977 and 1979.

Plaintiff's statement of claim appears to be drawn by himself and contains the statement: “The plaintiff represents himself in this action.” He as well represented himself in the subsequent proceedings which were heard in Regina.

The statement of defence was filed on behalf of defendant, Her Majesty The Queen, by the Deputy Attorney General of Canada.

The position taken on behalf of the defendant is basically set out in paragraphs 4, 5, 7 and 8 of section A, headed “Statement of Facts”, and in paragraphs 9, 10 and 11, headed “B”. The statutory provisions upon which the deputy attorney general relies and the reasons which he intends to submit”. These read:

4. The Plaintiff filed a return of income for his 1979 taxation year within the period prescribed by the provisions of the Income Tax Act, which return of income was assessed as filed on June 28, 1980.

5. The Plaintiff filed a return of income for his 1977 taxation year within the period prescribed by the provisions of the Income Tax Act, which return of income was assessed by the Minister of National Revenue as filed on August 1, 1978.

7. In assessing the Plaintiff in the Notices of Reassessment dated June 28, 1980 and August 1, 1978, the Minister of National Revenue assumed that the facts set Out by the Plaintiff in the returns of income filed by him for 1977 and 1979 correctly and accurately disclosed the facts pertaining to the reported income in the amount of $40,411.00.

8. The Plaintiff has not filed a Notice of Objection appealing the said assessments as prescribed by section 165 of the Income Tax Act.

9. He relies on sections 165 and 172 of the Income Tax Act, RSC 1952, c 148 as amended by s 1, c 63, SC 1970-71-72.

10. He submits that he has no knowledge of any alleged shareholder loan referred to by the Plaintiff in paragraph 2 of the Statement of Claim herein and that accordingly the Plaintiff's 1979 return of income correctly reported income in the amount of $40,411.00 arising from GRB Holdings Ltd.

11. He submits that this Honourable Court is without jurisdiction to hear this appeal as a consequence of the Plaintiff’s non-compliance with the provisions of section 172(2) of the Income Tax Act.

Defendant’s position is that while plaintiff’s proceedings are framed as relief claimed under the statement of claim, plaintiff is really purporting to appeal the assessments issued for the years in question.

Two motions were launched, one by defendant and the other by plaintiff. Both motions were heard together.

Defendant’s motion is “for an Order quashing this appeal upon the ground that there were never valid Notices of Objection filed under section 165 of the Income Tax Act and that accordingly, this Honourable Court is without jurisdiction to hear this appeal as a result of the plaintiff’s non-compliance with subsection 172(2) of the Income Tax Act".

In support of this motion defendant filed an affidavit of Harold Clements of the City of Regina aforesaid, Chief of Appeals of the District Office, Department of National Revenue, in Regina, who deposes that in that capacity, he has custody of the records relating to appeals and has knowledge of the facts in his affidavit deposed to.

Plaintiff's motion asks for the following orders:

(a) Leave to cross examine on Harold Clements on his Affidavit sworn on September 14th, 1982 and filed in this Court on December 21 st, 1982;

(b) Leave to the Plaintiff to amend his Statement of Claim to include a claim for damages;

(c) For the issuance of a relief in the nature of an interim injunction directed against the Defendant restraining the Defendant from issuing Third Party Demands against the Plaintiff and his employer pending the outcome of this action.

And in support of said motion and in opposition to defendant’s motion was filed an affidavit of said plaintiff.

Sections 165, 169 and 172 of the Income Tax Act, (the Act) quoting only the parts applicable to the within motions, are:

165. (1) A taxpayer who objects to an assessment under this Part may, within 90 days from the day of mailing of the notice of assessment, serve on the Minister a notice of objection in duplicate in prescribed form setting out the reasons for the objection and all relevant facts.

(2) Service. A notice of objection under this section shall be served by being sent by registered mail addressed to the Deputy Minister of National Revenue for Taxation at Ottawa.

(3) Duties of Minister. Upon receipt of a notice of objection under this section, the Minister shall,

(a) with all due dispatch reconsider the assessment and vacate, confirm or vary the assessment or reassess, or

(b) where the taxpayer indicates in the notice of objection that he wishes to appeal immediately either to the Tax Review Board or to the Federal Court and that he waives reconsideration of the assessment and the Minister consents, file a copy of the notice of objection with the Registrar of the Tax Review Board or in the Registry of the Federal Court, as the case may be,

and he shall thereupon notify the taxpayer of his action by registered mail.

(4) Effect of filing of notice of objection. Where the Minister files a copy of a notice of objection pursuant to paragraph (3)(b), the Minister shall be deemed, for the purpose of section 169, to have confirmed the assessment to which the notice relates and the taxpayer who served the notice shall be deemed to have thereupon instituted and appeal in accordance with that section or subsection 172(2), as the case may be.

(6) Idem. The Minister may accept a notice of objection under this section notwithstanding that it was not served in duplicate or in the manner required by subsection (2).

169. Appeal. Where a taxpayer has served notice of objection to an assessment under section 165, he may appeal to the Tax Review Board to have the assessment vacated or varied after either

(a) the Minister has confirmed the assessment or reassessed, or

(b) 180 days have elapsed after service of the notice of objection and the Minister has not notified the taxpayer that he has vacated or confirmed the assessment or reassessed;

but no appeal under this section may be instituted after the expiration of 90 days from the day notice has been mailed to the taxpayer under section 165 that the Minister has confirmed the assessment or reassessed.

172. (1) Appeal. The Minister or the taxpayer may, within 120 days from the day on which the Registrar of the Tax Review Board mails the decision on an appeal under section 169 to the Minister and the taxpayer, appeal to the Federal Court of Canada.

(2) Appeal to Federal Court of Canada. Where a taxpayer has served a notice of objection to an assessment under section 165, he may, in place of appealing to the Tax Review Board under section 169, appeal to the Federal Court of Canada at a time when, under section 169, he could have appealed to the Tax Review Board.

A true copy of the notice of assessment for plaintiff’s 1977 taxation year is dated August 1, 1978 (Ex A to the affidavit of Clements), a true copy of a notice of reassessment for plaintiff’s 1977 taxation is dated November 16, 1979 (Ex B to Clement’s affidavit), and a true copy of notice of assessment for plaintiff’s 1979 taxation year is dated June 20, 1980 (Ex C to Clement’s affidavit). Each notice has endorsed on the back, under the heading of “Inquiries”, the following:

If you wish to:

(a) receive clarification of any aspect of the reassessment,

(b) make representations concerning some point with which you do not agree, or

(c) submit additional information to that provided on your return,

you should inquire at your District Taxation Office.

If you are unable to resolve the issue by such an inquiry you may wish to make a formal legal objection to your reassessment. This may be done by filing a “Notice of Objection” in prescribed form within 90 days of mailing of the Notice of Reassessment. Copies of the prescribed form T400A may be obtained at any District Taxation Office.

Section 244(14) of the Act provides:

Mailing date. For the purposes of this Act, the day of mailing of any notice of assessment or notification described in subsection 152(4) shall, in the absence of any evidence to the contrary, be deemed to be the day appearing from such notice or notification to be the date thereof unless called in question by the Minister or by some person acting for him or Her Majesty.

There being no evidence to the contrary in the pleadings and in any of the affidavits filed, the notices of assessment must be deemed to have been mailed on the respective dates appearing on said notices.

Plaintiff does not dispute that no notice of objection was filed by him in respect of the 1977 assessment and reassessment or the 1979 assessment. Accepting the allegation set out in paragraph 6 of plaintiff’s statement of claim . .that this matter was first brought to the attention of the Defendant on or about the 26th day of November, AD 1980 being the time at which the plaintiff became aware of his right to treat the said sum as income to him in 1977 rather than in 1979.”, it is clear that the 90-day period for filing a notice of objection against the 1979 notice of assessment had expired approximately two months earlier than said 26th day of November aforementioned. And, of course, notice of objection to the 1977 assessment and reassessment had expired a great deal earlier than said 26th day of November.

In Sam Lazis v MNR, [1970] Tax ABC 605; 70 DTC 1400, an appeal to the Tax Appeal Board before W O Davis, QC, the facts, as briefly set out in the headnote, are:

The appellant was in the restaurant business at Stratford, Ontario, and filed income tax returns for the years 1962 to 1965. The Minister, not being satisfied with the amounts of income reported, investigated the appellant’s financial affairs. As a result, the Minister assessed the appellant additional tax for the years 1962, 1963 and 1965. The appellant filed no notices of objection against the assessments. The Minister later reassessed the appellant for 1965 under the provisions of section 58(3), notifying the appeallant that no tax was payable in respect of that year. The appellant filed a notice of appeal against the assessments in respect of all three years. The Minister pointed out that the Board had no jurisdiction to hear the appeal in respect of 1962 and 1963, and moved for an order striking out the appellant’s notice of appeal in respect of 1965 on the ground that the assessment had been vacated and there was no appeal against a nil assessment.

Held: The notice of appeal, in its entirety, was quashed. ...

The following appears at 1401 of the decision:

It is well established that, where a taxpayer who is dissatisfied with the manner in which he has been assessed fails to serve on the Minister a notice of objection to the said assessment, he cannot later launch an appeal to this Board therefrom. Such being the case with respect to the assessments for the years 1962 and 1963, the appellant’s notice of appeal in respect of those years must be quashed.

The same reasoning is found in a ruling by Roland St-Onge, QC of the Tax Appeal Board in Neil Brady-Browne v MNR, [1969] Tax ABC 1159; 69 DTC 797. At 798 he put it thus:

In the present appeal, the appellant had the right to claim the capital cost allowance when he filed his 1966 income tax return, but he did not do so, and, after receiving his notice of assessment, let the time elapse in which to file a notice of objection or an amended return. Once the ninety-day period has gone by, the assessment is considered final and neither an objection to the assessment nor an amended return will be accepted. The appellant cannot reopen the issue by sending an amended tax return. ...

In Louis Norman Horowitz v MNR, [1962] CTC 17; 62 DTC 1038, a notice of assessment for the taxation year 1951 was dated March 15, 1956. The taxpayer filed a notice of objection within the time limit. On January 7, 1958 the Minister confirmed the assessment and on the same date a copy of his notification that he had done so was sent to the taxpayer by prepaid registered mail. A notice of appeal to the Income Tax Appeal Board, dated May 26, 1958, was received by the Registrar of the Board on June 16, 1958. The notice was unsigned and was sent back to the taxpayer for signature by him. He returned it properly signed on June 21, 1958. The 90-day period for filing an appeal to the Board by the taxpayer from notification of the Minister’s decision expired April 7, 1951 (s 59 of the Act). At the sitting of the Board on February 17, 1959 the Minister moved before Mr R S W Fordham, QC for an order dismissing the appeal for lateness in filing the notice of appeal. The application was granted and the appeal was dismissed. An appeal to the Exchequer Court of Canada from the Board’s decision was dismissed by Thorson, P. Dealing with the statutory provision relating to appeals to the Tax Appeal Board he wrote at 1040:

The nature of a taxpayer’s right of appeal against an income tax assessment is clear. It is a substantive right, not a procedural one, and it enures to the taxpayer by virtue of the statute by which it was granted. It is a statutory right that has no existence apart from the statute that created it and, as such, it is subject to the conditions prescribed by it. Consequently, it cannot be exercised unless the statutory conditions for its exercise have been strictly complied with. If, therefore, a taxpayer has failed to comply with such conditions the right of appeal which was granted to him subject to compliane with them no longer exists and he is left without any right of appeal against the assessment.

And at 1041, after pointing out that the time for appealing from the Minister’s decision confirming the assessment was April 7, 1958, which was 90 days from the date the notice had been mailed to him that the Minister had confirmed the assessment, he wrote:

Section 59 declared specifically that after the expiration of that period no appeal under the section might be instituted. Consequently, the appellant, after April 7, 1958, no longer had any right of appeal and his purported appeal to the Income Tax Appeal Board, of which he gave the notice, dated May 26, 1958, was unauthorized by law and should have been quashed by Mr Fordham as a nullity. Indeed, his dismissal of it for want of jurisdiction to entertain it was, in effect, a quashing of it and it was clearly right.

That was a complete disposal of the matter. Since the appellant allowed the period of 90 days referred to in section 59 to expire Without instituting an appeal to the Income Tax Appeal Board or to this Court he ceased to have any right of appeal from the assessment and his purported appeal to the Income Tax Appeal Board was, as already stated, a nullity.

The same situation applies here. While plaintiff proceeds by way of a statement of claim, I have no hesitation in holding that it is, in fact, nothing other than a purported appeal of the notice of assessment for the 1979 taxation year, and because plaintiff wishes the income of $40,411 added to the 1977 taxation year, is as well a purported appeal of the 1977 assessment.

As already pointed out, plaintiff did not file any notice of objection to either notices of assessment and reassessment and, in the result, any purported appeal is a nullity and fails: Horowitz, supra.

This is sufficient to dispose of the action but, in as much as plaintiff in his affidavit asserts he had discussions with, and indications from, members of the Department of National Revenue that the matter would be further dealt with “notwithstanding the fact that Notices of Objection were not filed in respect to either the 1977 or 1979 taxation years” (para 12 in affidavit of plaintiff), and that in paragraph 5 of the statement of claim already referred to verbal agreements were made to him in the early part of 1981, and in paragraph 6 that the matter was first brought to the attention of the defendant on or about the 26th of November, 1980, I again point out that all said agreements, communications, indications and discussions took place considerably after the expiry date for filing notices of objection to the notices of assessment and reasssessment for the taxation year 1977 and the notice of assessment for the year 1979.

Accordingly, again accepting that the discussions, conversations, promises, communications and verbal agreements, as asserted by the plaintiff, are true, they would neither be binding nor have any legal impact since, as already stated, they all occurred after the time for filing notices of objection had expired.

In Nathan Cohen v Her Majesty The Queen, [1980] CTC 318; 80 DTC 6250, an appeal to the Federal Court of Appeal from a decision of the Trial Division, [1978] CTC 63; 78 DTC 6099, dismissing an appeal from a decision of the Tax Review Board (unreported) relating to the appellant’s income tax for the taxation years 1965 and 1966, the headnote reads in part:

In 1965 and 1966, the taxpayer made a profit of some $105,609 on the sale of certain lands. The taxpayer alleged that there had been an agreement between himself and the Minister that the taxpayer would not object to assessments for the 1961 to 1964 taxation years provided that the Minister would allow the profit in 1965 and 1966 to be considered as a non-taxable capital gain. In 1970, the Minister reassessed for 1965 and 1966, treating the profit as taxable income. When his appeals to the Tax Review Board (unreported) and the Federal Court — Trial Division (78 DTC 6099) were dismissed, the taxpayer appealed to the Federal Court of Appeal.

Mr Justice Pratte, giving the unanimous decision of the Federal Court of Appeal, said in part at 6251:

The agreement whereby the Minister would agree to assess income tax otherwise than in accordance with the law would, in my view, be an illegal agreement. Therefore, even if the record supported the appellant’s contention that the Minister agreed to treat the profit here in question as a capital gain, that agreement would not bind the Minister and would not prevent him from assessing the tax payable by the appellant in accordance with the requirements of the statute.

The principal expounded in the Cohen judgment has equal application in the within case.

As earlier set out, one of the orders requested by plaintiff in his notice of motion was ‘leave to amend the statement of claim to include a claim for damages”. Since all rights to appeal against the 1977 assessment and reassessment and the 1979 assessment had expired, no damage could accrue for anything said, promised or done after that date, and an order for inclusion of a claim for damages in the statement of claim would be totally ineffective and without possibility of success and must be refused. The same applies to the other forms of relief sought by plaintiff.

For all of the above reasons, motion by defendant for an order quashing plaintiff's purported appeal on the grounds set out in said motion is granted and the purported appeal is quashed. Defendant’s motion did not ask that plaintiff’s statement of claim be struck out, but the motion to quash plaintiff’s purported appeal having been granted, it becomes readily apparent that plaintiff’s statement of claim “is patently unsustainable and the action could not possibly succeed. Justice.. .is not better served when an impossible claim is allowed to proceed down the path of expensive and futile litigation.”: per Dubé, J in Phillips v The Queen, [1977] 1 FC 756 at 758. There will accordingly be an order striking out plaintiff’s statement of claim. Plaintiff’s motion for the orders set out in his notice of motion is refused.

Defendant will have costs against plaintiff.