Davis v. The Queen, 84 DTC 6518, [1984] CTC 564 (FCTD)

Reed, J:—The plaintiffs claim in this case is an appeal from the assessment for income tax for the 1950 taxation year. I will first summarize the facts. In 1950, the plaintiff acquired shares in Quesabe Mines Limited in his own name and in his wife’s name, she acting as his nominee in the latter case. The plaintiff was president of Quesabe Mines. These shares were sold at a profit. The plaintiff alleged that the shares were taken by him as security (payment) for a debt owed by the company to him; that he was not a trader in shares at the time; and therefore he did not treat them as profit for tax purposes; he treated them as a Capital gain and not income.

In 1954 the Department of National Revenue started investigations respecting the plaintiffs share transactions during the years 1950-1954, and on November 30, 1956, reassessed the plaintiff for the 1950 taxation year, in the amount of $11,364.48. Prior to 1957, the reassessment period was 6 years (now 4 years) and therefore the 1956 reassessment fell within the limitation period. The original assessment for the 1950 taxation year had been issued June, 1951. In 1959 the plaintiff was again reassessed for the 1950 taxation year. And, in 1961 the taxpayer was issued a nil notice of reassessment for the 1950 taxation year. Then, on August 19, 1966, the plaintiff was reassessed tax and interest with respect to the 1950 taxation year in the amount of $152,206.63 (taxes) and $138,887.97 (interest). An allegation of misrepresentation was made by the Minister — with- out proof of misrepresentation the Minister’s claim would of course, by that time, have been statute-barred. A trial date was set for June 12, 1968.

On June 11, 1968, minutes of settlement were entered into by the plaintiff and the Minister pursuant to which the plaintiff undertook to pay $64,792.30 in taxes and $66,541.75 in interest. The minutes of settlement provided that they would not be confirmed by judgment until September. The minutes of settlement also provided that nothing in them should be taken as an admission by the taxpayer of any allegation of the Minister.

MINUTES OF SETTLEMENT

The parties hereto, through their respective counsel, agree that the appeal herein, with respect to the appellant’s 1950 taxation year, be allowed without costs; and that the assessment (notice of which was given on the 19th day of August, 1966) for such taxation year be varied so as to substitute for the item “increase or decrease in tax” the amount of $64,792.30 in place of the previous amount of $152,206.63, and so as to further substitute for the item “interest charged on tax increase” the amount of $66,541.75 in place of previous amount in $138,887.97.

The parties further agree that the judgment herein, giving effect to these minutes of settlement, will not be entered before the 1st Day of September, 1968. Nothing herein or otherwise constitutes an admission by appellant of any allegation in the Minister’s Reply to the notice of appeal filed herein.

DATED at Toronto this 11th day of June, 1968.

These minutes were filed with the Court in Toronto, June 12, 1968. The settlement was confirmed by judgment of the Court on September 3, 1968. On December 11, 1969, a notice of reassessment in conformity with the judgment was issued. It is this 1969 notice of reassessment from which the taxpayer now appeals. The plaintiff now argues that the 1969 reassessment and the 1968 judgment of Mr Justice Gibson are invalid because the Minister did not prove misrepresentation on his part prior to the judgment of September 1968 being entered.

I do not think this claim is well founded. The Minister is not required to prove misrepresentation before he sends out a notice of reassessment which is dated beyond the 4-year time period provided for in the statute. Misrepresentation must be proved only if the matter goes to trial. When a taxpayer receives a notice of reassessment he has two choices; he can pay it or he can object. If he agrees with the reassessment he will normally take no further steps and pay the amount claimed; if he disagrees with it he will object and take the matter to trial; at which point in a case such as the present the Minister has the onus of proving misrepresentation.

A middle ground, and that which was followed in this case, is for the taxpayer and the Minister to agree to partial payment of the sum assessed. Such agreements are usually entered into because both parties recognize that there are merits to the claims on both sides — and that a negotiated solution may be more appropriate than one ordered by the Court where it will be asked to choose on an all or nothing basis between the parties. In this case one can assume that the Minister agreed to the settlement because he recognized there would be some difficulty, 18 years after the facts had occurred, in proving misrepresentation. The taxpayer also had something to gain; he did not have to take the chance of being found liable for the full amount of the assessment nor was he put to the trouble and cost of a trial. (There is no suggestion made that the minutes of settlement were not authorized by the plaintiff — his quarrel is with the validity of the court order of September 3, 1968. Indeed the plaintiff relied on those very minutes and court order in 1973 in claiming a refund of moneys paid as taxes by him to the defendant; see T-1114-73.)

If, as the plaintiff alleges, the Minister was required to prove misrepresentation before a settlement judgment could be entered, there would be no reason for him to engage in such a settlement. He might as well continue to claim the sums as originally assessed in the August 1966 assessment. If the taxpayer’s claim in this regard were right it could undercut the whole purpose and rationale of settling claims without going to trial. I can see nothing in the law which substantiates the plaintiffs argument.

One additional point needs to be considered. On December 5, 1983, the plaintiff and counsel for the defendant attended before the Associate Chief Justice, and an agreement respecting the documents to be entered at trial without further proof was signed by both parties. These documents generally comprise the notices of reassessment sent to the taxpayer over the years, copies of the minutes of settlement referred to above, including the tax returns and similar documents. When the trial came on before me the plaintiff stated that he had no knowledge of the internal accounting systems or procedures of National Revenue and therefore did not admit or agree with the various documents. Consequently he objected to such documents being entered. He indicated that his understanding of the proceedings before the Associate Chief Justice was that although he had agreed at the time to these documents being filed he could still object at trial to their production.

In any event, on reading the pleadings and the written submissions of the plaintiff, I found it unnecessary to refer to or rely on the disputed documents. The essential facts are not in dispute; they appear from the admissions of the plaintiff in the above two mentioned documents. The essential dispute is not a factual one, but a legal one, ie: whether there was a requirement on the defendant to prove the alleged misrepresentations of the plaintiff before seeking and obtaining the judgment of September 1968. The plaintiff does not contest the fact that this judgment issued, nor does he contest its contents. He contests only its validity on the basis of the argument mentioned above. Since I have been unable to find any support for his arguments in the law, the plaintiffs case must be dismissed.