Ginsberg v. Canada, 96 DTC 6372, [1996] 3 CTC 63 (FCA)

Desjardins J.T.C.C.: — The question raised in this appeal is whether the judge of the Tax Court of Canada was correct in vacating the respondent’s assessment for the taxation years 1987 and 1988 on the basis that the Minister of National Revenue had not acted “with all due dispatch” in the exercise of his statutory duty imposed by subsection 152(1) of the Income Tax Act! (the “Act”).

The respondent, a self-employed chartered accountant, filed his income tax returns for 1987 and 1988 on April 28, 1989 in one envelope. The return for 1987 was filed late since it was due on April 30, 1988. His total income for 1987 and 1988 was $71,060.00 and $70,871.00 respectively. The respondent failed to pay any installments of tax in 1987, as required.

’R.S.C. 1985, (5th Supp.), subsections 152(1) and (2) read:

152(1) The Minister shall, with all due dispatch, examine a taxpayer’s return of income for a taxation year, assess the tax for the year, the interest and penalties, if any, payable and determine

(a) the amount of refund, if any, to which the taxpayer may be entitled by virtue of section 129, 131, 132 or 133 for the year, or

(b) the amount of tax, if any, deemed by subsection 120(2), 120.1(4), 122.5(3), 127.1(1), 127.41(3) or 210.2(3) or (4) to be paid on account of the taxpayer’s tax payable under this Part for the year or deemed by subsection 119(2) to be an overpayment.

(2) After examination of a return, the Minister shall send a notice of assessment to the person by whom the return was filed.

152(1) Le Ministre doit, avec toute la diligence possible, examiner la déclaration de revenu d’un contribuable pour une année d’imposition, fixer l’impôt pour l’année, l’intérêt et les pénalités payables, s’il en est, et déterminer

(a) le montant du remboursement, s’il en est, auquel il a droit en vertu des articles 129, 131, 132 ou 133, pour l’année, ou

(b) le montant d’impôt éventuel réputé en application du paragraphe 119(2), 120(2), 120.1(4), 122.2(1), 127.1(1), 127.2(2), 144(9) ou 210.2(3) ou (4) avoir été versé au titre de l’impôt en vertu de la présente partie pour I’ année.

(2) Après examen d’une déclaration, le Ministre envoie un avis de cotisation à la personne qui a produit la déclaration.

With regard to installments of tax of $2,874.59 on each of March 31, June 30, September 30 and December 31, 1988, the respondent only paid $499.78 on February 9, 1988, $1,000.00 on June 2, 1988 and $1,000.00 on July 5, 1988.

The notices of assessment for 1987 and 1988 were mailed to the respondent on December 21, 1990. The respondent’s returns were assessed as filed. On June 16, 1992, the Minister deleted arrears interest for the period from September 28, 1989 to December 21, 1990 with respect to the respondent’s 1987 and 1988 taxation years.

The general procedure followed by Revenue Canada for the processing of income tax returns is described at length by the Tax Court judge in his reasons for judgment reported in 94 D.T.C. 1430. For the purpose of this appeal, suffice it to say that upon being received by Revenue Canada, income tax returns are placed in bags according to arrival date. The date of receipt of the return is subsequently manually stamped. The returns are then forwarded to a Selection Area where they are sorted according to specific criteria, and are later assessed either manually or by computer.

An employee of Revenue Canada, Mrs. Beverly J. Deschamps, reviewed the various codes, indicators, cycle numbers and dates on the appellant’s returns and attempted to piece together what occurred, and on what dates, with these returns as they passed through the process. From her testimony, the Tax Court judge noted that in the chronology of events, which ran from May 4, 1989, the date the respondent’s returns were received by Revenue Canada, till December 21, 1990, the date the notices of assessment were sent to the respondent, two periods of delay occurred which remained unexplained. They were from May 23, 1989 to January 1990 and from January 22, 1990 to May 21, 1990. This finding attracted the following comments by the Tax Court judge: Ginsberg v. R. (sub nom. Ginsberg v. Canada), [1994] 2 C.T.C. 2063, 94 D.T.C. 1430 at page 2073 (D.T.C. 1437).

I believe that if there is a delay that prima facie indicates a failure to examine and assess a return with all due dispatch as required under subsection 152(1) of the Act there is an onus on the respondent to establish by evidence pertaining to the manner in which that return was dealt with that the delay was not unreasonable. It is insufficient to simply argue that the return must be regarded as falling within the small number of unidentified returns that, because of the very large volume of returns dealt with at a particular taxation centre, will inevitably be the subject of inexplicable and protracted delays.

In the case at hand the lapse of time between the receipt of the returns and the assessments was one and one-half years. It strikes me that on the face of it this is a failure to meet the requirements of subsection 152(1) that returns of income shall be examined and assessed with all due dispatch. If there were evidence of some special circumstance relating to the appellant’s returns which established that a delay of 18 months was reasonable then the requirements of the law would have been met. But there is no such evidence before the Court on this appeal. There were no special complexities about the returns filed by the appellant and they were eventually assessed as submitted. Mrs. Deschamps, who counsel for the respondent correctly described as “a very knowledgeable individual” could offer no explanation for the delay.

The appeal is allowed with costs and the reassessments vacated.

The appellant submitted that the Tax Court judge erred in two ways. Firstly, while subsection 152(1) directs the Minister “with all due dispatch” to examine a taxpayer’s return, assess the tax and determine the amount to be paid or the refund the taxpayer is entitled to, subsection 152(4) empowers the Minister to assess tax “at any time”. A contravention of the direction to assess “with all due dispatch” should not, therefore, result in the vacation of an assessment. Secondly, in the circumstances of this case, there was no breach of the statutory direction to assess “with all due dispatch”.

In view of the clear finding of fact of the Tax Court judge that there has been a failure on the part of the Minister to assess “with all due dispatch”, we chose not to call on the respondent to argue appellant’s second point. This Court could only intervene in this matter if there were no basis on which the Tax Court judge could have made his finding. Since the appellant’s witness was unable to explain why it took so long for the Minister to deal with these two returns, there was clear evidence before the Tax Court judge which permitted him to come to the conclusion he did.

The sole issue, therefore, pertains to the legal effect of a failure by the Minister to exercise his statutory duty to assess “with all due dispatch”.

The appellant claims that subsection 152(1) should be read bearing in mind the scheme of the Act. Her reasoning is the following. Section 2 of the Act imposes a liability on each resident of Canada to pay income tax upon his taxable income for each taxation year. The liability to pay tax results from the Act. The assessment is simply a confirmation of a tax liability. R. v. Simard-Beaudry Inc., [1971] F.C. 396, 71 D.T.C. 5511 at page 5515 (F.T.D.). The notice of assessment is a confirmation in writing of the assessment which is the process or operation undertaken by the Minister and which confirms the taxpayer’s liability. The words “with all due dispatch” in subsection 152(1) are the equivalent of such words as “with all due diligence” or “within a reasonable time”. Jolicoeur v. Minister of National Revenue, [1960] C.T.C. 346, 60 D.T.C. 1254 (Exch. Ct.), at page 1261; Stollar Construction Ltd. v. Minister of National Revenue, [1989] 1 C.T.C. 2171, 89 D.T.C. 134 at page 2173 (D.T.C. 136). They give some discretion to the person, whose duty it is to act, such discretion to be exercised according to the circumstances of each case. In contradistinction to the words “with all due dispatch”, the words “at any time” in subsection 152(4) are words of the widest import which do not impose any condition as to timeliness so as to fetter the Minister’s exercise of his power to issue an original assessment. These words mean “without limitation in time” and clearly set forth the intention of Parliament that time does not limit the power of the Minister to issue an original assessment.

According to the appellant, the overriding objective of taxation is to provide government with funds required to meet its obligations. Subsections 152(1) and 152(4) do not establish liability, they confirm it. It is then highly improbable that the Act would not go on to make that liability effective. The word “shall” found in subsection 152(1), which is presumptively imperative, ought to be read as “directory” instead of “mandatory”. Montreal Street Railway Co. v. Normandin, [1917] A.C. 170, 33 D.L.R. 195 (Que. P.C.). But more importantly, recent case law (British Columbia (Attorney General) v. Canada (Attorney General), [1994] 2 S.C.R. 41, 91 B.C.L.R. (2d) 1, 166 N.R. 81, 21 Admin. L.R. (2d) 1; Vancouver Island Railway, An Act Respecting, Re, [1994] 2 S.C.R. 41, 91 B.C.L.R. (2d) 1, 166 N.R. 81; Wang v. Commissioner of Inland Revenue, [1995] 1 All E.R.367 (P.C.)) indicate that the labels “mandatory’' and “directory” offer no magical assistance in defining the nature of a statutory direction. The inquiry should be result oriented. If reading a statutory direction as imperative leads to serious inconveniences, then, it should be avoided. In the particular instance, subsection 152(1) should be read as directory in result.

The respondent reads the Act differently.

He submits that the assessing power in each of subsections 152(1) and 152(4) must be read as having a separate purpose and meaning.

The purpose of subsection 152(1), he says, is to enable the Minister to assess a return which has been filed. This interpretation derives from the words “examine a taxpayer’s return of income for a taxation year” in subsection 152(1). On the other hand, the role of subsection 152(4) is to enable the Minister to assess in cases where no return has been filed. The words “assess tax for a taxation year, interest or penalty, if any, payable under this Part by a taxpayer” in subsection 152(4) give the Minister the power to assess, at any time, liability which a taxpayer may incur under Part I, separate and apart from his income tax return which is dealt with in subsection 152(1). The respondent claims that the expression “shall” found in subsection 152(1) is to be construed as imperative (the French words are “doit, avec toute la diligence possible”). Parliament has expressed itself without ambiguity and the Court should give effect to those words. The statements of the Supreme Court of Canada in the cases of Québec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secours, [1994] 3 S.C.R. 3 (sub nom. Notre-Dame de Bon-Secours (Corp.) v. Québec (Communauté urbaine)), [1995] 1 C.T.C. 241 (sub nom. Corp. Notre-Dame de Bon-Secours' v. Québec (Communauté urbaine)), 95 D.T.C. 5017, Buanderie centrale de Montréal Inc. v. Montréal (City); Conseil de la santé et des services sociaux Montréal (Métropolitain) v. Montréal (Ville), (sub nom. Buanderie centrale de Montréal Inc. v. Montréal (ville)), [1994] 3 S.C.R. 29 (sub nom. Conseil de la Sauté & des Services Sociaux (Montréal) v. City of Montréal), [1995] 1 C.T.C. 223, 171 N.R. 191 and Québec (Communauté urbaine) v. Partagée Inc. (sub nom. Partagée Inc. c. Québec (Communauté urbaine)), [1994] 3 S.C.R. 57 (sub nom. Partagée Inc. v. Québec), 1995] 1 C.T.C. 257, 171 N.R. 225 which establish a purposive approach to the interpretation of statutes and which have the effect of looking at legislative intent, are not applicable. Here the plain language rule applies because there is no ambiguity in the legislation. Antosko v. Minister of National Revenue (sub nom. Canada v. Antosko), [1994] 2 S.C.R. 312, [1994] 2 C.T.C. 25, (sub nom. Antosko v. R.) 94 D.T.C. 6314 (S.C.C.). Although the public as a whole is prejudiced by a failure on the part of the Minister to perform his statutory duties promptly, subsection 152(1) is intended primarily to protect the individual taxpayer by bringing certainty to his financial affairs at the earliest reasonable possible time. Courts have held that a breach of the duty to act “with all due dispatch” means that the Minister cannot assess. Rodmon Construction Inc. v. The Queen, [1975] C.T.C. 73 (F.C.T.D.); J. Stollar Construction Ltd. v. Minister of National Revenue, [1989] 1 C.T.C. 2171; 89 D.T.C. 134 (T.C.C.), reversed on consent order of the Federal Court-Trial Division dated 23 December 1991. Subsection 152(3), concludes the respondent, is concerned with tax liability only and does not deal with whether the Minister should be permitted to assess when he has failed in his statutory duty under subsection 152(1). Subsection 152(8) is an administrative provision only and is not substantive. Section 166 relates to a directory provision, the kind of which subsection 152(1) is not.

Subsections 152(3), 152(4), 152(8), and section 166, which are relevant to the case at bar, are to be found in Part I, Division I of the Act entitled “Returns, Assessments, Payments and Appeals”. They read:

152(3) 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.

152(4) Subject to subsection (5), the Minister may at any time assess tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, and may

(a) at any time, if the taxpayer or person filing the return

(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or

(ii) has filed with the Minister a waiver in prescribed form within the normal reassessment period for the taxpayer in respect of the year,

(b) before the day that is 3 years after the expiration of the normal reassessment period for the taxpayer in respect of the year, if

(i) an assessment or reassessment of the tax of the taxpayer was required pursuant to subsection (6) or would have been required if the taxpayer had claimed an amount by filing the prescribed form referred to in that subsection on or before the day referred to therein,

(ii) there is reason, as a consequence of the assessment or reassessment of another taxpayer’s tax pursuant to this paragraph or subsection (6), to assess or reassess the taxpayer’s tax for any relevant taxation year,

(iii) there is reason, as a consequence of a transaction involving the taxpayer and a non-resident person with whom the taxpayer was not dealing at arm’s length, to assess or reassess the taxpayer’s tax for any relevant taxation year, or

(iv) there is reason, as a consequence of an additional payment or reimbursement of any income or profits tax to or by the government of a country other than Canada, to assess or reassess the taxpayer’s tax for any relevant taxation year, and

(c) within the normal reassessment period for the taxpayer in respect of the year, in any other case,

reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require, except that a reassessment, an additional assessment or an assessment may be made under paragraph (b) after the normal reassessment period for the taxpayer in respect of the year only to the extent that it may reasonably be regarded as relating to

(d) the assessment or reassessment referred to in subparagraph (b)(i) or (ii), (e) the transaction referred to in subparagraph (b)(iii), or (f) the additional payment or reimbursement referred to in subparagraph (b)(iv).

152(8) An assessment shall, subject to being varied or vacated on an objection or appeal under this Part and subject to a reassessment, be deemed to be valid and binding notwithstanding any error, defect or omission in the assessment or in any proceeding under this Act relating thereto.

166 An assessment shall not be vacated or varied on appeal by reason only of any irregularity, informality, omission or error on the part of any person in the observation of any directory provision of this Act.

152(3) Le fait qu’une cotisation est inexacte ou incompl*te ou qu’aucune cotisation n’a été faite n’a pas d’effet sur les responsabilités du contribuable à l’égard de l’impôt prévu par la présente Partie.

152(4) Sous réserve du paragraphe (5), le ministre peut, à un moment donné, fixer l’impôt pour une année d’imposition, ainsi que les intérêts ou pénalités payables en vertu de la présente partie par un contribuable, ou donner avis par écrit, à toute personne qui a produit une déclaration de revenu pour une année d’imposition, qu’aucun impôt n’est payable pour l’année, et peut, selon les circonstances, établir des nouvelles cotisations, des cotisations supplémentaires ou des cotisations concernant l’impôt, les intérêts ou les pénal tés en vertu de la présente partie:

a) à un moment donné, si le contribuable ou la personne produisant la déclaration:

(i) soit a fait une présentation erronée des faits, par négligence, inattention ou omission volontaire, ou a commis quelque fraude en produisant la déclaration ou en fournissant quelque renseignement sous le régime de la présente loi,

(ii) soit a présenté au ministre une renonciation, selon le formulaire prescrit, au cours de la période normale de nouvelle cotisation applicable au contribuable pour I’ année;

b) avant le jour qui est trois ans après la fin de la période normale de nouvelle cotisation applicable au contribuable pour l’année, lorsque, selon le cas:

(i) une cotisation ou une nouvelle cotisation concernant l’impôt du contribuable a été exigée conformément au paragraphe (6), ou l’aurait été si le contribuable avait déduit un montant en présentant le formulaire prescrit visé à ce paragraphe au plus tard le jour qui y est mentionné,

(ii) il y a lieu, par suite de l’établissement de la cotisation ou de la nouvelle cotisation concernant l’impôt d’un autre contribuable conformément au présent alinéa ou au paragraphe (6), d’établir une cotisation ou une nouvelle cotisation concernant l’impôt du contribuable pour toute année d’imposition pertinente,

(iii) il y a lieu, par suite d’une opération à laquelle le contribuable et une personne non-résidente avec laquelle il a un lien de dépendance sont parties, d’établir une cotisation ou une nouvelle cotisation concernant l’impôt du contribuable pour toute année d’imposition pertinente,

(iv) il y a lieu, par suite d’un paiement supplémentaire ou d’un remboursement d’impôt sur le revenu ou sur les bénéfices au gouvernement d’un pays étranger ou par suite d’un tel paiement ou d’un tel remboursement par ce gouvernement, d’établir une cotisation ou une nouvelle cotisation concernant l’impôt du contribuable pour toute année d’imposition pertinente;

c) au cours de la période normale de nouvelle cotisation applicable au contribuable pour l’année, dans les autres cas;

toutefois, une nouvelle cotisation, une cotisation supplémentaire ou une cotisation peut être établie en application de l’alinéa

b) après la période normale de nouvelle cotisation applicable au contribuable pour l’année seulement s’il est raisonnable de la considérer comme se rapportant à la cotisation ou nouvelle cotisation visée au sous-alinéa b)(i) ou (ii), à l’opération visée au sous-alinéa b)(iii) ou au paiement supplémentaire ou remboursement visé au sous-alinéa b)(iv).

152(8) Sous réserve des modifications qui peuvent y être apportées ou de son annulation lors d’une opposition ou d’un appel fait en vertu de la présente partie et sous réserve d’une nouvelle cotisation, une cotisation est réputée être valide et exécutoire malgré toute erreur, tout vice de forme ou toute omission dans cette cotisation ou dans toute procédure s’y rattachant en vertu de la présente loi.

166 Une cotisation ne peut être annulée ni modifiée lors d’un appel uniquement par suite d’irrégularité, de vice de forme, d’omission ou d’erreur de la part de qui que ce soit dans l’observation d’une disposition simplement directrice de la présente loi.

In view of the finding of fact of the Tax Court judge, it is not necessary to decide if the Minister could still assess “at any time” under subsection 152(4) except to say that if the respondent is right in his interpretation of subsections 152(1) and (4), the astonishing result would be that the Minister is not barred by the three-year provision of paragraph 152(4)(b) when the taxpayer has filed a return. Bearing in mind, however, as found by the Tax Court judge, that the Minister was late in assessing, the only question I must address is the nature of the sanction once there is a failure to exercise a duty under subsection 152(1).

The respondent’s argument in essence is that once the Minister is found to have breached his statutory duty, he loses jurisdiction to assess and the notice of assessment must be vacated. The respondent was not ready to accept, however, that, if found valid, the reverse of his argument would be that if a refund of tax was owed to the taxpayer, the Minister would, in that situation also, lose jurisdiction to determine the refund.

I find no escape with the clear terms of subsection 152(3), particularly the words “Liability for the tax under this Part is not affected by... the fact that no assessment has been made”. (“Le fait... qu’aucune cotisation n’a été faite n’a pas d’effet sur les responsabilités du contribuable à l’égard de l’impôt prévu par la présente Partie.”)

Subsection 152(8) in turn says “An assessment shall... be deemed to be valid and binding notwithstanding any... defect or omission... in any proceeding under this Act relating thereto.” (”“.. une cotisation est réputée être valide et exécutoire malgré... tout vice de forme ou toute omission... dans toute procédure s’y rattachant en vertu de la présente loi”).

Section 166, in support, states that “[a]n assessment shall not be vacated... by reason only of any ... omission... on the part of any person in the observation of any directory provision of this Act”. (“Une cotisation ne peut être annulée. uniquement par suite... d’omission... de la part de qui que ce soit dans l’observation d’une disposition simplement directrice de la présente loi”).

This latter provision obliges me to consider whether subsection 152(1) is directory or mandatory.

In British Columbia (Attorney General) v. Canada (Attorney General), supra, the Supreme Court of Canada considered the meaning of the words “shall” in light of subsection 268(2) of the Railway Act. [2] lacobucci J., for a majority, felt that the label “mandatory” and “directory” offered no magical assistance in defining the nature of a statutory direction. He commented thus at pages 122-24:

In particular, I think it is relevant to note that in Reference re Manitoba Language Rights, [1985] 1 S.C.R. 721, this Court commented upon the doctrinal basis of the Normandin distinction. The Court stated (at page 741):

The doctrinal basis of the mandatory/directory distinction is difficult to ascertain. The “serious general inconvenience or injustice” of which Sir Arthur Channel speaks in Montreal Street Railway Co. v. Normandin, supra, appears to lie at the root of the distinction as it is applied by the courts.

In other words, courts tend to ask, simply: would it be seriously inconvenient to regard the performance of some statutory direction as an imperative?

There can be no doubt about the character of the present inquiry. The “mandatory” and “directory” labels themselves offer no magical assistance as one defines the nature of a statutory direction. Rather, the inquiry itself is blatantly result-oriented. In Reference re Manitoba Language Rights, supra, this Court cited R. ex rel. Anderson v. Buchanan (1909), 44 N.S.R. 112 (C.A.), per Russell J., at page 130, to make the point. It is useful to make it again. Russell J. stated:

I do not profess to be able to draw the distinction between what is directory and what is imperative, and I find that I am not alone in suspecting that, under the authorities, a provision may become directory if it is very desirable that compliance with it should not have been omitted, when that same provision would have been held to be imperative if the necessity had not arisen for the opposite ruling.

The temptation is very great, where the consequences of holding a statute to be imperative are seriously inconvenient, to strain a point in favor of the contention that it is mere directory...

Thus, the manipulation of mandate and direction is, for the most part, the manipulation of an end and not a means. In this sense, to quote again from Reference re Manitoba Language Rights, supra, the principle is “vague and expedient” (page 742). This means that the court which decides what is mandatory, and what is directory, brings no special tools to bear upon the decision. The decision is informed by the usual process of statutory interpretation. But the process perhaps evokes a special concern for “inconvenient” effects, both public and private, which will emanate from the interpretive result.

The distinction between a “mandatory” or a “directory” provision is, therefore, not very helpful. If I were to apply the rule of “inconvenient” effects, I would say that there are, no doubt, competing interests between the need to levy revenues for government and public expenditures, the need to have the tax burden shared as equally as possible among the taxpayers, and the need to protect the individual by: bringing certainty to his financial affairs at the earliest reasonable possible time. These competing interests have been settled in favour of the government by Parliament with the adoption of subsections 152(3), 152(8) and section 166.

The Judicial Committee of the Privy Council has also recently diminished the importance of the distinction between a directory/mandatory provision in the case of Wang v. Commissioner of Inland Revenue, [1995] 1 All E.R. 367 (P.C.) at page 373.... a taxation case originating in Hong Kong. The Privy Council determined that when a question of an alleged failure to comply with a time provision is at stake, it is simpler and better to avoid the words “mandatory” and “directory” and ask two questions: [3]

The first is whether the legislature intended the person making the determination to comply with the time provision, whether a fixed time or a reasonable time. Secondly, if so, did the legislature intend that a failure to comply with such a time provision would deprive the decision-maker of jurisdiction and render any decision which he purported to make null and void?

The Privy Council alluded to the fact that mandamus might be a remedy. Courts in Canada have been called upon to decide whether mandamus should issue in such cases. Lipsey v. Minister of National Revenue, [1984] C.T.C. 675, 85 D.T.C. 5080; Schatten v. Minister of National Revenue, 106 F.T.R. 234, 96 D.T.C. 6102.

I would allow the appeal, I would set aside the decision of the Tax Court of Canada, and I would dismiss the respondent’s appeal to that Court.

There would be no costs.

Appeal was allowed.