Guaranty Properties Ltd. v. The Queen, 87 DTC 5124, [1987] 1 CTC 242 (FCTD), rev'd 90 DTC 6363 (FCA)

Rouleau, J.:—This is an application for the determination of the validity of the reassessment issued by the Minister of National Revenue to the plaintiff Forest Glenn (Dixie) Limited on June 21, 1981 for the income of a corporation known as "Dixie” for its 1976 taxation year. The application is made pursuant to the Federal Court Rules and pursuant to the order of the Senior Prothonotary of the Court dated August 15, 1986, wherein the procedure for the conduct of this application is set out as follows:

It is ordered that the procedure to govern the course of this matter shall be as follows:

1. that this Court make a preliminary determination as to the validity of the reassessment attached to and marked as Exhibit I;

2. that in support of the said determination the parties will file an Agreed Statement of Facts in the form set out in Exhibit Il;

3. that in support of the said determination the parties may call viva voce evidence relating to the preliminary determination;

4. that after the said Agreed Statement of Facts has been submitted to the Court and after any viva voce evidence has been given the parties will argue the preliminary determination.

The parties have filed an agreed statement of facts pursuant to the above order and it is reproduced herein in its entirety:

1. The facts contained in this Agreed Statement of Facts are summarized in a diagram which is annexed under Tab 4.

2. Forest Glenn (Dixie) Limited (“Dixie”) was a corporation incorporated on November 7, 1963.

3. The Minister of National Revenue (the “Minister”) assessed tax payable for Dixie’s 1976 taxation year, the subject taxation year of the within application and sent a Notice of Assessment dated August 22, 1977.

4. On May 31, 1978 Dixie and several other companies amalgamated pursuant to the laws of the Province of Alberta (the “May 31, 1978 Amalgamation”) to form Forest Glenn (Dixie) Limited (“Forest Glenn”).

5. On May 14, 1979, Forest Glenn filed an Income Tax Return for the twelve month period commencing December 1, 1977 and ending on its year end November 30, 1978. At the Minister’s request in July 1980, Forest Glenn on September 12, 1980 filed a separate Return of Income for the six month period following the May 31, 1978 Amalgamation and the original Return (with adjustments to income) was treated as being applicable to the six month period prior to the May 31, 1978 Amalgamation. The original Return of Dixie and the separate Return of Forest Glenn are annexed under Tabs 5 and 6, respectively.

6. On November 28, 1980 Forest Glenn, Traders Developments Limited, Les Développements Val-Forest Ltée and Guaranty Properties Limited amalgamated (the “November 28, 1980 Amalgamation”) pursuant to the laws of the Province of Ontario to form Guaranty Properties Limited (“Guaranty Properties”). The Ontario Ministry of Consumer and Commercial Relations (“the Ontario Ministry’’) usually sends articles of amalgamation filed with the Ontario Ministry to the Corporate Taxroll Section of the Department of National Revenue which section received a copy of the Articles of Amalgamation in respect of the November 28, 1980 Amalgamation on November 28, 1980. A copy of the said Articles is annexed under Tab 7.

7. The rules set out in section 87 of the Income Tax Act were applicable to the May 31, 1978 Amalgamation and the November 28, 1980 Amalgamation.

8. On May 28, 1981, Forest Glenn filed with the Minister an Income Tax Return for its year ending November 28, 1980, the date of the November 28, 1980 Amalgamation. Copies of its annual financial statements, which referred to the November 28, 1980 Amalgamation, were not included with the Income Tax Return but were received by the Minister from Forest Glenn on July 2, 1981. A copy of the Return and the financial statements are annexed under Tab 8.

9. On May 28, 1981 Forest Glenn filed with the Minister an amended Income Tax Return for the 12 months ending November 30, 1978. On May 30, 1980 Forest Glenn filed with the Minister an amended Income Tax Return for the 12 months ending November 30, 1979. Copies of these amended returns are annexed under Tabs 9 and 10, respectively.

10. The Minister reassessed tax payable for Dixie’s 1976 taxation year and sent a Notice of Reassessment dated June 23, 1981 to Forest Glenn (the “Reassessment”). This Reassessment, the validity of which the Plaintiff disputes, is the subject matter of the within application. A copy of the reassessment is annexed under Tab 2.

11. On June 30, 1981, Guaranty Properties filed with the Minister an Income Tax Return for its first taxation year ending December 31, 1980. The initial Notice of Assessment relating thereto was sent June 21, 1982. A copy of the Return is annexed under Tab 11.

12. The Minister assigned to Dixie the account number 30805360, to Forest Glenn the account number 79584850 and to Guaranty Properties the account number 79467007 for the purposes of processing tax returns.

13. On August 28, 1981 a Notice of Objection was filed by Forest Glenn in respect of the Reassessment. A copy of the said Notice of Objection is annexed under Tab 12.

14. On August 21, 1981 the four-year limitation period within which the Minister could reassess tax payable for the 1976 taxation year of Dixie expired.

15. The field auditor who was attached to the Basic File Section of the Department of National Revenue and who was dealing with the Minister’s files in respect of the 1976 Tax Return of Dixie did not receive notice of the November 28, 1980 Amalgamation either from the Corporate Taxroll Section or from any representative of the Plaintiff prior to the expiration of the limitation period for reassessing.

16. On February 25, 1982, the Minister confirmed the Reassessment by issuing a Notice of Confirmation to Forest Glenn for the 1976 taxation year of Dixie. A copy of the said Notice of Confirmation is annexed under Tab 13.

DIAGRAM OF AGREED FACTS

(from Agreed Statement of Facts)

Dixie	1st Group	2nd Group
of Other		of Other
Companies		Companies
			1976 Dixie Taxation Year
			Aug. 22/77 Minister sends
			Notice of Assessment to Dixie
I\_	PL		for tax payable for Dixie's
			1976 Taxation Year
rorest			May 31/78 Amalgamation
Glenn
			May 14/79 Forest Glenn files
			Return for 1978 year ending
			November 30/78
			Sept. 12/80 Forest Glenn files
\\			amended Return as requested by
	dé		Minister in July, 1980
	Guaranty		Nov. 28/80 Amalgamation and
	Properties		Minister receives copy of
			Articles of Amalgamation from
			Ontario Ministry
			May 2B/81 Forest Glenn files
			its Tax Return for year ended
			Nov. 28/80, and amended Return
			for 1978
			May 30/81 Forest Glenn files
			amended Return for 1979
			June 23/81, Minister sends
			Notice of Reassessment to
			Forest Glenn for tax payable
			for Dixie'a 1976 Taxation Year
			June 30/81 Guaranty Properties
			files its first Tax Return for
			year ended Dec. 31/80
	I
			July 2/81 Minister receives
"' '"	t		Financial Statements for Forest
	I		Glenn's year ended Nov. 28/80

I

I	Aug. 28/81 Forest Glenn files
I	Notice of Objection to
I	June 23/81 Reassessment

I

I

Aug. 22/61 time

I	tax for Dixie's 1976 Taxation
	Year expires
I
I

In making a determination of this matter it is the following facts which must be kept in mind. First, on May 31, 1978 a corporation known as Dixie and several other companies amalgamated pursuant to the laws of the Province of Alberta to form Forest Glenn (Dixie) Limited. Thereafter, on November 28, 1980 Forest Glenn amalgamated with a number of other companies pursuant to the laws of the Province of Ontario to form Guaranty Properties Limited. The Minister of National Revenue reassessed tax payable for Dixie’s 1976 taxation year and sent a notice of reassessment elated June 23, 1981 to Forest Glenn, which had by that time amalgamated to form Guaranty Properties. The issue in this case is the validity of that reassessment.

The plaintiffs’ position is that by reassessing Forest Glenn for the income of Dixie after the November 28, 1980 amalgamation, the Minister reassessed a corporation that for the purposes of the Income Tax Act had ceased to exist. Therefore, maintain the plaintiffs, the Minister's reassessment is a nullity, void ab initio.

In support of their argument, the plaintiffs rely on paragraph 87(2)(a) of the Income Tax Act:

(a) for the purposes of this Act, the corporate entity formed as a result of the amalgamation shall be deemed to be a new corporation the first taxation year of which shall be deemed to have commenced at the time of the amalgamation, and a taxation year of a predecessor corporation that would otherwise have ended after the amalgamation shall be deemed to have ended immediately before the amalgamation;

It is the plaintiffs’ position that by deeming the resulting corporation formed on amalgamation as a new corporation, the Income Tax Act also deems that the predecessor corporations which amalgamated to form the new corporation have ceased to exist. A reading of section 87 of the Act as a whole makes it clear that paragraph 2(a) establishes as a general rule for all purposes under the Act, that the resulting corporation is a new corporation and all predecessor corporations have ceased to exist.

The plaintiffs maintain that section 87 contains a number of other deeming provisions which are expressed to revive the predecessor corporations for specific purposes only as set out in those provisions. Therefore, unless the contrary is specifically provided for in section 87, the predecessor corporation, for tax purposes, ceases to exist. As an example, the plaintiffs rely on paragraph 87(2)(l) which provides that:

(I) for the purposes of section 37 and Part VIII, the new corporation shall be deemed to be the same corporation as, and a continuation of, each predecessor corporation;

The plaintiffs submit that the proper and only corporate entity that the Minister could have and should have reassessed after the November 28, 1980 amalgamation in order to affix liability for Dixie’s 1976 taxation year was Guaranty Properties Limited. However, the Minister failed to issue a timely reassessment against Guaranty Properties and it was not, according to the plaintiffs, open to the Minister to reassess Forest Glenn in its stead.

The defendant, on the other hand, argues that the reassessment is valid and bases its position on three grounds.

First, Forest Glenn did not cease to exist upon the amalgamation of November 28, 1980; second, if Forest Glenn did cease to exist upon amalgamation, a notice of reassessment sent in that corporation's name still meets the requirements of the Income Tax Act; and, third, if the notice of reassessment issued by the Minister in the name of Forest Glenn is in error or defective, it is not invalid by reason of the curative provisions of the Act, as determined by subsections 152(3) and 152(8) and section 166.

With respect to its first argument, the defendant contends that corporate law is clear, that upon an amalgamation in Ontario, the predecessor companies continue to have a legal existence and do not cease to exist. Paragraph 188(4)(a) of the Ontario Business Corporations Act is applicable to this amalgamation and it states:

(4) The certificate endorsed in accordance with subsection (3) constitutes the certificate of amalgamation of the amalgamating corporations and upon the date set out therein,

(a) the amalgamation becomes effective and the amalgamating corporations are amalgamated and continue as one corporation under the terms and conditions set out in the amalgamation agreement;

The defendant relies on the Supreme Court of Canada decision in The Queen v. Black and Decker Manufacturing Company, Limited, [1975] 1 S.C.R. 411; 43 D.L.R. (3d) 393 in which a similar provision was considered by the Court and it held at 417 and 420 (D.L.R. 397 and 399):

[. . .] The companies “are amalgamated and are continued as one company” which is the very antithesis of the notion that the amalgamating companies are extinguished or that they continue in a truncated state . . .

[. . .]The juridical nature of an amalgamation need not be determined by juridical criteria alone, to the exclusion of consideration of the purposes of amalgamation. Provision is made under the Canada Corporations Act and under the Acts of various provinces whereby two or more companies incorporated under the gover- nining Act may amalgamate and form one corporation. The purpose is economic: to build, to consolidate, perhaps to diversify, existing businesses; so that through union there will be enhanced strength. It is a joining of forces and resources in order to perform better in the economic field. If that be so, it would surely be paradoxical if that process were to involve death by suicide or the mysterious disappearance of those who sought security, strength and, above all, survival in that union. Also, one must recall that the amalgamating companies physically continue to exist in the sense that offices, warehouses, factories, corporate records and correspondence and documents are still there, and business goes on. In a physical sense an amalgamating business or company does not disappear although it may become part of a greater enterprise.

It is the defendant's interpretation that paragraph 87(2)(a) of the Income Tax Act deems the entity formed after amalgamation to be a new corporation, but it does not expressly deem that the predecessor corporations cease to exist. Therefore, since the Act is silent on whether the predecessor corporations continue to exist, the normal corporate law will apply.

Counsel for the defendant argues against the position of the plaintiffs who have stated that, for the general purposes of the Act, the predecessor corporation must be considered to have ceased to exist because certain specific provisions of the Act [i.e. 87(2)(j.1), 87(2.1)] deem the amalgamated corporation to be the continuation of each predecessor corporation. In the alternative he argues that because of these subsections the conclusion does not follow that without them the predecessor corporations would be considered to cease to exist upon amalgamation. In fact, because of these provisions, Parliament is attempting to achieve a specific purpose, i.e. the amalgamated corporation must be considered the same corporation as each predecessor corporation.

Further, the defendant argues that, prior to 1977, an amalgamated corporation could not bring forward and deduct in the computing of its income any of the losses of the predecessor corporation; that paragraph 87(2)(w) of the Act specifically provided that the amalgamated corporation could not deduct the losses of a predecessor corporation; that if the plaintiffs were correct in their assertion that paragraph 87(2)(a), in addition to deeming the amalgamated corporation to be a new corporation also deems that the predecessor corporations ceased to exist, there would be no need for paragraph 87(2)(w). If the amalgamated corporation is a new corporation and the predecessor corporation has ceased to exist, the new corporation would have no carry over rights and paragraph 87(2)(w) would be redundant.

The defendant also points out that when paragraph 87(2)(w) was amended in 1977 removing the prohibition against deducting non-capital losses and net capital losses of the predecessor corporations, subsection 87(2.1) was added. It provided that for the purposes of deducting noncapital and net capital losses, the amalgamating company is deemed to be the same corporation as and a continuation of each of the predecessor corporations.

This history of the legislation, submits the defendant, emphasizes that there is no provision in the Income Tax Act which deems predecessor corporations to ’no longer exist upon amalgamation. As Parliament intended to prohibit the deduction of the predecessor corporation's losses, it specifically stated so in paragraph 87(2)(w). The addition of this provision to the legislation was necessary because the corporate law of many provinces provided that predecessor corporations continued to exist and the amalgamated company would be entitled to deduct the losses since it was a continuation of the predecessor companies. When Parliament decided to make the losses deductible, subsection 87(2.1) was added which deemed the amalgamating corporation to be the same corporation as, and a continuation of, each corporation in order to ensure that all amalgamated corporations would be entitled to deduct the previous losses, even if they were incorporated in a province or jurisdiction where predecessor corporations cease to exist upon amalgamation.

The defendant further states that even if the predecessor corporations are considered to have no existence after the amalgamation, the notice of reassessment remains valid as it meets all the requirements of the Income Tax Act. Subsections 152(1) and (2) of the Act provide as follows:

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

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

In this case, it is submitted that the Minister did all that was required of him by the Act in making the reassessment. The Minister examined the 1976 corporate tax return for Dixie; he reassessed the tax payable with respect to the income earned by Dixie for the 1976 taxation year; he then forwarded a notice of reassessment to Forest Glenn in accordance with subsection 152(2) of the Act. Accordingly, whether or not Forest Glenn ceased to exist on November 28, 1980, the date of the amalgamation, the Minister fulfilled the duties imposed upon him under the Income Tax Act and the reassessment is therefore valid. The notice identified the amount of tax assessed, the year to which the assessment related and the corporation which earned the income subject to taxation. The defendant maintains that the liability for the tax assessed was created in 1976, when the income was earned, prior to the amalgamation and during a time when there was no dispute concerning the existence of the plaintiff Forest Glenn.

The defendant's third argument is that even if the notice of reassessment is defective because it does not refer to the plaintiff Guaranty Properties Limited, the defect does not render the reassessment invalid by virtue of subsections 152(3) and (8) and section 166 of the Act. Those sections provide as follows:

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. (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 therein 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.

The defendant submits that these provisions in the Income Tax Act indicate a direction on the part of Parliament that a notice of reassessment is not to be defeated by reason of a defect in the notice or in the assessment process. Rather that liability for tax is to be determined on its substantive merits. Since there is no error of a substantive nature, the reassessment is valid. The purpose of the above provisions of the Income Tax Act, according to the defendant, is to prevent a defect in an assessment from rendering it invalid, unless the defect is such that it misleads or causes prejudice to the taxpayer.

It is finally submitted that any defect in the notice of assessment has been waived by the plaintiffs by their actions. Once the plaintiffs received the notice of reassessment, there is no evidence that they returned it to the Department of National Revenue as being mailed to the wrong party. Rather, they responded to the reassessment by filing a notice of objection in the name of Forest Glenn but did not raise the objection that the name appearing on the notice of reassessment was incorrect.

The purpose of section 87 of the Income Tax Act is to provide the applicable rules where two or more Canadian corporations are amalgamated. From an income tax aspect, the complete code on amalgamations is to be found in section 87 of the Act. The general scheme of the section is to treat the amalgamated corporation as a continuation of the predecessor corporations standing in their place with respect to assets, liabilities, surpluses and other tax-oriented accounts. However, the amalgamated corporation is, for most purposes of the Act, a new corporation, although in certain limited cases the amalgamated corporation is deemed to be the continuation of a predecessor corporation.

Subsection 87(1) defines an amalgamation for the purposes of the Income Tax Act. It is essentially a corporate transaction and each of the provincial companies Acts and the federal corporation legislation provide for statutory amalgamations. Although the definition of amalgamation for income tax purposes would cover most statutory amalgamations, it should be remembered that this definition is independent of the federal and provincial corporate statutes. Subsection 87(1) defines amalgamations as follows:

87. (1) In this section, an amalgamation means a merger of two or more corporations each of which was, immediately before the merger, a taxable Canadian corporation (each of which corporations is referred to in this section as a “predecessor corporation”) to form one corporate entity (in this section referred to as the “new corporation”) in such manner that

(a) all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the merger becomes property of the new corporation by virtue of the merger.

(b) all of the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger become liabilities of the new corporation by virtue of the merger, and

(c) all of the shareholders (except any predecessor corporation) of the predecessor corporations immediately before the merger receive shares of the capital stock of the new corporation by virtue of the merger,

otherwise than as a result of the acquisition of property of one corporation by another corporation, pursuant to the purchase of such property by the other cor- poration or as a result of the distribution of such property to the other corporation upon the winding-up of the corporation.

[Emphasis added.]

Counsel for both parties have made submissions that the Court make a finding that Forest Glenn either ceased to exist or did not cease to exist at the time of the second amalgamation on November 28, 1980. I have carefully considered the arguments and submissions of both parties and I am of the opinion that the question of whether predecessor corporations cease to exist upon amalgamation for the purposes of the Income Tax Act is not determinative of the issue at hand.

The key factor here is the treatment afforded by the Income Tax Act to the liabilities of predecessor corporations. The subsection 87(1) definition of amalgamation as quoted above, and in particular paragraph (b), requires that all of a predecessor corporation's liabilities immediately before the amalgamation become liabilities of the new corporation. In other words, whether or not the predecessor corporation continues to exist, it is plain and obvious that it no longer continues to have liabilities attached to it, at least for income tax purposes. In order for a transaction to qualify as an amalgamation under subsection 87(1) therefore, the amalgamated corporation must assume all liabilities of the predecessor corporation.

Accordingly, prior to the amalgamation on November 28, 1980 there is no question that it was Forest Glenn who was liable for the reassessment of Dixie’s 1976 taxation year. Forest Glenn had assumed that liability at the time of the first amalgamation on May 31, 1978. Thereafter, Dixie had no liabilities for income tax purposes. Similarly, at the time of the second amalgamation on November 28, 1980 Guaranty Properties assumed all of Forest Glenn's liabilities, including the reassessment for Dixie's 1976 taxation year. It matters not whether Forest Glenn ceased to exist as a legal entity or whether it didn't. The point is that the amalgamation, which fell within the definition of amalgamation in subsection 87(1) of the Act, meant that pursuant to paragraph 87(1 )(b) all of the liabilities of the predecessor corporation, Forest Glenn, immediately before the merger became liabilities of the new corporation, Guaranty Properties, by virtue of the merger. Therefore, after November 28, 1980 liability could no longer be affixed to Forest Glenn for the reassessment of Dixie's 1976 taxation year. That is, in my opinion, the legislative scheme contained within the Income Tax Act as it pertains to amalgamations.

Accordingly, I agree with the plaintiffs that the only party who could be reassessed for Dixie’s 1976 taxation year after November 28, 1980 was Guaranty Properties. Before considering the defendant’s second and third arguments relating to the curative provisions of the Income Tax Act, however, there are two other matters which must be dealt with. The first concerns the question of notice given to the Minister of the amalgamation of November 28, 1980 and the second relates to the interpretation bulletin pertaining to amalgamations.

During the course of the hearing before me the defendant argued that prior to July of 1981 the plaintiffs made no effort to advise the Minister of National Revenue of the amalgamation. It urged upon the Court that regard must be had of what efforts the taxpayer made to give the Minister notice. I do not agree with any of the defendant’s submissions on this point. The evidence clearly established that the Ontario Ministry of Consumer and Commercial Relations sends to Revenue Canada, on a weekly basis (and did so at the time of the second amalgamation), a record of all the changes in the status of corporations in Ontario, including changes in jurisdiction, address changes, changes in directors, as well as the first page of the articles of amalgamation when such a merger has occurred.

The evidence also established that Revenue Canada did receive a copy of the articles of amalgamation pertaining to the amalgamation of November 28, 1980. However, prior to issuing the notice of reassessment for Dixie's 1976 taxation year to Forest Glenn, that information was not at any time given to the auditor who was responsible for issuing the notice of reassessment for Dixie’s 1976 taxation year. The information was within the Department somewhere but evidently not where it was supposed to be. Clearly there was a lack of co-ordination of information which resulted in the notice of reassessment in question being issued to the wrong party. It would be highly improper for the Court to hold either of the plaintiffs responsible for such an error on the part of the defendant. The defendant seems to imply that there was some further obligation on the plaintiffs in this case to provide the Minister with notice of amalgamation of November 28, 1980. However, I am not persuaded that such an obligation exists and the defendant has failed to provide me with anything to support such a contention.

Further, there were indications that other very definitive documents were provided for National Revenue after the November 28, 1980 amalgamation had occurred. For example, on May 28, 1981 an income tax return was filed on behalf of Forest Glenn for the taxation year ending on the date of the amalgamation. This documentation submitted with the return clearly stated that the return was being filed for the taxation year from December 1979 to November 28, 1980, two days short of a year and was referred to by the plaintiffs as a stub year. While that information may not lead directly to the conclusion that an amalgamation occurred on November 28, 1980, it would alert anyone examining the tax return that something out of the ordinary had occurred. Further, the financial statement filed by Forest Glenn and received by Revenue Canada on July 12, 1981 contains numerous references to the amalgamation. Finally, the first tax return filed by Guaranty Properties, the new corporation, was for a very short period, from November 28, 1980, the date of the amalgamation to December 31, 1980, the corporation's year end. I agree with the plaintiffs that with all this information available and in the hands of Revenue Canada before the time to reassess Dixie's 1976 taxation expired it had ample opportunity to examine in its entirety the existence or non-existence of the various corporate bodies. There was an obvious indication that something had occurred and officials at Revenue Canada should have apprised themselves of the events.

I am satisfied that the plaintiffs were not under any additional obligation to advise the defendant of the amalgamation and that, in any event, all the information concerning the amalgamation was in the defendant's possession. Though not directed to the specific official, namely the auditor in charge of receiving the material and issuing the notice of reassessment in question, there is no obligation on the part of the plaintiffs under the Income Tax Act or its policy to provide or direct additional notices or information.

As for the interpretation bulletin dealing with amalgamations, it is clearly stated that where an assessment or reassessment of a predecessor corporation is to be made after amalgamation, the assessment will be issued to the new corporation. Counsel for the defendant maintains that that does not mean that a reassessment issued to a predecessor corporation is invalid and argues that interpretation bulletins are only to be used for assistance in interpreting the Income Tax Act when the Minister has taken a position contrary to an established administrative policy set out in the bulletin. See Harel v. Deputy Minister of Revenue for Quebec, [1978] 1 S.C.R. 851; [1977] C.T.C. 441 and Nowegijick v. The Queen, [1983] C.T.C. 20; 83 D.T.C. 5041 (S.C.C.).

In my opinion there is overwhelming evidence that the policy of Revenue Canada was to direct a notice of reassessment of a predecessor corporation to the new corporation following amalgamation. There is the testimony of Mr. Delavigne, the auditor from National Revenue dealing with the file. He swore that had he been aware of the November 28, 1980 amalgamation he would not have reassessed Forest Glenn for Dixie’s 1976 taxation year but rather would have issued the reassessment notice to Guaranty Properties. In cross-examination Mr. Delavigne made it quite clear that officials of the Department have been told not to reassess predecessor corporations where there has been an amalgamation and in fact they are to reassess in accordance with the interpretation bulletin.

The plaintiffs introduced as evidence three notices of reassessment issued to Guaranty Properties subsequent to the notice of reassessment of June 23, 1981 which is the subject of dispute in this case. Two of those reassessments were in respect of Dixie's 1977 and 1978 taxation years. These notices were all issued on May 31, 1982 after Revenue Canada officials discovered their error and became aware of the amalgamation of November 28, 1980.

Accordingly, I am satisfied that it was the policy of Revenue Canada to reassess the new corporation which resulted from amalgamation rather than predecessor corporations. It is my opinion that this is the only course of action which Revenue Canada can follow. It cannot pick and choose which corporation it is going to reassess after an amalgamation has occurred. Were this Court to decide that the reassessment of Forest Glenn for Dixie's 1976 taxation year is valid, a precedent would be set which would allow Revenue Canada in the circumstances of amalgamations to reassess any corporation of its choice, either the predecessor or the new one. I do not believe that that is the purpose of the legislation nor is it the intention of Parliament and this is certainly confirmed by a careful reading of subsection 87(1), by evidence as well as the information bulletin.

The curative provisions of the Income Tax Act will not assist the defendant in this case. It is clear from the facts that a number of errors have plagued the defendant throughout this matter. The auditor who should have been made aware of the amalgamation was not advised and, by the time this was discovered and matters rectified, the time limit prescribed by statute for reassessing Dixie's 1976 taxation year had expired. Equity alone would prevent the use of curative provisions such as those contained within the Income Tax Act to correct a substantive error of this nature. I am of the opinion that the legislation does not contemplate the amendment of a reassessment after the expiry of a limitation period.

For the above reasons, I find the reassessment of Forest Glenn with respect to the income of Dixie’s 1976 taxation year to be invalid. Costs to the plaintiffs.

Appeal allowed.