Federal Court Reports
Mitchell v. Canada (Attorney General) (C.A.) [2003] 2 F.C. 777
Date: 20021024
Docket: A-176-01
Neutral citation: 2002 FCA 407
CORAM: DESJARDINS, J.A.
SEXTON, J.A.
SHARLOW, J.A.
BETWEEN:
JOHN MITCHELL, ANITA MITCHELL,
LEONARD STEWIN and
J.A. FRASER IMPLEMENT CO. LTD.
Appellants
- and -
HER MAJESTY THE QUEEN
as represented by the
MINISTER OF NATIONAL REVENUE and
the ATTORNEY GENERAL OF CANADA
Respondent
Heard at Edmonton, Alberta, on Tuesday, the 24th day of September, 2002.
Judgment delivered at Ottawa, Ontario, on October 24, 2002.
REASONS FOR JUDGMENT OF THE COURT BY: SEXTON, J.A.
CONCURRED IN BY: DESJARDINS, J.A.
SHARLOW, J.A.
[1] The issue in this case is whether Revenue Canada, having agreed with the appellants that they would be reassessed in accordance with the result of a test case based on precisely the same facts, can avoid their commitment to reassess. Revenue Canada states that the appellants failed to file waivers in the precise form referred to in the Income Tax Act, even though the lawyer for the appellants, prior to the expiry of the limitation period for reassessment, provided to Revenue Canada by letter all of the information which is called for in a waiver prescribed by the Act.
FACTS
[2] The appellants owned land in Alberta which was expropriated in 1981. The appellants owned the land jointly with two other persons one of whom was Brenda Bellingham.
[3] The appellants and the other joint owners were awarded penalty interest on the expropriation of the land, and they reported the amounts they received in their income tax returns for the 1984 tax year.
[4] Upon receiving a notice of assessment in which the penalty interest was taxed as income, Brenda Bellingham, one of the joint owners, retained a Mr. Nichols, an experienced tax lawyer. Mr. Nichols filed, on her instructions, a timely notice of objection on the basis that the penalty interest was not income.
[5] The appellants were similarly assessed and they also retained Mr. Nichols.
[6] At the time of the retainer of Mr. Nichols in January 1986, the ninety day period in which the appellants could file a timely notice of objection had clearly elapsed, although they could have applied to the Tax Court to extend the time to file a notice of objection.
[7] Mr. Nichols arranged a meeting with two officers of Revenue Canada in Edmonton, namely a Mr. Wiesener and Mr. Bigelow. The meeting took place on February 6, 1986.
[8] At the meeting it was agreed that, because all of the owners' cases raised identical issues, Brenda Bellingham's lawsuit would proceed to court as the test case for the other owners to determine if penalty interest was non-taxable income. It was further agreed that the appellants' 1984 tax returns would be reassessed if Brenda Bellingham was successful in her tax case.
[9] Mr. Nichols testified that it was further agreed that, pending the conclusion of the test case, the other appellants' files with Revenue Canada would be held "in abeyance without prejudice to their receiving the same treatment as Bellingham and without the need for further steps or documentation".
[10] No evidence was led to contradict Mr. Nichols' evidence. Mr. Wiesener could not recall the meeting at all and had kept no written notes concerning it, and Mr. Bigelow was not called to give evidence by Revenue Canada.
[11] By letter dated February 24, 1986, Mr. Nichols wrote to Revenue Canada concerning the agreement reached on February 6, 1986, stating:
We confirm our understanding in respect of these taxpayers that they would be reassessed so as to give them the same treatment as the others in the event that the penalty interest amounts are not taxable...
As these matters sometimes drag on we would appreciate your office providing us with waiver forms which would be completed and delivered to you as discussed.
[12] Revenue Canada did not see fit to reply to this letter.
[13] By letter dated November 17, 1986, Mr. Nichols wrote on behalf of the appellants to the Department of Justice and said:
This is a lead case for a small group of taxpayers who are similarly affected by the expropriation. We have an agreement with the Minister respecting these others that they will be assessed according to the ultimate outcome of this appeal.
[14] No reply was sent to this letter of Mr. Nichols.
[15] On May 4, 1987, Mr. Nichols wrote to Revenue Canada District Taxation Office in Edmonton again indicating that he was acting for the appellants and he reiterated:
We have an agreement with the Department (per Messrs. William Wiesener and Bruce Bigelow) that the results of the Bellingham lead or test case will be applied to the other affected taxpayers in respect of the particular issue.
Please confirm that there is nothing further that we need to do at this time in respect of that agreement. My concern relates to the fact that this is a 1984 transaction and whether or not you will be requiring waivers from the other taxpayers in case the reassessment time becomes statute-barred and the result of the Bellingham appeal on the "penalty interest" issue is in favour of the taxpayer.
On behalf of each taxpayer we confirm that they will not object to such subsequent reassessment, regardless of whether it is before or after the statute-bar period, so as to allow the "penalty interest" amount to be reassessed as non-taxable. If this does not suffice, perhaps you can let me know your thoughts on whether or not waivers should be provided.
[16] No written response was sent by Revenue Canada to this letter. However, subsequently, a Ms. Mateyko from Revenue Canada did phone Mr. Nichols' office, speaking to a legal assistant, and stated that waivers would probably be necessary. No waivers were filed on behalf of the four appellants, although a waiver was filed on behalf of a fifth taxpayer. Although Ms. Mateyko phoned Mr. Nichols' office again on August 18, 1987 she did not get to speak with anyone about this file and no one from Revenue Canada ever contacted Mr. Nichols again about filing timely waivers.
[17] Brenda Bellingham was ultimately successful after appealing to this Court which found that the penalty interest was a windfall and not income.
[18] When Mr. Nichols contacted Revenue Canada requesting that they honour their agreement to reassess the appellants in accordance with the test case, he was rebuffed. By letter dated April 12, 1998, the Department of Justice denied that Revenue Canada had agreed to apply the decision in the Bellingham matter to the other taxpayers and further indicated that, in any event, because waivers had not been provided the time had expired for filing objections. No explanation has been provided since that time as to why Revenue Canada denied the existence of the very clear agreement which it had entered into.
[19] Indeed, after the appellants had retained other counsel and representations had been made to the Minister of National Revenue on their behalf and more than a year after the rebuff of Mr. Nichols, Revenue Canada changed its position. It finally acknowledged that there had been an agreement that the appellants would be reassessed in accordance with the test case but only on condition that prescribed waiver forms had been completed and submitted to Revenue Canada in accordance with Departmental policies and procedures and within the prescribed time.
DECISION BELOW
[20] The appellants brought an application for judicial review in the Trial Division seeking an order directing the Minister to reassess the appellants' 1984 tax returns in accordance with the test case and a declaration that the appellants had filed valid waivers pursuant to section 152(4)(a)(ii) of the Income Tax Act. The Trial Judge found that "there is no question that Revenue Canada agreed to reassess the applicants based on the outcome of the test case and that the applicants agreed that the reassessments would not be appealed." The Trial Judge concluded, however, that no agreement had been reached at the meeting of February 6 regarding whether waivers would be required, despite the fact that Mr. Nichols' evidence concerning the agreement was uncontradicted.
[21] The Trial Judge then went on to consider the matter of whether a valid waiver had been provided by the appellants. In so doing the Trial Judge had to consider the terms of section 152(4)(a)(ii) of the Income Tax Act. It provides as follows:
The Minister may at any time assess tax, interest or penalties under this Part 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 taxation year, and may
(a) at any time, if the taxpayer or person filing the return
...
(ii) has filed with the Minister a waiver in prescribed form within 3 years from the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year.
...
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 assessment may be made under paragraph (b) after 3 years from the day referred to in subparagraph (a)(ii) only to the extent that it may reasonably be regarded as relating to the assessment or reassessment referred to in that paragraph.
[22] In considering the issue of waiver the Trial Judge opined that waivers could be in three different forms: firstly, the form as provided by the statute; secondly, an implied waiver; and, thirdly, a constructive waiver. The Trial Judge said:
38 In my view, the Letters amount to a constructive rather than an implied waiver. They are not in the prescribed form and they were not meant to serve as a waiver. But, taken together, they do contain virtually all the necessary information which would be found on the prescribed form.
39 The Respondent admitted that it does not always insist on a waiver in the prescribed form and said that it may also accept, as valid waivers, prescribed forms that have been altered and documents other than the prescribed form if they contain the necessary information and are sent to Revenue Canada to serve as waivers. However, Revenue Canada is not prepared to accept documents as waivers when they are not in the prescribed form and when there was no intent that they serve that function. Essentially, to use my terminology, I was told that the Respondent may accept implied waivers but will not accept constructive waivers.
[23] The Court went on to hold that the Minister had no power to reassess statute-barred income tax returns unless a timely waiver was filed, and that Revenue Canada was not required to treat the letters sent by Mr. Nichols as a waiver, although they contained "virtually all the information required for a waiver". Therefore, the application was dismissed.
ANALYSIS
[24] In my view the Trial Judge erred in concentrating on categorizing three different types of waivers - waivers in the form prescribed by the Income Tax Act, implied waivers, and constructive waivers. The statute only refers to "waivers in prescribed form".
[25] Hence, the sole issue to be determined is whether there was an effective waiver provided by the appellants.
[26] By introducing the concept of a constructive waiver and failing to focus on whether there had been a valid waiver contained in the letter of May 4, 1987, the Trial Judge took into account extraneous matters resulting in an error of law. This error of law allows the Court of Appeal to re-examine the facts and to draw the proper conclusions from those facts.
[27] In Baker Petrolite Corp. v. Canwell Enviro-Industries Ltd., [2002] F.C.J. No. 614, 2002 FCA 158 Rothstein J.A. followed Housen v. Nikolaisen, [2002] S.C.J. No. 31, 2002 SCC 33">2002 SCC 33 and discussed at paragraphs 47 to 53 the standard of review applicable to errors of mixed law and fact. Where on a question of mixed law and fact it is possible to extricate the legal question from the factual question and determine that a legal error has been made, the standard of review will be correctness. Therefore, an error on a question of mixed fact and law can amount to a pure error of law subject to the correctness standard. If a Trial Judge mischaracterizes the proper legal test, then this results in the application of the correctness standard to the factual conclusions reached by the Trial Judge: the error infected or tainted the lower court's factual conclusions. Less deference is owed to a tainted factual conclusion.
[28] Likewise, in Witkin v. Canada, [2002] F.C.J. No. 703, 2002 FCA 174, Rothstein J.A. followed the statements in Housen regarding standard of review. Witkin involved an appeal from reassessments by the Minister of National Revenue, and, thus, speaks directly on point. Rothstein J.A. stated at paragraph 10 that a finding of whether the facts are such as to satisfy a legal test is a finding of mixed fact and law. Once an error of law has been extricated from the conclusion of mixed fact and law, the Appeal Court must reach its own conclusion on the facts applying the correct legal test.
[29] The Trial Judge's decision in this case regarding whether there was evidence of a waiver constituted a question of mixed law and fact. By focussing on characterizing the three types of waiver, she mischaracterized the legal test for waiver. Thus, a clear error of law can be extricated from the question of mixed fact and law, and this Court can reach its own factual conclusions regarding whether or not sufficient evidence of a waiver exists.
[30] The respondents conceded both before the Trial Judge and in this Court that it accepts as valid waivers, prescribed forms that have been altered and documents other than the prescribed form if they contain the necessary information. This would appear to have been permitted at the relevant time by reason of section 32 of the Interpretation Act.
[31] Section 32 of the Interpretation Act, R.S.C. 1985, c. I-21, provides:
32. Where a form is prescribed, deviations from that form, not affecting the substance or calculated to mislead, do not invalidate the form used.
[32] The Trial Judge in the analysis dealing with constructive and implied waivers found that the letters were not meant to serve as a waiver in spite of the fact that they contained virtually all of the necessary information which would be found on the prescribed form. The error in concentrating on characterizing different types of waivers, and in considering whether the letters as a group were "meant" to serve as a waiver lead the Trial Judge to fail to focus in this respect on the following paragraph contained in the letter of May 4, 1987 from Mr. Nichols to Revenue Canada:
On behalf of each taxpayer we confirm that they will not object to such subsequent reassessment, regardless of whether it is before or after the statute-bar period, so as to allow the "penalty interest" amount to be reassessed as non-taxable. If this does not suffice, perhaps you can let me know your thoughts on whether or not waivers should be provided.
Specifically, the Trial Judge failed to consider whether this paragraph in and of itself constituted a waiver.
[33] It is clear from reading that paragraph that Mr. Nichols did intend that statement to constitute a waiver. The final sentence is merely an indication that he was willing to sign a waiver in the statutory form if so requested. This willingness to sign such a form does not take away from the fact that the preceding sentence makes it clear that his intention was to waive the limitation period so that there could be a reassessment "regardless of whether it is before or after the statute bar". The Trial Judge did not focus on this particular paragraph when making the finding that "they (the letters) were not meant to serve as a waiver". In my view, the Trial Judge erred in failing to specifically consider this paragraph in deciding whether a waiver had been given. It was abundantly clear that the intention was present and it is equally clear that this paragraph contains all of the information required by the Income Tax Act to constitute a valid waiver. The respondent concedes that this letter did provide all the information required by a waiver "in prescribed form".
[34] It is further conceded by Revenue Canada that in the past their practice has been to accept as valid waivers, prescribed forms which have been altered, and documents which are not in the prescribed form. Further, it is clear that Revenue Canada has taken the position that there can be a valid waiver even though the waiver may contain vital information which is erroneous. In this connection I refer to the following cases.
[35] Firstly, in Gestion B. Dufresne Ltée v. the Queen (1998), 98 D.T.C. 2078, a case involving the treatment of a deemed dividend as a capital gain, Dufresne Ltée filed a waiver with respect to the normal reassessment period but misstated the year. It referred to the 1990 taxation year instead of 1991, the relevant year in question. As a result, Dufresne Ltée contended that the waiver was not valid. The court held that the plaintiff did not adduce any evidence to support the allegation that the waiver did not intend to apply to the 1991 taxation year, as it was signed in 1994 and could not have applied to the 1990 year because the limitation period had already expired. Thus, the court characterized this error as a careless mistake. Therefore, despite the fact that this waiver contained incorrect information, the Minister was willing to argue that it was valid. In our case, all of the correct and necessary information was included in the letters, yet still the Minister refused to accept the letters as valid waivers.
[36] Secondly, Placements T.S. Inc. v. The Queen, [1994] 1 C.T.C. 2464, 94 D.T.C. 1302 involved the attribution rules under s. 56(4) of the Income Tax Act as they applied to the purchase of property. The appellant signed a waiver in which there was a discrepancy between the contents of the waiver and the issue under appeal. The waiver related to the land and the assessment under appeal related to the building. Thus, there was a substantive error in the waiver. The court held, however, that the taxpayer was not surprised by the assessment and that the reassessment reasonably related to the matter for which the waiver was issued.
[37] Thirdly, in Solberg (S.J.) v. Canada, [1992] 2 C.T.C. 208, 92 D.T.C. 6448, the taxpayer signed a waiver of the four-year time limit for reassessment for the taxation year 1979 pursuant to subparagraph 152(4)(a)(ii) of the Income Tax Act, but later objected to reassessment because the waiver only covered tax under Part III of the act, while the reassessment concerned Part I. The Federal Court, Trial Division held in Solberg that the reference to Part III in the waiver was inserted by mistake, but was a technical defect only and did not impair the substance of the waiver. The appropriate approach to the interpretation of the waiver is to seek to ascertain the intention of the parties as expressed in that document together with any relevant circumstances for which evidence is available. The court concluded that the waiver was not a nullity as a result of the mistake because it appeared from surrounding circumstances and from the text of the waiver as a whole that both parties knew what was in issue. This approach taken by the court in Solberg should be applied to our fact situation.
[38] Therefore, in each of the above three cases Revenue Canada sought to argue that waivers were valid, even though the information in the waivers was erroneous. In each of the cases, the waivers were, nevertheless, held to be valid. However, the cases show that Revenue Canada was prepared, when it benefited itself, to rely on waivers that lacked the necessary material or information. The contested waivers in this case did not lack the necessary material - in fact, the Minister admitted that everything substantively necessary to constitute a waiver pursuant to subparagraph 152(4)(a)(ii) of the Income Tax Act was present in the letters. Despite the substantive sufficiency of the letters, Revenue Canada refused to accept the waivers. This double standard is not acceptable.
[39] The Trial Judge also erred in concluding that Revenue Canada was not obliged to treat the letters as waivers, which were sent prior to Ms. Mateyko asking for waivers:
In my view, this is a reasonable approach. Having told Mr. Nichols that waivers were required, and having not received waivers or documents sent in lieu to serve as implied waivers, I do not think that Revenue Canada was obliged to treat documents as waivers that were sent in before Ms. Mateyko asked for waivers, and which were described as waivers only after the deadlines for submitting waivers had passed.
[40] It seems to me that Revenue Canada is obliged to treat any document as a waiver, providing it contains the necessary information. Revenue Canada does not have an option as to whether or not to accept a waiver. A waiver is a privilege which a taxpayer has, and, if sent, Revenue Canada cannot disregard it.
[41] The Crown argued strongly that the case of Canadian Marconi Co. v. Canada (1991), 85 D.L.R. (4th) 675; [1992] 1 F.C. 655 (F.C.A.), leave to appeal to the SCC refused (1992), 90 D.L.R. (4th) viii governs the present case. However, Marconi is readily distinguishable. In Marconi, the taxpayer claimed that the interest earned on short-term securities was income from active business and eligible for the favourable tax rate granted for Canadian manufacturing and processing profits. The Minister characterized the interest as income from property. For the taxation years 1973 to 1976, the taxpayer was finally successful on appeal to the Supreme Court of Canada in 1989, but during the years in which the matter was under appeal, the taxpayer did not file any notices of objection relating to the same matter for the taxation years 1977 to 1981. The Minister claimed that those years were statute barred and that, since the taxpayer had not filed waivers during the relevant period, the Minister did not have the power to reassess the taxpayers' returns for those years despite the fact that the taxpayer succeeded in his characterization of the income for the earlier years. The Minister succeeded on appeal to this Court in establishing that when a timely waiver had not been executed by the taxpayer, the Minister had no power to reassess the statute-barred income tax returns.
[42] The taxpayer in Marconi neither filed notices of objection nor did it file waivers within the four-year limitation period. While the appellants in our case also did not file a notice of objection, they did file letters reflecting their intention to allow reassessment and waive the limitation period. Also, unlike our situation, in Marconi there was no agreement to reassess by Revenue Canada. In our case, an agreement was reached to reassess upon the completion of the test case, and letters were sent confirming this intention to waive the limitation period.
Consequently, Marconi does not really assist the Crown in its argument.
[43] Lastly, the Crown was unable to demonstrate any prejudice by the actions of the appellants. Revenue Canada has been on notice of all relevant and necessary facts from the beginning when it agreed to reassess on the basis of the test case. The letters of Mr. Nichols contain all of the information to which Revenue Canada was entitled by way of waiver. The Crown merely seeks to avoid on this technicality the terms of an agreement which it now admits it had entered into.
[44] It was further argued by the appellant that Revenue Canada, by agreeing to reassess in accordance with the results of the test case, and by the appellants having agreed also to such a reassessment, that it was implicit in such an agreement that there was a waiver.
[45] The parties were aware that it was quite possible, indeed probable, that the matter to be litigated would take considerable time and might even have to be appealed. In this connection I refer to the letter dated November 17, 1986 from Mr. Nichols to the Department of Justice in which he says:
We enclose a copy of the Fisher decision which upholds the Department's position on the penalty interest issue. This case has not been appealed. In our view it is wrong. Accordingly, you can see we will likely be pushing this one on to the Federal Court of Appeal in order to get it straightened out (or perhaps ourselves straightened out).
[46] It seems to me very arguable that it was implicit in this agreement that there was a waiver. It is difficult to think that Revenue Canada's agreement was that it would only reassess provided the test case was finally concluded within the time bar period. The only reasonable conclusion is that agreement in itself made the provision of a formal waiver unnecessary.
[47] However, as I have already found that a waiver was indeed supplied by Mr. Nichols' letter, it is not necessary to make a finding on this issue.
[48] The appeal will therefore be allowed with costs both in this Court and at trial to be assessed towards the high end of Column V of Tariff B.
[49] The judgment of the trial court should be set aside and the Minister directed to reassess the appellants in accordance with the decision in Bellingham v. The Queen.
"J. EDGAR SEXTON"
J.A.
"I agree
Alice Desjardins J.A."
"I agree
K. Sharlow J.A."
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-176-01
STYLE OF CAUSE: JOHN MITCHELL ET AL v. THE QUEEN ET AL
PLACE OF HEARING: EDMONTON, AB
DATE OF HEARING: SEPTEMBER 24, 2002
REASONS FOR JUDGMENT
BY: SEXTON J.A.
CONCURRED IN BY: DESJARDINS J.A. and SHARLOW J.A.
DATED: October 24, 2002
APPEARANCES:
Roderick A. McLellan, Q.C. FOR THE APPELLANT
J.E. (Ted) Fulcher FOR THE RESPONDENT
SOLICITORS OF RECORD:
McLellan Ross
Edmonton, AB FOR THE APPELLANT
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, ON FOR THE RESPONDENT
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