Mahoney, J:—The plaintiff appeals income tax assessments for its taxation years ended December 31 in each of the years 1968 to 1975, both inclusive. By order made July 4, 1978, this and seven other actions against the defendant are test actions. The judgments in the test actions are to be final in respect of a further 88 actions. The plaintiff in each action is a colony of the Darius-Leut Conference of the Hutterian Brethren Church. By the same order, all subsequent proceedings in all test actions have been taken in this action. At trial, all test actions were heard together on common evidence.
All of the plaintiffs in the test actions are corporations except the Hutterian Brethren of Lakeside Colony.* That colony’s income has been assessed on the basis of the income having been received by a trustee. The others have all been assessed as corporations. The eight test action involve four colonies. In each case, the corporate plaintiff with the word “Church” included in its name was incorporated during 1973 or 1974 and assumed the property and operations of its similarly named predecessor. It is acknowledged that there may be some duplication in the assessments of respective successors and predecessors. The order of July 4, 1978, provided that ‘‘the tax liability of two corporations representing each colony is joint and several” and directed withdrawal of all duplicate assessments. That provision is expressly contingent on the dismissal of one or more of the test actions. I do not have the material upon which to base a more precise order; however, note that some of the predecessors, at least, are not corporations. If the order is not complied with, appropriate proceedings to enforce it can be taken.
Aside from that, the arithmetic of the assessments was not disputed. The total amount of tax liability in issue in all 96 actions is not in evidence; however, in argument, the figure mentioned was $37,000,000.
A brief history of the recent relationship between the Hutterian Brethren and the exchequer is desirable. Prior to 1951, the Hutterian Brethren, as a church, operated under the aegis of a North Dakota corporation. The individual colonies in Canada were assessed and paid income tax. In 1951, The Hutterian Brethren Church was incorporated by a special Act of Parliament! with “the objects of engaging in and carrying on the Christian religion, Christian worship and religious education and teaching and to worship God according to the religious belief of the members of the Corporation”. Nothing in its objects expressly contemplates that corporation engaging in any business and, in particular, the business of farming. After that incorporation, the Minister of National Revenue ceased assessing the individual colonies to income tax and, further, reassessed to the extent that such was not statute barred with resulting refunds. Beginning in 1961, efforts to tax the colonies resumed.
The Hutterian Brethren Church in Canada is made up of three groups of colonies: the Darius-Leut, the Lehrer-Leut and the Schmeid-Leut. The colonies of the latter two groups, in 1968, entered into an agreement with the Minister of National Revenue whereby each colony, for the years 1961 to 1967, inclusive, was assessed income tax on the notional basis that the colony’s income was personal income of its members in equal shares in accor- dance with a detailed formula. Thereafter, the corporate assessments of colonies in the Lehrer-Leut and Schmeid-Leut groups were cancelled, new assessments on that notional basis issued and tax paid. Actions in the Exchequer Court relative to such corporate assessments were dismissed by consent judgments May 15, 1969.* It appears that colonies of the Lehrer- Leut and Schmeid-Leut continued between 1968 and 1975, inclusive, to be assessed and pay tax on that basis.
The Darius-Leut colonies refused to go along with the fiction that the income of a colony was that of its members. They were, nevertheless, assessed on that basis for the years 1961 to 1966, inclusive. Those assessments were successfully appealed. While the proceedings respecting those assessments moved toward their ultimate resolution by the Supreme Court of Canada, the Darius-Leut colonies filed corporate income tax returns for the years presently in issue, 1968 to 1975, inclusive. Those returns were not assessed until after the decision of the Supreme Court of Canada rendered February 11, 1976. The assessments in issue were issued December 23, 1976, in respect of the Wilson colony; December 29, 1976, in respect of the Lakeside colony; March 31,1977, in respect of the Mixburn colony and April 6, 1977, in respect of the Scotford colony. By agreement, the assessments in respect of the Mixburn colony for 1967 and 1968 are to be vacated. Otherwise, but subject to the possible duplication previously referred to, the Defendant asserts the validity of all assessments.
The plaintiffs argue that some of the assessments are statute barred. They argue that all are entirely invalid by reason of
a. the Exchequer Court decisions in the Rock Lake and Hutterville actions;
b. an absence of natural justice in the assessment process;
c. the discriminatory impact of corporation tax on the Plaintiffs compared to that on the Lehrer-Leut and Schmeid-Leut colonies;
d. their being charitable organizations;
e. a deprivation of freedom of religion.
They argue that all should be referred back to the Minister for reassessment by reason of his failure to reduce their income by the fair market value of the labour which their membership has contributed to each—an amount, in each year for each colony, said to be equal to its net profit.
The plaintiffs adduced no evidence whatever in support of the propositions that, by agreement, the judgments in the Rock Lake and Hutterville cases were to apply to ‘all Hutterian colonies which were parties to appeals at that time” including the “predecessor of the present plaintiff” and that the present Darius-Leut colonies are in exactly the same position at the colonies to which the judgments applied. The compelling inference to be drawn from the evidence is that those consent judgments, both involving Lehrer-Leut colonies, ensued upon the settlement the Darius-Leut rejected.
Likewise, the evidence does not support the alleged absence of natural justice in the assessment process. In fact, the argument did not suggest to me just where a requirement of natural justice, as I understand the term, could possibly arise in the assessment process, assuming that process to be initiated by the taxpayer filing a return and concluded by the Minister issuing an assessment. Thereafter procedures for objection and appeal with the opportunity to be heard exist and, in this case, were invoked by the plaintiffs. In the scheme of the Act, the Minister’s reconsideration of an assessment on a notice of objection is a step in the appeal, not the assessment, process.
The legality of the arrangement with the Lehrer-Leut and Schmeid-Leut is not in issue in this action. The evidence is, and I have no doubt of the fact, that the amount of income tax payable by a colony under that arrangement, all else being equal, was substantially less than had it been assessed, as the plaintiffs, to corporate tax. While one must respect the stated reasons of the Darius-Leut for rejecting the same arrangement, they had the opportunity to enter into it. They also had the opportunity to be taxed on that basis without entering into such an arrangement and, as was their right, rejected that opportunity by their successful appeal. The Darius-Leut opted against being taxed on that basis. Even if the arrangement with the other groups was illegal, that fact is no ground for declaring the plaintiffs’ assessments invalid.
The actual cost to each colony of labour, being the cost of goods and services supplied to and consumed by members and their families has been allowed. The cost of outside purchases is deducted from revenue in arriving at taxable income while the value of goods and services produced on the colony is simply ignored for both revenue and expense purposes. There is no basis for the proposition that the fair market value of donated labour should be deducted from the net profit of a colony. It is not among the deductions from income allowed to a taxpayer in the calculation of taxable income.
In support of the allegation that the assessment to tax is contrary to the exemption, by paragraph 149(1)(f) of the Act, of the income of a charitable organization, the plaintiffs included, in each Statement of Claim, the following passage from the decision of Ritchie, J, in Hofer v Hofer, [1970] S.C.R. 958 at 968.
I am satisfied after having read a great deal of the material submitted by both sides in this case and after having considered the analysis thereof as contained in the judgments of the learned trial judge and the Court of Appeal, that the Hutterite religious faith and doctrine permeates the whole existence of the members of any Hutterite Colony and in this regard I adopt the language which the learned trial judge employed in the course of his reasons for judgment where he said:
To a Hutterian the whole life is the Church. The colony is a congregation of people in spiritual brotherhood. The tangible evidence of this spiritual community is the secondary or material community around them. They are not farming just to be farming—it is the type of livelihood that allows the greatest assurance of independence from the surrounding world. The Minister is the spiritual and temporal head of the community.
It allows in my view that, notwithstanding the fact that the Interlake Colony was a prosperous farming community, it cannot be said to have been a commercial enterprise in the sense that any of its members was entitled to participate in its profits. The Colony was merely an arm of the church and the overriding consideration governing the rights of all the Brethren was the fulfilment of their concept of Christianity. To the Hutterian Brethren the activities of the community were evidence of the living church. In this context I find it impossible to view the Interlake Colony as any form of partnership known to the law.
Counsel read the passage in argument and would have reread a good portion of it, as quoted by Thurlow, J A, as he then was in Wipf v The Queen,[1975] CTC 79; 75 DTC 5034 had I not stopped him. His adamant position that I am bound by a finding of fact in another action is without merit. That said, nothing in the evidence in this case leads me to a radically different conclusion.
The Hutterites who testified are not farming just to be farmers; farming is the commercial activity that is most compatable in this day and age to the lifestyle dictated by their religious faith and doctrine. In earlier times other commercial activities, such as small manufacturing, were compatable but are no longer found so. I also agree that none of the plaintiffs can be said to have been a commercial enterprise in the sense that any of its members was entitled to participate in its profits. That said, each was a commercial farming enterprise, employing up to date farming equipment and techniques and purchasing and marketing with a view to maximum profits. Surplus funds were likewise invested.
There is no evidence that the assessments in any way impinge on the plaintiff’s right to freedom of religion. To the extent that the argument was based on the Darius-Leut’s relatively less favourable tax treatment to that enjoyed by the Lehrer-Leut and Schmeid-Leut, it has already been dealt with. It was freely chosen by the Darius-Leut. It is true that, as a result, the Darius-Leut have less money than otherwise would be available for “church” purposes. However, the income of a church is not per se exempt from income tax. The income of certain charitable organizations is, of course, exempt and a church may be such an organization and qualify for the exemption.
The plaintiffs are not natural persons and there is no evidence whatever that the assessments in any way affect the ability of an individual member to practice his religion as he chooses. Two of the witnesses, Bishop John K Wurz and Reverend John K Hofer, said their sole objection to paying income tax was a matter of conscience: part of it (in Reverend Hofer’s view 86%) goes to war and preparation for war. The requirement that a corporation, of which he is a member, pay tax which may be used for a purpose to which he, in conscience, is opposed can, in no way, be considered as impinging on an individual’s freedom of religion.
Returning to the question of whether the plaintiffs are charitable organizations and their income, therefore, exempt, the relevant provision, as it stood during the period in issue, is paragraph 149(1)(f) of the Act.
149.(1) No tax is payable under this Part upon the taxable income of a person for a period when that person was
(f) a charitable organization, whether or not incorporated, all the resources of which were devoted to charitable activities carried on by the organization itself and no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder thereof;
While no part of the plaintiffs’ income was payable to their members, part of it was certainly applied for their personal benefit. Indeed, a fundamental concept of the colony-member relationship, is that the member take an oath of poverty and donate all his worldly goods and labours to the colony in ex- change for the colony’s commitment to provide, thereafter, all his worldly needs. On that ground alone, the argument fails.
While variously expressed, the Memorandum of Association of each corporate plaintiff sets forth both religious and commercial, particularly agricultural, objects. The evidence is that both are pursued concurrently. In addition, the evidence establishes that the plaintiffs’ religious activities, as distinct from its commercial activities, are almost exclusively internal. Their outward looking, non-commercial, activities do not extend beyond the minimal demands of neighborliness. The plaintiffs’ non-commercial activities, even if they stood alone, would not qualify as charitable activities in the legal sense of the term, lacking the element of public benefit.*
As to the allegation that some, at least, of the assessments are statute barred, the relevant provisions of the Act are subsections (1), (3) and (4) of section 152.
152.(1) The Minister shall, with all due despatch, examine each return of income and assess the tax for the taxation year and the interest and penalties, if any, payable.
(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.
(4) 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
(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 4 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, and
(b) within 4 years from the day referred to paragraph (a)(ii), in any other case,
reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require.
The plaintiffs’ first argument is that many of the assessments were not made “with all due despatch” as required by subsection 152(1).
It is agreed that “throughout the years 1967 to 1975 inclusive the plaintiffs filed corporation income tax returns”. The copies of the returns transmitted by the Minister in compliance with subsection 176(2) are, in many cases, too faint to read. However, since none of the assessments invoke a penalty, I infer the returns were filed on time and that, therefore, a notice of assessment may have issued as much as eight years after the return, to which it relates, was filed.
The defendant argues that it was entirely reasonable for the Minister to delay assessment of the corporation tax returns pending disposition of the appeal process on the personal assessments and that, indeed, it would have been unreasonable for him to have done otherwise. In the defendant’s submission, the time lag to be considered in the context of “all due despatch” is the period that commenced with the decision of the Supreme Court of Canada, February 11, 1976. I agree. The returns were, in the cir- cumstances, assessed with all due despatch and it is unnecessary for me to consider what the consequences would be if they had not been, particularly in view of subsection 152(3).
The plaintiffs also invoke the four year limitation period in subsection 152(4). It is acknowledged that there is no waiver, wilful default or fraud established. The Hutterian Brethren of Lakeside Colony filed T-2 corporation returns in respect of taxation years when it should have filed T-3 estate, trust or agency returns. That necessarily involved a number of misrepresentations.
The assessments in issue are all original assessments, not reassessments or additional assessments. The words “or assess tax, interest or penalties under this part, as the circumstances require’’ were added at the end of subsection 152(4) by the same amendment that added the words ‘‘a notification that no tax is payable for a taxation year’’ to subparagraph 152(4)(a)(ii).* Those words impose the four year limitation period on the issue of a notice of an original assessment as well as of a reassessment or an additional assessment. The four year period is stipulated to run from “the day of mailing of a notice of an original assessment or of a notification that no tax is payable”. It says nothing of the day the return was filed.
In the case of an original assessment, as here, the four year period commences to run with the mailing of a notification that no tax is payable. No such notifications were mailed to any of the plaintiffs. The assessments are not statute barred and it is, therefor, unnecessary to deal with the misrepresentations previously mentioned.
The plaintiff’s action fails. So do the other test actions. A copy of these reasons will be included in the record of the other test actions.
No representations for a special order as to costs were made. The plaintiff’s action is dismissed with costs.
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