The Queen v. Leung, 93 DTC 5467, [1993] 2 CTC 284 (FCTD)

Joyal, J.:—This is an appeal by Her Majesty the Queen from a judgment of the Tax Court of Canada, [1991] 2 C.T.C. 2268, 91 D.T.C. 1020, by which the appeal of the defendant from an assessment of tax issued pursuant to subsection 227(10) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

c. 63) (the "Act") was allowed on the basis that the notice of assessment was incomplete. Accordingly, the assessment was held invalid.

Background

The defendant is an individual now residing in the Crown Colony of Hong Kong. Prior to returning to Hong Kong and during the time material to this case, the defendant resided in the city of Scarborough in the province of Ontario.

While residing in Scarborough, the defendant was a shareholder and officer of 482262 Ontario Ltd., now an inactive corporation, but during the relevant period, carrying on business as "The Business Centre". The Business Centre was a shareholder of Eastern Scale Manufacturing Inc. (the "corporation"), a corporation incorporated under the laws of Ontario.

Pursuant to a shareholders' agreement (the "agreement") dated May 11, 1984, entered into among: Eastern Scale Manufacturing Inc., Conestoga Bridge Capital corporation ("Conestoga"), David Kenneth Penn, Wai-Leung Yuen, 482262 Ontario, and Tom Sloss. Eastern Scale was required to have a board of five directors: two directors to be appointed by each of Sloss and Conestoga, and one director to be appointed by 482262 Ontario. The defendant was appointed by 482262 Ontario on February 28, 1984 to be a director of the corporation.

Pursuant to the terms of the agreement, the defendant was appointed as Treasurer of the corporation, Sloss was appointed president, Penn was appointed vice-president in charge of marketing, and Yuen was appointed Vice- president in charge of marketing in the Pacific Rim. The office of secretary was left vacant. The defendant was appointed as treasurer on May 11, 1984 and remained as such at all material times.

On October 11,1985, the corporation was placed into receivership. It failed to either remit or remit in a timely fashion the amounts deducted and withheld on account of employees' federal income tax under the Income Tax Act, provincial income tax pursuant to the Income Tax Act (Ontario), R.S.O. 1980, c. 213, unemployment insurance premiums under the Unemployment Insurance Act, 1971, S.C. 1970-71-72, c. 48, and contributions under the Canada Pension Plan, R.S.C. 1970, c. C-5, in respect of the period from April 1,1985 to October 11, 1985.

The Minister of National Revenue (the "Minister") issued and sent to the corporation notices of assessments dated June 17, 1985, July 8,1985, September 11, 1985, September 19, 1985 and November 22, 1985, in relation to the late or unpaid remittances. The corporation did not object to or appeal the said assessments.

By letter dated January 29, 1986, Mr. L. Frank of the collections section of the Department of National Revenue advised the defendant that the Department was considering assessing him in respect of the unpaid remittances, penalty and interest of the corporation. The letter invited the defendant to make submissions if he felt he was not liable, and invited him to contact Mr. Frank if he had any questions or wished to discussed the matter. The defendant did not reply to the letter.

On May 13, 1986, certificates of the amounts deducted and remitted were registered against the corporation in the Federal Court of Canada and the Supreme Court of Ontario, and execution for the amounts was returned unsatisfied in whole.

After receiving an affirmative opinion from the Department of Justice and approval from Head Office, the defendant was assessed pursuant to subsection 227(10) of the Income Tax Act. Ms. G. Samji, a collections officer with the Department of National Revenue, performed the calculations and obtained the appropriate notice of assessment forms.

By notice of assessment numbered as 572470 and dated September 9, 1986, the Minister purported to assess the defendant in the amount of $65,775.16 on account of alleged liabilities pursuant to section 227.1 of the Act, section 36a of the Income Tax Act (Ontario), am. 1984, c. 50, s. 9, section 22.1 of the Canada Pension Plan, am. S.C. 1983-84, c. 1, s. 119, S.C. 1984, c. 45, s. 102(3), and section 68.1 of the Unemployment Insurance Act, 1971, am. 1983, c. 1, s. 123, in respect of unpaid source deductions, penalties and interest payable by the corporation

in respect of notices of assessment dated June 17, July 8, September 11, September 19 and November 22, 1985.

Several months after the notice of assessment was issued, the defendant attended upon the collections officer, Ms. Samji. A representative of the defendant later attended at a second meeting.

? l î J j ', 8 y year after receiving his notice of assessment, the defendant applied for an extension of time for objecting to the

assessment. The reason T for l V filing a notice of objection was that the defendant had understood that the matter was being attended to bv a solicitor. On June 7, 1988, the Tax Court of Canada granted the application for an order extending the time within which the notice of objection could be served. The defendant filed the said notice of objection on June 27, 1988.

By notification of confirmation dated February 20, 1989, the Minister con- firmed the assessment in respect of the defendant's liability under section 227.1

By notice of appeal dated May 8, 1989, the defendant appealed to the Tax

n of , , dated July 4, 1991, the Tax Court of Canada allowed the appeal on the grounds that the assessment issued to the defend- 'was incomplete as it did not inform the taxpayer fully as to his alleged liability for the amount owing. The Tax Court held that a taxpayer assessed under four different statutes should be informed of the amount assessed under each statute. A notice of assessment, said the Court, must make a taxpayer aware of the assessment, and until such notice is effectively given the assessment contemplated by the Act is not complete. The Court also held that the Minister must provide the taxpayer with the documentation referred to in the notice of assessment, such as notices previously sent to the corporation, and the times the alleged failures occurred. The Tax Court considered such defects to be substantive ones, and therefore, held that the validity of the assessment could not be protected by the curative provisions of the Act. The Minister of National Revenue appealed from the above decision to this Court.

Issues

The parties, pursuant to Rule 474 of the Rules of this Court, have jointly applied to this Honourable Court for the determination of the following three questions of law: °

1. Has the defendant been assessed under subsections 227.1(1) and 227(10) of the Income Tax Act in circumstances where he has received a notice of assessment which sets out an amount to be owing on account of liability under the Income Tax Act, the Income Tax Act (Ontario), the Unemployment Insurance Act, 1971 and the Canada Pension Plan, and such notice of assessment refers to each statute and the pertinent provisions thereunder and sets out the aggregate liability thereunder, but does not separately identify the amounts arising under each statute?

2. To assess the defendant pursuant to subsections 227.1(1) and 227(10) of the Income Tax Act, was it necessary that the Minister of National Revenue or his officials, at the time the notice of assessment was sent to the defendant, provide to the defendant the notices of assessment issued to the corporation and other particulars in writing of the assessment of the corporation and of the defendant?

3. Did the Minister of National Revenue, the Deputy Minister of National Revenue for Taxation, the Assistant Deputy Minister of National Revenue for Taxation, or an authorized officer of the Minister of National Revenue, assess the defendant pursuant to section 227.1 and subsection 227(10) of the Income Tax Act?

Plaintiffs submissions

The Crown respectfully submits that the above questions ought to be answered as follows: question one, yes; question two, no; and question three, yes.

The Crown argues that the form of a notice of assessment is not prescribed in the Act and, accordingly, a notice of assessment is valid, if it is expressed in terms that clearly make the taxpayer aware of the assessment made by the Minister. (See Scott v. M.N.R., [1960] C.T.C. 402, 60 D.T.C. 1273, at pages 414-15 (D.T.C. 1279-80) (Ex. Ct.) and Stephens v. The Queen, [1987] 1 C.T.C. 88, 87 D.T.C. 5024 (F.C.A.); affirming [1984] C.T.C. 111, 84 D.T.C. 6114 (F.C.T.D.).)

The Minister submits that the resolution of the first and second questions does not turn on whether or not it was preferable or possible for the Minister to include more detail in, or documents with, the notice of assessment dated September 9, 1986, but solely whether or not he was legally obliged to do so. The Minister argues that no such obligation was required in law (See Laurin v. M.N.R., [1960] C.T.C. 194, 60 D.T.C. 1143 (Ex. Ct.), at page 197 (D.T.C. 1145)).

It is further submitted that the first and second questions must be resolved bearing in mind the purpose of a notice of assessment, that is, to put the taxpayer on notice that he has been assessed, so that the taxpayer may take the steps he considers appropriate. The taxpayer may decide to pay the amount assessed, dispute the assessment by filing an objection, or he may request additional information from the Minister in order to make a decision whether to object or not.

The Minister alleges that the notice of assessment has served its purpose in the present case. The defendant was put on notice that he had been assessed by the Minister under four statutes for the amount of unpaid deductions, penalties and interest payable by the corporation arising from specified notices of assessment issued to the corporation, and he was advised that the amount of the assessment was $65,775.16. No additional information was requested by the defendant for several months. No additional documents were ever requested. After obtaining an order extending the time to file an objection, the defendant objected to the assessment, and appealed the confirmation of the assessment to the Tax Court of Canada.

Further, says the Crown, neither the defendant nor his representative ever asked for a breakdown of the amounts assessed under the federal Income Tax Act, the Income Tax Act (Ontario), the Unemployment Insurance Act, 1971 and the Canada Pension Plan, nor for copies of the notices of assessment issued to the corporation, nor for certificates filed with the Federal Court of Canada or the Supreme Court of Ontario. The Minister claims that any information requested by the defendant or his representative was supplied by the Minister.

It is clear, adds the Crown, that as stated in the application for an extension of time to object, the delay in filing an objection arose from the lack of action by the defendant's solicitor. There is no allegation in the application nor elsewhere that the defendant was confused or misled by the notice of assessment dated September 9, 1986, nor is there any evidence of prejudice to the defendant's rights. (See Roll v. M.N.R., [1992] 2 C.T.C. 2060, 92 D.T.C. 1446 (T.C.C.); Curylo v. M.N.R., [1992] 1 C.T.C. 2389, 92 D.T.C. 1250 (T.C.C.); Wallace v. M.N.R., [1991] 2 C.T.C. 2341, 91 D.T.C. 1134 (T.C.C.); and Corazza v. M.N.R., [1992] 2 C.T.C. 2023, 92 D.T.C. 1554 (T.C.C.).)

The Crown further claims that in the reply to the notice of appeal filed in the Tax Court of Canada on October 4, 1989, the defendant was provided with a breakdown of the amounts under each of the four statutes set out in the notice of assessment.

Finally, the Crown alleges that subsection 227(10) of the Act provides that the Minister may assess any person for any amount payable by that person under section 227.1 of the Act and, where the Minister sends a notice of assessment to that person, Divisions I and J of Part I of the Act (sections 152 and 166) are applicable with such modifications as the circumstances require. And furthermore, if the notice of assessment is erroneous, it is not in the present case such a fundamental or substantial error that the notice is rendered void. (See Riendeau v. M.N.R., [1990] 1 C.T.C. 141, 90 D.T.C. 6076 (F.C.T.D.); [1991] 2

C. T.C. 64, 91 D.T.C. 5416 (F.C.A.); Optical Recording Laboratories Inc. v. Canada, [1990] 2 C.T.C. 524, 90 D.T.C. 6647 (F.C.A.), rev’g [1986] 2 C.T.C. 325, 86

D. T.C. 6465 (F.C.T.D.); Crown's motion to add evidence at [1987] 1 C.T.C. 417, 87 D.T.C. 5248 (F.C.A.); Greenwood Estate v. Canada, [1991] 1 C.T.C. 47, 90 D.T.C. 6690 (F.C.T.D.).) Question one should therefore be answered in the affirmative and question two in the negative.

As to the authority to issue an assessment pursuant to subsection 227(10), the Minister states that the name in writing of the Deputy Minister of National Revenue for Taxation is on the notice of assessment. Pursuant to subsection 244(13) of the Act, the notice is deemed to be issued by the Deputy Minister. In addition, the issuance of the notice of assessment dated September 9, 1986, was done by officers of the Department of National Revenue under the control of the Deputy Minister in accordance with established procedures. Accordingly, the issuance of the notice was the act of the Deputy Minister (sections 220 and 221 of the Act). (See B.M. Enterprises Ltd. v. M.N.R., [1992] 2 C.T.C. 115, 92 D.T.C. 6463 (F.C.T.D.).) In any event, the Minister submits that there is implied authority to subdelegate the issuance of the assessment. (See Doyle v. Canada, [1989] 2 C.T.C. 270, 89 D.T.C. 5483 (F.C.T.D.); and Swyrda v. The Queen, 81 D.T.C. 5109, 11 Sask. R. 188 (Sask. Q.B.).) Thus, the answer to the third question is in the affirmative.

Defendant's submissions

In turn, the defendant submits that the questions submitted to this Court by the parties ought to be answered as follows: no to question one, yes to question two, and no to question three.

The defendant alleges that the purported notice of assessment did not particularize the defendant's liability under any of the statutes, nor did it advise him of the amounts for which he was being assessed for interest and penalties of the corporation. As well, copies of the notices issued to the corporation, and to which reference is made in the purported notice, were not provided to the defendant.

The defendant submits that given the requirement that an assessment made under the Income Tax Act must clearly inform the taxpayer of the amount of tax ascertained and assessed by the Minister, a fortiori does the requirement apply where a notice of assessment purports to be a notice of assessment under each of the Income Tax Act, the Income Tax Act (Ontario), the Unemployment Insurance Act and the Canada Pension Plan. If the notice only provides one consolidated or omnibus amount, being the sum of all of the amounts in respect of which the taxpayer may be liable under each of the four statutes, without identifying the particular ascertained liability of the taxpayer under any of the statutes, it is submitted that such notice is incomplete and therefore invalid. Accordingly, the assessment is a nullity. (See Stephens, supra, at page 89 (D.T.C. 5025) (F.C.A.); Corazza, supra, at page 2033 (D.T.C. 1562) (T.C.C.); Wallace, supra, at page 2344 (D.T.C. 1137) (T.C.C.); Kirby v. M.N.R., [1991] 2 C.T.C. 2639, 91 D.T.C. 1453, at page 2643 (D.T.C. 1455) (T.C.C.); McConnachie v. M.N.R., [1991] 2 C.T.C. 2072, 91 D.T.C. 873, at page 2073-74 (D.T.C. 874) (T.C.C.); Fitzgerald v. M.N.R., [1991] 2 C.T.C. 2595, 92 D.T.C. 1019, at page 2599 (D.T.C. 1022) (T.C.C.); and finally, Leung, supra at page 2277 (D.T.C. 1027) (T.C.C.), which is the specific case under appeal herein.)

Furthermore, the defendant claims that knowledge of the quantum of the tax, penalties and interest in respect of which he was assessed, inter alia, under the Income Tax Act, the Income Tax Act (Ontario), the Unemployment Insurance Act, 1971 and the Canada Pension Plan was essential to permit him to reasonably set out the facts and reasons for his objection in a notice of objection or in other prescribed forms. An assessment which fails to do so is incomplete and therefore a nullity under each of these statutes.

On the second ground of this appeal, the defendant submits that a director is entitled to receive copies of the notices of assessment sent to the corporation for its failure to remit taxes, and to be provided with the times of such failures. The director assessed may not be the controlling shareholder or even a shareholder of the corporation, and consequently, he may not be vested with the knowledge of any failure to withhold tax. Therefore, the failure to serve such notices renders the director's notice incomplete and a nullity. (See Corazza, supra, at page 2033 (D.T.C. 1562) (T.C.C.); Crossley v. M.N.R., [1991] 2 C.T.C. 2082, 91 D.T.C. 827 at pages 2083-84 (D.T.C. 828-29) (T.C.C.); Leung, supra, at page 2277 (D.T.C. 1027) (T.C.C.); and Kirby, supra, at page 2644 (D.T.C. 1456) (T.C.C.).)

The defendant further claims that such information is necessary for the taxpayer to be able to determine whether or not he has a defence from liability under subsection 227.1(1) of the Act because he was not a director at the time of the failure to withhold or remit by the corporation, or under subsection 227.1(4) because he had ceased to be a director of the corporation more than two years after the occurrence of such failure or failures.

It is further submitted by the defendant that a failure by the Minister to set out the specific amounts owing by the director under the said four statutes and to forward to such director the notices of assessment of the corporation incorporated by reference in the notice sent to the director, constitutes such a fundamental and substantive error that subsections 152(3) and (8) and section 166 of the Act, being the curative provisions of the Act, cannot serve to save the assessment in issue as a valid assessment. Therefore, question one should be answered in the negative and question two in the affirmative.

Finally, the defendant submits that the discretion to issue an assessment under subsection 227(10) of the Act should only be exercised by the Minister of National Revenue, the Deputy Minister of National Revenue or the Assistant Deputy Minister of National Revenue. The restriction of the ability of these individuals to delegate the exercise of this discretion is evidenced by the fact that the delegation of this discretion is not delegated elsewhere in section 900 of the Regulations of the Act. The conditions precedent to the vicarious liability imposed by section 227.1 on a director, are evidence of Parliament's concern that such liability will not attach to a director except in strict circumstances. Accordingly, it is submitted that the principle of delegatus non potest delegare should apply in the circumstances of subsection 227.1(1) liability and that this Court should not apply the decision of this Court in the case of B.M. Enterprises Ltd., supra. Thus, question three should be answered in the negative.

Case law

In the case of Riendeau, supra, the Minister confirmed a reassessment that was initially based upon a repealed section of the Act. The defendant contested the validity of the reassessment, relying, at pages 143-44 (D.T.C. 6077), on Cattanach, J.’s statement in Kit-Win Holdings (1973) Ltd. v. The Queen, [1981] C.T.C. 43, 81 D.T.C. 5030 at page 55 (D.T.C. 5038), where he stated:

Mr. Justice Rand also made it clear at page 400 that there is a duty to have fully disclosed to the taxpayer the precise findings of fact and rulings of law which have given rise to the controversy. That is one of the few remaining rights accorded to the taxpayer in the legislation, the preponderance of which imposes obligations.

Cullen, J. of this Court rejected that submission. In his decision, he referred at page 145 (D.T.C. 6078) to Belle-Isle v. M.N.R. (1963), 10 Tax A.B.C. 27, 63 D.T.C. 347 at page 30 (D.T.C. 349) where it was stated:

. . . it matters little under what section of the Act an assessment is made. What matters is whether tax is due.

At pages 146-47 (D.T.C. 6079), Cullen, J. held that the validity of the reassessment was not affected by the Minister’s error and stated:

The Act and the cases make it clear that liability for tax is not affected by an incorrect or incomplete assessment. Subject to being varied or vacated on an objection or appeal, or voluntarily reassessed by the Minister, an assessment is deemed to be valid and binding notwithstanding any error, defect or omission therein.

Error will be a matter of degree. Subsections 152(3), 152(8) and section 166 combined clearly indicate that this error by the Minister of National Revenue is far from fatal. The cases only limit these sections where there is substantial and fundamental error; in such cases, the Court will not allow the Minister to hide behind the provisions.

In the case before me, the Minister has not committed an error of sufficient seriousness to put it into the same category as cases like Optical Recording.

In the case of Optical Recording, supra, the Minister had issued an assessment but had also advised the taxpayer that the taxes assessed were not yet owing. Later, without warning, the Minister took action which effectively froze the taxpayer's funds because of their non-payment. Cullen, J. cited at page 146 (D.T.C. 6079) the observations of the Court at page 338 (D.T.C. 6475) holding that:

. . . the actions of the Minister and his officials was so infected with "error of law, illegal conduct, excess jurisdiction and unfair pouncing without reasonable notice" that the assessment was declared a nullity.

Cullen, J. then referred at page 146 (D.T.C. 6079) to the case of Stephens, Supra:

Another case in point is that of Stephens v. The Queen, [1984] C.T.C. 111, 84 D.T.C. 6114 (F.C.T.D.); aff’d [1987] 1 C.T.C. 88, 87 D.T.C. 5024 (F.C.A.). In this case, five notices of reassessment were argued as void because they bore the incorrect department name and incorrect Deputy Minister's name. The court held that the reassessments were valid, for the alleged defects here were not confusing or prejudicial to the taxpayer; they were mere irregularities that could be cured. The court determined that these were not defects, but, even if they were, relying on subsection 152(8), they could be cured by this provision of the Act. And in The Queen v. Simard-Beaudry Inc., [1971] F.C. 396, 71 D.T.C. 5511 (F.C.T.D.) at page 403 (D.T.C. 5515), Noël, A.C.J. states:

[. . .] the general scheme of the Income Tax Act indicates that the taxpayer's debt is created by his taxable income, not by an assessment or re-assessment. In fact, the taxpayer's liability results from the Act and not from the assessment. In principle, the debt comes into existence the moment the income is earned, and even if the assessment is made one or more years after the taxable income is earned, the debt is supposed to originate at that point.

The Federal Court of Appeal confirmed the decision of Cullen, J. in the Riendeau case by stating at page 65 (D.T.C.5417):

As the cases and the statutory provisions which were cited by Cullen, J. well show, liability for tax is created by the Income Tax Act, not by a notice of assessment. A taxpayer's liability to pay tax is just the same whether a notice of assessment is mistaken or is never sent at all.

It is also noted that despite the mordant language of the decision at the trial level in Optical Recording, supra, the Federal Court of Appeal found reason to reverse it and rule that the taxpayer could not hide behind any alleged shortcomings in the Minister’s notices of assessments.

In the case of Larocque et al. v. M.N.R., [1991] 2 C.T.C. 2151, 91 D.T.C. 899 (T.C.C.), Brulé, T.C.C.J., referred at page 2155 (D.T.C. 901) to the case of Re Norris, [1989] 2 C.T.C. 185, 89 D.T.C. 5493 (Ont. C.A.), which case confirms the presumption of the validity of an assessment:

In the case of Re Norris, [1989] 2 C.T.C. 185, 89 D.T.C. 5493, the Ontario Court of. Appeal supported Revenue Canada's view that a notice of assessment under section 227.1 of the Act is prima fade valid under subsection 152(8) of the Act until varied or vacated on objection or appeal. The assessment while not a legal proceeding is an administrative one aimed to ultimately recover an amount of money.

In the case of Canadian Marconi Co. v. Canada, [1989] 2 C.T.C. 128, 89 D.T.C. 5370 (F.C.T.D.) [rev'd [1991] 2 C.T.C. 352, 91 D.T.C. 5626 (F.C.A.)], I made the following comments on the presumed validity of an assessment at pages 136-37 (D.T.C. 5376):

The plaintiff also finds support with respect to the presumed validity of any tax assessment in the case of Morch v. M.N.R., [1949] C.T.C. 250, 49-50 D.T.C. 649, where the President of the Exchequer Court at page 254 (D.T.C. 652) is quoted as saying that until a taxpayer can discharge the onus that an assessment is erroneous in fact or in law, it remains a valid assessment, a statement substantially repeated by the Trial Division of the Federal Court in The Queen v. Wellington Taylor, [1984] C.T.C. 436, 84 D.T.C. 6459 at pages 438-39 (D.T.C. 6461).

And at page 141 (D.T.C. 5379), I added:

Subsection 152(8) of the Act bears a close analysis. That subsection states that an assessment, which is always subject to a reassessment, is deemed to be valid and binding notwithstanding any error, defect or omission therein or in any proceeding under this Act relating thereto. This particular provision, in my view, expresses the intention of Parliament to confer a prima facie validity on any assessment action taken by the Minister, subject only to its enforceability vis-a-vis a taxpayer. This presumption of validity may only be defeated by a successful objection or appeal or by the taxpayer raising the shield of protection given him by subsection 152(4). This leads me to conclude that any assessment of the Minister is voidable, but would not be void ab initio.

I should note that my decision in the above-noted case was reversed by the Federal Court of Appeal, but on grounds which are not material to the issue before me.

In the case of Laurin v. M.N.R., [1960] C.T.C. 194, 60 D.T.C. 1143 (Ex. Ct.), the taxpayer objected to the validity of the notices of reassessment on the grounds that they did not bear the handwritten signature of the Minister nor that of a duly authorized official, and they did not explain in sufficient detail the reasons for the increase in the tax demanded. Dumoulin, J. concluded at page 197 (D.T.C. 1145):

It may be convenient, I repeat, to summarize the main reasons for the increase in the notice of reassessment. However, I find no provision in the Income Tax Act which would compel the Minister to set out in detail the revision of the tax in the notice itself nor a provision which, should that procedure not be followed, would render the reassessment void.

And referring to the curative provisions of the Act, Dumoulin, J. said:

Such language proves rather clearly that the intention of the legislator is to advise against a rigid interpretation of the procedure and application of his Act.

In the case of Stephens, supra, five notices of reassessment were argued as void because they bore the incorrect department name and incorrect Deputy Minister’s name. Reed, J. held that an error or defect in the form of the notice of assessment did not affect the validity of the assessment. Reed, J. did not consider the error or defect in the assessment to be so substantial that the assessment ought to be vacated. At page 114 (D.T.C. 6116), she stated:

I cannot believe that the taxpayer was in any way misled into thinking that these forms did not emanate from the Department of National Revenue. I cannot believe that the taxpayer was either confused or prejudiced by the usage of this appellation. And it seems to me that the principle which emerges out of In re Corsini (1979), 79 D.T.C. 5356, 49 C.C.C. (2d) 208 (Ont. S.C.) and James Richardson and Sons Ltd. v. M.N.R., [1981] C.T.C. 229, 81 D.T.C. 5232 (F.C.T.D.); rev'd [1982] C.T.C. 239, 82 D.T.C. 6204 (F.C.A.); aff'd [1984] S.C.R. 614, [1984] C.T.C. 345, is that documents such as those in dispute will not be considered invalid when there is no prejudice or confusion created thereby.

At most, the usage of the appellation Revenue Canada, Taxation and the usage of printed forms carrying the name of the previous rather than the incumbent Deputy Minister would be irregularities cured by subsection 152(8) of the Act and not defects such as to render the documents void.

The Federal Court of Appeal dismissed the appeal at page 88 (D.T.C. 5024) and Pratte, J. stated for the Court at page 89 (D.T.C. 5025):

Subsection 152(2) requires the Minister to "send a notice of assessment" to the taxpayer. Nowhere in the Act do we find prescriptions relating to the form of that notice. It follows, in our view, that the form of the notice does not matter and that the subsection merely requires that the notice be expressed in terms that will clearly make the taxpayer aware of the assessment made by the Minister.

In the case of Greenwood Estate, supra, Reed, J. held that the fact that the notice of assessment in issue bore the wrong name was a defect cured by the curative provisions of the Act as it did not have the effect of confusing the taxpayer as to its liability. Reed, J. did not consider such an error as being a fundamental one which renders an assessment null. The assessment was therefore valid.

I should now refer to another line of cases where defects in the notices of assessment were successfully challenged.

In Guaranty Properties Ltd. and Forest Glenn (Dixie) Ltd. v. M.N.R., [1987] 1 C.T.C. 242, 87 D.T.C. 5124 (F.C.T.D.), the respondent attempted to rely on the curative provisions of the Act. However, Rouleau, J. concluded that in this particular case, the error was of such fundamental nature that it could not be cured by the said provisions. At pages 249 (D.T.C. 5130), he stated:

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.

Nevertheless, at page 252 (D.T.C. 5133), Rouleau, J. concluded:

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.

In the case of McConnachie, supra, which was decided before the Tax Court ruled on the Leung case now before me on appeal, the format of the notices sent to the taxpayers was essentially the same as in the Leung case. The appellants did not challenge the validity of the assessments but instead argued that the assessments issued to them were proceedings commenced beyond the two-year limit imposed by. section 227.1. Bonner, T.C.C.J. commented, in obiter, on the validity of the assessment process at pages 2073-74 (D.T.C. 874):

No submissions were made on behalf of the appellants to the effect that the assessment process was never completed because the respondent had failed to provide proper notice. However, there are a few observations on this point which ought to be made. A piece of paper is not a notice of assessment simply because it bears that heading. The supposed notices of assessment sent to the appellants in this case are not just uninformative. They are also misleading. They do not indicate whether the alleged liability is founded on a failure to withhold or on a failure to remit. They do not indicate the number of failures or the dates on which such failures are said to have occurred: The deficiencies in the notices were not rectified by the reference to notices of assessments dated July 30, 1984 and September 3, 1984, because the 1984 notices were sent to the Company, not to the appellants. The notices which were sent to the appellants are misleading as to the composition of the amount shown thereon. The $158,657.56 figure in the box entitled "Tax" includes amounts withheld not only for federal tax but also for provincial tax and for unemployment insurance. The amount shown for interest is computed on the total withholdings under three statutes and not just on amounts for which directors may be liable under section 227.1. The statutory and factual basis for the assessment of penalty has not been identified.

Because the validity of the assessments was not challenged on the basis of failure to give proper notice, I need not express a conclusion on the point. I will note, however, that the only statute to which reference is made in the notices of assessment is the federal Income Tax Act.

In Crossley, supra (presently under appeal), which was also decided before Leung, supra, the issue rested on whether the appellant was a director at the time of the failures by the corporation to remit tax. Although the validity of the assessment was not in issue, Bonner, T.C.C.J. at pages 2083-84 (D.T.C. 827-28) said in obiter:

While on the subject of failures, I will observe that a failure by the respondent to disclose the precise timing of each of the failures in respect of which he seeks to impose vicarious liability can seriously affect the fairness of the appeal process in cases arising under section 227.1 in which an appellant seeks to rely on subsection 227.1(3). Obviously the exercise by a director of care, diligence and skill to prevent a failure must occur before the failure has taken place. A director must be able to identify the period of time during which due diligence will entitle him to relief under subsection (3). Accordingly, it is appropriate to remind the respondent that it is his duty to fully disclose". . . to the taxpayer the precise findings of fact and rulings of law which have given rise to the controversy.” [Per Rand, J. in Johnston v. M.N.R., [1948] S.C.R. 396, [1948] C.T.C. 195, 3 D.T.C. 1182 at page 400 (C.T.C. 203; D.T.C. 1183).]

In this case, the notice of assessment does not supply the missing particulars.

The notices of assessment to which reference was made were assessments made against Smallwood, not against the appellant. I assume that copies of the notices of assessment against Smallwood were not sent to the appellant. Certainly they were not transmitted to this Court under subsection 170(2). Where, as here, a notice of assessment incorporates by reference another document which is essential to complete notice, a copy of that document should be attached to the notice of assessment. I might add too that it is the duty of the respondent to include in the material transmitted to this Court copies of any document so incorporated.

However, Bonner, T.C.C.J., in the case of McCullough v. M.N.R., [1989] 2 C.T.C. 2236, 89 D.T.C. 446, rejected the taxpayer's submission alleging that the respondent must furnish him with copies of the notices of assessment issued to the company. At page 2238 (D.T.C. 448), Judge Bonner concluded:

I categorically reject any suggestion that production of copies of the notices of the assessments against the principal debtor is a condition precedent to the imposition of liability on a director under section 227.1. Nothing in the legislation suggests the existence of such a condition precedent. No doubt full details of the circumstances giving rise to the liability of the company, which liability the Minister seeks to enforce against the director, must be provided to the director. However, the director's liability does not depend on the ability of the Minister to produce either the piece of paper that was the notice of the assessment or a photostatic or other copy of it. The original notice of assessment must, after all, have been sent by the Minister to the company.

In the Leung case as decided by the Tax Court, Rip, T.C.C.J. said as follows at pages 2277-78 (D.T.C. 1027-28):

The notice of assessment sent to Leung also refers to notices of assessment previously sent to Eastern. Once a person ceases to be a director of a corporation it may be very difficult, if not impossible, for the person to obtain from the corporation any particulars relating to assessments issued against the corporation which have led to him or her being assessed. Thus the respondent on his own initiative must provide the taxpayer with the documentation referred to in the notice of assessment even if the documentation relates to assessments of other taxpayers. (See M.N.R. v. Huron Steel Fabricators (London) Ltd, [1973] C.T.C. 422, 73 D.T.C. 5347 (F.C.A.).)

An assessment must state clearly the amount assessed so as to make the taxpayer aware of it. If supplementary information is required to clarify an assessment, the assessment is not complete. This is the situation in the appeal at bar.

That decision was followed in Premachuk v. M.N.R., [1991] 2 C.T.C. 2630, 91 D.T.C. 1436 (T.C.C.), where the notice of assessment failed to delineate separately the tax liability under different taxing statutes. Kempo, T.C.C.J. adopted the views of Rip, T.C.C.J. and ruled accordingly. At page 2639 (D.T.C. 1443), he said:

As the facts in Leung and the analysis, reasoning and conclusion therein of Judge Rip are essentially non-distinguishable from the situation at bar, there is no reason why the outcome for this taxpayer should be any different.

A similar issue came up again before Rip, T.C.C.J. in Wa/lace, supra. At page 2344 (D.T.C. 1136-37), he referred to his previous decision in Leung, supra, and added the following comments:

I do not think I should leave this motion without referring the parties, in particular Mr. Wallace, to the recent decision of Leung v. M.N.R. [since reported, [1991] 2 C.T.C. 2268, 91 D.T.C. 1020 (T.C.C.)], to date unreported, in which I held that an assessment, the form of notice of which was substantially identical to the notice of assessment sent to Mr. Wallace, is not a proper assessment and should be vacated. The respondent's motion has served to illustrate the difficulty and confusion a taxpayer may experience on receipt of a notice of assessment for a single sum of money which, the respondent informs the taxpayer, is a liability under several statutes. When Mr. Wallace filed his appeals, it was through no fault of his that he did not know what he was being assessed. As I indicated in Leung, in communicating with taxpayers, the respondent has an obligation to ensure that such communication is unambiguous and capable of being understood by the average taxpayer.

In Kirby, supra, Teskey, T.C.C.J. was faced with a similar worded notice of assessment as in Leung, supra. Teskey, T.C.C.J. followed the decision of Rip, T.C.C.J. in Leung and held the assessment to be invalid as it failed to provide sufficient information to the taxpayer. At pages 2643-45 (D.T.C. 1455-56), Teskey, T.C.C.J. made the following comments:

I accept and adopt the decision of Rip, T.C.C.J. in Leung and find that herein there was supplementary information required to clarify the assessment. The information being not only the breakdown of the liability being assessed but included the periods over which the liability applies and the amounts. Thus, the assessment at the time the notice of confirmation was sent to the appellant as a result of his objection was not complete.

This leaves the Court to determine the third and final issue; namely, can the required supplementary information be supplied in the reply to the notice of appeal and if the information in the reply is in error, can it be rectified by evidence at the trial in these circumstances to complete the assessment? I think not. I am satisfied that once a notice of confirmation is delivered to a taxpayer in response to a 227(10) assessment, it is too late to complete the assessment. The remedy available to the Minister after confirmation if the 227(10) assessment is incomplete, is to reassess provided the applicable limitation periods have not expired.

It is believed that the missing required information was prejudicial to the appellant and would lead to confusion. These deficiencies are so substantial that the assessment could not be cured in this manner. Without knowing what months the defaults occurred, it is impossible for a solicitor to properly advise an assessed director client. This also applies to the amounts involved pursuant to the various statutes. What the Minister did in his reply and produced by sworn testimony, is give evidence of what he did, but it does not complete the assessment. It must be remembered that this is not the usual type of tax case where the facts are usually within the full knowledge of the taxpayer. Herein the Minister when making his assessment against Reliance did so after a full audit of reliance was completed. Thus, he had full knowledge of all the relevant facts, whereas the directors may or may not have full knowledge of the necessary facts to allow a solicitor to properly advise.

In the case of Corazza, supra, Bowman, T.C.C.J. adopted the same principle. He found the assessment issued to the taxpayer to be confusing as it mentioned a single amount of tax assessed while referring to the taxpayer's liability under four statutes. The learned judge made the following comments at page 2033 (D.T.C. 1562):

In Leung v. M.N.R., [1991] 2 C.T.C. 2268, 91 D.T.C. 1020 (T.C.C.), which was decided after Deerhurst Resorts Ltd. v. M.N.R., [1989] 2 C.T.C. 2082, 89 D.T.C. 352 (T.C.C.), Judge Rip of this Court held that an omnibus notice of assessment which was virtually identical to the document issued in this case was invalid on the basis that it was so inadequate that it did not fulfil the statutory requirements that notice be sent. I am, respectfully, in complete agreement with his conclusion. A piece of paper emanating from the Department of National Revenue listing sections from four different statutes, two sections of which are misdescribed, and setting out one global amount is not a notice of assessment under any one of those statutes. A document is not a notice of assessment under a particular statute unless, at a bare minimum, it informs the taxpayer of the quantum of his liability under that statute.

This is a matter of substance, not of form. The Minister must inform the taxpayer that the operation of assessment has taken place. He has not done so here.

In Wallace v. M.N.R., [1991] 2 C.T.C. 2341, 91 D.T.C. 1134 (T.C.C.), Judge Rip was faced with the same type of cryptic purported notice of assessment as I am in this case. It listed four statutes under which the Minister of National Revenue alleged that he had been assessed. The taxpayer appealed to this Court. The Minister brought a motion to quash the appeal on the basis that, notwithstanding the statement in the purported notice of assessment that tax had been assessed under section 227.1 of the federal Income Tax Act, in fact nothing had been assessed under the federal Income Tax Act. There is nothing in the material before me to indicate that the Minister has not done the same thing here as he appears to have done in a number of other directors' liability cases; he has, evidently without making any independent separate ascertainment of liability under the statutes which he purports to apply, automatically and mechanically issued a document bearing a fixed wording identical to that which we have here.

To refer to section numbers that have, on consolidation, been renumbered, to give no breakdown of the amounts, if any, purportedly assessed under four statutes, and then to argue that the taxpayer should be denied a right to contest his liability under three of the four statutes, exemplifies bureaucratic arrogance and indifference to the rights of taxpayers. The applicant was not even given copies of the underlying corporate assessments upon which the purported assessments were based.

In ISC International Systems Consultants Ltd. v. M.N.R. (1993), T.C.C.J. No. 40, 92-5(CPP) and 92-19(UI), (unreported), Teskey, T.C.C.J. again followed Rip, T.C.C.J.'s decision in Leung, supra, and found the assessments sent to the appellant to be null and void.

In Vogt v. M.N.R., [1991] 2 C.T.C. 2760, 91 D.T.C. 1326 (T.C.C.), Mogan, T.C.C.J. found that the taxpayer had exercised due diligence as required under subsection 227.1(13). Therefore, Mogan, T.C.C.J. did not consider whether the decision in Leung, supra, applied to the issue before him. At page 2761 (D.T.C. 1327), he stated:

The appellant attacks the assessment in two different ways. He relies on the recent decision of this Court in Leung v. M.N.R., [1991] 2 C.T.C. 2268, 91 D.T.C. 1020 (T.C.C.), to argue that the assessment is incomplete because it fails to specify the amounts assessed under the four different statutes: the Federal Income Tax Act, the Unemployment Insurance Act, the Canada Pension Plan and the Income Tax Act (Nova Scotia), R.S.N.S. 1989, c. 217. He also argues that he exercised the required degree of care, diligence and skill under subsection 227.1(3). Counsel for the appellant stated that he relied on both arguments but the decision in Leung as a question of law could possibly be reversed in a higher court. I will therefore consider first the due diligence argument under subsection 227.1(3).

And at page 2764 (D.T.C. 1329), Mogan, T.C.C.J. concluded in the following way:

Having decided that the appellant exercised the required degree of care and diligence under subsection 227.1(3) of the Income Tax Act, it is not necessary for me to determine whether the recent decision of the Court in Leung v. M.N.R., [1992] 2 C.T.C. 2268, 91 D.T.C. 1020 (T.C.C.), applies to the notice of assessment dated March 21, 1989 which is under appeal herein. I would simply observe, however, from the details in paragraph 4(i) of the respondent's reply to the notice of appeal and from the words appearing in the notice of assessment that the decision in Leung appears to apply.

Mogan, J. later applied Rip, T.C.C.J.'s judgment in Fitzgerald, supra, where he held that the assessments in issue were deficient in as much as they contained no information as to the particular payroll periods to which the unremitted source deductions in issue related, and as they did not isolate the particular amount owing by the taxpayer under the Income Tax Act.

In Curylo, supra, however, Beaubier, T.C.C.J. held that the notice of assessment issued to the appellant had sufficient information to enable him to dispute the assessment, even though the said assessment bore the amended corporation's name while the certificate filed by the Minister bore the corporation's previous name. Beaubier, T.C.C.J. found the assessment to be adequate as it referred the taxpayer to the pertinent sections of the Act and further held that the decision in Leung, supra, did not apply to the facts of the case at bar. At pages 2392-93 (D.T.C. 1255), Beaubier, T.C.C.J. stated:

The appellants' third issue argued is that the notice of assessment to each appellant fails to provide sufficient information as required by the principles set out in Leung v. M.N.R., [1992] 2 C.T.C. 2268, 91 D.T.C. 1020 (T.C.C.).

In respect to this issue, it should be noted that the assessment in Leung, supra, involved federal income tax, unemployment insurance, Canada pension and the Income Tax Act of Ontario moneys.

Here the notice of assessment of the appellants only related to subsection 227.1(1) of the Income Tax Act.

Thus the appellants are each assessed for tax under the Income Tax Act of $2,701,921.88. They can dispute that amount. They were directors at the time that amount came into question and they may have had full knowledge respecting that amount. They may have had a duty as directors to have full knowledge respecting that amount. In any event, they can subpoena witnesses and documents in this Court for the purposes of any dispute they may have respecting that amount of tax and the Court has jurisdiction to issue those subpoenas and hear that dispute.

In Leung, supra, Judge Rip stated at page 2277 (D.T.C. 1027):

The Act provides for the Minister to assess a person an amount payable under a provision of the Act. I ask myself if the appellant, reading the notice with respect to the assessment in issue, can reasonably determine the amount he was assessed under the Act and the reason for the assessment.

In the case of the appellants, the Court finds that they can. Nothing more is necessary to be contained in the notice of assessment.

The Leung decision was also distinguished by Rip, T.C.C.J. in the case of Roll, supra. The learned judge held in that case that the assessment issued to the taxpayer was not confusing in the circumstances, and therefore, the principles he established in Leung did not apply to the case at bar. At pages 2064-65 (D.T.C. 1449-50), Judge Rip stated:

I wish to discuss the appellant's first submission that since the amount of income tax assessed also includes unemployment insurance premiums not remitted, he was confused as to his liability under the Income Tax Act. This is not the fact situation which would find support in Leung. The notice of assessment states the appellant has been assessed under the Income Tax Act. The appellant knew, from reading the notice, the statute under which he has been assessed. If the amount assessed included a liability under another statute, the amount assessed is in error and the Court would allow the appeal and vary the assessment, reducing the quantum to the extent of the amount included under the other statute. It is under the provisions of the Income Tax Act only that the appellant is to challenge the assessment; he is not prejudiced in preparing his case that a quantum of the assessment is wrong, Just about all objections and appeals are from assessments for tax the taxpayer views as excessive. The assessment against Roll is not incomplete; the appellant knew he was assessed under one statute only, the Income Tax Act. I do not accept his claim he, a chartered accountant, was confused by the notice.

The appellant's counsel also submitted that the assessment is not a good assessment because it is not complete; the dates of failure of Perspectra to remit are not specified and the period Roll was a director is not specified.

The question then is what particulars of the assessment must the respondent inform the individual ("taxpayer") assessed under subsection 227.1(1) of the Act when he assesses at a time the taxpayer is no longer a director of the particular corporation? The taxpayer, of course, must be in a position when he reads the notice of assessment to know — or to be capable of knowing — the date or dates the corporation failed to remit so that he may consider whether he was a director at the time of the failure by the corporation. He may then determine whether he exercised the degree of care, diligence and skill at the time of the failure so as not to be jointly and severally liable with the corporation: subsection 227.1(3). The appellant is in fact arguing that the information in the notice of assessment sent to him referring to the dates of the notices of assessment against Perspectra "for period while you were a director of the company" is not sufficient. The notice of assessment must inform the taxpayer of the precise dates of the failures of the corporation to remit, it was argued.

Whether or not a taxpayer is prejudiced by lack of information contained in a notice of assessment will depend on the facts surrounding the issuance of the assessment. In the appeal at bar, the appellant was not only a director of Perspectra until May 1, 1985, but was the person at Perspectra who was responsible for remitting source deductions to the Receiver General. He knew of the failures to remit prior to that date. He also knew, when he received the notice of assessment in appeal, the date he resigned as director. If the respondent disagreed with him as to the effective date of his resignation as director, such dispute would have been raised in the pleadings of the parties and there would have been no prejudice to the appellant in prosecuting his appeal. This is not the situation contemplated by Bonner, T.C.C.J. in Crossley, supra and with which II agreed in Leung, supra.

In short, Roll has been assessed for a specific amount under the provisions of the Act. Upon receipt of the notice of assessment, he knew that if ne did not agree with the assessment, he must object and appeal under the provisions of the Act — and he did so.

In her article, "Director's Liability: An Update, 1991 Conference Report" (Report of Proceedings of the 43rd Tax Conference), Evelyn P. Moskowitz notes that in a number of recent cases, assessments issued against directors under section 227.1 have been set aside on the basis that the notices of assessment did not clearly inform the directors of their liability under the Act. At pages 47:5 and 47:6, she summarizes the reasons set out by the Tax Court of Canada for holding an assessment invalid in such cases:

To summarize, a section 227.1 assessment is invalid if it does not contain all of the following information:

1. the specific amount owing under section 227.1, as distinct from other amounts for which the director may be liable under other statutes;

2. the interest and penalty, if any, applicable to the specific amount referred to in point (1) above, as distinct from any interest or penalty for which the director may be liable under other statutes;

3. the reason for the assessment—that is, a failure to remit, a failure to withhold, or a failure to pay (this latter failure applies where the corporation has failed to pay Part VII or Part VIII tax owing by it); and

4. the date(s) on which the failure(s) in question occurred—that is, the relevant date(s). This information is crucial to the taxpayer because, as stated above, he will be liable only if he was a director on such date(s).

Arguably, the notice of assessment should also containa reference to those provisions of subsection 227.1(2) on which Revenue Canada is relying in pursuing its claim against the director. Such information will enable the director to determine whether Revenue Canada has complied with the requirements of that subsection regarding any assessment against the director.

It should be noted that it is not a defence to an otherwise invalid assessment that the taxpayer could have obtained the necessary information from Revenue Canada had he made the effort to do so or that the information was already contained in the notice of assessment to the corporation.

Findings on validity of the assessment

I should first observe that in dealing with a section 227 process, the amounts claimed in an assessment are not the usual kind of debt owed by one taxpayer for which another taxpayer might be held vicariously liable. The amounts in the assessment before me are trust funds which the corporation withheld and which were not remitted to the Crown. Such conduct might be regarded at best as a serious breach of trust and at worse misappropriation of funds belonging to someone else. There is no evidence before me as to what is the mental state of corporation directors or managers when these things happen, but if one considers the frequency of cases where section 227 is used, one might conclude that such trust funds are often treated with reprehensible banality. Deductions at the source can never be used to ease cash flow problems.

The second observation is that recourse to a section 227 assessment is only available when the Crown has absolutely no hope of recovery. This is made clear by the provisions of subsection 227.1(2) where directors' liability only applies when the conditions set out therein are met.

The third observation is that liability under subsection 227.1(3) and subsection 227.1(4) does not attach to a director juris et de jure, A director may establish that he was not a director, or that he exercised due diligence, or that the two-year limitation applies.

The fourth observation is that the imposition of that kind of liability on a third person, keeping in mind that a corporation is a distinct entity from its directors, is not unique under the Income Tax Act, but it is nevertheless exceptional. It opens the door to some speculation as to whether in any particular case, the requirements of a notice of assessment may be more stringent or whether it might only be a matter of additional burden of proof on the Crown.

With these observations in mind, it is evident that a section 227 assessment issued to a director cannot be treated lightly. Any individual director might not have been aware of section 227 of the Act and of the liability that might attach to him by reason of the corporation's default. This is not surprising. Even sophisticated individuals who have sat for years on boards of public and private companies have often been taken by surprise. Recent developments in directors' personal liability for certain corporate debts have raised hackles among them and indeed, a new industry has been created dealing with "bullet-proof" protection for them.

As in the case before me, is it open to a taxpayer on receiving a notice of assessment to adopt a passive attitude and then argue that the Notice, wanting in particulars, should be declared null and void and of no effect? Perhaps the answer to this cannot be provided in black and white terms. As the Honourable Judge Rip of the Tax Court of Canada suggested in Roll, supra, at pages 2064-65 (D.T.C. 1450), the presence or absence of prejudice to a taxpayer will depend on the facts surrounding the issuance of the assessment.

A careful reading of the admitted facts discloses a prior notice of intention by the Crown, dated January 29, 1986, to assess the defendant under section 227.1 of the Act. The defendant did not respond to it by way of a reply or other inquiries. A notice of assessment was issued several months later, namely September 9, 1986. This was followed on November 7,1986, by a notification for payment. Again the defendant remained silent for a long period of time. It was on June 5, 1987, that he attended upon Revenue Canada and undertook to provide a statement of his due diligence by July 15, 1987. On August 10, 1987, counsel for the defendant also met with Revenue Canada. He was given all of the information he requested, except information relating to Mr. Sloss, the President of the defunct corporation, which the Crown quite properly refused to divulge.

On September 9, 1987, one year after the assessment date, counsel for the defendant applied to the Tax Court of Canada for an extension of time to file a notice of objection, which should otherwise have been filed by December 6, 1986. The application came before Rip, T.C.C.J. who, on May 30, 1988, granted leave for late filing.

The notice of objection was subsequently filed, the defendant later confirmed the assessment and on May 8, 1989, the plaintiff filed his notice of appeal with the Tax Court of Canada. This notice or appeal was later amended, the plaintiff's reply was likewise amended and the issue finally came for trial before the Tax Court on March 21, 1991.

On the foregoing facts, I cannot conclude, whatever shortcomings might be alleged with respect to the notice of assessment, that they caused any prejudice to the defendant.

Generally speaking, one should eschew an overly formalistic approach to a notice of assessment. The Income Tax Act is not a penal statute (although it was so characterized many years ago) and a notice of assessment is neither similar or analogous to a charge or count on a criminal indictment. The hardened and extremely inflexible rules which apply to criminal proceedings do not and should not apply to a notice of assessment or to the proceedings which flow from it.

It may be assumed that Parliament had a purpose in enacting subsection 152(3) and subsection 152(8). That purpose, in my view, was to ensure that in the process of issuing millions of assessments yearly, many of these involving complex statutory provisions and equally complex calculations, technical accuracy or a peremptory level of disclosure, reference and source would not be imposed on the assessor. The notice of assessment is an administrative procedure and reliance on technical rules applicable to other processes to defeat it ab initio is not necessarily warranted.

In my opinion, the whole scheme of taxation presumes that a taxpayer will react to an assessment as would any reasonable person. He is not expected to sit back grinning like a Cheshire cat and, three years later, pounce on the seeming illegality or invalidity of the assessment because he has not been sufficiently informed and he has thereby suffered prejudice.

Furthermore, the taxpayer has administrative and more formal processes open to him. In the case before me, the defendant was given notice of an intention to assess, was later assessed and was given every opportunity to have the assessment particularized to his liking. It is noted in that connection that the defendant conceded in the agreed statement of facts that any information he requested of the plaintiff was provided, that he never asked for a determination of the amounts under each of the several statutes mentioned in the assessment and he did not ask for nor was he provided with copies of the corporate assessments or of the certificates filed in court. Perhaps his situation was not so much that he wanted to know all about the assessment and was afraid to ask, but that he wanted to ask about the assessment and was afraid to know.

Subsection 152(3) of the Act specifically states that a tax liability is not affected by an incorrect or incomplete assessment. Subsection 152(8) further declares that an assessment is deemed to be valid notwithstanding any error, defect or omission therein. It seems to be that such clear provisions in a statute must be given some weight and they cannot be disregarded many months or years following an assessment, simply on a bare allegation by the taxpayer that he was misled, or surprised, or unable to instruct counsel.

In my view, the notice of assessment has the essential ingredients which the statute obviously contemplates. It claims the total amount due in unremitted funds, including interest and taxes, it cites the statutory provision under which the vicarious responsibility of a director is attached, the various statutory sources under which the sums were deducted and not paid out, and the particular notices of assessment sent to the corporation as well as the dates thereof. This is sufficient to put a taxpayer on notice that a particular amount is claimed. The piece of paper is not called a notice of assessment for nothing.

To those, however, who might harbour a more confrontational attitude and allege that the Crown's clout in issuing an assessment has been exercised irresponsibly and gratuitously, thereby causing prejudice to a taxpayer, it could be suggested that the normal rules of the game in contesting such an assessment do not necessarily apply. A taxpayer, on receiving an incomplete assessment or one where the grounds are not sufficiently particularized, does not face heavy artillery leaving him with only small arms fire with which to re- spond. The relief, in my respectful view, is not so much by way of inflicting a mortal wound on an impoverished notice of assessment, but rather of imposing on the assessor a burden of proof which he would not otherwise have to bear.

Comments on the burden of proof

The scheme of the Income Tax Act is consonant with the taxpayer taking the initiative whenever, in accordance with the taxes imposed under the statute, an amount is claimed from a taxpayer. Admittedly, this initiative is mostly in response to a taxpayer's return of income for the year when, after examining it, the Crown will issue a notice of assessment. If there are errors, omissions, or if the assessment is incorrect or incomplete, the taxpayer may respond at the administrative level or he may file a notice of objection or he may appeal to the Tax Court of Canada. It is a given that at any of these levels, the assessment may be confirmed, vacated or varied.

As the assessment is based pretty exclusively on a voluntary and not an inquisitorial or audited system of disclosure, with the facts being the knowledge of the taxpayer, it is well settled that the burden of proof in challenging an assessment rests upon the taxpayer. The Crown must perforce base its assessment on some assumptions and it is up to the taxpayer, who has knowledge of the underlying facts, to rebut these assumptions.

That procedure, however, does not always apply. It was stated in M.N.R. v. Pillsbury Holdings Ltd., [1964] C.T.C. 294, 64 D.T.C. 5784, and Kit-Win Holdings, supra, that where the Crown's pleadings do not contain specific allegations setting forth the essential assumptions that the Minister has relied upon in his reassessments, the onus of proof in a tax case shifts to the Crown.

In Interprovincial Co-operative Ltd. v. M.N.R., [1987] 1 C.T.C. 222, 87 D.T.C. 5115 (F.C.T.D.), Martin, J. or this Court, in dealing with the burden of proof, said at page 229 (D.T.C. 5120):

Counsel's argument is applicable where there exists some doubt or uncertainty of the basis upon which the taxpayer is sought to be taxed, in this case, upon which a claimed deduction is disallowed by way of reassessment.

In Baggs v. M.N.R., [1990] 1 C.T.C. 2391, 90 D.T.C. 1296 (T.C.C.), Christie, A.C.J.T.C. at page 2393 (D.T.C. 1297) stated:

It is settled that if on an appeal to this Court by a taxpayer, the Minister of National Revenue seeks to establish the correctness of his assessment or reassessment on a ground or grounds different from that on which it was based, the burden of proof shifts from the appellant to him.

The same point was repeated by Garon, T.C.C.J. in Maroist v. M.N.R., [1990] 1 C.T.C. 2521, 90 D.T.C. 1524 (T.C.C.). And again in Brewster v. The Queen, [1976] C.T.C. 107, 76 D.T.C. 6046 (F.C.T.D.) at page 111 (D.T.C. 6049), Gibson, J. of this Court expressed the doctrine as follows:

Pleading assumptions in the alternative is novel in view of the state of the law. In law, the onus is on the taxpayer to destroy some or all of the assumptions. But it is open to the defendant to plead other facts not relied upon in reaching the assessments or reassessments, but in that event, the onus is on the Minister of National Revenue to prove such other facts.

Again, in Hillsdale Shopping Centre v. M.N.R., [1981] C.T.C. 322, 81 D.T.C. 5261 (F.C.A.) at page 328 (D.T.C. 5266), the Federal Court of Appeal stated:

If a taxpayer, after considering a reassessment made by the Minister, the Minister's reply to the taxpayer's objections and the Minister's pleadings in the appeal, has not been made aware of the basis upon which he is sought to be taxed, the onus of proving the taxpayer's liability in a proceeding similar to this one would lie upon the Minister.

In my view, the foregoing are instances where no matter the peremptory character of a notice of assessment, no matter what difficult issues it might raise in the eyes of the taxpayer, no matter the onus which as a general rule is imposed on him, courts have nonetheless recognized the need to maintain an even playing field. Courts have done so in recognition of the adversarial mode within which assessor and taxpayer must resolve an issue, on the basis of the normal rules of evidence respecting facts to the knowledge of one party or to the knowledge of the other, and generally on the basis of respect for equity and common sense.

This leads me to observe that while an assessment is deemed to be valid or declared to be so, this does not mean that it cannot be successfully challenged. As I noted when dealing with the shifting burden of proof, circumstances surrounding the making of an assessment may well impose on the Crown the burden of proving that its assessment is correct. This is especially so when an assessment is pursuant to section 227 of the statute.

Depending on the surrounding circumstances, certain facts might evidently be within the knowledge of the Crown. A director might not be aware of his corporation's default or any or all of the facts under which vicarious liability might be imposed upon him. Furthermore, subsection 227.1(2) imposes certain conditions under which vicarious liability may attach. The Crown must comply with these conditions and in my view, it is incumbent on the Crown to prove compliance. These are all matters within the Crown's knowledge and the accepted doctrine is that it should bear the burden of proving them.

Firstly, it is obviously open to the Crown to assume that the targeted taxpayer was the corporation's director at all material times and is otherwise liable under the statute. This leaves it open to the taxpayer to rebut that assumption by establishing that he was not a director, or that he exercised due diligence, or that in any event the right to assess is prescribed.

Secondly, I suggest that the Crown would have the burden of proving that the conditions imposed under subsection 227.1(2) of the Act have been met. In actual terms, the burden on the Crown would necessarily depend on the nature of the case before the Court. I would therefore hesitate to provide more obiter on that subject, except to mention that it might be open to a Court to allow a section 227.1 assessment appeal on the grounds that on one or more of these statutory conditions, the Crown has not discharged its burden of proof. As an example, I note in the considered reasons for judgment in the Tax Court when the issue first came up for determination, Rip, T.C.C.J. agreed with an obiter by Bonner, T.C.C.J. in the Crossley case, supra, that when a notice of assessment refers to another document, that other document should be attached to the notice and that it is the Crown's duty to transmit this material to the Court. Rip, T.C.C.J. noted, however, at page 2278 (D.T.C. 1028), that:

In the appeal at bar. . . no notice of assessment against Eastern (the corporation) was adduced in evidence or transmitted to this Court.

[Emphasis added.]

Such a failure might well be considered as fatal to the Crown's case and the taxpayer's appeal allowed. Such would be a matter of evidence which a trier of facts would be called upon to determine, depending on the circumstances in any particular case.

I should simply conclude that in the presence of an incomplete or erroneous or defective notice of assessment, a taxpayer in the case before me is neither prejudiced nor estopped from challenging it.

Conclusion

I have gone to some length in referring to any number of judgments in which the validity of an assessment has been challenged. Many of them deal specifically with a section 227.1 assessment, witness the number of cases in the Tax Court of Canada which have substantially followed the reasoning of Rip, T.C.C.J. in the Leung case, supra. It is with great respect, therefore, that I find myself in disagreement with that line of cases.

First of all, I find more persuasive, and more in keeping with the nature of a notice of assessment, the reasoning of the Federal Court of Appeal in the Optical Recording, Riendeau, Stephens and Hillsdale Shopping Centre cases to which I have already referred. This leads me to conclude that in the absence of any statutory condition as to the form or content of a notice of assessment, and in the light of subsection 152(3) and subsection 152(8) of the statute, the notice of assessment issued to the defendant is valid.

Secondly, I find the clear and succinct comments of Rip, T.C.C.J. in the Rolls case, supra, at page 2064 (D.T.C. 1449) particularly appropriate to a more realistic view of a notice of assessment. They bear repeating here:

The notice of assessment states the appellant has been assessed under the Income Tax Act. The appellant knew, from reading the notice, the statute under which he is being assessed. If the amount assessed included a liability under another statute, the amount assessed is in error and the Court would allow the appeal and vary the assessment, reducing the quantum to the extent of the amount included under the other statute. It is under the provisions of the Income Tax Act that the appellant is to challenge the assessment; he is not prejudiced in preparing his case that a quantum of the assessment is wrong.

Such is the case before me. If it should be found that the amounts claimed under other statutes than the Income Tax Act cannot properly be the subject of a section 227 assessment, an opinion which Rip, T.C.C.J. seems to have adopted in the above comments and with which I do not necessarily agree, it is open to a Court to reduce them and vary the assessment accordingly.

In this respect, some argument was advanced by the parties before me as to whether or not there was clear enabling legislation to delegate the collection and assessment of such amounts to the plaintiff Crown. This is an issue which goes beyond my terms of reference under a Rule 474 procedure, and I should hesitate to express a definitive opinion on it. It could be said that a delegated authority to oblige a taxpayer to deduct and remit provides a concomitant authority to assess and collect, but I will say no more on that point.

Thirdly, I am of the opinion that in certain circumstances, as in a section 227.1 assessment, the issue is not so much one of the validity of the assessment, but one of evidence before a Court where, as I have already indicated, the burden would rest upon the Crown to prove its case. The extent of that burden would of course depend on the facts and on the pleadings before the Court, and one would be loath to define it in scenario form.

This disposes of Question No. 1.

With respect to Question No. 2, which is an adjunct to the issue raised in Question No. 1, I would respectfully disagree with the obiter expressed in the Crossley case and which Rip, T.C.C.J. seemingly endorsed in Leung. In my opinion, the absence of copies of the corporate assessments in the notice issued to the defendant is not a condition to its validity. It is, as I have mentioned earlier, a matter of evidence. I should therefore give a negative answer to Question No. 2.

Finally, with respect to Question No. 3, I should conclude that the cases of B.M. Enterprises Ltd. and Doyle, supra, are pretty determinative. Furthermore, I see no reason to distinguish the authority under a section 227 assessment from any other kind of assessment under the Act. Question No. 3 should therefore be answered in the affirmative.

As will be evident on reading these reasons, the case before me raises issues which cannot easily be determined under the terms of reference sub- mitted to me and does not dispose of the entire action. The ultimate liability of the defendant remains at issue. Subject to an appeal and subject to any other disposition by the parties themselves, the action should proceed to trial.

As agreed by the parties, costs are awarded to the defendant.

Appeal allowed.