Citation: 2012 TCC 255
Date: 20120716
Docket: 2011-67(IT)G
BETWEEN:
BLACKBURN RADIO INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
The question to be determined is whether
reassessments issued to Blackburn Radio Inc. for the 2000 and 2005 taxation
years were properly issued as consequential reassessments pursuant to
subsection 152(4.3) of the Income Tax Act.
[2]
Subsection 152(4.3) of the Act
permits the Minister to make a consequential reassessment after the normal
reassessment period has expired. It applies generally in circumstances where
the tax payable for a taxation year would be affected by a change that has been
made for an earlier taxation year. The Minister is effectively given one year
to make a conforming reassessment for a subsequent taxation year.
[3]
The provision is reproduced below.
152 (4.3)
Consequential assessment
- Notwithstanding subsections (4), (4.1) and (5), where the result of an
assessment or a decision on an appeal is to change a particular balance of a
taxpayer for a particular taxation year, the Minister may, or where the
taxpayer so requests in writing, shall, before the later of the expiration of
the normal reassessment period in respect of a subsequent taxation year and the
end of the day that is one year after the day on which all rights of objection
and appeal expire or are determined in respect of the particular year, reassess
the tax, interest or penalties payable, or redetermine an amount deemed to have
been paid or to have been an overpayment, under this Part by the taxpayer in
respect of the subsequent taxation year, but only to the extent that the
reassessment or redetermination can reasonably be considered to relate to the
change in the particular balance of the taxpayer for the particular year.
[4]
The respondent submits that Blackburn’s 2000 and 2005 taxation years may be reassessed pursuant to s. 152(4.3) as a
result of a change arising in a reassessment for the 1999 taxation year. The
consequential reassessments for the 2000 and 2005 taxation years were issued
within one year after the reassessment for the 1999 taxation year.
[5]
According to the
submissions of Blackburn, the relevant reassessment for the 1999 taxation year
cannot be used to start the one year clock running because that reassessment is
statute barred and void. In the alternative, Blackburn submits that the 1999
reassessment did not result in a change in a balance as required by s. 152(4.3).
I. Background facts
[6]
The facts below are based mainly
on an agreed statement of facts.
A. 1999 assessment
history
[7]
The Minister issued an initial
assessment to Blackburn for the 1999 taxation year by notice dated March 24,
2000. Tax under Part I of the Act was fixed at nil.
[8]
Four subsequent reassessments for
the 1999 taxation year were made. The first two were issued by notices dated
March 16, 2001 and April 8, 2002 (“First 1999 Reassessment” and “Second 1999
Reassessment”, respectively). Each of these reassessments also fixed tax under
Part I of the Act at nil.
[9]
The third reassessment for the 1999 taxation year was issued by
notice dated April 13, 2004 (“Third 1999 Reassessment”). It denied a deduction
claimed by Blackburn for a long-term incentive bonus in the amount of
$7,681,517, and fixed Part I tax under the Act at $2,125,564.
[10]
Blackburn filed an objection to the Third 1999 Reassessment and
subsequently appealed to the Tax Court of Canada.
[11]
By way of an amended judgment
dated March 17, 2009, the Tax Court of Canada allowed the appeal and vacated
the Third 1999 Reassessment (2009 TCC 155, 2009 DTC 1099). The basis for the
decision of V. Miller J. was that the reassessment was statute barred; she rejected
the Minister’s argument that the limitation period was extended by virtue of a non-arm’s
length provision in s. 152(4)(b)(iii). The Minister did not appeal
the decision, and the limitation period for doing so expired on April 16, 2009.
[12]
The Minister further reassessed the 1999 taxation year
to take the Court’s decision into account by way of notice dated August 7, 2009
(“Fourth 1999 Reassessment”). This reassessment mirrored the Second 1999
Reassessment and allowed the deduction of the long-term incentive bonus. No
notice of objection was filed in respect of the Fourth 1999 Reassessment.
[13]
During argument, counsel for the
respondent informed the Court that the Fourth 1999 Reassessment was a nil
reassessment in the sense of not imposing any tax, interest or penalty.
[14]
A refund of the tax that Blackburn paid after the bonus was disallowed was issued by the Minister shortly after the
Fourth 1999 Reassessment was issued.
B. 2000 assessment
history
[15]
The 2000 taxation year was
initially assessed by notice dated April 17, 2001.
[16]
The Minister issued three
reassessments for this year. The first was issued by notice dated April 8, 2002
(“First 2000 Reassessment”).
[17]
The second reassessment was issued
by notice dated April 13, 2004 as a consequential reassessment after the bonus
was disallowed for the 1999 taxation year (“Second 2000 Reassessment”). The nature
of the reassessment was to reduce a capital gain arising from the disposition
of shares of Blackburn Marketing Services (US) Inc. This was considered to be necessary
to conform with the disallowance of the bonus for the 1999 taxation year. The
reassessment fixed the amount of tax payable for the 2000 taxation year at nil.
[18]
The third reassessment was issued
by notice dated July 19, 2010 as a consequential reassessment following
the allowance of the deduction of the bonus for the 1999 taxation year (“Third 2000
Reassessment”). The reassessment added back the capital gain that was deleted
in the previous reassessment. The tax was fixed at $710,373.
C. 2005 assessment
history
[19]
The Minister initially assessed
the 2005 taxation year by notice dated April 5, 2006. The assessment
allowed surtax credits under s. 181.1(4) of the Act.
[20]
There has been one reassessment
for 2005, which was made by notice dated July 21, 2010 (“First 2005
Reassessment”). This reassessment was made to conform with the deduction of the
bonus for the 1999 taxation year and the increase in the capital gain for the
2000 taxation year. The reassessment deleted surtax credits in the amount of
$73,976.
II. Analysis
A. Introduction
[21]
The issue to be determined is whether
the Third 2000 Reassessment and the First 2005 Reassessment (together, the
“Consequential Reassessments”) comply with the requirements in s. 152(4.3) of
the Act. If they do not, they are statute barred pursuant to s. 152(4).
[22]
As a preliminary
comment, there is no dispute between the parties as to whether the
Consequential Reassessments are consequential in the sense of conforming to a
prior taxation year. It is admitted that they are.
[23]
A key issue in this appeal is
whether the time period for issuing consequential reassessments in s. 152(4.3)
starts to run from the issuance of the Fourth 1999 Reassessment. Blackburn submits that the Fourth 1999 Reassessment is invalid and therefore it cannot give
the Minister additional time to make consequential reassessments. Accordingly,
although reassessments for the 2000 and 2005 taxation years are at issue, the
analysis focuses on the validity of a reassessment for the 1999 taxation year.
[24]
Blackburn submits that the Fourth 1999 Reassessment is statute
barred and is void. The respondent submits that the Fourth 1999 Reassessment is
not statute barred, and that even if it is the reassessment is valid as no
objection was filed with respect to it.
[25]
In the alternative Blackburn
submits that, even if the Fourth 1999 Reassessment is valid, it cannot be used
as the basis for s. 152(4.3) reassessments since the Fourth 1999 Reassessment
did not change a balance as required by the provision.
[26]
The analysis below is divided into
these headings:
B. Preliminary comment re nil assessments
C. Is the Fourth 1999
Reassessment statute barred?
D. Is
the Fourth 1999 Reassessment void if it is statute barred?
E. Did
the Fourth 1999 Reassessment change a balance?
B. Preliminary comment re
nil assessments
[27]
I would mention at the outset that
the facts of this case raise an issue that was not brought up by either of the
parties. The issue is whether a so-called nil assessment is in fact an
assessment.
[28]
As noted earlier, it was
acknowledged by counsel for the respondent during argument that the Fourth 1999
Reassessment was a so-called nil reassessment in the sense that no tax,
interest or penalties were imposed. Both parties are of the view that this is
not relevant to the appeal because a so-called nil assessment is still an
assessment for purposes of the Act.
[29]
This position is contrary to a
comment in a decision of the Federal Court of Appeal. In The Queen v
Interior Savings Credit Union, 2007 FCA 151, 2007 DTC 5342, Noel J.A.
stated:
[17] Nonetheless, the term nil assessment is often used in the
case law to identify an assessment which cannot be appealed. There are two
reasons why a so‑called nil assessment cannot be appealed. First, an
appeal must be directed against an assessment and an assessment which
assesses no tax is not an assessment (see Okalta Oils Limited v. MNR,
55 DTC 1176 (SCC) at p. 1178: "Under these provisions, there is
no assessment if there was not tax claimed"). Second, there is no right of
appeal from a nil assessment since: "Any other objection but one related
to an amount claimed [as taxes] was lacking the object giving rise to the right
of appeal ..." (Okalta Oils, supra, at p.1178).
(Emphasis
added.)
[30]
Counsel for both
parties in this appeal submit that the
Fourth 1999 Reassessment is an assessment for purposes of s. 152(4.3) even
though it is a nil assessment. If it is not, as suggested in Interior
Savings, it is not clear to me how the Fourth 1999 Reassessment could be a
basis for issuing the Consequential Reassessments.
[31]
If this issue had
affected my conclusion, I would have asked the parties to provide further submissions
on the point. As it turns out, it did not affect my conclusion. For purposes of the analysis only, I have assumed that
a so-called nil assessment is an assessment.
C. Is the Fourth 1999
Reassessment statute barred?
[32]
Blackburn submits that the Fourth 1999 Reassessment is invalid
as the Minister did not have legislative authority to issue it. The
reassessment was issued following a decision of this Court that vacated the
Third 1999 Reassessment. The Court did not send the matter back for reassessment
by the Minister. Blackburn’s position is supported by The Queen v Canadian
Marconi Company, [1992] 1 FC 655, 91 DTC 5626.
[33]
The respondent’s submissions on
this point are discussed below.
(1) Does
Minister have inherent authority to issue a reassessment?
[34]
The respondent submits that the authority to issue the Fourth 1999
Reassessment is inherent in the Act as a consequence of the authority of
the Tax Court of Canada to vacate reassessments. The Court’s authority is
derived from subsection 171(1) of the Act. It provides:
171.
(1) Disposal of appeal
- The Tax Court of Canada may dispose of an appeal by
(a) dismissing it; or
(b) allowing it and
(i)
vacating the assessment,
(ii)
varying the assessment, or
(iii) referring
the assessment back to the Minister for reconsideration and reassessment.
[35]
The essence of the respondent’s
argument is that the Minister has the inherent authority to issue the Fourth
1999 Reassessment because it was necessary to do so following the judgment of
V. Miller J. which vacated the prior reassessment.
[36]
The foundation for the
respondent’s position is the decision of Thorson J. in Pure Spring Company
Limited v MNR, [1946] Ex. C.R. 471, 2 DTC 844.
[37]
Pure Spring is a seminal decision dealing with the nature of
assessments. A different aspect of the case is relevant here. The respondent
submits that Pure Spring stands for the proposition that a judgment of
the Tax Court of Canada cannot fix a tax liability, and that this can only be
done by an assessing action taken by the Minister.
[38]
It is submitted, therefore, that
after the Tax Court’s judgment vacating the Third 1999 Reassessment was issued,
it was necessary for the Minister to issue a reassessment which fixed the tax
liability. In this case, the liability was fixed at nil.
[39]
The respondent relies on the
following excerpt from Pure Spring, at p. 859:
[…]
It is, therefore, not accurate to describe the Court's action in referring the
matter back to the Minister on the ground that he has not applied proper legal
principles as an interference with his discretion, for it is no such thing; the
action is consequent on the Court's finding that, in applying improper legal
principles, the Minister has not actually exercised the discretion vested in
him at all. Further than that the Court cannot go. It cannot itself exercise
the discretion only the Minister can do so. There is still a third
situation. Where it is not shown that proper legal principles were applied or
that proper legal principles have not been applied, then it seems clear, from
the authorities, that the Court has no ground for interference. As I see it,
the Court may intervene only when it has been shown that the Minister has not
applied proper legal principles and, even in such cases, its intervention is
limited to sending the matter back to him under section 65(2): the Court has no
other powers.
(Emphasis
added.)
[40]
I am unable to agree with the
respondent’s interpretation of Pure Spring. The passage above is
relevant only in circumstances where the legislation has conferred a
discretionary power on the Minister. This was the situation in Pure Spring
in which the relevant provision of the Income War Tax Act read:
6. (2) The Minister may disallow any
expense which he in his discretion may determine to be in excess of what
is reasonable or normal for the business carried on by the taxpayer, or which
was incurred in respect of any transaction or operation which in his opinion
has unduly or artificially reduced the income.
(Emphasis added.)
[41]
The excerpt from Pure Spring
above that the respondent relies on needs to be put in context. It only applies
where the relevant taxing provision provides a discretion to the Minister.
[42]
The respondent does not suggest
that a discretionary provision was relevant to the Court’s decision to vacate
the Third 1999 Reassessment. Accordingly,
I do not accept that the excerpt from Pure
Spring is applicable in this case.
[43]
I would have thought that the
authority of the Tax Court of Canada to determine tax liability is clear by the
precise wording in subsection 171(1) of the Act. Under this provision, if
an appeal is allowed, the Court can either vacate the assessment, vary it, or
refer the assessment back to the Minister for reconsideration and reassessment.
If the assessment is vacated or varied, s. 171(1) does not contemplate that a further
reassessment would be made.
(2) Is
reassessment necessary to issue refund?
[44]
The respondent further submits
that the Minister has the inherent authority to issue the Fourth 1999
Reassessment since it was necessary in order to issue a refund to Blackburn.
[45]
In my view, a further reassessment
for the 1999 taxation year was not necessary in order for a refund to be
issued. The Minister was required to issue the refund by subsection 164(4.1) of
the Act.
[46]
The judgment of the Court which
vacated the Third 1999 Reassessment had the result of validating the Second
1999 Reassessment and fixing Blackburn’s tax at nil: Lornport Investments
Ltd. v The Queen, [1992] 2 FC 293, 92 DTC 6231. A refund is required to be
paid in these circumstances. Subsection 164(4.1) of the Act provides:
(4.1)
Duty of Minister
- Where the Tax Court of Canada, the Federal Court of Appeal or the Supreme
Court of Canada has, on the disposition of an appeal in respect of taxes,
interest or a penalty payable under this Act by a taxpayer resident in Canada,
(a) referred an assessment back to the
Minister for reconsideration and reassessment, or
(b) varied or vacated an
assessment,
the Minister
shall with all due dispatch, whether or not an appeal from the decision of
the Court has been or may be instituted,
(c) where the assessment has been
referred back to the Minister, reconsider the assessment and make a
reassessment in accordance with the decision of the Court, unless otherwise
directed in writing by the taxpayer, and
(d) refund any overpayment
resulting from the variation, vacation or reassessment,
and the
Minister may repay any tax, interest or penalties or surrender any security
accepted therefor by the Minister to that taxpayer or any other taxpayer who
has filed another objection or instituted another appeal if, having regard to
the reasons given on the disposition of the appeal, the Minister is satisfied
that it would be just and equitable to do so, but for greater certainty, the
Minister may, in accordance with the provisions of this Act, the Tax
Court of Canada Act, the Federal
Courts Act or the Supreme
Court Act as they
relate to appeals from decisions of the Tax Court of Canada or the Federal
Court of Appeal, appeal from the decision of the Court notwithstanding any
variation or vacation of any assessment by the Court or any reassessment made
by the Minister under paragraph (c).
(Emphasis
added.)
[47]
I do not agree with the respondent
that a new reassessment was required to authorize the refund.
[48]
The respondent submits that other
provisions of the Act contemplate that a reassessment will be issued
after an assessment has been vacated. Reference was made to subsections
165(1.1) and 169(2) of the Act.
165
(1.1)
Limitation of right to object to assessments or determinations - Notwithstanding subsection (1),
where at any time the Minister assesses tax, interest, penalties or other
amounts payable under this Part by, or makes a determination in respect of, a
taxpayer
(a) under subsection 67.5(2) or
152(1.8), subparagraph 152(4)(b)(i) or subsection 152(4.3) or (6), 161.1(7),
164(4.1), 220(3.4) or 245(8) or in accordance with an order of a court
vacating, varying or restoring an assessment or referring the assessment back
to the Minister for reconsideration and reassessment,
(b) under subsection (3) where the
underlying objection relates to an assessment or a determination made under any
of the provisions or circumstances referred to in paragraph (a),
or
(c) under a provision of an Act of
Parliament requiring an assessment to be made that, but for that provision,
would not be made because of subsections 152(4) to 152(5),
the
taxpayer may object to the assessment or determination within 90 days after the
day of sending of the notice of assessment or determination, but only to the
extent that the reasons for the objection can reasonably be regarded
(d) where the assessment or
determination was made under subsection 152(1.8), as relating to any matter or
conclusion specified in paragraph 152(1.8)(a), 152(1.8)(b)
or 152(1.8)(c), and
(e) in any other case, as relating to
any matter that gave rise to the assessment or determination
and that
was not conclusively determined by the court, and this subsection shall not be
read or construed as limiting the right of the taxpayer to object to an
assessment or a determination issued or made before that time.
169 (2)
Limitation of right to appeal from assessments or determinations - Notwithstanding
subsection (1), where at any time the Minister assesses tax, interest,
penalties or other amounts payable under this Part by, or makes a determination
in respect of, a taxpayer
(a) under subsection 67.5(2) or
152(1.8), subparagraph 152(4)(b)(i) or subsection 152(4.3) or 152(6),
164(4.1), 220(3.4) or 245(8) or in accordance with an order of a court
vacating, varying or restoring the assessment or referring the assessment back
to the Minister for reconsideration and reassessment,
(b) under subsection 165(3) where the
underlying objection relates to an assessment or a determination made under any
of the provisions or circumstances referred to in paragraph (a),
or
(c) under a provision of an Act of
Parliament requiring an assessment to be made that, but for that provision,
would not be made because of subsections 152(4) to 152(5),
the
taxpayer may appeal to the Tax Court of Canada within the time limit specified
in subsection (1), but only to the extent that the reasons for the appeal can
reasonably be regarded
(d) where the assessment or
determination was made under subsection 152(1.8), as relating to any matter
specified in paragraph 152(1.8)(a), (b) or (c), and
(e) in any other case, as relating to
any matter that gave rise to the assessment or determination
and that
was not conclusively determined by the Court, and this subsection shall not be
read or construed as limiting the right of the taxpayer to appeal from an
assessment or a determination issued or made before that time.
[49]
I do not agree with this
submission. The aim of the provisions above is to limit a taxpayer’s right to
object or appeal. The provisions do not expressly give the Minister the
authority to reassess after a prior reassessment has been vacated.
[50]
The respondent submits that the
provisions have this effect by implication.
[51]
If the respondent’s position is
accepted, this would enable the Minister to reassess beyond the general
reassessment period set out in subsection 152(4). In my view, it would take
clear language to do this. Subsections 165(1.1) and 169(2) are not such
provisions.
[52]
Further, the language
used in s. 165(1.1) and 169(2) make sense without making the inference that the
respondent suggests. Assessments are sometimes permitted after an assessment
has been vacated by a Court. Subsection 152(4.3) is one such a provision, and
it is specifically referred to in these provisions. It is not necessary to
infer that the Minister always has the authority to issue a reassessment after an
assessment has been vacated.
[53]
Accordingly, I do not agree that the
Minister had the authority to issue the Fourth 1999 Reassessment. This
reassessment was statute barred by virtue of subsection 152(4).
D. Is Fourth 1999
Reassessment void or voidable?
[54]
The respondent submits that, even
if the Fourth 1999 Reassessment is statute barred, the reassessment is
nevertheless valid because Blackburn did not object to it. The argument is that
a statute barred reassessment is not void but only voidable. The reassessment
is valid unless it has been determined to be statute barred through the
objection and appeal process. Two arguments in support of this position were
raised by the respondent.
(1)
Is Fourth 1999 Reassessment valid by virtue of s. 152(8)?
[55]
The respondent relies on
subsection 152(8) to support the position that a statute barred assessment is
valid until it has been successfully challenged. The provision is set out
below.
152 (8) Assessment deemed valid
and binding - An
assessment shall, subject to being varied or vacated on an objection or appeal
under this Part and subject to a reassessment, be deemed to be valid and
binding notwithstanding any error, defect or omission in the assessment or in
any proceeding under this Act relating thereto.
[56]
This same argument was rejected by
the Federal Court of Appeal in Lornport.[1]
The issue in that case was whether a statute barred reassessment vitiated a
prior assessment so that the taxpayer was not liable under the earlier
assessment. The Court concluded that the earlier assessment continued to exist.
[57]
In the reasons in Lornport,
Stone J.A. considered an argument that subsection 152(8) supports the validity
of a statute barred reassessment until it is set aside by court order. In rejecting
the argument, he stated at page 6233:
[…]
It seems to me that [s. 152(8)] is not addressed to a situation where an
assessment is issued out of time but rather to a situation where an assessment
is issued in time but contains an “error, defect or omission” or that such is
contained in any proceeding under the Act relating to it.
[58]
This comment from Lornport
is dispositive of this issue. Subsection 152(8) does not save a statute barred
reassessment.
(2)
Is Fourth 1999 Reassessment valid because no objection was taken?
[59]
The respondent also submits that
the Fourth 1999 Reassessment is valid because no objection was taken from it.
[60]
This argument was rejected by the
Federal Court of Appeal in Canadian Marconi, above. The issue in Canadian
Marconi was whether the Minister had the authority to issue a reassessment
outside the limitation period with the consent of the taxpayer. The Court agreed
with the Crown that the Minister did not have this authority.
[61]
In his reasons, Mahoney J.A.
considered whether a taxpayer must object to a statute-barred assessment. He
concluded that this was not necessary unless the Minister was alleging fraud or
misrepresentation, in which case an objection was necessary. The relevant
excerpts are reproduced below.
6. The argument is that, notwithstanding the limitation
period, the Minister may at any time reassess any taxpayer in respect of any
taxation year; the taxpayer may then elect to waive the limitation period by
not raising it in defence. That is the way waiver comes into the process and,
if the Minister had the power to reassess, there could, in my view, be no
reason at all why a taxpayer ought not, by foregoing a private right to object
to a reassessment, waive the limitation period. Since the Minister may reassess
any tax return at any time, the corollary to the argument is that, at the whim
of the Minister, every taxpayer is liable to be called upon in a timely
fashion, first by notice of objection and, if the Minister does not relent, by
institution of an appeal in the Tax Court, to assert the benefit of the
limitation period and be prepared to litigate to whatever level of appeal the
Minister may, by leave or as of right, elect to pursue the reassessment.
[…]
8. The seminal decision is that of
Cameron, J., in M.N.R. v. Taylor, 61 DTC 1138 [sic, 1139] at 1139
(Ex. Ct.), where it was said:
. . .in every appeal,
whether to the Tax Appeal Board or to this Court, regarding a re‑assessment
made after the statutory period of limitation has expired and which is based on
fraud or misrepresentation, the burden of proof lies on the Minister to first
establish to the satisfaction of the Court that the taxpayer. . .has 'made any
misrepresentation or committed any fraud . . . ' unless the taxpayer in the
pleadings. . .or at the hearing of the appeal has admitted such
misrepresentation or fraud. In re‑assessing after the lapse of the
statutory period for doing so the Minister must be taken to have alleged
misrepresentation or fraud and, if so, he must prove it.
(Emphasis added.)
Absent a waiver as provided by
subparagraph 152(4)(a)(ii), an allegation of misrepresentation or fraud is
implicit in an out-of-time reassessment.
9. Where the Minister alleges,
expressly or implicitly, misrepresentation or fraud, there is nothing offensive
in putting a taxpayer on notice that he must object to an out-of-time
reassessment. It is, with respect, quite otherwise absent an allegation of
fraud or misrepresentation. An obvious policy consideration nourishes the
distinction in treatment.
(Emphasis added.)
[62]
The above passages make it clear
that it is not necessary to object to an out of time reassessment, unless the
Minister has alleged fraud or misrepresentation.[2]
In my view, Canadian Marconi is strong authority that an out-of-time
reassessment is void absent an allegation of fraud or misrepresentation. There
is no such allegation in this case.
[63]
Before leaving this
issue, I would comment that I have had difficulty reconciling Canadian
Marconi with an obiter comment in Lornport. Lornport
was heard shortly after the Canadian Marconi decision. The relevant
excerpts from Lornport are set out below.
5 […] The essential issue raised by the appeal is whether the
motions Judge erred in determining in effect that the second reassessment did
not supersede and vitiate the first reassessment with the result that the
appellant could be rendered liable to pay tax on the basis of the first
reassessment. Counsel for the appellant, in a detailed and able argument,
submitted that according to the statutory framework (as contained in section
152 which confers the power of assessment and in section 165, subsection 171(1)
and section 177 which together confer the right of a taxpayer to object to and
to appeal against an assessment and for the disposition of an objection and an
appeal), the second reassessment had legal effect from the date it was issued
and was presumed to be valid until it was finally set aside by the Court order
of April 20, 1989. The result, according to his argument, is that, not
being an additional reassessment, the second reassessment superseded the first
reassessment and rendered it null.
[…]
8 Counsel for the appellant also contends that despite the
fact that the second reassessment was issued out of time, its validity was
preserved by subsection 152(8) of the Income Tax Act, which reads:
(8) An
assessment shall, subject to being varied or vacated on an objection or appeal
under this Part and subject to a reassessment, be deemed to be valid and
binding notwithstanding any error, defect or omission therein or in any
proceeding under this Act relating thereto.
He argues that the second reassessment
had life and remained alive until it was finally vacated by the Court order of
April 20, 1989. Although, as I have already indicated, the statutory
framework supports the appellant's submission that the second assessment stood
until it was set aside, in my view subsection 152(8) does not support that
contention. It seems to me that it is not addressed to a situation where an
assessment is issued out of time but rather to a situation where an assessment
is issued in time but contains an 'error, defect or omission' or that such is
contained in any proceeding under the Act relating to it.
9 I have come to the conclusion, in the
particular circumstances of this case, that the second reassessment, which was
vacated by the court order of April 20, 1989, did not supersede and nullify the
first reassessment. It seems to me that the Court order amounted to judicial
recognition that the second reassessment, issued as it was beyond the statutory
time limit, was not legally issued. It did not, for that reason, displace and
render the first reassessment a nullity. That reassessment continues to
subsist, in my opinion.
(Emphasis
added.)
[64]
The question is what is
meant by the comment in paragraph 8 of Lornport that: “[…] the statutory
framework supports the appellant’s submission that the second assessment stood
until it was set aside […].”
[65]
This comment may
suggest that the Court was of the view that a statute‑barred reassessment
is valid if no objection to it has been made. If so, this is directly contrary
to the comment above in Canadian Marconi and no mention was made of this
case in Lornport. To add to the mystery, I would note that the judge who
wrote the reasons in Lornport was also on the panel who decided Canadian
Marconi a few months earlier.
[66]
The conclusion that I
have reached is that the obiter comment in Lornport should not be
considered to have overruled the comment in Canadian Marconi. I would
conclude that the comment from Canadian Marconi should be followed in
this Court.
[67]
Counsel for the respondent, who was also counsel in Canadian
Marconi, submits that this is reading too much into Canadian Marconi
because the only issue in that case was whether the Minister had the power to
issue an out-of-time reassessment with the consent of the taxpayer.
[68]
I disagree with this. The comment
in Canadian Marconi was not mere musing; it was an essential part of the
reasoning in the case.
[69]
Finally, I would comment that the
circumstances in this appeal illustrate the concern expressed in Canadian
Marconi. Why should the Minister be permitted to extend the time for
issuing consequential reassessments under s. 152(4.3) by issuing an out-of-time
reassessment? As suggested in Canadian Marconi, policy considerations
suggest that the Minister ought not be able to do this.
E. Does Fourth 1999
Reassessment affect a balance?
[70]
Counsel for Blackburn submits in
the alternative that, even if the Fourth 1999 Reassessment is valid, the
reassessment does not start the clock running for purposes of s. 152(4.3)
because that reassessment did not result in a change in a balance as required
by the provision.
[71]
The term “balance” is defined s.
152(4.4) of the Act.
152
(4.4)
Definition of “balance”
- For the purpose of subsection (4.3), a “balance” of a taxpayer for a taxation year is
the income, taxable income, taxable income earned in Canada or any loss of the
taxpayer for the year, or the tax or other amount payable by, any amount
refundable to, or any amount deemed to have been paid or to have been an
overpayment by, the taxpayer for the year.
[72]
I would agree with Blackburn’s alternative argument. In my view, a balance was changed by virtue of the amended judgment which vacated the Third 1999 Reassessment.
The amended judgment declared the Third 1999 Reassessment to be invalid and resulted
in a reduction of the Part I tax from $2,125,564 to nil.
[73]
For this reason I would conclude that
the Fourth 1999 Reassessment did not change a balance.
[74]
Before concluding this
part, I would mention that this argument was not raised by the appellant in the
notice of appeal and the respondent was not aware of it until the appellant’s
opening address. Counsel for the appellant informed me that the argument had
only recently been thought of. I raised a concern as to the fairness of raising
it so late. If the respondent had asked for time to make further submissions, I
certainly would have granted it.
III. Conclusion
[75]
In the result, the appeal will be
allowed, and the reassessments for the 2000 and 2005 taxation years issued
by notices dated July 19 and 21, 2010, respectively, will be vacated.
[76]
The appellant will be awarded costs
in accordance with the relevant tariff.
Signed at Toronto, Ontario this 16th day of July
2012.
“J. M. Woods”
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