Citation: 2010 TCC 69
Date: 20100204
Docket: 2007-4989(IT)I
BETWEEN:
MEICHLAND BLACKBURN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] Meichland Blackburn appeals in respect of an
assessment made under the Income Tax Act for the 2003 taxation year.
[2] In the
assessment, the Minister of National Revenue disallowed a deduction claimed for legal expenses in the amount of $14,420.
Preliminary matter
[3] At the commencement of the hearing, the respondent
brought a motion requesting an order that the appeal be quashed on the basis
that no notice of objection had been properly served in respect of this matter
as required by s. 169(1) of the Act.
[4] Subsection 169(1) provides:
169(1) Where
a taxpayer has served notice of objection to
an assessment under section 165, the taxpayer may appeal to
the Tax Court of Canada to have the assessment vacated or
varied after either
(a) the Minister has confirmed
the assessment or
reassessed, or
(b) 90 days have elapsed after service of the
notice of objection and the Minister has not
notified the taxpayer that the Minister has vacated
or confirmed the assessment or
reassessed,
but
no appeal under this section may be instituted after the expiration of 90 days
from the day notice has been mailed to the taxpayer under section
165
that the Minister has confirmed
the assessment or
reassessed.
(Emphasis added.)
[5] The appellant stated that he did serve a notice of
objection within the time required by mailing a letter to the Kitchener/Waterloo
tax service office. A copy of the letter, which was dated May 5, 2006, was
included in the motion record.
[6] The respondent submits that no notice of objection was
received by the Canada Revenue Agency on or before the filing deadline. An
affidavit of Stephanie Fong, a litigation officer, stated that she was unable
to find in the CRA records evidence that the appellant had served a notice of
objection in time.
[7] The
problem that I have with this evidence is that Ms. Fong did not attend court to be cross-examined on this affidavit. No
out-of-court examination on the affidavit was held, which is understandable in
the context of an informal procedure appeal.
[8] Counsel for the respondent did not press the point and
argued in the alternative that the letter dated May 5, 2006 was not properly
served because the letter was not addressed to the chief of appeals. The letter
was addressed simply to the Canada Customs and Revenue Agency,
Kitchener/Waterloo Tax Service Office.
[9] The respondent relies on the reasoning of Bowie J. in Mohammed
v. The Queen, 2006 DTC 3156. The relevant passage provides, at para. 26 and
27:
[26] […]
I turn to subsection 165(1) of the Act which says that:
A taxpayer who
objects to an assessment under this Part may serve on the Minister a notice of
objection in writing setting out the reasons for the objection and all the
relevant facts.
It goes on to
prescribe the time within which that must be done, and for the purposes of the
present case, it would be 90 days following the mailing of the notice of
assessment. Then it goes to on to provide in subsection (2):
A notice of
objection under this section shall be served by being addressed to the chief of
appeals in a district office or a taxation centre of the Canada Customs and
Revenue Agency and delivered or mailed to that office or centre.
One notices at
once that the language of subsection (2) is mandatory, and that of course, is
reinforced by Justice Sexton's reasons in McClelland. Presumably, the
reason that the language is mandatory is because a lot of documents are mailed
or delivered to CRA at many offices throughout Canada. A notice of objection is
a document of great significance because –– and this isn’t in dispute before me
–– a valid notice of objection validly served is a necessary prerequisite to an
appeal to this Court.
[27] The
importance of the document is obvious, and the importance of the document is
the reason for the mandatory language, and that the language is indeed
mandatory is affirmed both by the Interpretation Act and by the judgment
in McClelland. Subsection 165(6) provides that:
The Minister
may accept the notice of objection served under this section that was not
served in the manner required by subsection (2).
It is
inescapable, I think, that that is a discretionary matter with the Minister.
The contrast between the mandatory language of subsections (1) and (2) and the
permissive language of subsection (6) is no accident of drafting, and if the
Minister does not choose in any particular case to accept an irregularly served
notice of objection as a valid one, in my view this Court has no power to
either overrule his declining to do so, or in any other way to validate an
irregularly served notice of objection.
[10] The
problem that I have with this argument is that it was not mentioned either in
the reply or in the motion record filed before the hearing. I am not satisfied
that the appellant had sufficient notice of the argument prior to the hearing
to be able to prepare a response.
[11] Counsel for the respondent informed me at the hearing
that the appellant did have prior notice of this argument by way of
correspondence.
[12] In my view, informal correspondence is not sufficient
notice of the arguments that are to be made at the hearing. The appellant
should be able to rely on the reply and motion material that are filed with the
Court in order to understand the issues that the respondent intends to raise.
[13] I see no reason why this issue could not have been
raised by the respondent earlier. It is clear that the respondent knew about
the letter dated May 5, 2006 because a copy was included in the motion record.
However, no position was taken with respect to this letter in the motion
material.
[14] In the circumstances, it would be unfair in my view
for the respondent to raise this issue at the commencement of the trial.
Deductibility of legal
expenses
[15] As for
the substantive issue, many of the relevant facts are set out in two prior decisions of this Court, both
cited as Blackburn v. The Queen: 2004 DTC 2409 and 2006 DTC 3108. A
brief summary will suffice here.
[16] In October 1997, the appellant, a police officer, was
charged with the criminal offence of dangerous driving. The incident occurred
while the appellant was off duty.
[17] The appellant was found guilty and in August 1999 he received
a 30 day jail sentence. From the time of sentencing, the appellant was
suspended from the police force without pay.
[18] In July 2000, the conviction was quashed on appeal.
The appellant was reassigned to duties with the police force and he received back
pay for the period of suspension.
[19] In February 2002, the criminal charges were retried.
The outcome of the retrial was another conviction in June 2002.
[20] An appeal of the subsequent conviction was instituted by
the appellant but was unsuccessful.
[21] From July 2002 until December 2002, the appellant was
on sick leave without pay from his employment. In December 2002, the employment
was terminated by the employer.
[22] The appellant claims a deduction for legal expenses
paid in 2003 in connection with the conduct of the appeal of the retrial.
[23] In order for the appellant to be entitled to this deduction,
the expenses must be incurred to collect or establish a right to salary or
wages owed. The relevant legislative provisions, subsection 8(2) and paragraph
8(1)(b) of the Act, read as follows:
8(2) Except as permitted by this section, no deductions shall be made in
computing a taxpayer's income for
a taxation year from an office or employment.
8(1) In
computing a taxpayer's income for
a taxation year from an office or employment, there may
be deducted such of the following amounts as are wholly applicable to that
source or such part of the following amounts as may reasonably be regarded as
applicable thereto:
[…]
(b) amounts
paid by the taxpayer in the year
as or on account of legal expenses incurred by the taxpayer to collect
or establish a right to salary or wages owed to the taxpayer by the employer or former employer of the taxpayer;
(Emphasis added.)
[24] I would
first comment about the onus of proof on this issue. According to the reply, no
assumptions were made by the Minister as to the nature of the legal expenses
incurred. Counsel for the respondent acknowledged that the respondent has the
burden of proof.
[25] The appellant submitted in argument that if he had been successful in having
the subsequent criminal conviction
overturned, he would have been entitled to damages for wrongful termination of employment.
[26] The problem that I have with this argument is that
damages for wrongful termination of employment are not “salary or wages,” as
that phrase is defined in the Act.
[27] The relevant legislative provisions are the
definitions of “salary or wages" and “retiring allowance" in
subsection 248 of the Act.
"salary
or wages", except in sections 5
and 63
and the definition "death benefit" in this subsection, means the
income of a taxpayer from an office or employment as computed
under subdivision a of Division B of Part I and includes all fees received for
services not rendered in the course of the taxpayer's business but does
not include superannuation or pension benefits or retiring allowances;
"retiring
allowance" means an amount (other than a
superannuation or pension benefit, an amount received as a consequence of the death
of an employee or a benefit described in subparagraph 6(1)(a)(iv))
received
(a)
on or after retirement of a taxpayer from an office or employment in
recognition of the taxpayer's long
service, or
(b) in
respect of a loss of an office or employment of a taxpayer, whether or
not received as, on account or in lieu of payment of, damages or pursuant to an
order or judgment of a competent tribunal,
by the taxpayer or, after the
taxpayer's death, by a
dependant or a relation of the taxpayer or by the
legal representative of the taxpayer;
(Emphasis added)
[28] It is clear from the above definitions that damages
for wrongful dismissal from an employment do not qualify as “salary or wages”
for the purposes of s. 8(1)(b) of the Act. Accordingly, even if a
successful appeal would have led to an award of damages, the legal expenses would
not qualify for deduction pursuant to this provision.
[29] The appellant submits that the reasoning of Bowie J.
in the decision respecting the 2000 taxation year supports his position. I
disagree.
[30] The circumstances that were considered by Justice
Bowie were significantly different than those here. In the facts before Justice
Bowie, the legal expenses were incurred in connection with the appeal of the
first conviction. These expenses were deductible because the successful appeal resulted
in the appellant receiving remuneration for the period during which he had been
suspended without pay. These amounts were salary or wages owed, and not damages
for wrongful termination of employment.
[31] In my view, the decision of Justice Bowie is not of
assistance in this case.
Disposition
[32] The appeal will be dismissed. Each party shall bear
their own costs.
Signed at Ottawa, Canada this 4th day of February 2010.
“J. M. Woods”
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