Citation: 2009 TCC 236
Date: 20090430
Docket: 2008-2054(IT)I
BETWEEN:
DAVID JOHN COOPER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Boyle J.
[1]
The taxpayer is a non-resident
of Canada who disposed of taxable Canadian property in 2006. It appears that
section 116 was complied with and the taxpayer obtained a tax clearance
certificate upon remittance of a portion of the sales proceeds to the Canada
Revenue Agency (“CRA”) to be held on account of his ultimate tax liability.
[2]
The taxes payable as a
result of the disposition were resolved prior to the notice of appeal being
filed. The taxpayer’s capital gains tax liability from the disposition, after
accounting for a prior year’s capital loss carry forward, is not in dispute. A
portion of the sale price that was held in a financial institution and the
taxpayer received interest in respect of that deposit. The Part XIII
non-resident withholding tax owing on the interest paid to him by the Canadian
financial institution was also resolved prior to the notice of appeal being
filed.
[3]
In his notice of appeal
the taxpayer raises three issues relating to interest for which he seeks
relief.
[4]
Firstly, the taxpayer
has asked the CRA, and is now asking this Court in his notice of appeal, that
the difference between (i) the payment made on account of tax in order to obtain
the release and (ii) the total net capital gains tax payable under Part I
of the Income Tax Act (the “Act”) which the parties have agreed
to, be paid to him. It is the taxpayer’s position that the full refund has not
yet been paid. This is perhaps complicated somewhat at the pleadings stage by
the fact that apparently the CRA made an error at the outset and withheld his
refund on the basis there was a previously unpaid balance. The Crown apparently
now agrees there was not an unpaid balance. With respect to this relief
claimed, the taxpayer is asking this Court to address the computation and
payment of a refund of overpaid tax.
[5]
The taxpayer’s second
and third requests for relief raise interest-related claims.
[6]
The taxpayer’s second
claim for relief is with respect to his Part I refund. He disputes that the
CRA properly calculated the interest owing to him on the credit balance in his
account which they had held since the original payment on account of tax was
made. According to the taxpayer, the interest credited on his refund balance
owing to him reflected an annual rate of only approximately 1% whereas the
prescribed rate at the time was 7%. The taxpayer asked the CRA, and in his
notice of appeal is asking the Court, to pay the prescribed rate of interest on
his refund.
[7]
Thirdly, the taxpayer
is disputing whether the interest for which he was assessed in his
Part XIII non-resident withholding tax assessment was properly calculated.
He states that the prescribed rate at the relevant time was 9% but that the
interest assessed was almost double that rate. This is complicated somewhat by
the fact that it appears the taxpayer made his calculations on the assumption
his non‑resident withholding tax was due on April 30 of the
following year, being the normal filing due date, whereas Part XIII
provides that the tax is to be remitted forthwith and the CRA’s published
administrative practice provides that it should be remitted by the 15th
of the month following receipt. It is further complicated by the fact that the
Crown says that the CRA’s assumption pleaded on when the Part XIII tax was
payable is itself incorrect as well. With respect to this third request for
relief, the taxpayer is clearly asking this Court to review an amount of
interest assessed by the CRA in a notice of assessment.
[8]
At this point, it does
not appear that there is a dispute regarding post‑assessment interest,
although I suspect that if this matter proceeds to trial, we may find that
there is similar disagreement on interest computation methods.
I. The motion
[9]
The respondent has
brought a motion under Rule 53 and Rule 58(1)(c) asking this
Court to strike the taxpayer’s notice of appeal. The notice of motion uses the
necessary buzz words of scandalous, frivolous, vexatious and abuse of process,
“plain and obvious that the appeal can not succeed as pleaded”, and “the
appellant can not obtain the relief sought in the appeal on the basis of the
allegations plead in the notice of appeal”. However, in short, it is the
Crown’s position that this Court does not have jurisdiction to deal with the
computation of refunds, the computation of interest on refunds, the payment of
refunds or interest on the refunds, or, according to the notice of motion, the assessment
of interest on amounts of tax assessed by the Minister.
II. The test for striking pleadings
[10]
The applicable test is
best described by the Supreme Court of Canada in Hunt v. Carey Canada Inc.,
[1990] 2 S.C.R. 959, at paragraph 33:
[A]ssuming that
the facts as stated in the statement of claim can be proved, is it "plain
and obvious" that the plaintiff's statement of claim discloses no
reasonable cause of action? As in England, if there is a chance that the plaintiff might succeed,
then the plaintiff should not be "driven from the judgment seat". . .
. Only if the action is certain to fail because it contains a radical defect .
. . should the relevant portions of a plaintiff's statement of claim be struck
out . . .
[11]
Justice Lamarre of this
Court in Hardtke v. The Queen, 2005 TCC 263, 2005 DTC 676
wrote at paragraph 11:
[A] high
standard must be met in order to strike out a pleading. Indeed, it must be
plain and obvious, or beyond a reasonable doubt, that the pleading in question
discloses no reasonable cause of action . . .
[12]
It is clear that
the Crown bears a heavy burden in a motion such as this. Looked at another way,
the judges of this Court should be expected to deny Canadian taxpayers their
day in court only in the clearest of cases.
[13]
In this case, the
Crown’s position is that the taxpayer’s claims for relief have no chance of
being accorded by this Court because this Court does not have the jurisdiction
to consider them. In this case, the issue is therefore a straightforward legal
analysis of the jurisdiction of this Court as set out in the relevant
provisions of the Income Tax Act and the Tax Court of Canada Act.
There are no other allegations of scandal, frivolity, vexatiousness or abuse to
an extent that would need be considered in the context of a motion to strike an
action.
III. Jurisdiction of the Court in respect of the
relief claimed in the notice of appeal
[14]
Clearly, if a notice of
appeal only asks for relief that this Court does not have jurisdiction to
grant, this Court can be expected to make an order under either rule 58 or
rule 53 striking the notice of appeal. It is therefore necessary to
determine whether this Court has jurisdiction in respect of;
1)
the computation and
payment of refunds;
2)
the computation and
payment of interest on refunds payable under the Act; and,
3)
the amount of interest
assessed in an assessment issued by the CRA.
[15]
Appeals under the Act
are grounded in section 169 and section 171 of the Act.
Subsection 169(1) provides that a taxpayer may appeal an “assessment” to
the Tax Court if he has first served a notice of objection to that
assessment under section 165. Subsection 165(1) provides that a
taxpayer can object to an assessment under Part I by serving a written
notice of objection.
[16]
Subsection 152(1)
of the Act provides that, following the filing of a return, the Minister
shall examine the return and “assess the tax for the year, the
interest and penalties, if any, payable . . .” (Emphasis added).
[17]
It is clear from these
provisions that an assessment under subsection 152(1) is subject to the
right of objection, and every dispute remains open to appeal to the Tax Court
of Canada. The assessment provided for in subsection 152(1) expressly
provides for tax being assessed, penalties being assessed and interest being
assessed. It could not be more clear that interest assessed in a notice of
assessment under Part I can be the subject of appeal to this Court.
[18]
In Mr. Cooper’s
case, there was interest assessed in the second assessment, being that for
non-resident withholding tax. Non-resident withholding tax is assessed under
Part XIII and not under Part I. However, subsection 227(7)
provides that, with respect to assessments of non-resident withholding tax, the
relevant Part I provisions relating to assessments, objections and appeals
to this Court all apply with any modifications that the circumstances require.
[19]
It is clear that the
taxpayer’s notice of appeal disputes the assessed amount of interest in the
Part XIII assessment. This is interest assessed as payable by him, the
non-resident taxpayer. This Court has jurisdiction to hear such a claim. The respondent’s
motion cannot succeed.
[20]
This same issue has
already been clearly dealt with in the former Chief Justice Bowman’s decision
in Wright et al. v. The Queen, 2005 TCC 485, 2005 DTC 1211.
In that decision, Bowman C.J. wrote, at paragraph 3:
Interest, like tax and penalties, is a component of the assessment
the Minister is entitled to make and the correctness of its computation or
imposition is a matter that can be challenged in an appeal to the Tax Court of
Canada from an assessment.
[21]
To like effect are the
comments of this Court’s current Chief Justice Rip in McFadyen v. The Queen,
2008 TCC 441, 2008 DTC 4513 wherein he wrote, at
paragraph 42:
However, the [notice of appeal] alleges that the Minister has incorrectly calculated the interest on the tax
liability. This part should not be struck. The notices for 2006 reassessments
do indicate interest accrued on federal tax unpaid. As there are new amounts of
interest calculated and assessed, the appellant should be permitted to
challenge the Minister's computation of interest.
[22]
To like effect are the
former Chief Justice’s comments in Moledina v. The Queen, 2007 TCC 354,
2007 DTC 1415 wherein he wrote, at paragraph 5:
It is appropriate, however, that at this point I deal
briefly with the matter of this Court's jurisdiction in respect of interest. It
is sometimes said, inaccurately in my view, that we have no jurisdiction when a
taxpayer objects to the imposition of interest on income taxes. This statement
is too broad. If the issue in an appeal is whether the interest was properly
calculated, or whether it was imposed in accordance with the provisions of the Act,
patently the Tax Court has jurisdiction to hear such an appeal. Interest is a
component of an assessment and the Tax Court's jurisdiction includes the power
to hear and determine appeals from assessments under the various statutes
mentioned in section 12 of the Tax Court of Canada Act. See Union
Gas Limited v. The Queen, 90 DTC 6659.
IV. The Pleadings
[23]
The taxpayer, who is
self-represented, has filed a most clear, concise and informative one and a
half-page notice of appeal supplemented by a half-page detailed set of his
calculations of the amounts of capital gains refund and interest thereon and
withholding tax and interest payable thereon which he feels supports his
position. The taxpayer’s notice of appeal is among the finest I have seen filed
by a self-represented taxpayer in an informal proceeding in this Court. It is a
model of clarity.
[24]
With respect to the
taxpayer’s dispute with respect to the Part XIII tax assessment his
paragraph says:
I next received a Notice of Assessment dated 12th July,
2007, claiming the sum of $184.12 non-resident withholding tax and $6.47
interest. The claim for non-resident tax was correct but the interest charge
was not, because when the tax became due (on 30th April, 2007)
there was a credit of some $20,000.00 in my account. I should also point
out that the interest claimed equated to an annual rate of 17.57%, almost double
the prescribed rate at that time of 9%.
[25]
I can not but read this
paragraph as raising two distinct complaints with respect to the interest
assessed in the Part XIII assessment. The first relates to their having
been a credit balance in his account. The second relates to the computation of
interest on the tax assessed even if there had not been a credit in his tax
account.
[26]
The respondent has
asked that the Court strike out the pleading in its entirety. The respondent has
not asked that particular paragraphs be struck out. I therefore need not
carry on to turn my mind to address the Court’s jurisdiction or lack thereof as
it relates to refunds of interest payable under the Act by the CRA to taxpayers on refunds due. Indeed, had
the Crown asked for paragraphs dealing with refunds and interest on refunds to
be struck from the pleading separately, I would not have been inclined to do
that as the paragraphs relating to those aspects are an integral part of the
context in which the dispute relating to the Part XIII tax arises. Indeed,
if I understand both sides’ information given in argument on the motion, it
appears that the initial failure by the CRA to refund the excess payment on
account of capital gains tax further related to tax assessed and collected on an
Old Age Security dispute which subsequently had to be corrected in the
taxpayer’s favour.
[27]
It is clear from the
Crown’s notice of motion as well as its outline of argument that they also read
the notice of appeal paragraph relating to the Part XIII assessment as
dealing with “the assessment of interest on amounts of tax assessed by the
Minister”. See Ground (a)(iii) of the notice of motion. (See also paragraphs 7(b),
29(b), and 30 of the respondent’s written outline of argument.)
[28]
I would like to note
that the Crown filed a reply to the notice of appeal. That reply had been
prepared by a CRA litigation Officer. The reply did not raise the matters
raised by the Crown in its motion. No question of jurisdiction was raised
whatsoever. However, I do not believe a lack of jurisdiction is a mere
irregularity which could be subject to the fresh step rule.
V. Conclusion
[29]
This motion was brought
long after the Crown’s reply was filed. It was initiated shortly before the
trial to be heard at the opening of the time assigned for the trial. As the
taxpayer pointed out, our Rules do not address motions in informal appeals;
however that does not mean they can not be brought in appropriate
circumstances. The questions raised by the respondent’s motion could have been dealt
with, on notice to the taxpayer, in the course of the trial. The result of the
Crown’s unsuccessful motion is that the trial has been delayed instead of
resolved. The taxpayer will have to return later for his day in court.
[30]
The respondent’s motion
is denied, a new trial date will be assigned, and costs are awarded in favour
of the taxpayer in the amount of $250. I will be ordering that, in the
circumstances, the hearing of this appeal will be heard by me on my next
available sittings in Vancouver. As stated when hearing the motion, as a
practical matter I will be expecting to hear evidence and argument from both
parties on the proper method computation of interest under the Act and
its quantification.
Signed at Ottawa, Canada, this 30th day of April 2009.
"Patrick Boyle"
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