Kershaw v. The Queen, 92 DTC 6240, [1992] 1 CTC 301 (FCA)

Heald, J.A. (Stone and MacGuigan, concurring):—This is a section 28 application to review and set aside the decision of Tax Court Judge D.W. Beaubier wherein he dismissed the application of this applicant, which was made pursuant to subsection 167(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") [1] , for an extension of time within which a notice of objection could be served in respect of the reassessment by the Minister of National Revenue of the applicants income for the 1985, 1986, 1987 and 1988 taxation years.

The learned Tax Court judge decided, on the evidence before him, [2] that the applicant had not satisfied the requirements of subparagraph 167(5)(c)(ii) of the Act [3] namely, that subject application was brought as soon as circumstances permitted it to be brought. On this basis, the application for extension of time was dismissed.

The Facts

The relevant facts, as set out in the agreed statement of facts, may be summarized as follows: The applicant is a director, a shareholder and an officer of Dome Advertising Ltd. (Dome), a corporation registered to carry on business in the Province of Saskatchewan. The applicants wife, Sharon Kershaw, was a shareholder of Dome until she passed away on April 11, 1986. On April 12, 1990, Revenue Canada auditor, Ken Johnson, (the auditor) wrote to the applicant advising that he intended to include dividends paid by Dome to the applicants wife in the applicants personal income pursuant to subsection 56(2) of the Income Tax Act. The auditor's proposal involved the taxation years 1985, 1986, 1987 and 1988 and the proposed dividend inclusion totalled in excess of $109,000 spread almost equally over the four taxation years involved. On April 23, 1990, the applicant discussed the April 12 letter with the auditor by telephone. He inquired as to whether he had been reassessed. The auditor informed him that he had not been reassessed and explained that the purpose of his letter was to allow the applicant and his accountants to respond or provide information which might affect Revenue Canada's decision. The applicant said he would contact his accountants and would have them contact the auditor. On May 7, 1990, the accountants telephoned the auditor to arrange for a meeting to discuss Revenue Canada's letter of April 12. That meeting was held on May 11. During this meeting, the auditor admitted that the decision of the Supreme Court of Canada in the case of McClurg v. The Queen, [1990] 3 S.C.R. 1020, [1991] 1 C.T.C. 169, 91 D.T.C. 5001 (S.C.C.), could possibly affect the reassessments. He stated further that Revenue Canada would hold the proposed reassessments at the appeal level until the decision in McClurg was rendered. However, less than two weeks later (May 24, 1990) Revenue Canada changed its mind and advised the applicant's accountants that it had decided to proceed with the reassessments as proposed.

On October 24, 1990, the applicant received his 1989 notice of assessment, wherein it was stated that the applicant's 1989 refund credit would be used to reduce the applicant's unpaid balance from the previous reassessments with respect to the 1985, 1986, 1987 and 1988 taxation years. That unpaid balance was shown as $37,319.08. The applicant contacted his accountants immediately, stating that he had never received any notice of reassessment with respect to the unpaid amount referred to in the 1989 notice of assessment. At approximately the end of October the accountants requested of Revenue Canada, Regina the said notices of reassessment with respect to the unpaid amounts. [4] After being referred to Revenue Canada, Winnipeg, the accountants were informed that their request for reassessments should be addressed in writing to the Regina office. This written request was sent by the accountants on November 9, 1990 to the Regina office. This request was acknowledged in writing by Revenue Canada. On November 17, 1990, the applicant received a second demand notice from Revenue Canada demanding payment in the sum of $25,338.78 with respect to the 1986-1988 taxation years. It is the position of Revenue Canada that the 90-day limitation period for filing a notice of objection to the reassessments herein expired on November 29,1990. [5] On December 13, 1990, the applicant received from Revenue Canada certified copies of computer print outs containing tax information for the 1987, 1988 and 1989 taxation years. On December 17, 1990, the applicant received from Revenue Canada a copy of his 1985 notice of reassessment and computer print outs relating to his income and deductions for the 1986 and 1987 taxation years. On December 20, 1990, the Supreme Court of Canada delivered its judgment in the case of McClurg, supra. On January 11, 1991, the applicant's accountants once again contacted Revenue Canada by telephone requesting ail relevant notices of reassessment. They were advised that they could not receive the reassessments without a written request from the applicant. The applicant sent a hand delivered letter to Revenue Canada on January 14, 1991, advising that he could not recall receiving any notices of reassessment and asking Revenue Canada to provide copies of such reassessments to his accountants. Revenue Canada then produced to the accountants the reassessment notices for the 1986, 1987 and 1988 taxation years. On approximately January 19, 1991, the accountants reviewed the notices of reassessment and determined that there was not enough information to determine the accuracy of the dividend inclu- sion amounts. On January 21, 1991, the accountants requested of Revenue Canada's auditor further details with respect to the dividend inclusion amounts. On or about the end of January, 1991, Revenue Canada finally provided the accountants with a copy of the April 12, 1990 proposal letter which set out the details of the dividend inclusion proposal. On February 4, 1991, the accountants reviewed the 1985 reassessments and attempted to reconcile the dividend inclusion amounts with Revenue Canada's April 12, 1990 proposal letter. They were unable to reconcile the dividend amounts. A tax specialist in their firm was consulted to perform this task. During the months of February to April, 1991, the accountants had several discussions with the applicant with respect to issuing notices of objection relating to the reassessments in issue. Finally, on April 26, 1991, the applicant signed the notices of objection which were filed with Revenue Canada on April 29, 1991. On May 17, 1991, Revenue Canada advised the applicant that the notices of objection were rejected due to the expiry of the 90-day limitation period. On May 28, 1991, the application for an extension of time pursuant to subsection 167(1) was filed. Subsequent investigation established that the applicant never received the notices of reassessment in question which were believed to have been sent to him by mail on August 31, 1990. They were returned to Revenue Canada as unclaimed on October 9, 1990.

Discussion

A perusal of the reasons of the learned Tax Court judge reveals that, in his view, the applicant failed to satisfactorily account for the delay in filing the extension application between the period commencing January 14, 1991 and ending on May 28, 1991. I so conclude because of the following excerpts from his reasons (A.B., page 26):

There is no evidence before the Court of any intention of the applicant himself in respect to his bringing this application as soon as it was possible to be brought and what caused the delay. Nor is there any such evidence respecting his accountants Ernst & Young.

And again, at pages 27 and 28 of the Appeal Book, the Tax Court judge, relying on this Court's jurisprudence, expressed the further view that a taxpayer has a responsibility to give clear instructions to his professional advisors and to make sure that those advisors are following his instructions. He then concluded his reasons with the following statement (A.B., page 28):

There is no evidence before this Court that the applicant did this in respect to this application as subparagraph 167(5)(c)(u) applies to it, nor is there any evidence of anything that prevented the applicant from doing this in the period between January 14, 1991 and May 1991 when the application was finally forwarded to this Court.

I must respectfully disagree with each of these conclusions. My appreciation of the chronology of events which are related, supra, persuade me that both the applicant and his accountants were diligent in their attempts to deal with the reassessments in issue at all relevant times. The details of the proposed reassessments were set out in the auditor's letter to the applicant of April 12, 1990. There was a discussion on May 11, 1990 between the applicant's accountants and Revenue Canada. Revenue Canada agreed, at that meeting, to hold the proposed reassessments at the appeal level until the Supreme Court of Canada's decision in the McClurg case was delivered. Some two weeks later, this decision was reversed and Revenue Canada decided to proceed with the proposed reassessments without waiting for the McClurg decision. This was done and the reassessments are dated August 31, 1990. However, the applicant never received the notices of reassessment. After the applicant and his accountants became aware that the reassessments were being proceeded with, they made a number of attempts to obtain copies so that they could be examined and studied. At the end of October, the accountants made a further request of the Regina Branch of Revenue Canada, for copies of the notices of reassessment in issue. The Regina Branch referred them to the Winnipeg Branch who in turn referred them back to the Regina Branch stating that their request for reassessments should be addressed in writing. In December the applicant received some partial information about some of the years in issue but not the notices of reassessment. On January 11, 1991, the accountants tried once more to obtain the reassessment notices through a telephone call. This time they were told that they could not receive copies of the reassessments without a written request from the applicant. Finally, on January 14, 1991, after receipt of the applicants hand delivered letter, Revenue Canada gave copies of reassessments to the accountants. The accountants requested further details. It was not until the end of January that the accountants received the details of the dividend inclusion proposal as set out in the April 12, 1990 proposal letter.

In February of 1991, the accountants were engaged in reviewing the reassessments. They were unable to reconcile the dividend amounts. They engaged a tax specialist in their firm to attempt this reconciliation. In my view it is a fair inference from the agreed facts that the discussions between February and April, 1991 related, in large measure, to the difficulty in reconciling the proposed dividend inclusions so as to enable the accountants to prepare proper notices of objection with respect to the reassessments in issue. Subsection 165(1) of the Act requires that the notice of objection set out". . . the reasons for objection and all relevant facts.” The accountants and the applicant can hardly be blamed for taking several months to file the notices of objection in the unusual circumstances of this case. If the delay would otherwise have appeared unseemly, it was certainly accounted for by the applicant, given the perplexing conduct and the lack of co-operation by some of the officials of Revenue Canada as recounted, supra.

In my opinion, the uncontradicted evidence supports the view that both the applicant and his accountants had a consistent intention throughout to attempt to reconcile and rationalize the proposed reassessments and, having done so, to file notices of objection as soon as possible thereafter.

Conclusion

For the foregoing reasons, it is my conclusion that the Tax Court judge committed reviewable error under the provisions of section 28 of the Federal Act as it was at all relevant times [6] . In my view, his decision was reached "without regard for the material" before him as those words were employed in former subparagraph 28(1)(c). Chief Justice Jackett (as he then was) discussed the parameters of subparagraph 28(1)(c) in a footnote to his reasons in Rohm and Haas Canada Ltd. v. Anti-Dumping Tribunal (22 N.R., page 175). Footnote 3 reads as follows:

3. I find it difficult to conceive of a decision that could be set aside under section 28(1)(c) that would not, in the absence of subsection 28(1)(c), have been subject to being set aside under subsection 28(1)(b) on the ground that the tribunal erred in law in making its decision” or under subsection 28(1)(a) on the ground that the tribunal "failed to observe a principle of natural justice”. I have in mind, in relation to subsection 28(1)(b), the jurisprudence under which a supervisory court finds error in law where a tribunal makes a decision in the absence of evidence on which a person "properly instructed as to the law and acting judicially could have made the decision. Compare Canadian Lift Truck Company Ltd. v. Deputy Minister of National Revenue for Customs and Excise, [1956] 1 D.L.R. (2d) 497, per Kellock, J., at page 498.

The passage relied on by Chief Justice Jackett, supra, from the Canadian Lift Truck case is worth repeating. It reads as follows:

The question of law above propounded involves at least two questions, namely, the question as to whether or not the Tariff Board was properly instructed in law as to the construction of the statutory items, and the further question as to whether or not there was evidence which enabled the Board, thus instructed, to reach the conclusion it did.

While the construction of a statutory enactment is a question of law, and the question as to whether a particular matter or thing is of such a nature or kind as to fall within the legal definition is a question of fact, nevertheless if it appears to the appellate Court that the tribunal of fact had acted either without any evidence or that no person, properly instructed as to the law and acting judicially, could have reached the particular determination, the Court may proceed on the assumption that a misconception of law has been responsible for the determination; Edwards v. Bairstow, [1955] 3 All E.R. 48.

That decision was also followed by this Court in the case of M.E.I. v. Satiacum ((1984) 8 D.L.R. (4th) page 723 per MacGuigan, J.A.)

In my view, this jurisprudence applies to the circumstances at bar. As in Satiacum, here also it is possible to distinguish the Century Insurance case (Century Insurance Company of Canada v. M.V. Bocimar S.A., [1987] 1 S.C.R. 1247). In that case the Supreme Court of Canada held that this Court had erred because it was in effect assessing the weight to be given to viva voce evidence given by expert witnesses and was almost in the position of conducting the trial de novo without having heard the expert witnesses. In the case at bar, as observed, supra, all of the evidence was contained in the agreed statement of facts. No viva voce evidence was adduced before the Tax Court Judge.

Accordingly, I would allow the section 28 application, set aside the decision of Tax Court judge D.W. Beaubier and return the matter to the Tax Court of Canada for reconsideration and redetermination by a different Judge of that Court on a basis not inconsistent with these reasons.

Appeal allowed.