Greene v. MNR, 95 DTC 5078, [1995] 1 CTC 135 (FCTD), aff'd 95 DTC 5684 (FCA)

Rothstein J.:-The issue in this case is whether the words "the Minister shall reassess the taxpayer’s tax for any relevant taxation year...in order to take into account the deduction claimed" in subsection 152(6) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the "Act"), requires the Minister to reassess by allowing the deduction claimed or only requires the Minister to reassess by considering the deduction claimed and allowing that which he assesses to be appropriate.

The applicant, for income tax purposes, reported a large capital loss in 1988. He sought to carry back portions of the 1988 loss to reduce his taxable income in the preceding three years-1985, 1986 and 1987. The Minister took no action to reassess the applicant’s tax for 1985, 1986 and 1987. Therefore, on May 6, 1994, the applicant filed an originating notice of motion seeking an order of mandamus against the Minister requiring the Minister to reassess the applicant for his 1985, 1986 and 1987 taxation years by taking into account the deductions claimed by the applicant. The respondent consented to the application and by judgment dated August 10, 1994, Strayer J. (as he then was) made the following order:

The respondent shall reassess the applicant’s tax for his 1985, 1986 and 1987 taxation years in order to take into account the deductions claimed by the applicant, in accordance with subsection 152(6) of the Income Tax Act, S.C. 1970-71-72, c. 63, as amended.

On September 29, 1994, G.A. Lawrence, Chief, Tax Avoidance Section, Audit Division, Revenue Canada, wrote to the applicant stating:

We wish to advise that we are reassessing your 1985, 1986 and 1987 taxation years in order to take into account your claim for a deduction of a portion of a net capital loss of a subsequent year. This loss, reported by you on your 1988 income tax return, arose from your interest in the Portage partnership.

As your 1988 taxation year has been previously reassessed to disallow the reported loss there will be no change to the taxable incomes for 1985, 1986 and 1987 as a result of this current reassessment.

Notices of reassessment dated October 14, 1994, were issued by the respondent for the applicant’s taxation years 1985, 1986 and 1987. For each year, the notice of reassessment stated:

Your income tax return has been reassessed in order to take into account your claim for a deduction of a portion of a net capital loss of a subsequent year.

As your 1988 taxation year has previously been reassessed to disallow this reported net capital loss, there is no change to your 1985 [1986, 1987] taxable income.

Because the Minister had disallowed the capital loss in 1988, the applicant’s taxable income for 1985-1986-1987 was unchanged as a result of the reassessments for each of those years.

The applicant now comes before this Court arguing that the reassessments by the Minister for the years 1985, 1986 and 1987 are not in accordance with the requirements of subsection 152(6) of the Act and asks that the Court issue directions with respect to the order of Strayer J. and make a number of declarations the substance of which would be to require the Minister to reassess the applicant for his 1985, 1986 and 1987 taxation years by allowing the deductions claimed by the applicant.

Counsel for the Minister says that this procedure is inappropriate. He says that if the applicant wishes to challenge the reassessments issued by the Minister, the proper course is to file notices of objection pursuant to subsection 165(1) of the Act and then appeal to the Tax Court of Canada under subsection 169(1) of the Act.

At the outset, I would observe that my initial reaction to the argument of counsel for the Minister on this point was that this Court must have jurisdiction to interpret and enforce its own orders. If the Minister has not complied with the order of Strayer J., this Court must be in a position to say so and direct the Minister to comply. Indeed, if this were an application for contempt, it might well be that the applicant could properly bring his complaint to this Court. If for example, the Minister had refused to take any action following the order of Strayer J., perhaps the applicant could seek an order of contempt against the Minister in this Court. However, here the applicant seeks directions and a number of declarations because the Minister has issued notices of reassessment that the applicant says contravene the order of Strayer J. and subsection 152(6) of the Act.

Subsection 152(8) of the Act provides:

152(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. [1]

it would seem that by virtue of subsection 152(8), notwithstanding the applicant’s arguments to the contrary, any assessment issued by the Minister is deemed valid and the only recourse for the applicant is to object and appeal under the relevant provisions of the Act.

The reassessments issued by the Minister constitute decisions of a federal board, commission or other tribunal made in the course of proceedings before it. However, in my opinion, section 18.5 of the Federal Court Act, R.S.C. 1985, c. F-7, as amended, states that where an Act of Parliament expressly provides for an appeal to the Tax Court of Canada from a decision or order of a federal board, commission or other tribunal, it may not be reviewed or otherwise dealt with except in accordance with that Act:

18.5 Notwithstanding sections 18 and 18.1, where provision is expressly made by an Act of Parliament for an appeal as such to the Court, to the Supreme Court of Canada, to the Court Martial Appeal Court, to the Tax Court of Canada, to the Governor in Council or to the Treasury Board from a decision or order of a federal board, commission or other tribunal made by or in the course of proceedings before that board, commission or tribunal, that decision or order is not, to the extent that it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with, except in accordance with that Act.

Section 18.5, in conjunction with subsections 165(1) and 169(1) of the Act, allow the said reassessments to be reviewed or otherwise dealt with only by the Minister and the Tax Court of Canada. Subsections 165(1) and 169(1) set forth the scheme under which a taxpayer, dissatisfied with an assessment, may appeal to the Tax Court of Canada after filing a notice of objection with the Minister. Subsection 165(1) provides:

165(1) 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 relevant facts,

(a) where the assessment is in respect of the taxpayer for a taxation year and the taxpayer is an individual (other than a trust) or a testamentary trust, on or before the later of

(i) the day that is one year after the balance-due day of the taxpayer for the year, and

(ii) the day that is 90 days after the day of mailing of the notice of assessment; and

(b) in any other case, on or before the day that is 90 days after the day of mailing of the notice of assessment. [2]

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. [3]

As noted, by virtue of subsection 152(8), the assessments made by the Minister on October 14, 1994, with which the applicant is dissatisfied are, subject to objection or appeal, deemed to be valid and binding. The applicant’s recourse must be an objection under subsection 165(1) and an appeal to the Tax Court of Canada under subsection 169(1). Section 18.5 of the Federal Court Act precludes any other recourse, specifically recourse to this Court in the manner attempted by the applicant. The jurisprudence relating to section 18.5 and its predecessor, section 29 of the Federal Court Act? [4] is explicit that the only recourse to the applicant is that provided by statute, i.e., now an appeal to the Tax Court of Canada. See M.N.R. v. Parsons, [1984] C.T.C. 352, 84 D.T.C. 6345; Danielson v. M.N.R., [1986] 2 C.T.C. 42, 86 D.T.C. 6495 at page ??? (D.T.C. 6498) (F.C.T.D.); The Queen v. Optical Recording Laboratories Inc., [1990] 2 C.T.C. 524, 90 D.T.C. 6647, 1 F.C. 309 at pages 320-21 (C.A.). I am therefore of the opinion that this Court may not entertain the application brought by the applicant. [5]

For the sake of completeness, I should indicate that if this Court did have jurisdiction to entertain the applicant’s application, I would, in any event, have to deny it.Paragraph 152(6)(c) of the Act provides, in relevant part:

152(6) Where a taxpayer has filed for a particular taxation year the return of income required by section 150 and an amount is subsequently claimed by him...for the year as

(c) a deduction...under section 111 in respect of a loss for a subsequent taxation year,

by filing with the Minister, on or before the day on or before which the taxpayer is, or would be if a tax under this Part were payable by him for that subsequent taxation year, required by section 150 to file a return of income for that subsequent taxation year, a prescribed form amending the return, the Minister shall reassess the taxpayer’s tax for any relevant taxation year (other than a taxation year preceding the particular taxation year) in order to take into account the deduction claimed.

The order of Strayer J. of August 10, 1994, utilizing the words of subsection 156 of the Act provides that:

The respondent shall reassess the applicant’s tax for his 1985, 1986 and 1987 taxation years in order to take into account the deductions claimed by the applicant, in accordance with subsection 152(6) of the Income Tax Act, S.C. 1970-71-72, c. 63, as amended.

This order instructs the Minister to do what he is required to do under subsection 152(6) of the Act.

At first blush it seemed to me that the words "shall reassess the taxpayer’s tax for any relevant taxation year...in order to take into account the deduction claimed" in subsection 152(6) meant the Minister must allow the deduction claimed. However, upon considering the interpretation given to the words "take into account" in the jurisprudence, and the scheme of section 152 and of reassessments under the Act generally, I have concluded that the words "take into account" in subsection 152(6) mean only that the Minister must consider the deduction claimed and reassess by allowing such portions of the deduction claimed, if any, as he considers appropriate.

I turn first to Finlay v. Canada (Minister of Finance), [1990] 2 F.C. 790 (C.A.), in which MacGuigan J.A. deals with the term "takes into account". At page 811 he observes that the words "takes into account" can mean either to "consider" or to "meet". He notes that when a person takes something into account, the predominant meaning may well be "to consider" as opposed to "to meet" or "to fulfil":

The verbal phrase "takes into account" is, however, one that requires exact definition, since it can mean either "consider" or "meet".

A person may certainly take something into account without entirely adopting it. As used with a person, mere consideration may well be the predominant meaning.

In subsection 152(6), it is the Minister who is to reassess the taxpayer’s tax in order to take into account the deduction claimed. The words "to take into account" are used in relation to the reassessment which the Minister performs. Following the dictum of MacGuigan J.A. in Finlay, because the words are used with reference to a person, "to take into account" in subsection 152(6) may well mean "to consider". Whether they do, or whether they mean "to allow", depends, of course, on the context and the scheme of the Act.

I next turn to section 152. Section 152 deals with assessments. Subsection 152(6), in general terms, deals with reassessments of prior years’ tax arising out of events occurring in a subsequent year. The Minister is obliged to reassess tax for those prior years.

Subsection 152(7) provides:

152(7) The Minister is not bound by a return or information supplied by or on behalf of a taxpayer and, in making an assessment, may, notwithstanding a return or information so supplied or if no return has been filed, assess the tax payable under this Part.

The document to be filed by the taxpayer under subsection 152(6) is a prescribed form amending the return of the earlier year. Subsection 152(7) indicates that regardless of a return or information filed by a taxpayer, the Minister is not bound to accept the return or information in assessing the taxpayer. He may assess the tax payable that he considers appropriate in accordance with the Act. The document filed under subsection 152(6), claiming the deduction for the years 1985, 1986 and 1987, is a return or information that is referred to in subsection 152(7). It follows that the Minister is not bound to reassess by allowing the deduction claimed.

Any other interpretation, it seems to me, could lead to illogical results. If the applicant were correct, the taxpayer, under subsection 152(6), could file the prescribed form claiming an outrageous deduction not supported by any relevant information and the Minister would be obliged to reassess by allowing the deduction claimed. This could not have been the intention of Parliament in using the words "to take into account the deduction claimed" in subsection 152(6). Indeed, subsection 152(7) makes it clear that the Minister is not so bound.

Moreover, I think the scheme of reassessment under the Act favours the respondent’s position. In general terms, under section 152, the Minister is not bound to allow any deduction claimed by a taxpayer, but rather, he may consider it and if appropriate, allow or disallow it. Further, the Minister may reassess a taxpayer’s tax any time up to three years after the date a notice of assessment is issued. The general scheme of the Act is to permit the Minister to reassess at any time within the relevant limitation period. Within that period, he is not bound by the return or information submitted by a taxpayer. It would be inconsistent with the scheme of reassessment under the Act to interpret subsection 152(6) as requiring the Minister to allow any deduction claimed by a taxpayer irrespective of the Minister’s view as to its appropriateness.

Nonetheless, counsel for the applicant argues that subsection 152(6) requires the Minister to reassess by allowing the deduction claimed by the applicant and then, if the Minister wishes to make a further reassessment, he may do so pursuant to subparagraph 152(4)(b)(i) of the Act which provides:

152(4) ...the Minister may at any time assess tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer...and may

(b) before the day that is 3 years after the expiration of the normal reassessment period for the taxpayer in respect of the year, if

(i) an assessment or reassessment of the tax of the taxpayer was required pursuant to subsection (6)...

reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require, except that a reassessment, an additional assessment or an assessment may be made under paragraph (b) after the normal reassessment period for the taxpayer in respect of the year only to the extent that it may reasonably be regarded as relating to

(d) the assessment or reassessment referred to in subparagraph (b)(i) or (ii), [6]

Applicant’s counsel did not explain why, if the Minister was entitled to reassess, he was obliged, in the first instance under subsection 152(6), to allow a deduction which he considered inappropriate. It seems to me that if the Minister is entitled to reassess in the manner he considers appropriate, the first reassessment under subsection 152(6) may also be made in accordance with his view of the appropriateness of the deduction claimed.

If applicant’s counsel is correct, whether the Minister is bound to allow the deduction claimed by a taxpayer under subsection 152(6) will be academic as long as the limitation provided in subparagraph 152(4)(b)(i) has not expired, because the Minister would be able to issue a further reassessment under subparagraph 152(4)(b)(i) immediately following his reassessment under subsection 152(6). The issue of whether the Minister is obliged to reassess by allowing the deduction under subsection 152(6) is only significant if the limitation period for a further reassessment has expired. In the case at bar, there is no specific evidence as to when the limitation periods commenced or expired but I think it would be fair to say that the applicant would not be advancing the argument he has made in this case if the limitation period under subparagraph 152(4)(b)(i) had not expired for at least one of the years of reassessment.

With respect, applicant’s counsel’s argument leads to a very one-sided result. If he is right, the Minister must reassess allowing the deduction claimed with no recourse for further reassessment after the limitation period under subparagraph 154(4)(b)(i) has expired. On the other hand, if the Minister is correct, the applicant may file a notice of objection to the Minister’s reassessment and appeal to the Tax Court of Canada. No rationale has been advanced by counsel for the applicant as to why Parliament would have intended the one-sided result for which he argues. On the contrary, I think an approach that entitles both the Minister recourse from the deduction claimed by the applicant and the applicant recourse from a reassessment made by the Minister, is balanced.

The only basis for the applicant’s argument is that the words "to take into account" must mean "to allow". As I have indicated, this is not the only interpretation of these words, and having regard to the context of section 152 of the Act, and for the scheme of reassessment under the Act generally, an interpretation of the words "to take into account" as meaning "to consider" would be the most reasonable.

I conclude this Court does not have jurisdiction to entertain the applicant’s application. But even if it did, I would find the Minister had complied with the August 10, 1994, order of Strayer J. Should the applicant be dissatisfied with the Minister’s reassessment, he may file a notice of objection and appeal to the Tax Court of Canada within the prescribed limitation periods.

This application is dismissed with costs to the respondent.

Application dismissed.