Millers Credit Jewellers Ltd. v. The Queen, 84 DTC 6205, [1984] CTC 218 (FCTD)

Dubé, J:—These two actions were heard together on common evidence. Action no T-786-83 deals with the plaintiff's 1968 taxation year and action no T-256-75 with the plaintiffs 1969 taxation year.

The plaintiff company (“Millers”) has been operating a jewellery store in Vancouver for more than sixty years. In 1956 it purchased a fifty year old building at the corner of Granville and Georgia Streets. It occupied only the ground floor of the two-storey building as the top storey was unusable. In 1961 Millers enlarged and renovated the ground floor to accommodate its rapidly flourishing business.

It is common ground that the corner of Granville and Georgia Streets in Vancouver is one of the most prosperous retail areas in the province. As early as 1964 the City of Vancouver was considering the redevelopment of Block 42 (which includes Millers’ property) in the downtown core of Vancouver and prepared appraisal reports and other plans outlining this proposed scheme. On October 29, 1968 the City Council passed a resolution expropriating Block 42 and a notice of expropriation was given to the plaintiff on October 30, 1968. More than a year later, or on December 9, 1969, a deed of the property from Millers to the City of Vancouver was registered in the Vancouver land registry office. At that time the City made a down payment in the amount of $432,500 to Millers. A further payment in the amount of $623,656 was received by the plaintiff on July 2, 1974 in final satisfaction for the expropriation.

In filing its 1968 and 1969 corporation income tax returns Millers claimed capital cost allowance in the amount of $4,500 for the 1968 year and a terminal loss in the amount of $86,000 for the 1969 taxation year.

By notices of reassessment dated March 28, 1972 the Minister reassessed Millers for its 1968 and 1969 taxation years on the basis that: (a) the property was expropriated in October, 1968; (b) Millers was not entitled to claim capital cost allowance in the amount of $4,500 in 1968; (c) Millers was required to include an additional $37,600 in its 1968 income, this amount being the excess of expropriation proceeds attributable to the building on the property over its undepreciated capital cost; and (d) the plaintiff was not entitled to claim a terminal loss in the amount of $86,000 in its 1969 taxation year.

On May 23, 1972 Millers filed notices of objection in respect of both years. With reference to the 1968 taxation year, Millers objected that it did not dispose of the property in 1968 and, in the alternative, if it was entitled to receive the proceeds of the expropriation in 1968, it was entitled to allocate all of it to the real property and none to the depreciable property; and in the further alternative, that if any part of the proceeds were receivable in 1968, only an amount equal to the undepreciated capital cost should be attributed to the depreciable property.

The Minister confirmed his 1969 assessment on May 3, 1973.

On that same date, by notice of reassessment the Minister adjusted the plaintiffs 1968 taxation year by the following adjustment:

The plaintiff did not at that time, or at any time before this action, appeal the reassessment for 1968. The reason given was that the May 3, 1973 notice was sent to Millers who did not bring it to the attention of its solicitors. The defendant’s contention is that the Court does not have the jurisdiction to hear the 1968 appeal as it was not filed within the 90-day limit prescribed under section 169 and subsection 172(1) of the Income Tax Act, RSC 1952, c 148 (am SC 1970-71- 72, c 63).

As to the notice of confirmation for the year 1969, Millers launched an appeal before the Tax Review Board on the grounds that the property was not expropriated in 1968 and that it was entitled to claim capital cost allowance in the sum of $4,500 in 1968 and was further entitled to a terminal loss in the amount of $86,000 for 1969.

The Tax Review Board heard the 1969 appeal and allowed it in part, holding that the fair market value of the building was equal to its undepreciated capital cost. The Board ordered the Minister to reassess Millers for its 1969 taxation year on that basis.

The undepreciated capital cost of the plaintiffs depreciable property at the opening of its 1968 taxation year was $90,500. The capital cost allowance claimed for 1968 was $4,500, thereby reducing the plaintiffs undepreciated capital cost at the beginning of its 1969 taxation year to $86,000.

The facts, as outlined above, are largely agreed to by both parties. The first issue to be resolved is whether this Court has jurisdiction to hear the appeal from the 1968 assessment. The second issue is whether Millers is entitled to allocate a ail value to the building under paragraph 20(6)(g) of the old Income Tax Act, RSC 1952, c 148.

Under subsection 172(2) of the new Act (which admittedly governs the first issue) a taxpayer may appeal to the Federal Court of Canada “at a time when, under section 169, he could have appealed to the Tax Review Board”. The whole of section 169 read as follows:

169. Where a taxpayer has served notice of objection to an assessment under section 165, he may appeal to the Tax Review Board to have the assessment vacated or varied after either

(a) the Minister has confirmed the assessment or reassessed, or

(b) 180 days have elapsed after service of the notice of objection and the Minister has not notified the taxpayer that he 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. (My italics)

It is Millers’ contention that the Minister has neither confirmed nor reassessed the assessment after the notice of objection of May 23, 1972. Millers alleges that the notice of reassessment of May 3, 1973 (reducing the expropriation proceeds attributable to the building by $3,817) is not a notice either confirming or reassessing the 1968 assessment. The plaintiff, therefore, invites the Court to rule that since the Minister has not moved after the filing of Millers’ notice of objection, and since more than 180 days have elapsed (paragraph 169(b)), it is still open for the taxpayer to appeal.

And counsel for Millers argues that, although the document of May 3, 1973 is titled “Notice of Reassessment”, it is not in fact a notice of reassessment as it does not meet any of the objections raised by the plaintiff in its notice of objection. It will be recalled that the plaintiff objected to the 1968 assessment on the ground that the property was not disposed of in 1968, whereas the May 3, 1973 “Notice of Reassessment” merely provides for the reduction by $3,817 of the expropriation proceeds attributable to the building. According to counsel this amount of $3,817 has no relation to the objection and is incomprehensible.

Counsel relies on Pure Spring Company Limited v MNR, [1946] CTC 169; 2 DTC 844, where the Exchequer Court of Canada in 1964 established a distinction between the assessment and the notice of assessment. The assessment is not merely a piece of paper, it is an official act, as the President put it at 857:

The assessment, as I see it, is the summation of all the factors representing tax liability, ascertained in a variety of ways, and the fixation of the total after all the necessary computations have been made.

The Tax Appeal Board referred to that case in Benaby Realties Ltd v MNR, 28 Tax ABC 176; 62 DTC 3. The Board held that a so-called ‘‘nil assessment” was an assessment whereby “no tax is levied because no tax is payable”.

In Radio Engineering Products Limited v MNR, [1973] CTC 29; 73 DTC 5071, Kerr, J of this Court found that an explanatory form (Form T7W-C) indicating adjustments in the computation of the taxpayer’s loss for 1961 and its taxable income for 1962 did not refer to the amount of tax assessed. He did not take that to be evidence that the Minister vacated the assessment. In spite of Form T7W- C, the court found that “the merits of that assessment are before this Court”.

In Coleman C Abrahams (No 1) v MNR, [1966] CTC 690; 66 DTC 5451, Jack- ett, P of the Exchequer Court of Canada referred to an “additional” assessment. He said at 5452:

Assuming that the second re-assessment is valid, it follows, in my view, that the first re-assessment is displaced and becomes a nullity. The taxpayer cannot be liable on an Original assessment as well as on a re-assessment. It would be different if one assess- ment for a year were followed by an “additional” assessment for the year. Where, however, the “re-assessment” purports to fix the taxpayer’s total tax for the year, and not merely an amount of tax in addition to that which has already been assessed, the previous assessment must automatically become null.

In The Queen v Oneil Lambert, [1974] CTC 516; 74 DTC 6368, Walsh, J of this Court also dealt with an “additional” assessment. He says as follows at 6372:

. .. On the basis of this interpretation, which I accept, as an analysis of the forms makes it clear that this was the case, these “reassessments” were not really reassessments so as to annul and replace the earlier reassessments of October 30, 1973 in accordance with the Abrahams and Walkem cases (supra) but rather fall within the distinctions made by those cases and being “additional assessments”, it is possible for the taxpayer to remain liable on the original assessments to which the notices of objection were made as well as on these additional reassessments.

After quoting subsection 152(8) of the Act, the learned judge adds as follows:

The fact that the same forms are used for “Additional Assessments as for “Reassessments” is, to say the least, misleading.

The May 3, 1973 notice of reassessment, read alone and standing solely by itself, would indeed be confusing. However, had Millers turned it over to its solicitors, they would undoubtedly have grasped its significance and placed it in its proper context.

The notice of reassessment of March 28, 1972 outlines in some details the adjustments to Millers’ declared income. It adds an excess of expropriation proceeds over undepreciated capital cost in the amount of $37,600. It explains that the excess “has been taxed under section 43”. The notice of reassessment of May 3, 1973 is clearly linked to it. It refers to “the net income previously assessed” in the amount of $79,058.79 and deducts therefrom the reduction of expropriation proceeds attributable to the building in the amount of $3,817. It further deducts donations in the amount of $2,430 for a final revised taxable income in the amount of $72,811.79 for the taxation year, 1968.

The May 3, 1973 notice of reassessment is obviously not a point by point answer to the objections raised by Millers in its notice of objection, but it is a true, valid notice of reassessment for the year 1968, varying the previous assessments in the amounts mentioned. By that notice the Minister has reassessed under the provisions of subsection 165(3) of the Act after the taxpayer’s notice of objection has been served under subsection 165(2). Therefore, no appeal under section 169 may be instituted after the expiration of 90 days from the day the May 3, 1973 notice of reassessment was mailed to the taxpayer. Under the circumstances, this Court has no jurisdiction to hear the taxpayer’s appeal for his 1968 taxation year.

I shall now turn to the second issue, that is whether Millers is entitled to allocate a nil value to the building under paragraph 20(6)(g) of the old Act. It will be recalled that the Tax Review Board allowed the plaintiffs appeal in part. The Minister had allocated $124,283 to the building, but the Board reduced it to its undepreciated capital cost of $86,000. The plaintiff argued before the Board, as it did before me, that the building was worhtless and that, since the City was not interested in the building, it paid only for the land. In fact, the building was demolished in due course by the developers. The member of the Board said as follows:

It is inconceivable that the appellant, in negotiating for the value of its real estate, including improvements, would consider the value of the building as nil. It had effected substantial renovations only six years earlier at a cost of approximately $70,000.

I cannot find fault with that conclusion of the Board. While the building itself meant nothing to the City, it meant something to Millers who operated a very successful jewellery [business] within its walls and had it recently renovated. In any expropriation, the value of a building must be considered in the compensation payable to the expropriated party. It is inconceivable that an expropriating authority would disregard the existence of, and fail to compensate for improvements upon the land it expropriates merely because it will have no use for them.

This view may appear to fly in the face of the majority decision of the Supreme Court of Canada in The Queen v Malloney’s Studio Limited, [1979] CTC 206; 79 DTC 5124, but it really does not. In the Malloney’s Studio case the taxpayer agreed to sell a parcel of land ‘‘clear of all buildings” and caused his building to be demolished before conveying the land to the purchaser. The majority held that because the building was not subject to the contract of sale, the purchaser acquired no equitable interest in it, and the sale price accordingly related only to the land. That transaction did not give rise to proceeds of disposition in respect of the building as the taxpayer did not receive compensation for property taken. Such is not the case here. Millers’ property was not sold by way of an agreement of sale, but expropriated. The compensation paid took into consideration not only the land, but the real value of the building on it.

Under the circumstances the appeal of the plaintiff with reference to the 1969 taxation year is dismissed. Counsel for the defendant accepts the Tax Review Board valuation of the building at its undepreciated capital cost of $86,000.