WTC Western Technologies Corp. v. MNR, 86 DTC 6027, [1986] 1 CTC 110 (FCTD)

Collier, J.:—The applicant is a British Columbia company carrying on the business of scientific research and development. In April 1985, the company designated, pursuant to subsection 194(4) of the Income Tax Act, S.C. 1970- 71-72 c. 63, amounts in a total of $24,875,000.That sum was moneys received by the applicant on the issue of its shares and debt obligations in April 1985.

The applicable sections of the Income Tax Act are set out in Part VIII — sections 194 and 195.

On June 24, 1985 the Minister of National Revenue issued a notice of assessment directed to the applicant. The assessment was said to be:

Part VIII assessment levied under subsection 195(2) of the Income Tax Act.

The amount was $12,437,500, that is 50 per cent of the total amount designated. By subsection 194(1) of the Act every corporation is required to pay a tax under Part VIII, for a taxation year, of 50 per cent of the amounts designated. This tax, under the scheme of the Act, may be refundable.

The applicant brought this originating notice of motion for certiorari, or relief in the nature of certiorari, to quash the notice of assessment and certain other decisions made by the Minister of National Revenue.

I shall deal first with the attack on the notice of assessment.

The liability to pay the tax is, as I earlier pointed out, under subsection 194(1). By subsection 195(1), where a corporation is liable to pay tax for a taxation year, it is required to file a return under Part VIII of the Act on or before the day on which it is required to file a return under Part I for a taxation year.

Under subsection 195(2) there is a requirement for payment of certain amounts “‘on account of its tax payable under this Part for the year”. If those interim payments are not made, interest is charged.

I make this comment. The notice of assessment is purportedly based on subsection 195(2). That subsection does not impose a tax, or a tax liability. It merely imposes a duty on the taxpayer to make interim payments of "amounts” on account of tax payable.

Finally, subsection 195(8) reads as follows:

(8) Sections 151, 152, 158, 159 and 162 to 167 and Division J of Part I are applicable to this Part, with such modifications as the circumstances require.

In this particular case, the applicant’s fiscal period ends on March 28. Its next fiscal period will end March 28, 1986. Tax returns under Part I and Part VIII are not required to be filed until September 28, 1986. (See subsection 195(1) and subsection 150(1).)

The applicant’s position is that while there may be an ultimate liability to pay tax of $12,437,500, or less, the Minister cannot assess the taxes owing until the return, earlier referred to, is filed: Applying subsection 152(1), the Minister is required to examine a return and then assess the tax for the year.

The applicant says the Minister here, in his decision to assess before the end of the taxpayer's fiscal period, and before any return was required to be filed, was made without statutory authority; the Minister therefore exceeded his jurisdiction; certiorari is the appropriate remedy.

I agree with that contention.

For the respondent, it was said the applicant’s remedy was not by way of judicial review, but by way of the appeal provisions in the statute. That is, a notice of objection, and an appeal to either the Tax Court or the Federal Court of Canada. The respondent relied on Parsons et al. v. M.N.R., [1983] C.T.C. 321; 83 D.T.C. 5329 (F.C.T.D.); reversed [1984] C.T.C. 352; 84 D.T.C. 6345 (F.C.A.). In the Parsons case the Minister assessed several taxpayers pursuant to subsections 159(2) and (3) of the Income Tax Act. The taxpayers brought certiorari proceedings under section 18 of the Federal Court Act. Pratte, J. said for the Court of Appeal, at 352 (D.T.C. 6346):

We are all of opinion that the appeal must succeed on the narrow ground that the only way in which the assessments made against the respondents could be challenged was that provided for in sections 169 and following of the Income Tax Act. This, in our view clearly results from section 29 of the Federal Court Act.

The learned judge of first instance held that, in this case, section 29 did not deprive the Trial Division of the jurisdiction to grant the application made by the respondents under section 18 of the Federal Court Act because, in his view, the appeal provided for in the Income Tax Act was restricted to questions of “quantum and liability” while the respondents’ application raised the more fundamental question of the Minister’s legal authority to make the assessments. We cannot agree with that distinction. The right of appeal given by the Income Tax Act is not subject to any such limitations.

In our view, the Income Tax Act expressly provides for an appeal as such to the Federal Court from assessments made by the Minister; it follows, according to section 29 of the Federal Court Act, that those assessments may not be reviewed, restrained or set aside by the Court in the exercise of its jurisdiction under section 18 and 28 of the Federal Court Act.

The Parsons case, in my view, is distinguishable. No question was there raised as to the jurisdiction of the Minister to issue the assessment in question. The trial judge put the matter this way at 326 (D.T.C. 5533):

The question which is posed for answer is which of the two methods available is more appropriate to resolve the issue to be decided, which is whether it was within the power of the Minister to assess the applicants as he purported to do pursuant to subsections 159(2) and (3) of the Income Tax Act or, put another way, was the Minister wrong in law in assessing the applicants as he did.

In this case, it is not a question of whether the Minister was wrong or right in his assessment. It is a question whether there was any jurisdiction to issue the assessment at all.

It is my view the Minister was premature in issuing the assessment; it was a condition precedent that a return be filed before the assessment could issue. Relief in the nature of certiorari is an appropriate remedy.

Nor does subsection 152(7), in my opinion, assist the Minister. The applicant had not filed a return; but there was no requirement, at the time the assessment was issued, that a return should have been filed.

I turn now to the other decisions attacked.

On November 18, 1985, the Minister issued a certificate:

Court No. ITA-1609-85

TO THE FEDERAL COURT OF CANADA TRIAL DIVISION

In the matter of the Income Tax Act, Canada Pension Plan, Unemployment Insurance Act, 1971, Petroleum and Gas Revenue Tax Act:

and

In the matter of an assessment or assessments by the Minister of National Revenue under one or more of the Income Tax Act, Canada Pension Plan, Unemployment Insurance Act, 1971, Petroleum and Gas Revenue Tax Act, against: WTC WESTERN TECHNOLOGIES CORPORATION, 500 — 744 West Hastings Street of Vancouver, in the Province of British Columbia.

CERTIFICATE

The undersigned certifies, in addition to such other amounts as may have been previously certified, the following amounts payable by the above named that have not been paid, namely,

TAXATION YEAR

or

ASSESSMENT DATE	AMOUNT	PENALTY	INTEREST
UNDER THE INCOME TAX ACT
24 June/85	$12,437,500.00	—	—
constituting a total amount of $12,437,500.00.

This certificate is executed under one or more of the Income Tax Act, Canada Pension Plan, Unemployment Insurance Act, 1971, Petroleum and Gas Revenue Tax Act.

Certified at Ottawa this 18th day of November, A.D. 1985

That certificate was filed in the Federal Court of Canada.

In my view the certificate should be quashed. It is obviously based on the impugned assessment. If there was no jurisdiction to issue the assessment, and it is quashed, then the certificate must, as well, fall.

On November 14, 1985 the Minister issued a requirement to pay, directed to the Yorkshire Trust Company in Vancouver, British Columbia. The Yorkshire Trust holds an amount of approximately $2,600,000 in escrow.

It seems to me this direction must be quashed. It refers to the tax debtor's liability of $12,437,500. Again, to my mind, the requirement to pay arises from the impugned assessment.

The requirement to pay is therefore quashed.

Counsel for the respondent took the position that the relief sought by the applicant could not be granted in these proceedings; a declaratory action should have been brought, particularly because certain provisions of the collection procedures set out in the Income Tax Act were challenged as violating the Charter of Rights.

In view of the decision I have come to, I do not have to deal with the Charter argument. In any event, it is quite clear on the originating notice of motion that declaratory relief is not claimed.

The applicant is entitled to its costs of this originating notice of motion.

Applications granted.