Dufour v. MNR, 90 DTC 1238, [1990] 1 CTC 2351 (TCC)

Tremblay, T.C.J.:—The hearing of this application for an extension of time was held on March 28, 1989, in Québec, Québec.

1. The question is whether the applicant's application is valid to extend the time for filing his notice of appeal against the 1985 taxation year and his notice of objection for the 1986 taxation year.

The deadline for filing the said notice of appeal expired on June 15, 1988. The Minister’s notice of ratification was issued on March 17, 1988. An application for an extension of time dated August 3, 1988 was received by the Tax Court of Canada on August 15, 1988. This application was accompanied by another regarding the notice of objection for the 1986 taxation year.

2. Three conditions are required under paragraph 167(5)(c) of the Income Tax Act if the application is to be allowed.

2.01 The first condition is that the taxpayer must have reasonable grounds for bringing an appeal.

The evidence was that the grounds of appeal are interest expense on mortgage loans of $5,019 in 1985 and $4,817 in 1986, claimed as a deduction from rental income. This fact is prima facie a reasonable ground for bringing an appeal.

2.02 The second condition is that once the 90-day deadline has expired, the application for an extension of time must be filed as soon as circumstances permit.

The 90-day deadline ended on June 15, 1988. The accounting firm handling the taxpayer's business realized in late July that the accountant responsible for Mr. Dufour's file had left the firm. The application was prepared on August 3, 1988.

In my opinion, therefore, this condition was met.

2.03 The third condition is that the reason given by the taxpayer for not filing his notice of appeal within the 90-day deadline must be fair and reasonable.

According to Mr. Dufour, it was the accounting firm, a tenant in a building which he owned and where he had his notary's office, which handled his own accounting and tax business. He gave this firm all the documents relating to taxes, including the letters received from Revenue Canada. He gave them his notice of assessment. The accountant Bertin Fillion prepared the notice of objection in January 1988.

Mr. Dufour said that the letter received from Revenue Canada containing the Minister's notice of ratification disallowing the expense claimed was sent to the firm. He trusted the firm and was sure that the proper steps would be taken accordingly.

3. Case law-analysis

3.01 First, in Cité de Pont-Viau v. Gauthier Manufacturing Limited, [1978] 2 S.C.R. 516; 21 N.R. 192 and Murray Rowen v. City of Montreal, [1979] 1 S.C.R. 511, decisions of the Supreme Court of Canada, the latter upheld the rule that a party cannot be deprived of a right because of his counsel's mistake if the consequences of such a mistake can be corrected without causing any injustice to the opposing party.

The Tax Court of Canada has several times ruled in favour of an application by a taxpayer whose failure to file a notice of objection or notice of appeal within the legal time limit was due to a mistake by an accountant or lawyer.

3.02 In the instant case, counsel for the respondent referred to three judgments of the Federal Court of Appeal, Robert W. Syme, [1988] 2 C.T.C. 91; 88 D.T.C. 6279, judgment in which was rendered on May 4, 1988, Pennington v. M.N.R., [1986] 1 C.T.C. 2497; 86 D.T.C. 1371 (T.C.C.);[1987] 1 C.T.C. 235; 87 D.T.C. 5107 (F.C.A.) and Enns v. M.N.R., [1987] 1 C.T.C. 2256; 87 D.T.C. 208.

3.02.1 In Syme, as in the instant case, an accountant was instructed to "do whatever is necessary to reverse the notice of assessment" of July 3, 1984. The accountant in question had filed the notice of objection. On March 22, 1985, the Minister of National Revenue sent the accountant a notice, with a copy to the taxpayer, stating that he upheld the notice of assessment.

As the appellant had also changed his accounting firm (and this is probably where the confusion arose), the accountant who had filed the notice of objection considered that he had no instructions to proceed. As he had received no instructions to file an appeal, he did nothing further.

In April 1986, Mr. Syme received a notice from the Minister of National Revenue claiming the taxes owed from him. He then contacted his former accountant to ask him to proceed with the matter. On May 19, 1986, a year and 58 days after the Minister's notification (on March 22, 1985), an application for an extension of time was filed with the Tax Court of Canada.

The decision of Judge Rip of the Tax Court of Canada was affirmed by the Federal Court of Appeal, that the application for an extension of time was not filed as soon as circumstances permitted. Throughout the nearly 16-month period, the taxpayer could have contacted the accountant and looked into the matter.

3.02.2 In arriving at his decision, Judge Rip relied on Pennington, a judgment of the Federal Court of Appeal which reversed a decision of the Tax Court of Canada. The problem was similar to Syme. The taxpayer filed his notice of objection late and was informed by a letter from the Department of National Revenue that he should file an application for an extension of time with the Tax Court of Canada. This application for an extension was submitted nine months after receiving this letter.

The Tax Court of Canada judge had allowed the application, on the basis that the accountant's efforts to deal with the problem directly with the Department of National Revenue could be taken into consideration and that, accordingly, the application for an extension was filed as soon as the circumstances permitted.

The Federal Court of Appeal reversed the Tax Court of Canada decision, though one member of the Court dissented.

3.02.3 In Enns, the taxpayer filed an application for an extension of time 14 months after the 90-day period for filing the notice of objection had expired.

The fact that he had instructed an accounting firm to file his tax return before leaving Canada in October 1979 did not favourably influence Judge Sarchuk of the Tax Court of Canada. The taxpayer left the country without leaving an address. He did not contact his accountants. He did not do so until December 1984. They had no idea where he was in November 1983, at the time that a notice of reassessment was issued, and could not take upon themselves the decision to file a notice of objection.

Judge Sarchuk concluded that the taxpayer should bear the fault and that it was not fair and equitable to allow the application.

3.04 In the instant case, the question is not whether the application for an extension of time was filed "as soon as the circumstances permitted" but whether the reasons for not filing it within 90 days were fair and reasonable.

It appears that the fact that the accountant of the firm handling Mr. Dufour's affairs had left that firm becomes a very important point. As Mr. Dufour testified, "it was the firm who was instructed to handle his business, not any particular accountant". The firm was responsible for dealing with the files of the accountant who departed. This mistake should not be a cause of loss to the taxpayer in the present circumstances.

Additionally, the Minister’s notification was posted on June 15, 1988, the accounting firm realized the mistake in late July and the application for an extension of time was filed on August 3, 1988. It was accordingly filed as soon as the circumstances permitted.

4. Conclusion

The application is allowed extending the time for the notice of appeal for the 1985 taxation year and extending the deadline for the notice of objection for the 1986 taxation year, and the said notices, received at the same time as the application, are deemed to have been filed within the legal deadlines.

Application granted.