Solberg v. The Queen, 92 DTC 6448, [1992] 2 CTC 208 (FCTD)

Reed, J.:—The issue raised in the present proceeding concerns the interpretation of a waiver signed by the plaintiff pursuant to subparagraph 152(4)(a)(ii) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"):

. . the Minister may at any time assess tax fora taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the taxation year, and may

(a) at any time, if the taxpayer or person filing the return

(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or

(ii) has filed with the Minister a waiver in prescribed form within the normal reassessment period for the taxpayer in respect of the year,

(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) or would have been required if the taxpayer had claimed an amount by filing the prescribed form referred to in that subsection on or before the day referred to therein,

(ii) there is reason, as a consequence of the assessment or reassessment of another taxpayer's tax pursuant to this paragraph or subsection (6), to assess or reassess the taxpayer's tax for any relevant taxation year,

(iii) there is reason, as a consequence of a transaction involving the taxpayer and a non-resident person with whom the taxpayer was not dealing at arm's length, to assess or reassess the taxpayer's tax for any relevant taxation year, or

(iv) there is reason, as a consequence of an additional payment or reimbursement of any income or profits tax to or by the government of a country other than Canada, to assess or reassess the taxpayer's tax for any relevant taxation year, and

(c) within the normal reassessment period for the taxpayer in respect of the year, in any other case,

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),

(e) the transaction referred to in subparagraph (b)(iii), or

(f) the additional payment or reimbursement referred to in subparagraph (b)(iv).

[Emphasis added.]

The question of the proper interpretation of the waiver was set down for determination, pursuant to Rule 474(1)(a) of the Federal Court Rules, [1] C.R.C. 1978, c. 663 as amended, by court order dated June 17, 1992. That order states the issue in the following terms:

Did the waiver executed by plaintiff in respect of his 1979 taxation year permit the Minister of National Revenue to reassess him pursuant to subsection 152(4) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") by increasing the capital gain realized from his disposition of the Goose Lake shares from $48,575 to $100,797 in respect of the said year?

The agreed statement of facts which was filed for the purposes of deciding this question reads in part as follows:

1. On July 1, 1967 plaintiff acquired 12,750 common shares of Goose Lake Broadcasting Ltd. (hereinafter referred to as "Goose Lake") at a cost of $1,912.50.

2. In 1979, plaintiff held a 25% interest in Goose Lake consisting of the following shares:

12,875 common shares

10 preferred shares

3. In 1979, plaintiff sold his 25% interest in Goose Lake for proceeds of disposition of $112,500.

4. Plaintiff reported a capital gain of $48,575 from the said sale in his return of income for the 1979 taxation year.

5. By Notice of Assessment dated July 17, 1980 the Minister of National Revenue (hereinafter referred to as the "Minister") assessed plaintiff in respect of his 1979 taxation year on the basis of his reported income.

6. An officer of the Minister completed the typewritten portions of a waiver in prescribed form T2029 in respect of plaintiff's 1979 taxation year. . . ..

The waiver which the plaintiff signed reads:

NAME OF INDIVIDUAL OR CORPORATION (PRINT) — NOM DU PARTICULIER OU DE LA CORPORATION (EN MAJUSCULES)

-STANLEY J. SQLBE&G-

ADORESS — ADAESSE

-BOX lù8Q_

DRUMHELLER . ALBERTA

	WAIVER FOR THE TAXATION YEAR	. g 29
	AENONCIATION POUR L'ANNÉE D'IMPOSITION
TO 1 OYO.
WAIVER	RENONCIATION
The four year time limit referred to in subsection 152(4) of the	ll est par les présentes renoncé, pour l'année d imposition susindiquée, à
income Tax Act. within which the Minister may reassess of make	l'application du délai de quatre ans prévu au paragraphe 152(4) de la Lo:
additional assessment: of assess tax, interest of penalties under	de l'impôt sur le revenu pendant lequel le Ministre peut établir une nouvelle

Part’J 11 1TAR 24-25,26 of the Act ts hereby werved for cotisation ou des cotisations supplémentawes ou fixer des impôts. intérêts

Loi, 4 l'égard de:

Adjusted cost baste of shares in Goose Lake Broadcasting Co. Ltd,

Pomon of Of :-

“(me: the appicable Part Dote _May 3. 1980 ta Parte

“inscrire	099’
Form authcnzed and pooscvibtd Dy order ol the Minister of Nucc‘al Reverue
forme Culot .«

The underlined portions of the waiver indicate wording which was inserted into the printed form. This wording is specific to the plaintiff's case. The plaintiff subsequently signed and filed this form on May 8, 1984.

The gist of the dispute which is raised for determination is whether the waiver signed by the taxpayer allows the Minister to reassess tax payable with respect to a capital gain, as a result of an increase, over the amount declared by the taxpayer, in the adjusted cost base of the Goose Lake Broadcasting Co. Ltd. shares. This is admittedly a Part I tax. As is clear from the text set out above, the waiver refers to taxes assessed pursuant to Part III of the Income Tax Act. Generally speaking Part III relates to penalty taxes payable by a corporation when the corporation has elected to pay a capital dividend to its shareholders which exceeds the balance of its capital dividend account at the time the dividend is paid.

I accept counsel for the plaintiff's argument that the onus of proving that the plaintiff signed a waiver which encompasses tax payable as a result of an increase of capital gain pursuant to Part I of the Act lies with the defendant. Also any ambiguity in the wording of the waiver must be interpreted against the defendant. Officials of the Department of National Revenue prepared the waiver which the taxpayer signed.

One peculiar aspect of this application is the lack of extrinsic evidence regarding the circumstances which existed at the time the waiver was signed. The defendant has produced no notes or copies of correspondence regarding the nature of the defendant's concerns, in 1980-1984, which led to the taxpayer being asked to sign the waiver. The taxpayer has filed no such evidence nor has he given any viva voce or affidavit evidence as to his understanding of the concerns which were raised by the defendant in 1980-84 respecting his 1979 tax return. The evidence before me is the text of the waiver and the notice of objection which was filed on March 26, 1986. This latter, which made no reference to Part III tax, is relied upon by the defendant as evidence of subsequent conduct which should be taken into account when determining what was intended to be covered by the May 8, 1984 waiver.

The nature of a waiver under subparagraph 152(4)(a)(ii) was discussed by Mr. Justice Joyal in CAL Investments Ltd. v. Canada, [1990] 2 C.T.C. 418, 90 D.T.C. 6556 (F.C.T.D.), page 426 (D.T.C. 6562):

A waiver of the sort at issue in this case, might be interpreted as an accommodation between the Crown and a taxpayer for the better administration of the Income Tax Act and to provide a more efficient determination of any liability thereunder. In the light of the limitations on assessments under section 152 of the Act, the Crown requests a waiver so that it may continue its assessment or audit work in a normal administrative mode without having to worry about limitations. The taxpayer, on the other hand, knows full well that on an assessment being made, he alone has the burden of proving it wrong. That burden becomes much heavier if the Crown, facing the end of the limitation period, issues what might be termed a premature assessment which, for purposes of abundant caution, would include many sundry items which the taxpayer would have to traverse one by one. The taxpayer in those circumstances would look upon a waiver as being to his own benefit as well as the Crown's and would ordinarily comply with the Crown's request.

In many cases, also, the waiver might be limited to specified issues, i.e., those where assessing or auditing processes have not been completed and which in fact remain the only outstanding items on which the Crown can ultimately decide to assess or reassess. This narrows the field of the assessment and again provides mutual advantages to both the Crown and the taxpayer.

Counsel for the plaintiff argues, in this case, that the area of dispute between the taxpayer and the Crown was specifically narrowed to Part III tax. He argues that subparagraph 152(4)(a)(ii) requires that a waiver be in a pre- scribed form and that that prescribed form requires a designation of the applicable Part of the Income Tax Act under which an additional assessment or a reassessment may be made, and that in this case the Part which was specifically designated was Part III.

After considering the arguments presented to me I have concluded that the reference to Part III in the waiver was inserted by mistake. I reach this conclusion on the following grounds: there is no evidence that the dispute between the taxpayer and the Department involved a Part III election; Part III only applies to a corporate taxpayer and this could not in any event be applicable to the plaintiff's personal tax liability; the reference to the Income Tax Application Rules, 1971, S.C. 1970-71-72, c. 63 as amended, which are listed while peripherally relevant to a Part III election are directly relevant to the computation of the adjusted cost base of shares for the purposes of calculating the capital gain arising on disposition of the shares; the descriptive text of the waiver refers to the issue in dispute as one relating to the adjusted cost base of shares which again is directly related to the computation of the capital gain.

Further explanation is required with respect to the first reason set out above. As noted, there is no evidence from either party concerning the circumstances surrounding the waiver. A lack of evidence is often a telling consideration in assessing the factual conclusion which should be drawn. While it is understandable that the defendant's files may lack notes and other indicia of the events of 1980-84, it is highly unlikely that if a Part III election had been in issue, there would be no documentary evidence of that fact. No evidence of any such election was produced either by the plaintiff or by the defendant. This is a telling consideration. Even more telling is the fact that a Part III tax liability only applies to a corporate taxpayer, which this plaintiff is not.

Having concluded that the reference in the waiver to Part III was an error, I must then consider whether the waiver is invalid for the purposes of reassessing the taxpayer for Part I tax. I am not prepared to so conclude. In my view, the error is a technical defect which does not impair the substance of the waiver. The appropriate approach to the interpretation of the waiver is to seek to ascertain the intention of the parties as expressed in that document together with any relevant circumstances for which evidence is available. This is consistent with the approach taken in interpreting taxing statutes themselves, see, for example, Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305, at pages 315-16 C.T.C. (D.T.C. 6323).

In my view, it is clear for the reasons set out above that what the Minister was seeking to have extra time to consider and what the taxpayer intended to agree to when he signed the waiver, was the reassessment of the adjusted cost base of the shares for the purpose of determining the tax payable by the plaintiff as a result of the capital gain arising out of the disposition of those shares. This conclusion is supported by the fact that when the Minister did send a notice of reassessment to the taxpayer on that basis the notice of objection which the taxpayer sent back made no reference to Part III tax as being the real issue between them. That notice replied to the reassessment on its merits.

The defect created by inserting “III” in the waiver form instead of "I" is comparable to the defect dealt with by Mr. Justice Joyal in CAL Investments Ltd. v. Canada, supra. In that case the corporation had not affixed its corporate seal despite the express provision in the waiver form requiring it to do so. Mr. Justice Joyal held that the taxpayer could not use that defect to invalidate the waiver and that the waiver was not a nullity because of that defect. He pointed out that the requirement that a corporate seal be used was directory only, not mandatory and that it was for the benefit of the Minister. The Minister could therefore rely on the waiver if he chose to do so even if no seal had been affixed.

In this case the admonition that the appropriate Part of the Income Tax Act be identified in the waiver form is equally directory and not mandatory. Indeed, I note that the text of subparagraph 154(4)(a)(ii) specifically states that a waiver once signed allows for the assessment of tax under this Part”, that is under Part I. I agree with counsel's argument that, unlike the defect in the CAL Investments case the instruction that the relevant Part of the Income Tax Act be identified in the waiver is not merely for the Minister's benefit. It is for the benefit of both the Minister and the taxpayer. Nevertheless I cannot conclude that a mistake in this identification results in the waiver being a nullity when it appears from the text of the waiver as a whole and from the surrounding circumstances to the limited extent that evidence of such exists in this case, that both parties knew what was in issue. No prejudice arose to the plaintiff as a result of the mistake.

For the reasons given, I would answer the question posed in the order of June 17,1992 in the affirmative.

Taxpayer's application denied.