Date: 20000925
Dockets: 2000-183-IT-APP; 2000-185-IT-APP
BETWEEN:
JOHN HAIGHT, SOPHIE HAIGHT
Applicants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Order
Bell, J.T.C.C.
[1] The application in respect of each Applicant is for an
Order, pursuant to section 166.2 of the Income Tax Act
("Act"), extending the time for serving a Notice
of Objection in respect of the 1996 and 1997 taxation years.
[2] The dates of Notices of Assessment and of the date by
which a Notice of Objection must be filed are as follows:
John:
1996 taxation year:
date of assessment May 29, 1997
expiration of objection period August 27, 1997
1997 taxation year:
date of assessment June 11, 1998
expiration of objection period September 9, 1998
Sophie
1996 taxation year:
date of assessment June 5, 1997
expiration of objection period September 3, 1997
1997 taxation year:
date of assessment August 17, 1998
expiration of objection period November 15, 1998
[3] John Haight testified that he and his wife bought a
bowling alley in 1967, operated it until June 11, 1993 and then
sold it. He stated that when he looked at the 1996 and 1997
returns prepared by a national accounting firm, he determined
that the value used for the computation of capital gain was
patently wrong.
[4] He sent a letter dated September 24, 1997
("Letter") to the Sudbury Taxation Centre requesting an
adjustment "for the tax assessments in 1990, 1993, 1994,
1995 and 1996". That letter outlined a number of facts
supporting his claim for a valuation change. It is this letter
that the Applicants submit constitutes a valid application for an
extension of time for the 1996 taxation year. The Applicants also
seek to have an application filed by their counsel on August 18,
1999 constitute a valid application for extension of time in
respect of the 1997 taxation year.
[5] In this regard the Applicant, John Haight, gave evidence
of his physical condition. Further, a letter from Dr. Peter G.
Turner, Psychiatrist, dated January 17, 2000 stated that he
had been attending the Applicant, John Haight, since March 1,
1994, that he then suffered from moderately severe symptoms of
depression and obsessive-compulsive symptoms and was in the midst
of a family crisis with one of his daughters. That crisis related
to her use of drugs and passing fraudulent cheques. The letter
reads, in part:
At the time of initial presentation Mr. Haight suffered from
symptoms of depression of mood, feelings of sadness, becoming
increasingly preoccupied, having feelings of guilt, having
difficulties in making decisions as to what to do, having
disruption of his sleep pattern, having lost his usual energy,
having some difficulty in memory and concentration and increased
feelings of tension. He had been trying hard to fight the
symptoms of depression by using various cognitive techniques,
such as willpower and prayer. These have been unsuccessful in
giving him any relief.
[6] He also wrote that additional elements contributing to Mr.
Haight's psychiatric condition included a head injury and
fractured skull suffered at the age of 11, a history of
obsessive-compulsive tendencies and a previous history of
depressive mood swings and occasional excessive use of alcohol.
Finally, his letter reads:
From a psychiatric point of view, there is convincing evidence
that Mr. Haight suffered significant psychiatric
symptomatologies. This resulted in impairment in his thinking,
his decision-making and in dealing with his personal and business
affairs. His symptoms were most disabling in the period from
early 1994, just prior from when he came to see me, to the end of
1996. Since that time he continues to show slow and steady
improvement in residual psychiatric symptoms.
[7] In addition to the Letter, documents submitted to the
Court included:
1. Letter from Revenue Canada signed by Ron Woelek, Director
of St. Catharine's Tax Services Office to John Haight, dated
November 10, 1998 with respect to the fair market value and
stating that in his opinion the Department had exercised its
discretion in a fair and reasonable manner.
2. Copy of handwritten letter dated March 23, 1998 signed by
both Applicants reading in part:
I am appealing the market value of $90,000 established by the
assessor Mark Danko of Kernahan & Graves because he was
unaware of the offer ...
et cetera. This letter has a handwritten note at the bottom of
page 1 to the effect that it was sent to the Director.
3. Copy of a letter of June 16, 1998 from St. Catharine's
Tax Service Office to Mrs. Haight respecting 1990 and 1993
through 1996 Income Tax Returns, stating that if she did not
agree with the departmental decision she could
... request another review by writing to this office's
Director. We have, therefore, forwarded your letter of appeal to
the Director's office for their action.
4. Letter from Ron Woelek, Director of St. Catharine's Tax
Service Office to John Haight dated May 7, 1999 respecting the
valuation matter originally raised by him. That letter reads in
part:
Any further review of your file would require a review of the
appraisal report by Kernahan and Graves in its entirety. As you
noted you no longer have a copy, discussion with Mark Danko of
the office of Kernahan and Graves, indicated he would provide you
a copy of the report to then supply to us, as he could not
provide us a copy directly.
If we do not receive this information from you by May 31, 1999
we will consider this case closed.
5. A letter from Chief of Appeals, St. Catharine's Tax
Service Office, dated November 10, 1999, to applicants'
counsel, Robert Jason, acknowledging receipt of his applications
for extension of time to file an objection. It stated that an
extension could not be granted for 1996 because the application
was not made within one year within the expiration of time
otherwise permitted for filing an objection. With respect to 1997
it said:
We require further information in order to determine whether
or not the extension will be granted. Specifically, it is
necessary that the taxpayers demonstrate that;
a) within the period allowed for serving an objection, they
were unable to act or to instruct another to act on their behalf
or that they had a bona fide intention to object to the
assessment;
b) given the reasons in the application and the circumstances
of the case, it would be just and equitable to grant a time
extension and
c) the application was made as soon as circumstances
permitted.
[8] The letter then stated that if no further information was
received within 30 days Revenue Canada would consider the matter
closed and would close its files.
APPLICANTS' WRITTEN SUBMISSION:
[9] The Applicants' written submission read, in part, as
follows:
1. Mr. John Haight suffered from a severe depression. Details
regarding Mr. Haight's symptoms are fully explained by
his psychiatrist, Dr. Turner, in a letter dated January 17, 2000
(Tab 10 of the Applicants' Documents submitted to the Court
at the hearing of the Application on March 20, 2000). Mr.
Haight's severe medical conditions precluded him from making
day-to-day decisions and business decisions. In addition to Mr.
Haight's medical problems, the Applicants also experienced
family problems. Their youngest daughter, Emilia, was involved in
drugs, thus causing enormous stress to the Applicants.
2. Consequently, due to all these problems, the Applicants
were unable to deal adequately with their own tax affairs. Errors
were made in the preparation of the Applicants' 1993 income
tax returns which are largely related to the V-Day value of the
bowling alley.
3. Mr. John Haight was in a better physical condition in 1996
and 1997 and was able to deal with his tax affairs. The
Applicants filed income tax returns in 1996 and 1997 claiming a
capital gains reserve in respect of the capital gain realized in
1993.
4. Shortly after filing the 1996 income tax returns, the
Applicants realized that errors were made in the 1993 income tax
returns and the Applicants contacted the Minister of National
Revenue (hereinafter referred to as the "Minister")
seeking adjustments for those errors.
5. The Minister assessed the Applicants for the 1996 and 1997
taxation years by Notices of Assessment dated and mailed to Mrs.
Sophie Haight on June 5, 1997 and August 17, 1998
respectively and to Mr. John Haight on May 29, 1997 and June 11,
1998 respectively.
6. The Applicants wrote to the Minister at the Sudbury
District Office requesting an adjustment for the prior taxation
years to correct the reported capital gain.
7. As shown in the Applicants' documents, the Applicants
wrote to the Minister on many occasions requesting adjustments to
the Applicants' income tax returns for prior taxation
years.
8. The Applicants sought legal advice. The solicitor for the
Applicants wrote to the Minister requesting that the Minister
accept the 1996 and 1997 tax returns as Notices of Objection.
9. The Minister replied to the Applicants' solicitor's
letter and denied that any notice of objection was filed for the
1996 and 1997 taxation years.
10. The issue before the Court is whether the letter of
September 24, 1997, sent by the Applicants to the Minister is a
valid application for an extension of time to object to the
assessments for the 1996 and 1997 taxation years pursuant to
subsection 166.1(2) of the Act.
[10] Section 166.1(1) of the Income Tax Act
(hereinafter, the "Act") reads in part as
follows:
166.1(1) Where no notice of objection to an assessment has
been served under section 165, nor any request under subsection
245(6) made, within the time limited by those provisions for
doing so, the taxpayer may apply to the Minister to extend the
time for serving the notice of objection or making the
request.
(2) An application made under subsection (1) shall set out the
reasons why the notice of objection or the request was not served
or made, as the case may be, within the time otherwise limited by
this Act for doing so.
[11] Applicants' counsel said that if the Minister refuses
to extend the time for serving the notice of objection or for
making the request to file a Notice of Objection, a taxpayer may
apply to this Honourable Court for an extension of time to file a
Notice of Objection under section 166.2 of the Act which
provides:
166.2(1) A taxpayer who has made an application under
subsection 166.1 may apply to the Tax Court of Canada to have the
application granted after either
(a) the Minister has refused the application,
or
(b) 90 days have elapsed after service of the
application under subsection 166.1(1) and the Minister has not
notified the taxpayer of the Minister's decision,
but no application under this section may be made after the
expiration of 90 days after the day on which notification of the
decision was mailed to the taxpayer.
(2) An application under subsection (1) shall be made by
filing in the Registry of the Tax Court of Canada, or by sending
by registered mail addressed to an office of the Registry, 3
copies of the documents referred to in subsection 166.1(3) and 3
copies of the notification, if any, referred to in subsection
166.1(5).
[12] Applicant's counsel then said that the Respondent
opposes the granting of extension of time for the filing of a
Notice of Objection for two reasons.
First, counsel for the Respondent argues that if the letter of
September 24, 1997 from the Applicants to the Sudbury Taxation
Centre was to be considered a Notice of Objection, it is late as
it was not filed within 90 days of the Notice of Reassessment.
Therefore, the Applicants must submit to the Minister an
Application for extension of time. Second, the letters sent by
the Applicants to the Minister cannot be considered as
application for extension of time because the Applicants did not
"set out the reasons why the notice of objection or the
request was not served or made, as the case may be, within the
time otherwise limited by this Act for doing so".
[13] Counsel continued in his written submissions as
follows:
In respect of the Respondent's submission that no
application was made by the Applicants, the Applicants submit
that the letter of September 24, 1997 written by the Applicants
to the Minister at the Sudbury Taxation Centre is indeed an
application under subsection 166.1(2) of the Act ...
Counsel for Respondent contends that the letter of September
24, 1997 cannot be considered as an application for an extension
of time because the letter does not set out the reasons why the
notice of objection was not made within 90 days of the
assessment.
In reply to this argument, the Applicants submit that the word
"shall" contained in subsection 166.1(2) of the
Act "ought to be read as "directory"
instead of "mandatory". In The Queen v.
Ginsberg, 96 DTC 6372, the Federal Court of Appeal considered
the meaning of the word "shall" in light of subsection
152(1) of the Act. The Federal Court of Appeal stated at
page 6374:
The word "shall" found in subsection 152(1), which
is presumptively imperative, ought to be read as
"directory" instead of "mandatory". But more
importantly, recent case law indicates that the labels
"mandatory" and "directory" offer no magical
assistance in defining the nature of a statutory direction. The
inquiry should be result oriented. If reading a statutory
direction as imperative leads to serious inconveniences, then, it
should be avoided. In the particular instance, subsection 152(1)
should be read as directory in result.
[14] In R. v. Smith (1991), 4 Admin. L.R.(2d) 97 at
112, Cullen, J. of the Federal Court (Trial Division) made the
following observations:
David P. Jones and Anne S. de Villars, in their text
Principles of Administration Law (Toronto: Carswell, 1985)
observe at page 111 that in determining whether a statutory
requirement is mandatory or directory, the court should
consider:
The policy of the Act, all its provisions, the reason for
including the specific requirement in question, whether any
statutory consequence is provided for failure to comply, and what
the practical effect of non-compliance is on the complainant or
any other person.
[15] Applicants' counsel submitted that the proper
approach to the interpretation of the word "shall" is
set out in Driedger, Construction of Statutes,
2nd edition, at page 14:
It is submitted that the initial fundamental question is: who
is prejudiced by compliance or non-compliance? The answer is easy
where the statute itself prescribes a penalty, as in penal
statutes; there, the violator must pay, and shall is therefore
"mandatory". The difficult cases are those where the
statute does not indicate what the consequences of non-compliance
are to be. Hence, the consequences of compliance and
non-compliance must be considered in the light of the purpose and
text of the statute and the facts of the particular case. The
courts have shown a tendency not to penalize an innocent person
who was not a party to the violation.
[16] Counsel also referred to the Interpretation Act,
R.S.C. 1985, c. I-21, which provides that the word
"shall" is to be construed as imperative. He then
submitted that it is also directory and in support of that
statement referred to R v. Buchanan, (1878), 1 C.C.C. 442,
quoting Bain, J.A.:
The Interpretation Act says that "shall"
shall be construed as imperative. It seems, however, that in
saying this, the meaning of The Interpretation Act is not
that "shall" shall always be construed as imperative in
the sense that the necessary result of disobedience is the
nullifaction of the proceedings. In speaking of the same
provision in the Ontario Statues, Burton, J.A. said, "The
Interpretation Act leaves the law pretty much as it had been
previously held by judicial decision to be"; Trenton v.
Dyer, 21 A.R. 379, and the decision of this case in the
Supreme Court (24 S.C.R. 474) bears out this view. Speaking of
the directions of a statute that certain things shall be done,
Strong, C.J., said "Prima facie the presumption, as well
under The Interpretation Act as without it, is that they
are imperative. It is for the appellants to demonstrate that they
are directory merely."
[17] Counsel suggested that the word "shall" should
be construed in light of the purpose of the text of the statute
and the facts of the case. He submitted further that section
166.1 of the Act was amended under what the Minister
refers to as the "Fairness Package" which was
implemented in 1991. He continued with the words of the Minister,
Otto Jelinek:
The Fairness Package is an important part of my continuing
commitment to make the tax system simpler, easier and fairer. The
measures I am announcing today will allow for common sense in
dealing with taxpayers who, because of personal misfortune or
circumstances beyond their control, are unable to meet our
deadlines or comply with our rules.
...
In addition, the Fairness Package will allow refunds for
taxation years starting with 1985 and streamline the process by
which individuals can make a formal objection to an assessment
issued by the Department.
...
The amendments will eliminate the formalities associated with
the filing of an objection. Currently, taxpayers are required to
file a notice of objection using a prescribed form, in duplicate,
and by registered mail with the Deputy Minister of Revenue
Canada, Taxation. This must be done within 90 days from the date
a notice of assessment was sent to the taxpayer.
The amendments will allow all taxpayers to initiate the appeal
process simply by setting out the facts and reasons for the
objection in a letter to the Chief of Appeals in their local
district office or taxation centre. Taxpayers will continue to
have the option of using a form provided by the Department.
[18] He stated that in light of the foregoing, the purpose of
section 166.1 is to make "the tax system simpler, easier,
and fairer" and that, therefore, the applicants should not
be penalized because of family problems and physical conditions
that are beyond their control.
RESPONDENT'S WRITTEN SUBMISSION:
[19] Respondent's counsel submitted that the Letter cannot
be considered as an application for an extension of time because
it does not set out the reasons why the notice of objection was
not made within 90 days of the assessment. Counsel advanced the
same argument with respect to the August 16, 1999 application
regarding the 1997 assessments.
[20] Counsel stated that, with respect to the 1996 taxation
year, the application was not made within one year after the
expiration of the time otherwise allowed by the Act for
serving a Notice of Objection as required by paragraph
166.1(7)(a) of the Act. He submitted that nowhere
in the letter did Mr. Haight even request an extension of time.
He referred to subsection 166.1(2) which states:
... an Application shall set out the reasons why the Notice of
Objection or the request was not served or made ...
[21] He said that no reasons were provided by the applicant in
his letter.
[22] Counsel then said that section 11 of the
Interpretation Act reads:
The expression "shall" is to be construed as
imperative and the expression "may" as permissive.
[23] He referred to Reference re Language Rights Under
the Manitoba Act:
It is therefore incumbent upon this Court to conclude that
Parliament, when it used the word "shall" ... intended
that those sections be construed as mandatory or imperative, in
the sense that they must be obeyed, unless such an interpretation
of the word "shall" would be utterly inconsistent with
the context in which it has been used and would render the
sections irrational or meaningless.
[24] He then submitted that interpreting subsection 166.1(2)
as anything but imperative would render subsection 166.1
irrational in its entirety. He said that the Minister cannot
grant the application without reasons as to why the objection was
not served on time. He then quoted section 166.1(7) which
reads:
(7) No application shall be granted under this section
unless
(a) the application is made within one year after the
expiration of the time otherwise limited by this Act for serving
a notice of objection or making a request, as the case may be;
and
(b) the taxpayer demonstrates that
(i) within the time otherwise limited by this Act for serving
such a notice or making such a request, as the case may be, the
taxpayer
(A) was unable to act or to instruct another to act in the
taxpayer's name, or
(B) had a bona fide intention to object to the
assessment or make the request,
(ii) given the reasons set out in the application and the
circumstances of the case, it would be just and equitable to
grant the application, and
(iii) the application was made as soon as circumstances
permitted.
[25] He stated, in the closing portion of his written
submission that the Letter does not even request an extension of
time let alone provide the Minister with reasons why one ought to
be granted.
ANALYSIS AND CONCLUSION:
[26] The Letter which was submitted to Revenue Canada within
the time limit required for an application for extension of time,
clearly referred to the 1996 assessment. While not stating that
it was an application, the language used in it is easy of the
interpretation that the Applicants wanted their affairs reviewed
for that year. Also, the letter of March 23, 1998 sent to the
Director and signed by both Appicants, including the words:
I am appealing the market value of ...
was sent within the time limit required for an application for
extension. The Applicants were encouraged to assume that the
matter was indeed open, the letter of June 16, 1988 to Mrs.
Haight from Revenue Canada stating that she could "request
another interview". That letter did not include any advice
to the Applicants that they could file an application for
extension of time to file a Notice of Objection.
[27] The May 7, 1999 letter to John Haight from the Director
of St Catharine's Tax Service Office by referring to any
"further review of your file" would also have led the
Applicants to believe that the matter was still open.
[28] I accept the submissions of the Applicants' counsel
that the word "shall" in the facts of this case should
be interpreted as directory, not as mandatory. Section 166.1
obviously is designed to afford relief to a taxpayer who
disagrees with an assessment. Although it sets out specific
requirements it should not, in these circumstances, be
interpreted to foreclose the possibility of an earnest taxpayer,
unsophisticated in tax matters, being able to proceed with an
appeal. That is simply unjust. Both the letter dated September
24, 1997 and the letter of March 23, 1998 were sent to
Revenue Canada within one year after the expiry date for filing a
Notice of Objection for the 1996 taxation year[1]. Either, or both, should be
regarded as an application to extend the time for serving a
Notice of Objection.
[29] As it appears that the subject matter sought to be
altered for the 1997 year, namely the reserve for capital gain[2], is the same as
for 1996, and as an application for 1997 was, albeit without
containing all requirements, made on a timely basis, I conclude
that the Applicants are entitled to an Order for extension of
time to file a Notice of Objection for both taxation years.
[30] The applicants are entitled to costs in this
application.
Signed at Ottawa, Canada this 25th day of September 2000.
"R.D. Bell"
J.T.C.C.
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