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Citation: 2003TCC509
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Date: 20030807
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Docket: 2002-624(IT)G
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BETWEEN:
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ROLAND PARENT,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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AMENDED REASONS ON RESPONDENT'S
MOTION
Mogan J.
[1] The Respondent has filed a Notice
of Motion for an order (i) to strike out the Notice of Appeal
pursuant to paragraph 53(c) of the General Procedure
Rules; and (ii) to dismiss the appeal pursuant to paragraph
58(3)(a) of the General Procedure Rules. At the
commencement of the hearing, counsel for the Respondent withdrew
his motion with respect to paragraph 53(c) of the
Rules but continued the motion with respect to paragraph
58(3)(a). Technically, I think that this is a motion to
quash the appeal under paragraph 58(1)(a) of the
Rules or a motion to dismiss under paragraph
58(3)(b) but, because counsel for both parties were in
agreement concerning the substance of the Respondent's
motion, I will decide the motion on the basis of the arguments
submitted by counsel.
[2] The basic facts can be obtained
from the pleadings and from the affidavit of Marcel Dumas, filed
in support of the Respondent's motion.
1. The Minister of
National Revenue first assessed tax for the Appellant's 1996
taxation year by Notice of Assessment dated May 12, 1997
showing taxable income of $29,875 and federal tax of $693.84.
2. On May 18, 2000, the
Minister issued a Notice of Reassessment for 1996 showing taxable
income of $1,060,243 and federal tax of $321,865.30. This
reassessment increased the Appellant's taxable income by
approximately $1,030,000. The increase in taxable income was
derived primarily from a transaction which the parties identify
as the "Villa Toyota" transaction.
3. The Appellant objected
to the reassessment of May 18, 2000 and, on December 14, 2001,
the Minister issued a Notice of Confirmation with respect to that
reassessment. The Appellant filed a Notice of Appeal in this
Court on February 11, 2002 for his 1996 taxation year, responding
to the Minister's confirmation. The principal issue in that
Notice of Appeal is the Villa Toyota transaction. The Respondent
filed a Reply to the Notice of Appeal on April 19, 2002; and the
parties have had examinations for discovery.
4. On May 26, 2003, the
Minister issued a document entitled Notice of Reassessment for
1996 showing taxable income of $1,236,140 and federal tax of
$376,955.48. This assessment or reassessment increased the
Appellant's taxable income by approximately $176,000. The
increase in taxable income was derived primarily from amounts
which I would describe as alleged appropriations under section 15
of the Income Tax Act. It is the appeal commenced on
February 11, 2002 (see above) which the Respondent now seeks to
quash.
[3] The Respondent's motion is
based on the proposition that, when the Minister issues to a
taxpayer a valid reassessment with respect to a particular
taxation year, any prior assessment with respect to that
particular taxation year becomes a nullity. The proposition was
first stated by Jackett P. (as he then was) in Coleman C.
Abrahams [No. 1] v. M.N.R., 66 DTC 5451 at 5452:
Assuming that the second reassessment is valid, it follows, in
my view, that the first reassessment 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
assessment for a year were followed by an "additional"
assessment for that 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.
The Respondent argues that the document of May 26, 2003 is a
reassessment which has caused the reassessment of May 18, 2000 to
become a nullity. The Notice of Appeal filed on February 11, 2002
is appealing from the reassessment of May 18, 2000 (i.e. a
nullity). Therefore, the appeal should be quashed.
[4] The Appellant argues that the
document of May 26, 2003 is an "additional" assessment
for 1996 as contemplated by Jackett P. in the passage from
Abrahams quoted above. As such, the reassessment of May
18, 2000 continues to stand as an independent ground for appeal
with respect to the Villa Toyota transaction. And Roland Parent,
if he so wishes, may institute a fresh objection and appeal from
the assessment of May 26, 2003 with respect to the alleged
appropriations under section 15.
[5] The real dispute between the
parties on this motion is whether the assessing action of the
Minister of National Revenue on May 26, 2003 is a valid
reassessment which would cause any prior assessment for
1996 to become a nullity, or whether the Minister's
assessing action on May 26 is an additional assessment which
would permit any prior assessment for 1996 to continue as
a valid basis for appeal.
[6] The Appellant's argument in
support of an "additional" assessment is based upon a
comparison of the two documents each entitled "Notice of
Reassessment" dated May 18, 2000 and May 26, 2003,
respectively. The May 18 document shows taxable income of
$1,060,243, net federal tax of $321,865 and net Ontario tax of
$220,344. The May 26 document shows revised taxable income of
$1,236,140, net federal tax of $376,955 and net provincial tax of
$258,336. Comparing the relevant amounts, the May 26 document
increased taxable income, net federal tax and net provincial tax
as follows:
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Taxable Income
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Federal Tax
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Provincial Tax
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May 26, 2003
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$1,236,140
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$376,955
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$258,336
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May 18, 2000
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1,060,243
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321,865
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220,344
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Increase
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$175,897
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$55,090
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$37,992
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[7] In the above table, the increase
in taxable income (approximately $175,000) is derived from the
alleged appropriations under section 15. Also, the aggregate
increase ($93,082) in both federal and provincial tax is
approximately 53% of the increase in taxable income, and so the
proportion seems to be correct. On the face of the May 26
document (at the right hand side) is a separate column entitled
"Statement of Account" which contains the following six
entries:
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Payments received this year
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$0.00
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Amount reassessed
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950,047.79
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Less: Previous assessment
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812,778.88
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Increase or decrease
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137,268.91 (Inc)
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Interest adjustment
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93,039.98 (Dr)
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Revised balance
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$230,308.89
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[8] In order to establish that the May
26 document is an "additional" assessment, counsel for
the Appellant relies on three computations. First, the
"amount reassessed" ($950,047) in the above statement
of account is the total of the following three items clearly
shown on the face of the document:
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Net federal tax
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$376,955
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Net provincial tax
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258,336
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Penalties
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314,756
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Total
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$950,047
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Second, the amount subtracted ($812,779) in the statement of
account is the total of the three comparable items all clearly
shown in the May 18 document:
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Net federal tax
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$321,865
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Net provincial tax
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220,344
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Penalties
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270,569
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Total
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$812,778
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And third, when the increase of $137,268 is added to the
interest adjustment of $93,039, it produces the revised balance
of $230,307 in the statement of account.
[9] Counsel for the Appellant argues
that the "Revised balance" of $230,307 is the
"additional" amount assessed on May 26 and that the
amount ($812,778) subtracted or "backed out" is the
amount assessed in the May 18 document and preserved as a
separate amount owing. The Appellant supports this position by
reference to the Respondent's Exhibit R-2 in this motion
which is Revenue Canada's statement of account to the
Appellant for the period May 18, 2000 (first reassessment date)
to June 27, 2003 (one month after the May 26 reassessment
date).
[10] Exhibit R-2 begins by showing the tax,
interest and penalty (aggregate $1,058,028) assessed for 1996 on
May 18, 2000. The next entry on Exhibit R-2 is a credit on July
28, 2000 (probably the date of the Appellant's Notice of
Objection) for the precise same amount ($1,058,028) with the
notation "amount now under appeal". This entry probably
reflects Revenue Canada's policy of not attempting to collect
amounts which are under appeal. I make certain assumptions here
because there was no explanation of Exhibit R-2 offered to the
Court by its author through affidavit or otherwise. In any event,
the remaining amounts entered on Exhibit R-2 are all amounts
assessed for 2000, 2001 and 2002 less any payments or refunds;
plus fresh amounts assessed on May 26, 2003 for 1996, 1997, 1998
and 1999. Significantly, on June 20, 2003 there is a debit of
$1,357,185 with the notation "appealed amount
reinstated". The "current balance" at June 27,
2003 as shown in Exhibit R-2 appears to be the total of all
amounts owing by the Appellant to Revenue Canada whether under
appeal or not.
[11] In my opinion, counsel for the
Appellant has made a fundamental error in his failure to
distinguish between an assessment and a statement of account. In
Pure Spring Company Limited v. M.N.R., [1946] Ex. Cr. 471,
President Thorson[1] described an assessment at page 500:
The assessment is different from the notice of assessment; the
one is an operation, the other a piece of paper. The nature of
the assessment operation was clearly stated by the Chief Justice
of Australia, Isaacs, A.C.J., in Federal Commissioner of
Taxation v. Clarke ((1927) 40 C.L.R. 246 at 277):
An assessment is only the ascertainment and fixation of
liability.
a definition which he had previously elaborated in The King
v. Deputy Federal Commissioner of Taxation (S.A.); ex parte
Hooper ((1926) 37 C.L.R. 368 at 373):
An "assessment" is not a piece of paper; it is an
official act or operation; it is the Commissioner's
ascertainment, on consideration of all relevant circumstances,
including sometimes his own opinion, of the amount of tax
chargeable to a given taxpayer. When he has completed his
ascertainment of the amount he sends by post a notification
thereof called a notice of assessment" ... But neither the
paper sent nor the notification it gives is the
"assessment". That is and remains the act of operation
of the Commissioner.
It is the opinion as formed, and not the material on which it
was based, that is one of the circumstances relevant to the
assessment. 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 Court ought not to construe the appeal provided by the
Act, which is specifically an appeal from the assessment,
as extending to such a different operation as the Minister's
discretionary determination under section 6(2), in the absence of
a clear indication that Parliament so intended. ...
The above description of an assessment has been cited with
favour many times and is still good law. It is a particular
assessment which is the subject of an appeal. In this regard, the
following provisions of the Income Tax Act are
relevant:
151 Every person required by
section 150 to file a return of income shall in the return
estimate the amount of tax payable.
152(1) The Minister shall, with all due dispatch,
examine a taxpayer's return of income for a taxation year,
assess the tax for the year, the interest and penalties, if any,
payable and determine
(a)
...
165(1) A taxpayer who objects to an assessment under
this Part may serve on the Minister a notice of objection, in
writing, ...
169(1) Where a taxpayer has served notice of objection
to an assessment under section 165, the taxpayer may appeal to
the Tax Court of Canada to have the assessment vacated or varied
after either
(a) the
Minister has confirmed the assessment or reassessed, or
(b) 90 days
have elapsed after service of the notice of objection and the
Minister has not notified the taxpayer that the Minister 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.
171(1) The Tax Court of Canada may dispose of an appeal
by
(a)
dismissing it; or
(b) allowing
it and
(i) vacating
the assessment,
(ii) varying the
assessment, or
(iii) referring the
assessment back to the Minister for reconsideration and
reassessment.
248(1) In this Act,
"assessment" includes a reassessment;
It is clear from subsection 152(1) that the Minister may
assess tax, interest and penalties. In tax jargon, we often say
"he was assessed" or "his return was
assessed" but, technically, it is only tax, interest and
penalties which can be assessed in the sense that an amount of
liability is ascertained. See the above passage from Pure
Spring.
[12] The May 26 document shows revised
taxable income of $1,236,140 representing the aggregate of (i)
taxable income of $1,060,243 shown on the reassessment of May 18,
2000; plus (ii) the amount of $175,897 derived from alleged
appropriations under section 15. The fact that the May 26
document shows the aggregate of those two amounts as
"revised taxable income" is a good indication that the
Minister on May 26, 2003, was assessing tax for 1996 on the
Appellant's aggregate income from all sources. In other
words, the May 26 document appears to be a reassessment of tax on
the Appellant's total 1996 income. There is, however, a
stronger reason for concluding that the May 26 document is a
reassessment and not an additional assessment.
[13] The May 26 document shows net federal
tax of $376,955.48 and provincial tax of $258,336.14. For
countless years, the income of an individual resident in Canada
has been taxed at graduated or progressive rates, meaning that
lower income is taxed at a lower rate and higher income is taxed
at a higher rate. The graduated or progressive rates of tax are
illustrated in subsection 117(2) of the Act as it applied
to 1996:
117(2) The tax payable under this Part by an individual
on the individual's taxable income or taxable income earned
in Canada, as the case may be, (in this subdivision referred to
as the "amount taxable") for the 1988 and subsequent taxation
years is
(a) 17% of
the amount taxable, if the amount taxable does not exceed
$27,500;
(b) $4,675
plus 26% of the amount by which the amount taxable exceeds
$27,500, if the amount taxable exceeds $27,500 and does not
exceed $55,000;
(c) $11,825
plus 29% of the amount by which the amount taxable exceeds
$55,000.
The Appellant is a resident of Ontario. Under an agreement
between the federal government and the Ontario government, the
federal government collects an income tax on behalf of Ontario.
The Ontario income tax imposed on an individual is
approximately 50% of the federal tax, plus an
Ontario surtax which is also progressive at different rates.
If the Minister wanted to assess tax under Part I of the
Act on an additional amount not previously included in
computing the income of an individual for a particular taxation
year, it would be very awkward for the Minister to make an
"additional" assessment because the rate or rates of
tax on such additional amount would depend upon the aggregate
amount of income (and resulting taxable income) on which tax had
previously been assessed.
[14] I am satisfied from the face of the May
26 document (Exhibit "E" to the affidavit of Marcel
Dumas) that the Minister made a reassessment of tax for 1996 on
May 26, 2003. The statement of account on the right-hand side of
the May 26 document shows how the Appellant's liability to
Revenue Canada has changed (i.e. increased) as a result of the
reassessment made on May 26, 2003. That statement of account,
however, is a consequence of and did not influence the
Minister's assessment of tax, interest and penalties on May
26, 2003. I repeat the following statement of Jackett P. in the
passage from Abrahams quoted in paragraph 3 above:
... 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.
It is obvious on the face of the May 26 document that the
Minister has fixed the Appellant's "total tax for the
year" and has not merely fixed an amount of tax in addition
to that already assessed. This is what I mean by Appellant
counsel's failure to distinguish between an assessment and a
statement of account.
[15] Having regard to the progressive rates
of tax in section 117, I cannot imagine the Minister choosing to
issue an "additional" assessment to an individual under
Part I of the Act if the Minister's objective is to
assess tax on an "additional amount" not previously
included in income. An individual may also have the
residue of a "non-capital loss" from an adjoining year
which may be deducted under section 111 of the Act in
computing taxable income; and the deduction of such loss may
offset all or a portion of the additional amount on which the
Minister proposes to assess tax. As a practical matter, it would
be awkward and imprudent for the Minister to issue an
"additional" assessment to any individual for a
particular year under Part I of the Act. I can imagine
the Minister issuing an additional assessment to an individual
for a particular year under Part XIII of the Act with
respect to tax which the individual failed to withhold and remit
from rents, royalties, etc. paid to a non-resident of Canada. See
subsection 215(6) and paragraph 227(10)(b). Tax under
Part XIII is at a fixed rate.
[16] In a written submission after the
hearing of the Respondent's motion, counsel for the Appellant
stated:
... an "additional" assessment by nature is one
which is in addition to an existing assessment. In the case
before you, the May 18, 2000 assessment relates solely to the
sale of shares and land relating to Villa Toyota. The May 26,
2003 assessment relates solely to shareholder benefits (some
$175,897.94 worth) alleged to be undeclared by the taxpayer, Mr.
Parent. The May 26, 2003 assessment does not vary the May 18,
2000 assessment in any particular. Rather, it simply
"adds" an additional amount to the taxpayer's
income due to the unrelated matters having to do with alleged
shareholder benefits. In this sense the May 26, 2003 assessment
is "additional". ...
It is not accurate to state "the May 18, 2000 assessment
relates solely to the sale of shares and land relating to Villa
Toyota." The May 18 assessment of tax was based on aggregate
taxable income which included an amount derived from the Villa
Toyota transaction, perhaps not previously reported or included.
Similarly, it is not accurate to state "the May 26, 2003
assessment relates solely to shareholder benefits (some
$175,897.94 worth) alleged to be undeclared." The May 26
assessment of tax was based on aggregate taxable income which
included an amount derived from alleged shareholder benefits,
perhaps not previously reported or included. The Appellant's
counsel seems to think that the Minister assesses a particular
transaction. I repeat the proposition stated at the end of
paragraph 11 above. The Minister does not assess an individual,
or a tax return, or a transaction, or even income. Technically,
under subsection 152(1), the Minister may assess only tax,
interest and penalty.
[17] When the Minister assessed tax on May
26, 2003, he was assessing tax on the aggregate of all of the
Appellant's income for 1996 from all sources including the
Villa Toyota transaction and the alleged shareholder benefits. As
such, the Minister's assessment on May 26, 2003 for 1996 was
a reassessment; and it nullified all prior assessments for
1996.
[18] The Notice of Appeal as presently
drafted is an appeal from the assessment made on May 18, 2000 for
1996. That was a valid assessment when made but the recent
assessment of May 26, 2003 for 1996 nullifies all earlier
assessments for 1996. Accordingly, the Notice of Appeal as
presently drafted is an appeal from a nullity and must be quashed
unless it is amended. Left to myself, I would grant the
Respondent's motion and quash the appeal. At the conclusion
of the hearing, however, counsel were in agreement that, if I
should decide to grant the Respondent's motion, I would defer
issuing any order so that the Appellant would have an opportunity
to file an amended Notice of Appeal.
[19] The Appellant shall have until
September 1, 2003 to file an Amended Notice of Appeal challenging
the assessment of May 26, 2003. If the Appellant fails to file
such an amended Notice of Appeal by September 1, 2003, the appeal
commenced on February 11, 2002 shall be quashed. The Respondent
will have its costs of this motion in any event of the cause.
Signed at Ottawa, Canada, this 7th day of August,
2003.
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