O'Sullivan v. The Queen, 90 DTC 6278, [1990] 1 CTC 429 (FCTD)

Collier, J.:—This action was initially commenced by way of an originating notice of motion. However, at the hearing before me on July 14, 1987, the parties agreed that this matter would be treated as the trial of an action. It was further agreed a statement of claim would be filed, the materials before me would be treated as if the proceedings were in a trial and my decision would be based as if it were a decision at trial. An order was rendered to that effect on July 15, 1984. A statement of claim was filed by the plaintiff on the same date.

In his statement of claim, the plaintiff seeks an injunction against the defendant Minister and his agents enjoining them from taking any formal collection proceedings contemplated by paragraphs 225.1(a) through (g) of the Income Tax Act, S.C. 1970-71-72, c. 63, as amended, for the purpose of collecting tax assessed against the plaintiff, except as expressly permitted by subsection 225.1(2) of the Act.

By notices of reassessment dated May 22,1984, the plaintiff was advised he had been reassessed for income tax and interest in respect of the 1978, 1979, 1980 and 1981 taxation years. The plaintiff filed notices of objection dated June 5, 1984. In response to the notices of objection, Revenue Canada further reassessed the plaintiff for the taxation years in question. Notices of reassessment were issued, dated December 16, 1985.

On January 13, 1986, the plaintiff filed a notice of appeal in the Tax Court of Canada in respect of the reassessments dated December 16, 1985 (except for 1978). This notice of appeal was filed pursuant to subsection 165(7) of the Income Tax Act which provides as follows:

165.(7) Where a taxpayer has served a notice of objection to an assessment in accordance with this section and thereafter the Minister reassesses the taxpayer's tax for the taxation year in respect of which the notice of objection was served or makes an additional assessment in respect thereof, and sends to the taxpayer a notice of the reassessment or of the additional assessment, as the case may be, the taxpayer may, without serving a notice of objection to the reassessment or additional assessment,

(a) appeal therefrom to the Tax Court of Canada or the Federal Court in accordance with section 169 or subsection 172(2); or

(b) if an appeal to the Tax Court of Canada or the Federal Court has been instituted with respect to the assessment, amend such appeal by joining thereto an appeal in respect of the reassessment or the additional assessment in such manner and on such terms, if any, as the Tax Court of Canada or the Federal Court directs.

Before a hearing could take place before the Tax Court, Revenue Canada advised the plaintiff that if the tax assessed for the 1978, 1979, 1980 and 1981 taxation years was not paid or, alternatively some form of security provided, collection proceedings would be initiated against the plaintiff.

Prior to 1985, taxpayers who disputed an assessment by Revenue Canada, were required to pay the amount of taxes allegedly owing forthwith. If the taxpayer failed to pay the amount assessed without delay, formal collection proceedings could be commenced by Revenue Canada immediately. This was the case even where the taxpayer objected to the amount assessed and commenced appeal proceedings pursuant to the Income Tax Act. It was only after all avenues of appeal had been exhausted in favour of the taxpayer, that he was entitled to repayment of the money he had been required to pay but which was ultimately found not owing.

Due to the hardship caused by these provisions, the legislation was amended in 1985, so that taxpayers are no longer required to pay taxes in dispute before an impartial hearing has been conducted. Although an assessment is still payable by the taxpayer without delay, no formal collection proceedings may be instituted by Revenue Canada within 90 days of the date of the assessment. During those 90 days, the taxpayer may appeal the assessment by filing a notice of objection. Where a taxpayer does file a notice of objection, formal collection proceedings are delayed until Revenue Canada has conducted its review of the objection and until the period the taxpayer has to appeal from Revenue Canada's decision has expired. Should the taxpayer decide to appeal the assessment to this Court or to the Tax Court of Canada, then formal collection proceedings are again delayed until the Court hands down its final decision. These amendments are contained in subsections 225.1(1), (2) and (3) of the Income Tax Act:

225.1(1) Where a taxpayer is liable for the payment of an amount assessed under this Act (in this subsection referred to as the "unpaid amount”), other than an amount payable under subsection 227(9), the Minister shall not, for the purpose of collecting the unpaid amount,

(a) commence legal proceedings in a court,

(b) certify the unpaid amount under subsection 223(1),

(c) require a person to make a payment under subsection 224(1),

(d) require an institution or person to make a payment under subsection 224(1.1),

(e) require the retention of the unpaid amount by way of deduction or set-off under section 224.1,

(f) require a person to turn over moneys under subsection 224.3(1), or

(g) give a notice, issue a certificate or make a direction under subsection 225(1)

before the day that is 90 days after the day of mailing of the notice of assessment.

(2) Where a taxpayer has served a notice of objection under this Act to an assessment of an amount payable under this Act, other than an amount payable under subsection 227(9), the Minister shall not, for the purpose of collecting the amount in controversy, take any of the actions described in paragraphs (1)(a) to (g) before the day that is 90 days after the day on which notice is mailed to the taxpayer that the Minister has confirmed or varied the assessment.

(3) Where a taxpayer has appealed from an assessment of an amount payable under this Act, other than an amount payable under subsection 227(9), to the Tax Court of Canada or to the Federal Court—Trial Division (otherwise than pursuant to subsection 172(1)), the Minister shall not, for the purpose of collecting the amount in controversy, take any of the actions described in paragraphs (1)(a) to (g),

(a) where the appeal is to the Tax Court of Canada, before the day of mailing of a copy of the decision of the Court to the taxpayer; and

(b) where the appeal is to the Federal Court — Trial Division, before the day on which the judgment of the Court is pronounced or the day on which the taxpayer discontinues the appeal, whichever is the earlier.

The plaintiff maintains he is entitled to the benefit of subsection 225.1(3) of the Act, because he appealed to the Tax Court of Canada from the December 16, 1985 reassessments after the amendments had been legislated and the new regime of collection proceedings had come into effect.

The defendant argues, however, the plaintiff is not entitled to protection under subsections 225.1(2) or (3) because they apply only with respect to notices of objection served after 1984, and appeals from assessment objected to after 1984. Since the plaintiff's original notices of objection were filed in 1984, prior to the effective date of these amendments, he is unable to take advantage of their provisions.

The defendant bases its argument on a very strict interpretation of the meaning of the word “objects” as it appears in the Income Tax Act, in particular, in subsection 165(1) which provides as follows:

165.(1) A taxpayer who objects to an assessment under this Part may, within 90 days from the day of mailing of the notice of assessment, serve on the Minister a notice of objection in duplicate in prescribed form setting out the reasons for the objection and all relevant facts.

In order to take advantage of the protective provisions in section 225.1, the defendant argues the plaintiff would have had to file his notice of objection after 1984. It is not sufficient he appealed the second set of reassessments in 1985. That, in the defendant's opinion, does not bring the plaintiff within the requirements of the Act. The plaintiff could have filed a notice of objection after being reassessed by Revenue Canada in 1985. As I understand the defendant's argument, had the plaintiff filed such a notice of objection in 1986 instead of electing to appeal directly to the Tax Court pursuant to subsection 165(7), then the plaintiff would be able to rely on section 225.1. However, since the plaintiff elected to appeal the reassessment instead, he cannot be found to have "objected" to them prior to 1985, as required. An appeal, according to the defendant, does not constitute an objection within the technical meaning that word has in the Act. Accordingly, the defendant submits that formal collection proceedings can properly be brought against the plaintiff and no injunction should issue.

In support of this argument, that the word "object" is used in a technical sense in the Act, the defendant relies on the decision of the Federal Court of Appeal in Canterra Energy Ltd. v. The Queen, [1987] 1 C.T.C. 89; 87 D.T.C. 5019. In that case, the issue was the meaning of the word “minus” in the Income Tax Act. Urie, J. at page 94 (D.T.C. 5022):

The difficulty arises in determining, as here, whether the Governor in Council intended to use the word "minus" in its ordinary or technical sense. Counsel for the appellant argues that the ordinary meaning of “minus” is a technical one, i.e., they are synonymous. Respondent's counsel disagrees. He argues that only if the context supports the contention can a technical meaning be given a word in a statute in preference to its ordinary and grammatical meaning I agree with this view, and, thus, it becomes necessary to examine the word in its context not only with the other words of the paragraph of the regulation but in the context of the statute as a whole.

[Emphasis added.]

In my view, there is nothing in the context of the legislation in this case, which would lead me to find the word "object", or objection, is used in a technical sense instead of in its ordinary and grammatical sense. I do not agree the only way a taxpayer can object to a reassessment or an additional assessment is by way of a notice of objection. In fact, subsection 165(7) explicitly provides no notice of objection is required where a taxpayer disputes a reassessment or an additional assessment. The legislation clearly enables a taxpayer to object either by way of notice of objection or by way of an appeal to this Court or the Tax Court of Canada. The election of proceeding by way of appeal does not, in my opinion, mean the taxpayer has not objected.

In Lor-Wes Contracting Ltd. v. The Queen, [1985] 2 C.T.C. 79; 85 D.T.C. 5310 (F.C.A.), the Court held that the old rules of strict interpretation in dealing with taxation statutes were no longer to be absolutely relied on. MacGuigan, J. stated at page 83 (D.T.C. 5313):

The only principle of interpretation now recognized is a words-in-total-context approach with a view to determining the object and spirit of the taxing provisions.

In this case, the purpose of the amendments contained in section 225.1 is the protection of taxpayer's rights. In my view, it would be contrary to the spirit and intent of the legislation to attach a technical meaning to the word in question, thereby requiring the plaintiff to pay an assessment before an impartial hearing could be conducted. These are the very circumstances the legislation was designed to avoid.

I am satisfied the plaintiff is entitled to the protection of section 225.1. The plaintiff's request for an injunction enjoining the defendant from commencing formal collection proceedings is granted.

The plaintiff is entitled to the costs of this action.

Application granted.