The Queen v. Canadian Marconi Co., 91 DTC 5626, [1991] 2 CTC 352 (FCA)

Mahoney, J.A. (Stone and Desjardins, JJ.A., concurring):—This is an appeal from a reported decision of the Trial Division [[1989] 2 C.T.C. 128; 89 D.T.C. 5370] which granted the respondent a declaration that the Minister of National Revenue is not statute barred from reassessing the respondent for the taxation years 1977-1981, notwithstanding the limitation and waiver provisions of subsection 152(4) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the 'Act"). The subsection, at the relevant times, read as follows:

152. (4) The Minister may at any time assess tax, interest or penalties under this Part 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 4 years from the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year.

(b) within 7 years from the day referred to in subparagraph (a)(ii), 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, or

(ii) there is reason, as the consequence of the reassessment or assessment 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, and

(c) within 4 years from the day referred to in subparagraph (a)(ii), 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 assessment may be made under paragraph (b) after 4 years from the day referred to in subparagraph (a)(ii) only to the extent that it may be reasonably regarded as relating to the assessment or reassessment referred to in that paragraph.

The seven- and four-year limitation periods have since been reduced to six and three (S.C. 1984, c. 45, s. 59(1)) but subsection 152(4) remains otherwise the same. Subparagraph (a)(i) and paragraph (b) are not immediately in play although they must, of course, be considered in the context of the legislative scheme. There is no question of misrepresentation or fraud. The extra three years allowed by paragraph (b) enables the otherwise statute-barred assessment or reassessment of a return only when an entitlement to a deduction arises in one of the circumstances enumerated in subsection 152(6), e.g., an increase in or the fixing of a loss that may be carried back to the taxation year of the return to be assessed or reassessed.

The action proceeded entirely on agreed facts. The original dispute between the Minister and respondent concerned the characterization of interest on short-term securities. The Minister characterized it as income from property and excluded it from the computation of the respondent's Canadian manufacturing and processing profits under subsection 125.1(1) of the Act. The respondent contended that it was income from an active business and, therefore, to be taken into account in that computation. As to its taxation years 1973 to 1976 inclusive, the respondent objected to the Minister's reassessments. It was ultimately successful in an appeal to the Supreme Court of Canada ([1986] 2 C.T.C. 465; 86 D.T.C. 6526), which rendered its decision November 6, 1989.

For the taxation years in issue in this appeal, 1977 to 1981 inclusive, the respondent continued to earn interest on short-term investments, to include it in its computation of Canadian manufacturing and processing profits and to file its income tax returns accordingly. Those returns were, respectively, first assessed January 29, 1980; September 25, 1979; January 24, 1980; December 11, 1980 and March 18, 1982. As to the taxation years in issue, those are, respectively "the day referred to in subparagraph (a)(ii)" from which the four-year limitation period of paragraph 152(4)(c) ran. While the appeal against the 1973 to 1976 reassessments was before the courts, by notices of reassessment dated July 4, 1983, the Minister reassessed the respondent's 1977 to 1981 returns, excluding the investment income from the computation of Canadian manufacturing and processing profits. The respondent did not file notices of objection nor did it file waivers within the four-year limitation period. That period expired in respect of all taxation years in issue before the Supreme Court rendered its judgment.

The respondent has asked the Minister to reassess it for 1977 to 1981 in accord with the Supreme Court's judgment. The Minister says he is powerless to do so. There is no question of compelling him to do so.

The conclusions of the learned trial judge begin at page 138 (D.T.C. 5377) of the reported decision. He concluded, first, that the statute is ambiguous and then stated the alternative interpretations open in the following terms:

1. In resolving the ambiguity in the text of subsection 152(4), should one read into it the intention of Parliament to write finis to the whole assessment scheme if the limitation periods mentioned therein are not respected? If so, that would be the end of the matter.

2. On the other hand, if it should be found that the limitations imposed are for the benefit of the taxpayer, it would continue to be the Minister’s prerogative to assess at any time, leaving it to the taxpayer to avail himself of his defences if he so wishes.

It is to be noted that the issue was not stated by the learned trial judge, nor was it put to us, on the basis that the limitation period may be waived by the taxpayer in advance of the Minister reassessing, otherwise than in the time and manner prescribed by subparagraph 152(4)(a)(ii).

The argument is that, notwithstanding the limitation period, the Minister may at any time reassess any taxpayer in respect of any taxation year; the taxpayer may then elect to waive the limitation period by not raising it in defence. That is the way waiver comes into the process and, if the Minister had the power to reassess, there could, in my view, be no reason at all why a taxpayer ought not, by foregoing a private right to object to a reassessment, waive the limitation period [1] . Since the Minister may reassess any tax return at any time, the corollary to the argument is that, at the whim of the Minister, every taxpayer is liable to be called upon in a timely fashion, first by notice of objection and, if the Minister does not relent, by institution of an appeal in the Tax Court, to assert the benefit of the limitation period and be prepared to litigate to whatever level of appeal the Minister may, by leave or as of right, elect to pursue the reassessment.

The respondent argues that the decision of Reed, J., in Davis v. The Queen, [1984] C.T.C. 564; 84 D.T.C. 6518 at 565 (D.T.C. 6519) (F.C.T.D.) is authority for that proposition. There, it was said:

The Minister is not required to prove misrepresentation before he sends out a notice of reassessment which is dated beyond the 4-year time period provided for in the statute. Misrepresentation must be proved only if the matter goes to trial. When a taxpayer receives a notice of reassessment he has two choices; he can pay it or he can object. If he agrees with the reassessment he will normally take no further steps and pay the amount claimed; if he disagrees with it he will object and take the matter to trial; at which point in a case such as the present the Minister has the onus of proving misrepresentation.

It appears that, in that case, the Minister had alleged misrepresentation in reassessing beyond the four-year period. In that circumstance, the statement of the law is unexceptionable, subject to the Minister not changing his mind before the matter gets to trial. Clearly, a reassessment based on a misrepresentation as contemplated by subparagraph 152(4)(a)(i) may be made beyond the four-year period and, equally clearly, the proof of the allegation is to be made at trial.

The seminal decision is that of Cameron, J., in M.N.R. v. Taylor, [1961] C.T.C. 211; 61 D.T.C. 1138 (Ex. Ct.) at 214 (D.T.C. 1139) where it was said:

. . . in every appeal, whether to the Tax Appeal Board or to this Court, regarding a re-assessment made after the statutory period of limitation has expired and which is based on fraud or misrepresentation, the burden of proof lies on the Minister to first establish to the satisfaction of the Court that the taxpayer. . . has "made any misrepresentation or committed any fraud . . ." unless the taxpayer in the pleadings . . . or at the hearing of the appeal has admitted such misrepresentation or

fraud. /n re-assessing after the lapse of the statutory period for so doing, the Minister must be taken to have alleged misrepresentation or fraud and, if so, he must prove it.

[Emphasis added.]

Absent a waiver as provided by subparagraph 152(4)(a)(ii), an allegation of misrepresentation or fraud is implicit in an out-of-time reassessment.

Where the Minister alleges, expressly or implicitly, misrepresentation or fraud, there is nothing offensive in putting a taxpayer on notice that he must object to an out-of-time reassessment. It is, with respect, quite otherwise absent an allégation of fraud or misrepresentation. An obvious policy consideration nourishes the distinction in treatment.

The learned trial judge found, in subsection 152(8), a Parliamentary intention that an out-of-time reassessment be voidable rather than void.

152. (8) An assessment shall, subject to being varied or vacated on an objection or appeal under this Part and subject to a reassessment, be deemed to be valid and binding notwithstanding any error, defect or omission therein or in any proceeding under this Act relating thereto.

He said: "[Subsection 152(4)] must be read in the light of its opening words, namely that the ‘Minister may at any time assess tax’ and in the light of the deemed validity of any assessment under subsection 152(8) . . .”.

It is true that subsection 248(1) of the Act provides:

"assessment" includes a reassessment.

That definitional section cannot, in my view, prevail to render the terms assessment and reassessment entirely interchangeable in a provision that clearly distinguishes between them and expressly provides differently in respect of them. In my opinion, subsection 152(4) is such a provision. The Minister may assess at any time but, having assessed, the Minister can only reassess within the prescribed times of having notified the taxpayer of the assessment [2] .

This is a hard case from the respondent's point of view but, in my respectful opinion, this appeal is concerned with a rather straightforward question of statutory interpretation. One need go no further into the authorities than Sussex Peerage (1844), 8 E.R. 1034, . . if the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense.”

In my opinion, there is no ambiguity in subsection 152(4) as it bears on the question here. It seems to me that subsection 152(4) is clear and I have been pointed to nothing in its immediate context or in other provisions of the Act that would suggest it should be interpreted otherwise than in its plain meaning.

I would allow the appeal with costs and, pursuant to subparagraph 52(b)(iii) of the Federal Court Act, declare that on the facts as agreed the Minister of National Revenue had no power to reassess the respondent's income tax returns for its taxation years 1977 to 1981 inclusive on or after November 6, 1989.

Crown's appeal allowed.