Roll v. MNR, 92 DTC 1446, [1992] 2 CTC 2060 (TCC)

Rip, T.C.C.J.:—By notice dated April 29, 1987, bearing number 536592, the Minister of National Revenue, the respondent, assessed Robert B. Roll ("Roll"), the appellant, "under subsection 227.1(1) of the Income Tax Act, R.S.C. 1952,

c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") for $25,876.02”. The respondent advised Roll in the notice that the liability represented “unpaid deductions, interest and penalties payable by PERSPECTRA INC. in respect of Notices of Assessment dated: August 2, 1983, May 24, 1985 and May 27, 1986 for period [sic] while you were a director of the company".

The appellant appealed the assessment. At the culmination of the trial the appellant's counsel conceded that his client did not exercise the degree of care, diligence and skill to prevent Perspectra Inc. (” Perspectra") from failing to remit to the Receiver General of Canada the amounts withheld pursuant to subsection 153(1) of the Act so as to come within the exculpatory provisions of subsection 227.1(3). However, at the beginning of the trial the appellant's counsel had submitted that a portion of the $25,876.02 was with respect to amounts withheld on account of premiums payable under the Unemployment Insurance Act and not remitted to the Receiver General; counsel for the respondent admitted that $1,505.40 of the liability was on account of Unemployment Insurance premiums and agreed that the income tax liability assessed be reduced accordingly. [1]

Roll testified that he is a chartered accountant and his responsibilities at Perspectra included internal accounting, preparation of financial statements and remitting the source deductions withheld to the Receiver General. Roll confirmed that by letter dated February 28, 1985, enclosing the required annual withholding forms, he advised the respondent that Perspectra had not remitted "all required moneys for deductions at source” for 1984.

The appellant and a Mr. Financial were the two directors of Perspectra. In early 1985 the relationship between the appellant and Financial was strained and the appellant resigned as director of Perspectra on May 1, 1985. However, working from his home—he stated he had been locked out from the premises of Perspectra—he assisted in the preparation of the corporation's financial statements for 1985 and had access to the corporation's books and records “until June 7 or so, 1985”. The appellant conceded that he “ probably would have seen the May 24th, 1985 assessment issued against Perspectra; in any event he knew an assessment would be forthcoming due to a shortfall in amounts remitted in 1984.

Roll affirmed that in remitting the source deductions to the Receiver General he usually would allocate amounts as to unemployment insurance and income tax.

The trial was adjourned for several hours to permit the appellant, Financial and a representative of the respondent to attend at a storage facility in Montreal, where records of Perspectra were stored, to search for documents reflecting such allocations. The appellant produced in Court copies of Revenue Canada, Taxation form PD7A, a tax deduction, Canada Pension Plan and Unemployment Insurance Remittance Return, which indicated Perspectra allocated amounts for income tax, Canada Pension Plan contributions and unemployment insurance premiums when remitting cheques to the Receiver General. Also produced were copies of cheques stubs indicating such allocations. As a result, counsel for the respondent acknowledged his client had been informed by Perspectra of such allocations and that his client was prepared to reconcile the amounts on basis of the allocations reflected in documents found in storage. The parties agreed the reconciliation of the amounts would take place after the trial and my final amount so determined would require the consent of the appellant and counsel would advise the Court of the agreed allocation.

Counsel for the respondent has advised the Court that his client has now determined that the amounts of tax not remitted, penalties and interest for which Roll is liable and for which he ought to have been assessed on April 29, 1987 is $12,743.63 and that his client is prepared to consent to judgment accordingly. (It is, of course, too late for the respondent to assess the appellant for failure of Perspectra to remit amounts of unemployment insurance premiums while he was director.)

Subsequent to trial the appellants counsel, Mr. Aspler ("Aspler"), informed the Court that he wished to be removed as counsel of record in accordance with Rule 34 of the Court Rules (General Procedure) since "Irreconcilable difference have arisen" between him and the appellant concerning the conduct of the appeal “at this stage”, in particular, according to Aspler, the appellant “has opposed advice from [Aspler], with respect to the issue of representations to [the] Court”. The appeal at bar was filed on August 9, 1989 and is not subject to the Rules of the Court (General Procedure). Nevertheless it is quite clear that Aspler no longer acts for Roll. Roll had forwarded written representations to the Court before and after his erstwhile counsel indicated he no longer wished to represent the appellant; I refused to consider the former submissions at the time and I am unaware of their contents but have reviewed the latter submissions. The appellant argues, amongst other things, the assessment in issue is illegal since the amount assessed includes amounts of unemployment insurance premiums not remitted. He also raises facts not adduced at trial. The trial was heard over a three-day period and when the trial was adjourned it was to give time to the parties to try to agree on an amount of a reduced assessment, based on the documents in storage. No other evidence was to be submitted. No party has suggested evidence be reopened or that there is a good reason for the evidence to be reopened. Consequently, I have proceeded to prepare these reasons for judgment.

The appellant has not advised the Court whether or not he agrees the assessment in issue ought to be reduced to $12,743.63. This was the sole reason the trial was adjourned. Prior to advising the Court he wished to withdraw as counsel, Aspler wrote to the Court that “the Department's view of the assessment as having been $12,743.63 speaks for itself". He also submitted that the assessment against Perspectra, notice of which is dated May 24, 1985, for $34.24, had been paid.

I am inclined to accept calculations of the respondent and reduce the assessment in issue to $12,743.63. The appellant has not indicated the amount is wrong or to what extent it may be wrong. This amount substantially reduces the assessment against the appellant and based on what I heard at trial is not unreasonable. The amount, Mr. Laperrier advised Roll and the Court, does not include any of the amount assessed Perspectra on May 24, 1985 nor does it include any amount withheld by Perspectra in April, 1985 and not remitted to the Receiver General the following month, after Roll ceased to be a director.

Counsel for the respondent also agreed that the appellant is not liable for amounts of tax Perspectra withheld in April, 1985 and failed to remit by May 15, 1985 since the appellant had resigned as director on May 1, 1985.

The submissions of Roll’s counsel and Roll himself related to the validity of the assessment in issue. They both argued, among other things, that the assessment is not valid. Counsel argued that the amount assessed of $25,876.02 included liabilities under both the Income Tax Act and the Unemployment Insurance Act and the appellant was unable to determine from the notice precise liability under the Income Tax Act. Counsel also submitted that since particulars of the assessments against Perspectra referred to in the notice of assessment against his client are lacking, the latter assessment is not complete. [2] He relies on Leung v. M.N.R., [1991] 2 C.T.C. 2268, 91 D.T.C. 1020 where I wrote, at pages 2277-78, (D.T.C. 1027) the following:

It is obvious, to me at least, that in enacting section 152 of the Act, Parliament aired the notice of assessment to inform the person to whom it is sent of the amount of the tax the Minister has assessed under authority of that statute. That is the purpose of a notice of assessment, to inform. An assessment, therefore, is not complete unless the notice is given in such manner that the taxpayer knows the amount of tax assessed under the appropriate statute.

The notice of assessment sent to Leung also refers to notices of assessment previously sent to Eastern. Once a person to be a director of a corporation it may he very difficult, if not impossible, for the person to obtain from the corporation any particulars relating to assessments issued against the corporation which have led to him or her being assessed. Thus the respondent on his own initiative must provide the taxpayer with the documentation referred to in the notice of assessment even if the documentation relates to assessments of other taxpayers. (See M.N.R. v. Huron Steel Fabrication (London) Ltd. and Fratscko, [1973] C.T.C. 422, 73 D.T.C. 5347.) Bonner, T.C.J. made the following comments in Crossley v. M.N.R., [1991] 2 C.T.C. 2082, 91 D.T.C. 827 at pages 2083-84 (D.T.C. 828-29):

I will observe that a failure by the respondent to disclose the precise timing of each of the failures in respect of which he seeks to impose vicarious liability can seriously affect the fairness of the appeal process in cases arising under section 227.1 in which an appellant seeks to rely on subsection 227.1(3). obviously the exercise by a director of care, diligence and skill to prevent a failure must occur before the failure has taken place. A director must be able to identity the period of time during which due diligence will entitle him to relief under subsection (3). Accordingly it is appropriate to remind the respondent that it is his duty to fully disclose". . .to the taxpayer the precise findings of fact and rulings of law which have given rise to the controversy".

In this case the notice of assessment does not supply the missing particulars. Subsection 170(2) of the Act requires the respondent after receiving notice of an appeal to forward to the Tax Court of Canada copies of all Returns, Notices of Assessment, Notices of Objection and Notification, if any, that are relevant to the appeal". The respondent forwarded to the court a copy of notice of assessment mailed to the appellant on July 13, 1988. It mentions a balance of $97,445.42 and states that it is a notice of assessment in respect of:

The liability under Subsection 227.1(1) of the Income Tax Act, Section 40.1 of the British Columbia Income Tax Act, Section 22.1 of the Canada Pension Plan and Section 68.1 of the Unemployment Insurance Act, 1971 in the amount of $97,445.42 being the amount of the unpaid deductions, interest and penalties payable by Smallwood Lumber Ltd. in respect of Notices of Assessment dated December 16, 1985, January 16, 1986, August 19, 1986 and August 20, 1986.

The notices of assessment to which reference was made were assessments made against Smallwood, not against the appellant. I assume that copies of the notices of assessment against Smallwood were not sent to the appellant. Certainly they were not transmitted to this Court under subsection 170(2). Where, as here, a notice of assessment incorporates by reference another document which is essential to complete notice, a copy of that document should be attached to the notice of assessment. I might add too that it is the duty of the respondent to include in the material transmitted to this Court copies of any document so incorporated.

I agree with the obiter in Crossley, supra. In the appeal at bar as well no notice of assessment against Eastern was adduced in evidence or transmitted to this Court.

In the appeal at bar, copies of notices of assessment issued to Perspectra, dated May 24, 1985 and May 27, 1986 were produced by the respondent. The assessment, notice of which is dated August 2, 1983, counsel for the respondent advised, was for $33.24. The May 24,1985 notice advised of assessments for income tax of $13,999.80, penalty of $1,399.98 and interest of $540; there was no assessment for amounts not remitted on account of unemployment insurance premiums. The May 27, 1986 notice advised of assessments of income tax $7,293.44, unemployment insurance premiums $3,770.80, penalty $1,106.42 and interest $1,066; the latter notice related to source deductions not remitted by Perspectra during the period March to August, 1985. The assessment against the appellant was for income tax, interest and penalties not remitted by Perspectra up to and including May 15, 1985. (As previously indicated the respondent conceded the assessment ought to have been for amounts not remitted up to and including April 15, 1985.)

I wish to discuss the appellant's first submission, that since the amount of income tax assessed also includes unemployment insurance premiums not remitted he was confused as to his liability under the Income Tax Act. This is not the fact situation which would find support in Leung. The notice of assessment states the appellant has been assessed under the Income Tax Act. The appellant knew, from reading the notice, the statute under which he has been assessed. If the amount assessed included a liability under another statute, the amount assessed is in error and the court would allow the appeal and vary the assessment reducing the quantum to the extent of the amount included under the other statute. It is under the provisions of the Income Tax Act only that the appellant is to challenge the assessment; he is not prejudiced in preparing his case that a quantum of the assessment is wrong. Just about all objections and appeals are from assessments for tax the taxpayer views as excessive. The assessment against Roll is not incomplete; the appellant knew he was assessed under one statute only, the Income Tax Act. I do not accept his claim he, a chartered accountant, was confused by the notice.

The appellant's counsel also submitted that the assessment is not a good assessment because it is not complete; the dates of failure of Perspectra to remit are not specified and the period Roll was a director is not specified. It is clear that Roll knew an assessment similar to that sent on May 24, 1985 would be issued to Perspectra, he also testified he may have seen the notice while completing his work for Perspectra. He knew, from the date of the notice of assessment sent to him, that the failure of Perspectra to remit took place while he was a director of the corporation. He himself informed the respondent of the failures. Roll knew the particulars relating to the assessment of May 24, 1985 which in turn led him to be assessed. The same may be said for the assessment, notice of which is dated April 2, 1983.

The assessment, dated May 27, 1986, issued to Perspectra was issued at a time Roll had ceased to be a director of Perspectra and was not in possession of, nor did he have the right to view, any of the books and records of Perspectra. The question then, is what particulars of the assessment must the respondent inform the individual ("taxpayer") assessed under subsection 227.1(1) of the Act when he assesses at a time the taxpayer is no longer a director of the particular corporation? The taxpayer, of course, must be in a position when he reads the notice of assessment to know—or to be capable of knowing—the date or dates the corporation failed to remit so that he may consider whether he was a director at the time of the failure by the corporation. He may then determine whether he exercised the degree of care, diligence and skill at the time of the failure so as not to be jointly and severally liable with the corporation: subsection 227.1(3). The appellant is in fact arguing that the information in the notice of assessment sent to him referring to the dates of the notices of assessment against Perspectra "for period while you were a director of the company" is not sufficient. The notice of assessment must inform the taxpayer the precise dates of the failures of the corporation to remit, it was argued.

Whether or not a taxpayer is prejudiced by lack of information contained in a notice of assessment will depend on the facts surrounding the issuance of the assessment. In the appeal at bar the appellant was not only a director of Perspectra until May 1, 1985 but was the person at Perspectra who was responsible for remitting source deductions to the Receiver General. He knew of the failures to remit prior to that date. He also knew, when he received the notice of the assessment in appeal, the date he resigned as director. If the respondent disagreed with him as to the effective date of his resignation as director, such dispute would have been raised in the pleadings of the parties and there would have been no prejudice to the appellant in prosecuting his appeal. This is not the situation contemplated by Bonner, T.C.J. in Crossley, supra and with which I agreed in Leung, supra.

In short, Roll has been assessed for a specific amount under the provisions of the Act. Upon receipt of the notice of assessment he knew that if he did not agree with the assessment he must object and appeal under the provisions of the Act—and he did so.

The appeal is allowed, without costs, and the assessment, notice of which is dated April 29, 1987, is varied to $12,743.63.

Appeal allowed.