Hagedorn v. The Queen, 95 DTC 288, [1993] 2 CTC 3141 (TCC)

Christie, A.C.].T.C.C.:— This appeal is governed by the informal procedure prescribed by section 18 and following sections of the Tax Court of Canada Act.

The year under appeal is 1988. At the commencement of the hearing on October 6, 1993, counsel for the respondent, as a preliminary matter, questioned the jurisdiction of the Court to hear the appeal. [1]

The background is that on October 16, 1989, the appellant was reassessed by the Minister of National Revenue ("the Minister”) regarding his 1988 taxation year. He was also reassessed on July 12, 1989, with respect to 1986 and 1987. He served the Minister with objections to the reassessments. The Minister confirmed the reassessments and appeals to this Court followed. They came on for hearing before my colleague Teskey, T.C.C.J. on April 26, 1991. At the conclusion of the hearing he delivered reasons for judgment from the bench. The first paragraph reads:

This matter has come on before me today and halfway through the trial the appellant has abandoned his appeals concerning meal expenses and whether he was an employee or an independent contractor in the two years, and the only issue then left before me was the issue of whether moneys that were advanced to a limited company, namely 407130 Ontario Ltd., was an investment of capital or whether it was an income producing investment. In the 1988 year there is also the additional issue before me and that is interest in the amount of $1,869.28 which was interest on moneys borrowed from Household Finance and used in a sole proprietorship called Ontario Messenger Service.

He went on to dismiss the appeals regarding 1986 and 1987. With respect to 1988 he said:

Therefore, for 1988, the appeal is allowed and sent back to the Minister for reconsideration and reassessment that the appellant is to be allowed the sum of $1,869.28 as an interest deductible expense. All other matters in the appeal for 1988 are dismissed.

The judgment of the Court is dated May 23, 1991. It reads:

It is ordered and adjudged that the appeal with respect to the 1988 taxation year be allowed, without costs, and the matter referred back to the respondent for reconsideration and reassessment on the basis that the appellant be allowed an interest expense in the amount of $1,869.28; in all other respects, the appeal for the year 1988 is dismissed.

It is further ordered and adjudged that the appeals with respect to the 1986 and 1987 taxation years be and the same are hereby dismissed.

On October 8, 1991, the Minister reassessed under subsection 164(4.1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") [2] in accordance with the judgment by deducting interest expense of $1,869.28 in computing the appellant's income.

The appellant objected to this reassessment. [3] The statement of facts and reasons for the objection read:

The reassessment is objected to on the grounds that the reassessed total does not reflect additional receipts issued to the Kitchener branch of Revenue Canada and signed for May 1, 1988.

These receipts totalled $11,808.18, which would have completely eliminated the taxable income and taxes owing, and may indeed produce a refund amount owing. Since more than five months have passed since the information, which included photocopied copies of all the receipts, was received by Revenue Canada, these additional receipts should have been included in the reassessment.

A notice of confirmation by the Minister followed. It reads:

Your notice of objection to the income tax assessment for the 1988 taxation year has been carefully reviewed under paragraph 165(3)(a) of the Income Tax Act.

The Minister of National Revenue has considered the reasons set out in your objection and all the relevant facts. It is hereby confirmed that the assessment has been made in accordance with the provisions of the Income Tax Act on the basis that: the expenditures in the amount of $11,808.18 claimed as a deduction from income in the year have not been shown to have been made or incurred for the purpose of gaining or producing income from the business within the meaning of paragraph 18(1)(a) of the Act.

On April 2, 1993, the appellant filed a notice of appeal. It reads:

I wish to challenge the above minister's decision to deny me the right to amend my 1988 taxes to reflect a later discovery of $11,808.18 in receipts that I have attempted to deduct from my income for that year under subsection 18(1) of the Income Tax Act.

The facts of the case are this;

1. During the 1988 tax year, moneys were paid to me and reported as selfemployed income.

2. As was standard practice for my company, a portion of the money paid to me was used to pay small cash expenses of the company. In the normal course of events, an accounting for these receipts would have been done at the end of the year, and deducted from my personal income or sent to the company, which would have reduced the amount I was paid on their books in an equal amount.

3. During 1988, a new bank loan officer instituted substantial acts of sabotage against the company, resulting in an agonizing five months during which I attempted to rescue the company from his actions. My failure to do this resulted in a forced move from the head office, during which time material had to be hastily stored at my house. In the confusion, my receipts for the year were packed away. Since I could not find the receipts when time came to do my taxes, I was unable to report these expenses.

4. Several years later, I discovered these receipts in their original boxes and their original state, totalled them up and forwarded copies of them to Revenue Canada with the request that my 1988 income be adjusted to show these expenses.

5. Although I have supplied Revenue Canada with the general ledger of the company for that year, showing that these receipts were never entered as expenses for the company, and Revenue Canada has agreed that the expenses are legitimate and new expenses, they have refused to allow the expenses against my income.

I ask the Court to overturn the decision of the Minister in this matter and allow these expenses to be applied to my 1988 income.

When the appellant appealed the reassessment of October 16, 1989, to this Court regarding his 1988 taxation year, what was subject to being appealed has been described by judicial authority in different words but, in my opinion, the substance of the language employed is the same. What is open on an appeal to this Court is the result of an assessment, not the process or reasoning by which it was arrived at. In Vineland Quarries and Crushed Stone Ltd. v. M.N.R., [1970] C.T.C. 12, 70 D.T.C. 6043 (Ex. Ct.), Cattanach, J. said at pages 15-16 (D.T.C. 6045):

As I understand the basis of an appeal from an assessment by the Minister, it is an appeal against the amount of the assessment.

In Harris v. M.N.R., [1964] C.T.C. 562, 64 D.T.C. 5332 (Ex. Ct.), my brother Thurlow said at page 571 (D.T.C. 5337):

On a taxpayer's appeal to the Court the matter for determination is basically whether the assessment is too high. This may depend on what deductions are allowable in computing income and what are not but as I see it the determination of these questions is involved only for the purpose of reaching a conclusion on the basic question. . . .

In Midwest Oil Production Ltd. v. The Queen, [1982] C.T.C. 107, 82 D.T.C. 6092 (F.C.T.D.), Mr. Justice Mahoney said at page 110 (D.T.C. 6094-95): “It is to be emphasized that it is the Minister's assessment, not his reasons for it, that is the subject matter of the appeal.” On appeal to the Federal Court of Appeal ([1983] C.T.C. 338, 83 D.T.C. 5304 at page 338 (D.T.C. 5304)), Mr. Justice Ryan speaking for the Court said: "I agree with the reasons for judgment of the learned trial judge and, accordingly, I would dismiss the appeal with costs." Leave to appeal to the Supreme Court of Canada was refused on November 24, 1983: [1983] 2 S.C.R. x, 52 N.R. 313.

In The Queen v. Consumers’ Gas Co., [1987] 1 C.T.C. 79, 87 D.T.C. 5008 (F.C.A.), Mr. Justice Hugessen, speaking for the Court, said at pages 83-84 (D.T.C. 5012):

What is put in issue on appeal to the courts under the Income Tax Act is the Minister's assessment. While the word "assessment" can bear two constructions, as being either the process by which tax is assessed or the product of that assessment, it seems to me clear, from a reading of sections 152 to 177 of the Income Tax Act, that the word is there employed in the second sense only. This conclusion flows in particular from subsection 165(1) and from the well established principle that a taxpayer can neither object to nor appeal from a nil assessment.

When the appellant was reassessed for his 1988 taxation year on October 16, 1989, he was entitled on an appeal to challenge in whole or in part his financial liability as concluded by the Minister’s reassessment. But this is not something that can be done piecemeal by multiple appeals and when Teskey, T.C.C.J. issued his judgment on May 23, 1991, he determined the whole of the appellant's liability under the Act for 1988 subject only to recourse to the Federal Court of Appeal under section 28 of the Federal Court Act.

The Minister's reassessment under subsection 164(4.1) of the Act was entirely consistent with the judgment pronounced by Teskey, T.C.C.J. In the circumstances any objection taken to that reassessment can only be regarded as meaningless in the sense that the Minister could not act upon it in a manner inconsistent with the judgment. The only purpose of the objection would, therefore, appear to be a procedural step taken with a view to having that judgment reviewed or questioned by this Court. The appeal before Teskey, T.C.C.J. was one referred to in section 18 of the Tax Court of Canada Act. Section 18.24 of that Act provides:

A judgment of the Court on an appeal referred to in section 18 is final and conclusive and is not open to question or review in any court except the Federal Court of Appeal in accordance with section 28 of the Federal Court Act.

The appeal is dismissed.

Appeal dismissed.