Hill v. The Queen, 96 DTC 1399, [1996] 1 CTC 2893 (TCC)

Beaubier J.T.C.C.: — This matter was heard at Vancouver, British Columbia, on December 6, 1995.

The evidence was. contained in an Agreed Statement of Facts which reads as follows:

1. The Appellant was, during all relevant periods of time, the sole officer and director of a private company known as Uphill Holdings Ltd. which was incorporated under the laws of the Province of Saskatchewan.

2. During the period July 1, 1982 to June 30, 1985 the Appellant borrowed funds from Uphill Holdings Ltd. from time to time and repaid such amounts within the time period specified in subsection 15(2) of the Income Tax Act (Canada), (the “Act”).

3. By Notice of Reassessment dated December 23, 1987 (Tab 1 of Book of Exhibits), the Minister of National Revenue reassessed the Appellant’s 1983 taxation year and, among other adjustments, included in income the amount of $756,053.88 as a shareholder’s loan with Uphill Holdings Ltd. pursuant to subsection 15(2) of the Act.

4. By Notice of Reassessment dated December 23, 1987, (Tab 2 of Book of Exhibits), the Minister of National Revenue reassessed the Appellant’s 1984 taxation year and, among other adjustments, included in his income for that year a shareholder’s loan with Uphill Holdings Ltd. in the amount of $299,451.85 pursuant to subsection 15(2) of the Act.

5. By Notice of Reassessment dated December 23, 1987, (Tab 3 of Book of Exhibits), the Minister of National Revenue, reassessed the Appellant’s 1985 taxation year by allowing the deduction of $1,055,505.73 pursuant to paragraph 20(l)(j) of the Act in respect of a shareholder loan repayment to Uphill Holdings Ltd. with the result that nil tax was assessed for that year.

6. On March 22, 1988, the Appellant filed Notices of Objection (Tabs 4, 5 and 6 of Book of Exhibits), in respect of the Notices of Reassessment for the Appellant’s 1983, 1984 and 1985 taxation years.

7. By letter dated September 19, 1989, (Tab 7 of Book of Exhibits), Revenue Canada advised the Appellant that no appeal was available in respect of the nil assessment for the Appellant’s 1985 taxation year and therefore the Notice of Objection in relation to that year could not be considered to be valid.

8. On September 26, 1989, the Minister of National Revenue confirmed the Notices of Reassessment in respect of the Appellant’s 1983 and 1984 taxation years (Tab 8 of Book of Exhibits).

9, At no time before or after the Minister of National Revenue reassessed the Appellant’s 1985 taxation year did the Minister of National Revenue request the Appellant to file a waiver in respect of the application of the limitation period under the Income Tax Act to the Appellant’s 1985 taxation year nor did the Appellant volunteer to provide a waiver to the Minister in respect of his 1985 taxation year.

10. On November 23, 1989 the Appellant filed a Notice of Appeal with the Tax Court of Canada in respect of the Notices of Reassessment for his 1983 and 1984 taxation years (Tab 9 of Book of Exhibits).

11. The appeal of the Appellant was heard by the Tax Court of Canada on May 26, 1992 and judgement was rendered on December 3, 1992 (93 D.T.C. 148) with the result that the matter was referred back to the Minister of National Revenue on the basis, among other things, that the amounts of $756,053.88 in 1983 and $299,451.85 in 1984 previously included in the Appellant’s income for the 1983 and 1984 taxation years respectively pursuant to subsection 15(2) of the Act be deleted.

12. By Notice of Reassessment dated June 4, 1993, the Minister of National Revenue notified the Appellant in respect of his 1985 taxation year (Tab 11 of Book of Exhibits) that the deduction by the Appellant of the amount of the loan repayment to Uphill Holdings Ltd. was being disallowed however no tax was assessed because, as admitted by the Minister, the Appellant’s “... return is statute barred pursuant to subsection 152(4) of the Income Tax Act.”

13. By Notice of Reassessment dated September 23, 1993, the Minister of National Revenue reassessed the Appellant in respect of his 1985 taxation year (Tab 12 of Book of Exhibits) that, “Total, Net and Taxable income remain as previously calculated in the Notice of Reassessment dated June 4, 1993. This assessment is raised pursuant to subsection 152(4.3) of the Income Tax Act as a result of consequential adjustments resulting from the Tax Court of Canada judgment dated December 3, 1992.” The result of this reassessment was an increase of tax of $67,479 together with interest of $84,504 for a total of $151,983 on assessed income of $140,031.

14. On November 16, 1993, the Appellant filed a Notice of Objection in respect of the Notice of Reassessment dated September 23, 1993 (Tab 13 Book of Exhibits).

15. On March 17, 1994, the Minister of National Revenue again reassessed the Appellant’s 1985 taxation year in response to the Notice of Objection filed by the Appellant and allowed a forward averaging deduction of $32,791 but in all other respects confirmed the result of the Notice of Reassessment dated September 23, 1993. This resulted in a reduction of the amount of tax and interest assessed by the amount of $1,527.79 (Tab 14 Book of Exhibits).

16. On June 9, 1994, the Appellant filed the within Notice of Appeal pursuant to subsection 169(1) of the Act.

Subsection 152(4.3) was amended to apply to reassessments and redeterminations in respect of taxation years made after June 10, 1993 that relate to changes in balances for other taxation years made as a result of assessments made or decisions on appeals rendered after December 20, 1991. Thus the amendment applies to the matter before the Court. It reads:

Notwithstanding subsections (4), (4.1) and (5), where the result of an assessment or a decision on an appeal is to change a particular balance of a taxpayer for a particular taxation year, the Minister may, or where the taxpayer so requests in writing, shall, before the later of the expiration of the normal reassessment period in respect of a subsequent taxation year and the end of the day that is one year after the day on which all rights of objection and appeal expire or are determined in respect of the particular year, reassess the tax, interest or penalties payable, or redetermine an amount deemed to have been paid or to have been an overpayment, under this Part by the taxpayer in respect of the subsequent taxation year, but only to the extent that the reassessment or redetermination can reasonably be considered to relate to the change in the particular balance of the taxpayer for the particular year.

Broken into its charging components, as they affect the matter before the Court, subsection 152(4.3) reads:

Where the result of a decision is to change a particular balance of a taxpayer for a particular taxation year [NAMELY, 1983 AND 1984], the Minister may...

(1) reassess the tax, interest or penalties payable,

(2) or redetermine an amount deemed

(a) to have been paid

(b) or to have been an overpayment,

under this Part by the taxpayer in respect of the subsequent taxation year [namely 1985]....

Paragraph 12 of the Agreed Statement of Facts describes what the Minister states he did on June 4, 1993. He did two things:

1. The deduction by the Appellant of the amount of the loan repayment was disallowed.

2. No tax was assessed.

Paragraph 13 describes what the Minister states he did pursuant to subsections 152(4.3) on September 23, 1993. He did two things:

1. Total, Net and Taxable income remain as previously calculated on June 4, 1993.

2. There was a reassessment of tax and interest of $151,983 on assessed income of $140,031.

As a result of these two reassessments, the Minister:

First — On June 4, 1993, determined that the deduction by the Appellant was disallowed.

Second - On September 23, 1993, reassessed tax and interest on the amount which he had redetermined on June 4, 1993.

The issues to be decided are summarized in the Appellant’s Memorandum of Argument in five points which are quoted hereafter. In answer to the issues raised by the Appellant, the Court finds:

1. Did subsection 152(4.3) (in either of its versions) of the Income Tax Act (Canada), (the “Act”) allow the Minister of National Revenue, (the “Minister”), to reassess the Appellant’s 1985 taxation year on September 23, 1993, by which time the limitation period for the reassessment of that year had expired?

Yes. Subsection 152(4.3) specifically deals with the matter described in the Agreed Statement of Facts.

2. If the Minister was entitled to reassess the Appellant’s 1985 taxation year on September 23, 1993 under subsection 152(4.3), what version of subsection 152(4.3) was applicable?

The version of subsection 152(4.3) which entitles the reassessment is the one in effect on September 23, 1993 for two reasons - (a) the Minister is entitled to reassess more than once, and (b) the Notice of Reassessment dated September 23, 1993 can only be done by the Minister pursuant to the Income Tax Act as it was amended on June 15, 1994 to apply to reassessments made after June 10, 1993.

3. Under the circumstances of this case is the Minister prevented from asserting (within the provisions of the second version of subsection 152(4.3)) that this Court’s “redetermination” on December 3, 1992 “can reasonably be considered to relate” to the Appellant’s 1985 “balance” such that the Minister was entitled to reassess 1985?

No. On the clear wording of subsection 152(4.3) on September 23, 1993 - (a) the result of the Tax Court of Canada’s decision (Hill v. Minister of National Revenue, [1993] 1 C.T.C. 2021, 93 D.T.C. 148) is to change the Appellant’s balance for the particular years of 1983 and 1984, and (b) the reassessment of the Appellant’s 1985 taxation year can reasonably be considered to relate to the change in the particular balance of the Appellant’s 1983 and 1984 taxation years. Thereafter, the Minister is the person who may or shall redetermine the Appellant’s tax and interest in respect of the subsequent taxation year. (“Subsequent” means 1985, since it follows both 1983 and 1984 and it is “the subsequent” year in which the deduction was allowed.)

4. Under the circumstances of this case is the Minister entitled to collect interest pursuant to the provisions of subsection 161(1) of the Act for the period prior to the reassessment dated September 23, 1993?

Yes. The words are clear in both subsection 152(4.3) and 161(1).

5. Is this an appropriate case for the Court to recommend that the Minister should waive all or part of the interest charged against the Appellant pursuant to subsection 220(3.1)?

No. The Appellant is entitled to make an application pursuant to the Fairness Package. The Court sometimes makes a recommendation, but that usually occurs where a transcript of evidence is not likely to be available to the Minister. Here the Agreed Statement of Facts speaks for itself.

The appeal is dismissed with costs in favour of the Respondent.

Appeal dismissed.