Citation: 2012 TCC 378
Date: 20121024
Docket: 2009-2921(IT)G
BETWEEN:
JULIE BURKE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
C. Miller J.
[1]
Julie Burke’s Appeals
relate to the 1996 to 2003, and the 2006 and 2007 taxation years. For all of
these years she maintains the child support payments she received should not
have been included in her income as they were covered by the new regime for
taxation of child support payments that came into effect in May 1997. She
relies on 3 premises for this position: first, she and her ex-husband filed a
joint-election (T1157) triggering a May 1, 1997 Commencement Day; second, an
order of December 11, 2009, of the Ontario Superior Court of Justice amended a 1993
interim order, ordering child support payments, creating a May 1, 1997, Commencement
Day; and, third, correspondences between Mr. Burke’s and Ms. Burke’s
lawyers constituted a written agreement which created a May 1, 1997,
Commencement Day. Further, with respect to the 1996 to 1999 taxation years,
Ms. Burke’s position is that the Government has been unable to prove when
assessments were mailed and therefore the time for filing Notices of Objection
to those Notices of Assessment has not expired, and she is entitled to an extension
of time to file the Notices of Objection for those years. In the alternative, the
Appellant’s position is that the Government has not proven the assessments were
mailed at all. In this case, she argues that Canada Revenue Agency’s
("CRA") collection actions in respect of those years have no legal
basis.
FACTS
[2]
I will first review the
facts pertaining to the "Commencement Day" issue. Mr. Burke and Ms.
Burke were married on June 30, 1984 and had two children born May 2, 1988 and May
23, 1990. It was clear Ms. Burke is extremely proud of her now adult children.
Ms. Burke and Mr. Burke separated in January 1992. Mr. Burke paid towards
family expenses until January 1993 when he stopped making payments, and Ms.
Burke felt obliged to file for divorce, which she did in April 1993. On May 27,
1993, Madam Justice Greer, of the Ontario Court (General Division), ordered
"that the respondent shall pay the sum of $1,450 a month as interim
interim child support to the petitioner". Mr. Burke recommenced payments
in November 1993.
[3]
In the fall of 1996,
Ms. Burke became aware of the new Support Payment Guidelines that stipulated
child support payments would no longer be required to be brought into income by
the recipient. She attempted to negotiate a financial arrangement with Mr.
Burke, which culminated in an exchange of correspondence between their lawyers
as follows:
i)
September 19, 2000 from
Mr. Burke’s lawyer, Thompson Rogers to Ms. Burke’s lawyer, Bonwyn Patterson:
"3. My client’s
1998 income tax return indicated that his income was $121,588. This was for 12
months, not nine as you suggest. My client will agree to pay child support
retroactive to January 1, 1999 in the amount of $1,465 per month.
Would you please consult with your client
to see if we cannot finalize this matter on the terms indicated in our
respective correspondence?"
ii)
December 5, 2001 letter
from Ms. Patterson to Thompson Rogers:
"I have now had an opportunity to
review the contents of your September 19, 2000 letter with my client and obtain
from her instructions as to the contents of your client’s proposal for
settlement. The following are my client’s responses to the matters raised in
your letter…
3. My client will agree
to the child support payment of $1,465, assuming that your client provides some
sworn evidence as to his current level of income which would confirm that the
$1,465 is the appropriate amount of support under the Child Support Guidelines
and as long as your client agrees to pay 2/3rds of the childrens’ extracurricular
activities."
iii)
March 7, 2001 letter
from Thompson Rogers to Ms. Patterson:
"My client’s position is as follows:
1.
Custody: agreeable.
3.
Child support: My
client will agree to pay $1,465 per month. My client currently earns less than
$120,000 per annum and if income verification was required, it would reduce the
support payments. Consequently, we suggest that we stay with the amount of
$1,465 per month.
8.
Agreeable.
9.
Agreeable.
Please get back to me after you have had a
chance to speak to your client."
[4]
Ms. Burke had not filed
tax returns for a number of years, but did so in 2007 upon request of the CRA.
According to Ms. Burke she was advised by the CRA to include the support
payments in income, which she did for the years in issue.
[5]
In September 2009, Ms.
Burke filed these Appeals in the Tax Court of Canada for the 1996 to 2003, and
2006 and 2007 taxation years. Interestingly, the CRA assessed the 2004 year on
the basis that the new regime applied to Ms. Burke, and she was therefore not
required to bring the child support payments into income.
[6]
On December 11, 2009,
Ms. Burke obtained the following order from Justice Allen of the Ontario
Superior Court of Justice:
The
Court orders on consent:
1. The respondent and applicant confirm their agreement that
all child support payments made since May, 1, 1997, from the respondent to the
applicant were made pursuant to the Child Support Guidelines and append hereto
as Schedule "A" a history of payments made.
2. The respondent shall continue to solely finance the
post-secondary education costs for both children, namely Geoffrey Burke, born
May 2, 1988 and Shannon Burke, born May 23, 1990 until they have completed four
years of undergraduate study. His support will include the following expenses:
a. tuition not otherwise paid through bursary,
grant or scholarship;
b. books and supplies;
c. residence and meal plans;
d. travel to and from Ontario;
e. travel costs for sport activities;
f. spending money ($75.00 per week, per child);
and
g. cell phone and long distance telephone
expenses.
3. The respondent’s base child support payments to the
applicant in the sum of $1,250 per month shall terminate on June 1, 2010 (the
final payment date) with the current mechanism of those funds being directly
deposited by the respondent into the applicant’s bank account on the first of
each month.
…
Schedule "A"
1997: May
to December $11,600.00
1998: January
to December $17,400.00
1999: January
to December $17.400.00
2000: January
to December $17.400.00
2001: January
to December $17.400.00
2002: January
to December $17.400.00
2003: January
to December $17.400.00
2004: January
to December $24,000.00
2005: January
to December $24,000.00
2006: January
to December $24,000.00
2007: January
to December $22,500.00
2008: January
to December $17,250.00
2009: January
to December $15,000.00
[7]
By an election dated
September 2, 2011 on Form T1157 Ms. Burke and her ex-husband elected that child
support payments will not be taxable or deductible effective May 1, 1997.
[8]
Before moving on to the
morass of if, when and where assessments were sent for the years 1996 to 1999,
I would note that Ms. Burke, with little income and little education, has
single‑handedly and successfully (however one wants to define that)
raised her two children to young adults. For economic reasons she had to move
on more than one occasion, at least once back to her parents’ home. More on
that now as I attempt to sort out the facts surrounding the Notices of
Assessment, specifically for the years 1996 to 1999.
[9]
As indicated, Ms.
Burke, in an effort to keep her expenses down, changed residences. Indeed, in
1996 she moved with her two young children to her parents’ home at 157 Church Avenue in Toronto, where she lived until 2000. She did not file returns for a
number of years during this period but only started filing after requests from
the CRA in 2006. In September 2007, she filed her 1996, 1997, 1998, 2000, 2001
and 2002 returns. At this time, she was living at 2911 Bayview Avenue in Toronto, though unfortunately appears to have put 2311 Bayview on the 2000, 2001 and
2002 returns, prepared by H&R Block. We have no record of the 1996 or 1997
returns. The 1998 return shows a typed address of 157 Church Avenue, but it is
scratched out and the 2911 Bayview address handwritten in. Ms. Burke
speculated that a CRA agent, Sharon, with whom she had been communicating at
the time, could possibly be responsible for the change of the address on the
1998 return, as Ms. Burke had spoken to her about ensuring that the CRA had her
correct address: she was led to believe that Sharon would make the necessary
changes.
[10]
Ms. Burke moved from
2911 Bayview in October 2008 to a cheaper two‑bedroom place at 15 Laidlaw
in Toronto. She notified the CRA.
[11]
On December 4, 2006 Ms.
Burke received a Notice of Reassessment for her 2004 taxation year at her
correct address at 2911 Bayview, though her name was misspelled. On November 5,
2007 she also received correspondence from the CRA with respect to her 2000 and
2003 returns, again correctly addressed to her 2911 Bayview address.
Shortly thereafter in November 2007, she received Notices of Reassessment for
2000 to 2003 sent to 2911 Bayview. It appears that from late 2006 to late 2007 the
CRA had Ms. Burke’s correct address. But in February 2008, the CRA sent a
statement of account to Ms. Burke at 157 Church. The statement showed amounts
owing for the 1996 and 1997 assessments, which were shown to have been dated
February 4, 2008. Reconstructed Notices of Assessment for the 1996 and 1997
taxation years show the 157 Church Avenue address, while the 1998 reconstructed
notice, which shows a date of November 20, 2007, indicates it was sent to the
2911 Bayview address.
[12]
The Respondent
introduced an internal computer printout which keeps track of a taxpayer’s
address. It shows 2911 Bayview as Ms. Burke’s address from May 2006 to
January 11, 2008 when it shows the 157 Church address, but on the same date,
January 11, 2008 also shows returned mail, presumably from this address, though
indicates that this was not processed until March 3, 2008. It goes on to
indicate that effective March 6, 2008, processed on the same date, a change
back to 2911 Bayview took place. It is a mystery as to what happened in early
2008 to create the address confusion. The only possibility is that the 1998
return, filed in September 2007, which had the 157 Church address was relied
upon, notwithstanding the CRA still corresponded with Ms. Burke at 2911 Bayview
after that, plus the return had the 2911 Bayview address scratched out, plus
Ms. Burke testified that she clarified all this with Sharon, the CRA agent.
[13]
Ms. Burke’s position is
that she never received the 1996 to 1999 assessments.
[14]
According to its Reply,
the Respondent maintains that the 1996, 1997 and 1998 Notices of Assessment
dated February 4, 2008, February 4, 2008 and November 20, 2007 respectively,
were sent to "the mailing address the Appellant stated on her 1998 income
tax return that was filed on September 10, 2007." But, recall that that
return had the 157 Church Avenue address scratched out and 2911 Bayview
written in. Which address does the Respondent mean? The reconstructed notices
show that the 157 Church address was used for 1996 and 1997 and the 2911
Bayview address for 1998.
[15]
The reconstructed Notices
of Assessment for 1999 show a date of September 5, 2006, also sent to 2911
Bayview. This is confirmed in a CRA statement of account dated July 13, 2007
sent to Ms. Burke at 2911 Bayview. The 1999 income tax return in the Joint
Book of Documents (unstamped as received) is signed by Ms. Burke and dated
October 3, 2007. Unlike the 1998 return and 2000 to 2003 returns, it does not
indicate it was prepared by H&R Block. The Respondent, however, has agreed
that the 1999 return was filed on October 31, 2007.
[16]
On April 4, 2008
Ms. Burke applied to the Minister of National Revenue (the
"Minister") for an extension of time to file an objection to the 1999
to 2003, and the 2006 taxation years. By letter dated May 15, 2008 the Minister
denied the extension for the 1999 taxation year.
[17]
On June 12, 2009,
through correspondence from her lawyers, Gowlings, Ms. Burke applied to
the Minister for an extension of time to serve Notices of Objection for the 1996
to 1999 taxation years, "if any such notices of assessment or reassessment
were in fact mailed".
[18]
There was considerable
more evidence as to assessments or correspondence flowing from CRA to Ms.
Burke, but I have not found any of it helpful in deciding whether the
Respondent has proven assessments for the 1996 to 1999 tax years were sent to
Ms. Burke’s correct address. It is clear to me mistakes were made on both
sides.
[19]
The CRA representative
put forward at trial by the Respondent was the Appeals Officer. She testified a
1999 return was not filed which is contrary to the Agreed Statement of Facts. She
could not explain why internal CRA records appeared to show a change of address
in early 2008 to 157 Church. She had no personal knowledge of where and to
which address the various Notices of Assessment were sent. She also was not
aware of the procedure for reconstructing notices. She was an Appeals Officer.
The Respondent provided no other witness or any affidavit to establish that the
1996 to 1999 Notices of Assessment were mailed to the correct address.
[20]
The Minister by Notices
of Reassessment dated November 13, 2007 varied the 2000 to 2003 taxation years
such that $17,400 of child support payments were to be included in Ms. Burke’s
income. Ms. Burke had included $17,400 of child support payments in her returns
for all years in issue except 2006 in which she reported $24,000. She filed
Notices of Objection for 2000 to 2003, and 2006 and 2007.
[21]
As part of her Appeals,
Ms. Burke applies to this Court for an extension of time to file Notices of
Objection for the 1996 to 1999 taxation years.
ISSUES
[22]
The Appellant maintains
there are two issues in these Appeals:
a. whether an
order or agreement for child support amounts received by Ms. Burke had a May 1,
1997, "Commencement Day" within the meaning of the Income Tax Act (the
"Act"), resulting in all the child support payments since that
Commencement Day not falling into her income; and
b. whether
Ms. Burke should be granted an extension of time to file Notices of Objection
to her 1996 through 1999 taxation years. Alternatively, if Ms. Burke is not
entitled to an extension of time to file Notices of Objection, the Appellant
states there is an issue as to whether or not the Minister mailed Notices of
Assessment to her for 1996 through 1999 taxation years. If not, she argues
there is no valid assessment pursuant to which the Minister can take collection
proceedings. The Respondent frames this issue as whether the Court has
jurisdiction to hear the 1996 through 1999 Appeals.
Analysis
1996 – 1999 Notices of Objection
[23]
I turn first to the
1998 and 1999 taxation years and the request for extension of time to file Notices
of Objection. Unlike the 1996 and 1997 taxation years, the reconstructed
notices for 1998 and 1999 indicate they were addressed to Ms. Burke’s
correct address. Ms. Burke, however, testified she never received them, though
she did file with the Minister on April 4, 2008 an application for extension of
time to file a Notice of Objection for the 1999 taxation year, which the
Minister denied on May 15, 2008. Ms. Burke repeated that request on June 12,
2009 for all four years, 1996 to 1999. Now, as part of her Appeals, she seeks
an extension of time to file Notices of Objection from this Court for all four
of those years.
[24]
The Appellant’s
argument is that because the Minister cannot establish the mailing dates of the
Notices of Assessment, the Minister cannot confirm that the time otherwise
limited by the Act for serving a Notice of Objection has elapsed. This
is a different approach from saying there has been no validly issued
assessment, the Appellant’s alternate argument.
[25]
Subsections
166.2(1),(2) and (5) of the Act, in dealing with the application to this
Court for an extension of time to file Notices of Objection, read as follows:
166.2(1) A taxpayer who has made an
application under subsection 166.1 may apply to the Tax Court of Canada to have
the application granted after either
(a) the Minister has refused the
application, or
(b) 90 days have
elapsed after service of the application under subsection 166.1
and the Minister has not
notified the taxpayer of the Minister’s decision,
but no
application under this section may be made after the expiration of 90 days
after the day on which notification of the decision was mailed to the taxpayer.
(2) An
application under subsection (1) shall be made by filing in the Registry of the
Tax Court of Canada, in accordance with the provisions of the Tax
Court of Canada Act, three copies of the documents
referred to in subsection 166.1(3) and three copies of the notification, if
any, referred to in subsection 166.1(5).
…
(5) No
application shall be granted under this section unless
(a) the application
was made under subsection 166.1(1) within one year after the expiration of the
time otherwise limited by this Act for serving a notice of objection or making
a request, as the case may be; and
(b) the taxpayer demonstrates that
(i) within
the time otherwise limited by this Act for serving such a notice or making such
a request, as the case may be, the taxpayer
(A) was
unable to act or to instruct another to act in the taxpayer’s name, or
(B) had
a bona
fide
intention to object to the assessment or make the request,
(ii) given
the reasons set out in the application and the circumstances of the case, it
would be just and equitable to grant the application, and
(iii) the
application was made under subsection 166.1(1) as soon as circumstances
permitted.
[26]
To be successful therefore
at the Tax Court of Canada on an application for extension of time to file Notices
of Objection, Ms. Burke must prove:
(i) where the Minister
has refused an application under subsection 166.1(1) of the Act
(the application to the Minister for an extension of time) the application to
this Court has been made within 90 days after the taxpayer was notified of the
Minister’s decision;
(ii) the subsection
166.1(1) of the Act application has been made within one year after the
expiration of the time for serving the Notice of Objection;
(iii) within the 90 day
period for filing the Notice of Objection, Ms. Burke was unable to act or had a
bona fide intention to object;
(iv) it is just and
equitable to obtain the extension;
(v) Ms. Burke made the
application under subsection 166.1(1) of the Act as soon as
circumstances permitted.
[27]
With respect to the
1999 taxation year, Ms. Burke has failed to meet the first hurdle. The Minister
denied her subsection 166.1(1) of the Act application made in April 2008
and notified her in May 2008. She did not apply to this Court within the
requisite 90 day period. The Appellant argues that, assuming that Notices of
Assessment or Reassessment were mailed for 1998 and 1999, the Respondent has
not proven the date of mailing so the time period remains open. If I find that
the 1998 and 1999 Notices of Assessment were mailed, which I do, it follows
that by making the subsection 166.1(1) of the Act application to the
Minister, there is some acknowledgment from Ms. Burke that she was aware of
that fact, obviously prior to mailing the subsection 166.1(1) of the Act
application. While there may not be conclusive proof from the Respondent as to
exactly when the notices were mailed, I cannot turn a blind eye to the
specific procedural requirements of the Act. If a taxpayer applies to
the Minister for an extension, which Ms. Burke did in April 2008, and that
request is denied, which it was in May 2008, Ms. Burke had 90 days to apply to
this Court. She did not do that and cannot now claim that it does not matter
because there is no proof of the date of mailing of the Notice of Assessment,
effectively picking which rule she will or will not abide by. Once she decided
to file the subsection 166.1(1) of the Act application to the Minister,
it was incumbent on her to follow the procedure she had chosen to continue her
objection. She did not.
[28]
The Court does not have
jurisdiction to grant an application for extension of time to file a Notice of
Objection for the 1999 taxation year when it is made past the 90 day limitation
set forth in subsection 166.2(1) of the Act. The application is quashed.
[29]
With respect to the
1998 taxation year, Ms. Burke filed her 1998 return on September 10, 2007. The
Minister’s reconstructed Notice of Assessment indicates a date of mailing of November
20, 2007. Ms. Burke testified she never received such a notice. On June 12,
2009, Ms. Burke, through her counsel, made a section 166.1 of the Act application
to the Minister for an extension of time to file a Notice of Objection to
"notices of assessment or reassessment for Julie’s 1996, 1997, 1998 and
1999 taxation years ("Taxation Years") if any such notices of
assessment or reassessment were in fact mailed". The Minister has not
responded.
[30]
If the 1998 Notice of
Assessment was mailed on November 20, 2007, Ms. Burke had until February
19, 2008, to file an application to the Minister for an extension of time to
file a Notice of Objection, failing which she would be precluded from applying
to this Court pursuant to paragraph 166.2(5)(a) of the Act. The
Appellant argues that the presumptions that the notices are deemed to be made
on the day sent (subsection 244(15) of the Act), the mailing date is
presumed to be the date on the face of the notice (subsection 244(14) of the Act),
and that it is deemed to have been received on that date (paragraph 248(7)(a)
of the Act) are rebuttable. It is for the Minister to establish if and
when notices were mailed. The Appellant argues that the Minister has failed to
do so, referring to comments of the Federal Court of Appeal in Her Majesty
the Queen v. 236130 British Columbia Ltd:.
12. The Tax Court Judge first noted that the
onus of demonstrating that the reassessments were mailed on time rested with
the Minister. However, he acknowledged that in an organization such as the CRA,
it is impossible to produce direct evidence of the date of mailing of a
particular document and that the appropriate method of proof is that set out in
Schafer v. The Queen, [1998 GTC 2045] [1998] GSTC 60 (TCC) (Schafer,) as applied by this Court
in Kovacevic v. The Queen, [2003 GTC 1686] [2003] GSTC 112 (FCA) (Kovacevic).
13. In Schafer, Bowman, J. (as he then was) enunciated
the test as follows:
[23] In a large organization, such
as a government department, a law or accounting firm or a corporation, where
many pieces of mail are sent out every day it is virtually impossible to find a
witness who can swear that he or she put an envelope addressed to a particular
person in the post office. The best that can be done is to set out in detail
the procedures followed, such as addressing the envelopes, putting mail in
them, taking them to the mail room and delivering the mail to the post office.
14. In Kovacevic, this Court gave this statement the
following qualified approval:
[16] I accept that when legislation
requires that documents be sent by a large organization such as a government
department by ordinary mail, but does not require registered or certified mail
or evidence of a more formal means of sending, the observation [of the Tax
Court] in Schafer is reasonable. Generally it would be sufficient to set out in
an affidavit from the last individual in authority who dealt with the document
before it entered the normal mailing procedures of the office, what those
procedures were.
[31]
This approach was
confirmed and followed by Associate Chief Justice Rossiter in 741290
Ontario Inc. v. R.:
31. The common thread amongst all of these cases is
that the Minister must tender evidence to establish that the Notices of
Assessment were mailed. Seldom will testimony be available that someone within
CRA recalls having sent the particular Notice of Assessment and normally CRA
would discharge this burden by providing affidavits or calling witnesses to
testify as to the procedure for preparing a Notice of Assessment and the
ordinary mailing procedures followed by CRA (see for example the sort of
evidence tendered in Abraham v. R., [2004 DTC 3050] [2004] 5 C.T.C. 2149 (T.C.C.). CRA
evidence will be given greater weight when more details of procedures are
provided and where cross-examination does not shake the evidence given.
[32]
It is also clear from
the Federal Court of Appeal’s comment in Aztec Industries Inc. v. The Queen that
knowledge of an alleged assessment by the taxpayer does not prove the date of
mailing.
[33]
According to her
lawyer’s application for extension in June 2009, Ms. Burke was still
questioning whether a 1998 assessment had been issued, though CRA did send her
a statement of account to her correct address on December 28, 2007, indicating
there had been a 1998 assessment. The account stated that Ms. Burke owed approximately
$86,000, an amount Ms. Burke acknowledged she discussed with Sharon, the CRA
agent. Is this sufficient to conclude the assessment was mailed prior to that?
No. The Appellant points to the Federal Court of Appeal’s comments in Aztec
that "knowledge of the fact the Minister was asserting a claim and a
payment of a portion thereof by or on behalf of the taxpayer does not
constitute evidence of the existence or the mailing of the notices of
assessment". With respect, a statement of account that specifies a 1998
assessment and an amount owing, may be some evidence of the existence of an
assessment, though no more than a reconstructed notice, with nothing else. It
however does certainly not prove the date of mailing.
[34]
I conclude there was a
1998 assessment but I also find the Respondent has been unable to prove the
date of mailing. This creates a somewhat unusual situation.
[35]
The Appellant’s
argument with respect to 1998 is that, in these circumstances, time remains
open to file a Notice of Objection, although this seems to run contrary to the
Federal Court of Appeal’s finding in Aztec that it is not possible to
object to an assessment that has not been proven. There is another way,
however, of viewing this situation. It is clear that at some point Ms. Burke
personally received a copy of the 1998 Notice of Assessment, even if only in
the form of a reconstructed notice, the only form possible if the original has
simply gone missing. The form of the Appellant’s application for extension to
the Minister on June 12, 2009, that the objections were against assessments if
in fact mailed, suggest to me that this is an ongoing objection, effective
upon proof of subsequent mailing or, I would suggest, proof of actual receipt
of notices, or even reconstructed notices. The Appellant was wisely keeping the
application alive. So, without having to decide exactly when either of these
events occurred, I am prepared to find that there is no conclusive proof the
notices were mailed before June 12, 2009, but there is proof that there was
physical receipt by Ms. Burke of a reconstructed notice which occurred
subsequent to June 12, 2009 and that the application to extend becomes
effective at that point. However, as a consequence of this finding, it is clear
that the filing of the Notice of Objection is coincidental with the receipt of
the assessment and is therefore within the 90 day period to object. There is
therefore no time period to extend as the Notice of Objection for 1998 is
timely. Practically what does this mean? It means that I can deal with 1998 on
the substantive basis of whether child support payments should be included in
Ms. Burke’s income. The other possible procedure to follow would be to
allow the Minister to respond to the Notice of Objection either allowing Ms. Burke’s
position or issuing a notice of confirmation, and then proceeding towards
another trial ‑ unlikely, given my findings to follow on the
substantive issue. No, it makes more sense to simply deal with 1998 on the same
basis as those years, 2000 to 2003, and 2006 and 2007 in which Notices of
Objection were filed on a timely basis.
[36]
Does this reasoning
apply to the 1996 and 1997 taxation years given the reconstructed notices for
those years indicate that they were incorrectly addressed? It is more difficult
to find notices were ever mailed in that situation, but it still follows that
Ms. Burke did at some point possess the reconstructed Notices of
Assessment for those years. That being the case, my reasoning applies equally
to those years to conclude that Notices of Objection were filed on a timely
basis.
[37]
This conclusion with
respect to the 1996 taxation year does not provide Ms. Burke with any
relief, as she has presented no argument as to why the 1996 child support
payments should not fall into her income, as they are clearly pre-May 1997.
This is possibly why the Appellant argued in the alternative that there was no
assessment at all. However, even if I were to accept that alternative position,
I find it does not help the Appellant. I shall address that alternative
argument.
[38]
Ms. Burke argues that
an incorrectly addressed assessment is not a valid assessment. The effect of
this finding is reviewed by the late Justice Dussault in the case of Massarotto
v. R.
as follows:
16. Thus, not only is the applicant saying
that he never received the notice of assessment, but it also seems that the
notice was never sent to him by the Minister at his own address. Moreover, I
note that, in her Reply to the Application for an Extension of Time, the
respondent does not state that the notice of assessment was sent to the
applicant or any other person. No evidence was adduced on this point: the
respondent did not call any witnesses or file any affidavits.
17. It has been established that an assessment
is not complete, and is therefore not valid, unless a notice is sent to the
taxpayer concerned after the assessment is made. In this regard, reference may
be made to the Exchequer Court's judgment in Scott v. M.N.R. , 60 DTC 1273, [1960] C.T.C 402. More
recently, the Federal Court of Appeal, relying on subsection 152(2) of the Income
Tax Act , reaffirmed
this principle in Aztec Industries Inc. v. The Queen , 95 DTC 5235 (at page 5237), [1995] 1
C.T.C. 327 (at page 330). In that case, the taxpayer, which had made its
application out of time as in the case at bar, alleged not only that it had not
received the notice of assessment but also that no such notice had ever been
issued. Hugessen J.A., who rendered judgment for the Federal Court of Appeal,
noted that in such circumstances the burden of proving the existence of the
notice of assessment and the date of its mailing falls on the Minister, since
those facts are normally within his knowledge and he controls the means of
proving them.
…
26. … In the circumstances, I am of the opinion that the Minister has not
shown that a complete and valid assessment was made with respect to the
applicant. Accordingly, it is my view that the Minister cannot recover the
amounts claimed under that alleged assessment. In this regard, reference may be
made to the decision by Judge Bowman of this Court in Rick Pearson
Auto Transport Inc. ( supra , note 2).
27. Applying the principle stated by
the Federal Court of Appeal in Aztec Industries Inc. ( supra ), I must therefore dismiss this
application to extend the time for objecting on the ground that the Minister
has not proved the validity of the assessment since he has not shown that the
notice of assessment was sent to the applicant.
[39]
Mr. Sorensen,
Appellant’s counsel, goes further and relies on the former Chief Justice
Bowman’s comments in Rick Pearson Auto Transport Inc. v. Canada:
7. … the Minister of
National Revenue cannot base any collection of tax on the alleged assessment.
It would be a distortion of, and render nugatory, the Federal Court of Appeal's
decision if the Minister were to treat the dismissal of the application as
entitling the officials of the Department of National Revenue to pursue
collection of tax owing under the alleged but unproved assessment, or to retain
any moneys that they collected thereunder. To permit the Minister to do so
would, in effect, be to allow the Department of National Revenue to use to its
own advantage the Crown's own failure to prove the existence of an assessment.
8. Implicit in my dismissal of the application is a finding that
there is no assessment upon which the Minister may act. The authority of this
court to make such a finding, in my view, is necessary to the exercise of the
court's jurisdiction to deal with the application under section 304(4) of the
Excise Tax Act in a manner that accords with the decision of the Federal Court
of Appeal in Aztec. …
9. See also Attorney-General of
Canada v. Law Society of British Columbia, [1982] 2 S.C.R. 307 where Estey J., speaking for the full court, said at
p. 330:
·
Courts having a
competence to make an order in the first instance have long been found
competent to make such additional orders or to impose terms or conditions in
order to make the primary order effective. Similarly courts with jurisdiction
to undertake a particular lis have had the authority to maintain the status quo
in the interim pending disposition of all claims arising even though the
preservation order, viewed independently, may be beyond the jurisdiction of the
court.
[40]
In effect, the Appellant
argues that if an assessment is not proven, as it is not if the evidence points
to an assessment going to the wrong address, then the CRA is not entitled to
pursue collection of tax owing under the alleged assessment.
[41]
I would agree with this
proposition if the alleged assessment increases the amount of income and
consequently increases the amount of tax owing by the taxpayer beyond what the
taxpayer reported. Here, however, if we strip away any assessment, we are left
with Ms. Burke’s self-assessment, having filed her 1996 return on the basis
that child support payments properly fell into her income. It matters not why
she filed this way, the fact is she did file this way.
[42]
Subsection 152(3) of
the Act reads:
152(3) Liability
for the tax under this Part is not affected by an incorrect or incomplete
assessment or by the fact that no assessment has been made.
[43]
Does a taxpayer who
reports a certain amount of income not have to pay tax on that amount because
the CRA cannot prove an assessment? The Appellant, relying on the cases of Massarotto
and Pearson to answer yes to that question, stretches the ratio of
those cases beyond their limited application. In those cases, the tax liability
appears to have arisen from the assessment; in this case, the tax liability
arises from the taxpayer’s own return. It does not therefore assist
Ms. Burke to find there was no assessment for the 1996 taxation year. I
dismiss the 1996 Appeal.
[44]
Having reached the
conclusion that Notices of Objection were filed on a timely basis for 1997 and
1998, there is no need to consider part of these Appeals as an application for
an extension of time. There is also therefore no need to consider the
Respondent’s technical argument that the Appellant failed to file three copies
of the documents, being the Notices of Objection, with her section 166.2 of the
Act application, as required by subsection 162.2(2) of the Act,
though I was not convinced by the Respondent this would derail Ms. Burke’s
application.
[45]
The 1996 Appeal is
dismissed and the 1999 application for an extension is quashed but the 1997 and
1998 Appeals will be treated on the basis that Notices of Objection were filed
on a timely basis.
Commencement Day
[46]
The Appellant argues
that she has brought herself within the post-April 1997 regime regarding child
support, on the basis she had a post-April 1997 "Commencement Day".
According to paragraph 56(1)(b) of the Act, child support amounts
receivable by a taxpayer after a "Commencement Day" do not fall into
income.
[47]
Commencement Day is
defined in subsection 56.1(4) of the Act as follows:
56.1(4) "commencement day"
at any time of an agreement or order means
(a) where the agreement or order is made after April
1997, the day it is made; and
(b) where
the agreement or order is made before May 1997, the day, if any, that is after
April 1997 and is the earliest of
(i) the
day specified as the commencement
day of the agreement
or order by the payer and recipient under the agreement or order in a joint
election filed with the Minister in prescribed form and manner,
(ii) where
the agreement or order is varied after April 1997 to change the child
support amounts payable to the recipient, the day on which the first
payment of the varied amount is required to be made,
(iii) where
a subsequent agreement or order is made after April 1997, the effect of which
is to change the total child
support amounts payable to the recipient by the payer, the commencement
day of the first such
subsequent agreement or order, and
(iv) the
day specified in the agreement or order, or any variation thereof, as the commencement
day of the agreement
or order for the purposes of this Act.
I am dealing specifically with subparagraphs (b)(i)
of the Act (with respect to the election) and (b)(iv) of the Act
(with respect to the 2009 order).
[48]
The Appellant’s
position is that pursuant to both the 2009 order of Justice Allen and the
T1157 Joint Election signed by Ms. Burke and Mr. Burke, the Commencement Day is
established as May 1, 1997: further that this accords with a textual,
contextual and purposive interpretation of "Commencement Day". In the
alternative, the correspondences between counsel for the Burkes constituted an
agreement also bringing into play a May 1, 1997, Commencement Day.
[49]
The Respondent’s
position with respect to the 2009 order is that, while it may have amended the
1993 order, it refers to the Burkes confirming their agreement that payments
were made pursuant to the new Child Support Guidelines, yet the Appellant has
not shown the Court any such agreement. Further, the order cannot be effective
retroactively.
[50]
With respect to the
T1157 Joint Election, the Respondent argues it is not reasonable and therefore
not effective to file such an election in September 2011 for years going back
as far as 1997. Finally, with respect to the correspondence between counsel,
the Respondent argues that such correspondence does not constitute an
agreement.
[51]
The Appellant argued
extensively as to the textual, contextual and purposive interpretation to be
given to "Commencement Day". Without specifically identifying any
ambiguity in the textual interpretation, the Respondent argued that great
emphasis should be placed on the contextual and purposive interpretation. I find
there is an ambiguity in the text of the definition that might lead to some
greater reliance on the contextual and purposive interpretation. That ambiguity
is with respect to the issue of timing. Is it clear that a T1157 Joint
Election, or a subsequent order, can only be forward looking or can they be
retroactive? There is no temporal limitation in the specific wording of the
section itself to suggest the election or order can only be effective from the
date of the election or order.
[52]
I intend to discuss the
interpretation of Commencement Day in the context of the Appellant’s argument
that the Joint Election creates a Commencement Day. What then is the textual
interpretation of this definition of Commencement Day found in subparagraph
56.1(4)(b)(i) of the Act? Put simply, the Commencement Day is the
day specified as such by the payer and recipient in a Joint Election filed with
the Minister in prescribed form and manner. The Respondent did not suggest that
the T1157 Joint Election form was not filed in prescribed form and manner
(indeed I was not directed to any prescribed manner); just that it would
not be reasonable to have retroactive effect. The Respondent would have me read
the provision as including the following proviso:
Provided
such day is subsequent to the date of filing the Joint Election.
This interpretation would preclude separated couples,
who only discovered the post-April 1997 regime some months or years after the
fact, from agreeing or filing a Joint Election to take advantage of the new
regime.
[53]
On a strictly textual
interpretation there appears to be no time restriction that would preclude the
filing of a Joint Election after May 1, 1997 to be effective May 1, 1997.
There may be situations, unlike the one before me, where a time for requesting
an amended return (subsection 152(4.2) of the Act) or objecting to a
certain taxation year has long passed before an attempt is made to alter the
taxpayer’s income for that year, either by Joint Election or amended return. It
is unnecessary for me to attempt to contemplate all such possible scenarios. In
front of me is a duly filed Joint Election attempting to deal with taxation
years that are very much alive as far as the taxpayer’s right to have those
years’ assessments addressed by this Court. Those years are before me and I have
in evidence a Joint Election, which on a textual interpretation has a May 1,
1997 Commencement Day.
[54]
I now turn to a
contextual and purposive view of the definition of Commencement Day to
determine if under any such interpretation the Burkes’ Joint Election would not
create a Commencement Day, as it is somehow filed too late.
[55]
Without going through
the lengthy history of the build up to the legislative change in 1997, it is
abundantly clear from the cases in the mid-1990’s (Moge v. Moge,
Marzetti v. Marzetti,,
Willick v. Willick,,
Thibaudeau v. Canada)
that change was in the wind. Justice Iacobbuci succinctly put it as follows in Marzetti:
…
there are related public policy goals to consider. As recently recognized by
L’Heureux-Dubé J. in Moge v. Moge, [1992] 3 S.C.R. 813, "there is no
doubt that divorce and its economic effects" (p. 854) are playing a role
in the "feminization of poverty" (p. 853). A statutory
interpretation which might help defeat this role is to be preferred over one
which does not.
[emphasis
added]
[56]
The Government, after
considerable consultation and a task force dealing with the tax treatment of
child support changed the law. As the Chair of the task force put it:
Finally,
women raising their children on their own will not have to pay income tax on
money intended for their children. Finally, they will receive equitable child
support payments. Finally, they will have the assurance that payments will be
on time. Finally too, their child tax benefit will be doubled.
These
measures are the culmination of our government’s efforts in the best interests
of children, and the long struggle for female equality.
[57]
In a 1996 Budget in
Brief document from then Finance Minister Paul Martin, it was stated:
The
measures are based on the philosophy that child support is not discretionary –
it is the first obligation of parents, and child support payments are there to
provide support for children, not income for parents.
[emphasis
added]
[58]
On May 1, 1997, The
Federal Support Guidelines came into force. Under the heading "Changing an
existing support order or agreement", the Guidelines provide:
The
Federal Child Support Guidelines came into force May 1, 1997. Under the
guidelines anyone who has a child support order or written agreement made
before May 1, 1997 can change it to reflect the guidelines and the change in
tax rules described below even if nothing else has changed. …
…
3. Change
the way child support payments are treated for tax purposes
If
you and the other parent agree to keep the amount of child support the same and
simply change how it is treated for tax purposes you can do so easily.
You
can both sign and file Canada Revenue Agency Form T1157, Election for Child
Support Payments, with the Canada Revenue Agency. This action does not change
any terms of your pre-May 1, 1997, court order or written agreement, except for
the way the payments are treated for tax purposes.
[59]
Clearly, this is
directed to separated couples after the legislation has changed as it
indicates the "guidelines came into force on May 1, 1997". It
invites couples to agree to the change by filing a Joint Election or seeking an
order. It does not suggest that the effective date of coming under the new
regime is the time of filing an Election, but implies the couple can have all
payments from May 1, 1997 subjected to the new regime.
[60]
The purpose of the new
regime is clear: the rules were designed to ameliorate the suffering of
custodial parents, usually mothers, after a marriage breakdown, recognizing
that child support is not an income receipt by its very nature. Given Ms.
Burke’s circumstances, I find the new rules are directly aimed at someone in
her position.
[61]
This legislation
dramatically altering the taxation of child support is a form of social welfare
legislation. Where there is some ambiguity, it should not be construed to
defeat its very purpose. This approach was affirmed by the Federal Court of
Appeal in Villani v. Canada:
Section
12 of the Interpretation Act, R.S.C. 1985, c. I-21 reads:
12. Every enactment is deemed remedial, and shall be given
such fair, large and liberal construction and interpretation as best ensures
the attainment of its objects.
The
enactment of this general principle abolished the traditional distinction
between penal and remedial legislation for the purposes of statutory
interpretation … Under the traditional distinction, penal legislation was
construed strictly while remedial legislation was given a large and liberal
construction. The liberal approach to remedial legislation flows from the
notion that such legislation has a benevolent purpose which courts should be
careful to respect.
In
Canada, courts have been especially careful to apply a liberal construction
to so‑called "social legislation".
In Rizzo v. Rizzo Shoes Ltd. (re), 1998 CanLII 837 (SCC), [1998] 1 SCR
27 at para. 36, the Supreme Court emphasized that benefits‑conferring
legislation ought to be interpreted in a broad and generous manner and that any
doubt arising from the language of such legislation ought to be resolved in
favour of the claimant. This interpretative approach to legislation designed to
secure a social benefit has been adopted in a number of Supreme Court decisions
dealing with the Unemployment Insurance Act, 1971 …
[62]
I find no support in a
contextual or purposive interpretation of Commencement Day to hold that a Joint
Election filed after May 1, 1997 pertaining to years that are properly before
this Court cannot be effective as of May 1, 1997. There is nothing in the text
of the statutory definition or in The Federal Child Support Guidelines that
expressly would deny this interpretation ‑ just the opposite. I
allow the appeals for the 1997, 1998, 2000 to 2003, and 2006 and 2007 taxation
years.
[63]
It is unnecessary for
me to address the Appellant’s reliance on the 2009 order or the possible
agreement between Mr. Burke and Ms. Burke based on their laywers’
correspondence. I would say, however, that I have not been satisfied the
correspondence between counsel ever constituted an agreement: the language of
the correspondence simply does not support such a finding.
[64]
With respect to the
2009 order, I am swayed by the reasoning of the Federal Court of Appeal in the
case of Dangerfield v. R.:
It
is necessary to allow Judges and the parties to agreements to specify different
effective dates or commencement days for different parts of the diverse orders
they devise. Some orders or parts thereof are even retroactive. This
approach is in harmony with the legislative purpose of the provision to afford
some tax relief to the custodial parents of fractured families. Needlessly
technical interpretation that deprives custodial parents of tax relief granted
to them by Parliament is to be avoided. The related case of Veilleux c.
R., 2002 CAF 201 (Fed. C.A.) supports this view. In that case, Mr. Justice
Létourneau declared:
It
seems important to me that a statutory provision not be interpreted so strictly
that it hampers Parliament’s intention with respect to that provision
…
In
my view a commencement day for the support payments was specified in this case.
This was the clear intention of the Judge who made the order in question.
…
That
there was a commencement day specified is also clear from the documentation
demonstrating that the parties intended to specify a commencement day for the
child support payments in order to be able to avoid tax on the payments in
accordance with the new legislation The Tax Court Judge obviously understood
that the appliance and her counsel intended to do this.
[65]
The Respondent could
not provide me with any jurisprudence to the contrary. Based on this case and
my views on the interpretation of Commencement Day as it pertains to the Joint
Election, I find the 2009 order also creates a Commencement Day.
[66]
In summary:
(a) the Appeal for 1996 is dismissed;
(b) the application to
extend time to file a Notice of Objection for the 1999 taxation year is
quashed;
(c) the Appeals for the 1997,
1998, 2000, 2001, 2002, 2003, 2006 and 2007 are allowed and referred back to
the Minister for reconsideration and reassessment on the basis the child
support payments are not to be included in the Appellant’s income.
The parties are to make written submission
on costs to the Court by the end of November 2012. If I do not receive any such
submission, costs are awarded to the Appellant in accordance with the Court’s
tariff.
Signed at Toronto, Ontario, this 24th day of October 2012.
"Campbell J. Miller"
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