Date: 20020715

Docket: 98-570-IT-G

BETWEEN:

L & K FARMS LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for taxation

Reeve, D., Vancouver, T.C.C.

[1]            This taxation of costs was heard by conference call in Vancouver at 1:00 PM (CST), on Tuesday, June 25, 2002. Present were the Appellant's counsel, Mr. Grant Carson, and the Respondent's counsel Ms. Karen Janke.

[2]            The appeal was instituted in the Tax Court of Canada under the General Procedure Rules for the 1993 taxation year as a Class A proceeding. In a decision dated September 3, 1999, the Honourable Judge Beaubier allowed the appeal with costs. Prior to the taxation, the parties reached an agreement with respect to the disbursements. The agreement adjusted the amounts of witness Litchfield's airfare, mileage and meals to total $627.90. Otherwise, there was no dispute with the remaining disbursement amounts. The Appellant submitted a Bill of Costs in the amount of $6,857.50, a portion of which is produced below.

[3]            The Respondent took issue with the amounts claimed for the services of counsel, because the Bill of Costs reflected amounts consistent with a Class B proceeding whereas the Appeal had been instituted as a Class A proceeding. The Respondent also requested that either the costs of the taxation be denied or in the alternative awarded to the Crown.

BILL OF COSTS

CLASS B TARIFF B

1.              Services prior to Examination                                                $ 375.00

2.              Status Hearing November 12, 1998                                      $ 375.00

3.              Examination for discovery in Saskatoon

                on June 16, 1998                                                                      $ 375.00

4.              Preparation for Hearing                                                          $ 500.00

5.              Conduct Hearing

                August 9 - adjournment                                                             $1,250.00

                August 11                                                                                   $1,250.00

6.              Taxation of Costs                                                                    $ 375.00

7.              Services after Judgment                                                         $ 100.00

8.             Witness fees Lloyd Taylor                                                  $ 100.00

                    Dave Cook                                                                          $ 50.00

                    Bill Lichfield                                                                       $ 150.00

9.              Witness travel

                D. Cook

                120 kms at .35                                                                          $ 42.00

                Lloyd Taylor

                170 kms at .35                                                                          $ 59.50

                Bill Litchfield (air travel Winnipeg

                to Saskatoon and return)                                                           $1,048.00

                Mileage Saskatoon, Prince Albert

                and return (240 kms at .35)                                                    $ 84.00

                Hotel and meals (estimate)                                                  $ 200.00

10.            Paid on commencement                                                       $ 250.00

11.            Mileage to Saskatoon and return on

                Examinations for Discovery                                                $ 204.00

12.            Mileage to Prince Albert and return on

                Hearing                                                                                    $ 70.00

               

TOTAL FEES AND DISBURSEMENTS                                                   $6,857.50

SUBMISSIONS - Ms. Janke for the Respondent

[4]            Under the General Procedure Rules, Tariff A, section 1 describes a Class A appeal as one where the aggregate of all amounts in issue is less than $50,000. In an affidavit prepared by Mr. Pierre Picard and submitted for the taxation, it is clear that this appeal was instituted in the Tax Court as a Class A appeal with Exhibit "B" showing that the applicable $250 filing fee was paid. The reassessment notice, attached to the affidavit, shows the amount of federal tax to be $42,349.15. The Appellant appears to be taking the position that because the reassessment notice refers to an amount of $90,093.83 therefore this equates to a Class B proceeding. This total includes interest in the amount of $22,555.82, which is excluded from the aggregate of all amounts in issue. Tax shown as provincial and territorial tax in the amount of $38,703.96 is also excluded from the total.

[5]            In De Mond v. The Queen [2000] 4 C.T.C. 2203, the aggregate of all amounts in issue refers to the final total amount in the assessment and not all the amounts that were considered by the Minister. For the proposition that the amount in issue does not include provincial taxes, section 2.1 of the Tax Court of Canada Act refers to the aggregate of all amounts in issue under the Income Tax Act. This reference is to the federal Income Tax Act. In the case of Hassanali Estate v. The Queen (unreported) Docket No. 94-2924(IT)G, the Registrar of the Tax Court of Canada determined that the aggregate of all amounts in issue under the Income Tax Act, does not include provincial taxes. Accordingly, it is the position of the Respondent that the aggregate of all amounts in issue under the Income Tax Act, is less than $50,000 and the Bill of Costs should reflect the amounts consistent with a Class A proceeding.

[6]            On the matter of the taxation, the disbursements have been settled without having to go through taxation. The interpretation of the aggregate of all amounts is clear in section 2.1 of the Tax Court of Canada Act and also in the General Procedure Rules, so this taxation should not have had to occur. Not only should the costs not be awarded to the Appellant, but the amount should be awarded to the Respondent for having to go through the taxation when it was not necessary. Had the Bill of Costs been submitted under Class A, as it was instituted, there would be no dispute. The authority and discretion of the taxing officer to set the amounts and award the costs as requested, is found in section 157(2) of the General Procedure Rules.

[7]            It was anticipated that counsel for the Respondent would argue that the taxing officer did not have the jurisdiction to change the class of the proceeding. In relying upon the case of De Mond v. The Queen [2000] D.T.C. 2399, the taxing officer does have the authority to change the class. This case is one that was filed with three or four similar cases and there was an oversight in determining the amount in issue. The amount in issue surely has to include the amount of income tax that is due as a result of the assessment. This is not purely a provincial matter with the federal government collecting the tax. The question that needs to be asked is: Did the Appellant have to pay thirty-eight thousand as a result of this assessment or did they have to pay ninety thousand? The federal tax and the provincial tax go together, they are created by an assessment. If there were purely provincial taxes involved then it might be a different consideration. The federal government is the one collecting and enforcing the assessment and creating the tax liability so surely that is the amount in issue in the appeal and not just the amount that ends up in the hands of the federal government. The federal government cannot divorce itself from a part of the money that it claimed from a taxpayer. The amount in issue is ninety thousand dollars and even if an adjustment is made in the calculation to account for the interest, the amount is still approximately $81,000.00.

[8]            With respect to the taxation, it becomes a standard tariff item. A Bill of Costs was prepared and exchanged with the Respondent and the amounts of the disbursements were negotiated. Although no agreement was reached on the class of the proceedings, a person should not be penalized for referring the matter to taxation. That is the way the system is set up to resolve the issue. The Appellant was the successful party in these proceedings and a lot of time and money was spent defending this case, far more than will ever be recovered. It would not be proper to penalize a taxpayer who was successful at trial by not allowing costs for the taxation.

[9]            This appeal was instituted under the General Procedure Rules. Section 176(1) of these Rules provide the Registry of the Court with the authority to collect fees prescribed in Schedule II, Tariff A. The fees prescribed in this Tariff vary depending upon three different classes of proceedings. The relevant portions of Tariff A are, Class A, which includes appeals where the aggregate of all amounts in issue is less than $50,000, Class B $50,000 or more but less than $150,000 and a Class C $150,000 or more. The Appellant instituted this appeal as a Class A proceeding and paid the applicable filing fee to the Registry of the Court.

[10]          The Appellant submits that an oversight occurred when the appeal was instituted with other similar matters and it was filed as a Class A proceeding when it should have been a Class B proceeding, as the amount assessed was over $50,000.00. The Respondent argues that the Minister's assessment involved an amount under $50,000 and the appeal is therefore a Class A proceeding. The Respondent equates the aggregate of all amounts in issue in this matter to the federal tax assessed under the Income Tax Act, while excluding interest and provincial taxes. The Appellant concedes that interest may not be included in the amounts in issue but considers both the federal tax and the provincial tax to be a tax liability that is included in the interpretation of the aggregate of all amounts in issue. In practical terms, I believe that the Tax Court of Canada would not have the jurisdiction to decide an issue only with respect to the amount of provincial tax assessed, if a taxpayer challenged that amount. It may not follow that having no jurisdiction results in the exclusion from this amount, however, further consideration is that the provinces, including Saskatchewan in this instance, have their own Income Tax Acts. The provinces have various tax rates, tax brackets and tax credits. The Tax Court's jurisdiction revolves around the federal tax and penalties and provincial and territorial taxes are relative to the federal tax. The Minister of National Revenue collects both provincial and federal tax in the federal tax return. The provincial tax is collected in accordance with an agreement under the Federal-Provincial Fiscal Arrangements Act. Although it's argued that the Income Tax Act provides for the collection of provincial tax, and it forms part of the amount in issue in the assessment under that Act, literally I believe pursuant to section 2.1 of the Tax Court of Canada Act, the provincial tax portion is excluded for the purposes of the amounts assessed by the Minister of National Revenue under the Income Tax Act.

[11]          Section 2.1 of the Tax Court of Canada Act clearly excludes any amount of interest. With the provincial tax excluded under this section, it follows that reference to the "aggregate of all amounts" in section 1 of schedule II of Tariff A of the General Procedure Rules, which determines the class, leaves the total federal tax of $42,349.15 in this instance. This amount places the appeal within a Class A proceeding as originally instituted.

[12]          Considering the Respondent's position with respect to the taxation, the Appellant raised an arguable issue with respect to the inclusion of provincial tax in the "aggregate of all amounts in issue" and genuinely pursued his position. A taxpayer must not be penalized for legitimately challenging an issue and using the method available to resolve such a dispute. The Appellant is entitled to fees allotted for the taxation. For the services of counsel consistent with a Class A proceeding, the amounts allowed and substituted for those claimed in the Bill of Costs total $2,875.00. Disbursements in the amount of $1,553.40 are allowed for a total amount of $4,428.40. A certificate will be issued.

Dated at Vancouver, British Columbia this 15th day of July, 2002.

________________________

Taxing Officer

Date: 20020715

Docket: 98-570(IT)G

BETWEEN:

L & K FARMS LTD.,

Appellant,

and

                                                                             HER MAJESTY THE QUEEN,

Respondent.

CERTIFICATE OF COSTS

I CERTIFY that I have taxed the party and party costs of the Appellant in this proceeding under the authority of subsection 153(1) of the Tax Court of Canada Rules (General Procedure), and I allow the sum of $4,428.40.

Dated at Vancouver, British Columbia, this 15th day of July, 2002.

____________________________________

Taxing Officer