Citation: 2011TCC256
Date: 20110518
Docket: 2010-1886(IT)G
BETWEEN:
GOLDMAN HOLDINGS LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Sheridan J.
[1]
The Appellant is appealing the
reassessment of the Minister of National Revenue of its year ending August 31, 2000
pursuant to which $1,531,012 was added to the Appellant’s reported income.
The increase was based on the Minister’s determination of the value of certain real
property owned by a partnership
(the “Partnership”) dissolved during the 2000 taxation year in which the
Appellant had an interest.
[2]
A Notice of Reassessment was
issued on April 2, 2007 (the “Auditor’s Reassessment”) following an audit
conducted by Canada Revenue Agency official Frank Mancuso (the “Auditor”).
According to his Affidavit, the Auditor assumed the following facts in respect
of the Partnership’s ownership and inventory of land and its fair market value:
7. The
facts I assumed with respect to the Partnership’s ownership and inventory of
land were:
(i)
the Partnership owned real property;
(ii)
the real property was the inventory of the Partnership; and
(iii)
the real property consisted of the land known as East Parcel, West
Parcel and Centre Parcel located in the city of Toronto.
8. The
fact that I assumed with respect to the fair market value of the land owned by
the Partnership was:
(i)
the fair market value of the real property immediately prior to the
dissolution of the Partnership was not less that $24,220,500.
[3]
On April 18, 2007, the Appellant
filed a Notice of Objection which was assigned to Canada Revenue Agency Appeals
Officer LeRoy Evans (the “Appeals Officer”). In response to correspondence
received from the Appellant during the objection stage, the Appeals Officer
made the following statements in his letter of June 23, 2009:
This is in
response to your letters dated September 15, 2008 and May 14, 2009, in respect
of the issues which you raised in the Notice of Objection dated April 18, 2007.
….
Deemed Income on 1999
dissolution of partnership
In your representation you state:
“In adding
$1,531,012 to the taxpayer’s partnership income in the year, the Agency assumed
that the taxpayer received income from the partnership in an amount equal to 50
percent of the partnership’s total property on its dissolution, and that the 250
Wellington Street West Partnership owned all of the subject lands continuously
since 1992.”
Based on
our understanding of the information made available to us, we conclude that
“Subject Lands” was “250 Wellington Street West”. 250
Wellington Street West Partnership held 80% and Journey’s End Wellington
Partnership held the remaining 20%. In addition, Journey’s End Wellington
Partnership was owned 80% by “250 Wellington Street West
Partnership” and 20% by 866223 Ontario Limited.
We have been guided by these
percentage allocations.
[Emphasis added.]
[4]
At the conclusion of his review of
the Appellant’s Notice of Objection, the Appeals Officer prepared a Report on
Objection dated December 16, 2009 in which the following statement is included under
the heading “Background Information”:
The property
at 250 Wellington Street West, referred to as the “subject lands” was owned by
250 Wellington
Street West Partnership 80%
and
Journey’s End
Wellington Partnership 20%
[5]
Following a further exchange of
correspondence between counsel for the Appellant and the Appeals Officer
regarding certain details of his confirmation, a Notice of Reassessment was
issued on March 11, 2010 (the “Second Reassessment”) reassessing the Appellant’s
tax liability based on the inclusion in its income of $1,531,012.
[6]
The Appellant appealed the Second
Reassessment to the Tax Court of Canada in response to which the Minister duly
filed a Reply to the Notice of Appeal. The Respondent now seeks by this motion to
delete subparagraph 9(d) from the assumptions set out in the Reply:
9. In
determining the Appellant’s tax liability for its 2000 taxation year, the
Minister proceeded upon the following facts:
…
(d) The Partnership held an 80% interest in real property at
250 Wellington Street West, Toronto, Ontario; Journey’s End Wellington
Partnership held the remaining 20%;
[7]
The Respondent’s position is that
it ought to be permitted to delete subparagraph 9(d) because the facts assumed
therein in respect of the Partnership’s percentage interest in the real
property disposed of is inconsistent with the basis for the inclusion of the
$1,531,012 of additional income reassessed by the Auditor. At paragraph 6 of
his Affidavit, the Auditor set out a statement of what he did not assume
when reassessing:
6. In
subparagraph 9(d) the following assumption of fact is pled: the Partnership
held an 80% interest in real property at 250 Wellington Street West, Toronto,
Ontario; Journey’s End Wellington Partnership held the remaining 20%. As
auditor, this fact was not assumed by me.
[8]
The Appeals Officer was
cross-examined on his Affidavit at the hearing. In her questions to him on
redirect, counsel for the Respondent attempted to demonstrate that the
assumption made in subparagraph 9(d) resulted from his misinterpretation of the
same documents reviewed by the Auditor, in particular, the Land Partnership
Dissolution Agreement attached as Exhibit “A” to the Auditor’s Affidavit. If
the Appeals Officer did not make an error, contended counsel for the
Respondent, then the additional income amount ought to have been only 80% of
the figure assessed; based on subparagraph 9(d) as it currently stands, the
Minister’s calculation of the Appellant’s additional income just “doesn’t make
sense”.
[9]
Citing Canderel v. R., [1993]
2 C.T.C. 213 (F.C.A.), counsel for the Respondent argued that, as a general
rule, amendments should be permitted for the purpose of determining the real
questions in controversy. In determining whether an amendment ought to be
allowed, the Court should consider such factors as inadvertence, error,
hastiness, lack of knowledge of the facts and the timelines of the motion to
amend. Counsel went on to say that these principles, coupled with the Crown’s
duty to plead the Minister’s assumptions in an accurate and precise fashion, Loewen
v. Canada, 2004 D.T.C. 6321 (F.C.A.); Anchor Pointe Energy Ltd. v.
Canada, 2003 D.T.C. 5512 (F.C.A.), support the Crown’s request to delete subparagraph 9(d)
of the Reply.
[10]
The Appellant’s position is that
the amendment ought not to be allowed because subparagraph 9(d) sets out
accurately and precisely what the Appeals Officer, in fact, assumed when
confirming and reassessing the Appellant’s 2000 taxation year. Citing Loewen,
counsel for the Appellant submitted that an assumption is a matter of
“historical fact” that the Crown has a duty to plead as assumed, whether or not
it supports the assessment ultimately made.
[11]
In Loewen, the Federal
Court of Appeal considered the fundamentals of an assessment and the Crown’s
obligations in respect of the factual assumptions upon which it was based:
[7] The
basis of any assessment is a matter of historical fact, and does not change.
The basis of a reassessment normally includes the facts relating to the
increased taxable income, as the Minister perceived those facts when the
reassessment was made. …
[9] It
is the obligation of the Crown to ensure that the assumptions paragraph is
clear and accurate. For example, the Crown cannot say that the Minister
assumed, when making the assessment, that a certain car was green and also that
the same car was red, because it is impossible for the Minister to have made both
of those assumptions at the same time: Brewster v. The Queen, 76 D.T.C.
6046 … .
[Emphasis
added.]
[12]
Applying these principles to the
present matter, the Appeals Officer admitted on cross-examination that he made
the assumption in subparagraph 9(d). Nor can it be said that his having assumed
a percentage interest in the Partnership property at the objection stage that
differed from the Auditor’s at the audit stage is akin to the Minister having
assumed simultaneously that the same car was both green and red.
Notwithstanding counsel for the Respondent’s valiant efforts to lead him
through the rather voluminous materials underpinning the reassessments and
filed in respect of this motion, the Appeals Officer remained steadfastly
unable to recall what documents he had had before him when considering the
Appellant’s objection or which he may have had in mind when reaching the
conclusions set out above. This is not meant unkindly; I recognize that the
Appeals Officer was very anxious during his testimony.
[13]
The Appeals Officer was also
questioned about the facts attested to at paragraphs 8 and 9 of his Affidavit:
8. In
my letter dated June 23, 2009 I made the following statements:
Based on
our understanding of the information made available to us, we conclude that
“Subject Lands” was “250 Wellington Street West”. 250 Wellington
West Partnership held 80% and Journey’s End Wellington
Partnership held the remaining 20%.
9. Upon
further review, I realize that I made an error with respect to the second above
noted statement. There were no documents that I reviewed at the time I wrote
the letter, which support that 250 Wellington Street West Partnership held 80%
of the subject lands, 250 Wellington Street West, and that Journey’s End
Wellington Partnership held the remaining 20%.
[14]
Notwithstanding the above
assertions, on cross-examination the Appeals Officer was unable to say with any
certainty what documents he had reviewed in preparing his Affidavit. He was
equally at a loss to explain, even when being carefully taken through the
various portions of the documents dealing with the Partnership’s interest in
the real property, what had lead him to conclude he had made the error attested
to in paragraph 9 of his Affidavit. Indeed, it appears from his testimony that
until the Reply to the Notice of Appeal had been filed and subparagraph 9(d)
brought to his attention, the Appeals Officer did not believe that any sort of
“error” had been made – perhaps explaining the awkwardly worded final sentence
of paragraph 9 of his Affidavit.
[15]
In Loewen, Justice Sharlow
went on to say at paragraph 10:
[10] Nor
is it open to the Crown to plead that the Minister made a certain assumption
when making the assessment, if in fact that assumption was not made until
later, for example, when the Minister confirmed the assessment following a
notice of objection. The Crown may, however, plead that the Minister assumed
when confirming an assessment, something that was not assumed when the
assessment was first made: Anchor Pointe Energy Ltd. v. Canada, 2003
D.T.C. 5512 (F.C.A.).
[16]
In the Anchor Pointe
decision referred to above, Rothstein, J.A. (as he then was) held at paragraph
23 that the Minister’s obligation to plead assumed facts accurately and
precisely applied equally to the circumstances in which such assumptions arose
which, under the Act, can only be one of three actions: assessing,
reassessing or confirming. The rationale for that conclusion appears in
paragraphs 21 and 22:
[21] The
Crown argues that what was meant by [its use of] the words “[I]n reassessing”
in paragraph 10 [of the Reply to the Notice of Appeal] is “the process of
assessing tax liability”. The Minister may view the entire process from his
first action after a return is filed, to his last – in this case, confirmation
of a reassessment, as the process of assessing tax liability. However, the Income
Tax Act stipulates specific actions that the Minister may take – assessing,
reassessing, confirming. The Act does not use the term “process of
assessing tax liability”.
[22] Reassessment
and confirmation are distinct actions engaged in by the Minister. Reassessment
implies changing a previous assessment or reassessment. Confirmation implies
that the previous assessment or reassessment stands unchanged. It is misleading
for the Crown to say that the Minister made certain assumptions in reassessing,
when those assumptions were made in confirming a reassessment.
[17]
Here, the Minister’s “last
distinct action” was reassessing under the Second Reassessment, a reassessment
which was made subsequent to the confirmation of the original reassessment. The
jurisprudence is clear that the issuance of a new reassessment renders its
predecessor a nullity from which it follows that the assumptions of fact upon
which the original reassessment was based are no longer relevant. It is from
the Second Reassessment that the Appellant appeals.
[18]
What, then, were the historical
facts underpinning the Second Reassessment? The motion materials show that
following the Appeals Officer’s issuance of the Notice of Confirmation in
December 2009, there occurred an exchange of views between him and counsel for
the Appellant, ultimately resulting in the issuance of the Second Reassessment
in March 2010. While technically a new reassessment, the effect of the Second
Reassessment was to confirm the Notice of Confirmation from which it can be
inferred that the Second Reassessment was based on the same assumptions of
facts as the Notice of Confirmation; that is to say, on those facts assumed by
the Appeals Officer, including subparagraph 9(d) of the Reply to the Notice of
Appeal.
[19]
I also agree with counsel for the
Appellant that the Respondent may not rely on the principles in Canderel to
justify withdrawing the facts assumed in subparagraph 9(d). The Appeals
Officer’s vague assertion, after the fact, that the assumption was the result
of an error following his review of a document or documents that he is unable
to identify as having been relied on in reaching his apparently erroneous
conclusion is not in the nature of a ‘slip’, for example, an inadvertent
reference to a wrong date in a document or a typographical error of some sort.
It goes to the heart of the issues to be decided in the appeal including, as
counsel for the Respondent pointed out, the Court’s interpretation of the
documents reviewed by the Minister.
[20]
Paragraph 49(1)(d) of the Tax
Court of Canada Rules (General Procedure) requires the Respondent to state
in its Reply to the Notice of Appeal “the findings or assumptions of fact made
by the Minister when making the assessment”. In all the circumstances, I am not
persuaded that there is any justification for the deletion of subparagraph 9(d)
from the Reply to the Notice of Appeal. The Respondent’s motion is dismissed,
with the matter of costs to be left to the trial judge.
Signed at Ottawa, Canada, this 18th day of May 2011.
"G.A. Sheridan"
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