Citation: 2009TCC613
Date: 20091207
Docket: 2009-1713(IT)I
BETWEEN:
MORTON ADLER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1] The issue in these
appeals is whether the Appellant is entitled to deduct an amount for motor
vehicle expenses and an amount for work space in the home expenses in computing
his income from employment for 2005 and 2006.
[2] It is clear from
the Reply in this matter that the basis on which the Appellant was reassessed
to deny his claim for motor vehicle expenses and work space in the home
expenses, is that the Respondent was taking the position that the Appellant was
not required to pay for these expenses. The Respondent also raised the issue of
whether the Appellant was required to perform his duties of employment away
from his employer's place of business or in different places.
[3] During closing
arguments, counsel for the Respondent raised an additional basis for the denial
of the expenses. Counsel for the Respondent raised the issue that the expenses
should be denied as a result of the application of the provisions of subsection
8(10) of the Income Tax Act (the “Act”). This subsection provides
that:
(10) An amount otherwise
deductible for a taxation year under paragraph (1)(c), (f), (h) or (h.1) or
subparagraph (1)(i)(ii) or (iii) by a taxpayer shall not be deducted unless a
prescribed form, signed by the taxpayer's employer certifying that the
conditions set out in the applicable provision were met in the year in respect
of the taxpayer, is filed with the taxpayer's return of income for the year.
The
prescribed form is the form T2200 (a copy of which is attached as Schedule “A”
to these Reasons).
[4] However, this
basis of reassessment was not addressed anywhere in the Reply. Counsel for the
Respondent tried to argue that since the Reply referred to section 8 of the Act
that he should be allowed to argue this subsection of section 8. However it is
clear from the Reply that this was not the basis for the reassessment. The
material fact that would be required for subsection 8(10) of the Act to
apply is that the prescribed form was not filed with the income tax return for
the year. There is no reference to this fact anywhere in the Reply.
[5] It is not
appropriate for counsel for the Respondent, during closing arguments, to raise
a particular provision of the Act as a basis for reassessment when there
is no indication in the Reply that the particular provision formed the basis
for the reassessment or was an alternative basis for the reassessment.
[6] Paragraph 6 of
the Tax Court of Canada Rules (Informal Procedure) provides that:
6. (1) Every
reply to a notice of appeal shall contain a statement of
(a) the
facts that are admitted,
(b) the
facts that are denied,
(c) the facts of which the respondent has no knowledge and puts
in issue,
(d) the
findings or assumptions of fact made by the Minister when making the
assessment,
(e) any
other material facts,
(f) the
issues to be decided,
(g) the
statutory provisions relied on,
(h) the
reasons the respondent intends to rely on, and
(i) the
relief sought.
[7] Since the
potential application of subsection 8(10) of the Act was not identified
in the Reply as a reason that the Respondent intended to rely on, the proper
procedure would have been for Counsel for the Respondent to bring a Motion to
amend the Reply prior to the commencement of the hearing. Notifying the
Appellant that the Respondent will make this additional argument is not a
substitute for a Motion to amend the Reply.
[8] The Respondent
also cannot rely on subsection 152(9) of the Act, which provides as
follows:
(9) The
Minister may advance an alternative argument in support of an assessment at any
time after the normal reassessment period unless, on an appeal under this Act
(a) there is
relevant evidence that the taxpayer is no longer able to adduce without the
leave of the court; and
(b) it is not
appropriate in the circumstances for the court to order that the evidence be
adduced.
[9] In Walsh v.
The Queen, 2007 FCA 222, [2007] 4 C.T.C. 73, 2007 DTC 5441, Chief
Justice Richard (as he then was) of the Federal Court of Appeal made the
following comments in relation to subsection 152(9) of the Act:
18 The
following conditions apply when the Minister seeks to rely on subsection 152(9)
of the Act:
1) the Minister cannot include transactions which did not form
the basis of the taxpayer's reassessment;
2) the right of the Minister to present an alternative
argument in support of an assessment is subject to paragraphs 152(9)(a) and
(b), which speak to the prejudice to the taxpayer; and
3) the Minister cannot use subsection 152(9) to reassess
outside the time limitations in subsection 152(4) of the Act, or to collect tax
exceeding the amount in the assessment under appeal.
[10] It seems to me that in addition to the conditions as
set out above, the Minister should not be able to circumvent procedural
fairness by raising a basis for reassessment during closing arguments that was
not disclosed in the Reply. Procedural fairness
would dictate that the proper procedure for the Respondent to have followed, if
the Respondent had wanted to advance a new basis for the reassessment, would
have been for the Respondent to have brought a Motion, prior to the
commencement of the hearing, to amend the Reply to include the new basis. It
does not seem to me that the provisions of subsection 152(9) of the Act
should be interpreted as dispensing with the procedural requirement of amending
pleadings to include a new argument. Subsection 152(9) of the Act
provides that the Minister may advance an alternative argument at any time but
it seems to me that such argument must be advanced in compliance with the rules
of this Court and the rules of procedural fairness.
[11] In Ritonja
v. The Queen, 2006 TCC 346, 2006 DTC 3140, Chief Justice Bowman (as he
then was) stated that:
10 To
permit the respondent to rely for the first time at trial on a brand new basis
of disallowance would violate a fundamental rule of procedural fairness. See Poulton
v. Canada, 2002 2 C.T.C. 2405, approved by Federal Court of Appeal in Burton
v. The Queen, 2006 D.T.C. 6133. In Poulton, at pages 2408-2410, I
set out my view on points raised by the Crown at the last minute against
taxpayers who are not represented by counsel.
[11] On
the eve of trial the respondent brought motions to amend the replies to add to
sections C and D a reference to paragraph 6(1)(b). The motion was fully
argued at the commencement of trial. I denied the respondent's motions and gave
fairly extensive oral reasons. I shall summarize them briefly.
[12] This
court and the Federal Court of Appeal have traditionally been fairly liberal in
granting amendments….
…
[16] Why
then did I not allow the amendment here as was done in the above cases? Well,
there is a world of difference between large public corporations, and
multinationals with batteries of senior counsel to protect them and millions of
dollars at stake and small taxpayers, unrepresented by lawyers, with relatively
small amounts of money in issue.
[17] Procedural
fairness requires that in cases governed by the informal procedure the Crown
not be permitted at the 11th hour to spring a brand new argument on a taxpayer.
Had the appellants known from the outset or at least a reasonable time before
trial that the Crown was going to rely on paragraph 6(1)(b) their
approach might have been entirely different and they could have called evidence
to rebut the assertion that the amounts were "allowances" within the
meaning of paragraph 6(1)(b) or that they were exempted from the
operation of that paragraph by subsection 6(6). Had I granted the Crown's
motions and allowed the amendment the appellants would have been entirely
justified in requesting an adjournment and this would have resulted in an undue
delay of these relatively small informal appeals. I cannot emphasize too
strongly that it is of consummate importance that the court in the informal
procedure be vigilant to ensure that the unrepresented taxpayer not be deprived
of procedural fairness.
[18] I
quite agree that by denying the Crown's motion to amend to refer to paragraph 6(1)(b)
I may have deprived it of what might be a very potent argument. However the
Crown's loss of these appeals because it slipped up and failed to refer to a
provision that might have helped it is not, in the scheme of things, a
jurisprudential or fiscal catastrophe. What is far more important is that
unrepresented taxpayers in the informal procedure be given every benefit of
procedural fairness. To force them to confront the complexities of paragraph 6(1)(b)
and subsection 6(6) on the eve of trial would do the administration of justice
irreparable damage.
11 Here,
the Crown did not ask for an amendment and, for the reasons given in Poulton, I
would probably not have granted it. However, I do not think the Crown can be in
a better position by raising an unpleaded issue at trial than it would be if it
had asked for and been denied an adjournment.
[12] In the Federal
Court of Appeal in Burton v. The Queen, 2006 FCA 67, [2006] 2 C.T.C.
286, 2006 DTC 6133, Justice Rothstein (as he then was) stated that:
14 The
question of whether to allow an amendment to pleadings and if so whether a
recess or adjournment is appropriate is, of course, a matter of discretion. I
do not read Bowman A.C.J.T.C. to purport to lay down fixed rules for dealing
with such occurrences. However I do think he was providing some guidance as to
the practical considerations to be taken into account by a Tax Court judge in
exercising discretion in these cases.
…
17 The
relevant considerations are, first, that the taxable benefits at issue are
$6,348.00 for the year 2000 and $4,801.00 for the year 2001. The amounts of tax
involved are of course, only a percentage of these figures -- according to the
appellant about forty percent. The amounts involved therefore are relatively
small.
18 Second,
the matter involved taxation years that were some four and five years old at
the time of trial.
19 Third,
the appellant is self-represented. He was justified in expecting that the
Minister's original Reply was the basis for the assessment and restricting his
preparation to the statutory provisions relied upon by the Minister in that
Reply. Section 6 of the Income Tax Act is drafted in a manner that contains
exceptions and exceptions to exceptions and is therefore not straightforward.
This is not a case in which the Minister's error in not referring to paragraph
6(1)(l) in the original Reply was self-evident and in respect of which, the
appellant should have anticipated an amendment.
20 Having
regard to these considerations, I would exercise my discretion to refuse to
allow the amendment to add paragraph 6(1)(l) of the Income Tax Act to the
Minister's Reply in the Tax Court. As the assessment of the appellant in
respect of automobile expenses cannot be supported by any other provision of
section 6 of the Act, the assessment cannot be sustained.
[13] In this case the
Respondent did not request that the Reply be amended and should not be in a
better position than if such a request would have been made. It is far from
clear whether the Respondent would have been permitted to amend the Reply at
the hearing, if such a request would have been made. In this case the material
fact that is relevant to the application of subsection 8(10) of the Act
is whether the Appellant filed the prescribed form with his tax return. This is
not a fact that only the Appellant would know and presumably the Respondent
would at least be in an equal position to state what the Appellant did or did not
file with his tax return. It is possible in this case that the auditor and the
appeals officer for the Canada Revenue Agency may have decided that it would
have been unfair to reassess the Appellant on the basis that the T2200 form had
not been filed with his income tax return. The T2200 form (which was prepared
by the Canada Revenue Agency) clearly stated at the top of the form that “[t]he
employee does not have to file this form with his or her return, but
must keep it in case we ask to see it”. Although the form cannot amend the Act
and cannot change the statutory requirement to file the prescribed form with
the tax return, given the clear language printed on the form, it does seem
unfair to the Appellant to reassess him on the basis that the form was not
filed with his tax return. The unanswered questions in relation to this issue
(which would have to be answered if the issue had been properly pleaded), are
whether the Minister can waive compliance with the requirements of subsection
8(10) of the Act and, if so, whether the Minister has waived compliance
with the requirements of this subsection by printing forms that clearly state
that the employee does not have to file the prescribed form with his or her tax
return.
[14] In this case the
Appellant deducted the motor vehicle expenses and the work space in the home
expenses in determining his income from employment. The Appellant was employed
by Island Ink-Jet Manitoba Ltd. The Appellant was also the sole shareholder,
officer and director of Island Ink-Jet Manitoba Ltd. Island Ink-Jet Manitoba
Ltd. carried on its business of refilling printer cartridges from a kiosk in a
mall in Winnipeg.
[15] Subsection 8(2)
of the Act provides that:
(2) Except as
permitted by this section, no deductions shall be made in computing a
taxpayer's income for a taxation year from an office or employment.
[16] Therefore it is
necessary to determine whether the Appellant satisfies the conditions as
provided in section 8 for the deductions as claimed. The Appellant did not in
his Notice of Appeal or during the hearing indicate which paragraphs of
subsection 8(1) of the Act he was relying upon to support his claim for
the deduction for motor vehicle expenses and work space in the home expenses.
Counsel for the Respondent dealt with paragraphs 8(1)(h.1) and 8(1)(i)
of the Act[1].
[17] Paragraphs 8(1)(h.1),
and (i) (in part) of the Act provide as follows:
8. (1) In
computing a taxpayer's income for a taxation year from an office or employment,
there may be deducted such of the following amounts as are wholly applicable to
that source or such part of the following amounts as may reasonably be regarded
as applicable thereto:
…
(h.1) where
the taxpayer, in the year,
(i) was
ordinarily required to carry on the duties of the office or employment away
from the employer's place of business or in different places, and
(ii) was
required under the contract of employment to pay motor vehicle expenses
incurred in the performance of the duties of the office or employment,
amounts
expended by the taxpayer in the year in respect of motor vehicle expenses
incurred for travelling in the course of the office or employment, except where
the taxpayer
(iii)
received an allowance for motor vehicle expenses that was, because of paragraph
6(1)(b), not included in computing the taxpayer's income for the year, or
(iv) claims a deduction for the
year under paragraph (f);
…
(i) amounts
paid by the taxpayer in the year as
…
(ii) office
rent, or salary to an assistant or substitute, the payment of which by
the officer or employee was required by the contract of
employment,
(iii) the
cost of supplies that were consumed directly in the performance of the duties
of the office or employment and that the officer or employee
was required by the contract of employment to supply and pay for,
(emphasis
added)
[18] One common thread
running through these provisions is that the employee must be required under
his contract of employment to pay the expenses in question in order to be
entitled to claim the deduction. Paragraph 8(1)(h.1) of the Act
also provides that the employee must be required to carry on the duties of
employment away from the employer's place of business or in different places.
Subparagraph 8(1)(i)(iii) of the Act also provides that the
employee must be required to provide the supplies, the cost of which the
employee is seeking to deduct.
[19] The issue in this
case is whether the Appellant was required under his contract of employment to
pay for the expenditures that he incurred.
[20] The Federal Court
of Appeal in The Queen v. Cival, [1983] 2 F.C. 830 stated as
follows:
I am prepared
to assume for purposes of this appeal that Mr. Cival could enter into an
individual contract with his employer, covering an aspect of his employment,
despite his being covered by the collective agreement, so long at least as the
contract was not inconsistent with the terms of the agreement. [See Re Nova
Scotia Civil Service Commission and Nova Scotia Government
Employees Association (1980), 24 L.A.C. (2d) 319.] In my view, the
arrangement between Mr. Cival and his employer, if a contract at all, was at most
what is sometimes called a unilateral contract. [See S.M. Waddams, The Law of
Contracts, c. 4, "Unilateral Contracts"] It was an arrangement under
which his employer undertook to reimburse him on a mileage basis for expenses
he incurred in using his car in the performance of his duties. I do not
interpret the arrangement as involving a promise by Mr. Cival to use his car in
performing his duties and to pay the expenses out of his own pocket in return
for an undertaking by his employer to reimburse him. To put it another
way: as I see the arrangement, Mr. Cival was not contractually bound to use his
car in doing his job and to pay the expenses involved: if at any time during
1977 he had refused to use his car for this purpose, he would not have been
suable by his employer for breach of contract. It follows that, to
adopt the words used in subparagraph 8(1)(h)(ii), he was not required under his
contract of employment to pay the expenses incurred by him in using his car in
the performance of the duties of his employment. This is enough to dispose of
the appeal.
(emphasis added)
[21] In the subsequent
case of Hoedel v. Her Majesty The Queen, 86 DTC 6535 the Federal
Court of Appeal stated that:
With every
deference to the trial judge, I do not think this conclusion was open to him on
this record. The uncontradicted evidence of the appellant and of Sergeant
Forbes, his superior officer, makes it perfectly clear, in my view, that it was
mandatory for the appellant to take the dog along with him when he was off-duty.
The rationale for this provision, according to Sergeant Forbes, was '. . .to
better socialize the dog.' He explained that the socialization of the dog began
during a twelve week training course. It was necessary to continue the
socialization program following completion of the course. The witness
characterized this program as a continuing process, the object being to teach
the dog to respond to his trainer better by eliminating a 'pack instinct' or a
'pack environment'. At page 84 of the Case, Sergeant Forbes stated
unequivocally, that transportation of the dog during off-duty hours was a
condition of the appellant being a member of the C.D. I am unable to
agree with the view of the trial judge that since non-compliance with this
condition would not result in disciplinary action, it was, in reality, only a
minor matter and therefore not a condition of employment. The evidence is all
to the contrary. Sergeant Forbes said that non-compliance with the provision
would likely result in a bad work performance evaluation which could affect a
member's future in the police force for years to come. This is surely a very
serious matter with highly undesirable consequences for the employee concerned.
When this evidence is coupled with the evidence summarized supra relating to
the importance of the dog accompanying the member at all times, I fail to see
how it is possible to conclude that the condition in issue is not a
'requirement' of the appellant's duties of employment. I also think the
evidence establishes that the condition is one which is ordinarily and
regularly 'required'. I would add, moreover, that even if, as the trial judge
held, the requirement to transport the dog was something which, if he failed in
its performance 'would not be questioned by way of disciplinary action but
rather in the yearly evaluation of his work performance in the C.D.' (Case p.
48), it by no means follows that such transport was not a duty of his
employment. On the contrary, if an employee's failure to carry out a task
can result in an unfavourable assessment by his employer, it would seem to me
that such a circumstance is compelling evidence that the task in issue is a
duty of employment.
(emphasis added)
[22] Therefore, it
seems to me that in order for the Appellant to satisfy the requirement that he
was required to pay for the expenditures that were incurred the Appellant would
have to establish that there would be some consequences that would be
detrimental to the Appellant if he failed to fulfill the obligation. In this
particular case, what consequences would arise if the Appellant refused to
incur the expenditures? Since the Appellant was the sole officer, director and
shareholder of his employer it seems obvious that if the Appellant were to
refuse to incur the expenditures that there would be no adverse consequences
for him. One cannot imagine the Appellant, as President of Island Ink-Jet
Manitoba Ltd., seeking to have the company sue the Appellant for breach of
contract, taking any disciplinary action, or writing a poor performance review
of the Appellant. Therefore, it seems to me that he chose to pay these amounts
personally rather than have the company pay for these expenditures (either
directly or by reimbursing the Appellant) and that the Appellant was not
required to do so as an employee. There would be no consequences detrimental to
the Appellant, if he did not personally pay the expenses or carry out the
duties.
[23] As a result, the
Appellant is not entitled to deduct the amounts claimed as motor vehicle
expenses and work space in the home expenses in computing his income from
employment for 2005 and 2006.
[24] The appeal is
dismissed, without costs.
Signed at Ottawa, Canada, this 7th day of December,
2009.
“Wyman W. Webb”
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