Citation: 2007TCC616
Date: 20071105
Docket: 2006-3923(IT)I
BETWEEN:
SKYWAY DEVELOPMENTS LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rossiter, J.
ISSUE:
[1] The issue before
the Court is whether Skyway Developments Ltd. did or did not file its 2000 income
tax return with the Minister of National Revenue ("Minister") on or
before its corporate filing deadline of November 30, 2000.
FACTS:
[2] The Appellant's corporate
fiscal year end was May 31. The Appellant asserts it mailed its income tax
return for the year end of May 31, 2000 to the Minister on or about October 11,
2000. If assessed as filed there would have been monies owing of approximately
$9,527 less a dividend refund of approximately $4,804. No assessment was forthcoming
from the Minister. A computerized request to file the 2000 tax return was
forwarded to the Appellant on October 10, 2001 and the Minister issued a second
request on December 4, 2001; there was no response by the Appellant to the
Minister to either request. A contact letter was mailed to the Appellant on
August 12, 2005 by the Minister and a copy of the Appellant's corporate tax return
was received by the Minister on September 12, 2005.
[3] According to the
Minister, the Appellant's 2000 corporate tax return was not the Appellant's
first late file returned – for the taxation year 2001/05/31, the due date was
2001/11/30 and the filing date 2001/12/10 (10 days late); for the taxation year
1994/05/31, the due date was 1994/11/30 and the filing date 1995/06/09 (191
days late).
[4] David Close, a
Chartered Accountant since 1976, had been the accountant, tax preparer and
financial advisor for the Appellant since the mid 1980's. The Appellant is a property
rental company, with a single property rented to a single tenant, a law firm. A
partner in the law firm was the principal of the Appellant. Mr. Close's normal
practice year after year (given the tax filing deadline for the Appellant being
November 30 annually), was to meet with the client in August/September, and
given that no records were maintained by the Appellant, put together financial records
of the Appellant and then prepare the annual financial statements as well as
the income tax returns to be filed. In the 1980's, 1990's and early 2000's Mr.
Close would mail the tax returns. His practice was to meet with the client,
review the financial statements and tax return, have a prepared letter with him
for Canada Revenue Agency with a pre-posted envelope for the tax return, have
the tax return signed in his presence by the client and then mail the return.
[5] On October 11, 2000 Mr. Close met with the client and
reviewed the financial statements and the income tax returns for the Appellant for
the year ending May 31, 2000. According to Mr. Close, he would have; (1) had
the return signed that day; and (2) filed the return by mail that day. No
assessment notice was forthcoming but Mr. Close said there were problems at
that time with CRA in getting their corporate return assessments back on time.
CRA was in the midst of a conversion of their computer system to allow for e-filings.
On October 11, 2000, Mr. Close had delivered a letter to the Appellant
along with the Appellant's financial statements and the tax return. Mr. Close's
computerized time recordings showed the particulars of the professional service
he provided to the Appellant, while his statement of account for services
rendered showed the professional services rendered and the time.
[6] No cheque was forwarded with the return at the time of
mailing. They would usually wait until an assessment was received which was the
tax bill. It was a small company so they would pay the bill when the assessment
was presented.
[7] The Respondent sent out notices to the Appellant to
file an income tax return; there was no response to the notices. They had no
record of the tax return filing. The Respondent could not really dispute the
assertion of Mr. Close that CRA had some computer problems in processing
returns at the time in question due to conversion of e-filing. CRA did not seek
any information with respect to any record of the Appellant not paying its taxes
on time.
ANALYSIS
[8] On one hand I have evidence
from CRA:
1. They have
no record of having received the 2000 tax return of the Appellant as alleged by
the Appellant.
2. They sent out
two notices to the Appellant [October 10, 2001 and December 4, 2001], to file
returns to which the Appellant did not respond.
3. A contact
was made with the Appellant on August 12, 2005, regarding filing a return and a
copy of the Appellant's corporate return was received September 12, 2005.
4. The
Appellant has two prior late filings.
5. There is
not enough supporting evidence to establish whether the return was filed on
time and there was no follow-up payment history of the Appellant.
[9] In contrast is the evidence of Mr. Close. He described
the process he followed on an annual basis for the tax returns of the Appellant
to be filed.
1. Shortly
after the Appellant's year end, Mr. Close would meet with the Appellant, obtain
financial information and do the records of the Appellant for the fiscal year;
2. Approximately
6 weeks before the filing dead line, Mr. Close would meet with the Appellant's
principals, review the financial statements and the income tax return which had
been prepared by that time and have the client sign the income tax return;
3. On return
to his office Mr. Close would mail the income tax return in an envelope which
had been prepared with appropriate postage prior to his meeting with the
client.
[10] This practice was confirmed by the principal of the
Appellant, Edward McGrath, a lawyer since 1973 and a Partner in the law
firm that was the Appellant’s only tenant. Mr. McGrath could not comment on
when the tax returns were normally mailed but he did confirm the evidence of
the Appellant's Chartered Accountant and this was further collaborated by the
evidence of a former shareholder of the Appellant, a Joseph Tippett.
[11] Is there a provision in the Income Tax Act ("Act")
that deems something sent by regular mail to have been received by a certain
time? There was a suggestion by the Respondent that CRA had to actually receive
the income tax return in order for it to be deemed to have been filed.
[12] Although there is no deeming provision for regular mail
in the Income Tax Act, there is some case authority that says, in the
absence of direct evidence, the Court may believe the testimony of credible
witnesses on the subject.
[13] Subsection 248(7) of the Act which states as
follows:
248(7)
For the purposes of this Act,
(a) anything (other than a
remittance or payment described in paragraph 248(7)(b)) sent by first
class mail or its equivalent shall be deemed to have been received by the
person to whom it was sent on the day it was mailed; and
(b) the remittance or payment of an amount
(i) deducted or withheld, or
(ii) payable by a corporation,
as required by this Act or a regulation shall be
deemed to have been made on the day on which it is received by the Receiver
General.
[14] The following provision involves actions taken by the
Minister.
244(14) For the purposes of the Act, where any
notice or notification described in subsection 149.1(6.3), 152(3.1), 165(3) or
166.1(5) or any notice of assessment or determination is mailed, it shall be
presumed to be mailed on the date of that notice or notification.
[15] Vern Krishna in his text, The Fundamentals of
Canadian Income Tax, 8th edition (Toronto: Carswell, 2004) at page 897 had
the following to say on this issue:
9. – Receipt of Documents
The Act deems
a document mailed by first class mail (or its equivalent) to have been received
by the person to whom it was sent on the day when it was mailed. [Paragraph 248(7)(a)]
Courier services are generally equivalent to first class mail service. The onus
rests on the taxpayer to establish the facts. [Erroca Enterprises Limited v.Canada,
(M.N.R.), [1986] 2. C.T.C. 2425, 86 DTC 1821 (T.C.C.). See also VIH
Logging Ltd. v. Canada, [2004] 2 C.T.C. 2149, 2004 DTC 2090 (T.C.C.
[General Procedure]); affirmed [2005] 1 C.T.C. 387 (F.C.A.) (notice sent when
courier picked up mail).]
[16] The facts in Erroca
Enterprises Limited v.Canada (Minister of National Revenue), [1986] 2.
C.T.C. 2425 are as follows: The returns had to have been filed by October 31,
1983. The auditor testified that he had the company president sign the return
on June 28, 1983, after which he left it with the President to mail. The
President testified that his customary practice was to leave mailings on the
photocopier for his Office Manager to mail. The Office Manager testified she
couldn't remember mailing the returns but it was her customary practice to do
so. The company had consistently filed their returns on time and there was
nothing to be gained by delaying in this instance.
In
that particular case, then Chief Justice Couture on pages 2428 and 2429 stated
in part as follows:
Admittedly
there was no direct evidence as to the actual mailing of the said returns, but
the fact that the returns had been prepared and signed, confirmed by Mr.
Stille, that the appellant and its president had never been late prior to the
experience of 1983, and also the long established practice in dealing with the
mail as described by Mr. Coffee and reaffirmed by Mrs. Whiteman carry much
weight in appreciating the plausibility of the evidence adduced by these two
witnesses.
For these
reasons the Court accepts their respective version of what occurred on the 28th
of June, 1983 with respect to these returns, and on the balance of
probabilities agrees with them that they were mailed within the prescribed time
provided by paragraph 150(1)(a) of the Act. ...
[17] I have assessed
the evidence of the Chartered Accountant of the Appellant Mr. Close, and
find him to appear to be a forthright, honest and frank person and, not unlike
many chartered accountants, very conservative in the way he conducts his
practice. He produced records to corroborate his evidence (Time Records, letter
to the client, Statement of Account). Admittedly, there is no direct evidence
as to the actual mailing of the tax return in question but the return in
question had been prepared, signed and confirmed by the principal of the
Appellant, Mr. McGrath following the standard practice and procedure of the
Appellant's Chartered Accountant, Mr. Close, for many years. Although they
were late in filing in two prior cases, one was really neither here nor there
because there were no taxes owing and the other one was nine days late and
there was a dispute by Mr. Close as to whether or not in fact it was late. It
certainly does appear that Mr. Close had an established practice in dealing
with the preparation of the financial information of the company for the
purpose of preparing financial statements, the preparation of the financial
statements and income tax return, the meeting with the client for the review of
the financial statements and the income return and the attendance for the
execution by the client of the income tax return and then the mailing of same
after the meeting. This practice and procedure was confirmed by the principal
of the company, Mr. McGrath, and by Mr. McGrath's former partner in the
company, Mr. Tippitt. Neither Mr. McGrath or Mr. Tippitt could testify as
to when the tax returns would normally be mailed as they left that to Mr.
Close; their evidence does however carry weight in appreciating the plausibility
of the evidence adduced by Mr. Close.
[18] I accept Mr.
Close's version of what occurred on October 10, 2000 with respect to this
return and on the balance of probabilities agree with the Appellant that the tax
return was mailed within the time period prescribed by paragraph 150(1)(a)
of the Act.
[19] Although I do not
address specifically the issue of receipt, it goes without saying that
documents had to have been received by CRA, within the prescribed time period
and there must have been some glitch with respect to the recording of the
receipt of the documents. This is understandable given the problems which CRA was
experiencing at the time, according to Mr. Close with respect to CRA's conversion
to a new computer program.
[20] I will allow the appeal with costs fixed at $500 in favour of the
Appellant.
Signed at Ottawa,
Canada, this 5th day of November, 2007.
"E. P. Rossiter"
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