Citation: 2008TCC338
Date: 20080613
Docket: 2006-1685(IT)I
BETWEEN:
CARL CURRIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rossiter, J.
Facts
[1] Delmar Currie died
August 10, 1996.
[2] Delmar Currie’s son,
Carl Currie, is the Appellant and is one of the Executors of Delmar Currie’s
Estate (the “Estate”). Letters of Probate were granted on the Estate from the
Prince Edward Island Supreme Court.
[3] On May 12, 1997 a
Notice of Assessment was issued by Canada Revenue Agency (“CRA”) in respect of
the Estate in the amount of $69,176.73, which was reduced to a nil balance after
the payment of $10,894 in income tax installments and the application of a
variety of credits.
[4] On April 7, 2000 a
Notice of Reassessment was issued in respect of the Estate by CRA showing a
total tax payable of $684,458.07, plus applicable credits and interest, for a
total liability of $793,061.48.
[5] After the initial
Notice of Assessment of May 12, 1997, before the reassessment of April 7, 2000,
and before a Tax Clearance Certificate was issued by CRA on June 13, 2006, the
assets of the Estate were distributed to the beneficiaries in accordance with
the Letters of Probate on the Estate.
[6] On May 24, 2000, a
Notice of Objection of the reassessment was filed with CRA.
[7] On April 26, 2002,
additional arrears interest of $165,653.24 was charged upon the Estate bringing
the total tax owing to $958,714.72.
[8] On February 3,
2004 (“Assessment #1”), the Appellant was assessed under subsection 160(1) of
the Income Tax Act (“Act”) on the basis that the Estate had
transferred property to him between 1996 and 1999, and the fair market value of
the property transferred exceeded the amount owing to the Respondent by the
Estate. The total tax liability assessed was $544,146.86, which consisted of
$222,702.32 in federal tax and $321,444.54 in interest.
[9] The Appellant made payments on
the Estate assessment:
|
July 21, 2004
|
$50,000.00
|
|
December 23, 2005
|
$173,000.00
|
|
February 6, 2006
|
$150,000.00
|
|
March 23, 2006
|
$247,289.64
|
|
Total
|
$620,289.64
|
[10] On April 19, 2004 the Appellant filed a Notice of Objection
on Assessment #1.
[11] On January 25, 2006 Assessment #1 was confirmed.
[12] On April 25, 2006, the Appellant filed a Notice of
Appeal.
[13] On May 11, 2006 (“Assessment
#2”) a Notice of Assessment/Reassessment was issued to Carl Currie under subsection
160(1) of the Act showing the balance owing on the assessment was nil.
This Assessment stated in part as follows:
A reassessment
pertaining to the liability under subsection 160(1) of the Income Tax Act, and
section 19 of the Income Tax Act - Prince Edward Island, at the time of
transfer (section 48, Income Tax Act – Prince Edward Island including and after
December 20, 2000), in the amount of $00.00 in respect to a previous assessment
dated February 03, 2004 bearing #30527.
[14] Assessment/Reassessment #2 was accompanied with a letter
from the CRA collection officer which stated in part as follows:
Please find attached, a notice of re-assessment with
respect to the Estate of Delmar Currie which addresses the previous notice of assessment
mailed to you on February 03, 2004.
As a result of the payment in full of all amounts
owed by the Estate, we have re‑assessed your liability for payment and
have vacated the previous assessment.
…
Issues
[15] The issues in this appeal as agreed to by the parties are:
1.
Which Notice of
Assessment/Reassessment, Assessment #1 of February 3, 2004 or Assessment #2 of May 11,
2006, is before the Court?
2.
Can interest be
levied under subsection 160(1) of the Act and was the assessment
correct?
Position of the Appellant
[16] The Appellant is of the view that, although the Appellant is jointly
and severally liable from February 3, 2004 onward with respect to the debt of
the Estate pursuant to subsection 160(1) of the Act, the Appellant is
not liable for any interest which accumulated on the debt post February 3, 2004
to the date of payment. The Appellant states that he overpaid interest on the
debt owing to CRA, the amount of interest accumulated and paid post February 3,
2004 was $75,101.72.
Position
of the Respondent
[17] The Respondent
asserts that similar to the Algoa Trust v. R., [1998] 4 C.T.C. 2001
(T.C.C.) decision, the Appellant is jointly and severally liable for the debt
of the Estate, which is limited to the differences between the fair market
value of the property transferred to the Appellant less the good and valuable
consideration paid for the property at the time of the transfer plus accumulating
interest and penalties, notwithstanding that some of the interest may have
accrued post February 3, 2004.
Law
and Analysis
[18] On August 21, 2006, the Respondent brought a Motion to Dismiss
the Notice of Appeal for two reasons:
1.
The remedy
being sought by the Appellant was not within the jurisdiction of the Tax Court
of Canada; and
2.
A nil assessment was not a valid
assessment to which an appeal could be sought.
This
Motion was dismissed by Justice Bowie and he characterized the Motion as frivolous.
[19] At trial, the Appellant argued that the Respondent could
not raise the jurisdiction issue as it did in the pre-trial Motion because it
was argued and dealt with by Justice Bowie – in essence arguing that res
judicata or estoppel applied. The Respondent says it can challenge
jurisdiction because Justice Bowie did not deal in the Motion as to whether or
not the Court had jurisdiction.
[20] I have reviewed in detail Justice Bowie’s decision of
November 22, 2006, and note that the only issue on the Motion was the assertion
by the Respondent that the Appellant had no appeal from a nil assessment and
therefore the Court had no jurisdiction. To succeed on the Motion the
Respondent would have had to have shown that it was plain and obvious that the
appeal could not succeed - beyond that, the Motion before Justice Bowie decided
nothing. Justice Bowie held that it was not plain and obvious that the appeal
could not succeed. The Motion was unsuccessful.
[21] The Appellant’s objection is to the paying of
approximately $75,000 interest accrued against him on the Estate debt after
Assessment #1. The Appellant’s appeal is from Assessment #1 which does not
include that $75,000. What was wrong with Assessment #1? On the face of it
nothing, but subparagraph 160(1)(e)(ii) of the Act states as
follows:
160(1)
Tax liability re property transferred not at arm's length. Where a person has, on or after May
1, 1951, transferred property, either directly
or indirectly, by means of a trust or by any other means
whatever, to
(a)
the person's spouse or common-law partner or a person who has since become
the person's spouse or common-law partner,
(b) a person who was under 18
years of age, or
(c) a person with whom the person was not dealing at
arm's length,
the
following rules apply:
(d)
the transferee and transferor are jointly and severally liable to pay a part of
the transferor's tax under this Part for each taxation year equal to the amount by which the tax for
the year is greater than it would have been if it were not for the operation of
sections 74.1 to
75.1 of
this Act and section 74 of the Income Tax Act, chapter 148 of the
Revised Statutes of Canada, 1952, in respect of any income from, or gain from
the disposition of, the property so transferred or property substituted
therefor, and
(e)
the transferee and transferor are jointly and severally liable to pay under
this Act an amount equal to the lesser
of
(i) the amount, if any, by which
the fair market value of the property at the time it was
transferred exceeds the fair market value at that
time of the consideration given for the property, and
(ii) the total of all amounts each of which is an amount
that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year,
but nothing in this subsection shall
be deemed to limit the liability of the transferor under any other provision of
this Act. [Emphasis Added]
[22] Subparagraph 160(1)(e)(i) is really not
applicable. Under subparagraph 160(1)(e)(ii), the Appellant is liable
for all amounts which the transferor, that is the Estate, is liable to pay
under the Act in or in respect of the taxation year in which the
property was transferred or in a preceding taxation year - this means any
amount owing for the transfer of the Estate up to and including December 31st
of the year of the transfer. The Appellant is only liable for that which the Estate
was liable as per subparagraph 160(1)(e)(ii). The transfer most
certainly took place before Assessment #1. As a result, Assessment #1 must be
sent back to the Minister for recalculation and reconsideration, on the basis
that the Appellant is only liable for the amount owing by the transferor, that
is the Estate, up to and including December 31st of the year of the transfer
and nothing more. This is certainly consistent with Algoa Trust, supra.
Also, the Appellant specifically wanted to be repaid the $75,000, paid by him
as interest, post the Assessment #1. This amount will be deleted from the
assessment, per my previous comment and most certainly should be deleted to be
consistent with Algoa Trust, supra, in which Dussault T.C.J. set out the
inability of the Minister of National Revenue to levy interest against the
transferee, at pages 2002 and 2003:
…
3. The rule
stated in s. 160 of the Act does not have the effect of creating a tax debt.
The effect of the provision is not to create a second debt: there is only one
tax debt. The wording of the Act is quite clear: the purpose of s. 160 is
essentially to add another debtor who is jointly and severally liable with the
transferor. This new debtor is called the transferee. There is thus no new debt
created under the Act and the obligation arises not from the assessment but
from the Act itself. Fundamentally, therefore, there is only one debt and only
that debt can bear interest.
4. First,
subsection (1) of s. 160 in fact states that the transferee is jointly and
severally liable and that his or her liability is limited to the lesser of the
two amounts mentioned in s. 160(e)(i) and (ii), namely (i) the value of
the property transferred less the consideration, and (ii) the total of all
amounts which the transferor is liable to pay in or in respect of the year of
the transfer or any preceding year, that is to say, for the year of the
transfer and for any preceding years.
5. Secondly,
s. 160(2) provides that the Minister of National Revenue (“the Minister”) may
at any time make an assessment. This is also quite clear. However, the limit
imposed in s. 160(1)(e) must be observed for each assessment.
6. Thirdly,
I would say that there is no provision of the Act regarding interest that may
be applicable to an assessment issued pursuant to s. 160 of the Act. This is
logical, since there is no new tax debt and an assessment under s. 160 already
incorporates the interest which the transferor owed in addition to the tax. The
assessment may also incorporate penalties and interest thereon.
…
[23] Based upon the Algoa Trust decision no interest
can be assessed under section 160 of the Act in the present appeal.
[24] With respect to Assessment #2, this assessment is not
under appeal and never has been. The Minister of National Revenue cannot prevent
the taxpayer from pursuing his appeal from Assessment #1, by issuing Assessment
#2 unless it is vacating Assessment #1, in which case all money paid under Assessment
#1 should be refunded to the Appellant.
[25] Chief Justice Bowman in 943372 Ontario Inc. v. R.,
2007 TCC 294, [2007] 5 C.T.C. 2001, questioned the use of reassessments to
reply to objections which appears to have occurred in the case at bar. Justice
Bowie also questioned the status of Assessment #2 by stating the following in
his Reasons for Order delivered orally on November 22, 2006:
[8] If the
Minister’s representative, Mr. Rollins, really meant what he said in that
letter, namely that “… we have vacated the previous assessment …”, he would
presumably have enclosed a cheque for all of the amounts that Mr. Carl Currie,
the Appellant, paid towards that assessment, and he would presumably have sent
cheques to anybody else who paid towards it as well. That, however, does not
appear to be the case.
…
[10] The
Attorney General, however, suggest that while the assessment is not vacated in
the sense that the Appellant is entitled to have his money back, it is vacated
in the sense that the Appellant can no longer appeal from it because it no
longer exists, or as counsel put it, it is now a nil assessment from which no
appeal lies.
[26] As was done in Algoa Trust, supra, the Court is
permitted to refer an assessment back to CRA for the reassessment to be issued
reflecting changes to the calculations of interest. The Court orders a
variation to the Appellant’s assessment dated February 3, 2004 (Assessment #1)
relating specifically to the recalculation of interest levied, as against the
Appellant from December 31st of the year of transfer.
[27] The Appeal is allowed and the matter is referred back to
the Minister of National Revenue for reconsideration and reassessment on the
basis that the Appellant is not liable for interest on the Estate debt from
December 31st of the year of the transfer.
[28] The Appellant shall be entitled to his costs.
Signed at Ottawa, Canada, this 13th day of June,
2008.
"E. P. Rossiter"
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