Citation: 2008TCC126
Date: 20080228
Docket: 2007-342(GST)I
BETWEEN:
MARILYN DENHAAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bowie
J.
[1] This appeal is
brought from an assessment for goods and services tax under the Excise Tax
Act,
Part IX, (the ETA) together with interest and penalties. The registrant
whose supplies gave rise to the original liability under the Act is
Huron Tax Consultants (HTC). The liability of the registrant is for the period
from January 1, 2002 to December 31, 2003, and computed to December 9, 2005. It
amounts to:
|
Net GST
|
$13,299.55
|
|
Interest
|
1,107.72
|
|
Penalty
|
2,677.52
|
|
Total
|
$17,084.79
|
It
was not disputed at the hearing that this was a correct statement of the
liability of HTC. What is in dispute is the Minister’s right to assess the
appellant for the debt of HTC.
[2] The Minister’s claim
to be entitled to assess the appellant for the liability of HTC is found in
subparagraphs 6 (a) and (b) of the Reply to the Notice of Appeal:
6. In so assessing and confirming the Appellant’s GST
liability under subsection 272.1(5) of the Act, the Minister made the following
assumptions of fact:
(a) Huron Tax Consultants (the “Partnership) operated as
partnership for the 2002 and 2003 taxation years;
(b) The Partnership consisted of two partners, Harry DenHaan
and Marilyn DenHaan during the 2002 and 2003 taxation years;
The
appellant argues that the Minister is precluded from advancing these two facts
because of the position that he had previously taken in assessing Harry DenHaan
and Marilyn DenHaan under the Income Tax Act. To understand this argument
requires a review of the reporting and assessing history of the appellant and
her husband Harry DenHaan. The following appears from the evidence of Harry DenHam,
the appellant herself, and the documents that were entered in evidence at the
hearing.
[3] Harry DenHaan’s
father operated a consulting business, and Harry took it over and moved it to Seaforth, Ontario
in 1979. He changed the name of the business to Huron Tax Consultants. The
services it offered to the public included giving advice on tax matters, and
preparation of tax returns. In 1985 Harry’s wife, the appellant, became a
partner in the business. Her evidence was that her duties in the business were
related to running the office, including dealing with telephone calls,
scheduling appointments, bookkeeping, banking, deliveries and dealing with the
mail. Apparently, there was never a written partnership agreement created, but
from 1985 to 2003 they both filed income tax returns in which they declared the
income of the business on the basis that Harry DenHaan was a partner entitled
to 60% of the income and his wife was a partner entitled to 40%. This was
accepted by the Canada Revenue Agency (CRA) until 2001, when it conducted an
income tax audit of HTC for the 1997 and 1998 taxation years, and a GST audit
for the period from 1992 to 1998.
[4] The results of the
audit are set out in a letter from the auditor to Harry DenHaan dated
August 24, 2001. That letter set out a number of adjustments that the auditor
proposed to make by way of reassessments that would result in increased income
for Harry DenHaan and increased GST for the business, but the one that is of
particular concern for present purposes is expressed in the third paragraph of that
letter. It reads:
Our review
determined that several sole proprietorships are also being reported inside the
Huron Tax Consultants partnership. This is incorrect. As Huron Tax Consultants
is registered for GST purposes as a sole proprietorship, we are proposing to
increase your Net Business Income on your 1997 and 1998 Income Tax returns to
reflect a 100% sole proprietorship of the business encompassed as Huron Tax Consultants.
We also did not see any explicit evidence that there is a 60-40% partnership
with your spouse for the Tax Consulting Business. As a result of this proposed
adjustment, along with the proposed increase to business income, we propose to increase
your Taxable income by $136,332 in 1997 and $121,648 in 1998. Your spouse’s
returns will be adjusted accordingly to remove her claim of 40%.
[5] In due course, the
Minister did in fact reassess Harry DenHaan in accordance with that proposal.
He filed notices of objection, and the Minister confirmed the reassessments.
Harry DenHaan appealed to this Court, taking the position that the HTC business
was in fact a partnership between him and his wife. These appeals were never
heard by the Court. In January 2005 Mr. DenHaan wrote to CRA to indicate that
he was withdrawing the appeals. In that letter he made it clear that he did not
agree with the assessments, but was withdrawing the appeals because he could
not afford counsel, and for reasons of poor health, which he attributed to the
ongoing dispute. He went on to request that his wife’s returns for those years
be reassessed in accordance with his own reassessments.
[6] The response to that
request came in a letter of December 8, 2005 from CRA, addressed to the
appellant. She was to be reassessed for 1997 and 1998 to remove the partnership
income that she had declared. Her request to reassess 1999 and 2000 was
refused, as her husband’s returns for those years had by then become statute-barred,
and she was advised that her request to revise her returns for the years 2001,
2002 and 2003 was under further consideration. By a letter dated December 9,
2005, the appellant’s request to amend her returns for 2001, 2002 and 2003 was
refused. Although it is lengthy, I shall reproduce that letter in full as it
sets out in detail the reasons for the Minister’s refusal.
The audit
division has reviewed your request to adjust your 2001, 2002 and 2003 T-1
returns to reflect a change in the classification of the business relationship
with your spouse.
The adjustment
request is based on the findings from an audit completed by Canada Revenue
Agency on the 1997 and 1998 income tax returns, where it was determined that a
partnership didn’t exist during this period.
·
Your spouse had filed a Notice of Objection because he did not
agree with the Agency’s position
regarding the disallowance of the partnership for the 1997 and 1998 taxation
years and he had contended that you were in partnership with him since 1981. The
notice of objection was confirmed, which resulted in filing a notice of appeal
where it stated that:
·
You were married in
1981, the same year you moved to Seaforth.
·
You and your spouse
commenced carrying on professional practice together in partnership as Huron Tax
Consultants, with you having a 40% interest and your spouse having 60% interest
in the partnership.
·
The partnership has
from time to time included a tax preparation and bookkeeping practice which was
shared and a real estate brokerage, computer sales and servicing business, and
a financial services business which, it appears was not shared.
·
It was stated that
you were actively involved as a partner in the operation of the partnership,
including office work and administration.
·
While the partnership
used employees commencing in approximately 1984, you had continued as a partner
of the business, and continued to be active in the business operations of the partnership.
·
You and your spouse
have consistently filed income tax returns to reflect the foregoing.
In our letter
of January 17, 2005 it was indicated that your spouse had withdrew (sic)
the notice of appeal, due to financial constraints, but your spouse still
indicated that he didn’t agree with the disallowance of the partnership for the
1997 and 1998 taxation years.
Other facts
that have been considered are:
-
October 1, 2004, the business known as “Huron
Tax Consultants” was sold to Huron Tax Consultants Inc. of which you are a
shareholder.
-
January 17, 2005 a request
was made to adjust your and your spouse’s 1999 to 2003 income tax returns to
treat the business income as a proprietorship and include all the income in
your spouse’s returns.
-
April 6, 2005 assignment in
bankruptcy was filed by your spouse.
The Canadian income tax system is based
on self-assessment, which means that individuals complete their tax return to
report their annual income and to calculate whether they owe tax or will
receive a refund. You had signed your returns, which certified that the
information given on the returns and any documents attached is correct,
complete and fully disclosed all income. You and your spouse have filed income
tax returns, subsequent to the income tax audit, recognizing the business as a
partnership and in your notice of objection and notice of appeal you contend
that the business operated as a partnership. Your spouse has contended that you
were actively involved in the business, which is supported by the fact that the
tax preparation business was sold to a corporation incorporated by yourself.
There is a question of whether there is a
retroactive tax planning in your particular circumstances (CRA has, in several
Round Table questions, pointed out that retroactive tax planning is not
acceptable). Your spouse has contended that he and you had operated the
business as a partnership for the years 1999 to 2003 as attested to by him in
the notice of objection and the notice of appeal, and by the filing of the
income tax ret urns for the same period recognizing the business as a
partnership. Three months prior to filing for bankruptcy you had requested that
the Agency treat the partnership income as a proprietorship and include all the
business income in your spouse’s personal income tax returns. This request
would have resulted in a refund of taxes paid by yourself and a tax liability
against your spouse, which the Agency probably would be unable to collect during
the impending bankruptcy. It appears that you are trying to apply the Agency’s
decision reached during the audit of the 1997 and 1998 income tax returns.
It is the Agency’s position that:
·
parts a and b of paragraph 3 in the Information Circular 75-7R3
(copy attached) are not satisfied;
·
that no evidence has been provided to deny that a partnership
existed during the 2001, 2002 and 2003 taxation years and;
·
your request to adjust these years appears to be retroactive tax
planning,
therefore, your request is denied;
We regret that we were unable to provide
a more favorable response.
[7] The appellant’s
income tax returns for the 2002 and 2003 taxation years are in evidence. They were signed by her on
April 30, 2003 and April 29, 2004. Each of them contains a Statement of
Business Activities in which she states that she is a partner with a 40%
interest in the business of Huron Tax Consultants. Each of them contains her
certification that the information contained in the return is correct, complete
and fully discloses her income. Each of them declares her 40% of the
partnership income as her self-employment income. These returns were signed by
the appellant long after her husband was reassessed in May 2002. The appellant
testified that her involvement in the business of HTC did not change during
this period. This evidence all leads inevitably to the conclusion that the
appellant was a partner in HTC during 2002 and 2003 when the liability for
unpaid GST, interest and penalties arose.
[8] It was not disputed
at the hearing before me that a partner is liable to be assessed under the ETA
for the outstanding GST, interest and penalties of the partnership,
notwithstanding that registration was effected only in the name of the
partnership. That is the effect of subsection 272.1(5) of the ETA. For
convenience, that section is reproduced as an Appendix to these Reasons.
[9] Counsel for the
appellant argued that it is not open to the Minister to take the position in
assessing the appellant’s husband for income tax for the years 1997 and 1998
that he was a sole proprietor of the business of HTC, and then to take the
position for purposes of the ETA that HTC was a partnership in 2002 and
2003. As Mr. Boniferro put it in argument, the die was cast by the Minister in
assessing Mr. DenHaan, and the appellant now wants only that the
consequences of that be applied to her in this appeal. He agreed that the
argument is one of estoppel, but he did not make it clear just how, in his
submission, estoppel could arise on the facts of this case.
[10] An estoppel, with few
exceptions, must be specially pleaded, stating in detail the facts relied upon
as giving rise to the estoppel, and the allegations that it is contended the
opposing party is estopped from proving.
As this is an appeal under the Informal Procedure, I shall overlook the
omission and consider the appellant’s position on its merits.
[11] There is no question
in the present case of an estoppel per rem judicatam, as there has been
no adjudication of the question in issue at all. Nor can the appellant rely on
the doctrine of estoppel by representation. The only representations that have
been made and acted upon that relate to the issue in this case are the
declarations made by both the appellant and her husband in their income tax
returns that they were partners in the business of HTC throughout the years
2002 and 2003, the period for which the appellant has been assessed as a
partner.
[12] The appellant’s
argument really comes down to this: the Minister, having assessed Mr. DenHaan
for income tax on the basis that he was not in partnership with the appellant
in 1997 and 1998, is barred by equity from assessing the appellant on an
inconsistent basis under the ETA for 2002 and 2003. There are several
reasons why that argument cannot prevail. First, even if it were established
that there was no partnership in 1997 and 1998, that is not inconsistent with
the position that there was a partnership in the later years. The appellant
gave evidence to the effect that the manner in which the business of HTC was
conducted did not change between those two time periods. If that evidence is
accepted, and there is no reason not to accept it, it simply means that one
assessment or the other was wrong. It is trite that the Minister, if he makes a
mistake in assessing, is not bound to perpetuate the error in the future: see First
Torland Investments Ltd. et. al. v. M.N.R.,
Ludmer v. Canada and Gelber v. M.N.R.
[13] Mr. DenHaan might
very well have succeeded in his appeal to this Court, had he not chosen to
discontinue it when he did. That is not a matter that is before me, and I
express no opinion on it. The fact is, however, that in April 2004 the
appellant continued to assert that she was a partner in HTC. She did not resile
from that position until after her husband had made an assignment in
bankruptcy, with the result that he stood to be relieved of the debt of HTC for
outstanding GST and penalty and interest. Only then did it become beneficial
for her to take the position that she now advances.
[14] My jurisdiction is
limited to considering the correctness of the assessment appealed from on the
basis of the facts established by the evidence before me and the provisions of
the ETA. I have no jurisdiction to grant a remedy based
upon the position that the Minister may have taken in another case in the past.
That principle has been stated and restated repeatedly by this Court, and by
the Federal Court of Appeal. A number of those authorities were recently cited
by Décary J.A. in Lassonde v. Canada,
at paragraph 3:
This appeal must certainly be dismissed, if only on the basis of a
lack of jurisdiction. A few weeks before the decision by Lamarre Proulx J. and
in the months that followed, our Court pointed out on a number of occasions that
the jurisdiction of the Tax Court of Canada, in the context of the appeal of an
assessment, is limited to deciding whether the assessment complies with the
law, based on the facts and the applicable legislation (see Milliron v.
Canada, 2003 FCA 283; Sinclair v. Canada, 2003 FCA 348; Webster
v. Canada, 2003 FCA 388 and Main Rehabilitation Co. v. Canada, 2004
FCA 403.)
[15] For these reasons,
the appeal must be dismissed.
Signed at Ottawa, Canada, this 28th day of February, 2008.
“E.A. Bowie”
APPENDIX
Excise Tax Act
Part IX: GOODS AND SERVICES TAX
272.1(5) A partnership and each member
or former member (each of which is referred to in this subsection as the
“member”) of the partnership (other than a member who is a limited partner and
is not a general partner) are jointly and severally liable for
(a) the payment or remittance of
all amounts that become payable or remittable by the partnership under this
Part before or during the period during which the member is a member of the
partnership or, where the member was a member of the partnership at the time
the partnership was dissolved, after the dissolution of the partnership, except
that
(i) the member is liable for the payment
or remittance of amounts that become payable or remittable before the period
only to the extent of the property and money that is regarded as property or
money of the partnership under the relevant laws of general application in
force in a province relating to partnerships, and
(ii) the payment or remittance by the partnership
or by any member thereof of an amount in respect of the liability discharges
the joint liability to the extent of that amount; and
(b) all other obligations under
this Part that arose before or during that period for which the partnership is
liable or, where the member was a member of the partnership at the time the
partnership was dissolved, the obligations that arose upon or as a consequence
of the dissolution.
272.1(5) Une société de personnes et chacun de
ses associés ou anciens associés (chacun étant appelé « associé » au
présent paragraphe), à l’exception d’un associé qui en est un commanditaire et
non un commandité, sont solidairement responsables de ce qui suit :
a) le paiement ou le versement des
montants devenus à payer ou à verser par la société en vertu de la présente
partie avant ou pendant la période au cours de laquelle l’associé en est un
associé ou, si l’associé était un associé de la société au moment de la
dissolution de celle-ci, après cette dissolution; toutefois :
(i) l’associé n’est tenu au paiement ou au versement des
montants devenus à payer ou à verser avant la période que jusqu’à concurrence
des biens et de l’argent qui sont considérés comme étant ceux de la société
selon les lois pertinentes d’application générale concernant les sociétés de
personnes qui sont en vigueur dans une province,
(ii) le paiement ou le versement par la société ou par un de ses
associés d’un montant au titre de l’obligation réduit d’autant l’obligation;
b) les autres obligations de la société
aux termes de la présente partie survenues avant ou pendant la période visée à
l’alinéa a) ou, si l’associé est un associé de la société au moment de
la dissolution de celle-ci, les obligations qui découlent de cette dissolution.
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