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Citation: 2005TCC108
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Date: 20050215
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Docket: 2002-3798(IT)G
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BETWEEN:
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HER MAJESTY THE QUEEN,
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Applicant,
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and
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EDWARD MILLER,
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Respondent.
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REASONS FOR ORDER
Sheridan, J.
[1] This is an application by the
Minister of National Revenue under subsection 174(1) of the
Income Tax Act:
(1) Reference of
common questions to Tax Court of Canada. Where the Minister
is of the opinion that a question of law, fact or mixed law and
fact arising out of one and the same transaction or occurrence or
series of transactions or occurrences is common to assessments or
proposed assessments in respect of two or more taxpayers, the
Minister may apply to the Tax Court of Canada for determination
of the question.
[2] In accordance with subsection
174(2) of the Act, the Minister has set out the question,
the names of the taxpayers to be bound by the determination and
the facts and reasons upon which he relies and upon which he
based or intends to base assessments of tax payable:
A. NAMES
AND ADDRESSES OF THE TAXPAYERS WHO IT IS INTENDED SHALL BE BOUND
BY THE DETERMINATION OF THE QUESTION ARE AS FOLLOWS:
1. Edward
Miller, 16 Lakeshore Road, Fort Erie, Ontario
2. Patricia
Maeve Wilson, 165 Tennessee Avenue, Port Colborne, Ontario L3X
2R8
B. THE
ASSESSMENTS OR PROPOSED ASSESSMENTS IN RESPECT OF WHICH THE
DETERMINATION IS SOUGHT:
3. Notice of
Reassessment of Edward Miller for his 1998 taxation year dated
July 5, 2002.
4. The
proposed reassessment of Patricia Maeve Wilson for her 1995
taxation year.
C. THE
QUESTIONS LAW FACT OR MIXED LAW AND FACT IN RESPECT OF WHICH THE
MINISTER OF NATIONAL REVENUE REQUESTS A DETERMINATION:
5. What was
the purchase price paid by Edward Miller to Patricia Maeve
Railton, now Wilson (hereinafter referred to as
"Wilson") in 1995 for certain land ... [legal land
description omitted] ... hereinafter referred to as "the
subject land")?
D. THE
FACTS ON WHICH THE MINISTER RELIES AND HAS BASED OR INTENDS TO
BASE ASSESSMENTS OF TAX PAYABLE BY EACH OF THE TAXPAYERS NAMED IN
THE APPLICATION:
6. In his 1998
tax return, the Appellant reported a capital loss in respect of
the sale of the subject land.
7. The
Appellant calculated his capital loss using $180,000 as the price
for which he purchased the subject land.
8. In 1995,
the Appellant purchased the subject land from Wilson.
9. In her 1995
tax return, Wilson calculated her capital gain on the sale of the
subject land using $100,000 as the price for which she sold the
land.
10. The Minister has
assessed the Appellant for his 1998 taxation year and Wilson for
her 1995 taxation year on the basis that the price paid for the
subject land was $100,000.
11. If this Honourable
Court determines that the price paid for the subject land was
$100,000, then the Minister would seek to sustain the assessments
of both the Appellant and Wilson.
12. If this Honourable
Court determines that the price paid for the subject land was
$180,000, then the Minister would propose to vary the assessments
of both the Appellant and Wilson. In these circumstances, the
Minister would propose to assess the Appellant by computing his
adjusted cost base for the subject land by using a purchase price
of $180,000. Similarly, the Minister would propose to reassess
Wilson by computing her capital gain on the sale of the subject
land by using a purchase price of $180,000 for her proceeds of
disposition rather than $100,000 as reported.
[3] The Court has discretion, "as
it considers appropriate", to grant the Crown's
application under subsection 174(3) of the Act which
reads:
(3) Where Tax
Court of Canada may determine question. Where the Tax Court
of Canada is satisfied that a determination of the question set
out in an application under this section will affect assessments
or proposed assessments in respect of two or more taxpayers who
have been served with a copy of the application and who are named
in an order of the Tax Court of Canada pursuant to this
subsection, it may
(a) if none of the
taxpayers so named has appealed from such an assessment, proceed
to determine the question in such manner as it considers
appropriate; or
(b) if one or more
of the taxpayers so named has or have appealed, make such order
joining a party or parties to that or those appeals as it
considers appropriate and proceed to determine the question.
[4] The proposed party, Patricia Maeve
Wilson, objects to the Crown's application; the Appellant,
(Respondent in this application) Edward Miller, supports it.
Before considering whether it is appropriate in these
circumstances to grant the application, a short review of the
history of Mr. Miller's appeal: in 2002, Mr. Miller appealed
the reassessment of his 1998 taxation year in which the Minister
maintained the calculation of his tax liability based on a
purchase price of $100,000 for the land. In January 2003, the
Minister filed his Reply, assuming in paragraph 12(f) that
"[Mr. Miller] paid only $100,000 to Mrs. Wilson for the
land" leading to the conclusion that, at least as early as
that date, the Minister was aware of the land transaction, the
identities of the vendor and purchaser and the two different
figures for the purchase price appearing in their tax returns. It
is also clear that at that point, the Minister accepted Mrs.
Wilson's version of the facts. All pre-hearing steps in
Mr. Miller's appeal were completed and following a joint
application of the parties to fix a time and a place for a
hearing, the matter was set down for September 27, 2004 in
St. Catharines, Ontario. During the pre-hearing period, the
Minister was dealing with Mrs. Wilson on the footing that she
would be a Crown witness. On September 9, 2004, however, Crown
counsel sought an adjournment of the appeal to permit the
Minister to make a section 174 application "to determine the
question of fact as to the amount paid by the Appellant to
Mrs. Wilson". Upon the consent of the parties, the
matter was adjourned to permit Mrs. Wilson's counsel to
consult with and receive instructions from his client. This
application was heard on December 6, 2004.
[5] Absent from the Crown's Motion
Record is any express reference to Mrs. Wilson's 1995
taxation year being statute-barred from reassessment, unless the
Minister can satisfy the requirements of subparagraph
152(4)(a)(i) of the Act:
(4) Assessment and reassessment. The Minister may at
any time make an assessment, reassessment or additional
assessment of tax for a taxation year, interest or penalties, if
any, payable under this Part by a taxpayer or notify in writing
any person by whom a return of income for a taxation year has
been filed that no tax is payable for the year, except that an
assessment, reassessment or additional assessment may be made
after the taxpayer's normal reassessment period in respect of
the year only if
(a) the
taxpayer or person filing the return
(i) has made
any misrepresentation that is attributable to neglect,
carelessness or wilful default or has committed any fraud in
filing the return or in supplying any information under this Act,
or
...
[6] Counsel for Mrs. Wilson raised
this point in his argument against the granting of the
Crown's application. Citing Nesbitt v. R.[1], Crown counsel
dismissed such concerns on the ground that the threshold for
satisfying subparagraph 152(4)(a)(i) is a low one. I do
not read Nesbitt as standing for the proposition that
because the Crown believes it will easily clear this statutory
hurdle, the Court ought not to trouble itself with a
taxpayer's right to place it in the Minister's path. The
case law is well settled[2] that it is the Minister who bears the burden of
proving on a balance of probabilities that the conditions
precedent in subparagraph 152(4)(a)(i) have been
satisfied. Doing so requires more of the Minister than merely
proving an inaccuracy in the taxpayer's tax return; as
explained by Garon, C.J. (as he then was) in Demers v.
Canada[3]:
[11] With respect to the
application of subparagraph 152(4)(a)(i) of the Act,
Strayer, J.A. of the Federal Court of Appeal wrote as follows in
Nesbitt v. R. (1996), 96 D.T.C. 6588, [1996] F.C.J.
No. 1470 (Fed. C.A.):
Whether or not there is a misrepresentation through neglect or
carelessness in the completion of a return is determinable at the
time the return is filed. A misrepresentation has occurred if
there is an incorrect statement on the return form, at least one
that is material to the purposes of the return and to any future
reassessment.
...
[14] For subparagraph
152(4)(a)(i) of the Act to apply, not only must
there be an error or inaccuracy in a taxpayer's tax return or in
the documentation provided to the Minister of National Revenue,
but the taxpayer must also have failed to show due diligence, as
appears from the decision of Strayer, J. in Venne v. R.
(1984), 84 D.T.C. 6247, [1984] F.C.J. No. 314 (Fed. T.D.), when
he was a judge in the Federal Court, Trial Division. In his
conclusion, Strayer J. made the following comments:
I am satisfied that it is sufficient for the Minister, in
order to invoke the power under sub-paragraph 152(4)(a)(i)
of the Act to show that, with respect to any one or more aspects
of his income tax return for a given year, a taxpayer has been
negligent. Such negligence is established if it is shown that the
taxpayer has not exercised reasonable care. This is surely what
the word "misrepresentation that is attributable to
neglect" must mean, particularly when combined with other
grounds such as "carelessness" or "wilful
default" which refer to a higher degree of negligence or to
intentional misconduct. Unless these words are superfluous in the
section, which I am not able to assume, the term
"neglect" involves a lesser standard of deficiency akin
to that used in other fields of law such as law of tort. See
Jet Metal Products Limited v. The Minister of National
Revenue (1979), 79 D.T.C. 624, at 636-37 (T.R.B.).
[8] Let us review the possible
outcomes if the Crown's application were to be granted.
Assuming the Court subsequently determined the purchase price to
be $100,000, Mr. Miller's appeal would be dismissed and the
Minister's reassessment of his 1998 taxation year confirmed.
In this circumstance, the Minister proposes to take no further
action against Mrs. Wilson[4]. On the other hand, if the Court were to find the
purchase price to be $180,000, Mr. Miller's appeal would be
allowed and his reassessment referred back to the Minister for
reconsideration and reassessment on that basis. As for Mrs.
Wilson, as of this application, her 1995 taxation year has never
been reassessed. Pending a favourable determination[5], this is the action
contemplated by the Minister, notwithstanding that pursuant to
section 152, he may reassess after the normal reassessment
period[6] only
if the taxpayer has made "any representation that is
attributable to neglect, carelessness or wilful default or has
committed any fraud in filing the return or in supplying any
information under this Act".
[9] If the Minister were to attempt on
his own hook to reassess Mrs. Wilson's
statute-barred 1995 taxation year, Mrs. Wilson would be
entitled to challenge that reassessment and put the Minister to
the proof of his allegations. To join her as a party in these
circumstances, where the outcome of the appeal might leave the
1995 statute-barred taxation year vulnerable to reassessment
without requiring ministerial compliance with subparagraph
152(4)(a)(i), is to allow the Minister to do indirectly
what he cannot do directly. In short, the effect of granting this
application would be to deprive Mrs. Wilson of the rights
available to her under the Act while at the same time,
relieving the Minister of his statutory obligations.
[10] While I accept the Crown's argument
that it would be helpful to the Court to have the benefit of her
evidence in the hearing of Mr. Miller's appeal, this can be
achieved without adding her as a party: she may be called as a
witness, as apparently, the Crown originally intended to do. If
Mr. Miller and Mrs. Wilson were on an equal footing
vis-à-vis the Minister, perhaps the circumstances would
exist for granting the Crown's application. But that is not
the case. Having heard counsel for the parties and
Mrs. Wilson and read the materials filed, I am not satisfied
that, on balance, it is appropriate to join her as a party to Mr.
Miller's appeal. The application is dismissed with costs
payable forthwith to Mrs. Wilson; in respect of the Respondent,
costs to follow the cause.
Signed at Ottawa, Canada, this 15th day of February, 2005.
Sheridan, J.
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