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Citation: 2005TCC231
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Date: 20050401
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Docket: 2002-3092(IT)G
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BETWEEN:
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ANNA SIMONE,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Archambault, J.
[1] Mrs. Anna Simone is
appealing against two assessments dated September 28, 2001,
issued by the Minister of National Revenue (Minister)
pursuant to section 160[1] of the Income Tax Act (Act). The
Minister is holding Mrs. Simone jointly and severally liable
for her husband's taxes with respect to the 1979 to the 1990
taxation years (relevant period). The assessments result
from the transfer by Mr. Simone to Mrs. Simone, on or
about October 6, 1993, of two properties, one situated in
Toronto (Commercial Property) and the other in Woodbridge
(Residential Property). As of the date of the assessments,
the amount of Mr. Simone's tax liability-including
penalties and interest-in issue under the Act in respect of the
relevant period is $322,303 (tax debt). It is admitted
that the fair market value of the two properties transferred to
Mrs. Simone is at least equal to the amounts assessed under
section 160. There is no longer any issue with respect to
the fair market value of the consideration given by
Mrs. Simone.
[2] The only remaining issues relate
to the tax debt. Mrs. Simone's reasons for contesting the
assessments are the following:
(a) at the time of the
section 160 assessments, Mr. Simone was not liable to
pay the tax debt by reason of the limitation period prescribed in
section 32 of the Crown Liability and Proceedings
Act, R.S.C. 1985, c. C-50, as amended
(CLPA);
(b) alternatively, should the tax debt
not be statute-barred in whole or in part,
(i) the amount of taxes for the
1979, 1980 and 1981 taxation years should be reduced to take into
account exclusions from Mr. Simone's income of $21,000
for 1979, $43,026 for 1980 and $10,400 for 1981; these amounts
represent sums of money which Mr. Simone claims he inherited
from his father and that he deposited in his business bank
account;
(ii) in addition, some of the
late filing penalties assessed by the Minister should be
cancelled or reduced for those three years.
With respect to the 1979 taxation year, the issue is whether
Mr. Simone wilfully attempted to evade payment of the tax
payable by him under the Act by failing to file a return of
income as and when required. Mrs. Simone claims that
Mr. Simone had no such intent. Therefore the late filing
penalty assessed pursuant to subsection 163(1) of the Act
should be cancelled. The maximum amount that could be assessed
under subsection 162(1) of the Act as a late-filing penalty
would be $500.
Counsel for the Minister has acknowledged that the late filing
penalty should be reduced for the 1980 and 1981 taxation years to
the following amounts:
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1980
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$2,728.32
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1981
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$1,345.21
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The Facts[2]
[3] Mr. and Mrs. Simone married
in Canada in 1972, after emigrating to Canada from Italy, and
remain married to this day. Soon after their marriage, they
purchased a house in Toronto. This house was sold in 1987[3] for approximately
$255,000, and the proceeds of the sale were used as part of the
down payment for the acquisition by the Simones of the
Residential Property, which has remained their family home to
this day. Mrs. Simone became its sole owner on
October 6, 1993.
[4] When he first arrived in Canada,
Mr. Simone worked as an auto body technician. In 1973, he
started to carry on his own automotive repair business. Beginning
in 1982, this business was carried on at the Commercial Property
belonging to Mr. Simone.[4] Around 1984 or 1985, it seems, this business was
incorporated under the name of Mr. Collision Ltd.[5]
[5] In 1979 and 1980, Mr. Simone
was working full time in his business and had one employee. He
testified that he was hospitalized in 1981 for two or three
months because of complications from pneumonia, and he did not
work for five months. According to data from the Master
Spreadsheets, the gross business income earned by Mr. Simone
in 1980 was $212,850, in 1981, $191,466 and in 1982, $224,111. No
similar information is available with respect to the 1979
taxation year. For the same period, the net business income
amounts were the following: $64,410 for 1980, $42,224 for 1981
and $53,759 for 1982.[6] The figure for 1979 is unclear, but it appears to have
been around $49,834.[7]
[6] In his testimony, Mr. Simone,
with the help of Mrs. Simone's lawyer, attempted to
estimate the income that would have been earned by him during
those four taxation years. He indicated that the average hourly
rate charged to his clients for his services and those of his
employee was $25. On the basis of 50 weeks of services at
40 hours per week, this would represent $100,000 of labour
costs billed to his customers.[8] He estimated that the parts he sold during a
typical year would have represented $1,000 per week ($50,000 for
50 weeks), so his gross annual business income would have
amounted to approximately $150,000. Given his estimated annual
costs of $130,000,[9] net income would have been $20,000.[10]
[7] Although Mr. Simone stated in
response to his wife's lawyer that he had no other source of
income, it should be mentioned that the Master Spreadsheets show
that he was in receipt of family allowance, at least from 1980 to
1986, and income from property in 1983 ($5,651), in 1984 ($2,214)
and in 1985 (dividends of $3,030, interest of $1,680 and rent of
$6,300).
[8] Mr. Simone explained that he
had a bookkeeper who would come every week and do the accounting
work required for his business. He would ask the bookkeeper to
also prepare his tax returns. He stated that he filed his tax
return every year. He did not understand why the tax returns for
the 1979 to 1982 taxation years were not filed on time by the
bookkeeper. However, he remembered that his bookkeeper had told
him not to send money with his tax return, starting with the 1980
taxation year. Mr. Simone did not remember if there was any
balance of taxes owing for each particular taxation year. He also
stated that he did not know how to write and read English.
However, he was able to read some documents that were showed to
him during his testimony.
[9] Mr. Simone testified that he
received substantial sums of money from his father's estate
in 1979 ($21,000), in 1980 ($43,026) and in 1981 ($10,400).
According to him, these sums of money were deposited in his
business bank account, and he did not inform his bookkeeper about
the nature of these deposits.
[10] To support the Minister's
assessments of Mr. Simone issued during the relevant period,
the respondent filed as Exhibit R-1 a book of
documents which contains at Tab 16 numerous computerized
spreadsheets-the Master Spreadsheets-for the 1980 to 1986
taxation years. Also included at Tab 16 are reconstituted
notices of assessment or reassessment for the 1985 to 1995
taxation years. These notices not only indicate the amount
assessed for a particular taxation year, but also show the
balance of the amount owing in respect of the previous taxation
years and the new balance resulting from the assessment for the
particular taxation year. At Tab 17 are copies of
"automatic pull printouts" (Pull Printouts) for
the calendar years 1979 to 2000. These printouts set out the
accounting operations performed by the Minister with respect to
Mr. Simone's account. The printouts include dates of
assessment, assessed amounts, dates of payment, the payments and
the amount of interest as of a particular date, etc.
[11] The above-mentioned documents reveal
the following information:
Taxation
Year
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Assessment/
Reassessment
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Date
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Net Federal
Tax
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Previous
Balance
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New
Balance Owing
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1979[11]
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assessment
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10/8/82
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10,423
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1980[12]
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assessment
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28/12/83
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16,049
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1981[13]
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assessment
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28/12/83
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7,913
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1982[14]
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assessment
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9/9/83
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10,625
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1983
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assessment
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3/7/84
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1,611
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1984
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assessment
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31/5/85
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668
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1985
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assessment
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13/5/86
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62
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89,494[15]
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89,325
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1986
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assessment
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24/7/87
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443
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96,508
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97,223
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1987
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assessment
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27/6/88
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569
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105,547
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106,387
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1988
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assessment
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13/9/89
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4,302
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116,799
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118,922
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1989
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assessment
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5/7/90
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4,754
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134,132
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134,189
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1990
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assessment
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26/6/91
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13,907
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155,444[16]
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155,019
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reassessment
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20/12/91
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20,119
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164,003
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167,544
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1991
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assessment
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29/6/92
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12,158
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177,047[17]
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173,275
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1992
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assessment
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27/5/93
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1,643
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188,009
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188,009
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1993
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assessment
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12/5/94
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6,216
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201,695
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206,219
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1994
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assessment
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15/6/95
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3,940
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221,064
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221,064
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1995
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assessment
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9/5/96
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4,910
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244,916[18]
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244,891
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[12] The address on all the notices of
assessment for the 1985 to 1995 taxation years is that of the
Simones' Residential Property. When asked whether he had received
these notices, Mr. Simone indicated he was positive that he
had not received them. The only document that he was prepared to
admit having received was a demand for payment dated May 28,
2004, which likewise bore the Residential Property address
(Tab 31). Mrs. Simone also indicated during her testimony
that she did not remember receiving these tax assessments. While
she was living with her mother, Mrs. Simone's daughter
would normally hand over to her any correspondence received.
Mrs. Simone too stated that she could not read English. She
only remembered having received a letter from the Minister after
her husband had seen a lawyer.
[13] An analysis of the Pull Printouts shows
that Mr. Simone paid part of his arrears of taxes by making
twelve monthly payments of $1,000 starting on March 18,
1983. On November 16, 1983, a $10,000 payment was made and
another of $5,000 on December 23, 1983. Only two $1,000
payments were made in 1984, one on January 10 and the other
on February 10. I find in the Pull Printouts no similar
payments made thereafter.
[14] On March 22, 1988, the Minister
registered with the Federal Court of Canada (Trial Division) a
certificate showing a sum of $87,316 owing under the Act and the
Canada Pension Plan for the 1979 to 1986 taxation years
(1979-1986 period). An amended certificate was registered
on October 16, 1990, with a slightly different spelling of
Mr. Simone's first name. Pursuant to this certificate,
the Minister obtained the issuing of two writs of
fieri facias (writs for the seizure of goods,
chattels, lands and tenements) in satisfaction of
Mr. Simone's outstanding tax debt of $87,316. One writ,
dated October 16, 1990, was issued to the sheriff of the
Municipality of Metropolitan Toronto with respect to property
located in Toronto. The other, dated November 16, 1990, was
issued to the sheriff of the Regional Municipality of York with
respect to property located in that municipality. The sheriff of
the Municipality of Metropolitan Toronto advised the Minister
that a rent seizure notice had been served on the tenant of the
Commercial Property on June 25, 1991 (Tab 20). On
September 29, 1991, the firm of Barry A. Edson &
Associates wrote to this same sheriff advising him that their
client, Mr. Collision Ltd., that is, Mr. Simone's
corporation, had not been able to pay rent as a result of
financial difficulties. So Mr. Simone was aware that large
amounts of money were owing to the government with respect to
taxes.
[15] In addition, Mr. Simone had
retained a Mr. Rocca to deal with the Minister's
auditor. Mr. Rocca wrote to the Minister on
September 29, 1988 (Exhibit R-2) providing an
income and expense statement for Mr. Simone for the 1979 to
1981 taxation years. The expense information relates only to
personal expenses for Mr. Simone's family. The income
information concerns profit from business. It also indicates
other sources of funds which might have been used by
Mr. Simone to cover his cost of living. As regards income,
the statement provides the following information:
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1979
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Income:
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Proceeds from Insurance claim
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7800.00
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Profit From Business
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12039.00
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Money Transfer[r]ed From Italy
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21000.00
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Total
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40839.00
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1980
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Income:
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Profit From Business
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19780.00
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Money Transfer[r]ed From Italy
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43026.00
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Total
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62806.00
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1981
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Income:
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Profit From Business
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517.00
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Money Transfer[r]ed From Italy
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10400.00
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Total
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10917.00
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There is no other documentary evidence that would explain how
the profits from business were determined by Mr. Rocca. In
particular, no financial statements were attached to his letter
to the Minister.
[16] One other piece of evidence showing
that Mr. Simone was aware of the tax debt problem is a power
of attorney dated January 27, 1993, given by Mr. Simone
to the law firm Baker, Ranieri. According to Mr. Simone,
when this law firm informed him of the failure of their efforts
in negotiating a satisfactory arrangement with the Minister, he
was advised that he should wait for a change in the legislation.
No one from the law firm testified to corroborate this surprising
statement.
[17] Although he was entitled to a refund
for each of the 1985, 1990, 1991, 1995 and 1997 taxation years,
Mr. Simone indicated that he did not take any steps to
ascertain why he had not received these refunds. He explained
that he did not have the financial resources to hire a lawyer.
However, when asked if he had contacted his tax preparer, he
indicated that he had not!
[18] A summary of all the steps taken by the
Minister to collect the outstanding amounts owing by Mr. Simone
appears in the following table:
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Date
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Collection
Procedure
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Amount of Outstanding Debt
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Notes
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March 1983 to
Feb. 1984
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Partial payments by Mr. Simone
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$29,000 in total (see Tab 17)
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May 13, 1986
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Set-off
(s. 164(2) & s. 224.1)
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89,325*
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$169 tax refund for 1985
(Tab 16 p. 1 and Tab 17 p. 7)
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March 22, 1988
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Certificate (s. 223(3))[19]
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87,316**
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For the 1979-1986 period (Tab 1)
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Oct. 16, 1990
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Amended certificate
(s. 223(3))
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87,316**
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For the 1979-1986 period (Tab 1)
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Writ of fieri facias
(Toronto)
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87,316**
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For the 1979-1986 period (Tab 2)
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Nov. 16, 1990
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Writ of fieri facias
(York)
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87,316**
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For the 1979-1986 period (Tab 3)
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June 25, 1991
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Rent Seizure Notice
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N/A
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Served on Mr. Collision Ltd. (Tab 20)
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June 26, 1991
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Set-off
(s. 164(2) & s. 224.1)
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155,019*
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$425 tax refund for 1990 (Tab 16, Tab 17,
p. 10)
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June 29, 1992
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Set-off
(s. 164(2) & s.224.1)
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173,275*
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$3,771 tax refund for 1991 (Tab 16, Tab 17, p.
14)
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Oct. 28, 1992
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Requirement to pay
(s. 224)[20]
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178,175***
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To Mr. Collision Ltd. (Tab 22)
To Sun Life of Canada (Tab 23)
To Barry A. Edson & Associates (Tab 24)
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Jan. 12, 1993
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Requirement to pay
(s. 224)
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181,275***
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To Barry A. Edson & Associates (Tab 25)
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May 9, 1996
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Set-off
(s. 164(2) & s. 224.1)
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244,891*
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$24.88 tax refund for 1995
(Tab 16, Tab 17, p. 24A)
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Aug. 6, 1998
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Demand for payment
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293,594
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To Mr. Simone: "we may have to take
appropriate legal action without further notice"
(Tab 27)
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April 2, 1998
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Set-off
(s. 164(2) & s. 224.1)
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N/A
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$1,895 tax refund for 1997 (Tab 17, p. 27)
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Jan. 5, 1999
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Motion for leave to issue writ of seizure and sale
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N/A
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In respect of certificate of March 22, 1988
(Tabs 9 and 10)
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Feb. 3, 1999
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Order granting leave to issue writ of seizure and sale
(Rule 434(1) of Federal Court Rules, 1998)[21]
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N/A
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In respect of certificate of March 22, 1988
(Tabs 9 and 10)
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March 31, 1999
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Writs of seizure and sale (Toronto) (York)
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87,316**
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In respect of certificate of March 22, 1988
(Tabs 11 and 12)
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Oct. 2, 2000
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Demand for payment
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356,428
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To Mr. Simone: "other-wise we may have to
instruct the Sheriff to seize and sell some of your assets
to pay off this debt" (Tab 28)
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Nov. 1, 2000
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Requirement to pay
(s. 224)
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358,961***
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To Sun Life of Canada
(Tab 29)
To Mr. Collision Ltd.
(Tab 30)
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Sept. 28, 2001
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Assessments of Mrs. Simone (s. 160)
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319,998***
71,531
***
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(Tab 13)
(Tab 14)
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May 28, 2004
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Demand for payment
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474,977
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"we may have to take appropriate legal action, such
as . . ."
(Tab 31)
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Aug. 20, 2004
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Demand for payment
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481,832 *
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"to inform you that we have recorded on the
Property Register of Ontario, $87,316.11 of the above tax
debt"
(Tab 32)
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*
This amount represents Mr. Simone's liability under the Act
and the Income Tax Act (Ontario).
**
This amount represents Mr. Simone's liability under the Act
and the Canada Pension Plan.
***
Includes taxes, penalties and interest under the Act, the
Canada Pension Plan and the Income Tax
Act (Ontario).
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Analysis
Taxes and Penalties
[19] Not much of a debate took place with
respect to the amount of taxes and penalties assessed by the
Minister. The only taxation years in respect of which that issue
was raised are the 1979 to 1981 taxation years. Regarding the
amount of the tax liability, I have not been convinced by the
evidence introduced by Mrs. Simone that her husband's
taxes for the 1979, 1980 and 1981 taxation years were different
from those assessed by the Minister. More than an approximate
estimate of gross revenues and expenditures is required in order
to establish the amount of business income that was earned in
each of these taxation years, especially since the tax debtor
himself does not know if this estimate is accurate. No books or
records, nor even any financial statements of the business, were
filed to support Mr. and Mrs. Simone's position. There
was not sufficient evidence introduced to show whether the
bookkeeper had in fact mistakenly included in business income the
sums of money received by Mr. Simone from his father's
estate. Mr. Rocca's letter and the enclosed statement of
income and expenses seem to indicate that Mr. Rocca was only
attempting to disclose the different sources of funds used to
cover Mr. Simone's cost of living, as if he was
attempting to fend off a net worth assessment. Even the totals of
funds from all sources do not match the net income amounts
assessed by the Minister, which, in all likelihood, correspond
with the amounts shown in Mr. Simone's own returns. The
most obvious example is the figures for the 1982 taxation year:
$53,759 as per the Minister's records and $10,917 as per
Mr. Rocca's income statement. There is no statement in
Mr. Rocca's document that the money inherited by
Mr. Simone was included in gross business income by mistake.
We are thus left with pure speculation and mere
approximations.
[20] With respect to the penalties assessed
for the 1980 and 1981 taxation years, counsel for the Minister
acknowledged that they should be reduced to $2,728.32 and
$1,345.21 respectively. With respect to the 1979 taxation year,
the only issue remaining is whether Mr. Simone was properly
assessed the penalty under subsection 163(1)[22] of the Act. In order
for this subsection to apply, the respondent must establish that
the taxpayer has attempted to evade taxes by not filing his tax
return as and when required by the Act. On the basis of the
testimony of Mr. Simone that he had limited knowledge of the
English language, that he relied on his bookkeeper, to whom, he
said, he provided all the proper books and records, and that he
instructed the bookkeeper to file his tax returns every year, I
am prepared to conclude that the late filing penalty under
subsection 163(1) of the Act should be cancelled for the
1979 taxation year. I am satisfied that Mr. Simone did not
have the necessary intent to evade taxes by not filing his tax
returns when they were due.
Periods of Limitation
[21] There remains, then, the issue of the
limitation periods. Basically, Mrs. Simone's position is
that when the Minister issued his assessments under
section 160 of the Act in September 2001, Mr. Simone no
longer owed his tax debt at that time, and that this was the
result of the application of section 32 of the CLPA, which
provides as follows:
32. Except as otherwise
provided in this Act or in any other Act of Parliament, the laws
relating to prescription and the limitation of actions in force
in a province between subject and subject apply to any
proceedings by or against the Crown in respect of any cause of
action arising in that province, and proceedings by or
against the Crown in respect of a cause of action arising
otherwise than in a province shall be taken within six years
after the cause of action arose.
[Emphasis added.]
[22] Counsel for Mrs. Simone submits
that the collection proceedings undertaken by the Minister-in
particular, the statement of the outstanding balance appearing on
each notice of assessment (at least those for the 1985 to 1995
taxation years), the requirements to pay, the set-offs of
the tax refunds and the demands for payment-were not sufficient
to renew the limitation period for the collection of the tax
debt. In counsel's view, either some kind of court decision,
such as a bankruptcy or receivership order, or an acknowledgement
from the taxpayer was necessary. She also stated that the Federal
Court's order granting leave to renew the writ of
fieri facias was of no effect because it was issued
in 1999, more than six years after the registration of the
amended certificate of the Minister on October 16, 1990.
Therefore, the Minister was barred from collecting the amount
owing with respect to the 1979-1986 period.
[23] Mrs. Simone's counsel relies
on the decision of the Supreme Court of Canada in
The Queen v. Markevich et al., 2003 DTC 5185, in
which it was concluded that section 32 of the CLPA[23] was applicable to
amounts owing, and to the collection proceedings taken, under the
Act . It should be stressed from the outset that the facts in
Markevich are substantially different from those in these
particular appeals. In Markevich, as in these appeals, a
large tax and interest liability was assessed by the Minister.
However, the assessments covered the 1980 to 1985 taxation years,
and, contrary to what occurred in the present appeals, the
Minister made no effort to collect the debt from 1987 to 1998.[24] The annual
statements issued by the Minister during that period did not
reflect the outstanding balance for 1980 to 1985 (see
page 5186). It was only on January 15, 1998,
approximately 12 years later, that the Minister sent a
statement of account indicating a balance of $770,583.42, which
included the amount owing as of June 17, 1986, and accrued
interest.
[24] Let us now review the principles laid
down by the Supreme Court of Canada in Markevich,
and also by other courts, on this issue. First, section 32
of the CLPA was applicable to the statutory collection
proceedings under the Act. Second, because tax debts created
under the Act arose pursuant to federal legislation, the cause of
action for these debts arose "otherwise than in a
province" and was not therefore subject to provincial
legislation dealing with periods of limitation. The collection
proceedings under the Act were thus subject to a limitation
period of six years after the cause of action arose, as
prescribed by section 32 of the CLPA.
Mr. Justice Major, who wrote the reasons for the
majority of the Court, stated that the three rationales for the
application of this limitation period were "directly
applicable to the Minister's collection of tax debts"
(paragraph 20). They are the certainty, evidentiary and diligence
rationales, described as follows by Mr. Justice Major:
[19] . . . The certainty rationale recognizes that,
with the passage of time, an individual "should be secure in
his reasonable expectation that he will not be held to account
for ancient obligations": M. (K.), supra, at
para.29. The evidentiary rationale recognizes the desire
to preclude claims where the evidence used to support that claim
has grown stale. The diligence rationale encourages
claimants "to act diligently and not 'sleep on their
rights'": M.(K.), supra , at para.30.
[Emphasis added.]
[25] After having concluded that these
rationales were applicable, Mr. Justice Major emphasized the
following two:
[20] Each of the rationales submitted as applicable to there
being no limitation periods affecting collection are in fact just
the opposite and are directly applicable to the Minister's
collection of tax debts. If the Minister makes no effort to
collect a tax debt for an extended period, at a certain point a
taxpayer may reasonably come to expect that he or she will not be
called to account for the liability, and may conduct his or
her affairs in reliance on that expectation. As well, a
limitation period encourages the Minister to act diligently in
pursuing the collection of tax debts. In light of the significant
effect that collection of tax debts has upon the financial
security of Canadian citizens, it is contrary to the public
interest for the department to sleep on its rights in enforcing
collection. It is evident that the rationales which justify
the existence of limitation periods apply to the collection of
tax debts.
[Emphasis added.]
[26] Mr. Justice Major put aside the
concerns of the respondent's counsel, who had argued that the
application of the "laws of prescription to tax collection
would unfairly alleviate the tax burden of individuals who
experience fluctuations in income at the expense of those who
enjoy a steady stream of income":
[18] . . . Thisapparent problem can be averted,
however, by the Minister's reasonably diligent
exercise of debt collection. If a taxpayer does not have the
ability to satisfy a tax debt prior to the expiration of the
limitation period, the Minister can choose from a variety of
means to extend the limitation period. In Ross v.
Canada [2002
DTC 6884] , [2002]
2 C.T.C. 222, the Federal Court, Trial Division, held that
the registration of a certificate with the Federal Court in
accordance with s.223(3) of the ITA gives rise to a renewal of
the limitation period. See also MacKinnon v. Canada [2002
DTC 7219] , [2002]
4 C.T.C. 48 (T.D.), where the court found that the
taxpayer's acknowledgement of indebtedness by way of a
hypothecation agreement with the Minister, and his partial
payment of the tax debt, each served to renew the
limitation period. There is no need to exhaustively set
out the ways in which the Minister can extend the limitation
period, other than to note that there are numerous avenues open
to the Minister by which renewals may be effected. There is
no credible basis to support the submission that the laws of
prescription will undermine the equitable collection of taxes
when minimum diligence would have the opposite effect.
[Emphasis added.]
[27] Mr. Justice Major concluded as follows
at paragraph 41 of his reasons:
I conclude that the collection proceedings under the ITA are
subject to prescription six years after the cause of action
arose. As noted above, the cause of action in this case
comprised the respondent's tax debt and the expiry of the
90-day delay period after the mailing of the Notice of
Assessment dated June17, 1986. As a result, the cause of action
arose on September16, 1986. The Minister undertook no action
in the six years after that date to effect a renewal of the
limitation period. Consequently, as of September 16, 1992,
s.32 of the CLPA barred the Minister from collecting the
respondent's 1986 federal tax debt. Limitation periods have
traditionally been understood to bar a creditor's remedy but
not his or her right to the underlying debt. In my view, this is
a distinction without a difference. For all intents and
purposes, the respondent's federal tax debt is
extinguished.
[Emphasis added.]
[28] It is also important to take into
account the nature of the collection proceedings to which
recourse could have been had during the limitation period. First,
Mr. Justice Major described at paragraph 8 of his reasons
some of the collection proceedings available to the Minister in
collecting tax debts:
[8] . . . The various collection mechanisms enumerated in the
ITA provide the Minister with an extensive range of remedies
to recover debts. The Minister may certify an unpaid tax
amount (s.223(2)) and register the certificate in the Federal
Court (s.223(3)), at which point the certificate is deemed to
be a judgment of that court. The Federal Court can then issue a
certificate, notification, or writ evidencing the s.223(2)
certificate, which can be used by the Minister to create a
charge, lien, priority, or other interest on property in any
province (ss.223(5) to 223(8)). Under the garnishment
provision of s.224(1), the Minister may require a third party
who is indebted to the taxpayer to make payments directly to the
Minister. The Minister may also order the seizure and sale
of the taxpayer's goods and chattels under s.225(1). . .
.
[Emphasis added.]
[29] At paragraph 25, Mr. Justice
Major recognized that these statutory collection proceedings
resembled various court proceedings. He wrote as follows:
[25] The statutory
collection procedures closely resemble various proceedings in
court. The registration of a certificate in Federal
Court is deemed by s.223(3) to be a judgment of that
court. As Rothstein, J.A. notes at para.35:
A requirement to pay under section 224 (as am. by S.C.
1994, c.21, s.101) is analogous to a garnishing order
issued by a court. ... Seizure and sale of chattels under
subsection 225(1) is a provision closely parallel to a writ of
execution issued by a court.
By granting the power to effect the collection of tax debts in
this manner, Parliament has provided the Minister with an
efficient and expeditious alternative to bringing a court action.
However, the court and non-court collection procedures are
identical in purpose. Both are mechanisms by which the
Minister is able to enforce the collection of tax debts and
thereby carry into effect the legal rights of the Crown. It is
evident that both kinds of procedures are appropriately
characterized as legal proceedings.
[Emphasis added.]
[30] In Ross v. The Queen,
2002 DTC 6884, [2002] 2 C.T.C. 222, referred to by Mr.
Justice Major in Markevich above, the taxpayer took
a position similar to that taken by Mrs. Simone's counsel in this
case. It was argued in Ross that the filing of the
certificate did not protect the Minister's position, as the
"Minister should have commenced proceedings in the Court in
respect of the tax debt" (paragraph 20).
[31] In support of her conclusion that this
argument was ill-founded and that the Minister was not
barred from collecting the taxpayer's debt-the collection
proceeding in issue was a requirement to pay-Justice Dawson
offered the following reason:
[31] First, the effect of
Markevich is that the limitation period provided in
section 32 of the CLPA is applicable to both statutory collection
procedures and court collection procedures, and that after the
expiry of the relevant limitation period the cause of action is
extinguished. This requires the Minister to take remedial
steps to collect a tax debt within the limitation period.
Markevich does not require the Minister to
obtain a judgment of the Court to preserve her rights,
nor does Markevich require the Minister to
exhaust all collection efforts within the limitation period.
Markevich recognizes the similarity between statutory and
court collection procedures, and applies limitation laws
irrespective of the remedial steps taken to collect a tax
debt.
[Emphasis added.]
[32] In Gibson v. R., 2004
CarswellNat 1658, [2004] 4 C.T.C. 38, another case cited by
Mrs. Simone's counsel, the issue was whether the
taxpayer's request for a carry-back of losses amounted to
acknowledgement of a debt. In coming to the conclusion that it
did not, Justice Mosley cited Ross, supra, as
follows:
15 In Ross v.
Canada, [2002] F.C.J. No. 517 (Fed. T.D.),
aff'd [2002] F.C.J. No. 1396 (Fed. C.A.), Justice Dawson
found that the Minister's action of registering a
certificate with the Federal Court, pursuant to s. 223 of the
ITA, whereby CCRA obtained a writ of seizure and sale,
demonstrated that it had taken a step to collect the debt.
Therefore, since the Minister had begun its collection proceeding
against the taxpayer within the prescribed time limit set out in
s. 32 of the CLPA, it was not necessary that the
collection procedures be completed within the limitation
period.
[Emphasis added.]
[33] In paragraph 17, Justice Mosley stated
what was required in order for the CCRA to benefit from the
extension of prescription under section 32 of the CLPA:
. . . In order to benefit from the extension of such
prescription, the CCRA must demonstrate, with some
positive step on its part, that it is following through with
collection action within the limitation period. Only in this
manner is the due diligence rationale with respect to limitation
periods respected. Absent express acknowledgment by the
taxpayer, or some sort of concrete step initiated by the CCRA
in the collection process, the limitation period will not be
renewed.
[34] Let us now apply these principles
developed by the courts to the facts of this case. In my view,
Mrs. Simone's position is ill-founded. First, contrary
to what took place in the Markevich case, the
Minister did not remain passive in his collection proceedings
against Mr. Simone. The Minister informed Mr. Simone, in
each yearly notice of assessment[25], of the outstanding amount owing by
him not only for the particular taxation year, but also for the
prior years. In addition, the Minister set off the tax refunds
for the 1985, 1990, 1991, 1995 and 1997 taxation years against
Mr. Simone's debt. The Minister registered a certificate
with respect to the tax debt for the 1979-1986 period and
had the Federal Court of Canada issue writs of
fieri facias in October and November 1990.
Pursuant to the writ of fieri facias issued in
October 1990, a rent seizure notice was sent in June 1991 to Mr.
Simone's tenant. The Minister also issued requirements to
pay, which are similar to garnishment proceedings, in October
1992, January 1993 and November 2000.
[35] It should be stressed that most of
these collection proceedings taken by the Minister constitute
statutory collection proceedings. The certificate was registered
pursuant to subsection 223(3) of the Act. The set-off by the
Minister of the tax refunds owing to Mr. Simone was done in
accordance with subsection 164(2) and section 224.1 of the Act.
As for the requirements to pay, they constitute a third party
garnishment effected pursuant to section 224 of the Act.
[36] In my view, each of these statutory
collection proceedings has the effect of renewing the limitation
period prescribed by section 32 of the CLPA. As
Justice Dawson stated in Ross, supra, at
paragraph 36, this interpretation is consistent with the
rationales for limitation legislation because these proceedings
"bring[. . .] about certainty and
diligence".[26] Mr. Justice Major clearly indicated that
statutory collection procedures constitute legal proceedings and,
in the present case, they certainly have the effect of showing
that the Minister had not given up on collecting the tax debt.
Therefore, Mr. Simone cannot reasonably expect that he will
"not be called to account for the liability". In these
circumstances, Mr. Simone cannot be considered to have had any
reason to believe that he could "conduct his . . . affairs
in reliance on that expectation", to use the words of Mr.
Justice Major in Markevich, paragraph 20. Equally, it
cannot be said here that the Minister slept on his rights to
enforce collection.
• 1979-1986
Period
[37] To determine whether or not the debt
with respect to any of the yearly assessed amounts has been
extinguished during a period starting 90 days after
the date of the oldest notice of assessment and ending on
September 28, 2001-which is the relevant time, being the
date of the section 160 assessments of Mrs. Simone-a
more detailed analysis is required. Given that the certificate
was only registered with respect to the tax debt for the
1979-1986 period, it is useful to deal with this period as
being distinct from the 1987 to 1990 taxation years
(1987-1990 period). With respect to the first
period, the oldest assessment is the one for the 1979 taxation
year and is dated August 10, 1982. Given that the cause of
action could only arise 90 days after this date, it is clear that
the certificate registered by the Minister on March 22,
1988, was sufficient to renew the limitation period for a further
six-year period, that is, until March 1994.
[38] The next collection proceeding which
can be considered to have renewed the limitation period for the
1979-1986 period is the requirement to pay $181,275 dated
January 12, 1993.[27] So the limitation period was thereby extended to
January 12, 1999. Given that the Minister undertook a
collection proceeding by way of set-off on May 9,
1996, the limitation period was on that date further extended to
May 2002. Therefore, the tax debt for the 1979-1986 period
was not statute-barred and was still owing on
September 28, 2001, when the Minister issued the
section 160 assessments against Mrs. Simone.
• 1987-1990
Period
[39] With respect to the 1987-1990 period,
the oldest assessment is the one regarding the 1987 taxation
year, which is dated June 27, 1988. If we add the 90-day
period following the assessment, the limitation period started in
September 1988 and would have ended at the latest in September
1994. This limitation period was renewed for another six years,
to January 12, 1999, when a requirement to pay $181,275 was
made to Barry A. Edson & Associates on January 12, 1993,
pursuant to section 224 of the Act. As indicated by the
representative of the Minister, a copy of such a requirement to
pay is also sent to the tax debtor-in the present case, Mr.
Simone. The next collection proceeding which is relevant for the
computation of the limitation period is the set-off that
took place on May 9, 1996. This set-off clearly indicated to
Mr. Simone that the Minister was still taking steps to collect
the tax debt not only for the 1979-1986 period but also for
the 1987-1990 period. After that set-off, the tax debt amounted
to $244,891. Therefore, the limitation period for the tax debt
with respect to the 1987-1990 period was renewed for
another six years to May 2002, with the result that the tax
debt for the 1987-1990 period was still outstanding on
September 28, 2001, when Mrs. Simone was
assessed.
[40] In conclusion, the respondent has
succeeded in establishing that, subject to the adjustments
mentioned above, the tax debt was still outstanding when the
section 160 assessments were issued by the Minister.
[41] For all these reasons, Mrs. Simone's
appeals against the section 160 assessments are referred
back to the Minister for reconsideration and reassessment on the
basis that the collection of the amount owing by Mr. Simone with
respect to the relevant period was not statute-barred.
However, Mr. Simone's tax debt for which
Mrs. Simone is jointly and severally liable must be
calculated on the basis that the penalty assessed pursuant to
subsection 163(1)
for the 1979 taxation year is not applicable, that the penalty
for the 1980 taxation year is reduced to $2,728.32, and that the
penalty for the 1981 taxation year is reduced to $1,345.21. The
whole without costs.
Signed at Ottawa, Canada, this 1st day of April, 2005.
Archambault, J.
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