Citation: 2005TCC462
Date: 20050721
Docket: 2005-377(IT)APP
BETWEEN:
PATRICK NAGLE,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Woods J.
[1] This is an application by Dr. Patrick Nagle under section 166.2 of the Income Tax Act for an order extending the time to serve a notice of objection to assessments for the 1995, 1996 and 1997 taxation years. The relevant notices of reassessment were dated March 25, 1999.
[2] Subsection 166.2(5) sets out the conditions that must be satisfied in order for the court to grant an extension of time. It reads:
(5) When application to be granted. No application shall be granted under this section unless
(a) the application was made under subsection 166.1(1) within one year after the expiration of the time otherwise limited by this Act for serving a notice of objection or making a request, as the case may be; and
(b) the taxpayer demonstrates that
(i) within the time otherwise limited by this Act for serving such a notice or making such a request, as the case may be, the taxpayer
(A) was unable to act or to instruct another to act in the taxpayer's name, or
(B) had a bona fide intention to object to the assessment or make the request,
(ii) given the reasons set out in the application and the circumstances of the case, it would be just and equitable to grant the application, and
(iii) the application was made under subsection 166.1(1) as soon as circumstances permitted.
The one-year period referred to in paragraph 166.2(5)(a) starts running 90 days after an assessment is mailed.
[3] The applicant admits that he does not satisfy the requirement of paragraph 166.2(5)(a) if it is interpreted literally. The application to the Minister under subsection 166.1 was made several years after the expiry of the time period on June 23, 2000. He submits, though, that the time period should not start to run until he became aware of the necessity to apply for the extension of time. He cites in support a principle called the discoverability rule.
[4] The reassessments relate to tax shelter investments made by Dr. Nagle who is a dentist by profession. The transactions that are at issue occurred many years earlier and the Canada Revenue Agency issued reassessments for all years dating back to 1986.
[5] Dr. Nagle's accountant, who he has used for about 20 years, filed notices of objection for the earlier years. Dr. Nagle testified that he had instructed the accountant to file objections for the 1995, 1996 and 1997 taxation years as he had done in the past. For some unknown reason, they were not filed although Dr. Nagle testified that the accountant had told him that they were. It came to light in June 2004 that the notices had not been filed. Shortly thereafter, the applicant applied to the Minister of National Revenue for an extension of time and when that was refused he applied to this Court.
[6] The situation is particularly unfortunate for the applicant because one of the technical issues in dispute has been resolved in his favour. Apparently, a tax shelter investment had been reassessed on the basis of the reasonable expectation of profit test. Dr. Nagle's appeals were kept in abeyance while similar appeals proceeded to court and Dr. Nagle helped fund the appeal that gave victory to taxpayers on that issue in the Supreme Court of Canada. It was when the Agency were in the process of issuing refunds on outstanding appeals that it was discovered that neither the accountant nor the Agency had any record of notices of objection for the three years at issue.
[7] The discoverability rule that the taxpayer relies on appears to be a well-established principle applied by courts in construing statutory limitation periods. It has been described as a general rule "applied to avoid the injustice of precluding an action before the person is able to raise it." (Haberman v. Peixeiro (1997), 151 D.L.R. (4th) 429 (S.C.C.), at para 36). Generally it has been applied when a person is not able to determine that they have a cause of action within a statutory time period.
[8] The rule was applied by the Tax Court of Canada in Carlson v. The Queen, [2001] 3 C.T.C. 2294 but the decision was reversed on appeal on the ground that the taxpayer had not acted reasonably or diligently ([2002] 2 C.T.C. 212). In obiter, Nadon J.A. also expressed doubt as to whether the rule has any application to the Income Tax Act.
[9] What the applicant argues is that the time period for an application to extend time should not start running until a person is reasonably able to discover that the application is necessary. In this case, that would be sometime in June 2004 when it came to light that the notices of objection had not been filed. Dr. Nagle submits that he was diligent in following up with the accountant and he had been informed by the accountant that the notices had been duly filed.
[10] In my view, this is not a situation where the discoverability rule is engaged. First, the applicant admits receiving the notices of reassessment. He knew that he had a cause of action and that he had to file notices of objection. Not only was the cause of action discoverable, it was discovered. Second, the applicant in any event could have discovered that no notices of objection had been filed. He stated that he had a conversation with the accountant who told him that the notices were filed. Presumably, if Dr. Nagle had asked the accountant for copies of the notices it would have come to light that they had not been prepared.
[11] Third, applying the discoverability rule in these circumstances is not supported by even the broadest interpretation of subsection 166.2(5). Counsel for the applicant argues that the discoverability rule is not simply a rule of construction but is a judge-made principle that overrides legislation. He refers to the following passage from Haberman v. Peixeiro:
[...] The discoverability rule has been applied by this Court even to statutes of limitation in which plain construction of the language used would appear to exclude the operation of the rule. [...]
(para 38)
[12] I disagree with the applicant that the discoverability rule overrides legislation. The Supreme Court of Canada suggests that a literal approach is not appropriate in interpreting limitation periods, but they do not suggest that clear words of a statute can be ignored. Immediately before the above passage in Haberman v. Peixeiro, the Court approves the following statement from Fehr v. Jacob (1993), 14 C.C.L.T. (2d) 200 (Man C.A.) at 206:
In my opinion, the judge-made discoverability rule is nothing more than a rule of construction. Whenever a statute requires an action to be commenced within a specified time from the happening of a specific event, the statutory language must be construed. When time runs from "the accrual of the cause of action" or from some other event which can be construed as occurring only when the injured party has knowledge of the injury sustained, the judge- made discoverability rule applies. But, when time runs from an event which clearly occurs without regard to the injured party's knowledge, the judge-made discoverability rule may not extend the period the legislature has prescribed. (emphasis added)
[13] In my view, the language of subsection 166.2(5) does not permit the one-year period to start running from when Dr. Nagle became aware that his accountant had not filed the necessary notices of objection. The statute clearly requires the time to run from the time the assessments are mailed. I see no basis to ignore the statutory intent that is evident from the language used.
[14] The application is dismissed. In the circumstances there will be no award of costs.
Signed at Toronto, Ontario this 21st day of July, 2005.
"J. Woods"
CITATION: 2005TCC462
COURT FILE NO.: 2005-377(IT)APP
STYLE OF CAUSE: Patrick Nagle v. Her Majesty the Queen
PLACE OF HEARING: Windsor, Ontario
DATE OF HEARING: June 28, 2005
REASONS FOR ORDER BY: The Honourable Justice Judith Woods
DATE OF ORDER: July 21, 2005
APPEARANCES:
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Counsel for the Applicant:
|
Myron Shulgan, Q.C.
|
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Counsel for the Respondent:
|
Gatien Fournier
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COUNSEL OF RECORD:
For the Applicant:
Name: Myron Shulgan, Q.C.
Firm: Wilson, Walker, LLP
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Ontario
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