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Citation: 2003TCC925
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Date: 20040116
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Docket: 2003-2911(IT)G
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BETWEEN:
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DAVID D. HAGGART,
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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 ORDER
Little J.
A. FACTS:
[1] The Appellant was the President
and principal shareholder of Haggart Construction Ltd.
("Construction").
[2] Construction carried on business
as a contractor in Fort MacMurray, Alberta.
[3] Construction obtained a bank loan
from the Canadian Imperial Bank of Commerce
("C.I.B.C.") to enable it to finance its business
activities.
[4] The loan was called by the
C.I.B.C. and as a result of the action by C.I.B.C., Construction
was forced to discontinue its business activities.
[5] The Appellant and Construction
commenced a legal action against C.I.B.C. The Appellant and
Construction alleged that C.I.B.C. had no basis for calling the
loan. After a period of 11 years the Appellant was successful in
the lawsuit.
[6] As a result of the lawsuit the
Appellant and Construction were awarded the following
amounts:
- Damages
for lost earning
capacity
$463,200.00
- Punitive
damages
20,000.00
- Interest on the
damages
368,566.22
[7] The Appellant was also awarded
costs by the Court in the amount of $80,369.00.
[8] In order to finance the lawsuit
the Appellant paid legal fees of $403,254.00. After deducting the
court awarded costs of $80,369.00 the net amount of legal fees
paid by the Appellant was $322,885.00.
[9] In computing income for the 1997,
1998 and 1999 taxation years the Appellant did not include the
interest awarded by the Court in his income and the Appellant did
not attempt to deduct the legal fees that he incurred in
financing the lawsuit. In computing income for the 2000 taxation
year the Appellant deducted legal fees in the amount of
$44,217.82.
[10] The Minister of National Revenue (the
"Minister") initially assessed the Appellant on the
following days:
Date of Notice
Taxation
Years
of Assessment
1997
-
April 23, 1998
1998
-
June 10, 1999
1999
-
May 11, 2000
2000
-
August 17, 2001
[11] The Minister reassessed the Appellant
in respect of his 1997, 1998 and 1999 taxation years by Notices
of Reassessment dated March 5, 2001 to increase income and
disallow certain business expenses that are not at issue in this
appeal. During the course of the audit the Appellant's agent,
Larry K. Myres, C.A., attempted to deduct the legal fees that had
been paid and this claim was denied by officials of the Canada
Customs and Revenue Agency ("CCRA").
[12] On August 17, 2001, the Minister
assessed the Appellant in respect of his 2000 taxation year and
disallowed legal fees in the amount of $44,217.82.
[13] Mr. Larry K. Myres, C.A., acting as
agent for the Appellant, filed Notices of Objection for the
Appellant on March 29, 2001 for the 1997, 1998 and 1999 taxation
years. Mr. Myres filed a Notice of Objection for the
Appellant's 2000 taxation year on August 22, 2001. In
the Notices of Objection the Appellant claimed that he should be
allowed to deduct the following legal fees:
1997 - $149,713.06
1998 -
26,804.92
1999 -
46,904.19
2000 -
44,217.82
[14] Officials of the Minister and Mr. Myres
discussed the Appellant's Notices of Objection and officials
of the CCRA agreed to accept a proposal from Mr. Myres that
the net legal fees of $322,885.00 claimed by the Appellant could
be offset against interest income of $366,755.00. In a letter
from Mr. Myres to Mr. Jackson of the CCRA dated October
22, 2001, the following comment is made by Mr. Myres:
It would be reasonable to take the position that the interest
award and costs related to collect are an offset.
[15] Officials of the CCRA agreed to offset
the interest award against the legal fees.
[16] The Minister confirmed the Notices of
Reassessment by letter dated March 25, 2002. The officials
of the CCRA maintain that the original of the letter of March 25,
2002 was sent to the Appellant and a copy of the letter was sent
to Mr. Myres. The Appellant maintains that he never received the
Minister's letter of March 25, 2002.
[17] By letter dated July 19, 2002 Mr. Myres
wrote to the CCRA. In his letter Mr. Myres requested that the
Minister reopen the Appellant's 1997, 1998 and 1999 taxation
years to allow certain additional business expenses that are not
in issue. Mr. Myres also stated in his letter that if it was
not possible to reopen the stated taxation years, then the
request for further deductions of business expenses be forwarded
to the Fairness Committee.
[18] By letter dated September 10, 2002
officials of the CCRA indicated that they had accepted the letter
from Mr. Myres as an application under the Fairness legislation
in the Act.
[19] Officials of the CCRA accepted the
Appellant's Fairness application request and the
Appellant's net income for the 1997 and 1998 taxation years
was reduced by $35,574.00. By Notices of Reassessment dated May
15, 2003 the Minister reassessed the Appellant's 1997, 1998
and 1999 taxation years to make the necessary changes.
[20] The Appellant filed Notices of Appeal
with the Court on August 13, 2003 for the 1997, 1998, 1999
and 2000 taxation years.
[21] On November 13, 2003 the Respondent
filed a Notice of Motion for an Order quashing or dismissing the
Appellant's appeals on the basis that the appeals were not
validly before the Court.
B. ISSUE:
[22] Should the appeals filed by the
Appellant for the 1997, 1998, 1999 and 2000 taxation years be
quashed or dismissed?
C. ANALYSIS:
[23] There are three issues before the
Court:
(a) Whether the Notices of Confirmation dated March 25, 2002
for the Appellant's 1997, 1998, 1999 and 2000 taxation years
were mailed to the Appellant.
(b) Whether a taxpayer can file Notices of Appeal to the
Reassessments for the Appellant's 1997, 1998 and 1999
taxation years that were issued under the Fairness Legislation in
the Act.
(c) Counsel for the Appellant also maintains that Mr. Myres
was not an authorized representative of the Appellant at the
relevant time and for the relevant purpose.
(a) - Re: Notice of Confirmation
[24] Mr. Douglas Jackson, an official of the
CCRA, was called as a witness by counsel for the Respondent. Mr.
Jackson also filed an Affidavit dated November 7, 2003 with
the Court (the "Jackson Affidavit").
[25] Mr. Jackson testified that he prepared
the Notices of Confirmation for the 1997, 1998, 1999 and 2000
taxation years dated March 25, 2002 and arranged to have them
signed by his supervisor, Mr. Ron Brass. Mr. Jackson said that he
also prepared a cover letter. He arranged to have the cover
letter mailed along with a copy of the Notification to Mr. Myres
on March 25, 2002. Mr. Jackson testified that the original
Notices of Confirmation were mailed to the Appellant on March 25,
2002.
[26] The Appellant stated in his Affidavit
dated June 18, 2003 (Exhibit R-3) that he never received the
Notices of Confirmation dated March 25, 2002.
[27] Counsel for the Respondent said that in
order to establish that the Appellant received the Notices of
Confirmation the Minister need only establish that the Notices
were mailed to the Appellant. In support of this proposition
counsel for the Respondent referred to the decision of the
Federal Court of Appeal in The Queen v. Schafer[1]. In that
case Justice Isaac said at paragraphs [7], [8] and [9]:
[7] In my respectful
view, however, the relevant sections of the ETA clearly state
that the time period for filing a notice of objection begins to
run on the date that the Minister sends the notice of assessment,
and that receipt of that notice is not required. Those sections
read:
300. (1) After making an assessment, the Minister shall
send to the person assessed a notice of the assessment.
301 (1.1) Any person who has been assessed and who
objects to the assessment may, within ninety days after the day
notice of the assessment is sent to the person, file with the
Minister a notice of objection in the prescribed form and manner
setting out the reasons for the objection and all relevant
facts.
...
334. (1) For the purposes of this Part and subject to
subsection (2), anything sent by first class mail or its
equivalent shall be deemed to have been received by the person to
whom it was sent on the day it was mailed.
...
[8] The requirement
in subsection 301(1.1) of the ETA is that the objection to the
Minister's assessment be made within ninety days after it has
been "sent." The Tax Court found, and the respondent
does not dispute, that the Minister placed the notice of
assessment in the Canada Post mail bag on 2 September, 1993. The
implication of the interpretation placed on
subsection 301(1.1) by the Tax Court is that the word
"sent" means "received" by the taxpayer.
[9] I am aware that
the Tax Court has interpreted almost identical sections of the
Income Tax Act to mean that the limitation period does not
start to run unless the taxpayer receives the notice of
assessment within the statutory time limit. However, this Court
has criticized that approach in the past. In Canada v.
Bowen, Stone, J.A. cited a passage from the Tax Court's
decision in Antoniou requiring receipt to start the
limitation period, and then stated:
With respect, we are unable to agree with that conclusion. In
our view, it disregards the plain meaning of subsection 165(3)
and section 169 of the [Income Tax] Act ...
In our opinion, the duty resting upon the Minister under
subsection 165(3) was to do precisely what he did, viz., notify
the respondent of the confirmation by registered mail[2]. Nothing in that
subsection or in section 169 required the notification to be
"served" personally or to be received by the
taxpayer.
[28] On this point counsel for the
Respondent said that the Notice of Confirmation do not have to
have been received by the Appellant for the time period to begin
to run. As is noted in the Schafer case the Minister must
only establish that the Notification of Confirmation was mailed
to the Appellant to start the limitation period under subsection
169(1) of the Act.
[29] I accept the evidence of Mr. Jackson
that the Notices of Confirmation were mailed to the Appellant on
March 25, 2002. I also accept Mr. Jackson's statement
that copies of the Notices of Confirmation were mailed to Mr.
Myres on March 25, 2002.
[30] I conclude that the 90-day time limit
for filing Notices of Appeal would commence on March 26, 2002 and
would expire on June 23, 2002. Since the Notices of Appeal for
the 1997, 1998, 1999 and 2000 taxation years were not filed until
August 13, 2003, I find that the Notices of Appeal were not filed
within the time specified in the Act.
(b) - Re: Status of Reassessments issued under the
Fairness Legislation
[31] Subsection 152(4.2) of the Act
reads as follows:
Notwithstanding subsections (4), (4.1) and (5), for the
purpose of determining, at any time after the expiration of the
normal reassessment period for a taxpayer who is an individual
(other than a trust) or a testamentary trust in respect of a
taxation year,
(a) the amount of any refund to which
the taxpayer is entitled at that time for that year, or
(b) a reduction of an amount payable
under this Part by the taxpayer for that year,
the Minister may, if application therefore has been made by
the taxpayer,
(c) reassess tax, interest or
penalties payable under this Part by the taxpayer in respect of
that year, and
(d) redetermine the amount, if any,
deemed by subsection 120(2) or (2.2), 122.5(3), 122.51(2),
127.1(1), 127.41(3), or 210.2(3) or (4) to be paid on account of
the taxpayer's tax payable under this Part for the year or
deemed by subsection 122.61(1) to be an overpayment on account of
the taxpayer's liability under this Part for the year.
[32] This subsection enables the Minister to
exercise his discretion and issue a Notice of Reassessment after
the normal reassessment period has expired.
[33] Parliament also enacted subsection
165(1.2) which provides as follows:
Notwithstanding subsections (1) and (1.1), no objection may be
made by a taxpayer to an assessment made under
subsection 118.1(11), 152(4.2), 169(3) or 220(3.1) nor, for
greater certainty, in respect of an issue for which the right of
objection has been waived in writing by the taxpayer.
[34] In support of her position that it was
not possible to file a Notice of Appeal to a Reassessment issued
under subsection 152(4.2) counsel for the Respondent referred to
the decision of Justice Mogan in Yaremy v. The Queen[3].
[35] In Yaremy Justice Mogan said at
page 2397:
Having found that the reassessment under appeal was made under
subsection 152(4.2), I conclude that subsection 165(1.2) applies
and no valid objection could be made by the Appellant to that
reassessment. If no valid objection can be made, then no valid
appeal can be commenced under subsection 169(1). I uphold the
Respondent's preliminary objection and will quash the
appeal.
[36] I also refer to the decision of the
Federal Court of Appeal in Transcanada Pipelines Limited v.
The Queen[4] where a similar conclusion was reached.
[37] I have concluded that it is not
possible to file a valid Notice of Objection nor a Notice of
Appeal to a Reassessment that was issued under
subsection 152(4.2) of the Act.
(c) Was Mr. Myres acting as an agent of
the Appellant in the relevant period with respect to the
Appellant's tax position?
[38] I have carefully reviewed the evidence
involving Mr. Myres and I note the following:
• Mr. Myres has
provided accounting services to the Appellant for a number of
years.
• On March 29, 2001,
Mr. Myres filed Notices of Objection for the Appellant to the
Notices of Reassessment that were issued on March 5, 2000 for the
1997, 1998 and 1999 taxation years (Exhibit K of Jackson
Affidavit).
• On August 22, 2001,
Mr. Myres filed a Notice of Objection for the Appellant to the
Notice of Reassessment issued on August 17, 2001 (Exhibit L of
Jackson Affidavit).
• Mr. Myres discussed
the Notices of Objection with Mr. Jackson. By letter dated
October 22, 2001, Mr. Myres wrote to Mr. Jackson on behalf of the
Appellant. Mr. Myres suggested in his letter that it would be
reasonable to take the position that the interest award on
damages of $366,755.00 be offset by net legal fees of $322,885.00
(Exhibit M of Jackson Affidavit).
• By memo to the file
of David Haggart dated October 23, 2001, Mr. Jackson
said:
Called Mr. Myres to discuss his fax. Inquired if I understood
his letter to say that they want to abandon their income tax
objection. He said that at this point all the taxpayer wants is
to get his GST back. I will communicate with the GST officer
(Exhibit N of Jackson Affidavit ).
• In a further memo
to Mr. Haggart's file dated May 25, 2002 Mr. Jackson
said:
Called Mr. Myres to advise that I have income tax information
notices coming out today with copies to him. That is fine. He
spoke to Mr. Thornton this morning and will be going ahead on the
GST issue (Exhibit N of Jackson Affidavit).
• Mr. Jackson
testified that he mailed Notices of Confirmation to the Appellant
on March 25, 2002. (See testimony of Mr. Jackson and
Exhibit O of Jackson Affidavit).
• By letter dated
March 25, 2002, Mr. Jackson mailed copies of the Notices of
Confirmation to Mr. Myres (Exhibit P of Jackson Affidavit).
• By letter dated
July 19, 2002, Mr. Myres wrote to the CCRA on behalf of the
Appellant. In his letter he requested that the Appellant's
1997, 1998 and 1999 taxation years be reopened because new
information had been discovered by the taxpayer. In his letter he
stated that if the "appeals" could not be reopened that
the request be forwarded to the Fairness Committee
(Exhibit Q of Jackson Affidavit).
• By a memorandum
dated October 7, 2002, Mr. Myres advised Mr. Lederis of the
CCRA as follows:
I am attaching a letter from CCRA with respect to Mr. Haggart
showing that the tax arrears under question are the subject of a
fairness hearing and related to a matter going before the Tax
Court. Please hold any collection actions in abeyance until these
matters are resolved (Exhibit N of Appellant's
Affidavit).
• Mr. Myres acted as
the Appellant's agent in an appeal involving Goods and
Services Tax that was heard by the Tax Court of Canada in Nanaimo
in January 2003.
• By letter dated May
2, 2003, Mr. Jackson sent copies of Notices of Reassessment
issued to the Appellant for the 1997, 1998 and 1999 taxation
years (Exhibit O of Appellant's Affidavit - Exhibit R-3).
• By letter dated
June 2, 2003, Mr. Jackson sent additional information to Mr.
Myres regarding the Appellant (page 40 of the Appellant's
Affidavit - Exhibit R-3).
• In an Affidavit
dated June 18, 2003 that was filed with the Federal Court, Trial
Division, the Appellant refers to Larry Myres as his agent (see
paragraph 13, p. iii, paragraph 14, p. iv, paragraph 16, p. iv
and paragraph 31, p. viii).
[40] During the hearing counsel for the
Appellant suggested that Mr. Myres did not have the authority to
make the set-off that was made with the CCRA.
[41] Mr. Myres was not called to confirm or
deny that he was acting as the Appellant's agent when he was
dealing with officials of the CCRA on behalf of the
Appellant.
[42] Based on the facts as outlined above
and the other evidence before me I have concluded that Mr. Myres
was acting as the Appellant's agent throughout the relevant
period when dealing with Mr. Jackson and other officials of the
CCRA. I also note that the Appellant stated in his Affidavit as
recently as June 18, 2003 that Mr. Myres was his agent.
Under the circumstances, as outlined above, I believe that Mr.
Myres was acting as the agent of the Appellant and that the
Appellant is bound by the actions of his agent (See Baker v.
R[5] ).
[43] I grant the Motion of the Respondent
and order that the Notices of Appeal be quashed.
Signed at Vancouver, British Columbia, this 16th day of
January 2004.
Little J.
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