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Citation: 2004TCC511
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Date: 20040729
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Docket: 2001-887(IT)G
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BETWEEN:
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MARY MADSEN,
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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
Little, J.
A. FACTS:
[1] Gunnar Madsen (the
"Transferor") is the spouse of the Appellant.
[2] On or about August 1, 1989 the
Transferor transferred to the Appellant his one-half interest in
a home located at 3065 Lazy A Street, Port Coquitlam, British
Columbia (the "Property").
[3] At the time of the transfer of the
Property to the Appellant on August 1, 1989 the Transferor
owed income tax in an amount in excess of $685,000.00. The tax
was imposed in connection with the 1982-1983 taxation years. The
Transferor disputed the tax assessments. The Transferor was
unsuccessful in appeals filed with the Tax Court of Canada,[1] the Federal Court
of Appeal[2] and
the Supreme Court of Canada[3].
[4] At the time of the transfer of the
Property to the Appellant, the fair market value of the Property
as determined by the Minister was $205,000.00 and the fair market
value of the Transferor's interest in the Property was
$102,500.00. (Note: - Counsel for the Appellant indicated
at the commencement of the hearing that the fair market value of
the Property on August 1, 1989 as determined by the Minister was
not in dispute.)
[5] On June 15, 1994 the Appellant
transferred title in the Property to the Appellant's holding
company GMT Holdings Ltd. ("GMT").
[6] On May 3, 1999 the Minister of
National Revenue (the "Minister") assessed the
Appellant for tax in the amount of $102,500.00. The Notice of
Assessment (the "Assessment") states that the
Assessment is in respect of the following:
Liability under subsection 160(1) of the Income Tax Act
in the amount of $102,500.00 in respect of a transfer on or about
August 1, 1989 from Gunnar Madsen to Mary Madsen of
property, namely, 3065 Lazy A Street, Port Coquitlam,
B.C.
B. ISSUE:
[7] The issue is whether the Appellant
is liable to pay the amount of $102,500.00 that was assessed by
the Minister pursuant to the section 160 Assessment issued on May
3, 1999.
C. ANALYSIS:
[8] Section 160 of the Income Tax
Act (the "Act") permits the Minister to
collect a tax debt from someone other than the tax debtor
provided the various statutory conditions contained in the
section are met.
[9] Subsection 160(1) of the
Act reads as follows:
160. (1) Where a person has, on or after May 1, 1951,
transferred property, either directly or indirectly, by means of
a trust or by any other means whatever, to
(a) the
person's spouse or a person who has since become the
person's spouse,
(b) a person
who was under 18 years of age, or
(c) a person
with whom the person was not dealing at arm's length,
the following rules apply:
(d) the
transferee and transferor are jointly and severally liable to pay
a part of the transferor's tax under this Part for each
taxation year equal to the amount by which the tax for the year
is greater than it would have been if it were not for the
operation of sections 74.1 to 75.1 of this Act and section 74 of
the Income Tax Act, chapter 148 of the Revised Statutes of
Canada, 1952, in respect of any income from, or gain from the
disposition of, the property so transferred or property
substituted therefor, and
(e) the
transferee and transferor are jointly and severally liable to pay
under this Act an amount equal to the lesser of
(i) the amount,
if any, by which the fair market value of the property at the
time it was transferred exceeds the fair market value at that
time of the consideration given for the property, and
(ii) the total of all
amounts each of which is an amount that the transferor is liable
to pay under this Act in or in respect of the taxation year in
which the property was transferred or any preceding taxation
year.
Subsection 160(2) reads as follows:
160. (2) The Minister may at any time assess a taxpayer in
respect of any amount payable because of this section and the
provisions of this Division apply, with any modifications that
the circumstances require, in respect of an assessment made under
this section as though it had been made under section 152.
[10] During the hearing of the appeal
counsel for both parties referred to the decision of the Supreme
Court of Canada in The Queen v. Markevich et al.[4]
[11] During the hearing of the appeal I
requested that counsel provide me with a written submission on
the application of the Markevich decision to the present
appeal.[5]
[12] In the submission filed with the Court
counsel for the Appellant submitted that the Tax Court of Canada
has the jurisdiction to vacate the assessment issued against the
Appellant on the basis that the Appellant's liability, if it
existed at all, was extinguished on August 2, 1995. Counsel
for the Appellant noted that the Appellant's liability for
tax under section 160 of the Act arises on the date of
transfer of the Property by the Transferor which occurred on
August 1, 1989. In support of his argument counsel for the
Appellant said that the tax liability under section 160 arises
"at the moment of the transfer" whether the taxpayer
has been assessed or not (see The Queen v. Heavyside[6]). However,
counsel for the Appellant maintains that this liability under
section 160 was extinguished on August 2, 1995 under section
3.2 of the Crown Liability and Proceedings Act by virtue
of the findings of the Supreme Court of Canada in
Markevich.
[13] In response to this issue counsel for
the Respondent said as follows:
A limitation period begins to run on the date that a cause of
action arises. The fact that liability under section 160 exists
at the date of transfer does not mean that a cause of action
exists at that date. Instead Major J. writing (in
Markevich) for the majority found as follows:
"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 June 17, 1996[7]."
[15] Before dealing with the submissions
referred to above I must first comment upon the jurisdiction of
the Tax Court of Canada.
[16] The jurisdiction of the Tax Court is
outlined in section 12 of the Tax Court of Canada Act.
Subsection 12(1) of the Act provides as follows:
12. (1) The Court has exclusive original jurisdiction to hear
and determine references and appeals to the Court on matters
arising under the ... Income Tax Act ... where references
or appeals to the Court are provided for in those Acts.
[17] Subsection 169(1) of the Act
provides as follows:
169. (1) Where a taxpayer has served notice of objection to an
assessment under section 165, the taxpayer may appeal to the Tax
Court of Canada to have the assessment vacated or varied after
either
(a) the Minister has
confirmed the assessment or reassessed, or ...
but no appeal under this section may be instituted after the
expiration of 90 days from the day notice has been mailed to
the taxpayer under section 165 that the Minister has
confirmed the assessment or reassessed. (Note: - The
Appellant filed a valid Notice of Appeal with the Tax Court
within the time specified in section 169.)
[18] Section 171 of the Act outlines
the jurisdiction of the Tax Court of Canada regarding the
disposition of appeals. Section 171 reads as follows:
171. (1) The Tax Court of Canada may dispose of an appeal
by
(a)
dismissing it; or
(b) allowing
it and
(i) vacating the
assessment,
(ii) varying the
assessment, or
(iii) referring the
assessment back to the Minister for reconsideration and
reassessment.
[19] I have concluded that the Tax Court has
the jurisdiction to review the Notice of Appeal filed by the
Appellant and either (a) dismiss the appeal, or (b)
allow the appeal by vacating the assessment or varying the
assessment and referring the assessment back to the Minister for
reconsideration and reassessment.
[20] In order to determine if the section
160 Assessment issued against the Appellant is valid I must first
carefully analyse the decision of the Supreme Court of Canada in
Markevich.[8]
[21] In Markevich the taxpayer filed
income tax returns for taxation years before 1986 reporting tax
payable in excess of $230,000.00. Revenue Canada (now known as
the Canada Revenue Agency) assessed those returns as filed and
Mr. Markevich filed Notices of Objection. Revenue Canada
collected as much of the tax debt as they could from Mr.
Markevich's available assets. In 1987, by "internal
bookkeeping action" the tax indebtedness was written off by
Revenue Canada but the tax debt was not extinguished or
forgiven.
[22] Revenue Canada made no effort to
collect from Mr. Markevich the pre-1986 tax or
interest payable until 1998 when a representative of Revenue
Canada issued a letter requesting that Mr. Markevich pay the
amount of $770,583.42.
[23] Mr. Markevich brought an application
for judicial review in the Federal Court, Trial Division under
section 18.1 of the Federal Court Act seeking a
declaration that the amount was not owing and an order
restraining the Minister from issuing requirements to pay to Mr.
Markevich's creditors.
[24] Mr. Markevich argued that the Federal
Crown Liability and Proceedings Act,[9] together with the British
Columbia Limitation Act supported his assertion that the
time limit within which the Crown could collect any amount for
which a taxpayer was liable under the Act was six years.
Mr. Justice Evans dismissed the application on the basis that the
Income Tax Act is a complete code and, there being
no specific time limitation within which the Crown must collect
tax or other amounts, Mr. Markevich's argument should
fail.[10] Mr.
Markevich filed an appeal with the Federal Court of Appeal.
[25] On May 7, 2001, Mr. Justice Rothstein
of the Federal Court of Appeal ruled that the Income Tax
Act is not a complete code and that any court action by the
Minister to collect a tax debt is subject to the applicable
limitation period in section 32 of the Crown Liability and
Proceedings Act.[11] Furthermore, the Federal Court of Appeal ruled that
the term "proceedings" in section 32 also applies to
the non-court or statutory collection procedures under the
Income Tax Act.
[26] The Federal Court of Appeal also held
that the applicable limitation in section 32 is the six-year
limitation period in subsection 3(5) of the British Columbia
Limitation Act. This subsection covers self-help remedies
and applies to both court and statutory collection procedures
under the Income Tax Act.
[27] The Federal Court of Appeal also stated
that after expiry of the relevant limitation period, the cause of
action is extinguished under subsection 9(1) of the Limitation
Act. In other words, Mr. Markevich's liability for
tax under the Income Tax Act, even though properly
assessed in the 1980s, had been extinguished by virtue of the
provisions of the Federal Crown Liability and Proceedings
Act and the British Columbia Limitation Act.
[28] The Crown appealed the decision of the
Federal Court of Appeal to the Supreme Court of Canada.
[29] By Judgment dated March 6, 2003, the
Supreme Court of Canada dismissed the Crown's appeal.[12]
[30] Justice Major delivered the judgment of
the Court. Justice Major said at page 5186:
The issue in this appeal is narrow and easily stated: that is,
whether federal and provincial limitation periods when exceeded
apply to the Crown's ability to exercise its statutory powers
to collect tax debts. I have concluded that the limitation period
prescribed by s. 32 of the Crown Liability and Proceedings
Act, R.S.C. 1985, c-50 ("CLPA"), bars the Crown
from collecting the respondent's federal tax debt, and that
s. 3(5) of the British Columbia Limitation Act, R.S.B.C.
1996, c. 266 ("B.C. Limitation Act") bars the
Crown from collecting the respondent's provincial tax
debt.
At page 5189 (paragraphs 14, 15 and 16) Justice Major
said:
[14] There is no authority to
support the proposition that the ITA is a complete code that
cannot be informed by laws of general application. The ITA does
not operate in a legislative vacuum ...
[15] Absent legislation or
judicial support, the appellant nonetheless requests the Court to
interpret s. 222 of the ITA as if it permits the collection of
tax debts "at any time". It is "a basic principle
of statutory interpretation that the Court should not accept an
interpretation which requires the insertion of extra wording
where there is another acceptable interpretation which does not
require any additional wording": see Friesen v.
Canada, [1995] 3 S.C.R. 103, at para. 27. This principle
weighs against accepting the appellant's interpretation. The
provision does not include the words "at any time', and
is capable of a reasonable construction without that insertion.
The legislative silence with regard to prescription gives rise to
the logical inference that Parliament intended for limitation
provisions of general application to apply to the Minister's
collection powers.
[16] This conclusion is
supported by the explicit manner in which the ITA addresses
limitation periods in its assessment provisions. ...
At paragraph 34 Justice Major said:
[34] A court action brought by
the Minister to recover tax debt in this appeal would be subject
to the limitation provisions in s. 32. It would be
incongruous to find that s. 32 of the CLPA was intended to apply
to the court action but not to the statutory collection
procedures that serve the identical purpose. The certainty,
evidentiary and diligence rationales that support the application
of limitation provisions to Crown proceedings apply equally to
both the court and non-court proceedings at issue here. See
Berardinelli v. Ontario Housing Corp., [1979] 1 S.C.R.
275, per Estey J., at p. 284:
When one interpretation can be placed upon a
statutory provision which would bring about a more workable and
practical result, such an interpretation should be preferred if
the words invoked by the Legislature can reasonably bear it
...
There is no reason to infer that Parliament intended for
s. 32's application to turn solely upon the technicality
of whether the relevant proceeding took place in court. To
exclude s. 32's application to proceedings that are
equivalent in purpose and effect to a court action would
frustrate the object and aim of the provision.
At paragraph 41 and following Justice Major said:
[41] 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 June 17, 1986. As a
result, the cause of action arose on September 16, 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
intents and purposes, the respondent's federal tax debt is
extinguished.
...
[48] Consequently, the
province's right to pursue collection proceedings under the
B.C. ITA is subject to the limitation period set out in s. 3(5)
of the B.C. Limitation Act. Moreover, pursuant to s. 9(1) of
the B.C. Limitation Act, on the expiration of the limitation
period, the province's right and title to the tax debt is
extinguished, and pursuant to s. 9(3), the province's
right and title to interest on the tax debt is extinguished.
[49] As noted above, the federal
Crown's right to collect provincial taxes in this case is no
greater than the right delegated to it by the province. Since the
province's collection rights are subject to expiry six years
after the underlying cause of action arose, so too are the
collection rights of the federal Crown as its agent.
[50] The cause of action here
consisted of the tax debt and the expiry of the delay period
allowing collection action to be taken on September 16, 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, the federal Crown became statute-barred from
collecting the provincial tax debt. As well, the right and
title of any claimant to the respondent's provincial tax
debt, and its accrued interest, were extinguished on that date.
(Underlining added)
VI. Conclusion
[51] For the foregoing reasons,
I would dismiss the appeal with costs.
[31] In this case a Notice of Assessment was
issued by the Minister against the Appellant under section 160 of
the Act on May 3, 1999. According to the decision of the
Supreme Court of Canada in Markevich any limitation period
that may apply with respect to the tax debt did not start running
until 90 days after May 3, 1999, i.e. the limitation period would
commence on August 2, 1999.
[32] In my opinion counsel for the
Appellant's argument that the limitation period with respect
to the Appellant's tax liability began to run on August 1,
1989 is not in accordance with the decision of the Supreme Court
of Canada in Markevich.
[33] The appeal is dismissed with costs.
Signed at Vancouver, British Columbia, this 29th day of July
2004.
Little J.
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