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Citation: 2004TCC404
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Date: 20040614
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Docket: 2003-3985(IT)I
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BETWEEN:
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MARIO BOURQUE,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR ORDER
Archambault J.
[1] The Respondent presented a motion
to dismiss Mr. Bourque's appeals for want of interest
since they address the assessments of his former spouse for the
1996, 1997 and 2000 taxation years. In order to better
understand how this legal mess began, it is useful to list the
facts outlined in Mr. Bourque's Notice of Appeal:
[TRANSLATION]
B. THE
FACTS
1. On
March 3, 1993, a judgment was delivered confirming the
divorce of the Appellant and his former spouse, in
matter #200-12-048091-921.
2. In this
judgment, the Honourable Justice Goodwin set the support to
be paid by the Appellant on a net taxable basis, in order to
comply with the support judgment, dated
September 3, 1992.
3. In 1994,
after a more difficult financial period, the Appellant asked that
the support amount be lowered.
4. The
Appellant's request was granted in a judgment by the
Honourable Justice Goodwin, dated
February 24, 1994.
5. However, in
his judgment decreasing the amount of support to be paid, the
Honourable Justice Goodwin did not mention whether this
support was to be calculated on a net taxable basis.
6. According
to the legislation in effect when the judgments were delivered,
child support payments were tax deductible; in other words, the
Payor could deduct the amounts paid to recipients, and they had
to include them in their income.
7. Thus, in
compliance with the law in effect at the time, the Appellant
deducted the amounts of support paid to his former spouse for his
children's benefit from his income for the 1993 to 1999
taxation years.
8. However,
the taxpayer's former spouse did not include these amounts in
her income.
9. The Canada
Customs and Revenue Agency (hereinafter referred to as
"CCRA") assessed the Appellant's former spouse for
the 1998 and 1999 taxation years, given that she had not included
the amount of support received over these two years in her
tax returns.
10. The Appellant's
former spouse therefore claimed the Appellant's assessment
amounts.
11. Based on the two
judgments that set and modified the support, Justice Walters
sentenced the Appellant to pay these amounts to CCRA, in a
judgment dated May 4, 2001.
12. The Appellant complied
with this judgment and paid the CCRA the amounts assessed against
his former spouse.
13. On
May 13, 2003, notices of reassessment were issued to
the Appellant's former spouse for the 1996, 1997 and 2000
taxation years.
14. The reasons for these
reassessments are the same as those for the Notices of Assessment
for the 1998 and 1999 taxation years.
15. The Appellant's
former spouse did not challenge these Notices of Reassessment,
despite the fact that they had no basis in law.
16. In fact, the Notices
of Assessment for the 1996 and 1997 taxation years are statute
barred.
17. Also, since 1997, the
Appellant's former spouse has not been required to include
the amounts of support received in the calculation of her income,
since support was no longer taxable, and all the more so because
the Appellant did not deduct the amounts paid to her in the 2000
taxation year.
18. In compliance with the
judgments setting the support, the taxpayer's former spouse
did indeed receive support net of taxes in 2000, since she was
not required to include this amount in her income.
19. However, despite the
fact that the Appellant met his tax obligations, he is the
ultimate tax debtor for the amounts assessed in the name of his
former spouse under An Act to facilitate the payment of
support, which is administered by the Ministère du
Revenu du Québec (hereinafter referred to as
"MRQ").
20. In fact, on
May 22, 2003, the MRQ sent the Appellant a request for
payment of the amounts claimed against his spouse in the Notices
of Assessment mentioned above and bearing the numbers 6476079,
6476080 and 6476081.
21. The Appellant
challenged his responsibility for these amounts of money by
filing a Notice of Assessment with the MRQ, dated
June 22, 2003.
22. However, the MRQ
dismissed the Appellant's request.
23. The Appellant, as the
ultimate tax debtor for his former spouse's tax debt,
challenged the Notices of Assessment mentioned above by
submitting to the CCRA the Notices of Objection, dated
July 17, 2003, for the three assessments mentioned
above.
24. On
August 26, 2003, the CCRA sent a letter to the
Appellant mentioning that his objections for 1996, 1997 and 2000
could not be processed since the one-year period for
objections to the assessments had expired.
25. The CCRA processed the
Appellant's notices of objection, dated
July 17, 2003, as Notices of Objection to the
Appellant's initial assessments that were dated
March 27, 1997, March 26, 1998, and
June 14, 2001.
26. On
August 29, 2003, the Appellant sent a letter to CCRA
repeating that he objected to the assessments issued against his
former spouse, for which he is the ultimate tax debtor, and not
to the assessments issued in his own name. He asked the CCRA for
a response to these first objections.
27. On
September 4, 2003, the CCRA replied to the Appellant,
telling him that the letter dated August 26, 2003,
constituted their reply to the Notice of Objection.
28. However, the CCRA
refused to make a decision on the reasons brought forward in the
Appellant's Notice of Objection.
29. It was only during
telephone conversations between the Appellant and one of the CCRA
representatives that the Appellant discovered that CCRA was
refusing to process the Appellant's Notices of Objection
because the Appellant had not demonstrated the necessary interest
in challenging the Notices of Assessment issued in the name of
his former spouse.
30. However, as was
demonstrated during the hearing, the CCRA incorrectly interpreted
subsection 165(1) of the Income Tax Act (hereinafter
referred to as the "ITA").
31. In fact, a taxpayer
has the right to object to a Notice of Assessment when the
taxpayer is the ultimate tax debtor for a tax debt.
32. Since he was the
ultimate debtor for his former spouse's tax debt for the
Notices of Assessment mentioned above, since he had met his own
tax obligations for 1996, 1997 and 2000, and had substantive
grounds to challenge these Notices of Assessment, we believe that
the Appellant is still entitled to oppose these Notices of
Assessment and to ask that they be vacated.
33. This appeal is correct
in fact and in law.
FOR THESE REASONS, MAY IT PLEASE THE COURT:
TO GRANT this appeal;
TO CANCEL the Notices of Assessment bearing the numbers
6476079, 6476080 and 6476081, dated May 13, 2003;
ALTERNATIVELY;
TO ORDER the Respondent to allow the Appellant to amend
his tax return for the 2000 taxation year in order to avoid
double taxation;
THE WHOLE, with costs.
WE REQUEST that the informal procedure outlined in
sections 18.1 to 18.28 of the Tax Court of Canada
Actgovern this appeal.
[2] In her motion, Counsel for the
Respondent reasoned that the assessments under the Income Tax
Act (the Act) by the Minister of National Revenue
(Minister or Agency) were made against an
individual other than the Appellant, that the Appellant was not
mandated to represent this individual, Ginette Brunelle, and
that, as a result, he did not have the necessary interest to
appeal these assessments.
[3] In support of his challenge to the
motion, Counsel for Mr. Bourque produced documents,
including a decision made on May 4, 2001, by
Justice Walters of the Superior Court of Quebec. First of
all, we note in this decision that Justice Walters ordered
Mr. Bourque to pay the amount of $3,073.24, which
Ms. Brunelle owed to the Agency for the 1998 and 1999
taxation years. Furthermore, without mentioning the dates or
taxation years, Justice Walters ordered Mr. Bourque to
repay Ms. Brunelle any amounts she could have to pay the
Agency for arrears related to the net support of $480 that he was
responsible for paying monthly (see page 19 of Justice
Walters' decision). However, it is interesting to note that
Justice Walters evokes, in the summary of his reasons, the
possibility that Ms. Brunelle may be responsible for paying
taxes for the 2000 taxation year. There is no mention of the
years 1996 and 1997. Here is how Justice Walters expresses
this, at page 7:
[TRANSLATION]
We should not lose track of the fact that the CANADA CUSTOMS
AND REVENUE AGENCY could add an assessment for 2000 if the
Respondent included support in her tax return. It is highly
likely that the Ministère du Revenu du Québec will
also require the Respondent to pay tax on the support she
received.
(See also page 8 of his reasons.)
As a result, it is likely that the order mentioned above was
addressing taxes for 2000.
[4] Finally, Justice Walters
modified the support Mr. Bourque was required to pay to
Ms. Brunelle beginning on March 22, 2001. He
ordered Mr. Bourque to pay annual non-taxable and
indexed support of $5,831.75, or $485.97 per month. An
additional amount of non-taxable and indexed support of $50
per month for another of the Bourque/Brunelle children was
ordered.
[5] It should also be mentioned that
Justice Walters gave a version of the facts that differed in
several respects from that provided in Mr. Bourque's
Notice of Appeal. Specifically, on page 6 it indicated that
Mr. Bourque had not asked for a decrease in his support in
1993, contrary to what is alleged in paragraph 7 of
Mr. Bourque's Notice of Appeal. In addition,
Justice Walters interprets the decision by
Justice Goodwin, dated February 25, 1994,
differently from Mr. Bourque. Justice Goodwin did not
lower the support,[1] but instead modified the requirement of the support:
[TRANSLATION] "There was no decrease in support, but simply
the payment of a part thereof." (page 5 of Justice
Walters' reasons). He therefore rejected
Mr. Bourque's position that he [TRANSLATION] "is no
longer required to meet the obligation imposed on him to pay net
support, since, according to him, the judgment did not renew this
obligation." (page 4 of Justice Walters'
decision)
[6] According to the information
provided by Counsel for Mr. Bourque, he allegedly paid the
support arrears for the 1998 and 1999 taxation years by paying
the taxes owed by Ms. Brunelle for these two taxation years.
However, he refused to pay the $5,994.06 in support arrears,
which consisted of taxes owed by Ms. Brunelle for the 1996,
1997 and 2000 taxation years, payment which the Ministère
du Revenu du Québec (MRQ) had requested of him on
May 22, 2003. In fact, Mr. Bourque challenged this
request on June 2, 2003, by sending the MRQ a notice of
objection under section 61 of An Act to facilitate the
payment of support (R.S.Q. c. P-2.2) (FPS
Act). As reasons for this objection, Mr. Bourque
indicated that the debts to the federal tax collectors for the
1996, 1997 and 2000 taxation years were not support arrears and
said [TRANSLATION] "[that] instead, this is an amended
return presented by Ms. Ginette Brunelle for each of
the taxation years"! Furthermore, Mr. Bourque alleged
that [TRANSLATION] "Ms. Ginette Brunelle simply
took it upon herself to change or amend her federal tax returns
for the years involved out of pure vengeance.
. . ."
[7] On June 12, 2003, the
MRQ made its decision and rejected Mr. Bourque's Notice
of Objection, determining that there had been no error in
establishing the amount requested. He was therefore informed of
his right to judicial remedy at the Superior Court under
section 63 of the FPS Act. In addition, the MRQ told him:
[TRANSLATION] "if you do not agree with the conclusions of
Justice Hubert Walters, we suggest you address the
court in order to have the judgments modified. The Minister will
then follow up on any new order given in your file."
However, Mr. Bourque did not apply to the Superior Court for
any judicial remedy.
[8] He instead decided, on
July 16, 2003, to file a Notice of Objection to the
Agency's tax assessments against Ms. Brunelle. Since
Ms. Brunelle's name did not appear on the objection form
- only the numbers for her Notices of Assessment were
indicated - it is not surprising that the Agency handled
Mr. Bourque's Notice of Objection as a notice of
objection to his own assessments. In light of
Mr. Bourque's insistence that he was properly
challenging Ms. Brunelle's assessments (and not his
own), and since the Notice of Appeal of these assessments had
been submitted before this Court, the Respondent was compelled to
produce his motion to dismiss the appeal for want of
interest.
[9] The decision of
Justice Walters reveals other interesting facts. First of
all, on page 2, the fact that the [TRANSLATION]
"divorce judgement ratified an agreement on corollary relief
in which the support was set as follows:
Set the support to be paid by the Respondent to the Plaintiff,
for the benefit of their three minor children, at $480, net of
taxes, in advance on the 1st of each month, at the
Plaintiff's home;
In the event that the Plaintiff is taxed for amounts received
from the Respondent as support, the Respondent is ordered to pay
to the Plaintiff, upon request, an amount equivalent to the sum
required to provide the Plaintiff, after deduction in accordance
with the combined marginal rate applicable to the Plaintiff's
income, the payments outlined above, net of taxes.[2]
[10] Furthermore, when this agreement was
signed, Mr. Bourque was a [TRANSLATION] "technician
working for the Ministère du Revenu Québec"
(Justice Walters' reasons, page 6) and [TRANSLATION]
"and the parties [were] advised by experienced lawyers"
(page 3 of Justice Walters' reasons). This sheds a
completely different light on the fact that Mr. Bourque did
not ask for a decrease in support in 1993, and the fact that
Ms. Brunelle had not included it in her income. Moreover,
Justice Walters indicates that Mr. Bourque had deducted
it in 1994 without telling Ms. Brunelle, who did not include
it in her own income for that year, nor did she do so for
subsequent years. Justice Walters thus describes, at
page 6 of his reasons, the circumstances under which the
reassessments were made against Ms. Brunelle for 1998 and
1999:
[TRANSLATION]
The Plaintiff received a first notice of assessment for 1998,
and then another for 1999 will be added. Once the first surprise
had passed, she went to Customs where she learned that the
Respondent had declared the support he had been paying her in his
returns. Her attempts to have the Notices of Assessments vacated
were unsuccessful, so as of February 10, 2001
(R-1) she owed Revenue Canada $3,073.24, which included a
repayment of child support, given the changes that had occurred
in her income; interest was added.
Since the parties had not taken the support into account in
their respective 1993 tax returns, the Plaintiff assumed that
this would be the case in the future. In doing so she was
somewhat naive and unwise, since it would have been preferable
for her to find out from the Respondent whether he would continue
not declaring the support,[3] but it turns out that there was no communication
between the parties, which does not make things any easier, and
in any case, the Plaintiff could imagine that she was protected
by the judgments that granted her net support, while at the same
time trusting the Respondent, whom she believed in good
faith.
With respect to the Respondent, a technician working for the
Ministère du Revenu Québec, he was not unfamiliar
with the consequences of his decision to include the support in
his tax returns after 1994; his failure to notify the Plaintiff,
and sending only the 1994 judgment to the Minister, merit only
disapproval.
Analysis
[11] In support of his challenge to the
Respondent's motion, the solicitor for Mr. Bourque
advanced several reasons. He first asserted that under
subsection 165(1) of the Act, "A taxpayer who objects
to an assessment under this Part may serve on the Minister
a notice of objection, in writing. . . ." The
solicitor emphasized that Parliament dealt with objections to
"an" assessment and not "his" assessment. In
his opinion, this text therefore provides remedy for a third
party who is the ultimate tax debtor for the taxes due, in this
case, by Ms. Brunelle. Obviously, once the Minister has made
a decision on the objection, the taxpayer has the right to submit
an appeal to the Court. According to the solicitor, it would be
contrary to the principles of natural justice, and specifically
to the fundamental principle of audi alteram partem, if an
individual such as Mr. Bourque was refused the right to
appeal the Minister's decision with respect to his objection.
Counsel specifically cites the decision of Frenette J. of
the Superior Court of Quebec in Québec
(Sous-ministre du Revenu) c. Guay,
1993 CarswellQue 514, at paragraphs 27 to 29. He
also cites several other decisions made by federal courts,
specifically those of the Federal Court of Appeal in Gaucher
v. Canada, [2000] F.C.J. No. 1869 (Q.L.),
2000 DTC 6678 and two decisions of this Court, one by
Associate Chief Justice Bowman in Elias
v. Canada, [2002] T.C.J. No. 8 (Q.L.),
2002 DTC 1293, and the other by McArthur J. in
Bâtiment Fafard International Inc. v. The
Queen, 99 DTC 504.
[12] In Gaucher and Elias, the
courts decided that a taxpayer who had been subject to an
assessment under section 160 (Gaucher) or
section 227.1 (Elias) of the Act could challenge the
existence of a third party's tax debt, and specifically the
tax debt of the author of a transfer in the case of an assessment
under section 160, or the company for which the taxpayer was
a director in the case of an assessment under section 227.1
of the Act. In Bâtiment Fafard, the court
decided that a director had the right to be a substitute for the
Appellant in the appeal of a company that had gone bankrupt, an
appeal that the trustee refused to pursue.
[13] In my opinion, the position
Mr. Bourque is defending is completely without merit. First,
this is not a matter in which the principle of audi alteram
partem is invoked, since Ms. Brunelle's assessment
does not affect Mr. Bourque. He is not a party to the
assessment! Mr. Bourque has no legal interest in contesting
a tax assessment against his former spouse. Only she can appeal
assessments against her. The fact that Mr. Bourque is
responsible for paying the taxes due by Ms. Brunelle under
the agreement reached by them during their divorce, an agreement
which stipulated that Mr. Bourque was required to pay
Ms. Brunelle an amount of support net of taxes, does not
give him the right to challenge his former spouse's tax
assessments. If Ms. Brunelle believes that taxes were due,
Mr. Bourque cannot interfere.
[14] Mr. Bourque's obligation to
pay the support, the amount of which depends in part upon the
taxes Ms. Brunelle must pay, does not derive from the Act or
any other tax law. It arises from a decision of the Superior
Court that had ratified an agreement between the parties
themselves! If Mr. Bourque was not satisfied with the
decision of Justice Walters, he could have appealed before
the Court of Appeal of Quebec. If Mr. Bourque was not
satisfied with the decision with respect to his Notice of
Objection, he could have appealed to the Superior Court under the
FPS Act. If Mr. Bourque believed that Ms. Brunelle had
acted maliciously ("out of pure vengeance") and
infringed upon his rights by not contesting the Minister's
assessments for 1996, 1997 and 2000, he could also have applied
to the Superior Court. In my opinion, that is the appropriate
forum in which Mr. Bourque could have made his objection.[4] However,
Mr. Bourque has still done nothing of the sort. If he has
not been heard, it is because he did not ask the proper court to
hear him.
[15] Moreover, it is far from certain that
Mr. Bourque is correct when he asserts that the tax amounts
were not owed by Ms. Brunelle. I am not required to decide
that issue, since it has not been the subject of debate, and
evidence was not presented. Mr. Bourque did not even appear
before me, and he has not testified to contest the motion.[5]
[16] In any case, even if Ms. Brunelle
had not had to pay these taxes, my decision would not change. In
my opinion, the Guay decision, supra, invoked by
counsel for Mr. Bourque is of no use to him. Unlike
Mr. Bourque (with respect to Ms. Brunelle's
assessment), Mr. Guay was not a third party; he was
challenging his own taxes. Mr. Guay was asking for
withdrawal of a judgment by the MRQ by virtue of the submission
of a certificate attesting that Mr. Guay owed taxes to MRQ,
in accordance with Section 13 of the Ministry of Revenue
Act. In this case, it is odd that there was no mention of
Mr. Guay submitting a Notice of Objection to the MRQ to
challenge his tax assessments, since, at paragraph 5 of the
decision, it is indicated that such assessments had been made and
that an exchange of correspondence had occurred between MRQ and
Mr. Guay's accountant. Justice Frenette's summary of
facts does not indicate what occurred in this respect. Was the
Notice of Objection produced in accordance with the normal
procedure, and was Mr. Guay notified of the MRQ's
decision with respect to these Notices of Objection? The summary
of facts, I repeat, is silent on this issue. If
Mr. Guay had been informed of the assessment at the
appropriate time, and he did not make use of this right to
object, I am at a loss to understand how it can be claimed that
there was a violation of the audi alteram partem rule
of natural justice in such circumstances!
[17] With respect to Gaucher and
Elias, they are not of any assistance to Mr. Bourque
either, since, in these decisions, the taxpayers were personally
involved in the assessments of the Minister under
sections 160 or 227.1 of the Act, and they were challenging
these assessments. Here we have assessments that involve not
Mr. Bourque, but rather Ms. Brunelle. In my opinion,
the preferred approach was taken by Strayer J., when he was
a Justice at the Federal Court Trial Division, in
Nova Ban-Corp Ltd. v. Tottrup
[1990] 1 F.C. 288, at 294 and 295,
89 DTC 5489, at page 5491:
Nor does the Income Tax Act
[S.C. 1970-71-72, c. 63] authorize any one
but the taxpayer to challenge a tax assessment. The plain words
of the Act do not so provide. By sections 165, 169
. . . and formerly 172 (authorizing appeals to the
Federal Court) it is the "taxpayer" who is authorized
to file an objection to an assessment or to bring an appeal. In
the present case it is obvious that Nova Ban-Corp Limited is not
the taxpayer in question. I can find no authorization in the
Income Tax Act for the creditor Nova Ban being able to
appeal the assessment of Container Port by suing in the name of
the latter. . . . Apart from the absence of any express
authority for such a proceeding, I agree respectfully with my
colleague Walsh J. in Hart v. Canada (M.N.R.) [See
Note 2 below] where he held that a creditor of a taxpayer
had no standing to challenge the assessment and the enforcement
action taken pursuant to it. I believe that the House of Lords
decision in Inland Revenue Comrs v. National Federation of
Self-Employed and Small Businesses Ltd. quoted by him,
provides a clear rationale for denying any implication that a
person other than the taxpayer can challenge his assessment.
The House of Lords there emphasized the confidentiality of
taxation information which militates against third parties coming
in to attack an assessment. In Canada that confidentiality is
required, in circumstances such as the present, by
subsection 241(2) of the Income Tax Act which states
that no official shall be required in connection with any legal
proceedings to testify as to information obtained on behalf of
the Minister for the purposes of the Act. This would clearly
provide a major obstacle to any third party challenging an
assessment in court and it cannot be implied that such a
challenge is authorized.
[18] The only decision, in my opinion, that
seems to favour Mr. Bourque's hypothesis is the one
given in
Bâtiment Fafard International Inc. It
is important to mention that, in this case, a director wanted to
continue with the appeal made by a company that had subsequently
gone bankrupt. The Justice permitted Mr. Fafard to challenge
the tax assessment against the company for failing to remit
source deductions because, in his opinion (at
paragraph 25):
. . . if I denied Mr. Fafard the right to continue
the pending proceedings, the result would be unfair. The
appellant would not be represented, since the trustee is refusing
to act. What would then become of the adversary process, one of
the pillars of our entire legal system? Injustice would be the
result: the appellant could not appear before the Court since
there would be no one who could represent it. . . .
Moreover, authorizing Mr. Fafard to do so is the most
effective way to dispense justice expeditiously.
[19] However, this approach clearly goes
against the decision made by Strayer J. in
Nova Ban-Corp. Ltd. Furthermore, it should
be noted that this is a decision made before the decision of the
Federal Court of Appeal in Gaucher and that of this Court
in Elias, which clearly recognize the right of a director
to challenge, in the case of an assessment under
section 227.1 of the Act, even the amount of tax debt
(resulting from the failure to remit source deductions) of the
company for which he was a director. The unfairness described by
the Justice in
Bâtiment Fafard International Inc.
could be avoided using the principles adopted in Elias and
Gaucher. As a result, I am far from certain that this
Justice would have used the same approach if he had had the
benefit of these decisions before rendering his own.
[20] I will conclude these reasons by
repeating the suggestion that was made to Mr. Bourque by the
MRQ: if Mr. Bourque is not satisfied with the decision
made by the Superior Court, or he believes it was given too great
a scope, he must apply to the Superior Court. Before this Court,
Mr. Bourque will have the opportunity to establish whether
Ms. Brunelle really has a tax debt and if her behaviour
infringes upon his rights.
[21] For all these reasons, the
Respondent's motion is allowed and Mr. Bourque's
appeals of the tax assessments involving Ms. Brunelle are
dismissed.[6]
Signed at Ottawa, Canada, this 14th day of
June 2004.
Archambault J.
Translation certified true
on this 11th day of November 2004.
Shulamit Day, Translator
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