Date:
20030106
Docket:
95-2570-IT-G
BETWEEN:
GEORGE
AGAZARIAN,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
Bell,
J.T.C.C.
ISSUE:
[1]
The Appellant, by Notice of Motion,
pursuant to paragraph 58(1) of the Tax Court of Canada
Rules (General Procedure), applied for the determination
before hearing of the appeal, of the following question of law
raised in the Notice of Appeal, namely, as set out in the
motion:
Was the
Minister of National Revenue entitled to make a reassessment of
tax for the Appellant's 1987 taxation year pursuant to
subparagraph 152(4)(b)(i) of the Income Tax Act
after October 5, 1991, the end of the Appellant's normal
reassessment period for the 1987 taxation year?
More
particularly, the question is whether the Minister, having made a
reassessment pursuant to subparagraph 152(4)(b)(i) as
required by paragraph 152(6)(c), can make another
reassessment in respect of the same loss carry back
request.
GENERAL:
[2]
All references to section numbers
pertain to the Income Tax Act ("Act")
unless otherwise stated.
FACTS:
[3]
Pertinent facts taken from an
Agreed Statement of Facts are as follows:
1997
TAXATION YEAR:
1.
The Appellant filed his 1987 taxation year return of income
("1987 Tax Return") as required by section 150 of
the Act on or before April 30, 1988.
2.
The Minister of National Revenue ("Minister"), by
Notice of Assessment dated October 5, 1988, assessed the
Appellant's 1987 taxation year.
3.
In his return of income for his 1988 taxation year ("1988
Tax Return") the Appellant included a form entitled
"Request for Loss Carry-Back" in which he requested
that a non-capital loss of $1,747,617
("1988 Partnership Loss") representing his share
of a loss suffered by the Grand Bell Property, Ltd. Partnership
be applied as a deduction ("1988 Loss Carry Back) for his
1987 taxation year.
4.
By Notice of Reassessment dated July 11, 1989 the Minister
applied to the Appellant's taxable income for the 1987
taxation year non-capital losses carried forward from his 1984,
1985 and 1986 taxation years.
5.
By letter dated September 8, 1989 an official of Revenue Canada
(now Canada Customs & Revenue Agency ("Revenue"))
acknowledged receipt of the 1988 tax return and advised the
Appellant that the 1988 Partnership Loss would be reviewed
prior to the 1988 Tax Return being processed.
6.
By letter dated February 6, 1990 a Revenue official notified the
Appellant that the 1988 Tax Return would be processed as filed.
The letter stated further that the review of the 1988 Partnership
Loss was still in progress and that the Appellant would be
notified of Revenue's findings prior to completion of the
audit.
7.
By Notice of Reassessment dated August 22, 1990 ("Second
1987 Reassessment"), the Minister reassessed the
Appellant's 1987 taxation year allowing the deduction of the
1988 Loss Carry Back to the extent of the Appellant's taxable
income for the 1987 taxation year, namely $1,734,235. (See
paragraph 13 below)
8.
The "normal reassessment period" within the meaning of
subsection 152(3.1) of the Act, in respect of the
Appellant's 1987 taxation year, ended on
October 5, 1991.
9.
The Appellant filed no other prescribed form amending his 1987
Tax Return to claim any further deductions from his income for
the 1987 taxation year.
10.
By Notice of Reassessment dated April 1, 1993 ("Third 1987
Reassessment"), the Minister purported to reassess the
Appellant's tax liability for the 1987 taxation year by
disallowing the deduction of the 1988 Loss Carry Back from the
Appellant's taxable income for the 1987 taxation
year.
11.
The Appellant having filed a Notice of Objection in respect of
the Third 1987 Reassessment, the Minister, by Notice of
Confirmation, confirmed that reassessment.
12.
The Appellant has filed a Notice of Appeal to this Court in
respect of the Third 1987 Reassessment.
1998
TAXATION YEAR:
13.
By Notice of Assessment dated March 28, 1990, the Minister
assessed the Appellant's tax liability for the 1988 taxation
year allowing the deduction of the 1988 Partnership Loss from the
Appellant's income for that year.
14.
By Notice of Assessment dated April 1, 1993 ("First 1988
Reassessment") the Minister purported to reassess the
Appellant's tax liability for the 1988 taxation year by
disallowing the deduction of the 1988 Partnership Loss from the
Appellant's income for the 1988 taxation
year.
15.
The Appellant filed a Notice of Objection on the basis, inter
alia, that the "First 1988 Reassessment" was made
after the normal reassessment period had expired and was,
therefore, a nullity.
16.
By Notice of Reassessment on May 10, 1993 ("Second 1988
Reassessment"), the Minister assessed tax as nil, the
"First 1988 Assessment" being statute-barred.
17.
By Notice of Reassessment on April 20, 1995 ("Third 1988
Reassessment"), after considering the above Notice of
Objection, the Minister purported to vary the Second 1988
Reassessment by allowing the 1988 Partnership Loss to the extent
of the Appellant's other income for the year.
APPLICABLE LEGISLATION
[4]
Appellant's counsel
submitted that the relevant portion of subsection 152(4), amended
by 1990, c. 39 (as amended by 1991, c. 49, s. 256), applicable
after April 27, 1989, for the period in question, read
as follows:
Subject to
subsection (5), the Minister may at any time assess tax for a
taxation year, interest or penalties, if any, payable under this
Part by a taxpayer or notify in writing any person by whom a
return of income for a taxation year has been filed that no tax
is payable for the year, and may
...
(b) before
the day that is 3 years after the expiration of the normal
reassessment period for the taxpayer in respect of the year,
if
(i) an
assessment or reassessment of the tax of the taxpayer was
required pursuant to subsection (6) or would have been required
if the taxpayer had claimed an amount by filing the prescribed
form referred to in that subsection on or before the day referred
to therein,
...
(c) within
the normal reassessment period for the taxpayer in respect of the
year, in any other case,
reassess or
make additional assessments, or assess tax, interest or penalties
under this Part, as the circumstances require, except that a
reassessment, an additional assessment or an assessment may be
made under paragraph (b) after the normal reassessment period for
the taxpayer in respect of the year only to the
extent that it may reasonably be regarded as relating
to
(emphasis
added)
(d) the
assessment or reassessment referred to in subparagraph (b)(i) or
(ii),
...
and further
that paragraph 152(6)(c) read as follows:
Where a
taxpayer has filed for a particular taxation year the return of
income required by section 150 and an amount is subsequently
claimed by him or on his behalf for the year as
...
(c) a
deduction ... under section 111 in respect of a loss for a
subsequent taxation year, ...
by filing
with the Minister, on or before the day on or before which the
taxpayer is ... required by section 150 to file a return of
income for that subsequent taxation year, a prescribed form
amending the return, the Minister shall reassess
the taxpayer's tax for any relevant taxation year (other than
a taxation year preceding the particular taxation year) in order
to take into account the deduction claimed.
(emphasis
added)
[5]
Respondent's counsel stated, in disagreeing with
Appellant's counsel, that, in his view, subsection 152(4) as
amended by S.C. 1998 c. 19, s. 181(4) applicable after April 27,
1989, was the correct version. It reads, in part, as
follows:
(4) The
Minister may at any time make an assessment, reassessment or
additional assessment of tax for a taxation year, interest or
penalties, if any, payable under this Part by a taxpayer or
notify in writing any person by whom a return of income for a
taxation year has been filed that no tax is payable for the year,
except that an assessment, reassessment or additional assessment
may be made after the taxpayer's normal reassessment period
in respect of the year only if
...
(b)
the assessment, reassessment or additional assessment is made
before the day that is 3 years after the end of the normal
reassessment period for the taxpayer in respect of the year
and
(i) is
required pursuant to subsection (6) or would be so required if
the taxpayer had claimed an amount by filing the prescribed form
referred to in that subsection on or before the day referred to
therein,
That
amending Act also added subsection 4.01 to section 152, reading
as follows:
(4.01)
Notwithstanding subsections (4) and (5), an assessment,
reassessment or additional assessment to which paragraph
(4)(a) or (b) applies in respect of a taxpayer for
a taxation year may be made after the taxpayer's normal
reassessment period in respect of the year to the extent that,
but only to the extent that, it can reasonably be regarded as
relating to, ...
(b)
where paragraph (4)(b) applies to the assessment,
reassessment or additional assessment,
(i)
the assessment, reassessment or additional assessment to which
subparagraph (4)(b)(i) applies,
(ii)
the assessment or reassessment referred to in subparagraph
(4)(b)(ii),
(iii)
the transaction referred to in subparagraph
(4)(b)(iii),
(iv)
the payment or reimbursement referred to in subparagraph
(4)(b)(iv),
(v)
the reduction referred to in subparagraph (4)(b)(v),
or
(vi)
the application referred to in subparagraph
(4)(b)(vi).
[6]
Counsel agreed that for the
purposes of this hearing it did not matter whether the original
subsection 152(4) was used or whether the revised subsection
152(4) and the new subsection 152(4.01) were used. Counsel agreed
also that this avoided an argument as to which of the two
versions applied to the years in question. The Court, of course, cannot make a decision
without determining which version of a legislative section is
applicable. Although I thought, at the hearing, that such
determination would not be difficult, I subsequently decided to,
and did, hold a telephone conference to hear submissions from
both counsel respecting their different views.
[8]
Appellant's counsel submitted that the assessing action taken
by the Minister in 1993 was complete and that the former version,
not the 1998 amended version, applied to that action. He
relied upon section 43 of the Interpretation Act. The
portion of that section to which he referred reads as
follows:
43.
Where an enactment is repealed in whole or in part, the repeal
does not
...
(b)
affect the previous operation of the enactment so repealed or
anything duly done or suffered thereunder,
He submitted
further that there is nothing expressed in the amending act,
specifically subsection 181(8), which:
... points
to a desire by Parliament to affect reassessments which were made
prior to the enactment date, albeit that they relate to a period
that is covered by the amendment act. It only appears to apply to
reassessments made after June 18, 1998, with respect to those
earlier periods.
He later said
that it only applies to assessing action taken after
June 18, 1998 with respect either to future years or
earlier periods.
[9]
Respondent's counsel submitted that neither section 43 nor
section 44 need be looked at to
decide what legislation was applicable on April 1, 1993, the date
of the reassessment. He said:
What this
is going to come down to is the wording of 181(8) of the amending
act, and it is our submission that the way it is -- the way it is
structured, having a general applicability after
April 27, 1989 followed by specific exceptions, leads
you to the conclusion that it applies to taxation years,
reassessments, or whatever, after April 27, 1989 unless you fall
within one of the paragraphs to the exceptions.
He referred
to section 181(8) of S.C. 1998 c. 19 entitled Income Tax
Amendments Act, 1997 which stated that subsections (3) to
(5) apply after
April 27, 1989, except that:
(a)
in applying subsection 152(4) to the Act, as enacted by
subsection (4), before August 1997, it shall be read without
reference to subparagraph (b)(vi);
(b)
in applying subsection 152(4) of the Act, as enacted by
subsection (4), to a taxation year before the 1996 taxation year,
it shall be read without reference to subparagraph
(b)(v);
(c)
in applying subsection 152(4.01) of the Act, as enacted by
subsection (4), before August 1997, it shall be read without
reference to subparagraph (b)(vi); and
(d)
in applying subsection 152(4.01) of the Act, as enacted by
subsection (4), to a taxation year before the 1996 taxation year,
it shall be read without reference to subparagraph
(b)(v).
[10]
Respondent's counsel then said:
There are
lots of amending acts that provide for legislation applying with
respect to certain taxation years after a certain point. There is
lots of amending legislation that specifically says it applies to
reassessments made after. In our case, there isn't a specific
application date. There is a general application followed by
exceptions.
[11] I do not
agree with Appellant's counsel that section 43(b) of
the Interpretation Act applies. That provision reads as
follows:
43.
Where an enactment is repealed in whole or in part, the repeal
does not
...
(b)
affect the previous operation of the enactment so repealed or
anything duly done or suffered thereunder,
Section 43
deals only with a situation in which an enactment is
repealed. Section 44, however, deals with repeal and
substitution. Section 44(f) reads as follows:
44.
Where an enactment, in this section called the "former
enactment", is repealed and another enactment, in this
section called the "new enactment", is substituted
therefor,
...
(f)
except to the extent that the provisions of the new enactment are
not in substance the same as those of the former enactment, the
new enactment shall not be held to operate as new law, but shall
be construed and have effect as a consolidation and as
declaratory of the law as contained in the former
enactment;
(italics
added)
In effect,
the opening words of section 44, using the words
"repealed" and "substituted", speak of repeal
and replacement, thereby relating it to section 181(4) of
the Income Tax Amendments Act, the opening words of which
are:
Subsection
152(4) of the Act is replaced by the following:
(italics
added)
This view is
supported by the French version of the opening words of section
44 which are
En cas
d'abrogation et de remplacement, les règles
suivantes s'appliquent:
(italics
added)
Returning to the English
version, the new shorter Oxford English Dictionary defines
"consolidation" as follows:
1
The action or an act of uniting or amalgamating; combination into
a single whole ...
2
The action or an act of making (more) solid or compact
...
The same dictionary
defines "declaratory" as:
Having the nature or
form of a declaration; explanatory, affirmatory; (of a statute
etc.) that explains what the existing law is
It is my view that the
provisions of the new section 152(4) are, in
"substance", the same as those of the former section
152(4). Accordingly, I have concluded that the former section
152(4) is the appropriate legislation to be applied and reviewed
for the purposes of this case.
APPELLANT'S SUBMISSIONS RESPECTING THE
MOTION:
[8]
Appellant's counsel submitted
that the question of law should be answered in the negative. He
said that the Minister was not entitled to make the Third 1987
Reassessment because the requirements of subparagraph
152(4)(b)(i) were not met. Counsel expanded this by
stating that the Minister purported, pursuant to subparagraph
152(4)(b)(i), to make the Third 1987 Reassessment after
the Appellant's normal reassessment period in respect of the
year. He added that the Minister may make a reassessment after
the normal reassessment period pursuant to that subsection
only where the taxpayer has claimed an amount by filing
the prescribed form under subsection 152(6), such claim not yet
having been processed.
[9]
Counsel stated that the
Second 1987 Reassessment was issued in response to the Loss Carry
Back claim made under subsection 152(6) and, at that point, the
Minister's duties were fulfilled. He said that the Minister
had no authority or ability to make a further reassessment of the
Appellant's 1987 taxation year because the Appellant did not
claim any further amount as a carry back of deductions or credits
pursuant to subsection 152(6), the normal reassessment period
having ended on October 5, 1991 and the purported Third 1987
Reassessment having been made on April 1, 1993. Counsel stated
that such deduction could not, obviously, be claimed on filing
the 1987 Tax Return because it arose in the following year,
namely 1988. He accompanied this statement with the submission
that subsection 152(6) exists for the benefit of a taxpayer,
compelling the Minister to take into account a claim for a
deduction from income for a previous year and that without this
subsection the Minister would be powerless to reassess a prior
year after the normal reassessment period in respect of that
year. Counsel also argued that under subparagraph
152(4)(d) the Minister could make a reassessment only to
take into account the changes requested by the taxpayer's
application under subsection 152(6). He submitted that the
reference in subparagraph 152(4)(d) to a
"reassessment referred to in subparagraph
152(4)(b)(i)" is a reference to a reassessment
required by subsection 152(6) not yet made by the Minister.
Counsel stated that paragraph 152(4)(b)(i) refers to a
reassessment that "was required" pursuant to subsection
152(6) and not to a reassessment that had already been
made.
[10]
Counsel said further that under a
combination of subparagraph 152(4)(b)(i) and subsection
152(6) the Minister is required to make one reassessment of tax
payable and, having made same, may not make another reassessment
after the normal assessment period unless the taxpayer files
another request under subsection 152(6). He stated that this was
evident from the use of the singular form of the nouns
"assessment" and "reassessment" in
subparagraph 152(4)(b)(i). He sought to buttress this
point by stating that it was evident that subsection
152(6)(c) provided for a single loss carry back request in
respect of a year. Counsel also submitted that the
Interpretation Act provides that "words in the
singular include the plural, and words in the plural include the
singular" unless a contrary intention appears. He then said
that a contrary intention does appear in subparagraph
152(4)(b)(i). His point was that the "one time
reassessment mechanism" in subparagraph 152(4)(b)(i)
can be contrasted with paragraph 152(4)(c) which allows the
Minister to reassess a taxpayer's tax payable within the
normal reassessment period without any precondition.
[12]
Appellant's counsel pointed out
further that the Appellant had claimed the 1988 Partnership Loss
on filing his return of income for that year. Although the
Minister allowed that loss, he purported to reassess the
Appellant, after the normal reassessment period had expired, to
disallow such deduction. In response to Appellant's Notice of
Objection the Minister conceded that the 1988 taxation year was
statute barred and allowed the deduction of the 1988 Partnerhsip
Loss for that year. Counsel stated that it would be anomalous for
the Minister to be entitled to disallow the deductibility of the
1988 Partnership Loss carried back to the 1987
year.
[13]
Counsel then pointed to one of the
amendments in subparagraph 152(4)(b)(i) which, before such
amendment, stated in part that the Minister may
reassess:
...
before the day that is three years after the expiration of the
normal reassessment period for the taxpayer in respect of the
year, if
(i)
an assessment or a reassessment of the taxpayer was
required pursuant to subsection (6) ...
(italics
added)
That
paragraph, as amended, provides that the Minister may make a
reassessment after the taxpayer's normal reassessment period
in respect of a year:
...only if ... the ... reassessment ...
is made before the day that is 3 years after the end of the
normal reassessment period for the taxpayer in respect of the
year and is required pursuant to subsection 6 as amended
...
(italics
added)
Counsel's point was that the amended provision clearly
makes a reassessment prospective and that, therefore, it having
been made, no subsequent reassessment can be made if no
subsequent Request for a Loss Carry-Back is made.
RESPONDENT'S SUBMISSIONS RESPECTING THE
MOTION:
[15]
Respondent's counsel's main
point was that under subsection 152(4) the Minister can reassess
before the day that is three years after the expiration of the
normal reassessment period in respect of Loss carry-back claims
made under subsection 152(6) and is not prevented from so doing
because of the words:
...
except that a reassessment ... may be made under paragraph
(b) after the normal reassessment period for the taxpayer
in respect of the year only to the extent that it may
reasonably be regarded as relating to
(d)
the assessment or reassessment referred to in subparagraph
(b)(i). ...
(italics
added)
His thesis
was that subsequent reassessments in respect of the Loss
carry-back could be made because the reassessments relate to the
Loss carry-back. He submitted that if there was to be a limit to
one reassessment only, the language would have been similar to
that in subsection 245(8) of the Act which, with respect
to reassessments, states:
... an
assessment, reassessment, additional assessment or determination
may be made under this subsection only to the extent that it may
reasonably be regarded as relating to the transaction referred to
in subsection (6).
[17]
Counsel referred to Flexi-Coil
Ltd. v. R., 92 DTC 6047 (F.C.T.D.). He submitted that this
case had facts much the same as the case at bar in which a Loss
Carry-Back Request was made, such loss was allowed by the
Minister for the year to which it was carried back, and there was
a subsequent assessment disallowing that loss after the normal
assessing period. Counsel quoted from paragraph 6053 of the
Judgment as follows:
...
The plaintiff maintains that it is clear from the wording that
the intent of this provision is that an assessment beyond the
four years applies only to the limited circumstances referred to
in paragraph 152(4)(b), which provides that the MNR can
reassess within seven years from the date referred to in (a) (ii)
if an assessment or reassessment of tax was required pursuant to
subsection 152(6). Subsection 152(6) provides that where a
taxpayer claims a loss under section 111 in respect of a loss for
a subsequent year the MNR shall reassess the taxpayer for any
relevant tax year ... The application of the loss carryback
does not extend to situations where a claim has been made for the
loss carryback and the MNR has reassessed under section 152(4) or
152(6) and then the MNR wants to change that assessment where it
allows the loss carryback. If I understand the plaintiff's
argument, an assessment made by the MNR in respect of a
correction by the MNR, is not a reassessment contemplated under
section 152(6) in that it is not a reassessment that results from
the taxpayer seeking a deduction, but a reassessment that results
from the MNR having reconsidered the taxpayer's claim after
it was allowed. ...
[18]
Counsel then stated that the
Appellant's argument was rejected by Cullen, J. at paragraph
44 as follows:
Regarding
the second loss carryback, the plaintiff argued that, based on a
plain reading of the amendments, subsections 152(4) and 152(6)
are restrictive in the sense that the seven year reassessment
period applies only if an assessment of tax was required pursuant
to subsection (6), i.e. if the taxpayer claimed a deduction under
section 111. According to the plaintiff, the case before me
involves an assessment that the MNR made in respect of a
correction and as such is not a reassessment contemplated under
subsection 152(6). With respect I cannot accept this portion of
the plaintiff's argument. In keeping with MacKay,
J.'s comments, I believe this is a situation where the
opportunity afforded by the amended subsection 111(1) is taken by
the taxpayer after April 19, 1983 to claim a loss carryback,
which could only be done for a taxation year commencing after
December 31, 1982, as the plaintiff filed the prescribed form T2A
amending its 1981 tax return, on March 30, 1984. The question
then becomes: does the expanded limitation period apply to just
the 1983 year (the plaintiff's position) or does it apply not
only to the 1983 losses carried back but to other losses carried
back pursuant to an application under subsection 152(6)? This is
not a case, as in Placer Dome, where the loss was claimed
in a prior taxation year and carried back within the prevailing
limit of one year and the MNR is limited to the terms of
subsection 152(4) as it was prior to April 19, 1983,
namely a four year reassessment period. Further, in this case,
unlike Placer Dome, there was an application for
the loss carryback to 1981. I am of the opinion that the seven
year assessment period applies in respect of the 1983 loss
carryback to 1981 and therefore this portion of the 1981 notice
of reassessment is valid.
(emphasis
added by Respondent's counsel
in his
presentation of the quoted portion)
[19]
Counsel referred to Greene v.
M.N.R., 95 DTC 5078 re: TCC affirmed by Federal Court of
Appeal, 95 DTC 5684. Counsel's submission was that based upon
the words of Rothstein, J., while a judge of the Trial Division
of the Federal Court, the words "shall reassess" in
paragraph 152(6)(c) are not mandatory and that the words
"take into account" therein mean only that the Minister
must consider the deduction claimed and reassess by allowing such
portions of the deduction claimed, if any, as he considers
appropriate. He added that Justice Rothstein, at 5081
said:
In general
terms, under section 152, the Minister is not bound to allow any
deduction claimed by a taxpayer, but rather, he may consider it
and if appropriate, allow or disallow it. Further, the Minister
may reassess a taxpayer's tax anytime up to three years after
the date a notice of assessment is issued. ... It would be
inconsistent with the scheme of reassessment under the Act
to interpret subsection 152(6) as requiring the Minister to allow
any deduction claimed by a taxpayer irrespective of the
Minister's view as to its appropriateness.
[20]
Respondent's counsel found
support in Greene for the proposition that the Minister
would be free to issue more than one reassessment under
subsection 152(6) because Rothstein, J. said, at paragraph
24:
... It
seems to me that if the Minister is entitled to reassess in the
manner he considers appropriate, the first
reassessment under subsection 152(6) may also be made in
accordance with his view of the appropriateness of the deduction
claimed.
(emphasis
added)
[21] Counsel
stated that the learned
Justice said:
If
applicant's counsel is correct, whether the Minister is bound
to allow the deduction claimed by a taxpayer under subsection
152(6) will be academic as long as the limitation provided in
subparagraph 152(4)(b)(i) has not expired, because the
Minister would be able to issue a further reassessment under
subparagraph 152(4)(b)(i) immediately following his
reassessment under subsection 152(6). The issue of whether the
Minister is obliged to reassess by allowing the deduction under
subsection 152(6) is only significant if the limitation period
for a further reassessment has expired. In the case at bar, there
is no specific evidence as to when the limitation periods
commenced or expired but I think it would be fair to say that the
applicant would not be advancing the argument he has made in this
case if the limitation period under subparagraph
152(4)(b)(i) had not expired for at least one of the years
of reassessment.
With
respect, applicant's counsel's argument leads to a very
one-sided result. If he is right, the Minister must reassess
allowing the deduction claimed with no recourse for further
reassessment after the limitation period under subparagraph
154(4)(b)(i) has expired. On the other hand, if the
Minister is correct, the applicant may file a notice of objection
to the Minister's reassessment and appeal to the Tax Court of
Canada. No rationale has been advanced by counsel for the
applicant as to why Parliament would have intended the one-sided
result for which he argues. On the contrary, I think an approach
that entitles both the Minister recourse from the deduction
claimed by the applicant and the applicant recourse from a
reassessment made by the Minister, is balanced.
The only
basis for the applicant's argument is that the words "to
take into account" must mean "to allow". As I have
indicated, this is not the only interpretation of these words,
and having regard to the context of section 152 of the Act, and
for the scheme of reassessment under the Act generally, an
interpretation of the words "to take into account" as
meaning "to consider" would be the most
reasonable.
ANALYSIS
AND CONCLUSION:
[22]
This motion has necessitated a
lengthy process of interpreting a provision obviously enacted for
a taxpayer's benefit but lacking the elusive characteristic
of clarity. "Nice points of law" should not be the
offspring of imprecise legislation. The same comment is made
respecting the 1998 amendment of section 152(4) retroactive to
the period after April 27, 1989. An amended section such as the
one under consideration should contain explicit language about
its application respecting assessments already made under the
replaced legislation. It is noted that three different
interpretations of its application, one from Appellant's
counsel, one from Respondent's counsel and one from the Court
are advanced in the consideration of its applicability. Its
application may have seemed clear to the legislative
drafters but certainly was not clear to interested and affected
readers.
[23]
Respecting Flexi-Coil
(supra) the Appellant made deductions in its
1983 income tax return resulting in a non-capital loss in
the amount of $1,319,256. It claimed a deduction of that amount
as a non-capital loss in computing taxable income for its 1981
taxation year by filing prescribed form T-2A amending its
1981 return. Under subsection 152(6) the Minister of
National Revenue ("Minister"), by Notice of
Reassessment dated May 28, 1985:
...allowed the non-capital loss carried back from the
1982 taxation year and reassessed the plaintiff's 1981 income
tax return accordingly. Also, the plaintiff was advised that no
tax was payable in respect of its 1982 taxation year.
By Notices
of Reassessment dated February 15, 1989 the Minister disallowed
the plaintiff's claims in its 1982, 1983 and 1984 taxation
years by the amounts claimed in those years and denied the
deduction of non-capital losses arising in the 1982 and 1983
taxation years in computing the Appellant's taxable income
for its 1981 taxation years. Mr. Justice Cullen does not furnish
reasons for his statement that:
With
respect I cannot accept this portion of the plaintiff's
argument.
He simply
followed this statement with a discussion of applicable statutory
time limitations. It is not discernible from the Reasons for
Judgment whether appellant's counsel made submissions other
than as described in the judgment. In that regard, Cullen, J.
said:
...the
plaintiff argued that, based on a plain reading of the
amendments, subsections 152(4) and 152(6) are restricted in the
sense that the seven-year reassessment period applies only if an
assessment of tax was required pursuant to subsection (6) i.e, if
the taxpayer claimed a deduction under section 111. According to
the plaintiff, the case before me involves an assessment that the
Minister of National Revenue made in respect of a correction and
as such is not a reassessment contemplated under subsection
152(6).
[27]
The Federal Court Trial Division
judgment in Greene (supra), through
Rothstein, J., said:
The issue
in this case is whether the words "the Minister shall
reassess the taxpayer's tax for any relevant taxation year
... in order to take into account the deduction
claimed" in subsection 152(6) of the Income Tax Act
... requires the Minister to reassess by allowing the
deduction claimed or only requires the Minister to reassess by
considering the deduction claimed and allowing that which he
assesses to be appropriate.
[28]
In Greene, the Applicant
sought to carry back portions of a 1988 loss to reduce his
taxable income in 1985, 1986 and 1987. The Minister, having taken
no action to reassess those three years, the Applicant filed an
originating Notice of Motion seeking an order of mandamus
against the Minister requiring reassessment of those years by
taking into account the deductions claimed. The Respondent
consented to the application and the August 10, 1994 judgment of
Strayer, J., as he then was, made the following order:
The
Respondent shall reassess the Applicant's tax for his 1985,
1986 and 1987 taxation years in order to take into account the
deductions claimed by the Applicant, in accordance with
subsection 152(6) of the Income Tax Act.
[29]
Each of the Notices of Reassessment
dated October 14, 1994 for those three years stated:
Your income
tax return has been reassessed in order to take into account your
claim for a deduction for a portion of a net capital loss of a
subsequent year.
As your
1988 taxation year has previously been reassessed to disallow
this reported net capital loss, there is no change to your 1985,
[1986], [1987] taxable income.
Accordingly, the Applicant's taxable income for those
three years was unchanged. The Applicant asked the Federal Court
- Trial Division for declarations requiring the Minister to
reassess those three years allowing the deductions claimed. After
stating that, in accordance with subsection 152(8) of the
Act, an assessment shall be deemed to be valid and binding
notwithstanding any error, defect or omission therein, Rothstein,
J. said that the only recourse for the Applicant was to object
and appeal under the relevant provisions of the Act. He
later stated:
For the
sake of completeness, I should indicate that if this Court did
have jurisdiction to entertain the applicant's application, I
would, in any event, have to deny it.
He
concluded that the words "take into account" in
subsection 152(6) mean only that the Minister must consider the
deduction claimed and reassess by allowing such portions of the
deduction claimed, if any, as he considers appropriate. He stated
that the document to be filed under subsection 152(6) is a
prescribed form amending the return of an earlier year. He also
said that subsection 152(7) which provides:
The
Minister is not bound by a return or information supplied by or
on behalf of a taxpayer and, in making an assessment, may,
notwithstanding a return or information so supplied ...
assess the tax payable under this Part.
did not
bind the Minister to accept the return or information (which he
said included the prescribed form) in assessing the taxpayer and
allowing the deduction claimed. After further discussion, he
stated:
It would be
inconsistent with the scheme of reassessment under the Act
to interpret subsection 152(6) as requiring the Minister to allow
any deduction claimed by a taxpayer irrespective of the
Minister's view as to its appropriateness.
The learned
judge further stated that if Applicant's counsel was correct,
whether the Minister was bound to allow the deduction claimed
under subsection 152(6), would be academic as long as the
limitation provided in subparagraph 152(4)(b)(i) had not
expired:
...
because the Minister would be able to issue a further
reassessment under subparagraph 152(4)(b)(i) immediately
following his reassessment under subsection 152(6).
He then
said that there was no specific evidence as to when the
limitation periods commenced or expired but assumed that they had
so expired. The judgment continued with the statement that the
only basis for the Applicant's argument to succeed was that
the words "to take into account" must mean "to
allow". He disagreed with that interpretation. In concluding
that the Court did not have jurisdiction to entertain the
Applicant's application he then stated that if it did have
such jurisdiction he would find that the Minister had complied
with the Order of Strayer, J. and that if the Applicant was
dissatisfied with the subsequent reassessment he could file a
Notice of Objection and appeal to the Tax Court of
Canada.
[35]
The Federal Court of Appeal
dismissed the Applicant's appeal with these words which are
quoted in toto:
We do not
find it necessary to express any opinion on the judge's view
that he had no jurisdiction in the circumstances since he went on
to deal with the merits of the matter and reached the right
conclusion.
The
Minister's obligation to "take into account the
deduction claimed" as set out in both the Order of Strayer,
J. and subsection 152(6) of the Income Tax Act is
satisfied when the Minister considers the taxpayer's claim
for deduction and concludes, as he did in the reassessments
issued in this case, that the claims should be disallowed. A
contextual reading of the subsection can give no other result.
The judge's reasoning on this point, although technically an
obiter dictum, is unexceptionable.
The appeal
will be dismissed with costs.
[36]
With respect, I do not find the
reasons in either Greene decision persuasive or
compelling. In the Trial Division, the amount of loss sought by
the Applicant to be carried back to 1985, 1986 and 1987 had been
disallowed. Simply stated, therefore, there was no loss to be
carried back. Although the Court discussed the question of
whether the words "to take into account" in subsection
152(6) meant, as the Applicant's argument indicated, "to
allow", that situation does not arise in the case at bar,
the 1988 loss having been allowed by the Minister in 1988 and
having been applied to 1987. Further, the learned justice's
statements that the Minister would be able to issue a further
reassessment under subparagraph 152(4)(b)(i) were
obiter dicta and were unnecessary to the decision that the
Court did not have jurisdiction to entertain the Applicant's
application.
[37]
With respect, in the Federal Court
of Appeal's decision, the statement that:
A
contextual reading of the subsection can give no other
result.
does not
apply in this case. Again, unlike Greene, in this appeal,
a loss in the 1988 taxation year had been considered by the
Minister, had been allowed for that year and had been carried
back to 1987. The Federal Court of Appeal did not have the
benefit of a fact situation such as exists in this case. It seems
to have been speaking in the abstract about a provision upon
which the Trial Division was not asked to adjudicate, namely that
Court's obiter dicta.
[38]
Further, with respect, I do not
agree, in circumstances such as in this motion, that, as set out
in the Federal Court Trial Division's obiter
dicta in Greene:
...
The Minister would be able to issue a further reassessment under
subparagraph 152(4)(b)(i) immediately following his
reassessment under subsection 152(6).
A
reassessment cannot be made under paragraph 152(6)(c). It is
directive only in that it provides that the Minister, in defined
circumstances,
...
shall reassess ... in order to take into account the
deduction claimed.
A
reassessment, therefore, is not made under subsection 152(6) but
is made pursuant to the provisions of subparagraph
152(4)(b)(i). That is the only section in the Act
authorizing a reassessment carrying a loss back to a prior year.
It is clearly prospective, as submitted by Appellant's
counsel. The 1988 loss was approved after consideration by the
Minister, notice by letter having been given by Revenue Canada
that the loss claim would be reviewed. Subsequently, the
carry-back of that loss was allowed by the Minister and applied
to the 1987 taxation year. There is no issue here as to what, as
discussed in the obiter dicta portion of Greene, is meant
by the words in paragraph 152(6)(c):
... to
take into account the deduction claimed.
The amount
claimed had been approved by the Minister before it was applied
by him to the 1987 taxation year. The Minister responded, as he
was directed to do by paragraph 152(6)(c). After having,
obviously, carefully considered the loss carry-back claimed
and having applied it, by reassessment, to 1987, his duty was
fulfilled, the prospective reassessment was made, and his right
to reassess further was foreclosed.
[41]
Respondent's counsel's
submission that its position is buttressed by the limiting
language of subsection 245(8), not employed in subparagraph
152(4)(b)(i) fails. Support for this conclusion is found
in paragraph 152(4.01)(b) which provides that a
reassessment may be made after the normal reassessing
period:
...
but only to the extent that, it can reasonably be regarded as
relating to, ....
(b)
where paragraph 4(b) applies to the ...
reassessment,
(i)
the ... reassessment ... to which subparagraph
4(b)(i) applies,
...
(iii)
the transaction referred to in subparagraph
4(b)(iii), ...
(emphasis
added)
The word
"transaction" is used in that provision in a specific
subparagraph but is not used in relation to subparagraph
4(b)(i), the very subparagraph referring to subsection
152(6).
[42]
Finally, I agree with
Appellant's counsel's submission regarding
subsection 33(2) of the Interpretation Act
that
Words in
the singular include the plural, ...
unless, as
provided in section 3(1) of that Act, "a contrary
intention" appears. I accept his proposition that a contrary
intention does appear in subparagraph
152(4)(b)(i).
[43]
For the above reasons I shall grant
the motion. As the Court does not know what effect this will have
on the outcome of the appeal, counsel may contact me with respect
to the costs of this motion.
Signed at
Ottawa, Canada, this 6th day of January, 2003.
J.T.C.C.COURT
FILE
NO.:
95-2570(IT)G
STYLE OF
CAUSE:
George Agazarian v. The Queen
PLACE OF
HEARING:
Vancouver, British Columbia
DATE OF
HEARING:
September 10, 2002
REASONS FOR
JUDGMENT BY: The Honourable Judge R.D.
Bell
DATE OF
JUDGMENT:
January 6, 2003
APPEARANCES:
Counsel
for the Appellant: Edwin G. Kroft
Alistair Campbell
Counsel
for the
Respondent:
Robert Carvalho
Jasmine Sidhu
COUNSEL OF
RECORD:
For the
Appellant:
Name:
Edwin G. Kroft
Firm:
McCarthy Tetrault LLP
Vancouver, British Columbia
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
95-2570(IT)G
BETWEEN:
GEORGE
AGAZARIAN,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Motion heard
on September 10, 2002 at Vancouver, British Columbia,
by
the
Honourable Judge R.D. Bell
Appearances
Counsel
for the
Appellant:
Edwin G. Kroft
Alistair Campbell
Counsel
for the
Respondent:
Robert Carvalho
Jasmine Sidhu
JUDGMENT
The motion is granted for the reasons attached.
The parties may contact the Court within 30 days hereof regarding
costs.
Signed at
Toronto, Canada, this 6th day of January, 2003.
J.T.C.C.
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