Date: 20010517
Docket: 2000-4338-IT-APP
BETWEEN:
JONATHON D. MEER,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Order
Hershfield, J.T.C.C.
[1]
This application is for an extension of time to file appeals
under the Tax Court of Canada Rules, General Procedure
from Notices of Reassessment of the Applicant's 1994 and 1995
taxation years. The reassessments include in the income of the
Applicant certain benefits afforded him in each of these years by
Mearford Group Inc. pursuant to subsection 15(1) of the Income
Tax Act (the "Act"). Permitting the
application will afford the Applicant an opportunity to have
certain factual assumptions made by the Respondent and disputed
by the Applicant reviewed so as to determine whether in fact
benefits asserted to have been conferred were in fact benefits
conferred. The circumstance of when such opportunity can and
should be granted is the subject of this application. Subsection
167(5) of the Act sets out the requirements for the
granting of an application for an extension of time to file an
appeal. That subsection provides as follows:
167(5) No order shall be made under this section unless
(a)
the application is made within one year after the expiration of
the time limited by section 169 for appealing; and
(b)
the taxpayer demonstrates that
(i)
within the time otherwise limited by section 169 for appealing
the taxpayer
(A) was unable to act or to instruct another to act in the
taxpayer's name, or
(B) had a bona fide intention to appeal,
(ii)
given the reasons set out in the application and the
circumstances of the case, it would be just and equitable to
grant the application,
(iii) the
application was made as soon as circumstances permitted, and
(iv) there
are reasonable grounds for the appeal.
[2]
The Respondent does not take issue with the fact that this
application was made within the time limit prescribed in
paragraph 167(5)(a). The time limit so prescribed was
October 24, 2000. The application was made on October 20, 2000.
The Respondent's counsel, in argument at the hearing, also
conceded the Applicant's bone fide intention to
appeal and did not argue that there were no reasonable grounds to
appeal. The Respondent did take issue with whether the Applicant
made the application as soon as circumstances permitted and
whether it would be just and equitable in the circumstances of
this case to grant the application. These, then, are the issues
under consideration.
Facts
[3]
The Applicant's counsel called two witnesses to give evidence
in respect of the application. The first witness was the
Applicant and the second witness was a collections officer
employed by Revenue Canada, Ray Bond.
[4]
The Applicant testified that he was at all relevant times the
president, not only of Mearford Group Inc., but also a number of
other companies that I will refer to as the Mearford Companies
including Mearford Energy Services Inc., Mearford Rentals &
Leasing Inc., Mearford Camp and Catering Inc., Executive Real
Estate North Inc., Antennae Wizard Inc. and 745122 Alberta Ltd.,
all Alberta companies over which the Applicant saw to the
day-to-day business operations. With the exception of Executive
Real Estate North Inc., which was active only in the Edmonton
area, each of these companies was active in Saskatchewan, Alberta
and British Columbia. The Applicant testified that in dealing
with the day-to-day operations of these companies he was dealing
with approximately 200 customers and was responsible in each case
for personnel matters, negotiating third party contracts, banking
arrangements, dealing with lawyers and accountants and the like.
He testified that he was on the road in respect of these various
operations about one-half of the time each week.
[5]
As a result of a personal tax audit in 1997 in respect of the
subject years, the Applicant's accountant, Mr. Crozier, a
chartered accountant in Edmonton, was retained by the Applicant
to make submissions to Revenue Canada. Mr. Crozier also was,
at that time, the accountant for the Mearford Companies. In
June of 1997, the Applicant received a proposal
letter from Revenue Canada in respect of the subject years and
same was copied to Mr. Crozier. The assessments were not
issued until April of 1998 and timely Notices of
Objection were filed by Mr. Crozier as the Applicant's
authorized representative. The reassessments were not confirmed
by Notice of Confirmation until July 26, 1999. The
objections denied that the full amount of the reassessed
benefits, namely $188,097.00, were benefits. The objections also
requested a credit for interest and penalties due to assessment
delays. While the Confirmation that followed over a year later
confirmed the reassessments, the letter enclosing the
Confirmation dealt with the interest issue and acknowledged that
some interest was being remitted under the fairness provisions of
the Act as requested. The letter and Confirmation were
sent to the Applicant and copied to Mr. Crozier.[1] The Applicant testified
that he did not receive the Confirmation until some time in
September as it was sent to an address in Calgary where he no
longer lived. The Respondent does not take issue with the
Applicant's late receipt of the Confirmation. The Applicant
went on to testify that he spoke to Crozier after receiving the
Confirmation and instructed him to follow up as required. He
testified that he understood from talking to Crozier that he
would file an appeal. He testified that he did not hear anything
further until January 2000 when a collections officer called and
said he owed money on account of the 1994-95 reassessments. It
was not until then that he found out that no appeal had been
filed. The Respondent does not dispute that it was not until the
end of January 2000 that the Applicant learned from a collection
officer that no appeal had been filed.[2]
[6]
The Applicant attempted to explain, and tendered evidence in
support of such explanation, why his accountant did not file the
appeal. Evidence tendered included correspondence between two
accounting firms which suggested that there was confusion as to
who would follow up with the appeal and the possibility of
negligence actions was alluded to by the Applicant's
counsel. I do not find it necessary to review this evidence as it
likely raises more questions than it answers and does not in any
event assist me in dealing with the issues before me.[3]
[7] I
accept, as the Respondent has, that the Applicant was under the
misapprehension until the end of January 2000 that his appeal was
being dealt with. There is no doubt that the Applicant wanted to
appeal the reassessment and on that basis I accept that he would
have taken steps to preserve his appeal rights if he knew that
his interests were not being protected by his professional
representatives. Further, circumstances during this period may
not reasonably have permitted the Applicant to do much more than
he did, namely, rely on the person who prepared the objection and
knew the matter. In any event, the Respondent's position, in
the main, is that the Applicant did not, after learning at
the end of January that a timely appeal had not been filed, file
the application for extension as soon as circumstances permitted.
It is the approximate eight-month delay from learning that an
appeal had not been filed to the time of filing the application
that is of more concern to the Respondent. The Respondent argues
that this delay resulted from the Applicant not diligently
pursuing the application with his lawyers. The Respondent's
position is that the delays during this period were caused by the
Applicant's failure to provide, even though circumstances
permitted, his lawyers with the information they needed to file
the application more promptly. It is asserted by the Respondent
that these matters were in the Applicant's control and that
he failed to do the things necessary to file the application as
soon as circumstances permitted. Given that this is the position
of the Respondent, I will turn my attention to the evidence
relating to the period of time commencing when the Applicant
learned that a timely appeal had not been filed.
[8]
The Applicant introduced as Exhibit A-13 a diary of Revenue
Canada actions respecting the subject reassessments since the
Confirmation. The diary consists of entries made by each Revenue
Canada employee working on the file each time they did something
in respect of it. Such records are in the form of a computer
generated daily diary, a hard copy of which was obtained by the
Applicant's lawyers through access to information. The diary
was attested to by the Applicant's second witness, a
collections officer, Mr. Bond, employed by Revenue Canada in
Edmonton who was familiar with the diary.
[9]
Before considering further diary entries, I will briefly
summarize what other matters were being attended to by the
Applicant at this time. Firstly, since 1998 the Applicant was
required, in respect of some of the Mearford Companies, to pay
out some unrelated investors. This, plus business conditions in
general, had placed the Mearford Companies under financial
stress. Indeed, as things unfolded, by the end of 1999, a
financial crisis threatened the Mearford Companies if refinancing
could not be put in place. Several potential investment bankers
were considering financing possibilities. Their due diligence
requirements added another level of strain on the Applicant's
time and that of his staff. The Mearford Companies had December
31 year-ends and they all required year-end financial statements.
Further, Revenue Canada came in in January 2000 for about two and
one-half months and did an extensive audit of the Mearford
Companies. Throughout this time the Applicant and his staff were
given lists of required information and deadlines to produce
same. The audit led to assessments and further demands for
information. Exhibit R-1 is a Revenue Canada letter from
Mr. Bond to the Applicant dated July 18, 2000. That
letter sets out lists of required information in respect of five
of the Mearford Companies and in respect of the Applicant
personally. There has been no suggestion that the Applicant did
not co-operate fully with Revenue Canada in respect of the audit
and in respect of these ongoing demands. On top of all this,
Revenue Canada collection activity started in April 2000.
[10] I will
now return to the Revenue Canada diary. On February 16, 2000 (two
weeks after discovering his appeal had not been filed) the diary
indicates that Mr. Bond spoke personally with the Applicant.
The diary notes that the Applicant advised Mr. Bond of his
intention to file an appeal in respect of the subject taxation
years. There was also, at that time, an outstanding assessment in
respect of the Applicant's 1997 and 1998 taxation years
(which were not in dispute) and the diary notes that arrangements
were being made for payment of outstanding taxes in respect of
those years.
[11] The
Applicant testified that he spoke with his lawyer at about the
end of February 2000 with respect to filing an appeal and was
advised that expenses in relation to filing an appeal might make
it beneficial to pursue a settlement with Revenue Canada. On
March 14 the Applicant wrote to Mr. Bond suggesting they
meet to see if they could resolve the 1994 and 1995 matters. The
diary entry for March 23, 2000 indicates that Mr. Bond's
take on the letter was a little different. Mr. Bond's
entry at that date reads as follows: "It appears that he
does not want to appeal the 94/95 tax assessments due to
excessive legal costs." This appears to have contributed to
commencement of collection activity. The file was transferred to
a Mr. Hinds who began preparing for collection activity by
April 7, 2000. At this time, the Applicant spoke to
Mr. Hinds. The Applicant testified that Mr. Hinds
assured him he would be given time to try to settle matters
before any collection activity was commenced. Such time was not
forthcoming. By April 26, 2000 a considerable number of
garnishments, writs and requirements to pay were sent to banks,
customers and possible creditors of not only the Applicant but
some of the Mearford Companies. The Applicant testified that
liens and personal property security registrations were also
placed on millions of dollars of assets of all related companies
without regard to who the owner of the asset was. Mr. Bond
admitted to the possibility of this and specifically acknowledged
that at least one lien had to be lifted as it had not been
properly placed. The amounts payable to Revenue Canada at or
about this time totalled some $500,000.00, which included amounts
owed by some of the Mearford Companies in respect of payroll
withholding obligations and GST remittances.[4]
[12] Clearly,
appropriate collection activity was warranted. However, such
activity and the fresh audits in the early part of 2000 would
have strained the time and personnel resources of the Applicant.
Overzealous collection activity would have added yet more strain.
He was struggling at this point to meet payrolls, keep his
bankers, suppliers and customers on side and keeping the various
business operations going. Further, the Applicant's
endeavours to obtain financing for the Mearford Companies to
ensure their survival, were being aggressively pursued.
[13] The
Applicant testified that he retained counsel to deal with the
appeal and the application to late file some time in early May
2000, shortly after he realized that his efforts to settle the
reassessments were for naught, i.e. when the collection activity
started. He testified that he was not able to put together the
information required by his lawyers given everything else that
was happening. The July 5 diary entry indicates that Mr. Bond met
with the Applicant's lawyer at that time. His discussion
notes confirm the Applicant's financing efforts and the
lawyer's advice that she would be filing an application for
extension of time to file the appeal. The diary entry for July
18, 2000 indicates that Mr. Bond requested a letter from
potential lenders confirming potential financing. On
July 24, 2000 Canada West Financing wrote to Mr. Bond
confirming potential refinancing in the range of $3,000,000.00 to
$4,000,000.00. The letter does give some comfort as to the
likelihood of refinancing but confirms that outstanding actions
or seizures (presumably referring to Revenue Canada actions or
seizures) would adversely affect the refinancing project.
[14] The diary
entry of July 20, 2000 indicates that Mr. Bond spoke to the
Applicant's lawyer and confirmed that the application for an
extension was not being filed until further information was
available from their client. By this time the Applicant's
lawyer had filed under access to information to get more
information from Revenue Canada. The Applicant testified that he
was trying to get information to his lawyer but internal
resources were stretched. An in-house accountant for the Mearford
Companies was busy with year-ends, responding to Revenue's
other continuing audit demands (for example, the July 18, 2000
letter referred to above) and helping work up data for the
refinancing efforts.[5] This was, as I believe Applicant's counsel put
it, a time for putting out fires; keeping one step ahead of
successive crises. Such circumstances would, to say the least,
make it difficult to focus singularly on assembling information
to facilitate filing an application for an extension of time. The
Applicant's position is that given such circumstances
during the winter and summer of 2000, the Applicant could not
reasonably have been expected to attend to the filing of the
application.
Decision
[15] There are
four periods that can, initially at least, be considered
separately in examining whether the Applicant meets the
requirements of subsection 167(5). The first period runs from the
date of the Confirmation to the date the Applicant received it.
While the time to file a timely appeal starts when the Notice of
Confirmation is mailed, I would allow, in considering whether an
application to late file has been made as soon as circumstances
permit, that the date of receipt of the Confirmation should be
the starting point. There is no suggestion here that the
Applicant's testimony as to when he received the
Confirmation is self-serving or unreliable. Revenue's diary
notes confirm that the Applicant changed residences.
[16] The next
period is from the date the Confirmation was received to the date
the Applicant realized his appeal had not been filed. While the
Respondent has not argued that the Applicant did not act as soon
as circumstances permitted during this period, I note that
circumstances during this period were such that the Applicant,
believing his appeal to have been filed, may have had no
realistic choice but to rely on his professionals to protect his
interests. This is not a case of simply ignoring the requirements
of the appeal process or disregarding his responsibility to
follow up on matters.
[17] The third
period is the period between the end of January 2000 (when the
Applicant learned his appeal had not been filed) and the
beginning of May (when he retained counsel to consider his appeal
and to file an application for an extension of time to file an
appeal). This is a three-month period and merits comment. The
Respondent argues that the circumstances during this period,
albeit difficult in terms of the demands on the Applicant's
time and personnel resources, permitted ample opportunity to file
an application or to have counsel file an application. The
Applicant argues that he sought legal help shortly after learning
of the problem and, under advice of counsel, sought to have
settlement discussions with Revenue Canada.[6] On receiving such advice he acted
quickly in terms of contacting Revenue but it was not until the
end of this period (the end of April 2000) that he realized that
Revenue Canada was not going to engage in settlement discussions.
I accept that there was a misunderstanding here in that the diary
clearly connects the settlement proposal with the collection
activity. The proposal was taken to mean that the appeal was not
being proceeded with due to costs and this was the green light
for rigorous collection activity. Clearly this was not the
message the Applicant intended to convey. If he understood the
proposal would initiate collection activity, I have little doubt
that he would have retained counsel earlier to consider his
appeal. Arguably a misunderstanding caused a three-month delay.
In any event, while hindsight might suggest that retaining
counsel earlier (three months earlier), to start looking at his
appeal and preparing an application to file late, was a
reasonable possibility permitted by the circumstances, there is
no evidence that the application could have been made earlier
even if instructions had been initiated earlier. To the contrary,
the evidence is that these were desperate times for the
Applicant. He was struggling for economic survival. In these
circumstances he could not reasonably have been expected to do
other than what he did.
[18] I will
turn now to the last period commencing at the end of April 2000
and ending when the application was filed in October 2000.
Lawyers were retained during this period to deal with the filing
of the application. While the Applicant's lawyers might
have acted faster, their client was preoccupied with survival and
I will not second guess the law firm's not filing the
application until shortly before the expiry of the one-year
limitation period even when one of the requirements for granting
the extension is to make the application as soon as circumstances
permit. I believe these matters were pursued in good faith.
Although I had no direct evidence on the point, I believe the
lawyers needed more information to assess the appeal and the
circumstances leading to the failure to file an appeal on time.
In the absence of evidence of a lack of reasonable diligence, I
do not think that the "as soon as circumstances permit"
requirement in paragraph 167(5)(b)(iii) extends to
preventing legal advisers from taking reasonable advantage of
statutorily permitted time frames to assist a client in making a
proper assessment of the merits of the application and of the
appeal itself, while at the same time, assisting the client
through such difficult times as those the Applicant was going
through in the spring and summer of 2000.
[19] The
Respondent has not tried to put responsibility for delays on the
lawyers. Rather, they argued that the lawyers could have acted
faster if the Applicant was more diligent in getting the required
information to the lawyers. Hence the Applicant, not the lawyers,
was in control of the time for filing the application. The
Applicant's failure to give information as circumstances
permitted was in effect a failure to file the application as soon
as circumstances permitted. This position might be an
over-simplification of the dynamic between lawyers and their
clients. There was no evidence that the client was in control of
all matters about which the law firm needed information. Clearly
the law firm wanted a lot of information. That it got Revenue
Canada documentation through access to information to learn more
about historical events leading to the failure to file an appeal
evidences that at least some information gathering was in their
control. That documentation proved valuable, so, as things turned
out, the time spent during this period bore fruit. Further, even
if I accept that the Applicant was in the controlling position,
there is authority, with which I agree, that in circumstances
such as these, delays caused by the Applicant will not
necessarily result in a finding that the application was thereby
not filed as soon as circumstances permitted.[7] The phrase "as soon as
circumstances permit" does not preclude prioritizing what
one can reasonably do in a particular time frame. The question as
set down in Pennington v. M.N.R. comes down to what can be
reasonably expected in the circumstances. One does not need to
rely on a flood or imprisonment or hospitalization to argue that
circumstances did not permit filing the application. This is an
area of broad discretion. Keeping one's life work, one's
business enterprises or one's financial stake from crumbling
is a circumstance that might reasonably be attended to and
relieved before circumstances can fairly be said to permit the
filing of an application for an extension of time to file an
appeal. Accordingly, in respect of the delay during this period,
I find that the application was filed as soon as circumstances
permitted.
[20] The
Respondent argued that it would not be just and equitable to
permit the application in the circumstances of this case. Taking
the time frame as a whole as a circumstance of this matter, from
receiving the Confirmation to the date the application was filed,
it is argued that it would not be just and equitable to grant the
extension. Counsel for the Respondent argued that the requirement
that the granting of an extension be just and equitable in the
circumstances was a separate test that must be met as a condition
to granting the application. Such condition does appear in
subsection 167(5) as a separate test. But the condition is
derived from the reasons for and circumstances of the request.
The reasons and circumstances here do not give rise to any
asserted injustice. There has been no assertion here of foul
play, dishonesty or prejudice. I can find no cases, nor has the
Respondent's counsel offered any cases, that would support
the contention or give an illustration of a situation where all
the other conditions for the granting of the application are met
and it is still found not just and equitable to grant the
application. The reassessment is not adversely affected by
granting the application except that the reassessment can then be
dealt with on its merits. In these circumstances it strikes me as
inequitable not to apply the principle set down in Seater v.
R., [1997] 1 C.T.C. 2204 wherein Judge McArthur
concludes that it is preferable to have a taxpayer's issues
decided on their merits than having them dismissed for missed
time limits in the Act.
[21]
Accordingly, I would grant the application as requested.
Signed at Ottawa, Canada, this 17th day of May 2001.
"J.E. Hershfield"
J.T.C.C.
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