Calb v. The Queen, docket 97-2942-IT-G

Date: 19990924

Docket: 97-2942-IT-G

BETWEEN:

EDWARD CALB,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Supplementary reasons for Judgment

Bowie J.T.C.C.

[1] I heard these appeals on May 10 and 11, 1999, and delivered judgment orally on May 14, 1999. On June 18, 1999, the Appellant filed a Notice of Appeal in the Federal Court of Appeal. On September 3, 1999, counsel for the Appellant wrote to the Registrar of the Court as follows:

This application is made pursuant to s. 172 of the Tax Court of Canada Rules (General Procedure) for an amendment to the Judgment of the Honourable Judge E.A. Bowie, signed May 20, 1999.

In his Judgment, Judge Bowie allowed the appeal for the 1992 taxation year but later in the Judgment only referred the assessment back to the Minister of National Revenue "for consideration and reassessment on the basis that the Appellant did not receive the amount of $2,925,000 referred to in the Reasons for Judgment herein as income in the 1992 taxation year", and not the total amount of $4,202,400 reassessed by the Minister. While Judge Bowie stated in his Reasons for Judgment that the "appeal for 1992 must succeed to the extent of the $2,925,000 amount", Judge Bowie did not address the remaining amount of $1,277,400 ($4,202,400 - $2,925,000) in his Judgment or Reasons for Judgment and did not specifically indicate in his Judgment whether the appeal was allowed in whole or only in part.

The Appellant has appealed this Judgment to the Federal Court of Appeal. The Appellant has made a motion to the Federal Court of Appeal requesting that the Appeal be held in abeyance pending the Tax Court of Canada's decision in this Application. Resolution of the uncertainty is appropriate and necessary to enable the Appellant and the Federal Court of Appeal to know with certainty the basis upon which the appeal should be considered. Clarification of this uncertainty is in the interests of the administration of justice since clarification by Judge Bowie of his Judgment may eliminate the need for any appeal to be brought to the Federal Court of Appeal. The discovery by the Appellant and his counsel of the uncertainty in Judge Bowie's Judgment did not occur within the time period that would have allowed a motion to reconsider the Judgment pursuant to section 168 of the Tax Court of Canada Rules (General Procedure).

[2] A copy of that letter was sent to counsel for the Respondent, who in turn wrote to the Registrar, in part as follows:

Prior to Mr. Scace's letter being filed before the Tax Court of Canada, I had discussions with counsel for the Appellant. In those discussions, it was agreed that pursuant to Rule 172 of the Tax Court of Canada Rules (General Procedure), the presiding judge should determine whether his Judgment contains an error arising from an accidental slip or omission and that the parties ought not re-argue their case, absent a request from the presiding judge. Accordingly, in his letter of September 3, 1999, Mr. Scace has avoided re-arguing his case. It is, therefore, inappropriate for me to re-argue the Respondent's case.

[3] In view of the position taken by counsel for the Respondent, I have considered counsel's request that I clarify my Judgment, notwithstanding the absence of the Notice of Motion which Rule 65 requires, and I have concluded that the formal Judgment correctly expresses my decision in the case, but that I should issue Supplementary Reasons for Judgment to clarify the basis of the decision. I do so only because of what is said in the second and third sentences of the second paragraph of Mr. Scace's letter, and accepted by Mr. Shipley.

[4] Paragraphs 9, 12 and 13 of the Notice of Appeal read as follows:

9. By Notices of Reassessment dated January 19, 1996 with respect to the Appellant's 1991, 1992 and 1993 taxation years, the Minister of National Revenue included:

(a) $178,750 with respect to 1991,

(b) $4,202,400 with respect to 1992, and

(c) $1,158,750 with respect to 1993,

on account of management fees in the Appellant's income.

12. The issue is that with respect to the amounts included in the Appellant's income as set out in paragraph 9 hereof, no credit was given for amounts paid by the Appellant to 814297 as referred to in paragraph 8 hereof.

13. As to the remaining amounts of alleged management fees, the Appellant denies ever having received the same.

[5] Paragraphs 4, 5, 6 and 7 of the Reply read as follows:

4. In so reassessing the Appellant for his 1991 and 1992 taxation years, the Minister made, inter alia, the following assumptions of fact:

(a) at all material times, the Appellant owned all the issued and outstanding shares of Carca Development Corporation (hereinafter referred to as "Carca");

(b) at all material times, the Appellant was an officer and employee of Carca;

(c) in his 1991 taxation year, the Appellant received management fees of $178,750, which constituted income from an office or employment with Carca;

(d) in his 1992 taxation year, the Appellant received management fees of $4,202,400 which constituted income from an office or employment with Carca;

(e) at all material times, the Appellant had a debit shareholder loan account balance in Carca.

5. The issue is whether the Minister of National Revenue properly included the amounts of $178,750 in 1991 and $4,202,200 (sic) in 1992 as income for an office or employment of the Appellant in Carca.

6. He relies, inter alia, upon sections 3 and 5 of the Income Tax Act, R.S.C. 1952, c. 148, as amended (the "Act").

7. He respectfully submits that Minister of National Revenue properly included the amount of $178,750 in 1991 and $4,202,400 in 1992 as income from an office or employment of the Appellant in Carca.

[6] Exhibit R-1 at the trial is a letter from Revenue Canada to the Appellant which sets out the basis upon which the reassessments of the Appellant's income for the 1991, 1992 and 1993 taxation years were made. It reads in part as follows:

3. Management Fees From Related Company

1991 - $178,750

1992 - ($4,381,150 - $178,750) $4,202,400

1993 - ($1,158,750)

Mr. Edward Calb has chosen an August 31 year end to report the management fees from Carca Development Inc. He claims that he is a consultant rather than an employee of Carca Development Inc.

We have reviewed the management contract and all the circumstances surrounding his employment and have come to the conclusion that he is an employee of the Company. Our conclusion is supported by CPP/UI Rulings Division.

We are therefore proposing that the full amount of management fees received by Mr. Edward Calb be included in income in the year in which the fees were received. See calculation in working paper attached.

We have made adjustments for the amounts already included in income in 1992 and 1993 but which relate to taxation years 1991 and 1992.

Included in the $4,202,400 adjustment in 1992 is an amount of $2,925,000 of management fees which Mr. Calb received from Carca Development Inc. in 1992 but which was not reported by him. Mr. David Yee has advised that this amount was paid to a Mr. John Lee, as commission, but no evidence was provided to support this.

We are therefore proposing to include this amount in Mr. Edward Calb's income in 1992.

[7] It is evident, then, that the only issue in the appeal for the 1991 taxation year was as to the amount of $178,750 received by the Appellant from Carca, which the Minister included in income on the basis that it was employment income, and so taxable in the year of receipt. The Appellant had reported it as business income in 1992.

[8] The amount as to which the 1992 appeal relates is made up of two disputed items. One is the amount of $2,925,000, as to which the Appellant has succeeded in his appeal, for the reasons that I have previously given. The other amount is the adjustment for management fees which the Appellant reported in 1993, and which was included in his 1992 income as reassessed, on the basis that it was employment income taxable in the year of receipt.

[9] At the trial, the Appellant did not address the issue whether the first and the third of these amounts were business income, as he had reported them, or employment income, as the Minister had reassessed them. On cross-examination, the Appellant made it clear that he had no knowledge about them at all. Mr. Yee testified briefly as to the amounts credited to the Calb family members as accruals for management fees. His evidence did not address the issue whether they were derived from a contract of employment, as the Minister assumed, or from a business, as the Appellant reported. The Appellant therefore did not discharge the onus upon him to show that the Minister had erred in treating these two amounts as employment income received and taxable in the Appellant's 1991 and 1992 taxation years respectively.

[10] In view of the opening remarks of counsel for the Appellant, and this paucity of evidence, I did not understand the Appellant to be challenging the assessments, except as to the amount of $2,925,000 on which he was ultimately successful. The formal judgment properly reflects my conclusion. The appeal from the 1991 assessment fails; the appeal from the 1992 assessment succeeds only as to the amount of $2,925,000.

[11] The application under Rule 172 is dismissed.

Signed at Ottawa, Canada, this 24th day of September, 1999.

"E.A. Bowie"

J.T.C.C.