Date: 19971215
Dockets: 95-1363-IT-G; 95-1394-IT-I
BETWEEN:
RICHARD W. BURKART, LISE M.J. GIRARD-BURKART,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Brulé, J.T.C.C.
[1] This appeal was heard on common evidence, even though two
separate appeals were filed, one by the husband under the General
Procedure and one by the wife under the Informal Procedure,
together with a motion by the Appellant Richard W. Burkart in
which he sought to make an amendment to the Amended Notice of
Appeal. The assessments under appeal are the amended returns for
the taxation years 1986, 1987 and 1988. The appeals involved
unreported capital gains as well as penalties pursuant to
subsection 163(2) of the Income Tax Act (the
"Act") as well as disallowed an allowable
business investment loss in the 1988 taxation year.
The Motion
[2] It was decided that the Motion be heard as a preliminary
matter to the appeal and then the appeal would be heard. Mr.
Burkart brought the Motion because when "discoveries"
were heard a new matter came to life and he wished to include
this in his Amended Notice of Appeal. Counsel for the Minister of
National Revenue (the "Minister") objected on grounds
that at a previous hearing the judge ruled that all issues needed
by the Appellant for the Court to decide must be included and
said that if such were not written in the Notice of Appeal, then
such could not be added.
[3] This, of course, was before "discoveries" and
before the Appellant was aware of the deficiency.
[4] Pursuant to section 54 of the Tax Court of Canada
General Procedure Rules (the "Rules"), the
Court has the power to grant leave to amend pleadings. In
granting such leave the Court has the discretion of imposing
terms, but where terms are imposed they must be just.
[5] Section 54 of the Rules reads as follows:
"A pleading may be amended by the party filing it, at any
time before the close of pleadings, and thereafter either on
filing the consent of all other parties, or with leave of the
Court, and the Court in granting leave may impose such terms as
are just."
[6] In deciding whether to exercise this power the general
rule is that an amendment should be allowed at any stage in a
proceeding provided that the allowance would not result in an
injustice to the other party that is not capable of being
compensated by an award of costs and that it would serve the
interests of justice. In The Queen v. Canderel Limited, 93
DTC 5357 at 5360, Décary, J.A. of the Federal Court of
Appeal applied this rule. In summary it indicated:
- Whether an amendment should be granted is a matter for the
discretion of the trial judge and he should be guided in the
exercise of the discretion by his assessment of where justice
lies (at page 5361, quoting from Lord Griffiths in Ketteman v.
Hansel Properties Ltd., [1988] 1 All E.R. 38).
- No single factor predominates nor is its presence or absence
necessarily determinative. All must be assigned their proper
weight in the context of the particular case. Ultimately it boils
down to a consideration of simple fairness, common sense and the
interest that the courts have that justice be done (quoting from
Bowman, J. in Continental Bank Leasing Corporation et al. v.
The Queen, 93 DTC 298 at 302).
- Factors to be emphasized include (1) the timeliness of the
motion to amend or withdraw, (2) the extent to which the proposed
amendments would delay the expeditious trial of the matter, (3)
the extent to which a position taken originally by one party has
led another party to follow a course of action in the litigation
which it would be difficult or impossible to alter and (4)
whether the amendments sought will facilitate the court's
consideration of the true substance of the dispute on its merits
(at 5361, quoting from Bowman, J. in Continental Bank Leasing
Corporation et al. v. The Queen, supra.
- There is no injustice if the other side can be compensated
by costs (at 5360, quoting from Lord Esher in Steward v. North
Metropolitan Tramways Co. (1886), 16 Q.B.D. 556 at 558).
- An amendment is to be allowed whenever you can put the
parties in the same position for the purposes of justice that
they were in at the time when the slip was made (at 5360, quoting
from Lord Esher in Steward v. North Metropolitan Tramways Co.
supra.
[7] In Canderel, the Crown moved, on the fifth day of
the trial, for leave to amend its amended Reply to the Notice of
Appeal (for a fourth time). Until this motion for leave to amend,
the issue between the parties had, by agreement, been one of
timing only. In dismissing the Crown's appeal the Court of
Appeal held that on the facts before it the embarrassing pleading
by the Crown surely involved an "injustice" to the
taxpayer within the meaning of the case law and did not in any
way help in determining the real question in controversy.
[8] After the motion was introduced it is difficult to stop
the Appellants from claiming an amendment to the appeal brought
about by "discoveries". What better use to make of
discoveries than to realize that some new matter must be
pleaded?
[9] The result of the above is that the Motion is allowed, the
Appellant, Richard W. Burkart, may amend his pleadings and then
the matter of the appeal itself must be considered.
The appeal
[10] The appeal in this case is rather strange in that the
husband's appeal was filed under the General Procedure and
the wife's was filed as an informal procedure. Whatever
prompted the parties to accept that the evidence will be common
to both is unknown but both Appellants and the Respondent agreed
that the appeal be heard as one and on common evidence.
[11] At the outset counsel for the Respondent told the Court
that the Crown was prepared to delete its assessment for 1986 in
respect of the property at 327 Somerset Street. This applies
to both Appellants even though the amounts in the assessment are
different.
[12] The evidence of the husband Appellant was that he dealt
in various properties from 1976 onward. For a person with an
honours degree in economics and now working as a computer
consultant, it is surprising that the Appellant could give little
light on his knowledge of income tax including the necessity to
file by April 30th of the following year. He admitted being
grossly negligent in filing returns for 1986, 1987 and 1988. He
acknowledged that there were penalties for late filing and these
returns were only filed in 1989 and then again in amended form in
1995.
[13] Counsel for the Minister told the Court that the income
tax returns for the Appellants were filed late, did not report
taxable capital gains, nor was interest income reported, all of
which allows the imposition of penalties. In addition the
Appellants did not sustain business investment losses in any of
the 1986, 1987 or 1988 taxation years.
Issues
[14] The issues are:
(a) whether the Appellants are entitled to capital gains
deductions pursuant to section 110.6 of the Act for the
1986, 1987 and 1988 taxation years;
(b) whether the Minister properly assessed penalties pursuant
to subsection 163(2) of the Act in those years; and
(c) whether the Appellants are entitled to deduct allowable
business investment losses in any of the 1986, 1987 or 1988
taxation years.
Analysis
[15] The husband Appellant provided the argument and he
believed that no income had been earned and therefore no
penalties should be imposed even though the income tax returns
for 1986, 1987 and 1988 had been late filed. He suggested that an
innocent error had been committed but no cases were cited to back
this argument.
[16] The Appellant-husband believed that the Somerset property
had been sold in 1985 but could recollect nothing further. In
fact it was sold in 1988. Other properties which were sold at
various times could not be pinpointed as to the actual time of
disposition. Such lack of memory was very surprising for an
accountant-trained individual wherein the monies involved were
substantial. The Appellant-husband, in evidence, did not realize
receipts were necessary for certain alterations done and none
were produced to the Court.
[17] Counsel for the Respondent did not rely on any cases
decided by the Courts, but was content to quote the various
sections of the Act which the Appellants violated.
[18] Counsel for the Respondent relied, inter alia, on
sections 38, 39 and 110.6 and subsection 163(2) of the Act
as amended for the 1986, 1987 and 1988 taxation years.
[19] Counsel submitted that the Appellants are precluded by
subsection 110.6(6) of the Act from deducting any amount
in respect of their capital gains under section 110.6 of the
Act since:
(a) they failed to file income tax returns for the 1986 and
1987 taxation years by April 30, 1988 and for 1988 by April 30,
1989 respectively; and
(b) they failed to report capital gains in income tax returns
for the 1986, 1987 and 1988 taxation years.
[20] Counsel further submitted that the penalties assessed the
Appellants for the 1986, 1987 and 1988 taxation years were
properly assessed in accordance with subsection 163(2) of the
Act because at least the Appellant-husband knowingly, or
under circumstances amounting to gross negligence in carrying out
a duty or obligation imposed under the Act made or
participated in, assented to or acquiesced in the making of false
statements or omissions in the income tax returns filed for the
1986, 1987 and 1988 taxation years as a result of which the tax
that would have been payable and assessed on the information
provided in the income tax returns filed for those years was less
than the tax payable for those years within the meaning of
subsection 163(2) of the Act.
[21] Finally, counsel for the Respondent submitted that the
Appellants are not entitled to deduct any amounts as allowable
business investment losses in the 1986, 1987 and 1988 taxation
years pursuant to sections 38 and 39 of the Act.
[22] The appeal is hereby allowed on the basis that the
Appellants are entitled to deduct the following amounts for the
1986 taxation year in respect of the 327 Somerset Street
property: Richard W. Burkart $36,391 and Lise M.J.
Girard-Burkart $36,390.
[23] The Respondent is also entitled to costs in this appeal,
such to be determined on an application for costs.
"J.A. Brulé"
J.T.C.C.