Citation:
2015 TCC 33
Date: 20150206
Docket: 2012-3636(IT)G
BETWEEN:
DAWN
MCKAY,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
Lyons J.
[1]
The respondent is seeking an order granting
leave to amend the Reply to the Notice of Appeal (“Reply”) on the ground that
Dawn McKay, the appellant, has declined in part to consent to the filing of a
proposed Amended Reply which adds an alternative legal argument based on
subsection 56(2) of the Income Tax Act (the "Act").
The respondent brought the motion under section 54 of the Tax Court of
Canada Rules (General Procedure).
[2]
The appeal concerns the assessment by the Minister
of National Revenue of the appellant’s tax liability in 2008 pursuant to
subsection 160(1) of the Act, in the amount of $68,543.72 for the
transfer of a Cadillac Escalade (the “Cadillac”) from Henry Wetelainen (“Mr.
Wetelainen”) to the appellant on the basis that she became jointly and
severally liable for Mr. Wetelainen's pre-existing tax liability.
[3]
The respondent contends that she is merely
adding a legal argument pursuant to subsection 156(2) of the Act and
that pleadings can be amended at any time to determine the real controversy
between the parties, provided it is in the interests of justice and there is no
prejudice to the appellant that cannot be remedied by costs.
[4]
At the hearing, the appellant opposed only the
amendments to subparagraph 8 c) and paragraphs 9 and 18 of the proposed Amended
Reply which read as follows:
8. c) In the further alternative, whether the amount of
$68,543.72 was properly added to the appellant's income for the 2008 taxation
year pursuant to subsection 56(2) of the Act.
9. He
relies on subsections, 56(2) and 152(9) and sections 3, 160, 248,
and 251 of the Act.
18. In the further alternative,
the Minister properly included the amount of $68,543.72 in the appellant’s
income for the 2008 taxation year. The appellant either directed that or
concurred with the transfer of $75,000 by BLIG to Mr. Wetelainen by way of the
Cheque. In addition, the transfer by BLIG of $75,000 to Mr. Wetelainen either
benefited the appellant or was done because the appellant desired to confer a
benefit on Mr. Wetelainen. As such, the appellant is liable pursuant to
subsections 56(2) and 152(9) of the Act for an amount of $68,543.72.
[5]
The first ground upon which the appellant
opposes the motion is that the amendments in the proposed Amended Reply include
a different transaction than those that formed the basis of the assessment
which focuses solely on the Cadillac (the transfer, registration and fair
market value).
[6]
The transactions giving rise to the assessment
set out in the assumptions of fact in the Reply are as follows:
7. In so confirming the appellant's tax liability under
subsection 160(1) of the Act, the Minister relied on the following facts:
a) the appellant is a shareholder, director, officer and
employee of Bending Lake Iron Group ("BLIG");
b) Henry Wetelainen, also known as Henry Wetelainen Jr.,
("Mr. Wetelainen") is a shareholder, director, officer and
employee of BLIG;
c) on August 13, 2008 Mr. Wetelainen purchased a 2008
Cadillac Escalade Vehicle Identification Number 1GYFK63858R133816, (the
"Cadillac Escalade") from Courtesy Chevrolet in the amount of
$68,543.72;
d) on the Transfer Date, Mr. Wetelainen transferred and
registered the Cadillac Escalade to the appellant;
e) prior to the Transfer Date, Mr. Wetelainen was not
indebted to the appellant;
f) the appellant provided no consideration for the transfer
of the Cadillac Escalade;
g) the appellant lives at 402 Grand Point Road, Thunder Bay ON;
h) on the Transfer Date, BLIG issued a cheque to Mr.
Wetelainen at the address 401 Grand Point Road, Thunder Bay ON in the amount of
$75,000 (the "Cheque");
i) the Cheque was signed by the appellant;
j) on August 15, 2008, the appellant deposited the Cheque
into Mr. Wetelainen's TD Canada Trust bank account 6053-6327838 ("TD Bank
Account");
k) on August 15, 2008, Mr. Wetelainen purchased a Credit
Voucher -45006469, from his TD Bank Account, made payable to Courtesy Chevrolet
in the amount of $64,232.87;
l) at the Transfer Date of the Cadillac Escalade, the
appellant and Mr. Wetelainen, were not dealing at arm's length; and
m) on the Transfer Date of the Cadillac Escalade, Mr.
Wetelainen was indebted to the Minister for not less than $977,831.
[7]
The right of the Minister to present an
alternative argument in support of an assessment is governed by subsection
152(9) of the Act. That subsection reads:
Alternative basis
for reassessment
152(9) The Minister
may advance an alternative argument in support of an assessment at any time
after the normal reassessment period unless, on an appeal under this Act
(a) there is
relevant evidence that the taxpayer is no longer able to adduce without the
leave of the court; and
(b) it is not
appropriate in the circumstances for the court to order that the evidence be
adduced.
[8]
The respondent is precluded from advancing an
alternative argument if other transactions are taken into account that did not
form the basis of the reassessment or there is an increase in tax payable
relative to the assessment in issue. This was established by the Federal Court
of Appeal in Anchor Pointe Energy Ltd. v R, 2003 FCA 294, [2004] 5 CTC
98 (FCA), which held that the underlying transaction and the amount of tax
assessed is what matters.
[9]
In Walsh v R, 2007 FCA 222, [2007] 4 CTC
73 (FCA), the Federal Court of Appeal set out the following conditions when the
Minister seeks to rely on subsection 152(9):
1) the
Minster cannot include transactions which did not form the basis of the
taxpayer’s reassessment;
2) the right
of the Minister to present an alternative argument in support of an assessment
is subject to paragraphs 152(9)(a) and (b), which speak to the prejudice to the
taxpayer; and
3) the
Minister cannot use subsection 152(9) to reassess outside the time limitations
in subsection 152(4) of the Act, or to collect tax exceeding the amount in the
assessment under appeal.
[10]
In this motion, only the first two conditions
are relevant.
[11]
With respect to the first condition of
subsection 152(9), according to subparagraphs 7 h), i), j) and k) of the Reply
in respect of the appellant, Mr. Wetelainen and BLIG, in assessing the
appellant the Minister relied upon those assumptions of fact. Those and other
assumptions as plead, indicate that the day after Mr. Wetelainen purchased the
Cadillac from Courtesy Chevrolet in the amount of $68,543.72, he transferred the
Cadillac to the appellant on the same date that BLIG had issued the Cheque to
him, signed by the appellant.[1]
As well, on the subsequent day, she deposited the Cheque into his bank account
and he then purchased a credit voucher from his bank for $64,232.87, made
payable to Courtesy Chevrolet.
[12]
It can, therefore, be seen that the proposed
amendments do not involve a different transaction than the transactions that
formed the basis of the assessment. In my view, the transactions that formed
the basis of the assessment was not restricted - as suggested by the appellant –
and focused solely on the Cadillac (the transfer, registration and value), but
included other transactions. The other transactions involved the issuance of
the Cheque by BLIG to Mr. Wetelainen as at the date of the transfer of the
Cadillac, the appellant’s involvement in signing and depositing the Cheque into
his account and the steps Mr. Wetelainen subsequently took, all of which gave
rise to the income on which the Minister seeks to tax the appellant. I note
that the reference to the Cheque was mentioned thrice in the assumptions and
fail to see how this could not be viewed as part of the transactions that form
the basis of the Minister’s assessment.
[13]
On this aspect, the respondent meets the first
condition under subsection 152(9) of the Act.
[14]
I now turn to the second condition and the
second ground that the appellant opposes the motion. Appellant counsel asserts
that the appellant would suffer prejudice should the respondent’s motion be
granted because effective September 11, 2014 BLIG was placed into receivership
by virtue of the Notice of Receivership Order issued by the Superior Court of
Justice. Therefore, it will prove to be difficult to obtain information from
the receiver rather than BLIG.[2]
An affidavit was adduced at the hearing confirming that BLIG was placed into receivership.
[15]
The criteria to be considered by the Court in
deciding whether to allow a party to amend its pleadings is enunciated in Canderel
Ltd. v R, [1993] 3 CTC 213 (FCA), at paragraph 10. The general rule is that
an amendment to pleadings should be permitted at any stage to determine the
real questions in controversy between the parties, provided that it would not
result in an injustice to the opposing party and the amendment can be
compensated by an award of costs.
[16]
The Notice of Appeal was filed with the Court on
August 29, 2012 and served on the respondent on October 12, 2012. The Reply was
filed with the Court on December 10, 2012. At the time of and subject to the
respondent’s motion seeking leave to amend the Reply, the matter was ready to
proceed to the hearing as all the litigation steps had been completed.
[17]
According to the respondent’s motion record, a
formal request for consent to amend the Reply was sent to appellant counsel by
letter dated September 26, 2014, and filed as Exhibit "B" to the
Affidavit filed in support of the respondent’s motion. I note that the
receivership pre-dates the request for consent.
[18]
I accept that BLIG’s receivership will present challenges
in the appellant’s ability to access relevant documentary evidence and
information associated with the issuance of the Cheque nor is it appropriate to
order evidence to be adduced. Further, dealing with the receiver could
potentially prove to be difficult in seeking to obtain evidence relating to BLIG.
I agree that in these circumstances there would be prejudice to the appellant.
[19]
Relying on the test in the Walsh decision,
I find that while the respondent met the first condition, the circumstances
relating to the receivership would likely prejudice the appellant from an
evidentiary perspective, therefore, the second condition under subsection 152(9)
of the Act has not been satisfied to enable the respondent to raise the
new argument detailed in the proposed Amended Reply.
[20]
Since the amendment in paragraph 13 of the
proposed Amended Reply went unopposed, this amendment is to be accepted as part
of an Amended Reply to be filed by the respondent within 15 days of the date of
this Order.
[21]
For the above reasons, the motion relating to the
amendments in subparagraph 8 c) and paragraphs 9 and 18 of the proposed Amended
Reply, is dismissed. Costs of this motion shall be in the cause.
Signed at Ottawa, Canada, this 6th day of February 2015.
"K. Lyons"
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