REASONS
FOR JUDGMENT
Tardif J.
[1]
At first, this was an
application for an extension of time for an appeal in order to ultimately
obtain some corrections to an assessment for a specific year.
[2]
In support of his
application, the applicant cited many grievances against the respondent's
representatives.
[3]
When the application was
filed, the applicant hired counsel very close to the scheduled hearing date.
[4]
The respondent thus
submitted that the application should be dismissed because it was barred for
two reasons. First, it was
out of time, and, second, the assessment in respect of which the application
was filed is a nil assessment.
[5]
The applicant, who was from then
on represented by counsel, then sought an adjournment to allow her to examine
the pleading more thoroughly and to potentially file an amended pleading.
[6]
The adjournment was granted,
and the Tax Court of Canada (the Court) suggested to the parties to state their
arguments in writing within a time limit agreed to by the parties.
[7]
Following the filing of
written submissions, the parties submitted that they consented to have the
judgment rendered based on the written submissions.
[8]
On September 18, 2002, the
Minister of National Revenue (the Minister) issued to the applicant a notice of
original assessment for the 2001 taxation year.
[9]
No other notice was issued
after that for that year.
[10]
On March 8, 2012, the
applicant submitted an adjustment request in order to claim allowable capital
business investment losses for Poutres lamellées Leclerc Inc. (ABILs) for the
2001 and 2004 taxation years.
[11]
On May 30, 2012, the ABIL
for 2001 was disallowed on the ground that the adjustment request was
statute-barred when it was filed, in accordance with subsection 152(4.2)
of the Income Tax Act (the ITA).
[12]
On July 24, 2013, the applicant asked the Court
for an extension of time to enable him to correct the application of the ABIL for
2001 by an amount of $506,840 retroactively.
[13]
Assessments for the 2002 to
2008 taxation years were issued on October 5, 2009. After appropriate returns were subsequently
filed, the Canada Revenue Agency launched an audit process for the years at
issue.
[14]
Then, on April 19, 2012, the
Minister issued reassessments to the applicant for the 2002, 2003, 2004, 2005
and 2007 taxation years.
[15]
On May 14, 2012, the
applicant objected to the reassessments.
[16]
On July 2, 2013, the
Minister made a decision regarding the objection to the reassessments, that no
tax was payable for the 2002, 2003, 2004, 2005 and 2007 taxation years.
[17]
As mentioned above, on March
8, 2012, the applicant submitted adjustment requests in order to claim ABILs
for the 2001 and 2004 taxation years.
[18]
On May 30, 2012, an ABIL was
allowed for the 2004 taxation year and applied to that year as well as to the
2002, 2003, 2005 and 2007 taxation years. This adjustment led to nil assessments for the years concerned.
[19]
On July 24, 2013, in the
request for extension of time concerning the ABIL for the 2001 taxation year,
the applicant requested that the Court also correct the ABIL allocation for the
2004 taxation year.
I. The
applicant's claims and arguments
[20]
The applicant submits that
his appeal should be allowed on the ground that new evidence has been obtained. He submits that he has obtained [Translation] "evidence [which was
neither accessible nor available at the time of the respondent's analysis] that
the loss that he believed to have incurred in 2001 had actually been realized
in 2002".
[21]
He maintains that, after
filing his Notice of Appeal, he obtained information from individuals who are
complicit in misappropriating his assets in the business for which he is
claiming the ABIL for the 2001 taxation year. They informed him of the new
facts; thus, it was only in the fall of 2013 that he obtained all of the
relevant information.
[22]
According to him, this new
evidence shows that the ABIL took effect in 2002, not in 2001.
[23]
Accordingly, on June 27,
2014, he asked the Court to order a review of his assessment for the 2002
taxation year, which had become a nil assessment, in order to validate the eligibility
of the loss initially submitted for 2001.
[24]
In addition, he wants to be able
to allocate the ABIL allowed for the 2004 taxation year as well as for the 2002
taxation year himself if his application for review is allowed.
[25]
He submits that he is
entitled to a review of the assessments for the 2002, 2003, 2004, 2005 and 2007
taxation years, as apparent from the relief sought:
[Translation]
ALLOW the application
for appeal to the Tax Court of Canada on the grounds of the appellant Jacques
Bérubé.
Correct the application
of allowable business investment losses for Poutres lamellées Leclerc Inc. for 2002
in the allowable amount of $506,840 and retroactive application for three (3)
years for 2001, 2000 and 1999.
Correct the application
of allowable business investment losses of Royal UV Inc. for 2004 in the amount
of $130,000.
II. The
respondent's claims and arguments
[26]
For her part, the respondent
argues that the applicant can neither object to nor appeal from the assessment
issued for the 2002 taxation year because the new evidence was discovered after
a nil assessment was issued for that year and after he filed his application
for extension with the Court.
[27]
The respondent alleges, for
the 2001 taxation year, that the applicant is [Translation]
"outside the time limit to appeal to this Court regarding this
assessment".
[28]
Since on July 2, 2013, the
2002 taxation year was subject to a notice that no tax was payable, this is now
[Translation] "a nil
assessment within the meaning of the case law, to which the applicant
cannot object and from which he cannot appeal".
[29]
The paragraphs above refer
to comments and observations whose only goal is to establish the file in its
overall context.
[30]
In fact, since June 27,
2014, the Court has had before it an application to review an assessment
because the original pleading was amended. Thus, there is no longer a need to
examine the issue regarding the extension of time.
[31]
The respondent stated that
there is no disagreement between the taxpayer and the Minister on the quantum
of the ABIL, rather, it relates to its application to the 2002 taxation year. Consequently, a request for the
determination of losses by the applicant does not apply in this case.
[32]
The respondent also submits
that the applicant cannot claim that the Minister applied the ABIL in a
discretionary manner because he himself had discovered the new evidence only
after the notice stating that no tax was payable for the 2002 taxation year was
issued.
[33]
Finally, because the
assessment for 2004 taxation year is a nil assessment and because it was issued
after the Minister had accepted the applicant's $130,000 ABIL for 2004, the
applicant can neither object to nor appeal from it because of the limitation.
III. Issues
[34]
The application raises the following issues:
(a) Is the applicant entitled to request a
review of a nil assessment for 2002?
(b) Is the applicant entitled to have a loss
apply to his 2002 taxation year after new evidence has been obtained even
though it was initially claimed for the 2001 taxation year?
(c) Can the applicant choose at his own
discretion the years to which the eligible losses apply?
IV. Appeal of a nil assessment
A. Applicable
provisions
[35]
The general provision regarding
appeals to the Court, namely, subsection 169(1) of the ITA, applies:
169. (1) Where a
taxpayer has served notice of objection to an assessment under section 165, the
taxpayer may appeal to the Tax Court of Canada to have the assessment vacated
or varied after either
(a)
the Minister has confirmed the assessment or reassessed, or
(b)
90 days have elapsed after service of the notice of objection and the Minister
has not notified the taxpayer that the Minister has vacated or confirmed the
assessment or reassessed,
but no appeal under this
section may be instituted after the expiration of 90 days from the day notice
has been sent to the taxpayer under section 165 that the Minister has confirmed
the assessment or reassessed.
[36]
Subsection 152(4) of the ITA
deals with the notice of a nil assessment:
152(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 . . . .
[37]
In addition, subsections
152(1.1) and (1.2) of the ITA are relevant because they relate to one of the
exceptions to the principle that no appeal may be heard regarding a nil
assessment:
152(1.1) Where the
Minister ascertains the amount of a taxpayer’s non-capital loss, net capital
loss, restricted farm loss, farm loss or limited partnership loss for a
taxation year and the taxpayer has not reported that amount as such a loss in
the taxpayer’s return of income for that year, the Minister shall, at the
request of the taxpayer, determine, with all due dispatch, the amount of the
loss and shall send a notice of determination to the person by whom the return
was filed.
. . .
152(1.2) Paragraphs
56(1)(l) and 60(o), this Division and Division J, as they relate
to an assessment or a reassessment and to assessing or reassessing tax, apply,
with any modifications that the circumstances require, to a determination or
redetermination under subsection (1.01) and to a determination or
redetermination of an amount under this Division or an amount deemed under
section 122.61 to be an overpayment on account of a taxpayer’s liability under
this Part . . . .
V. Jurisprudence
[38]
Okalta Oils Ltd. v. M.N.R. is undoubtedly the landmark judgment on the
subject of limiting the right to appeal from a nil assessment. In a unanimous judgment, the Supreme
Court of Canada decided that it was impossible for a taxpayer to appeal from an
assessment under which no tax is payable.
[39]
In that case, the original
assessment to which the appellant had objected was for $1,000 for the 1946
taxation year. After
consideration, the Minister issued a reassessment according to which no tax was
payable for the 1946 taxation year due to the carry-over of losses in previous
years.
[40]
The appellant appealed the
Minister's decision to the Income Tax Appeal Board (the Board). The Board dismissed the appeal, and the
decision was confirmed by the Exchequer Court.
[41]
In that decision, Justice
Fauteux reiterates that the right of appeal is a right of
exception which exists only when given by statute. To that
end, the ITA provides that it is possible to appeal the Minister's decision
after a notice of objection only to decrease an assessment amount or to reduce
it to zero.
[42]
He argues that the word
"assessment" essentially refers to the actual amount of tax payable
by a taxpayer so that a nil assessment would not be equivalent to an
"assessment" within the meaning of the ITA since no amount is claimed
in it. He concluded by
stating that therefore there is no right of appeal for nil assessments.
[43]
In Canada v. Consumers’
Gas Co.,
faced with the respondent's procedural argument, the Federal Court of Appeal
(the FCA) confirmed the principle of the limitation to appeals from a nil
assessment:
. . . While the word
"assessment" can bear two constructions, as being either the process
by which tax is assessed or the product of that assessment, it seems to me clear,
from a reading of sections 152 to 177 of the Income Tax Act, that the
word is there employed in the second sense only. This conclusion flows in particular from subsection 165(1)
and from the well established principle that a taxpayer can neither object to
nor appeal from a nil assessment.
[44]
This quote by Justice
Hugessen has been cited and followed many times in subsequent judgments including
Bormann v. Canada
and Joshi v. The Queen.
[45]
Canada v. Interior
Savings Credit Union deals with an appeal to the FCA regarding an
interlocutory order dismissing the Crown’s motion to strike
out the Interior Savings Credit Union’s Notice of Appeal.
[46]
In its Notice of Appeal, the
corporation was not disputing the assessment amount, but rather the adjustment
indicated for one of its current accounts. In support of its motion to strike the Notice of Appeal, the
Crown argued that subsection 169(1) of the ITA is restricted to challenges
of (the amount of )the tax assessed for the year. Given that the corporation was not disputing the amount,
the Crown was asking the Court to dismiss the appeal.
[47]
In that judgment, Justice
Noël explained the basis of the principle that a nil assessment cannot be
appealed. First, "an
appeal must be directed against an assessment and an assessment which assesses
no tax is not an assessment".
Then, he explained that any other objection but one
related to an amount claimed as taxes is lacking the object giving rise to the
right of appeal. Thus, there is no right to appeal an assessment under which no
tax is payable.
[48]
The first aspect specifies
that the Minister must determine, through an assessment, the amount of refund,
if any, to which the taxpayer is entitled or of tax deemed to be payable for a
given taxation year and provides at subsection 152(1.2) of the ITA that
the provisions dealing with objections and appeals apply with necessary
adaptations to the determined amounts.
[49]
The second aspect provides
that, in case of a discrepancy with regard to certain losses suffered by a
taxpayer, the Minister may be required to determine the loss amount if the
taxpayer requests it of him. In
such a case, the procedure provided for objections and appeals also applies,
under subsection 152(1.2) of the ITA.
[50]
It is therefore clearly
established in the case law that a taxpayer cannot appeal from a nil assessment
for the simple reason that an assessment under which no tax is payable is not
an "assessment" within the meaning of the ITA.
[51]
In addition, the purpose of
the right to appeal from an assessment is to reduce the tax payable or to
eliminate it. To dispute a
nil assessment would be to ignore the purpose itself of the right to appeal.
[52]
In this case, the applicant
acknowledges the general rule that a nil assessment is not subject to appeal. However, he submits that he is entitled
to claim that the exception to that rule applies, in accordance with Joshi:
[Translation]
Indeed, the
jurisprudence teaches us that, when a nil assessment results from a loss being
applied by the department and when that decision in itself is disputed and, if
not for that decision, the assessment would have been positive, that
constitutes an exception to the rule, which makes it possible to review said
assessment (ref.: Joshi v. The Queen, 2004 TCC 757);
[53]
Justice Noël summarized it
well in Interior Savings Credit Union: over the years, Parliament
enacted some exceptions to the principle that no right of appeal is granted for
nil assessments.
[54]
The purpose of the
application in this case relates to the ABIL. We must therefore rule out the exemption provided by
paragraph 152(1)(a) of the ITA. In addition,
the determination relative to paragraph 152(1)(b) of the ITA also does
not apply here.
[55]
With regard to subsection
152(1.1) of the ITA, it is recognized by the FCA that that provision clearly
establishes a procedure containing a series of measures or facts that must take
place in order for there to be a valid determination of losses:
. . . These steps are:
(a) the Minister ascertains the amount of a taxpayer's non-capital loss for a
taxation year in an amount that differs from the one reported in the taxpayer's
income tax return; (b) the taxpayer requests that the Minister determine the
amount of the loss; (c) the Minister thereupon determines the amount of the
loss and issues a notice of loss determination to the taxpayer. . . .
[56]
Not until these conditions
are met can the exceptional regime of subsection 152(1.1) apply and a
right of appeal thus be granted (subsection 152(1.2) ITA).
[57]
In this case, there was no disagreement
between the Minister and the appellant concerning the quantum of the ABIL.
[58]
The applicant stated himself
that he had submitted on March 8, 2012, a request to allow an ABIL for
the 2001 and 2004 taxation years. In her decision dated May 30, 2012, regarding this request,
the respondent dealt with an application for review made by the
applicant. The documents on the record, in
turn, concern a request for the adjustment of a T1.
[59]
Thus, it appears that the
applicant made no request for determination under subsection 152(1.1) of
the ITA. In any case, if
there was disagreement, it was not on the amount of the loss but on its
application. The application of the exemption
to the right of appeal, which is in subsection 152(1.1) of the ITA, should be excluded.
[60]
In support of his re-amended
application, the applicant referred to Joshi, as mentioned above. We
believe that this decision does not apply in this case for the reasons below.
[61]
In that decision, the exact
amounts of deductions applicable to the appellant’s moving expenses had to be
determined for the 2001 and 2002 taxation years.
[62]
A preliminary issue raised
by the Minister was before the Tax Court of Canada. The Minister argued that
the appeal in respect of the 2001 taxation year had to be dismissed on the
ground that the assessment provided that no tax was payable.
[63]
In his analysis, Justice
O’Connor acknowledged that 2001 was a taxation year for which a nil assessment
had been issued, but still allowed the appeal for the following reasons:
. . . In my view, the appeal ought not to be
quashed because a determination with respect to the 2001 taxation year impacts
the Appellant’s tax liability in respect of the 2002 taxation year. This is so
because moving expenses are deductible in the year in which they are incurred
and in the subsequent year.
[64]
Justice O’Connor cited Joshi
v. The Queen
(Joshi #2), Martens v. M.N.R.,
Aallcann Wood Suppliers Inc. v. The Queen, Liampat
Holdings Ltd. v. The
Queen and Canada v. Bruner.
[65]
Yet, in Interior Savings
Credit Union, the FCA rejected the application of Joshi #2 to argue
that a nil assessment can be appealed. Indeed, Justice Noël stated that that decision seems to
never have proceeded to trial even though the judge had indicated that his
decision not to quash a notice of appeal concerning a nil assessment was not
final, and that the issue would be determined at trial.
[66]
With regard to Martens,
that was essentially an appeal from a nil assessment that resulted from the exception
to the general rule at paragraph 152(1)(b) of the ITA. The Court refused to vacate a nil
assessment, but the appellant was not disputing the tax assessment; rather, he
was disputing the calculation of the refundable investment tax credit.
[67]
In this case, the exceptions
do not apply; Martens may be relied on to claim that a nil assessment may
be subject to an appeal because it deals specifically with the statutory
exception, which specifies that Parliament has explicitly allowed a taxpayer to
object to or to appeal from the Minister’s determination.
[68]
This is the case for Aallcann
Wood Suppliers. Justice O’Connor
dealt with that decision in Joshi but interpreted it as allowing that “the
determination of capital losses in a nil assessment may be considered by the
Court if they affect the taxpayer’s position in subsequent years (i.e., loss
carry-forwards)”.
[69]
Justice Noël subsequently
invalidated that interpretation and re-established the fact that, in Aallcann
Wood Suppliers, “[t]he
year in issue was not a nil assessment year”.
[70]
For those reasons,
Aallcann Wood Suppliers cannot be used as a basis in this case for the
right to appeal a nil assessment.
[71]
In conclusion, the relevant case
law does not validate the applicant’s arguments concerning the right to appeal
a nil assessment.
[72]
The applicant submits to the
Court the argument that he would be entitled to have an ABIL that was initially
requested to be allowed for the 2001 taxation year applied to 2002 after new
evidence was obtained showing that the loss was incurred in 2002.
[73]
The applicant has insisted a
great deal on the fact that he now has information that he could not have when
his file was being processed by the respondent. Accepting the applicant’s argument would result in allowing
him to do indirectly what he cannot do directly, that is, appeal from a nil
assessment.
[74]
The applicant discovered these
new facts after he had received his Notice of Assessment stating that no tax
was payable for the 2002 taxation year. The Notice stemmed from a carry-over of an ABIL incurred in
2004 and allowed by the respondent.
[75]
It seems that the only way
for the applicant to be granted an ABIL for the 2002 taxation year in a way
that allows him to be within the 10‑year time limit (subsection 152(4.2)
of the ITA) would be to apply for a review of the original request for
adjustment filed on March 8, 2012, to the FCA, as stated by Justice Woods
in Furlong v. The Queen.
[76]
The applicant does not seem
to be raising that perspective, at least not as stated in his Re-amended Notice
of Application:
[Translation]
In doing so, the
applicant is requesting that the Court order a review of his assessment
for the 2002 taxation year in order to validate the eligibility of the loss originally
submitted for the 2001 taxation year;
[Emphasis added.]
[77]
We therefore believe that,
given that the exceptions to the principle that no appeal can be filed from a
nil assessment do not apply to the applicant, he cannot appeal from the nil
assessment for the 2002 taxation year.
[78]
However, he will be able to
appeal from subsequent true assessments (which are not reduced to nil) and
submit to the Court said new evidence in order to be able to deduct his losses from
2002 in his subsequent taxation years subject to the appropriate time limits.
[79]
In any case, if the evidence
put forward by the applicant is established, it would also be open to him to
deduct this loss in respect of the 2010 and later taxation years, but as net
capital losses under paragraph 111(1)(a) of the ITA. An ABIL
unused during the seven years that follow becomes a net capital loss in the
eighth year.
[80]
In the circumstances, I do
not have to decide on the issue regarding the allocation of losses at the
applicant’s discretion.
[81]
For these reasons, the
applicant’s application must be dismissed given that he cannot request a review
of a nil assessment for the 2002 taxation year. A taxpayer can neither object to nor appeal from a nil
assessment.
Signed at
Ottawa, Canada, this 24th day of October 2014.
“Alain Tardif”
Translation certified true
On this 12th day of December 2014
Margarita
Gorbounova, Translator
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