Citation: 2013 TCC 240
Date: 20130726
Docket: 2011-206(IT)APP
BETWEEN:
CHRISTOS PETRATOS,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2011-202(IT)APP
AND BETWEEN:
SYLVIA PETRATOS,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2011-209(IT)APP
AND BETWEEN:
GAVIN HIGGINS,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Hershfield J.
[1] The
applications before me involve timing issues respecting alternate positions
taken by the Applicants in respect of Notices of Assessment mailed as follows:
·
Mr. Higgins on May 20, 2008;
·
Mr. Petratos on March 19, 2009; and
·
Ms. Petratos on March 26, 2009.
[2] These
assessments were based on the filing positions taken by the Applicants.
However, shortly after they received their assessments, they sent T1 Adjustment
Requests (the “Requests”) as follows:
·
Mr. Higgins on February 9, 2009;
·
Mr. and Ms. Petratos on April 29, 2009.
[3] The
Minister of National Revenue (the “Minister”) denied the Requests as follows:
·
Mr. Higgins and Mr. Petratos by letter on June 9, 2010;
·
Ms. Petratos by letter on June 10, 2010.
[4] Notices of Objection to such denials were asserted by
the Applicants to have been sent on
September 7, 2010. The Respondent asserts that they were not sent until
September 16, 2010.
[5] The Applicants raise two arguments arising from this
chronology of events:
A.
The Requests ought to have been treated as Notices of
Objection and/or applications for extensions of time to file Notices of
Objection.
B.
The denial of the Requests ought
to restart the time limitation periods for filing Notices of Objection and
applications for extensions of time to file Notices of Objection.
[6] Before dealing with these issues some background would
be helpful.
Assessment Background
[7] The original
assessments were based on the filings of the Applicants for their 2007 taxation
years. At that point, then, it appeared that there were no issues.
[8] However, the T1
Returns filed for that year did not include deductions that were later claimed
by the Applicants in respect of a tax shelter investment acquired by them (the
“Program”). The Applicants assert that the investments were not “tax shelters”
as that term is used in the ITA. The Respondent asserts that they are.
That substantive issue is not before me.
[9] There
is, nonetheless, a relevant aspect of that issue. It is not in dispute that the
Applicants did not initially claim the subject deductions because they were
warned not to by the Canada Revenue Agency (the “CRA”). That warning arose from
the fact that previous audits of the Program had raised issues. CRA audits for
previous years led to assertions that the losses incurred by the Program were the
mere product of paperwork and journal entries and were disallowed. The
taxpayers were informed that if they claimed losses from the same Program for
2007 that they would be denied and potentially subject to civil penalties under
section 163.2 of the ITA.
[10] At
a meeting in March, 2008, between the CRA and a Program representative, the CRA
warned that the Applicants and other Program investors (of which there were
dozens) should not file CRA T2124 forms for 2007. Following that meeting the
CRA wrote to the Applicants, and to the other Program investors, instructing
them not to file CRA T2124 forms for 2007. T2124 forms, namely, “Statement of
Business Activities” forms, were the standard forms for claiming business
losses at the time.
The investors heeded the warning but subsequently, they, or at least the
Applicants, claimed their asserted share of Program losses for 2007 by filing
the Requests. That is, they did not use the T2124 form that they were warned
not to use. They sought an amendment to their 2007 T1 Return by way of the
Requests.
[11] As noted above, Mr. Higgins sent his Request on
February 9, 2009. Mr. and Ms. Petratos sent their
Requests on April 29, 2009. Again, as noted above, the Minister
denied the Requests of Mr. Higgins and Mr. Petratos by
letter on June 9, 2010 and denied the Request of Ms. Petratos by
letter on June 10, 2010.
[12] The Applicants
were not reassessed by the CRA with respect to their originally filed 2007
taxation year T1 returns.
[13] The ITA is
silent on the status of a denial of a T1 Adjustment Request.
Overview of the Program’s
Background
[14] The Program was known
as the IBCA Joint Venture (“IBCA JV”). It was promoted, operated, managed
and/or participated in by three entities: Integrated Business Concepts Inc.,
Synergy Group (2000) Inc. and The Independent Business Consulting Association.
The Applicants were members of the IBCA JV and the losses at issue arose from
their participation in that venture which I have referred to as the Program.
[15] It was apparent to me
during the hearing that Synergy Group (2000) Inc. was the entity that assisted
the Applicants in the ordinary course of filing the forms necessary to claim
losses from the Program. It was Synergy Group (2000) Inc. that advised the
Applicants and attempted, such as at the meeting with the CRA in 2008, to work
with the CRA to resolve its concerns. The Requests would have been initiated by
Synergy Group (2000) Inc..
[16] It is also my
understanding that it was Synergy Group (2000) Inc. that reacted to the
Minister’s denial of the loss claims. This explains the commonality of the
factual background of the matters before me in respect of all three Applicants.
Analysis
[17] I
will deal with the issues under the following headings:
A.
The Requests ought to have been treated as Notices of
Objection and/or applications for extensions of time to file Notices of
Objection.
B.
The Notices of Objection were
filed within the time limitations provided for in the ITA.
A. The Requests ought to have been treated
as Notices of Objection and/or applications for extensions of time to file
Notices of Objection.
[18] There are no provisions in the ITA that require
the Minister to do what the Applicants have asked me to do in this case. On the
other hand, the CRA has a tremendous amount of power to act according to what
it feels might be appropriate in any particular case. It could have treated the
Requests as Notices of Objection. The form of the document does not always have
to dictate how it must or should be treated.
[19] For example, it is not uncommon for the CRA to treat
late filed Notices of Objection as applications for extensions of time. Indeed,
this Court has imposed this treatment on the CRA in Fagbemi v Canada. In Fagbemi Justice Woods decided that a Notice of Objection should be generously
viewed as an application to extend time. However, such finding was qualified.
At paragraphs 5 and 6, she observed that each case depends
on the particular circumstances.
[20] In the circumstances of the applications at hand, it
would be a pretty big step to treat the Requests for a change in a filing
position as a Notice of Objection.
[21] While cases like Fagbemi illustrate that this Court has struggled with such issues
as the use of proper forms, at the end of the day, the reality is that,
generally, only the Minister has authority to act with more or less leniency in
the exercise of her mandate. As a practical matter, so do her officers. While
this strikes me as inappropriate, strict enforcement, or a tendency not to be
lenient has been defended by suggesting that the administration of the ITA
would break down without the CRA, and taxpayers, being able to rely on strict
compliance with its precise terms. It is hard to argue otherwise although one
hopes for a proper mix of uniformity and individual fairness.
[22] While I am not impressed in this case with the tactics
employed by the CRA, there is little I can do except to comment that it seems
as if every taxpayer perceived by the CRA as sheltering income without the
CRA’s blessing, whether it has a tax shelter identification number or not,
needs to be treated as a person guilty of abusing the inherent or fundamental
purpose of the ITA. Auditors become hard enforcers wielding heavy,
threatening clubs that could be perceived as outrageous if wielded in the hands
of our police forces.
[23] That said, I can not side with the Applicants based on
the heavy handedness of CRA officers.
[24] In any event, regardless of what the Minister might have
done by exercising her discretion, I am bound to accept the authority relied on
by the Respondent for not accepting that the Requests be treated as Notices of Objection and/or applications for
extensions of time to file Notices of Objection.
[25] The Respondent relies on Armstrong v. Canada.
At paragraph 8, Justice Sharlow speaks of an amended return imposing no
obligation to assess. While she says that in the context of the Minister’s
obligation to assess “with all due dispatch”, the underlying text can be none
other than; requests to correct a tax return, in any form, are just that -
requests.
[26] That does not leave the taxpayer at the Minister’s whim.
There is a process to force the issue. Filing an objection to an assessment you
want to correct, even one based on the information provided to the Minister,
will accomplish the desired result. This can be done in conjunction with a
request. Requests can be made along with what has been referred to as a
protective objection.
[27] Indeed, in spite of my harsh words on the Minister’s
tactics in this case, the Applicants were warned in a letter that a response to
their Requests might be delayed and in order to protect their right to object,
they “must” file an application for an extension of time to file an objection.
Indeed, the letter even gave the date by which such applications would have to
be made and what they should say to explain to why the application was
necessary. I can not find that there was adherence to that notification by any
of the Applicants.
[28] In any event, I can not agree that the Requests can be treated as Notices of Objection and/or applications for
extensions of time to file Notices of Objection.
B. The Notices of Objection were
filed within the time limitations provided for in the ITA.
[29] This part of the Applicants’
argument can be dealt with in two parts:
1. The Notices of
Objection would be filed on time if the denial letters were treated as
assessments and if I accepted September 7, 2010 as the date the Notices were
mailed.
2. The Notices of
Objection would be timely filed if the CRA denial letters were treated as a determination under subsection
152(1.1) of the ITA and if I
accepted September 7, 2010 as the date the Notices were mailed.
Are the Denial Letters Assessments?
[30] I can not agree that the denial letters were
assessments. There was no tax assessed. Further, it should go without saying
that to find that a response to a request can be treated as an assessment,
would lead to an administrative nightmare.
[31] Accordingly, the Notice of Assessments sent in May, 2008
and March 2009 were well past the deadline prescribed for filing an application
for an extension of time to file a Notice of Objection.
[32] While it was not in dispute that the deadline for filing
an application for an extension of time to file a Notice of Objection is one
year and 90 days from the date of mailing the assessment, I will set out the
relevant sections of the ITA that dictate that deadline:
Subsection 165(1):
Objections to
assessment -- A taxpayer who objects to
an assessment under this Part may serve on
the Minister a notice of objection, in writing, setting
out the reasons for the objection and all relevant facts,
(a)
where the assessment is in respect of the taxpayer for
a taxation year and the taxpayer is an individual (other
than a trust) or a testamentary trust, on or before the later
of
(i) the day that is one year after
the taxpayer's filing-due date for the year, and
(ii) the day that is 90 days after
the day of mailing of the notice of assessment; […] [Emphasis
added.]
[…]
Subsection 166.1(1):
Extension of time [to object] by Minister
-- Where no notice of
objection to an assessment has been served under section 165, nor any request
under subsection 245(6) made, within the time limited by those provisions for
doing so, the taxpayer may apply to the Minister to extend the time for serving
the notice of objection or making the request.
Paragraph
166.1(7)(a)
When
order to be made -- No
application shall be granted under this section unless
(a) the application is made within one year after the expiration of
the time otherwise limited by this Act for serving a notice of objection or
making a request, as the case may be; and
[…]
Subsection
166.2(1):
Extension of time
[to object] by Tax Court -- A taxpayer who has
made an application under subsection 166.1[(1)] may apply to the Tax
Court of Canada to have the application granted after either
(a) the Minister has refused
the application, or
(b) 90 days have elapsed after
service of the application under subsection 166.1(1) and
the Minister has not notified the taxpayer of
the Minister's decision,
but no
application under this section may be made after the expiration of 90 days
after the day on which notification of the decision was mailed to
the taxpayer. [Emphasis added.]
Paragraph 166.2(5):
When application
to be granted -- No application shall be granted under this section
unless
(a) the application was made under
subsection 166.1(1) within one year after the expiration of the time
otherwise limited by this Act for serving a notice of objection or making a
request, as the case may be; and
(b)
the taxpayer demonstrates that
(i) within the
time otherwise limited by this Act for serving such a notice or making such a
request, as the case may be, 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 object to the assessment or make the request,
(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, and
(iii) the
application was made under subsection 166.1(1) as soon as circumstances
permitted.
[33] Read together, these provisions require, in the case of
the ITA, that the Applicants file the applications for extensions of
time within one year and 90 days from the day
of mailing of the Notices of Assessment.
[34] The latest assessment date (issued in respect of Ms.
Petratos) is March 26, 2009. Even assuming the date of mailing the Notices of
Objection was September 7, 2010 as asserted by the Applicants, the limitation
period of one year and 90 days has been exceeded.
2. Are the Denial Letters
Loss Determinations
under section 152(1.1) of the ITA?
[35] The Applicants rely on subsection 152(1.1) of the ITA
which reads as follows:
152(1.1) Determination of losses. 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 the 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.
[36] In my view, the Requests could be taken as a request for
a loss determination, provided such a request is actually allowed to be made by
this provision.
[37] For the moment, assume that I accept that the Minister
ascertained a non-capital loss for 2007 for a particular amount. That also
requires an assumption that disallowing a loss, so as to eliminate it or make
it a zero amount, is still an amount ascertained by the Minister. In my view, the
latter assumption must be correct. If I claim a loss of $100 and the Minister
ascertains it to be zero, a request for a loss determination must be allowed
because we have different positions as to the amount of the loss.
[38] That said, if the particular loss amount, zero,
ascertained by the Minister is the same as the amount I claimed in my return,
then there is no difference and the provision relied on by the Applicants can
not assist them if it is strictly applied.
[39] Again, the Applicants are caught in this void of not
being able to change their return without the permission of the Minister unless
they file a timely objection. They have not done so. Accordingly, the applications
must be dismissed.
[40] Before closing, while there does not now appear to be a
need for me to deal with the issue of the date of mailing of the Notices of
Objection, I have found the date relied on by the CRA as the date the Notices of Objection were mailed, was correct. The Respondent produced
evidence that established to my satisfaction that the CRA’s reliance on the
September 16, 2010 date was based on postmarked envelopes and the evidence of
the CRA officer’s affidavit
and testimony. I have no issues in respect of his evidence of the nature raised
in Carcone v. The Queen.
[41] In any event, for the reasons set out above, I dismiss
the applications, with costs.
Signed at Ottawa, Canada this 26th day of July 2013.
"J.E. Hershfield"
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