Date: 20070115
Dockets: A-18-06
A-16-06
A-17-06
Citation: 2007 FCA 45
CORAM: LÉTOURNEAU
J.A.
EVANS
J.A.
MALONE
J.A.
A-18-06
BETWEEN:
JAMES TAYLOR
Appellant
and
HER MAJESTY THE QUEEN
Respondent
A-16-06
BETWEEN:
DONALD JORDAN
Appellant
and
HER MAJESTY THE QUEEN
Respondent
A-17-06
BETWEEN:
ISRAEL CHAFETZ
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
(Delivered from the Bench at Vancouver,
British Columbia, on January 15, 2007)
EVANS J.A.
[1]
This is an appeal from a decision of Justice Miller
of the Tax Court of Canada dismissing the appellants’ appeals against the
Minister’s reassessment of their tax liability for the taxation years 1992 and
1993. The material facts of the appeals are identical, as are the issues
raised. The Judge’s reasons are reported as Chafetz, Jordan and Taylor v. The Queen, 2005 TCC 803.
[2]
The Judge rejected the appellants’ argument that
the Minister was statute-barred in 2001 from reassessing their claim to deduct
from their income for 1992 and 1993 the acquisition cost of seismic data
incurred by the Sierra Trinity Limited Joint Venture, in which they had
invested as partners in 1992 and 1993. The Minister determined that the cost
did not qualify as a Canadian Exploration Expense (“CEE”), as defined by
subsection 66.1(6) of the Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.) (“ITA”).
[3]
Justice Miller concluded that, properly
construed, the waivers signed by the appellants in 1996 and 1997, for the
taxation years 1992 and 1993 respectively, permitted the Minister to reassess
the appellants’ claim to deduct the cost of the seismic data as a CEE, beyond
the normal three-year reassessment period prescribed by ITA, paragraph
152(4)(b). He held, accordingly, that CEE was a “matter specified” in
the waiver and that it followed that the reassessment of the CEE claim could
reasonably be regarded as related to it, as required by ITA,
subparagraph 152(4.01)(a)(ii).
[4]
The waiver for 1993, prepared by an auditor of
Canada Revenue Agency, Mr Holmes, stated that the Minister may reassess in
respect of
Net income for income tax purposes as affected by the
application of Canadian Exploration and Development Expense or Canadian
Oil and Gas Property Expense in respect of Sierra Trinity Inc.
[Emphasis added]
[5]
Mr Holmes testified that he intended the words
“Canadian Exploration and Development Expense” in the waiver to be something of
a shorthand reference to both the Canadian Exploration Expense and the Canadian
Development Expense (“CDE”), which would permit him to reassess the claimed
deduction on both bases. He was unaware that “Canadian Exploration and
Development Expense” (“CEDE”) was a defined in term subsection 66(15) of the ITA
and refers to certain expenses incurred before May 7, 1974.
[6]
The Judge concluded on the basis of the
appellants’ testimony that they assumed that the waivers did not cover CEE.
This led Mr Taylor to the belief, which he communicated to the other two
appellants, his law partners, that he was not waiving CEE. Mr Taylor further
testified that he did not know, and had not looked up the definition of CEDE in
the ITA, although he believed that it did not include CEE.
[7]
On the basis that the appellants and Mr Holmes
had different intentions concerning the scope of the waiver, Justice Miller
considered how the reference in the waiver to “Canadian Exploration and
Development Expense” should be interpreted objectively. This was the correct
legal test. The application of the law to the facts of this case is a question
of mixed fact and law; absent a more general extricable question of law, the
Judge’s decision is reviewable only for palpable or overriding error: Housen
v. Nickolaisen, [2002] 2 S.C.R. 235, 2002 SCC 33.
[8]
We are not persuaded that the Judge made any error
warranting the intervention of this Court. His conclusion that, on the facts of
this case, the terms of the waiver, when interpreted objectively and
contextually, referred to CEE and CDE was amply supported by the record. The
appellants’ accountant had claimed to deduct the cost of the seismic data as a
CEE in their income tax returns, which they said they had not checked. In Mr
Taylor’s opinion, CEE was their “best argument” for being allowed the claimed deduction.
Indeed, the reference line in the letter accompanying the 1996 waiver stated:
Re: Sierrra Joint Venture
(Canadian Exploration Expense (CEE))
The heading of the
1997 waiver was substantially the same.
[9]
Moreover, communications between Mr Taylor, the
other two appellants, their counsel and Mr Holmes, made it clear that CEE was
the basis of the claimed deduction: see, for example, the letters at pp. 174,
180,182, 183, and 184 of the Appeal Book.
[10]
Further, CEDE, as defined in the ITA, was
obviously irrelevant to the appellants’ claim, since it only applied to
transactions concluded before May 1974. In contrast, the appellants claimed
their deduction for losses sustained in connection with their investment in
Sierra Trinity in 1992 and 1993.
[11]
In light of these surrounding facts, it is
difficult to see any basis on which the waiver could be interpreted objectively
as not covering CEE. The fact that there is a statutory definition of the
phrase “Canadian Exploration and Development Expense” when used in section 66
of the ITA, is not determinative of the meaning of those words in other
documents, including the waiver.
[12]
The fact that the waiver uses upper case letters
for the first letter of the words, “Canadian Exploration and Development
Expense”, and that “Expense” is in the singular, does not create an ambiguity
in the waiver. Reading the Judge’s reasons as a whole, we see no inconsistency
between his finding that the appellants were credible witnesses and that, in
convincing themselves that the waiver did not cover CEE, they had engaged in
wishful thinking and that their intention lacked a strong foundation.
[13]
For these reasons, the consolidated appeals will
be dismissed with one set of costs payable to the respondent. A copy of these
reasons will be inserted in each file.
“John
M. Evans”
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-18-06;
A-16-06; A-17-06
STYLE OF CAUSE: James
Taylor, Donald Jordan,
and
Israel Chafetz v. HMQ
PLACE OF
HEARING: Vancouver, British Columbia
DATE OF
HEARING: January15,
2007
REASONS FOR
JUDGMENT BY: Evans, J.A.
DATED: January 15, 2007
APPEARANCES:
Donald J.
Jordan Q.C. FOR
THE APPELLANT
Lynn M. Burch FOR
THE RESPONDENT
SOLICITORS
OF RECORD:
|
Taylor Jordan
Chafetz
Vancouver, British Columbia
John H. Sims,
Q.C.
Deputy
Attorney General of Canada
|
FOR THE APPELLANT
FOR THE RESPONDENT
|
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