REASONS
FOR ORDER
Smith J.
[1]
The Applicants, Malini Thangarajah and 1670000
Ontario Inc., filed Applications to extend the time to deliver notices of objection
to Notices of Reassessment issued in November 2014 with respect to the 2011 and
2012 taxation years. Both Applications were heard on common evidence.
[2]
The following issues need to be addressed by the
Court:
i)
Whether the Applications filed on July 8,
2016, for an extension of time to file notices of objection, meet the
requirements of subsection 166.2(1) of the Income Tax Act, R.S.C.,
1985, c. 1, (5th Suppl.) (the “Act”);
ii)
In the alternative, whether the letter from the
applicants’ former agent, dated September 10, 2015, as further described
below, can be characterized as an application for an extension of time to file
a notice of objection pursuant to subsection 166.1(2) of the Act.
[3]
At the conclusion of the hearing held on January
20, 2017, the Applicants conceded that the Applications filed on July 8, 2016
were made out of time in that they were filed more than one year “after the
expiration of 90 days after the day on which notification of the decision was
mailed to the taxpayer”. It was also apparent that they did not dispute the
Respondent’s position that this Court does not have the authority to extend the
time limits established by Parliament for the filing of such applications. As a
result, there is no need to address this issue in any further detail or to
refer to the abundant case law on the matter.
[4]
Having heard from the Applicants’ agent on the
second issue, the Court issued an interim order as well as oral reasons on
March 1, 2017, adjourning the proceedings to give the Minister time to
consider whether the letter of September 10, 2015 (which had not been
referred to in the Respondent’s affidavit) could be recognized as a valid
application to extend the time to file notices of objection. By letter dated
March 22, 2017, the Respondent advised the Court of its position that the
aforesaid letter should not be recognized as such. That issue can now be
considered by the Court.
Background
[5]
What follows is a short summary of the evidence
as previously reviewed in the oral reasons delivered on March 1, 2017. Ms. Thangarajah
testified on her own behalf as well as for the corporate applicant for which she
was the sole shareholder and director. She explained that her business was the
subject of an audit in early 2014 and that, after several meetings, she
received a summary of CRA’s position in a letter dated June 18, 2014. This
letter was addressed to the corporate applicant and a second letter was
addressed to her personally and dated October 22, 2014. Both letters referred
to unreported income and to a proposed reassessment based on an indirect or net
worth assessment methodology.
[6]
Ms. Thangarajah testified that she did not
agree with CRA’s position and that, sometime during the audit stage, she retained
the services of Ramesh Nicholas of CB Legal Firm, Nicholas & Associates. A
copy of the retainer dated August 21, 2014 was filed as evidence. Mr. Nicholas
was authorized to retain the services of two individuals to perform — and
I quote from the retainer letter — “an accounting or reconciliation of the
Applicants’ accounts”.
[7]
Although it is not clear what if anything,
Mr. Nicholas actually accomplished for the Applicants, Ms. Thangarajah
testified that she met with him on several occasions, often accompanied by her
son, to review the accounting and progress of the file. It was her
understanding that Mr. Nicholas would do whatever was required to deal
with the Notices of Assessment, though it was not clear that she actually
understood the importance of filing notices of objection. It appears from the
evidence submitted that an agent authorization form, known as a
Form 1013A, was prepared and signed by her on February 21, 2015 and
sent to CRA on March 3, 2015 but there is no evidence that a similar form
was filed for the corporate Applicant.
[8]
In the months that followed, Ms. Thangarajah
received calls from the CRA Collections Office and Mr. Nicholas was
appropriately informed and asked to take action. He finally did so and this is
made apparent in a letter dated September 10, 2015 addressed to a certain
Trudy Duggan of the CRA Collections Office, in which he sought to confirm a
telephone conversation that took place shortly prior thereto. Mr. Nicholas
confirmed that the Applicants’ accounting records were being reviewed by
appropriate professionals, that this process was almost complete and that,
presumably as advised by Ms. Duggan, he understood the need to file Notices
of Objection using the forms T400A for an individual and RCS9 for a corporation
and that, as soon as he heard from the accounting professionals, he would
initiate what he referred to as the “appeal process”.
[9]
As appears from a fax marked as Exhibit A‑9,
Ms. Duggan responded with a faxed letter the next day in which she
indicated that the collections file had been updated to indicate that an appeal
for the 2011 and 2012 taxation years was forthcoming with a further notation
that this had to be done as soon as possible. There was also on indication that
while documents could be copied to her office — and I quote from the fax
in question — “all original documents or submissions” have to be submitted
to the appropriate division.
[10]
In any event, it appears that nothing else was
done and that actual notices of objection were not filed such that the CRA Collections
Office undertook further steps that lead to the seizure of the Applicants’ bank
accounts. This eventually led to the firing of Mr. Nicholas. A complaint
was made to the Law Society of Upper Canada and eventually, a banker’s box
containing the Applicants’ documents was retrieved. It appears that
Mr. Nicholas may have misrepresented his status and used the expression
“Nicholas Legal Firm” when he was a paralegal and not a member in good standing
of the Ontario Bar. I will add that there was a suggestion that
Mr. Nicholas’ status as a paralegal had since been revoked though nothing
was put before the Court to corroborate this. To conclude on this issue, it is
clear that the Applicants were deceived and that they suffered as a result of Mr. Nicholas’s
failure to file the notices of objection.
[11]
To complete my review of the facts, I will only
add that Ms. Thangarajah’s son also testified at the hearing. He corroborated
his mother’s intention to challenge the results of the CRA audit and eventually
the Notices of Reassessment. He confirmed the difficulties with
Mr. Nicholas and the complaint to the Law Society and also stressed that
the Notices of Reassessment would impose an economic hardship on his mother.
[12]
As noted above, at the conclusion of the
hearing, the agent for both Applicants argued that the letter of
September 10, 2015 should be treated as valid notices of objection and
that, even if it was filed beyond the 90 day period referenced above, there was
no need to file an Application to extend the time for doing so since Ms. Duggan’s
faxed letters of September 11, 2015, filed as Exhibit A‑9, contained
an acknowledgement of receipt.
[13]
The Applicants relied on a decision of this
Court in Melanson v. The Queen, 2011 TCC 569, that dealt with a taxpayer
who had delivered a Notice of Objection to CRA two days after the expiry of the
90 day period from the mailing of the Notice of Reassessment. However, the
letter was not addressed to the Chief of Appeals as required by
subsection 165(2) of the Act. Justice Hershfield found that the Minister
had the discretion to accept the Notice of Objection as an Application to
extend the time pursuant to subsection 166.1(4) even though it was not
addressed to the Chief of Appeals and was not in the prescribed form. He also
referred to subsection 220(2.1) of the Act in finding that where the Act
referred to a prescribed form, the Minister could waive such a requirement. In
the end, Justice Hershfield found that the taxpayer had been misdirected and in
paragraph 27 found that “the applicant took reasonable steps to comply
with the law and acted on incorrect written information given by the Agency
when she was told how to file an objection without being warned that she was
already past the 90 day limitation period”. Justice Hershfield then
adjourned the proceeding and referred the matter back to the Minister to
consider the appropriateness of exercising the discretion offered to her by
various provisions of the Act. The ultimate outcome of that case is not known.
Was the letter of
September 10, 2015 an application to extend time?
[14]
As indicated above, following the reasoning of
this Court in Melanson, supra, the Applications to extend the
time to file notices of objection were adjourned sine die to allow the
Respondent to consider whether the letter of September 10, 2015 could be
considered as valid applications. As indicated above, the Respondent declined
to do so by letter dated March 22, 2017.
[15]
As indicated in the oral reasons delivered on
March 1, 2017, the Court is not prepared to accept the Applicants’
argument that the letter of September 10, 2015 was a notice of objection,
even though the case law has established a rather low threshold for documents
that are not in the prescribed form or lack detailed facts and reasons. The
position of this Court (and indeed of CRA) might have been different if the
letter in question had been titled “Notice of Objection” or if it had been
served on the Chief of Appeals, as required by subsection 165(2) of the
Act, or if, at the very least, it had been delivered to CRA within the
requisite 90 days from the mailing of the Notices of Reassessment.
[16]
The best that the Applicants can hope for is
that the letter of September 10, 2015 can be recognized by the Court as an
application for an extension of time to file a notice of objection. As
indicated above, the Respondent has declined to recognize the letter as such
and while no specific reasons were provided, it is apparent on the face of it
that the letter does not “set out the reasons why the notice of objection (…)
was not served on time”, as required by subsection 166.1(2) of the Act. In
the end, we can logically assume that the Minister concluded that the letter did
not satisfy the requirements of subsection 166.1(7).
[17]
Turning to the merits of the Applications, I
note that Ms. Duggan informed the Applicants’ agent of the need to proceed
expeditiously and file notices of objection, even referring to the appropriate
forms. As noted in my oral reasons delivered on March 1, 2017, I find that
she had a duty to go one step further and inform Mr. Nicholas that he was
already out of time to file notices of objection and that he would have to file
an application for an extension of time. She failed to convey that information
to him. But having found that she failed to meet a certain service standard,
the question remains: what is the legal consequence of that failure?
[18]
As has often been stated, the Tax Court of Canada
is not a court of equity and perceived notions of fairness do not trump
specific legislative provisions. At the end of the day, the Court must look to
the applicable provisions of the Act. Subsection 166.2(5) provides as
follows:
(5) 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.
[19]
Even if the Court were to conclude that the
letter of September 10, 2015 was sent to the CRA Collections Office within
the one year period from the expiry of the 90 days from the mailing of the
Notices of Reassessment, it would still have to be satisfied that the letter
itself could indeed be characterized as an application to extend time. It is
difficult to do so since the letter does not reference the statutory time
limits and does not mention that the taxpayer is seeking any kind of extension.
Moreover, as noted above, it does not state the reason why the notices of
objection were not filed on time. The suggestion that the applicants were
waiting for the accountants to complete their review, while providing an
explanation for the delay, does not address the failure to deliver the notices
of objection within the 90 days statutory limit.
[20]
In the end, the Court agrees with the Respondent
and concludes that the letter of September 10, 2015 does not constitute an
application to extend the time to file a notice of objection as required by
paragraph 166.2(5)(a). As a result, it is not necessary to review the
three‑pronged test set out in subparagraphs 166.2(5)(b)(i), (ii) or (iii)
of the Act.
[21]
Although this effectively disposes of the
Applications, the Court will comment on the fact that the Applicants retained
and relied on the services of Mr. Nicholas, ostensibly a lawyer, to assist
with the preparation and filing of the documentation necessary for the appeal of
the Notices of Reassessment. Although he had ample time to prepare and file the
required notices of objection, having been retained several months before the
actual issuance of the Notices of Reassessments, he clearly failed to do so. No
reasons were given for this failure though the inescapable conclusion is that it
was due to his ineptitude and incompetence. In other words, it appears he did
not know what he was doing.
[22]
However, in terms of the outcome of this case,
in my view, nothing turns on the fact that Mr. Nicholas held himself out
as a lawyer when in fact he was only a paralegal. That is a matter for the
appropriate professional governing body. Even if the Applicants may have a
cause of action for damages arising out the Mr. Nicholas’s negligence — a
cause of action that would have to be pursued in another court of law, the case
law from this Court has clearly established that a taxpayer who seeks to rely
on a lawyer’s negligence, must also demonstrate that such lawyer acted with due
diligence. That principle was explained in Di Modica v. Canada, [2001]
T.C.J. No. 620 (Q.L.) at paragraph 16:
[16] It is my
view that an error by counsel can be a just and equitable reason for granting
an extension of time if counsel otherwise exercised the reasonable diligence
required of a lawyer. I do not think that the state of the law is such that
counsel's negligence or carelessness can constitute a just and equitable reason
for granting the requested extension within the meaning of subparagraph
166.2(5)(b)(ii) of the Act.
[23]
While the Court has a general policy of dealing
with matters on the merits, there are limits to what it can do. In the case of Chu
v. The Queen, 2009 TCC 444, a taxpayer had similarly retained the services
of tax advisers to prepare and file a notice of objection but they failed to do
so. Having discovered the error, the taxpayer filed an application to extend
the time to file the notice of objection but the application was filed more
than one year after the expiry of the 90 day period from the mailing of the
Notice of Assessment. Justice Hershfield concluded that his hands were
effectively “tied” (para. 18) and although it was apparent that the
professional advisers had been negligent, the Court was not “an insurer against
such malfeasance” (para. 21). He concluded as follows:
[22] I cannot massage the language of the subject provision; I
have no jurisdiction to do so. There is no place for me to do that given the
clear statutory language of the subject provisions (…).
[24]
This outcome is most unfortunate for the
Applicants. Nonetheless, for all the foregoing reasons, the Applications must
be dismissed.
Signed at Ottawa, Canada, this 2nd day of May 2017.
“Guy Smith”
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