Robert Boisvert and René Gibeault v. Minister of National Revenue, [1991] 1 CTC 2573, 91 DTC 752

Couture, C.J.T.C.:—These appeals were heard jointly. Mr. Gibeault acted for himself and as an agent for Robert Boisvert.

The respondent has applied the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") in a uniform manner for the assessments issued against each of the appellants, although there are some variations in the relevant facts of the two appeals.

The taxation year with respect to which Robert Boisvert is appealing is 1986, while René Gibeault’s notice of appeal refers to the 1983, 1984, 1985 and 1986 taxation years.

In his reply to the notice of appeal, counsel for the respondent alleged that the Court lacked jurisdiction to rule on René Gibeault’s appeals concerning the 1983 and 1984 taxation years because they had not been lodged within the time limit prescribed by the legislation. As for the 1986 taxation year, it is alleged that the Court lacked jurisdiction to rule on the appeal because the appellant had not submitted a notice of objection to the assessment.

This appellant adduced no evidence at the hearing to rebut the allegations in the reply to the notice of appeal concerning the Court's jurisdiction with respect to the 1983, 1984 and 1986 taxation years; the Court must therefore admit that it lacks jurisdiction to hear those appeals, and they are dismissed.

With respect to René Gibeault's appeal for the 1985 taxation year and Robert Boisvert's appeal for the 1986 taxation year, the appellants were members of the overseas Canadian Forces school staff practising their respective professions in Germany. Before that assignment, both of the applicants were employed by school boards in the province of Quebec and were residents of that province. They fulfilled their overseas functions under a tripartite convention, a model of which was produced, between the Department of National Defence, the school boards that were their employers at the time, and the party of the third part, who was designated as "the teacher”.

In accordance with the provisions of the convention, the appellants’ school boards paid their salaries for the years subject to appeal—that is, while they were fulfilling their respective overseas functions—and made source deductions for income tax payable under the Act and the Taxation Act of the province of Quebec in addition to other mandatory deductions under various federal and provincial legislation.

The appellants filed their tax returns in accordance with paragraph 250(1)(d.1), that is, as deemed residents of Canada. To that end, they reported the income indicated on the T4 slips furnished by the school boards responsible for paying their salaries. On the line of the tax return where the taxpayer must indicate his place of residence on December 31 of the taxation year, that is, the province or territory in which he was resident as of that date, Gibeault indicated "other" and Boisvert wrote “other, deemed resident, 250(1)(d.1)”.

In calculating their tax payable, they used the applicable rate for federal income tax and, in accordance with section 120 of the Act, added 47 per cent to the amount of their basic tax because their income had not been earned in a province.

In line 440 of the return, the instructions for which reads “ Total income tax deducted per information slips”, they included the tax deducted at source by the school boards for both the federal government and the province of Quebec.

It should be mentioned that this procedure was clearly indicated in the respondent's guide for individuals outside Canada for the 1985 taxation year, that is, the one concerned in Gibeault’s appeal. The following appears on page 20 of that guide for 1985:

Deemed residents—Some people who live outside of Canada are "deemed" to reside in Canada. These include most government employees and their families.

For the year of departure from Canada and subsequent full years while outside of Canada, use the return for residents outside of Canada. Report all your world income. Full personal exemptions may usually be claimed without proration. No provincial tax is payable, as the federal surtax in lieu of provincial taxes applies. No provincial tax credits may be claimed. On page 1 of the return, enter the word ” other" on the line for province of residence. For the year of return to Canada you use the return for the province of residence where you reside on December 31.

The following appears on page 18 of the same guide in the paragraph entitled "Total tax deducted per information slips":

If Québec income tax was withheld from your earnings, attach to your return a copy of your provincial earnings slip issued by your employer. Include these tax deductions with your claim at line 440.

[Emphasis added.]

The instructions in the guide for individuals outside Canada for the 1986 taxation year were noticeably different with respect to members of the overseas Canadian Forces school staff who were resident in Quebec prior to leaving Canada.

The following appears on page 29 of that guide in the Paragraph entitled "Deemed Residents":

Note that members of the overseas Canadian Forces school staff who were resident in Quebec prior to leaving Canada are taxed as residents of that province for each year that they are abroad. Such individuals must therefore obtain and complete a T-1 return for residents of Quebec.

[Emphasis added.]

In his reply to the notice of appeal, the respondent said the following with respect to Gibeault:

[Translation]

9. By way of assessments, notices of which were sent to the appellant on December 31, 1986, for the 1985 taxation year and on September 25, 1987, for the 1986 taxation year, the Minister of National Revenue determined the tax payable by the appellant for the said taxation years; to this end, the Minister of National Revenue determined that the appellant was a deemed resident of Canada, and more specifically of Québec, throughout the said 1985 and 1986 taxation years and assessed him accordingly.

In his reply to the notice of appeal in the case of Robert Boisvert, counsel for the respondent said the following:

[Translation]

3. By way of assessment, a notice of which was sent to the appellant on July 13, 1987, the Minister of National Revenue determined the tax payable by the appellant for his 1986 taxation year; to this end, the Minister of National Revenue determined that the appellant was a deemed resident of Canada, and more specifically of Québec, throughout the 1986 taxation year and as such owed the following amount of income tax:

		1986
Taxable income	$ 26,265.00
Net federal tax	$ 5,207.20
Total tax payable	$ 5,207.20
less tax credit
—federal tax deducted at source	$ 4,509.56
—refundable Québec abatement		846.49
Total tax credits	$ 5,356.05
Balance (or credit)	(	$148.85)

The result of these assessments is that the respondent, in treating the appellants as deemed residents of the province of Quebec, assessed the basic federal tax and, rather than adding tax at the rate of 47 per cent of this basic tax because their income had been earned outside of the province of Quebec, granted them a tax credit (refundable Quebec abatement) as if the income in question had been earned in Quebec.

Counsel for the respondent produced no evidence to demonstrate what legislation, either federal or provincial, the respondent could apply to treat the appellants as deemed residents of the province of Quebec for the purposes of the Taxation Act.

The appellants object to this treatment by the respondent and submit that they should pay income tax as deemed residents of Canada under paragraph 250(1)(d.1) and subsection 120(1) of the Act. They also submit that, according to the instructions in the guide published by the respondent, they should receive a credit from their tax payable under the Act for tax their employer deducted at source for the province of Quebec; this would be done by including the amount deducted for Quebec in line 440 of their returns.

They also submit that servicemen resident In Quebec before going overseas were taxed under paragraph 250(1)(b) of the Act, that is, as persons deemed resident in Canada, and that the province of Quebec considered them not to be resident in the province and therefore exempt from provincial income tax. They submit that such a situation discriminated against them.

With respect to their claim concerning the application of paragraph 250(1)(d.1) and subsection 120(1), it is obvious from the facts and in view of the legislation that the assessments issued by the respondent were in error and that the appellants should have been assessed as deemed residents of Canada whose income had not been earned in a Canadian province.

Counsel for the respondent submits that the way in which the respondent assessed the appellants was to their advantage considering that they were supposed to be taxed under the Taxation Act. Unfortunately, he has not demonstrated the legal principle under which the appellants were supposed to be taxed under the Taxation Act.

Whatever the respondent's reason for issuing the assessments in question, it is invalid in view of the legislation. The respondent must comply with the Act no matter what impact that has on the taxpayer. St.-Onge, T.C.J. held in Patricia

M. Crossley v. M.N.R. (unreported judgment), in which the facts were almost identical to those in the situation before us, that the appellant had to be assessed in accordance with paragraph 250(1)(d.1), that is, as a deemed resident of Canada, and the result of this determination was that section 120 became applicable since the income had not been earned in a province of Canada.

As for the other aspect of the problem, that is, whether the respondent can consider the amount of tax deducted by the school boards for the purposes of the Taxation Act in establishing the balance due by the appellants by way of the assessment, it is first necessary to consider the Court's jurisdiction to apply the Act. The powers it has been granted are limited to determining whether an assessment such as those issued by the respondent was issued in accordance with the Act. Any other consideration that might be reflected in the notice of assessment does not lie within its jurisdiction. Moreover, the Court has no power to issue declaratory judgments, that is, to instruct the respondent to correct a situation not resulting essentially from the calculation of the tax, interest or penalties payable by a taxpayer, or in other words from the assessment.

In Pure Spring Co. v. M.N.R., [1946] C.T.C. 169; 2 D.T.C. 844, the president of the Exchequer Court, as it then was, held as follows with respect to an assessment (page 198 (D.T.C. 857)):

The assessment is different from the notice of assessment; the one is an operation, the other a piece of paper. The nature of the assessment operation was clearly stated by the Chief Justice of Australia, Isaacs A.C.J. in Federal Commissioner of Taxation v. Clarke (1927) 40 C.L.R. 246 at p. 277:

An assessment is only the ascertainment and fixation of liability,

This amounts to saying that an assessment is an operation carried out by the respondent to determine, in accordance with the Act, the tax, interest and penalties, where applicable, owed by a taxpayer for a taxation year. The respondent exercises these powers under the authority granted him by virtue of subsection 152(1) of the Act. Any other application, with respect to a tax return, of provisions of the Act or of the respondent's administrative policy that is explained in either the notice of assessment or an attached document does not lie within the Court's jurisdiction as to the assessment's validity, and the Court has no authority to issue an order concerning such an application.

With respect to their claim that they have been discriminated against because they were not assessed in the same way as servicemen outside of Canada, no evidence was adduced to prove that the respondent had assessed overseas servicemen on a different basis from school staff practising their profession outside of Canada. As for the application of the Taxation Act by the province of Quebec, it appears from certain documents produced at the hearing that teachers resident in Quebec before going overseas were not during the taxation years subject to appeal assessed on the same basis as servicemen in the same situation. If such a situation has resulted in discrimination against them, their claim should be brought against Quebec's Minister of Revenue in accordance with the prescribed procedure, and not against the respondent.

In the appeals before us, the appellants ask the Court to order the respondent to repay them the tax deducted at source for the purposes of the Taxation Act by granting them a credit for that tax from their federal tax. The Court does not have the power to issue such an order.

Notwithstanding what has been said above, I will nevertheless venture to make a comment concerning Mr. Gibeault's situation for the 1985 taxation year.

Considering that Mr. Gibeault, in filing his return for the year in question, strictly followed the very clear instructions found in the respondent's guide for individuals living outside of Canada, I feel that it would in the circumstances be fully in order for the respondent to take the necessary administrative measures, probably under the Financial Administration Act, R.S.C. 1985, c. F-1, to grant the appellant's claim, as it is obvious that the respondent misled him in preparing his return. [1]

Taxpayers should be able to rely on the instructions issued publicly by the respondent for preparing their tax returns without being penalized if those instructions are erroneous. In such a situation, it is incumbent on the respondent to spare taxpayers from penalties due to his own error. To refrain from correcting such a situation through administrative procedures available to him casts doubt upon the credibility of this information service for taxpayers.

For these reasons, Robert Boisvert's appeal for the 1986 taxation year is allowed, René Gibeault's appeals for the 1983, 1984 and 1986 taxation years are dismissed and René Gibeault's appeal for the 1985 taxation year is allowed. Costs are awarded on a party-party basis with respect to one appeal only.

Appeal allowed.