Trico Industries Limited v. Minister of National Revenue, [1994] 2 CTC 2053, 94 DTC 1740

Teskey, J.T.C.C.:— The appellant appeals its assessment of income tax for its fiscal year ending December 31, 1982.

Issues

The issues herein arise as a result of the appellant receiving a deemed dividend pursuant to subsection 84(3) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), and if one of the results of such deemed dividend has resulted in a significant reduction of the capital gain that could have been otherwise realized, then subsection 55(2) applies.

To determine if subsection 55(2) applies, the following issues must be determined:

(a) for the purposes of calculating the “safe income” of B.M.W. Monarch Ltd. ("Monarch") should B.M.W. Monarch (Lloydminster) Ltd.'s ("Lloydco") safe income be taken into account?

and

(b) if the answer to (a) is yes, then what portion of the safe income of Lloydco is to be taken into account?

and

(c) to the extent the deemed dividend received by the appellant exceeds the "safe income" of Monarch, attributable to the 50 Class "A" common shares owned by the appellant and repurchased by Monarch, does such difference amount to a "significant reduction" in a capital gain that could have been otherwise realized?

and

(d) if subsection 55(2) of the Act applies, then I must determine if the appellant is entitled to make the designation of "safe income" provided for in paragraph 55(5)(f) of the Act after reassessment in its notice of appeal.

Facts

At the commencement of trial, an agreed statement of facts was filed which can be summarized as follows:

1. At all relevant times the appellant, Monarch and Lloydco were taxable Canadian corporations.

2. At all relevant times Trico Industries Inc. ("Trico U.S.”), a United States corporation, owned all the shares of the appellant.

3. Prior to March 30, 1982, the issued share capital of Monarch consisted of 100 Class "A" common shares having an aggregate paid-up capital for the purposes of the Act of $100. Of the 100 issued Class "A" common shares, 50 were owned by Trico U.S. and 50 were owned by John Barabash, an individual resident in Canada.

4. Prior to March 30, 1982 the issued shares of Lloydco were held as follows:

5. On March 30, 982 a series of transactions took place as follows:

(a) On March 30, 1982 Trico U.S. transferred its shareholdings in Monarch (50 Class "A" common shares) to the appellant, electing to do so pursuant to the tax-deferred rollover provisions contained in subsection 85(1) of the Act. Form T2057 was filed with the Respondent.

(b) On March 31, 1982 Monarch sold for $1,172,300.97 all its assets (which included its shares in Lloydco) to the appellant in exchange for firstly, assumption of liabilities of $382,167.61 and secondly, preferred shares having a redemption amount of $118,500 and an aggregate paid-up capital of $100 for the purposes of the Act and thirdly, a promissory note in the amount of $671,633.36. The transaction was done pursuant to subsection 85(1) of the Act and Form T2057 was filed with the Respondent.

(c) Also on March 31, 1982 but subsequent to the transactions referred to in subparagraphs 5(a) and (b), herein,

(i) The appellant redeemed its Preferred Shares from Monarch for $118,500, and

(ii) Monarch purchased, for cancellation, its 50 Class "A" common shares from the appellant for the amount of $481,582.

6. The appellant in its T-2 Return of Income for the taxation year ending December 31, 1982, reported the amount by which the repurchase price of the 50 Class "A" common shares of Monarch exceeded their paid-up capital (such net amount being $481,532) as a deemed dividend pursuant to subsection 84(3) of the Act and deducted such deemed dividend in calculating its taxable income pursuant to subsection 112(1) of the Act.

7. Pursuant to subsection 55(2) of the Act the Respondent reassessed the appellant by converting the deemed dividend of $481,582 to proceeds of disposition.

8. The "safe income" of Monarch attributable to the 50 Class "A" common shares owned by the appellant and repurchased by Monarch for the period ending March 31, 1982 was $330,238.

9. The appellant conducted the transactions referred to above and reported the dividends referred to herein, without having,

(a) calculated the “safe income" of Monarch attributable to the 50 Class "A" common shares owned by the appellant and repurchased by Monarch;

(b) calculated the "safe income” of Lloydco; and

(c) filed a designation pursuant to paragraph 55(5)(f) of the Act.

Although there was oral testimony received, it only demonstrated that the corporate manoeuvrings were done for legitimate business purposes and that Monarch did not exercise any influence over Lloydco, whereas Trico U.S. exercised significant influence over Lloydco.

Appellant's position

The transaction in issue is the one where Monarch purchased for redemption its 50 Class "A" common shares of Monarch owned by the appellant for $481,582 (the portion that exceeded the amount of paid-up capital being $481,532).

The appellant disputes that the deemed dividend made a significant reduction in a possible capital gain as described in subsection 55(2).

The appellant also argues that because this subsection uses the phrases "series of transactions” and "any corporation" that in the calculation of safe income, I must not only use Monarch's safe income but I must include Lloydco’s safe income.

The appellant acknowledged that although paragraphs 55(3)(a) and (b) provide exceptions to the application of subsection 55(2), they do not apply herein.

The appellant acknowledged that the provisions of subsection 55(2) apply if I find that the portion of the $481,582 that is not safe income would significantly impair a capital gain, subject however to its right to designate the safe income pursuant to paragraph 55(5)(f) of the Act in its notice of appeal.

It was agreed that the appellant's portion of Monarch's safe income was $330,238 and argued that Monarch's portion of Lloydco's safe income was $120,959.

The appellant argues that it can consolidate these two safe incomes (i.e., $330,238 + $120,959 = $451,197) and since the net dividend was $481,532 and after deducting the safe incomes ($481,532 — $451,197 $30,335) only $30,335 is subject to subsection 55(2) and that $30,335 would not significantly impair a capital gain as described in the subsection.

The appellant further submitted that if I should determine that the portion of the dividend in excess of the safe income would impair a capital gain as defined in subsection 55(2) that (notwithstanding the appellant did not make the designation provided for in paragraph 55(5)(f) of the Act), it may do so now as this relief was asked for in its notice of appeal.

The appellant submitted three different arguments to support this latter contention, namely:

Firstly:

The designation contained in paragraph 55(5)(f) is not an election for the purposes of the Act.

and

Secondly:

That the appellant, on the filing of its 1982 T2 Tax Return was unable in law to reasonably make such designation,

and

Thirdly:

That this Court has the jurisdiction to grant the relief sought.

Respondent's position

The respondent argues that although there were a series of transactions, the only relevant transaction before me is the purchase for redemption of 50 Class "A" common shares of Monarch, by Monarch, from the appellant on March 31, 1982 and that the only safe income that can be used is Monarch's.

The respondent also submits that the deemed dividend amount in excess of the safe income would substantially impair a capital gain as described in subsection 55(2) even if Lloydco's safe income is added to Monarch's safe income.

The respondent also argues that there is no distinction between an election or a designation (as in paragraph 55(5)(f)) since this paragraph imposes an obligation on the corporation to make the designation in its return of income for the taxation year during which the dividend was paid, and refers the Court to the Federal Court of Appeal's decision of Miller v. M.N.R., [1993] 1 C.T.C. 269, 93 D.T.C. 5035.

The respondent also relies on the unpublished decision of my colleague St. Onge in Nivram Holdings Inc. v. M.N.R. (unreported), T.C.C., St. Onge, J., April 19, 1991, delivered orally from the bench on April 19, 1991, wherein he said at page 6 thereof:

In the present case, the appellant company filed its return without taking into consideration paragraph 55(5)(f) and there is nothing in the Act that gives the Tax Court the jurisdiction to allow a late filing except in the case of a notice of objection or a notice of appeal.

Analysis

Subsection 55(2) of the Act reads:

Where a corporation resident in Canada has after April 21, 1980 received a taxable dividend in respect of which it is entitled to a deduction under subsection 112(1) or 138(6) as part of a transaction or event or a series of transactions or events (other than as part of a series of transactions or events that commenced before April 22,1980), one of the purposes of which (or, in the case of a dividend under subsection 84(3), one of the results of which) was to effect a significant reduction in the portion of the capital gain that, but for the dividend, would have been realized on a disposition at fair market value of any share of capital stock immediately before the dividend and that could reasonably be considered to be attributable to anything other than income earned or realized by any corporation after 1971 and before the transaction or event or the commencement of the series of transactions or events referred to in paragraph 3(a), notwithstanding any other section of this Act, the amount of the dividend (other than the portion thereof, if any, subject to tax under Part IV that is not refunded as a consequence of the payment of a dividend to a corporation where the payment is part of the series of transactions or events)

(a) shall be deemed not to be a dividend received by the corporation;

(b) where a corporation has disposed of the share, shall be deemed to be proceeds of disposition of the share except to the extent that it is otherwise included in computing such proceeds; and

(c) where a corporation has not disposed of the share, shall be deemed to be a gain of the corporation for the year in which the dividend was received from the disposition of a capital property.

For the purposes of this appeal and what is in issue, subsection 55(2) of the Act can be abbreviated to read:

Where a corporation received a deemed taxable dividend under subsection 84(3) in respect of which it is entitled to a deduction under subsection 112(1) as part of a transaction or series of transactions and the result was to effect a significant reduction in the portion of the capital gain that, but for the dividend, would have been realized on a disposition at fair market value of any share of capital stock immediately before the dividend and that could reasonably be considered to be attributable to anything other than income earned or realized by any corporation.

John R. Robertson, F.C.A., Director General, Corporate Rulings Directorate in 1981, said at the annual conference of the Canadian Tax Foundation that in regards to the purpose of subsection 55(2):

The amendments are designed to ensure that while all the existing corporate rollovers will continue to apply, the realized proceeds on a variety of arm’s-length intercorporate share sales will not be treated as tax-free intercorporate dividends, but will instead be treated as capital gains. The application of subsection 55(2) is intended to be limited to cases of genuine tax avoidance and common sense should prevail.

Robert J.L. Read, C.A., the Director General, Specialty Ruling Directorate, Revenue Canada, in 1988 at the Annual Conference of the Canadian Tax Founda- tion, in his lecture entitled "Section 55 A Review of Current Issues", said under the heading of “The Historical Background of Subsections 55(2) and (3)”:

Before 1980, taxpayers were frequently able to undertake series of transactions that involved the removal of corporate surplus by payment of a tax-free intercorporatedividend, followed by an arm’s-length sale, at a reduced gain, of the shares on which the dividends were paid. In most cases, subsection 55(1) (then section 55) did not apply to prevent this avoidance of tax on capital gains. The government's response to these and other avoidance transactions was the enactment of subsection 55(2), a provision intended to apply to the receipt of dividends that result in a reduction of the capital gain that would otherwise be realized on an arm’s-length sale of any share of a corporation, where that gain is attributable to anything other than income earned or realized by a corporation after 1971.

He went on to say in regards to the application of subsection 55(2):

When subsection 55(2) applies, it deems tax-free intercorporate dividends not to be dividends but to be proceeds of disposition of a capital property or a gain from the disposition of capital property.

For subsection 55(2) to apply to a dividend received, the dividend must reduce a capital gain that, but for the dividend, would have been realized on a fair market value disposition of any share immediately before the dividend. Whether subsection 55(2) will apply to a particular dividend will depend in part on whether it is a deemed dividend under subsection 84(3) or some other type of deemed or actual dividend. Subsection 55(2) does not apply to an actual dividend received by a corporation, or to a dividend deemed by a provision other than subsection 84(3) to be received by a corporation, unless one of tne purposes of the series of transactions or events that includes the receipt of the dividend is to reduce the gain on disposition of any share. The Act's treatment of subsection 84(3) deemed dividends differs significantly in that the result of a subsection 84(3) deemed dividend — not its purpose — is relevant for purposes of subsection 55(2).

Other portions of the lecture under their [respective] headings are:

Safe Income

The Definition and Time of the Calculation

Paragraphs 55(5)(b), (c), and (d) define “income earned or realized by a corporation" for purposes of subsection 55(2). "Income earned or realized” or “safe income" with respect to a share of a corporation refers to the income earned by any corporation during the holding period of a particular share of a corporation that can reasonably be considered to be allocable to that share in the particular circumstances. "Safe income on hand" at a particular time with respect to a share of a corporation held by a particular shareholder is the portion of the income earned or realized by any corporation (safe income) during the relevant period of time that could reasonably be considered to attribute to the capital gain that would be realized on a disposition at fair market value of the share at that time. A “safe dividend” is a dividend paid on a share that does not exceed the safe income on hand in respect of that share.

In our view the phrase "income earned or realized by any corporation" contemplates the consolidation of safe income. Therefore, the safe income of the payer would have already been included in the consolidated safe income of the recipient, to the extent allocable to the recipient’s shares of the payer, and this consolidated safe income of the recipient would not change on declaration or payment of the dividend by the payer.

Consolidation of Profits and Losses

In a case in which a parent corporation owns a subsidiary, the safe income of the parent is calculated on a consolidated basis as required by the phrase "income earned or realized by any corporation” in the preamble of subsection 55(2). Therefore, the safe income of the subsidiary will be included in the consolidated safe income of the parent. When the subsidiary is sold, however, the consolidated safe income of the parent as restated will no longer include the safe income of the subsidiary, but will include any safe income resulting from the gain on the sale of the shares of the subsidiary.

Designations Under Paragraph 55(5)(f)

Paragraph 55(5)(f) entitles a corporation that is a recipient of a dividend to designate a portion of the dividend received to be a separate taxable dividend. This provision was enacted to allow a taxpayer uncertain about the amount of safe income on hand, with respect to the shares on which dividends were received, to reduce the amount of a dividend that might be subject to subsection 55(2).

A description of RCT's practice with respect to such designations was announced in our 1981 paper. A procedure for taking advantage of this practice was explained in our 1984 paper. The comments in both papers are consistent with our fundamental view that the ability to make a designation under paragraph 55(5)(f) does not relieve the dividend recipient of the onus imposed by the self-assessment system to report as a gain its best estimate of the amount of the dividend in excess of safe income.

In response to the question: "What constitutes a significant reduction of a portion of a capital gain for purposes of subsection 55(2)?", he said:

Subsection 55(2) refers to a reduction in the potential capital gain of any share. In determining whether the reduction of such a capital gain is significant, the aggregate absolute dollar amount of the reduction based on the total number of shares affected must be examined. For example, a one dollar per share reduction in the potential capital gain will not be significant if only six shares are affected, but will be significant if six million shares are affected. In certain circumstances, the percentage reduction may also be considered.

I accept Read's definition of “safe income” and his time of calculation as set out above and also that the word "any" in the phrase "income earned or realized by any corporation" permits the consolidation of safe incomes within a corporate group.

In order to determine if Monarch has available to it a portion of Lloydco's safe income, I must also look at the words "as part of a transaction or event or a series of transactions or events". These words do not deal with the calculation or consolidation of safe incomes, their purpose besides excluding from the effect of subsection 55(2) those transactions that were commenced before April 22, 1980 they also require me to look at each transaction individually and all the transactions collectively. Since the relevant transactions herein all took place in 1982, they were not excluded from the effect of subsection 55(2). I must deal with the transaction that gave rise to the assessment, even though it was obviously part of a series of transactions.

When Monarch sold “all” its assets (which included the 20 Class "A" common shares of Lloydco that it owned) to the appellant, the sale was at fair market value.

I have no hesitancy in saying that if the sale by Monarch to the appellant had not included the 20 Class "A" common shares of Lloydco, then the safe income of Lloydco could have been consolidated or added to Monarch's safe income. However, in actual fact, the 20 Class "A" common shares of Lloydco were included in the sale to the appellant using the rollover provisions of section 85 of the Act. Thus, the appellant became the owner of all of Monarch's assets including the 20 Class "A" common shares of Lloydco.

At this point in time, Lloydco cannot be said to be within Monarch's corporate group. Therefore Monarch, on the sale of the Lloydco shares, lost the benefit of the safe income. It elected to sell these shares in essence for cash rather than sit with a minority position in Lloydco and hope for a tax-free dividend in the future. These shares were an asset sold at market value which thus required Monarch's safe income to be recalculated downward by reducing from it the safe income available from Lloydco.

I therefore find that, in the circumstances before me, Lloydco's safe income cannot be taken into consideration for the purposes of calculating the safe income of Monarch.

The adjusted cost base ("ACB") of the 50 Class A common shares of Monarch held by the appellant was $50. Therefore, the capital gain on these 50 shares is the purchase price less the ACB, namely: $481,582 — $50 $481,532.

The result of the deemed dividend under subsection 84(3) was that there was a significant reduction in the portion of the capital gain that, but for the dividend, could have been realized on a disposition at fair market value. The capital gain being $481,532 was reduced to zero.

Obviously, the capital gain of $481,532 was substantially impaired by the subsection 84(3) dividend. Subsection 55(2) then converts the dividend into proceeds of disposition and this amount becomes taxable.

One of the effects of subsection 55(2) allows a Canadian corporate taxpayer to say there was safe income in the amount of the dividend or proceeds of disposition and it therefore is not taxable.

In this case the proceeds of disposition were $481,532 and Monarch's safe income was only $330,238. The potential capital gain, as referred to in subsection 55(2), would be reduced to $151,294 ($481,532 — $330,238 = $151,294). Obviously this dollar amount of $151,294 is significant and there would be a significant reduction in a potential capital gain.

I am satisfied that the sum of $151,294, in the circumstances before me, had the effect of significantly reducing a potential capital gain as described in subsection 55(2). Therefore subsection 55(2) applies to the purchase for redemption of the 50 Class "A" common shares of Monarch by Monarch from the appellant.

Having decided that subsection 55(2) applies, I must now determine if the appellant can be allowed to make a separate dividend designation pursuant to the provisions of paragraph 55(5)(f) of the Act even though it did not do so in its T2 tax return for its fiscal year ending December 31, 1982 as it requested to do so in its notice of appeal.

Although the appellant has convinced me that the meaning of the word “election”, as used in subsection 110.4(1) of the Act, has a distinct and different meaning than the word "designate", as used in paragraph 55(5)(f) of the Act, I am satisfied there is no difference in the net result.

Paragraph 55(5)(f) provides a Canadian taxpayer, under the circumstances herein, to split the dividend where the safe income is something less than the total dividend so that tax, pursuant to subsection 55(2), is only paid on the difference. This paragraph also places an obligation on the corporation, (if it chooses this course of action), to communicate the same to the Minister of National Revenue (the "Minister") by “designating” in its T2 tax return for the fiscal year in which the dividend is received. This paragraph reads:

55(5) Applicable Rules.— For the purposes of this section,

(f) where a corporation has received a dividend any portion of which is a taxable dividend,

(i) the corporation may designate in its return of income under this Part for the taxation year during which the dividend was received any portion of the taxable dividend to be a separate taxable dividend, and

(ii) the amount, if any, by which the portion of the dividend that is a taxable dividend exceeds the portion designated under subparagraph (i) shall be deemed to be a separate taxable dividend.

The facts herein are slightly different from the facts before my colleague St. Onge in Nivram in that, the appellant asked the Court, in its notice of appeal, to allow it to make a designation under paragraph 55(5)(f).

I do not believe that Nivram decided this question. The appellant referred me to the decision of Chief Judge Couture in Lee v. M.N.R., [1990] 2 C.T.C. 2262, 90 D.T.C. 1738 (T.C.C.), who said at pages 2268-69 (D.T.C. 1743):

Furthermore, I am not aware of any authority for the proposition that once a taxpayer has signed his tax return that he may not change his mind subsequently following the discovery of a mistake notwithstanding the certificate that he signed as part of his return. Certainly, when an honest mistake has been discovered by a taxpayer he must be permitted to correct it and the procedure to do so is provided in the Income Tax Act within certain prescribed requirements. The appeal process serves this purpose. Waites had completed an audit of the company, and having done so he was certainly qualified to advise his former partner as to the financial position of the company at the end of 1982.

In Blier v. M.N.R. (1957), 16 Tax A.B.C. 433, 57 D.T.C. 128, Fabio Monet who was then chairman of the Income Tax Appeal Board had to deal with the situation of a taxpayer who had filed income tax returns for a number of taxation years on a net worth basis, had paid the tax as estimated by her and was assessed accordingly, but took the position later on that her returns as filed were not correct and filed notices of objection against the assessments followed by notices of appeal. Mr. Monet at pages 435 (D.T.C. 129) said [in translation]:

Before proceeding on merit, the respondent contended that the appeal should be dismissed as ill-founded in law since the assessments under appeal made no change in the estimate the appellant herself had made of her taxable income and the tax payable by her. Under the Act, any person not satisfied with an income tax assessment issued by the Minister of National Revenue may object to it and, having done so, file an appeal once the Minister has given a decision thereon or 180 days have elapsed after service of the said notice of objection.

I agree with these comments and I am satisfied that they constitute a valid interpretation of the provisions of the Act dealing with the appeal process.

Lee therefore is authority for the proposition that a taxpayer following an honest mistake may have the same rectified on appeal. The only evidence before me is that the appellant did not calculate the safe income of Monarch or make a designation pursuant to paragraph 55(5)(f) of the Act. There could be numerous reasons why the calculation of safe income was not made or the designation of dividends under paragraph 55(5)(f) was not made. It is not up to me to speculate and in the absence of an acceptable explanation, I cannot determine if the failures were "honest mistakes”.

I appreciate that there is substantial difference between the words "may" and "shall" which was canvassed extensively by Strayer, J. of the Federal Court—Trial Division in Canada v. Adelman, [1993] 2 C.T.C. 207, 93 D.T.C. 5376.

The Federal Court of Appeal in Miller, supra, dealt with the issue of a forward averaging election made by Miller in respect of his 1987 year. The Minister disallowed a deduction and refused to increase the amount of income that Miller had elected to forward average. Mahoney, J.A. said at page 271 (D.T.C. 5036):

As for the taxpayer having the right to amend an election after assessment or reassessment of his relevant tax return, it is not, in my opinion, a question of a limitation period. There were, in 1982, several provisions for late elections in the Act. No such provision was made for a forwarding averaging election; it had to be made not later than the date on which the relevant tax return was required to be filed and it had to be filed with the return. The intention of Parliament is, in my view, clear; the taxpayer was entitled to make the election on the basis of his circumstances as they existed, and as only he could know, at the time he filed his return. The Act did not contemplate the election being made on the basis of changed circumstances which might result from an assessment or reassessment of the return.

To allow amendment of the election, either by the Minister as part of the assessment process or the taxpayer after assessment, would, in my opinion, require an inadmissible reading into the Act of words that were not there. I would allow the appeal and restore the assessment.

Paragraph 55(5)(f) gives a corporate taxpayer the option to designate portions of dividends. This designation is something that a corporate taxpayer may or may not want to make. Thus the words "may designate" make abundant sense. Only the corporate taxpayer has the knowledge of the necessary facts to determine if such a designation can or should be made. The making of the designation is "optional", but once a corporate taxpayer decides to do so, it must be done in accordance with paragraph 55(5)(f), i.e., in its return of income for the taxation year during which the dividend was received subject to the principle in Lee. I am unable to avoid the conclusion that the plain meaning of this paragraph is that the advantage available to a corporate taxpayer provided in paragraph 55(5)(f) cannot be claimed unless done so pursuant to the provisions therein.

Chief Justice Dickson, as he then was, of the Supreme Court of Canada said in Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32, [1987] 1 C.T.C. 117, 87 D.T.C. 5059 at page 55 (C.T.C. 129, D.T.C. 5067-68): "the courts must deal with what the taxpayer actually did and not what he might have done. . . .”

This principle, I believe, can also apply to what a taxpayer did not do and not what he might have done.

I appreciate that, by not allowing the appellant to request a late designation in his notice of appeal, the tax result is quite harsh. The harshness of the penalty for not calculating the safe income and not making a designation as set out in paragraph 55(5)(f) is an obvious detriment to not doing so in the hope that the contravention of subsection 55(2) is not discovered.

It is the validity of the assessment that is before me. The Minister has assessed the appellant based on facts known to him and reported by the taxpayer. Under the circumstances of this appeal, it is too late to ask for the designation pursuant to paragraph 55(5)(f).

I reject the appellant's argument that it was unable in law to reasonably make a designation, in light of the agreed facts.

In regard to jurisdiction, the Court has the obligation to determine if the assessment of tax made by the Minister is correct. If the appellant had made an honest mistake, I believe he would have had the right to make a late designation or request the same in its notice of appeal, then the Court would have the jurisdiction to send the assessment back to the Minister for reconsideration and reassessment on the basis of the late designation or request. In light of the fact that the Act does not provide for a late designation, I believe it can only be done in its applicable T2 tax return or (an amended T2 tax return), as provided for in paragraph 55(5)(f) subject to the principle in Lee.

The appeal is dismissed with costs.

Appeal dismissed.

Laurence Ginsberg v. Her Majesty The Queen

[Indexed as: Ginsberg (L.) v. Canada]

Tax Court of Canada (Christie, A.C.J.T.C.C.), April 19, 1994 (Court File No. 92-413).

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

The appellant filed his 1987 and 1988 returns of income on April 28, 1989. The returns were received by Revenue Canada on May 4, 1989. They moved through the system three times and on October 2, 1990, the returns were sent to Taxation Centre Assessment for manual assessment. The manual assessment commenced on November 2, 1990 and notices of assessment, dated December 21, 1990, were sent to the appellant. In the notices, both returns were assessed as filed. The issue was whether the Minister acted “with all due dispatch” within the meaning of subsection 152(1) with respect to the appellant’s returns of income for his 1987 and 1988 taxation years. At the hearing, D, an employee of Revenue Canada with 26 years' experience, could offer no explanation for the delay. The argument made on behalf of the Crown was that at the time relevant to this appeal Revenue Canada had designed and was using a system intended to process returns of income with all due dispatch. Nevertheless Revenue Canada is not infallible and having regard to the enormous volume of returns processed at the Ottawa Taxation Centre there are bound to be some lengthy and unexplained delays. The returns of the appellant fell into that category and such returns could not be regarded as not having been examined and assessed with all due dispatch within the meaning of subsection 152(1).

HELD:

Once a significant delay is established, the onus is on the Crown to establish by evidence pertaining to the manner in which that return was dealt with that the delay was not unreasonable. It is insufficient to simply argue that the return must be regarded as falling within the small number of unidentified returns that, because of the very large volume of returns dealt with at a particular taxation centre, will inevitably be the subject of inexplicable and protracted delays. In the case at hand, the lapse of time between the receipt of the returns and the assessments was 1'/2 years. Such a delay is prima facie unreasonable. Moreover, there were no special complexities about the returns filed by the appellant and they were eventually assessed as submitted. In addition, D, who counsel for the Crown correctly described as ‘’a very knowledgeable individual” could offer no explanation for the delay. Appeal allowed and reassessments vacated.

D. Rotfleisch for the appellant.

D. Forer and M.-T. Boris for the respondent.

Cases referred to:

Lipsey v. M.N.R., [1984] C.T.C. 675, 85 D.T.C. 5080;

Jolicoeur v. M.N.R., [1960] C.T.C. 346, 60 D.T.C. 1254;

Hutterian Brethren Church of Wilson v. The Queen, [1979] C.T.C. 1, 79 D.T.C.

5052:

J. Stollar Construction Ltd. v. M.N.R., [1989] 1 C.T.C. 2171, 89 D.T.C. 134;

Rosales v. Canada, [1993] 2 C.T.C. 2852:

M.N.R. v. Appleby, [1964] C.T.C. 323, 64 D.T.C. 5199.

Christie, A.C.J.T.C.C.:—The parties agreed in writing to these facts:

I. The appellant filed his returns of income for the 1987 and 1988 taxation years on April 28, 1989. The appellant's return of income for the 1987 taxation year was required to be filed by April 30, 1988.

II. The notices of assessment sent to the appellant by the Minister of National Revenue (the "Minister") for the appellant’s 1987 and 1988 taxation years were both dated December 21, 1990. Both returns were assessed as filed.

111. On June 16, 1992 the Minister adjusted the appellant’s outstanding account for his 1987 and 1988 taxation years. This adjustment deleted arrears interest previously assessed in respect of the period from September 28, 1989 to December 21, 1990.

IV. The appellant admits paragraph 8 of the reply and the schedules referred to therein.

V. The Minister's calculations of tax payable, instalment interest, arrears interest and the late filing penalty are correctly set out in the reply and are not at issue in this appeal.

Paragraph 8 of the reply to the notice of appeal, as amended, reads:

8. In so reassessing the appellant, the Minister made, inter alia, the following assumptions of fact:

Late Filing of 1987 Return

(a) the appellant’s return of income for the 1987 taxation year (the "1987 return") was required to be filed with the Minister on or before April 30, 1988;

(b) the 1987 return was not filed with the Minister until April 28, 1989;

(c) the amount of tax for the 1987 taxation year that was unpaid when the return was required to be filed was $10,028.91;

Instalment Interest for 1987 and 1988

(d) during the 1987 taxation year, the appellant's total income was $71,060;

(e) during the 1988 taxation year, the appellant’s total income was $70,871;

(f) during the 1987 and 1988 taxation years, the appellant’s income from which amounts were deducted or withheld at source was nil:

(g) the appellant's tax payable, net of provincial tax, for the year prior to the 1987 taxation year was $6,974.20;

(h) the appellant's tax payable, net of provincial tax, for the 1987 taxation year was $10,028.91;

(i) the appellant’s tax payable, net of provincial tax, for the 1988 taxation year was $7,077.77;! [1]

(j) the appellant was required to pay instalments of tax in respect of the 1987 taxation year on March 31, June 30, September 30, and October 30, each in the amount of $1,955.85;

(k) the appellant was required to pay instalments of tax in respect of the 1988 taxation year on March 31, June 30, September 30, and October 30, each in the amount of $2,874.59;

(l) during 1987, the appellant did not pay any instalments of tax in respect of the 1987 taxation year;

(m) during 1988, the appellant paid instalments of tax in respect of the 1988 taxation year as follows:

February 9,1988	$ 499.78
June 2, 1988	$1,000.00
July 5, 1988	$1,000.00

(n) the appellant has not paid the balance of tax assessed as payable in respect of the 1987 taxation year as at December 31, 1991;

(o) the appellant has not paid the balance of tax assessed as payable in respect of the 1988 taxation year as at December 31, 1991;

(p) instalment interest in respect of deficient instalments for the 1987 taxation year amounts to $446.87, as calculated in Schedule "A" attached hereto;

(q) instalment interest in respect of deficient instalments for the 1988 taxation year amounts to $581.60, as calculated in Schedule "B" attached hereto;

(r) the appellant’s chief source of income for both the 1987 and 1988 taxation years was neither farming nor fishing.

Schedules A and B consist of a total of 18 pages. I do not regard it as necessary to reproduce them for the purpose of these reasons.

The issue is whether the Minister of National Revenue acted “with all due dispatch” within the meaning of subsection 152(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") ("the Act") [2] with respect to the appellant's returns of income for his 1987 and 1988 taxation years.

At the outset of the hearing counsel for the appellant, Mr. David Rotfleisch, informed the Court that he was relying entirely on the agreed statement of facts. He offered no evidence.

Mrs. Beverly J. Deschamps, an employee of Revenue Canada, testified on behalf of the respondent. At the time of the nearing she was section manager in T1 Electronic Processing, Ottawa Taxation Centre. She commenced employment with Revenue Canada in 1968. In 1984 she became involved in error inspection and in 1989 and 1990 she was a Group Head in that work focusing on T1 individual returns.

The viva voce evidence is somewhat technical and, hopefully, in the interests of clarity of presentation it is related under three headings: Revenue Canada’s Procedure; appellant’s Returns of Income; Reasons for Delay.

Revenue Canada's procedure

This flow chart is Exhibit R-3 and is directly related to the evidence of Deschamps. [See following page for flow chart.]

Returns of income are received by Revenue Canada in the incoming mail. The returns are placed in bags, according to arrival date, and subsequently the date received is manually stamped on them.

After the date received is affixed to a return it is forwarded to the selection area where returns are sorted into three categories; prior and concurrent returns, current year complex returns and profile returns. The latter are basic returns which usually contain only employment income. Returns are processed on a a first in, first out (FIFO) basis, with the exception of profile returns which are fast-tracked.

The appellant filed his 1987 and 1988 returns together. [3] Consequently they were sorted as prior and concurrent returns. They were sent to Compliance and Other Programs Area (COPS). When in the COPS area a return is processed by the Supplementary Assessing Section (SAS). In SAS a decision is made to forward a return to the Taxation Centre Assessment (TCA) where a manual assessment is prepared. If a return is not routed to TCA it is sent for computer assessment to the Sorting, Numbering and Locator Number Division where it receives a sequential, eight digit code that enables identification and tracking.

Once a code is assigned a return is moved to Data Conversion where the data provided on a return is keyed into the computer for cycle processing.

After the information is keyed, a preliminary check is executed by the computer. This consists of a series of minor calculations performed as part of a system of checks and balances. If errors are detected a return is identified by code number and the error is corrected. If no errors are detected the information is permitted to proceed into cycle processing.

From April to July, inclusive, one cycle is processed weekly. From August onward three cycles are performed every two weeks. In 1989, a total of one million returns, for the entire country, could be processed during a cycle. Of the total Ottawa was allotted 20%. At peak periods, 200,000 returns from the Ottawa office could be processed in a cycle.

Once a return has been through a cycle it can “clean assess", be in error or be cancelled. Clean assessing results when the computer accepts all the data as keyed, the information in a taxpayer's master file is updated and a notice of assessment is mailed. Errors emanate from two sources. The first occurs if a return exceeds system parameters, such as a refund that is greater than $5,000 or an amount owing that is more than $9,000. A second error is the result of accounting mistakes or problems with the taxpayer's account. These errors are detected as the cycle runs. A cancellation occurs for various reasons, such as two returns for a single taxpayer being processed separately in a cycle when they are required to be processed concurrently. Eight errors can be identified and corrected on a single cycle, but one cancellation appears for each cycle.

If a cancellation is registered a return must be sent back to sorting and numbering or COPS for new identification codes and rekeying, whereas an error can usually be rectified on-line. A return that registers an error can be cycle processed five times. If an error appears on the sixth cycle it will cancel. Once a return cancels three times it is manually assessed by TCA.

Appellant’s returns of income

Deschamps reviewed the various codes, indicators, cyclenumbers and dates that were present on the appellant’s returns. In so doing she attempted to piece together what occurred, and on what dates, with these returns as they passed through the process. She said that the appellant filed returns for the 1987 and 1988 taxation years simultaneously. Accordingly, they were classified as prior year and concurrent. The returns were stamped received on May 4, 1989. [4] Inventories of returns build up during the peak season. For the week ending May 5, 1989, Revenue Canada, Ottawa Office, received 994,000 returns. At the time the appellant’s returns were filed the inventory at the Ottawa Taxation Centre was 112,000 returns. Being prior year and concurrent returns they were sent to COPS, where they were received on May 23, 1989.

The final processing cycle of the 1989 year was in January 1990. The appellant's returns were processed in this cycle and cancelled out. On January 22, 1990, the returns were again received in COPS. On May 21, 1990, the returns were input to cycle processing and processed through several cycles. Subsequently, they cancelled out on July 16, 1990, and returned to COPS. On September 27, 1990, cycle processing of the returns was attempted and once more they cancelled out.

Finally, on October 2, 1990, they went to TCA for manual assessment. The manual assessment commenced on November 2, 1990, and a notice of assessment sent on December 21, 1990. Ultimately, the returns were assessed as filed.

Chronology

May 4, 1989	Returns received by Revenue Canada.
May 23, 1989	Returns received by COPS.
January 1990	Returns cancelled out.
January 22, 1990	Returns received by COPS.
May 21, 1990	Input into cycle processing.
July 16, 1990	Returns cancelled out and returned to COPS.
September 27, 1990	Input into cycle processing and cancelled out.
October 2, 1990	Returns received by TCA.
November 2, 1990	Manual assessment commenced.
December 21, 1990	Notice of assessment sent to taxpayer.

Reasons for delay

From the evidence it can be adduced that there were two periods of delay: first, from May 23, 1989 to January 1990; second from January 22, 1990 to May 21, 1990.

In the course of cross-examination this exchange between counsel for the appellant and the witness was recorded:

Q: Mrs. Deschamps, you have looked at these returns. Would you say there is anything unusual about them?

A: No.

Q: Nothing that would warrant extraordinary processing or delays in processing?

A: No. The only unusual thing is the timing of the 1990 part of the processing where it appears the '89 return and the ‘90 returns coincided.

Q: What caused that?

A: The filing of the 1989 return as well as the processing of the 1987 and ‘88 returns.

Q: That was because the ‘87 and the ‘88 returns were delayed in the process in the following year. So that delay in processing caused the two returns to be processed at the same time as the subsequent year’s. It was that initial delay of eight or nine months that we don't know about?

A: Yes.

Q: Do you look at the nature of the returns in determining the priority for processing? If the taxpayer owes $100,000 would you attempt to assess that on an accelerated basis?

A: No.

With respect to the second eriod of delay the witness speculated that attempting to process the return filed for the 1989 taxation year before the 1987 and 1988 returns were processed could have caused the delay.

Cross-examination concluded with this evidence:

HIS HONOUR: Just one point, I want to make sure I have this correct. The returns are received on May 4, 1989. They are sent to manual processing on November 2, 1990.

THE WITNESS: Yes.

HIS HONOUR: And during that period, they moved within your system three times?

WITNESS: Yes.

HIS HONOUR: Then the bottom line is three cancellations?

THE WITNESS: Yes.

HIS HONOUR: Can you explain why it took from May 4, 1989 to November 2, 1990 to deal with those two returns?

THE WITNESS: There is nothing outstanding about these returns.There is nothing unusual and there are no large claims.

HIS HONOUR: So is your answer, you can’t explain it?

THE WITNESS: Yes, Your Honour.

HIS HONOUR: Thank you. Is there reexamination?

In Lipsey v. M.N.R., [1984] C.T.C. 675, 85 D.T.C. 5080 (F.C.T.D.), the applicant sought a number of declarations and an order to require the Minister to issue an assessment for the 1980 taxation year. The relief sought in paragraph 5 of the application was a declaration that a notice of reassessment dated September 18, 1984 concerning the applicant’s 1979 income tax is null and void “in that The Honourable Mr. Justice Cattanach had ordered on March 12, 1984, that no further steps were to be taken.” Paragraph 7 of the application sought an order directing the sending of a notice of assessment under subsection 152(2) of the Act. At page 678 (D.T.C. 5083), Strayer, J. said:

The relief sought in paragraph 7 was explained by counsel to be an alternative if I declined to provide the relief in paragraph 5. Having so declined, I must then consider whether the relief sought in paragraph 7 should be available. It is all predicated on this Court directing the delivery of a valid notice of assessment for the year 1980. Counsel was unable to refer me to any authority that this Court has to direct the issue of a notice of assessment, nor did he establish a statutory basis for such a duty in the Minister to issue an assessment as might be enforceable by mandamus. I assume that such duty as there is arises under subsection 152(1) of the Income Tax Act which provides:

152(1) The Minister shall, with all due dispatch, examine a taxpayer's return of income for a taxation year, assess the tax for the year, the interest and penalties, if any, payable. . . .

Subsection 152(2) provides:

(2) After examination of a return, the Minister shall send a notice of assessment to the person by whom the return was filed.

Presumably the question of sending a notice under subsection (2) does not arise until the assessment has been completed under subsection (1) which according to that subsection is to be effected “with all due dispatch”. This phrase was considered by Fournier, J. in Jolicoeur v. M.N.R., [1960] C.T.C. 346, 60 D.T.C. 1254 (Ex. Ct.), at page 358 (D.T.C. 1261), where he said that these words "have the same meaning as ‘with all due diligence' or ‘within a reasonable time'". I respectfully agree with this interpretation. To issue mandamus the Court must be satisfied that all the conditions have been met for the exercise of the power, and that in the circumstances the official in question has no discretionary power to delay or to refuse taking the step which is sought to be ordered by mandamus. It seems doubtful that a judge could ever be in that position vis-a-vis the issuance of a notice of assessment. If it were possible, the present case is not one in which the Court can be satisfied that an unconditional obligation now exists on the part of the Minister to issue a notice of assessment for 1980. The words “with all due dispatch” invoke a test of reasonability and the evidence does not demonstrate to me that any further delay in issuing this notice of assessment is utterly unreasonable.

It will be noted that apart altogether from the matter of "with all due dispatch” Mr. Justice Strayer doubted that a judge could ever be in a position to direct the sending of a notice of assessment. I

In Hutterian Brethren Church of Wilson v. The Queen, [1979] C.T.C. 1, 79 D.T.C. 5052 (F.C.T.D.), assessments of corporate income tax returns for the years 1968 to 1975 inclusive were not made until these various dates: December 23, 1976, December 29, 1976, March 31, 1977, April 6, 1977. The primary reason for the delay was that assessments against certain individual members of the Hutterite Colony were the subject of litigation that was finally resolved by the Supreme Court of Canada on February 11, 1976: [1976] C.T.C. 57, 76 D.T.C. 6059.

The magnitude of what followed the decision of the Supreme Court of Canada is described by Mr. Justice Mahoney on page 2 (D.T.C. 5053):

The plaintiff appeals income tax assessments for its taxation years ended December 31 in each of the years 1968 to 1975, both inclusive. By order made July 4, 1978, this and seven other actions against the defendant are test actions. The judgments in the test actions are to be final in respect of a further 88 actions. The plaintiff in each action is a colony of the Darius-Leut Conference of the Hutterian Brethren Church. By the same order, all subsequent proceedings in all test actions have been taken in this action. At trial, all test actions were heard together on common evidence.

He dealt with ‘all due dispatch” at pages 6 and 7:

As to the allegation that some, at least, of the assessments are statute barred, the relevant provisions of the Act are subsections (1), (3) and (4) of section 152.

152(1) The Minister shall, with all due despatch, [5] examine each return of income and assess the tax for the taxation year and the interest and penalties, if any, payable.

(3) Liability for the tax under this Part is not affected by an incorrect or incomplete assessment or by the fact that no assessment has been made.

(4) The Minister may at any time assess tax, interest or penalties under this Part 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 taxation year, and may

(a) at any time, if the taxpayer or person filing the return

(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or

(ii) has filed with the Minister a waiver in prescribed form within four years from the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year, and

(b) within four years from the day referred to paragraph (a)(ii), in any other case,

reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require.

The plaintiffs’ first argument is that many of the assessments were not made "with all due despatch” as required by subsection 152(1).

It is agreed that "throughout the years 1967 to 1975 inclusive the plaintiffs filed corporation income tax returns". The copies of the returns transmitted by the Minister in compliance with subsection 176(2) are, in many cases, too faint to read. However, since none of the assessments invoke a penalty, I infer the returns were filed on time and that, therefore, a notice of assessment may have been issued as much as eight years after the return, to which it relates, was filed.

The defendant argues that it was entirely reasonable for the Minister to delay assessment of the corporation tax returns pending disposition of the appeal process on the personal assessments and that, indeed, it would have been unreasonable for him to have done otherwise. In the defendant’s submission, the time lag to be considered in the context of “all due despatch" is the period that commenced with the decision of the Supreme Court of Canada, February 11, 1976. I agree. The returns were, in the circumstances, assessed with all due despatch and it is unnecessary for me to consider what the consequences would be if they had not been, particularly in view of subsection 152(3).

In the circumstances the inference is that Mahoney, J. regarded the periods of delay of about 10 months and 13 months between February 11, 1976 and the assessments to have been compliance with subsection 152(1).

In J. Stollar Construction Ltd. v. M.N.R., [1989] 1 C.T.C. 2171, 89 D.T.C. 134 (T.C.C.), the question for determination was again whether the Minister had acted “with all due dispatch" within the meaning of subsection 152(1). The facts are brief. The appellant filed its return of income for its 1976 taxation year within the time prescribed under paragraph 150(1 )(a) of the Act, namely, within six months from the end of the year. It had been sent to the respondent on March 2, 1977. On July 5, 1983, the Minister issued a notice of assessment. The appellant objected to it on September 30, 1983, and it was confirmed on March 29, 1985.

Bonner J.T.C.C. said at page 2172 (D.T.C. 135):

The respondent made reference in the reply to a failure by the appellant to pay instalments on account of its tax for 1976 and to pay the amount of the tax which it estimated was owing at the time it filed its return of income for the year. No attempt was made to establish a link between the failure to pay and the delay in assessing. The respondent called no evidence explaining why it took six years and five months to issue the assessment. The amount of tax assessed was the same as the amount estimated in the return of income. The respondent's counsel assured the Court that no one knew why it took so long and she admitted that the matter “seems to have slipped through the cracks”. It is on those rather sparse facts alone that the appeal is to be decided.

He added at page 136:

The words “with all due dispatch” and the words “avec toute la diligence possible" express a Clear intention on the part of the legislature to require the Minister to act within a reasonable period, the length of which will vary in accordance with the circumstances of each case. The statutory language does not permit the formulation of a rigid time limit. The Courts have in the past allowed the Minister considerable latitude. Thus for example in Hutterian Brethren Church of Wilson, supra, assessments were found to have been made with all due dispatch even though the Minister deferred assessing action for a very long period of time while related issues of liability were being litigated. I have outlined the facts on which a conclusion must be reached in the present case. It is significant that the respondent has failed to adduce any evidence to explain a delay which, on the face of it, is inordinate. It is neither desirable nor possible to identify the last day of the period reasonably required to assess in the circumstances of this case. It is sufficient to say that if the words “with all due dispatch” are not to be deprived of all meaning, the period allowed by those words must be found to have expired long before the assessment under appeal was made.

He then went on to find on the facts that the Minister had not acted with all due dispatch and vacated the assessment.

I emphasize that the reasons for judgment make it clear that the lapse of what period of time fails to meet the requirements of “with all due dispatch” will vary in accordance with the facts in each case.

In the course of argument counsel for the respondent informed the Court that Stollar had been reversed on consent by the Federal Court-Trial Division. In Rosales v. Canada, [1993] 2 C.T.C. 2852, Sarchuk, J.T.C.C. said at page 2858 with reference to this reversal that in his view the principles enunciated by Bonner, J.T.C.C. are correct and have not been overruled by the consent judgment. I agree.

In M.N.R. v. Appleby, [1964] C.T.C. 323, 64 D.T.C. 5199 (Ex. Ct.), what was then subsection 58(3) of the Act and is now subsection 165(3) thereof was under consideration. It reads:

58(3) Upon receipt of the notice of objection, the Minister shall, with all due despatch reconsider the assessment and vacate, confirm or vary the assessment or reassess, and he shall thereupon notify the taxpayer of his action by registered mail.

Dumoulin, J. said at pages 339-40 (D.T.C. 5208):

Receipt of the notices of objection was set at January 10, 1958, and all confirmations of reassessments bear the date of November 4, 1959 (cf. exhibits 58-59).

A lapse of 22 months, in ordinary conditions, exceeds even a very liberal interpretation of “all due despatch". The question raised, presently, seems of a different order; a period of fourteen years had to be gone over, piles of accountancy records, deposit slips, clients’ cards, as also extensive dealings in ranching and horse races, were investigated anew, sorted and classified, before the definite confirmation of reassessments destined to constitute eventually the basic essentials of judicial proceedings.

His Lordship went on to find that the Minister had, in the circumstances, acted with all due dispatch.

With respect to Appleby I acknowledge that what constitutes all due dispatch respecting the confirmation of an assessment after receipt of a notice of objection might be quite different from the requirement to examine and assess with all due dispatch on receipt of a return of income.

As I understand it the argument made on behalf of therespondent is that at the time relevant to this appeal Revenue Canada had designed and was using a system intended to process returns of income with all due dispatch. Nevertheless Revenue Canada is not infallible and having regard to the enormous volume of returns processed at the Ottawa Taxation Centre there are bound to be some lengthy and unexplained delays. The returns of the appellant fall into that category and such returns cannot be regarded as not having been examined and assessed with all due dispatch within the meaning of subsection 152(1) of the Act.

In argument counsel said: "The process is designed to be as expeditious as possible and to be as accurate as possible.” Later she added that the system was presumably the best that could be devised at that time. It worked regarding the majority or taxpayers. She suggested that one of the factors for the delay "could well be the inherent problems that occur in a monolithic system dealing with millions upon millions of taxpayers filing.” These statements are conjectural in that they are not things said in evidence by the witness Deschamps.

Nevertheless, I accept that Revenue Canada designed the processing system to deal with the returns expeditiously and accurately. Indeed it is obviously in its own best interest to do so. But the difficulty I have with the argument advanced on behalf of the respondent is that, having regard to the relatively minute number of assessments challenged in litigation on the ground of failure to examine and assess with all due dispatch, it more or less forecloses any successful allegation that the "with all due dispatch” requirement has not been met.

I believe that if there is a delay that prima facie indicates a failure to examine and assess a return with all due dispatch as required under subsection 152(1) of the Act there is an onus on the respondent to establish by evidence pertaining to the manner in which that return was dealt with that the delay was not unreasonable. It is insufficient to simply argue that the return must be regarded as falling within the small number of unidentified returns that, because of the very large volume of returns dealt with at a particular taxation centre, will inevitably be the subject of inexplicable and protracted delays.

In the case at hand the lapse of time between the receipt of the returns and the assessments was one and one-half years. It strikes me that on the face of it this is a failure to meet the requirements of subsection 152(1) that returns of income shall be examined and assessed with all due dispatch. If there were evidence of some special circumstance relating to the appellant’s returns which established that a delay of 18 months was reasonable then the requirements of the law would have been met. But there is no such evidence before the Court on this appeal. There were no special complexities about the returns filed by the appellant and they were eventually assessed as submitted. Mrs. Deschamps, who counsel for the respondent correctly described as "a very knowledgeable individual” could offer no explanation for the delay.

The appeal is allowed with costs and the reassessments vacated.

Appeal allowed.