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;!
(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") 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. 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 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. 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, 989.
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, 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.
Email this Content