Boris Netupsky v. Her Majesty the Queen, [1995] 1 CTC 2321

Kempo J.T.C.C. (orally):—This general procedure appeal concerns the appellant’s 1989 taxation year. Two main issues were advanced at the hearing.

The first issue related to the alternative minimum tax ("AMT”) respecting the 1989 taxation year under the provisions of section 127.51 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act”) and, more particularly, whether it was applied in the first assessment dated July 18, 1990 and continuing thereafter until the reassessment which is now under appeal. Subsumed within this aspect of the case was whether the reassessment from which this appeal was sourced was the one dated March 10, 1993 which issued within the normal three-year assessment period as provided under subsection 152(3.1) of the Act or was the one dated September 30, 1993 which falls outside that normal assessment period. No questions or suggestions arose respecting matters of misrepresentation or fraud, and no waiver was filed. However in circumstances where a reassessment may have issued under subsections 152(4) and 152(6) of the Act respecting a carry-back deduction from a subsequent taxation year, the normal reassessment period is statutorily extended by a further three years for the purpose of taking into account the effects of the carry-back entitlements.

Prima facie, then, the September 30, 1993 reassessment may not be statute-barred. The appellant averred only during his submissions that no carry-back request was made by himself or by anyone on his behalf. However this aspect of the matter was neither raised in the pleadings nor explored at all during the evidence tendered in the case. Counsel for the respondent conceded that the September 30, 1993 reassessment would, but for the carry-back provisions, be statute-barred.

I note that the T7W-C form attached to the September 30, 1993 reassessment (Exhibit A-l) purportedly recalculated and reduced the net income as previously reassessed by way of application of 1990 loss carrybacks. The October 7, 1993 objection filed thereto by the appellant focused solely on the three-year limitation period having passed, and his amended notice of appeal dated November 15, 1993 was not directed to this aspect of the situation except, perhaps, only peripherally in the context of addressing the effects and timing of the AMT.

I find that the September 30, 1993 reassessment was not statutorily void and that it remains valid and binding under the provisions of subsection 152(8) and section 166 of the Act. Even if I may be wrong, the March 10, 1993 reassessment would nonetheless continue to subsist if the September

30 one was seen to be invalid; see Lornport Investments Ltd. v. Canada, [1992] 1 C.T.C. 351, 92 D.T.C. 6231 (F.C.A.) at page 353 (D.T.C. 6233).

The appellant’s case was supported by his own oral testimony, by his documentary exhibits, and by the testimony of two officials employed by the Minister of National Revenue, Taxation (the "Minister”). One witness, who was the Minister’s designated appeals officer for the region, testified for the respondent.

The appellant’s two witnesses, Messrs. McClure and Merwin, were the parties to an internal memo dated June 4, 1993 (Exhibit A-5) wherein it was opined that the AMT calculation by the Surrey Taxation Centre had only a 50/50 chance of being correct based on its previous assessments of the appellant. Both individuals confirmed this was their view of the matter at the time.

In my opinion, the question as to whether the AMT was applied at the time of the first assessment, July 18, 1990, and had been continued thereafter to September 30, 1993, was fully and credibly answered by the respondent’s witness, Mr. John Asher. A detailed schedule was prepared by himself (Exhibit R-2) with all of the calculations, the reasons therefor, and the fact that the AMT had been applied throughout. This schedule was prepared approximately one year ago in response to the appellant’s wellvoiced concerns as to how the tax calculations, as shown on the notices of assessments, were arrived at.

In my view the appellant fostered reasonable and valid concerns respecting the bald statements in the reassessment notices reflecting amounts as "revised taxable income", "net federal tax" and "net provincial tax" because an addition of the latter two almost equalled the first one, signifying on its face the total tax being payable on the revised taxable income almost amounting to 100 per cent. There is no question that this in itself had put him on his inquiry. As it turned out, and as shown by the Exhibit R-2 schedule, the revised taxable income amounts were at all times technically correct. However, the reassessments say nothing about amounts respecting AMT adjustments. Only by way of explanatory addendum to the March 10, 1993 reassessment was the AMT calculation and carry-forward credit amount detailed on Form T691(E) - see Exhibit A-3. The appellant submitted that the notices of reassessments were incomplete, misleading, nonsensical, unfair and therefore were all ineffective. Submissions of a similar nature were advanced, unsuccessfully, in the case of The Queen v. Leung, [1993] 2 C.T.C. 284, 93 D.T.C. 5467 (F.C.T.D.). The relevant jurisprudence was reviewed and analyzed by Joyal J. and the basis of his findings respecting the validity of the assessment, found at pages 300-03 (5478-80), are in my view equally applicable to the case now before me. Further, the burden of proof upon the assessor has been fully satisfied in this case via the provision of the Exhibit R-2 schedule and through provisions of the T691(E) form previously mentioned.

During his submissions the appellant stated he had no quarrel respecting the AMT itself and said if the Act says one has to pay an AMT then it is to be paid. Rather, he focused his comments on the nature of the AMT credit that may be utilized during the subsequent seven years. He submitted it represented a contingent liability to the fisc and that it amounted to confiscation, expropriation or forfeiture of taxpayers’ property and thereby was not a "tax". I do not agree. I also do not agree that any purported inability to draw down on this credit subsequently amounts to a deprivation of the right to enjoy property contrary to due process of law within the purview of the Canadian Bill of Rights. The subject AMT credit provisions are neither capricious nor arbitrary. Its amount and application arise out of an act of Parliament and are not the subject of administrative discretion. Further, I do not agree that there exists an inappropriate conflict or inconsistency between the AMT carry-over provisions of section 120.2 and paragraph 11 l(l)(a) of the Act as alleged; each provision simply provides for timing periods in accord with its own purposes. To revamp them to match the appellant’s logic and perceptions presupposes judicial legislation which is beyond the jurisdiction of this venue.

There is little doubt that fiscal legislation in modern times has become more complicated in response to the economic, social and political complexities of those times. There is also little doubt that the appellant’s financial affairs have attracted many of the complex and technical provisions of the Act of which he personally may not have been aware. Nothing in the evidence leads me to believe, however, that the retention of appropriate professional help was beyond his means or abilities. One does not strike down provisions in the Act on a constitutional basis simply because they may be too complicated for one to handle without such help.

The second major issue raised in this appeal concerned the constitutional validity of the AMT credit provisions as being contrary to the Canadian Charter of Rights and Freedoms (the "Charter"), particularly subsection 15(1). The appellant submitted the Act’s section 120.2 AMT credit provisions as they may be utilized during subsequent taxation years effectively denies to the senior citizens of Canada their right to equal protection and benefit of the law and is discriminatory based on their age.

The AMT is invoked only if the tax calculated under the AMT formula is greater than the regular tax calculated on Part I taxable income. The amount of AMT collected in one year may be refunded to a taxpayer during the next seven years pursuant to section 120.2 of the Act provided the taxpayer’s tax payable under regular Part I tax is greater than zero and is greater than the AMT payable. Thus, the AMT favours taxpayers who have very high taxable income under regular Part I tax in subsequent years. The higher the Part I taxes the taxpayer has the faster the taxpayer will recoup the AMT. Obviously if any taxpayer does not come within these conditions, the ability to draw down the AMT credit does not arise. Respondent’s witness said the credit would be lost; the appellant said it amounted to confiscation by the government, particularly against senior citizens who are the ones who suffer income drops during their senior years.

The appellant opined firstly that the fruits of his labours should not be denied during his senior years when all such activity had stopped and that, statistically speaking, reduced incomes is precisely what happens to citizens who are 65 years or over. In a table issued by Statistics Canada for the years 1985 to 1990 (Exhibit A-l 1), the average and median income of an individual 65 years of age and over dropped progressively by 27 per cent to 54.3 per cent respecting their average incomes and by 42 per cent to 87.2 per cent respecting their median incomes. The appellant provided no evidence as to his own income, and its sources, for the years subsequent to his 1989 taxation year which is under this appeal. Neither was there any evidence provided as to the extent that senior citizens have paid the AMT and of their abilities to have utilized the AMT credit during subsequent taxation years.

Subsection 15(1) of the Charter provides:

15(1) Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

Discrimination was described by McIntyre J. in Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143, 56 D.L.R. (4th) 1, at page 174 (D.L.R. 18):

AS a distinction, whether intentional or not but based on grounds relating to personal characteristics of the individual or group, which has the effect of imposing burdens, obligations, or disadvantages on such individual or group not imposed upon others, or which withholds or limits access to opportunities, benefits, and advantages available to other members of society. Distinctions based on personal characteristics attributed to an individual solely on the basis of association with a group will rarely escape the charge of discrimination, while those based on an individual’s merits and capacities will rarely be so classed.

In Symes v. The Queen, [1993] 4 S.C.R. 695, [1994] 1 C.T.C. 40, 94 D.T.C. 6001, which involved a constitutional challenge of section 63 of the Act, Iacobucci J. for the majority of the court set out to analyze subsection 15(1) of the Charter. He began by noting it was not intended to eliminate all distinctions but only those that were discriminatory, and he accepted the meaning of discrimination as set out by McIntyre J., supra. His analysis encompassed three questions, two of which are particularly apt here as the third, "age", which is an enumerated ground, has been particularly raised. The two questions of application to the case at hand would read as follows:

1. Does section 120.2 establish an inequality? Does it draw a distinction (intentionally or otherwise) between the appellant and others, based on a personal characteristic?

2. If an inequality is found, does it result in discrimination? Does a distinction drawn by section 120.2 have the effect of imposing a burden, obligation or disadvantage not imposed upon others or of withholding or

limiting access to opportunities, benefits and advantages available to others?

Subsection 120.2, on its face, does not create a distinction based on any personal characteristic. It applies regardless of the age of the taxpayer. If any taxpayer owes taxes in the ensuing seven years after a minimum tax is imposed they have the right to set-off against the AMT credit regardless of age. Any distinctions that may ensue between taxpayers would be based on their levels of income and not on their personal characteristics.

Kasvand v. The Queen, [1994] 2 C.T.C. 46, 94 D.T.C. 6271 (F.C.A.) is particularly relevant and analogous to the case before me. There a constitutional challenge was raised concerning paragraph 146(l)(c) of the Act which defined the "earned income" upon which the deductible amount of RRSP premiums was to be determined and which excluded from income all of the sources of income reported by that applicant. She argued, inter alia, discrimination by reason of age and disability. The court in dismissing the application said at page 47 (D.T.C. 6272):

The applicant’s perception is that paragraph 146( 1 )(c) denies a deduction in respect of income from sources on which many elderly, disabled persons disproportionately depend while allowing it in respect of income from sources usually more accessible to younger, able bodied persons. That may be so, but it remains that the distinction among taxpayers is drawn on the basis of sources of income. It is not drawn on any basis of discrimination proscribed by subsection 15(1). Elderly and disabled persons who have "earned income" are as entitled as any other taxpayer to a deduction while the young and able bodied are identically limited....

Accordingly the answer to question number 1 would be no.

As to question number 2, even if there was inequality between taxpayers due to their financial inability to draw down on their AMT credits, in my view such an occurrence would not attract effects in the nature of discrimination whereby section 120.2 could be seen to withhold or limit access to opportunities, benefits and advantages available to some and not to others based on a personal characteristic, being age in this case.

The AMT credit is not premised on the age or any other purely personal characteristic of the taxpayer. It is available solely on an income calculation and applies equally to all taxpayers without distinction based on personal characteristics.

Conclusion

In conclusion the appeal fails on all grounds raised and is dismissed. With respect to costs, and having regard to the submissions of each party, the respondent is entitled to its costs on a party to party basis, no special circumstances being shown for disallowance.

Appeal dismissed.