B & M Carriers v. Her Majesty the Queen, [1993] 2 CTC 2801, 93 DTC 1205

Sarchuk, T.C.C.J.:—B & M Carriers Ltd. appeals from a determination of loss with respect to the 1982 taxation year and from a reassessment for the 1987 taxation year.

At the commencement of the trial counsel for the parties advised that the following facts were not in dispute:

1. The appellant is a body corporate incorporated under the laws of Ontario.

2. The fiscal year end of the appellant is, and was, at all times April 30.

3. The appellant was placed in receivership in March 1982.

4. On July 12, 1982, the appellant made a proposal under Part III of the Bankruptcy Act, a copy of which is attached as Schedule "A" hereto. The Minister of National Revenue was notified of the proposal.

5. The appellant's 1982 tax return was filed on June 6, 1983. It was initially assessed on March 1, 1984. The notice of assessment was a nil assessment.

6. The proposal was finalized in early 1985 and the notice of final dividend and motion for discharge was issued on January 28, 1985, a copy of which is attached as Schedule “B” hereto. On March 28, 1985, the Trustee of the proposal was discharged by the Supreme Court of Ontario in bankruptcy. Attached as Schedule "C" is a copy of the discharge.

7. On June 20, 1988, the Minister of National Revenue issued a notice of reassessment in respect of the appellant's 1982 taxation year which increased the appellant's income in 1982 by disallowing deductions for non capital losses in the amount of $254,783, which related to lease payments which were capitalized on the appellant's financial statements and a claimed depletion base for pits and quarries in the amount of $67,500, which pits were not owned by the appellant. A copy of the June 20, 1988 notice of reassessment is attached as Schedule "D" hereto. Notwithstanding the increase in income, the assessment dated June 20, 1988 was a nil assessment.

8. On March 7, 1989, the Minister of National Revenue issued a determination of loss for the 1982 taxation year, a copy of which is attached as Schedule "E" hereto, which determined that:

(a) the amount of the appellant’s non-capital loss was determined to be $677,195 for the 1982 taxation year, and

(b) the earned depletion base was $396,263 for the 1982 taxation year.

9. As a result of the determination of loss dated March 7, 1989, the amount of the loss carryforward available to the appellant in its 1987 taxation year was reduced by $254,783.

10. Other than the issue of the amount of loss carryforward available to the appellant in 1987, there are no issues in dispute between the parties with respect to the 1987 taxation year." [1]

Further evidence was adduced on behalf of the appellant from Albert Stehelin, a chartered accountant and licensed trustee in bankruptcy. Stehelin became involved in 1982, shortly after the appellant was put into receivership by the Toronto Dominion Bank, its major lender. The appellant's problems had been caused by its venture into the construction industry. However, with the support of the bank, it was decided to undertake a proposal under the Bankruptcy Act, R.S.C. 1970, c. B-3 as a way of reorganizing those parts of the company that were and could continue to be viable. The then Clarkson Company Ltd. was appointed as receiver, the proposal was subsequently filed and Stehelin acted as trustee. In order for such a proposal to succeed there had to be a reasonable expectation that the appellant could carry on in the future. In the case of the proposal made by the appellant, Stehelin was of the view that there were sufficient assets to allow it to go forward. In this regard he considered tax losses to be an asset of the corporate entity, saying:

The tax losses made it possible to do projections into the future, and there is a market for tax losses. Tax losses are valued anywhere between 20 cents on the dollar and 30 cents on the dollar. And in this case, what it permitted was the ability to pay over time out of profits — profits which would not be subject to or [sic] remittance to, Her Majesty — pay that to the creditors.

According to Stehelin this would allow the appellant to have a greater net income because it would have losses it could carry forward. Thus in evaluating a proposal the creditors would be able to calculate effectively what was available in terms of net cash flow and might be available to make distributions to them. In this particular situation the losses were crucial to the proposal being accepted and ultimately finalized in 1985.

In the return of income for the 1987 taxation year the appellant, for the purpose of computing its taxable income, sought to deduct certain of the losses referred to by Stehelin, more specifically those incurred in the 1982 taxation year. These deductions were in due course disallowed by the Minister of National Revenue (the Minister).

It is appropriate at this point in my summation of the circumstances giving rise to the appeal to note that in the statement of agreed facts (and in their submissions) both counsel, incorrectly in my view, referred to an "assessment", and a" reassessment" for the 1982 taxation year. In fact there never was an assessment of tax for that year. For the sake of clarity the following are, in chronological order, the relevant actions taken by the Minister with respect to the 1982 and 1987 taxation years:

1. The appellant filed its income tax return for the 1982 taxation year on June 6, 1983.

2. The Minister examined the appellant's return and pursuant to the provisions of subsection 152(4) on March 1, 1984 notified the appellant that no tax is payable for that taxation year.

3. On June 20, 1988 the Minister issued a further notice to the appellant that no tax is payable for taxation year 1982. The Minister also recalculated the non-capital losses reported by the appellant in its return.

4. The Minister, ostensibly at the request of the appellant, made a determination of the appellant's non-capital loss for taxation year 1982 and on March 7,1989 sent the appellant a notice of determination of loss.

5. On April 13, 1989 the Minister mailed a notice of reassessment in respect of the appellant's 1987 taxation year. Following an objection on August 7, 1990 the Minister confirmed the reassessment on the basis that:

There was no non-capital loss for the 1982 taxation year that was deductible in computing the taxable income for the 1987 taxation year in accordance with the provisions of paragraphs 111(1)(a) and 111(8)(b) of the Income Tax Act.

According to the appellant these facts and the Minister's actions give rise to two grounds of appeal.

A. Do the provisions of the Bankruptcy Act preclude the Minister from assessing a taxpayer in respect of taxation years preceding the finalization of a proposal made under Part III of the Bankruptcy Act and the discharge of the trustee of the proposal? [2]

Appellant's position

Counsel for the appellant argued that the general purpose of the Bankruptcy Act is to provide for the orderly arrangement of debts and to promote the rehabilitation of a debtor unfettered by these debts while allowing him to continue carrying on business: Re Newsome, 8 C.B.R. 279, [1927] 3 D.L.R. 828 (Ont. S.C.); Vachon v. Canada Employment & Immigration Commission, [1985] 2 S.C.R. 417, 23 D.L.R. (4th) 641; Beauchesne Inc. v. The Queen, [1977] C.T.C. 398, 77 D.T.C. 5308 (F.C.T.D.). In order to obtain an advantage from a proposal a business must be intrinsically viable and before a proposal will be accepted by the creditors they will look at the debtor's assets which for this purpose includes tax losses. In evaluating a proposal the creditors want to know with certainty the face value of the tax losses. That was possible in this case, the proposal was accepted by the creditors and was approved by the Court.

The proposal when approved is, by virtue of subsection 42(2) of the Bankruptcy Act, binding on all creditors with “claims provable under that Act”. Section 187 provides that the Crown, qua creditor, is also bound by the Act. Counsel for the appellant submits that the consequence of being bound by a proposal is that a creditor is precluded from later asserting further claims against the debtor: Re Sefel (1989), 76 C.B.R. (N.S.) 48, 69 Alta. L.R. (2d) 252 (C.A.). Furthermore, once a discharge order is issued, the debtor is freed from all provable claims: Beauchesne Inc. v. The Queen, supra.

Counsel's principal contention is that the "tax losses” in issue are a contingent or future liability to Revenue Canada and are a claim provable in accordance with section 95 of the Bankruptcy Act. More specifically he contends that they are an asset of the appellant and the removal or denial of some of those "tax losses" by Revenue Canada creates a contingent liability to it, the contingency being that the appellant have income in the future which would allow the losses to be used. He argued that the existence of a market for "tax losses" is proof that an estimation of future income can and does occur. Thus the future income of the appellant could have been estimated at the time the proposal was made and used as a base to calculate its future tax liability. Accordingly the Minister's position as to the quantum of "tax losses” available to the appellant should have been the subject of a proof of claim filed with the trustee. Since it was not, the Minister missed his opportunity and is now precluded from adjusting the "tax loss”.

Counsel referred to several cases in which contingent or unliquidated claims were held to be provable: Re Laing (1921), 2 C.B.R. 38, 64 D.L.R. 637 (Ont. S.C.); Re Conrad (1963), 6 C.B.R. (N.S.) 275 (Que. S.C. Bkcy.); Re Film House Ltd. (1974), 19 C.B.R. (N.S.) 231 (Ont. S.C.); var'd (1974), 19 C.B.R. (N.S.) 231 at 234 (Ont. S.C.).

Respondent's position

Counsel submits that the respondent is not a creditor of the appellant and even if she were the denial of a "tax loss” is not a claim provable in bankruptcy. In particular counsel contends there is no debt, present or future, in respect of the tax losses” either at the time of the making of the proposal or immediately prior to the trustee's discharge of the appellant. It is only at a subsequent point of time if income is actually earned that the appellant's tax liability may be affected by the Minister's determination of loss. Furthermore, a provable claim is one which is recoverable by legal process. That is not the case here since during the currency of the proposal, a claim such as the one postulated by the appellant could not be recovered by legal process as there was nothing to recover. Counsel cited and relied on Farm Credit Corporation v. Holowach (Trustee of), 51 D.L.R. (4th) 501, [1988] 5 W.W.R. 87 (Alta. C.A.).

Conclusion

It is clear from the decision in Beauchesne Inc., supra, that a tax debt is a “provable claim". In that case it was indisputable that a tax debt existed. The taxpayer made a proposal to its creditors and the Minister was entered as such on a statement of affairs filed with the trustee. Notice of final dividend was given to all creditors including the Minister who had in fact been paid as required by the proposal. Subsequently the Minister reassessed with respect to two taxation years preceding the discharge. The taxpayer argued that a tax debt was a“ provable claim” under the Bankruptcy Act from which it was freed by the order discharging the trustee. The Court agreed and the Minister was precluded from reassessing.

The decision in Beauchesne Inc. v. The Queen was predicated on the well known principle that a taxpayer's debt is created by its taxable income not by an assessment, and that liability results from the Act and not the assessment. [3] Thus the tax debt existed and was certainly a claim provable within the meaning of section 95 of the Bankruptcy Act. That situation is distinguishable from the facts at hand.

Reference was made by counsel for the appellant to several cases in which contingent or unliquidated claims were held to be provable for the purposes of the Bankruptcy Act. In Re Laing the husband, in a marriage contract, agreed to pay the wife a certain amount within a certain time period following his death. Upon his bankruptcy the Court held that agreement to be a contingent claim upon which the wife could make a provable claim. In Re Conrad the issue related to an unliquidated claim, under litigation, that the Court held was a claim provable. In Re Film House the applicant had guaranteed the debt of the bankrupt to a party but had not yet been called upon. The Court held that constituted a contingent liability of the debtor to the guarantor and the filing of the proof of claim was permitted.

These cases are of limited assistance. In each there is a clearly defined future liability to which the bankrupt "may become subject before his discharge

by reason of an obligation incurred before the date of bankruptcy" [emphasis added]. Each liability was, by virtue of subsection 95(1) of the Bankruptcy Act, deemed to be a claim provable in proceedings under that Act. The facts before the courts in those cases are also distinguishable from those in the appeal at bar.

Counsel for the respondent relied on the decision of the Alberta Court of Appeal in Farm Credit Corp., supra. In that instance the Court was required to consider the validity of a claim made by Farm Credit Corp. under subsection 95(1) of the Bankruptcy Act. After considering the language of the subsection the Court noted [at page 504 (W.W.R. 90-91)]:

In our view a provable claim must be one recoverable by legal process. In Reference re Dent Adjustment Act, 1937 (Alberta), [1943] 2 D.L.R. 1, [1943] A.C. 356 (sub nom. Alberta (A. G.) v. Canada (A. G.)), [1943] 1 W.W.R. 378, the Privy Council said at page 11 (A.C. 372-73, W.W.R. 390-91):

In England it has always been held that, subject to the statutory exceptions as to debts payable at some certain future time, the petitioning creditor’s debt and the debts provable must be debts recoverable by legal process. For example a debt barred by the Statute of Limitations is not a debt on which a bankruptcy petition can be presented, nor is it one provable in bankruptcy . . . The Dominion Act is very similar to the English Bankruptcy Acts so far as those matters are concerned and there appears to be no reason for thinking that a similar principle would not be applied in Canada to the words "debt due".

The same reasoning was applied in Re Kolodychuk (1978), 6 B.C.L.R. 238, 27

C. B.R. (N.S.) 307 (S.C.), to hold a chattel mortgagee disentitled to a deficiency claim because of “seize or sue” limitations. Other examples are Re Solmon (1974), 19 C.B.R. (N.S.) 165 (Ont. S.C.) (Statute of Frauds); Re Hamar (1921), 63

D. L.R. 241, 2 C.B.R. 137 (Sask. K.B.) (Statute of Limitations), and Re Morton, 66 D.L.R. 378, [1922] 2 W.W.R. 811 (Sask. K.B.) (Statute of Limitations). We agree with the conclusions that a provable claim must be recoverable.

The debt referred to therein was one which could not be recovered because a provincial statute prohibited action by a mortgagee on the covenant. The other cases referred to also dealt with situations in which recoverability was precluded by operation of a statute. The debts existed but were simply not recoverable by legal process. This feature, which distinguishes Farm Credit Corp. from the facts before me, does not appear to have been considered nor was it the subject of comment by either counsel. Furthermore, in the Privy Council decision referred to by the Alberta Court, it was said that “ subject to the statutory exceptions as to debts payable at some certain future time . . . the debts provable must be debts recoverable by legal process". I note that decision was handed down in 1943 and dealt with the Bankruptcy Act (Canada) (R.S.C. 1927, c. 11, as am. by S.C. 1931, c. 17; S.C. 1931, c. 18; S.C. 1932, c. 39) as it read at that particular point of time. The current subsection 95(1) of the Bankruptcy Act refers to future debts and liabilities and in particular refers to contingent and unliquidated claims. I am, as a result of these concerns, not entirely satisfied that the Farm Credit Corp. decision provides useful authority.

To come within the framework of subsection 95(1) of the Bankruptcy Act all debts and liabilities must arise by reason of an obligation incurred before the date of the bankruptcy. The Shorter Oxford Dictionary, 2nd. ed., Vol. X defines “obligation” as: “obligation: /aw. An agreement, enforceable by law, whereby a person or persons become bound to the payment of a sum of money or other performance; the document containing such an agreement; esp. in Eng. law, a written contract or bond under seal attaching a penalty with condition attached. Also the right created or liability incurred by such an agreement, document or bond”.

In my view no obligation arises from the appellant's reporting of a noncapital loss in its 1982 return of income, nor am I persuaded that in so doing the appellant created a liability or debt (contingent or otherwise) in favour of the Minister. The appellant has not satisfied me on a balance of probabilities that the Minister had a provable claim within the meaning of subsection 95(1) of the Bankruptcy Act and is precluded for that reason from assessing the appellant as he did with respect to the 1987 taxation year.

B. The second ground of appeal raised is that the limitation periods in section 152 of the Act preclude the Minister from reassessing the appellant in respect of non-capital losses incurred more than four years prior to the taxation year in issue.

Appellant's position

Counsel for the appellant argued:

And our submission really boils down to a very simple proposition, which is that section 152(4) basically stops the Minister from going back more than four years unless certain conditions are met, which include misrepresentation and fraud and those others set out in (a), (b) or (c),and it's our submission that there's been no evidence made out of any misrepresentation or fraud — in fact, there's no allegation, as I understand it — and accordingly, the Minister cannot go back, in 1988, to 1982.

Our second submission with respect to the Income Tax Act itself is that the effect of subsection 152(5) is that you can’t bring forward from 1982 a matter into 1988 because, under 152(5), briefly put, you can’t include amounts that are more than four years old notwithstanding 152(4). And those are our submissions with respect to that.

With respect to subsection 152(5) of the Act counsel for the appellant argued that the words:

. . . there shall not be included in computing the income of a taxpayer, for the purposes of any reassessment, additional assessment or assessment of tax, interest or penalties under this Part that is made after the expiration of 4 years from the day referred to in subparagraph 4(a)(ii), any amount

(a) that was not included in his income for the purposes of an assessment of tax under this Part made before the expiration of 4 years from that day

mean two things. First, the Minister, in computing the appellant's tax for its 1987 taxation year cannot, in the computation of its income, include or utilize a non-capital loss different in amount than that reported by the taxpayer in 1982. Second, as to the time limitation in subsection 152(5) of the Act counsel said:

And the day it’s referring to, Your Honour, is the day up in subparagraph 152(4) (a) (ii), which is the day of mailing the original assessment. Now, in this case, the original assessment, as set out in the agreed statement of facts, was sent out in March 1984, This reassessment for the 1987 taxation year came out in 1988. And equally for the 1982 taxation year, it came out in 1988. And it is our submission that 152(5) stops you from bringing forward to 1988 the tax loss which was not . . . .

That's correct. So after the four-year period. It is our submission that you can't bring forward, then, to that period, to compute the income, an amount that was not in that original assessment, or a loss that was not denied in that original assessment. Those are our submissions on that point, Your Honour. If there are any questions from the Court, I'd be pleased to answer them. [4]

Respondent's position

The Minister can properly recalculate the non-capital losses reported by the appellant in 1982 even though he may be barred by the statute from reassessing that year in order to properly determine a tax liability in relation to a subsequent taxation year, in this case 1987 which is not statute-barred: New St. James Ltd. v. M.N.R., [1966] C.T.C. 305, 66 D.T.C. 5241 (Ex. Ct.) and /mmo- biliare Canada Ltd. v. M.N.R., [1981] C.T.C. 2049, 81 D.T.C. 58 (T.R.B.) and Radio Engineering Products Ltd. v. M.N.R., [1968] Tax A.B.C. 1204, 69 D.T.C. 17 (T.A.B.).

Furthermore counsel argued that New St. James stands for the proposition that:

. . . even though the Minister may have been statute-barred from reassessing 1955, the tax liability for the subsequent taxation years could be determined, based on the actual liability as determined in accordance with the tax laws in existence in 1956 through 1959, and not by any type of assessment notice which may have been incorrect. And that general proposition has been codified in the Income Tax Act under 152(3). If I may just read that to the Court, it's a fairly short section

The 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.

If we apply those general principles to the issue at hand, the real issue in this appeal is the tax liability for 1987. How much tax is payable and whether or not the losses for 1982 should be or may be recalculated by the Minister of National Revenue in determining the tax liability for 1987.

Counsel submitted that subsection 152(3) is essentially a codification of the principles set out in the New St. James case. This subsection provides that liability for tax is not affected by an incorrect or incomplete assessment or by the fact that no assessment has been made. Furthermore, counsel argued that it was essentially irrelevant whether or not the Minister properly "reassessed" within the time periods with respect to the 1982 taxation year. Counsel submitted that there was no necessity for the Minister to make any formal reassessment" for 1982 in order for the Minister to recalculate the losses applicable to the 1987 taxation year. [5]

Conclusions

In my view this issue has been determined by the Exchequer Court of Canada in New St. James Ltd. v. M.N.R. In that case the original assessment for 1955 was a “nil assessment", New St. James having reported a loss after deducting the cost of the alterations as an expense of some $38,000, which loss was carried forward to 1956. In computing its income for the 1956 reassessment the Minister recalculated the 1955 loss to be carried forward at $330 by treating the cost of the alterations as an amount subject to capital cost allowance rather than a deductible expense. New St. James maintained that its 1955 loss had been determined by the Minister when making the original “nil assessment" and that the loss could not be altered by him when making the reassessments for 1956 to 1959 because the four-year time limit of subsection 46(4) had elapsed with respect to 1955.

New St. James relied on subsection 46(4) (the predecessor to subsection 152(4)) and argued that the Minister was precluded thereby from inquiring into the actual loss in respect of which the allowance should be made. Sheppard, D.J. held at page 308 (D.T.C. 5243):

The limitation of section 46(4) only applies when four years have elapsed after the designated notice or notification and that has occurred only in respect of the 1955 taxation year.

Hence section 46(4) imposes no restriction as to any year other than 1955 and therefore not to the subsequent years 1956 to 1959 inclusive to which the four years have not elapsed and the limitation of section 46(4) cannot apply. For these subsequent years section 46(4), having no application, does not preclude an assessment being made in accordance with the provisions of this statute, including sections 139(1)(x) and 32(5). That requires the loss for the years 1956 to 1959 inclusive being taken as provided by the statute, not as implied in the assessment for the year 1955.

The relevant parts of subsection 46(4) referred to by Sheppard, D.J. are now found in subsection 152(4) and are, for all practical purposes, unchanged.

The Minister’s reassessment of the appellant's 1987 taxation year made in April 1989 does not offend the time limitation provided by subsection 152(4) of the Act. I am satisfied that the Minister was not precluded from inquiring into the actual amount of non-capital loss available and indeed is required to do so in order to assess in accordance with the provisions of the Act as they relate to the computation of income.

The appellant's alternative submission that the Minister in his calculation of income for the 1987 taxation year is precluded by subsection 152(5) of the Act from utilizing an amount of non-capital loss other than that reported by the appellant in its return of income for the 1982 taxation year, must be rejected. The subsection referred to speaks of amounts included in income for the purposes of an assessment of tax. That is not the case here, since as previously noted there has never been an assessment of tax with respect to the 1982 taxation year.

The appeal from the reassessment of the appellant’s 1987 taxation year is dismissed.

That leaves the appeal from the determination of loss with respect to the 1982 taxation year. It is common ground that the provisions of subsection 152(4) of the Act are applicable to determinations of loss by virtue of subsection 152(1.2) of the Act. As I understood counsel for the appellant, the notice of determination of loss was dated March 7, 1989 and flowed from the reassessment" of the 1982 taxation year which was not made until June 20, 1988. This "reassessment" was invalid since it was made more than four years following the making of the original "assessment" notice of which was dated March 1, 1984. Thus the determination of loss was equally invalid and of no effect.

However as I have noted several times the Minister never assessed tax for the 1982 taxation year. Neither counsel appears to have considered the applicability of subsection 152(4) of the Act to a" notice that no tax was payable". My own analysis of the relevant provisions does not satisfy me that any statutory authority exists to preclude the Minister from issuing a second such notice as was done in this case. I thus cannot find that the" notice” dated June 20, 1988 is invalid. Furthermore, since it was in this notice that the Minister first ascertained the amount of the appellant's non-capital loss as different than that reported in its return of income for that year, it triggered the provisions of subsection 152(1.1) and led to the determination of loss. Thus the time limitations found in subsection 152(4) which are applicable to determinations of loss could only commence on the date of the second notice. The result is that the determination of loss was not invalid and of no effect.

I must add that the steps taken by the Minister were unnecessary and irrelevant since the Minister was not in any event precluded from recalculating the 1982 losses as he did in reassessing tax for the appellant's 1987 taxation year.

Nonetheless there is a determination of loss with respect to the 1982 taxation year and the appeal from that determination ought not to be left in limbo. I find that the determination of loss, made as it was on March 7,1989 was not made out on time. The appeal is therefore dismissed.

Appeal dismissed.

Appendix A

Income Tax Act:

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 and determine

(a) the amount of refund, if any, to which he may be entitled by virtue of sections 129, 131, 132 or 133 for the year, or

(b) the amount of tax, if any, deemed by subsection 119(2), 120(2), 120.1(4), 122.2(1), 127.1(1), 127.2(2), 144(9) or 164(6) to have been paid on account of his tax under this Part for the year.

152(1.1) Where the Minister ascertains the amount of a taxpayer's non-capital loss, net capital loss, restricted farm loss, farm loss or limited partnership loss for a taxation year and the taxpayer has not reported that amount as such a loss in his return of income for that year, the Minister shall, at the request of the taxpayer, determine, with all due dispatch, the amount of such loss and shall send a notice of determination to the person by whom the return was filed.

152(1.2) The provisions of paragraphs 56(1)(l) and 60(o), this Division and Division J, as they relate to an assessment or a reassessment and to assessing and reassessing tax, are applicable, with such modifications as the circumstances require, to a determination or redetermination and to determining and redetermining amounts under this Division, except that subsections (1) and (2) are not applicable to determinations made under subsection (1.1) and, for greater certainty, an original determination of a taxpayer's non-capital loss, net capital loss, restricted farm loss, farm loss or limited partnership loss for a taxation year may be made by the Minister only at the request of the taxpayer.

152(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.

152(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 4 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,

(b) within 7 years from the day referred to in subparagraph (a)(ii), if

(i) an assessment or reassessment of the tax of the taxpayer was required pursuant to subsection (6) or would have been required if the taxpayer had claimed an amount by filing the prescribed form referred to in that subsection on or before the day referred to therein, or

(ii) there is reason, as a consequence of the assessment or reassessment of another taxpayer's tax pursuant to this paragraph or subsection (6), to assess or reassess the taxpayer's tax for any relevant taxation year, and

(c) within 4 years from the day referred to in subparagraph (a)(ii), in any other case,

reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require, except that a reassessment, an additional assessment or assessment may be made under paragraph (b) after 4 years from the day referred to in subparagraph (a)(ii) only to the extent that it may reasonably be regarded as relating to the assessment or reassessment referred to in that paragraph.

152(5) Notwithstanding subsection (4), there shall not be included in computing the income of a taxpayer, for the purposes of any reassessment, additional assessment or assessment of tax, interest or penalties under this Part that is made after the expiration of 4 years from the day referred to in subparagraph (4)(a)(ii), any amount

(a) that was not included in his income for the purposes of an assessment of tax under this Part made before the expiration of 4 years from that day,

(b) in respect of which the taxpayer establishes that the failure so to include it did not result from any misrepresentation that is attributable to negli- gence, carelessness or wilful default or from any fraud in filing a return of his income or supplying any information under this Act, and

(c) where any waiver has been filed by the taxpayer with the Minister, in the form and within the time referred to in subsection (4), with respect to a taxation year to which the reassessment, additional assessment or assessment of tax, interest or penalties, as the case may be relates, that the taxpayer establishes cannot reasonably be regarded as relating to a matter specified in the waiver.

Bankruptcy Act:

32. (1) A proposal may be made by

(a) an insolvent person, and

(b) a bankrupt.

(2) Proceedings for a proposal shall be commenced in the case of an insolvent person by lodging with a licensed trustee and in the case of a bankrupt by lodging with the trustee of the estate

(a) a copy of the proposal in writing setting out the terms of the proposal

42. (1) Where an insolvent person makes a proposal, the trustee shall file a copy thereof with the official receiver and the time of the filing of the proposal shall constitute the time for the determination of the claims of the creditors and for all other purposes of this Act.

(2) A proposal accepted by the creditors and approved by the court is binding on all the creditors with claims provable under this Act and affected by the terms of the proposal but does not release the debtor from the debts and liabilities referred to in section 148, unless the creditor assents thereto.

49. (1) Upon the filing of a proposal made by an insolvent person or upon the bankruptcy of any debtor, no creditor with a claim provable in bankruptcy shall have any remedy against the debtor or his property or shall commence or continue any action, execution or other proceedings for the recovery of a claim provable in bankruptcy until the trustee has been discharged or until the proposal has been refused, unless with the leave of the court and on such terms as the court may impose.

95. (1) All debts and liabilities, present or future, to which the bankrupt is subject at the date of the bankruptcy or to which he may become subject before his discharge by reason of any obligation incurred before the date of the bankruptcy shall be deemed to be claims provable in proceedings under this Act.

(2) The court shall, on the application of the trustee, determine whether any contingent claim or any unliquidated claim is a provable claim, and, if a provable claim, it shall value such claim, and such claim shall after, but not before, such valuation be deemed a proved claim to the amount of its valuation.

(3) A creditor may prove for a debt not payable at the date of the bankruptcy and may receive dividends equally with the other creditors, deducting only thereout a rebate of interest at the rate of five per cent per annum computed from the declaration of a dividend to the time when the debt would have become payable according to the terms on which it was contracted.

97. (1) Every creditor shall prove his claim, and a creditor who does not prove his claim is not entitled to share in any distribution that may be made.

(2) A claim shall be proved by delivering to the trustee a proof of claim in the prescribed form.

187. The provisions of this Act bind the Crown in right of Canada or a province. R.S., c. 14, s. 172.