Donald E. Pearson v. Minister of National Revenue, [1993] 2 CTC 2930

Taylor, T.C.C.J.:— These are appeals heard in Edmonton, Alberta on July 7 and 8, 1993 against reassessments dated March 28, 1988 under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act") for the years 1982, 1983, 1984 and 1985, in which reassessments the respondent levied taxes interest and penalty totalling in excess of $500,000 as of the date of the reassessments.

At all relevant times, Mr. Pearson was the controlling shareholder in several corporations engaged in the heavy construction business. These included Don Pearson Construction Ltd., with head office in Hythe Alberta; Don Pearson of Alaska Inc. with head office in Anchorage, Alaska; and J.B. King Construction of Alaska, also headquartered in Anchorage, Alaska. The corporations owned several million dollars in assets, and operating income also totalled several million dollars annually. Complete financial statements for the corporations were provided to the Court, and referred to during the trial for purposes of information, but the corporate activities as such were not part of this dispute. In the main the personal income tax liability for Mr. Pearson arose from intercorporate transactions, and in particular loans made, recorded, some paid, some unpaid, to which transactions Mr. Pearson was a party. The details of these transactions were not relevant to the appeals and are not in dispute.

The confirmation of these reassessments, dated January 26, 1989 stated simply:

You were resident in Canada in the years within the meaning of subsection 2(1) of the Act and have been assessed in accordance with the provisions of section 3 of the Act.

“Residency”

The essence of the position of the appellant was contained in the notice of appeal dated April 20, 1989:

The appellant submits that he was not ordinarily resident in Canada at any time during the period 1982 through 1985 since he had become ordinarily resident in the United States in 1977 and had severed his permanent and durable connections with Canada in 1977.

Counsel for the appellant provided witnesses and documentation in support of the following critical assertions arising out of the notice of appeal:

— the appellant and his family owned and occupied a dwelling in Anchorage, Alaska on a permanent basis;

— the appellant and his family established permanent and durable social and economic ties with Anchorage, Alaska by virtue of their involvement with Anchorage schools, amateur athletic organizations and community groups;

— the appellant and his family obtained permanent resident status under United States immigration laws;

— the majority of the appellant’s economic relations was with the United States;

— the United States was at all relevant times the appellant's centre of vital interests.

In support of the assessments, the respondent listed some 11 factors in the reply to notice of appeal which was dated March 5, 1990. Counsel for the respondent did not call any witnesses in support of the assessments, although he did cross-examine the witnesses for the appellant.

Establishing the elements of residency in Alaska, as above, does not necessarily equate with non-residency in Alberta. But in this case I am satisfied the evidence shows that is the case. The simple fact is that Mr. Pearson perhaps as early as the year 1977, but at least for the years in issue, had established residence for purposes of this appeal in the State of Alaska, U.S.A.

However, other assertions — not raised at any point either in the assessments or the confirmation by the respondent — were listed in the last paragraph of the reply to notice of appeal as:

The respondent submits in the alternative: that should this Honourable Court find that the appellant was at any time a non-resident of Canada, which is not admitted but denied, that the appellant is then deemed to have disposed of any capital property owned by the appellant immediately before his becoming a nonresident of Canada; and that the appellant is liable for capital gains from such dispositions and that the matter should be referred back to the Minister of National Revenue on the basis that the capital gains from those deemed dispositions be included in the appellant's income pursuant to subsection 48(1) of the Income Tax Act; and additionally, the respondent submits that should the respondent be statute barred from so assessing the appellant, the appellant is estopped from claiming he ceased to be a resident as the respondent will have relied on the representations of the appellant, as set out in paragraph 3(b) above, to the detriment of the respondent.

[Emphasis added.]

Paragraph 3(b) was one of the "11 factors", noted above from the reply to notice of appeal and read:

— the returns of income indicating that the appellant's residence was Alberta were signed by the appellant himself;

In my view, those afterthoughts (the capital disposition, and the estoppel assertions) constituted the real case by the time the trial was joined, in the eyes of the respondent. I gave some thought to the respondent's position in raising these matters at this level of proceedings, but decided to consider the points brought out in argument, in the light of the comments made by Gibson, J. of the Federal Court-Trial Division in Brewster v. The Queen, [1976] C.T.C 107, 76 D.T.C. 6046 at page 111 (D.T.C. 6049):

Pleading assumptions in the alternate is novel in view of the state of the law. In law the onus is on the taxpayer to destroy some or all of the assumptions. But it is open to the defendant to plead other facts not relied in making the assessments or reassessments, but in that event, the onus is on the Minister of National Revenue to prove such other facts.

"Capital disposition"

The effect of this first“ "alternative" above by the respondent, was to leave to this Court the determination that (a) there was capital property; (b) it had a value; (c) it was disposed of by the appellant; (d) there was a capital gain; and

(e) the appellant was liable for tax thereon. None of that deals with the reassessment at issue in this appeal. As I see it, if the respondent felt constrained to assess the appellant on such a different basis, then the respondent should have proceeded to do so, not simply left it as a suspended and menacing prospect. With the greatest of respect, I decline the invitation to participate.

"Estoppel"

It was incorrect for Mr. Pearson’s Canadian return to show “Alberta” as a Province of residence, and I have decided above that he was a resident of the U.S.A. during the years in issue. In my view, that discrepancy alone would warrant reassessment showing his status as a non-resident, whatever the result from that reassessment. But that type of reassessment (non-resident) is not before the Court. Nothing of substance was raised by counsel for the respondent directly on a statute-barred" assertion, and in my view it does not enter into this dispute.

The Alberta designation was on all the disputed tax returns, but the following points brought out at the trial are also worthy of note, in dealing with the "estoppel" argument:

1. The tax return for 1982 was signed, but those for 1983, 1984 and 1985 were not signed by Mr. Pearson, in fact not signed by anyone.

2. The address provided on the 1982 and 1983 return was:

Donald E. Pearson

c/o Campbell Sharp

400 Windsor Court

9835-101 Avenue

Grande Prairie, Alberta

T8V 0X6 [1]

And for 1984 and 1985:

Donald E. Pearson

c/o 400 - 9835-101 Avenue

Grande Prairie, Alberta

T8V 0X6

3. For the year 1982, there was enclosed with the Canadian income tax return of Mr. Pearson a copy of the joint U.S. income tax return — Form 1040

— for the appellant and his wife Anna Pearson, showing the residence address as Anchorage, Alaska. Form 1040 is the standard U.S. resident income tax form. This U.S. return had been prepared by Mr. F.M. Strand, certified public accountant (C.P.A.) of Anchorage Alaska, and it also showed personal exemptions claimed.

4. The Canadian income tax returns filed with Revenue Canada were prepared by Mr. Winterburn of Campbell Sharp. For the years 1983, 1984 and 1985 they did not contain copies of the relevant U.S. returns in the same way as 1982.

5. Certain other exhibits filed by the appellant's counsel at the trial, did contain the 1982, 1983, 1984 and 1985 appellant's income tax return for both Canada and the U.S.A.

6. Mr. Pearson, in his testimony, had no explanation for signing the 1982 Canadian income tax return but not signing those for the other years, although he was quite satisfied he must have looked them over.

7. The Canadian returns filed at the trial by the appellant’s counsel (Note (5) above) did contain additional detail when compared with those filed with Revenue Canada (note (4) above), such as T4 and T5 slips, references to “U.S. Income”, statements of various sources of U.S. income, etc., and at least for one year —1983 — a calculation of provincial foreign tax credit. No question was raised by counsel for the respondent at the trial regarding filing of these returns, and the apparent differences appeared to be only further support for the information already filed.

8. For the 1982 Canadian tax return, which was dated July 14, 1983, a late filing penalty had been assessed.

9. In his testimony, Mr. Strand, C.P.A., the U.S. accountant engaged by Mr. Pearson, stated that when he had completed the U.S. return for each year, he sent a copy of it to Mr. Terry Winterburn. During the course of the years in issue the two accountants had conversations about the affairs of Mr. Pearson, and usually met once a year. Beyond that, Mr. Strand had little to add regarding the filing of Mr. Pearson's Canadian income tax returns.

10. In his testimony, Mr. Winterburn indicated that he did not regard himself as any expert on matters of U.S.—Canada income tax complexity. It was also his recollection that Mr. Pearson had reviewed the income tax return, but he offered no explanation why those for 1983, 1984 and 1985 had not been signed by Mr. Pearson. In each case however the usual "signature page” did contain the name and address of the firm of Chartered Accountants, in Grande Prairie, Alberta as the preparer, and that was the only address on them.

Based on the above information, much of which was readily available to the respondent for the original assessments, at the very least it could be contended that the "Alberta" designation only represented the mailing address of the chartered accountant agent Mr. Winterburn.

The estoppel assertion, according to the reply to notice of appeal, was directed only against a statute-barred" situation, which I have rejected. That might be sufficient to reject the estoppel assertion itself. However, in view of the fact that counsel for the respondent in his argument appeared to direct the estoppel assertion against the entire appeal, including the residency and capital disposition points, I will deal with it briefly. For practical purposes I shall only concentrate on the portions of the submissions made by the parties, which seemed to me to be particularly relevant.

The following quotations were noted at the trial by counsel for the respondent:

Estoppel and the Crown—Canadian Tax Foundation, 1977—Robert W.V. Dickerson, Vancouver, B.C.

Put simply, estoppel is a rule of law which says that one cannot deny that which he has previously asserted. It is a disabling rule, because it prevents a party from alleging or proving in legal proceedings that a fact is otherwise than it has previously been made to appear.

And from Byrt v. M.N.R., [1991] 2 C.T.C. 2174, 91 D.T.C. 923, at page 2185 (D.T.C. 931):

In order to found an estoppel a representation must be of an existing fact, not of mere intention, nor of a mere belief. [2] The person who has represented an existing state of things change cannot afterwards rid himself of that state of things so as to take advantage of its removal to the prejudice of another who has acted on the representation. [3] The representation, however, must be clear and unambiguous and be understood by the person to whom it is made in the sense contended for.

In Greenwood v. Martins Bank Ltd. (1933), A.C. 51 (H.L.) at page 57, Lord Tomlin defined the three essential elements which give rise to an estoppel:

1. A representation or conduct amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation is made.

2. An act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation is made.

3. Detriment to such person as a consequence of the act or omission.

And counsel for the respondent commented:

The issue that I would like you to address is that of estoppel. The cases in that book are in — chronological order, but perhaps the best one to refer to in determining an estoppel is the case of Byrt, which — I believe is the fifth tab, page 2185 (D.T.C. 931). In the right-hand column, the Court sort of addresses what is an estoppel. (At the) top of the page, it says

Halsbury writes that the estoppel is a rule of evidence which prevents a party to assume a certain statement of fact is untrue, whether in reality it is true or not.

Halfway down the page they list the three elements that give rise to an estoppel, the first being a representation, or conduct amounting to a representation, intending to induce a course of conduct on the part of the person to whom the representation is made. Two, an act or omission resulting from the representation, whether actual or by conduct by the person to whom the representation is made; and three, detriment to such person as the consequence of the act or omission.

. . When those criteria are met, it works to bind a taxpayer. They can't say one thing and turn around and later say, no that wasn't true, we want to be dealt with differently.

To his credit Counsel also noted from York v. M.N.R., [1980] C.T.C. 2845, 80 D.T.C. 1749 (T.R.B.), at page 2846 (D.T.C. 1751):

A 1977 tax return was filed, showing the appellant as a resident of Ontario at the Mount Albert address. This, the appellant testified, was due to a misunderstanding. He believed that he had to file a Canadian tax return and he filled it out as best he could. I do not regard mis-statements made by the appellant in such circumstances as irrevocable admissions.

In final summary of his argument, counsel for the respondent added as further support for the "estoppel" assertion:

(a) The appellant claimed personal exemption.

(b) The appellant should have reported a deemed disposition of assets concurrent with the alleged change in residency.

(c) The appellant did not have withholding tax deducted from dividends.

Counsel for the appellant noted that, at the minimum, the information on the tax returns which had some relevancy to residency was not consistent or complete perhaps, but it was sufficiently informative for the respondent to check out; if there had been any harm done to the respondent arising out of the lack of departure tax payment or from the personal exemption claims, it was very little indeed; and any further tax liability probably had been offset by an excess of tax paid resulting from filing as a resident. In any event, according to counsel for the appellant, the respondent had not quantified in any way such alleged damage to Revenue Canada and without that element counsel for the respondent could not successfully plead estoppel at this juncture.

In my view, the (a), (b) and (c) references above as the final summary of the respondent's argument regarding “estoppel”, are only ancillary to the main assertion for the “estoppel” argument: the “Alberta” residency designation. I seriously doubt it can be said that the "Alberta" designation was the sole "fact" or even the major"fact", upon which the respondent was entitled to rely to the exclusion of the other relevant factors noted above, in making the original assessments. Certainly it cannot be used as the basic support for the present estoppel assertion dealing with the reassessments at issue. Further I agree with counsel for the appellant that any alleged detriment to the respondent has not been demonstrated.

Summary

During the years in issue, Mr. Pearson was not a resident of Canada, and he is not estopped from so pleading in order to contest the reassessments at issue.

The appeals are allowed in all respects. The appellant is awarded costs.

Appeals allowed.