Consoltex Inc. v. Her Majesty the Queen, [1992] 2 CTC 2040, 92 DTC 1567

P.R. Dussault, T.C.C.J.:—In the course of these appeals from reassessments for the appellant’s 1980 and 1981 taxation years, the respondent, after having filed a reply to the notice of appeal, made a motion for the following:

(i) to have the appeal dismissed on the ground that the Tax Court of Canada has no jurisdiction to entertain an appeal from the reassessments in issue, because those reassessments are at nil dollar;

(ii) subsidiarily, should the matter be left to the Judge presiding on the merits, to obtain leave of the Court to amend the Reply to Notice of Appeal, to plead that the reassessments in issue are at nil dollar and that there is no appeal from reassessments of that kind.

Mrs. Colette Vanasse swore an affidavit in support of the motion. In essence, it states that the last reassessments for the appellant's 1980 and 1981 taxation years, notices of which are dated May 15, 1984, are at nil dollar and that these so-called reassessments were confirmed November 5, 1990.

I might simply add here that the T2 income tax returns filed by the appellant for its 1980 and 1981 taxation years showed no tax payable as the appellant had no taxable income owing to a carry forward of previous years” losses.

Position of the respondent

At hearing, counsel for the respondent proceeded to argue that, under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") there is no appeal from a nil assessment. In so doing, he relied on the following cases:

— Okalta Oils Ltd. v. M.N.R., [1955] C.T.C. 271, 55 D.T.C. 1176 (S.C.C.);

— The Queen v. Garry Bowl Ltd., [1974] C.T.C. 457, 74 D.T.C. 6401 (F.C.A.);

— The Queen v. Bowater Mersey Paper Company Ltd., [1987] 2 C.T.C. 159, 87 D.T.C. 5382 (F.C.A.);

— Lornex Mining Corporation Ltd. v. M.N.R., [1987] 2 C.T.C. 195, 88 D.T.C. 6399 (F.C.T.D.);

— Consortium Group Ltd. et al. v. M.N.R., [1986] 2 C.T.C. 2095, 86 D.T.C. 1558 (T.C.C.);

— Forest Lane Holdings Ltd. et al. v. M.N.R., [1987] 1 C.T.C. 2051, 87 D.T.C. 1 (T.C.C.);

— Martens v. M.N.R., [1988] 2 C.T.C. 2018, 88 D.T.C. 1382 (T.C.C.)

Position of the appellant

Counsel for the appellant submitted that, notwithstanding the fact that the assessments are at nil amount, the Court can hear the appeals on the merits as existing rights of the taxpayer have not been exhausted. In effect, the appellant is confronted with the problem that for purposes of the reassessments for its 1980 and 1981 taxation years the Minister has rejected its method of valuing its inventory, which action allegedly has a serious impact on the computation of its tax for future years. Counsel based his argument on the following passage in the decision rendered by Chairman Cardin of the Tax Review Board (as he then was) in the case of Hullmann (A.) v. M.N.R., [1973] C.T.C. 2106, 73 D.T.C. 94, at page 2107 (D.T.C. 95):

However, if in spite of a nil assessment the taxpayer's rights pursuant to the Income Tax Act have not been exhausted in respect of the taxation year to which the nil assessment pertains, and the provisions of the Act confer rights to the taxpayer notwithstanding the nil assessment such as, for example, the right of a taxpayer to carry business losses back to a previous year or to dispute a reserve which the Minister had set up in order to arrive at the nil assessment although the taxpayer had not claimed the reserve, I am of the opinion that the taxpayer cannot be precluded from appealing the nil assessment in order to establish and exercise an existing right conferred on him by the Act because it might be of great importance to him at that time to find out how large the loss is which he may apply to the previous or future years or how great a reserve he has to account for in future years.

In my view the right to appeal from a nil assessment, or the absence of such a right, depends entirely on the facts of a given case. . ..

This case was appealed to the Trial Division of the Federal Court of Canada (Hullman v. The Queen, [1975] C.T.C. 297,75 D.T.C. 5193) and dismissed on its merits, the Court not expressing any opinion as to whether an appeal could lie from a nil assessment. Counsel for the appellant also relied on the following cases:

— Anjulin Farms Ltd. v. M.N.R., [1961] C.T.C. 250, 61 D.T.C. 1182 (Ex.Ct.);

— Benaby Realties Ltd. v. M.N.R. (1961), 28 Tax A.B.C. 176, 62 D.T.C. 3; — Ontario Culvert Ltd. v. M.N.R. (1965), 38 Tax A.B.C. 256, 65 D.T.C. 379;

— T.D. Early. M.N.R. (1966), 40 Tax A.B.C. 329, 66 D.T.C. 192.

Analysis

Jurisdiction of the Court

As regards the respondent's submission that the Tax Court of Canada lacks jurisdiction to entertain the present appeal, it was recognized by the Federal Court of Appeal in The Queen v. Garry Bowl Ltd., supra, at page 460 (D.T.C. 6403) that the Tax Review Board the predecessor of the Tax Court of Canada "had jurisdiction to entertain an appeal for the purpose of ascertaining whether the appellant had a right to relief from an assessment of tax.”

Appeal from nil assessment

The respondent's second submission is that there is no appeal from a nil assessment. A review of the case law reveals that although at one time there existed a right to appeal from a nil assessment, the cases granting such a right were decided under provisions substantially different from the provisions applicable to the taxation years in issue in the present appeal.

In particular, the Supreme Court of Canada decision in Okalta Oils Ltd. v. M.N.R., supra, laid down the principle that a taxpayer cannot appeal from a “nil assessment" because the word "assessment" as used in section 58 of the Income War Tax Act (former subsection 165) did not include a “nil assessment".

Section 55 and subsection 58(1) of the Income War Tax Act as applicable to the 1946 taxation year, being the taxation year in issue in Okalta Oil, supra, read as follows:

55. Notwithstanding any prior assessment, or if no assessment has been made, the taxpayer shall continue to be liable for any tax and to be assessed therefor and the Minister may at any time assess any person for tax, interest and penalties and may. . . [emphasis added]

58(1) Any person who objects to the amount at which he is assessed, or who considers that he is not liable to taxation under this Act, may personally or by his solicitor serve a notice of appeal upon the Minister. . .

[Emphasis added.]

In 1948, section 55 and subsection 58(1) of the Income War Tax Act became subsections 42(4) and 53(1) of the Income Tax Act (1948), respectively, and read as follows:

42(4) The Minister may at any time assess tax, interest or penalties and may. . . [emphasis added]

53(1) A taxpayer who objects to an assessment under this Part may, within days from the day of mailing of the notice of assessment, serve on the Minister a notice of objection in duplicate in prescribed form setting out the reasons for the objection and all relevant facts.

[Emphasis added.]

Furthermore, section 54 of the Income Tax Act (1948) provided that:

54(1) Where a taxpayer has served notice of objection to an assessment under section 53, he may appeal to the Income Tax Appeal Board constituted by Division I to have the assessment vacated or varied after either. . .

[Emphasis added.]

By chapter 148 of the Revised Statutes of Canada of 1952, sections 42, 53 and 54 of the Income Tax Act (1948) became sections 46, 58 and 59, respectively without any change in wording.

These were the provisions before the Exchequer Court when it decided in Anjulin Farms Ltd. v. M.N.R., supra, that the word "assessment" includes a “nil assessment", thus, granting the taxpayers a right to appeal from a nil assessment.

The Anjulin Farms case was followed in Benaby Realities Ltd. v. M.N.R., supra, Ontario Culvert Ltd. v. M.N.R., supra, and T.D. Earl v. M.N.R., supra.

By chapter 43 of the Statutes of Canada of 1960, subsection 46(4) (now subsection 152(4)) was repealed and the following substituted therefor:

46(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. . . [emphasis added]

By virtue of the distinction between assessing tax, interest or penalties, if any, and notifying a person in writing that no tax is payable, made by the 1960 amendments to the Act, the following cases reestablish the principle that there can be no appeal from a “nil assessment": Newfoundland Minerals Ltd. v. M.N.R., [1969] C.T.C. 639, 69 D.T.C. 5432 (Ex.Ct.); The Queen v. Garry Bowl Ltd., supra; Consortium Group Ltd. v. M.N.R., supra; The Queen v. Bowater Mersey Paper Company Ltd., supra, and The Queen v. Consumers' Gas Company Ltd., [1987] 1 C.T.C. 79, 87 D.T.C. 5008 (F.C.A.). On that point, I need only refer to Mr. Justice Hugessen's comments in The Consumers’ Gas Company Ltd. case, supra, where he said at pages 83-84 (D.T.C. 5012):

What is put in issue on appeal to the courts under the Income Tax Act is the Minister’s assessment. While the word "assessment" can bear two constructions, as being either the process by which tax is assessed or the product of that assessment, it seems to me clear, from a reading of sections 152 to 177 of the Income Tax Act, that the word is there employed in the second sense only. This conclusion flows in particular from subsection 165(1) and from the well established principle that a taxpayer can neither object to nor appeal from a nil assessment.

Consequently, I am of the opinion that there is compelling authority that there is no relief to which the appellant is entitled or which this Court can properly grant.

Since no tax, interest nor penalty was assessed and since the Court cannot increase the amount assessed by the Minister of National Revenue, [1] one can readily understand the logic of the principle that a taxpayer cannot appeal from a nil assessment. It has been decided that whenever a taxpayer alleges that the Minister has erred in computing the tax resulting in a nil assessment, the matter can be dealt with on its merits in other taxation years for which there are no nil assessments and where it is pertinent in determining the taxes owed for those years. In this respect, reference can be made to Day & Ross Ltd. v. The Queen, [1976] C.T.C. 707, 76 D.T.C. 6433, at page 708 (D.T.C. 6434) (F.C.T.D.) and Forest Lane Holdings Ltd. et al. v. M.N.R., supra. As that solution, however, was not thought to be entirely satisfactory in many cases, amendments were brought to section 152 of the Act by section 61 of chapter 4 of the 1976-77 Statutes of Canada, thereby adding subsection 152(1.2) which created some special rights of appeal from certain determinations made by the Minister. These rights now outlined in subsections 152(1.1) to 152(1.3) of the Act stand in addition to the original right of appeal from an assessment. However, the process outlined in subsections 152(1.1), and 152(1.2) of the Act which enables a taxpayer to object or appeal in respect of a determination is not available to the appellant in the case at bar.

In view of the above findings, what the appellant is in fact seeking is a declaratory judgment on a particular issue relating to the computation of its income for 1980 and 1981 or of its taxable income for future years. In either case, this Court has no authority to issue such a judgment. [2] This Court derives its jurisdiction from Parliament and more particularly from section 12 of the Tax Court of Canada Act. With respect to appeals under the Income Tax Act, this section now gives the Court exclusive original jurisdiction to hear and determine appeals which are provided for in the Income Tax Act. The right to appeal from an assessment under that Act is provided for in section 169 and the manner in which the Court can dispose of it is set forth in section 171. The relief sought by the appellant falls outside the requirements of those provisions as they have been interpreted by our Courts. As stated by the Supreme Court of Canada in the Okalta case, supra, at page 1177 (D.T.C.), the “right of appeal is a right of exception which exists only when given by statute”. I am of the opinion that this proposition still holds true today. The Tax Court of Canada cannot expand that right and is bound by its own decisions and decisions of higher Courts that have restricted its application. I might add that even if this Court could grant a declaratory judgment, there would still be no tax payable for 1980 and 1981. The right course of action for the taxpayer would have been to have the matter decided on an appeal from an assessment for a future year where it might have proven pertinent to determine its tax liability for that year.

For these reasons, the motion requesting the dismissal of the appeals is dismissed but the purported appeals are quashed.

Dismissal of appeals dismissed; appeals quashed.