Rose Marie Curylo and Edward Curylo v. M.N.R., [1992] 1 CTC 2389, 92 DTC 1250

Beaubier, T.C.C.J.:—These matters were argued together before the Court in Vancouver, British Columbia on January 21, 1992.

Because the points at issue are identical and the evidence is identical respecting each of the issues now before the Court, this judgment shall apply to both matters.

The material before the Court consists of the pleadings, affidavits, examinations on the affidavits, and the written arguments of both appellants and the Minister of National Revenue.

An application to this Court was granted allowing part of these actions to proceed for argument on the following issues:

1. Whether a certificate filed by the Minister of National Revenue pursuant to paragraph 227.1 (2)(a) is suitable because:

(a) The Certificate was not in the correct corporate name.

(b) The numbers in the Certificate allegedly do not account for a refund granted the corporation on February 11,1988 by the Minister of National Revenue.

2. The notice of assessment to each appellant is deficient because:

(a) It fails to provide sufficient information as required by the principles set out in J. Leung v. M.N.R. [1991] 2 C.T.C. 2268, 91 D.T.C. 1020.

(b) The assessment procedure is incomplete since the Minister failed to consider the Notice of Assessment of the corporation dated February 11, 1988.

The corporation in question is Novella Research Incorporated (herein after called "281215") which was incorporated on August 2, 1984 under the Company Act of British Columbia, R.S.B.C. 1979, c. 59, under certificate of incorporation number 281215. At all material times the appellants, Rose Marie Curylo and Edward Curylo were directors of 281215 and were husband and wife.

A director's resolution fixed the fiscal year end of 281215 to be December 20 of each year.

On December 21, 1984, 281215 issued research and development demand debentures in the principal amount of $4,240,920 to purchasers for a total consideration of $7,188,000. Pursuant to subsection 194(4) of the Income Tax Act 281215 designated $7,188,000 in favour of the purchasers in its 1985 taxation year for the purposes of scientific research and experimental development tax credits.

On December 21, 1984, a depository trust agreement was entered into by virtue of which $2,947,080 was held by Guaranty Trust Company of Canada in trust for 281215.

On January 31, 1985, 281215 failed to pay the tax required to the Receiver General of Canada in the amount of $3,594,000 pursuant to subsection 195(2) of the Income Tax Act. Interest commenced being charged on the outstanding balance pursuant to the Income Tax Act.

On June 17, 1985, the Minister of National Revenue seized the balance of $1,275,790.19 from Guaranty Trust Company of Canada. This left a principal amount owing to the Receiver General of Canada of $2,318,209.81.

On August 6, 1985, 281215 changed its name to 281215 British Columbia Ltd.

At about the same time, the appellants or their advisors incorporated a new corporation with the name Novella Research Incorporated, the identical name to the original name of 281215. They became directors of the new corporation.

On February 10, 1986, a certificate was filed by the Minister of National Revenue in the Federal Court against Novella Research Incorporated in the amount of $2,318,209.81 as at July 15 1985, plus interest to January 22 1986, of $291,330.45, a total of $2,609,504.26.

On March 5, 1986, 281215's furniture was seized by the Sheriff pursuant to a writ of fieri facias. It was subsequently sold for a net recovery of $16,127.49, on account of the Minister's certificate.

On March 6, 1986, the Minister of National Revenue filed an amended certificate respecting the February 10, 1986 certificate in the Federal Court of Canada amending the name to 281215 British Columbia Ltd. It should be noted that there is no evidence of this allegation. It is described in paragraph 46 of the appellants’ written arguments dated January 7, 1992, and in paragraph 9 of the Minister's amended reply dated November 29, 1991.

On February 11, 1988, 281215 was mailed a notice of assessment to the appellants' residential address and a refund under Part VIII was recognized in the amount of $394,142.60 in that notice of assessment, pursuant to returns filed in 1986 by 281215. One of these returns was signed by Mrs. Curylo on April 11, 1986, under the corporate name 281215 British Columbia Ltd. (Examination of Mrs. Curylo—pages 21, 22 and 26) The evidence is that it was misplaced. Mrs. Curylo states that she did not see it until December of 1991 when she discovered it in their home among the files of the various corporations they had. Mr. Curylo does not remember if he did or did not see it before December of 1991. It was not in an envelope when it was discovered.

On September 6, 1988, both the appellants were assessed by the Minister of National Revenue by notices of assessment which are reproduced here: [not reproduced].

It is these assessments which are the subject of the arguments before this Court.

The first issue raised by the appellants is that the Certificate filed by the Minister of National Revenue in the Federal Court of Canada on February 10, 1986, in the name of Novella Research Incorporated was not in the correct corporate name. It was also argued that the Minister cannot amend such a certificate by changing the corporate name described in the first certificate to what was alleged in the argument of the appellant and the reply of the Minister as previously described, 281215 British Columbia Ltd.

Seizure was made by the Sheriff pursuant to that certificate on March 5, 1986, and the subsequent sale occurred of the furniture so seized.

The assumptions of the Minister refer to 281215 as being the "company" against which the certificate was registered on February 10 1986, and against which the notice of assessment was issued on February 11 1988, and in respect of which the appellants were directors at the pertinent times. It will be recalled that the certificate was in the original name and the notice of assessment was in the amended name. The evidence is that the certificate still exists and the assumptions are unrefuted to the effect that at all material times to these actions the certificate was registered against the corporation in respect to which the notices of assessment had been issued against the appellants.

It is this Court's finding that if the certificate filed in the Federal Court of Canada by the Minister of National Revenue on February 10, 1986 names the wrong corporation, or if the amendment the Minister of National Revenue purported to make is invalid, then that must be determined by an appropriate action in the Federal Court of Canada to terminate the certificate in question. To use the words of Cattanach, J. in The Queen v. Star Treck Holdings Ltd. et al., [1977] C.T.C. 621, 77 D.T.C. 5311, at page 623 (D.T.C. 5313):

On the contrary it is authority for the proposition that a person affected by the registration of such a certificate is entitled to invoke the exercise of this Courts jurisdiction to determine the propriety or otherwise of the registration and that it is open to a person against whom such a certificate is registered to contest it by way of an independent proceeding claiming invalidity in the certificate or its registration.

The second issue raised by the appellants is that the amounts in the certificate filed February 10, 1986 do not account for a refund granted two years later by the notice of assessment dated February 11, 1988 in the amount of $394,142.60.

This is based upon paragraph 227.1(2)(a) which reads:

(2) Limitations. A director is not liable under subsection (1), unless

(a) a certificate for the amount of the corporation's liability referred to in that subsection has been registered in the Federal Court of Canada under subsection 223(2) and execution for such amount has been returned unsatisfied in whole or in part (emphasis added)

When reading this paragraph, regard should be had to section 10 of the Interpretation Act, R.S., c.l-23 which reads:

10. The law shall be considered as always speaking, and where a matter or thing is expressed in the present tense, it shall be applied to the circumstances as they arise, so that effect may be given to the enactment according to its true spirit, intent and meaning.

The appellant argues, in essence, that if the amount owed by the corporation changes, a new certificate must be filed, or the certificate must be amended, if that is possible. The appellants' argument is that a director's liability can only exist if the certificate contains the exact sum owed by the corporation from time to time. The Court does not accept this argument because section 10 of the Interpretation Act establishes to this Court's satisfaction that it is only necessary that the amount be correct at the time of registration.

It should also be noted that subsection 227.1(1) reads:

(1) Where a corporation has failed to deduct or withhold an amount as required by subsection 135(3) or section 153 or 215, has failed to remit such an amount or has failed to pay an amount of tax for a taxation year as required under Part VII or VIII, the directors of the corporation at the time the corporation was required to deduct, withhold, remit or pay the amount are jointly and severally liable, together with the corporation, to pay that amount and any interest or penalties relating thereto.

In summary, and quoting from the subsection, the Court interprets this to read: "Where a corporation has failed to pay an amount of tax, the directors are liable to pay that amount”. Thus, the "amount' for which a director is liable is not that stated in the certificate, rather it is the amount that the corporation has failed to pay as it may be determined from time to time. The director has the right to dispute the amount alleged owed by the corporation, and in turn by the director, when the director is assessed. The director can do this by means of an appeal to this Court.

The appellants’ third issue argued is that the notice of assessment to each appellant fails to provide sufficient information as required by the principles set out in Leung, supra.

In respect to this issue it should first be noted that the assessment in Leung, supra, involved federal income tax, unemployment insurance, Canada pension, and the Income Tax Act of Ontario moneys. Judge Rip stated at page 2274 (D.T.C. 1025):

A taxpayer assessed under four different statutes ought to be informed of the amount assessed under each statute.

Here the notice of assessment of the appellants only related to subsection 227.1(1) of the Income Tax Act. Each notice of assessment states that the balance for which liability is assessed is "$2,701,921.88 being the amount of the tax 281215 British Columbia Ltd. has failed to pay for 1985 as required under Part VIII ” It also refers to liability for". . .interest related thereto" but no amount is stated.

Thus the appellants are each assessed for tax under the Income Tax Act of $2,701,921.88. They can dispute that amount. They were directors at the time that amount came into question and they may have full knowledge respecting that amount. They may have had a duty as directors to have full knowledge respecting that amount. In any event, they can subpoena witnesses and documents in this Court for the purposes of any dispute they may have respecting that amount of tax and the Court has jurisdiction to issue those subpoenas and hear that dispute.

There are a number of questions that arise respecting the allegations in the notices of assessment respecting ”. . .interest related thereto” that can be determined in the course of a hearing before this Court.

In Leung, supra, Judge Rip stated at page 2277 (D.T.C. 1027):

The Act provides for the Minister to assess a person for an amount payable under a provision of the Act. I ask myself if the appellant, reading the notice with respect to the assessment in issue, can reasonably determine the amount he was assessed under the Act and the reason for the assessment.

In the cases of the appellants, the Court finds that they can. Nothing more is necessary to be contained in the notice of assessment.

The final argument of the appellants is that the assessment procedure is incomplete since the Minister failed to consider the notice of assessment of the corporation dated February 11, 1988.

Subparagraph 14(k) of the Minister's assumptions in his reply to amended notice of appeal reads:

(k) the liability of the Company was determined as follows:

Part VIII tax (50%) of	$7,188,000	$3,594,000
Recoveries	$1,275,790.19
— Escrow Funds
— Furniture	16,127.49	$1,291,917.68
Subtotal		$2,302,082.32
Interest		399,839.56
Balance Outstanding—Sept.6 1988		$2,701,921.88

In argument, counsel for the Minister demonstrated a different method of calculating the amounts assessed against the appellants. However, that remains to be proved.

What is in evidence is the amount of tax assessed against the appellants and the assumptions which indicate that the amount of tax for which the "liability of the Company was determined" is $2,302,082.32. The assumptions do not include a reference to the corporation Part VIII refund of $394,142.60 by the assessment of February 11, 1988.

The amount in the notice of assessment is the amount which the appellants are entitled to appeal. The onus respecting proof as to the amount will vary in accordance with the assumptions of the Minister.

If the assessment procedure is incomplete and it is to the appellants’ advantage as determined at trial, then they are entitled to that advantage and it is the duty of the Court to see that they receive that advantage. But that is not fatal to the assessment procedure or to the notice of assessment of each of the taxpayers before this Court.

Each of the issues before the Court at this time has been determined in favour of the Minister of National Revenue. The amount of the tax assessed and the amount of interest for which liability may exist remain in dispute and shall be determined at trial. Trial will also proceed on the questions relating to the liability of the appellants pursuant to subsection 227.1(3), and any other matters outstanding as set forth in the pleadings of the parties.

It is ordered that the trial will proceed on a peremptory basis at the Tax Court of Canada in Vancouver, British Columbia commencing at 9:30 a.m. on Monday, the 23 day of March, 1992.

Application dismissed.