Estate of Jean T. Lavigne v. M.N.R., [1990] 2 CTC 2336, 90 DTC 1229

Garon, T.C.J. [Translation]:—This is an appeal from an income tax assessment established by the respondent with respect to the income of Jean Thomas Lavigne (“Mr. Lavigne”) for the portion of the year preceding his death on July 3, 1983. Mr. Lavigne lived in Hawkesbury, Ontario, at the time of his death.

The assessment in issue here is dated February 25, 1986 and the appeal deals solely with the question of interest in the amount of $1,486.30. This appeal involves the application of section 161 of the Income Tax Act.

In the part of the notice of appeal entitled "Argument", the appellant puts forward various allegations and statements of a very serious nature concerning the conduct of officials of the respondent, and generally the manner in which this case was treated. This "Argument" part of the notice of appeal reads as follows:

[Translation]

11.

Argument

40. The Minister and/or his officials did not act with all due dispatch as required by the Act, and in particular by subsections (1) and (2) of section 152 of the Income Tax Act, and subsection (3) of section 165 of that Act.

41. The Minister and/or his officials unlawfully imposed interest on the taxpayer which the Act does not permit to be imposed.

42. The Minister and/or his officials acknowledged having received the request from the taxpayer for a certificate of discharge but peremptorily and unlawfully decided to cancel this request while unlawfully allowing interest to run.

43. The Minister and/or his officials unlawfully required an undertaking from the taxpayer without himself offering any guarantee to produce the certificate requested by the taxpayer.

44. The Minister and/or his officials unlawfully issued a notice of reassessment without ever first having issued a notice of assessment in proper form.

45. The Minister and/or his officials unlawfully issued a notice of ratification based on a notice of reassessment which was unlawful from its inception.

46. The Minister and/or his officials unlawfully acted in bad faith in dealing with the taxpayer's case both generally and in refusing to accede to the requests repeated by the taxpayer on many occasions.

47. Notwithstanding the preceding paragraph, but without restricting the general part thereof, the Minister and/or his officials unlawfully acted in bad faith in that, more particularly but not exhaustively;

47.1: He unlawfully and in bad faith abused his powers by unduly delaying in responding to the taxpayer's requests;

47.2: He refused to provide information to the taxpayer that the taxpayer was entitled to receive.

47.3: He refused and/or improperly failed to provide the necessary details to the taxpayer so that the taxpayer could fulfil his duties as a citizen and pay the income tax owing at the appropriate time.

47.4: He unlawfully and in bad faith applied sections of the Income Tax Act so as unlawfully to impose interest on the taxpayer, knowing that the said sections of the Act could not be applied to this case.

47.5: He unlawfully and in bad faith refused to provide the exact amount of the assessment to the taxpayer when the taxpayer requested it.

47.6: He unlawfully failed to advise the taxpayer of the fact that he was charging interest, knowing that such interest was illegal.

47.7: The Minister and/or his officials failed or neglected in part to communicate with the taxpayer in his mother tongue, which is French, an official language.

47.8: The Minister and/or his officials unlawfully failed or neglected to advise the taxpayer of the starting date for the interest unlawfully imposed on the taxpayer.

47.9: Lastly, to all appearances the Minister and/or his officials in absolute bad faith provided to the taxpayer, not only late but with full knowledge and maliciously, a detailed statement, according to him, of the interest imposed on the taxpayer, in so general a way that the statement does not in any way correspond to the taxpayer's requests, notwithstanding the fact that he unlawfully kept the mail.

47.10: The Minister and/or his officials improperly and maliciously replied in an inappropriate manner to the taxpayer at the extreme end of the legal time limit.

47.11: The Minister and/or his officials unlawfully refused and/or failed to accede to the taxpayer's request to proceed by the summary procedure set out in the Income Tax Act.

48. The taxpayer has always acted in good faith and in accordance with the relevant provisions of the Income Tax Act, in that he has always inquired about his debts, despite his numerous oral and written requests.

While some of these statements and allegations do not relate to the question of law which is the subject of this appeal, because of their nature we should examine the evidence carefully.

First, a federal and provincial personal income tax return on form T1-general for the part of the 1983 year prior to Mr. Lavigne’s death ("the final return") was filed with the Department of National Revenue and received by it in December 1983. This first final return was followed by an amended return dated March 25, 1984 received by the Department on April 26, 1984, also dealing with the first six months of 1983.

The same day, the estate of Mr. Lavigne sent another federal and provincial personal income tax return on form T1-general. This return was dated March 25, 1984, but dealt with the period from July 1 to December 31, 1983. The starting point for this period should have been July 3, rather than July 1. The respondent did not receive this last return. In that return on behalf of the estate there was in the computation of income, specifically, the amount of $22,662.91, representing moneys from three registered retirement savings plans (RRSPs). On receiving instructions from the Department, the estate sent to it a T-3 return for the part of 1983 subsequent to Mr. Lavigne's death apparently in March 1984. This request from the respondent was justified since the form T-3 is the form to be used in the case of an estate.

On July 10, 1984 the respondent issued a notice of assessment for the part of the 1983 year prior to Mr. Lavigne's death. A refund of $485.39 was issued by the respondent upon this initial assessment.

Some weeks later, in response to a request from the Department of National Revenue, the estate sent to the respondent a new amended T1-general return concerning the part of the 1983 year prior to Mr. Lavigne's death. This return was dated August 30, 1984 and requested a refund in the amount of $477.13. The August 30, 1984 return was attached to a letter dated August 31, 1984 addressed to Revenue Canada (360 Lisgar St., Ottawa) to the attention of Ms. D. Neil. This letter read in part as follows:

[Translation]

Re: Estate of Jean Thomas Lavigne and Mr. Jean Thomas Lavigne

Dear Madam:

We are returning herewith the new income tax returns for the persons referred to above, for the 1983 year, in accordance with instructions received.

We should note that we have received a refund of about $485 in the name of Mr. Lavigne personally, in accordance with the information provided on the amended return of Jean Thomas Lavigne personally, but that the approximate amount of $1,500 was sent with the first return for the testamentary trust, and in this respect we would appreciate knowing whether this amount is refundable or not. Finally, we believe that we are in a position to settle this estate during 1984, so that our return for 1984 will be complete.

In the months following the letter of August 30, 1984 the agent for the estate, Rémi Poliquin, Esq., attempted to obtain information and explanations but his efforts were futile. Paragraphs 6 to 21 of the notice of appeal give a good description of the efforts made on behalf of the estate of Mr. Lavigne, subject to the remarks that I shall make with respect to paragraphs 8 and 10, and also of the lack of sensitivity on the part of the respondent's officials to the appellant's requests and concerns. The following is the text of paragraphs 6 to 21 of the notice of appeal;

[Translation]

6. In about September 1984 the taxpayer, seeing that the certificate of discharge had not been received and feeling that there was some confusion in the Department, contacted the staff of the Department in writing and by telephone, in order to obtain the certificate of discharge and to speed up examination of the case.

7. However, these efforts were in vain, probably because of the difficulty experienced by the official (Ms. D. Neil) in communicating in French.

8. On November 23, 1984 when two refunds had already been issued to the taxpayer (see paragraphs 1 and 5 hereof) a new notice of assessment was issued for 1983 in the amount of $6,338.36. The notice of assessment stated that an explanation would follow within 10 days.

9. When the 10 days had passed the taxpayer communicated with Ms. D. Neil, who had first had the case, in order to find out the nature of the explanation. Ms. Neil still did not understand French, no longer recalled the case and was not able to answer any questions. However, she did explain to the taxpayer that she would check the file and provide a reply.

10. On January 9, 1985 the taxpayer had not yet received any of the promised explanations, and after many contacts with the Department the only reply received was a notice of late payment.

11. On January 22, 1985, the taxpayer paid the amount of$6,338.36 so as not to be in default and repeated his request for an explanation in respect of the notice of assessment of November 23, 1984 in question, and again repeated his request for a certificate of discharge.

12. The only response, and the only thing received in reply to this correspondence, on February 18, 1985 was the thanks of the Department with no certificate of discharge and no explanation as requested.

13. On March 27, 1985 the taxpayer still had not received the requested and promised explanation, or the certificate of discharge. He again contacted the Department, and after having talked with various people in the Department who spoke only English, he was given a new telephone number and a Ms. Belisle (francophone) informed him that all the requested information should reach him shortly. The information was never received. He was told, however, with respect to the certificate of discharge that these were normal delays resulting from a routine investigation.

14. On May 9, 1985, after another waiting period, the only reply the taxpayer received was a new request for a T-3 return for 1984, with no explanation.

15. On July 24, 1985, after fresh telephone requests for the explanation requested, the certificate of discharge and the appropriate forms, the T-3 return referred to above was filed with a letter reiterating the same requests and also noting the difficulties encountered in the course of this case.

16. On October 2 and 3, 1985, still not having received the information requested, the taxpayer contacted another individual, a Ms. Pelletier, through Ms. Belisle, to obtain action on the case. She put him in contact with Mr. J.A. Riel, who requested a statement of property and a copy of the will, but did not provide the explanation that had been requested long before.

17. The documents referred to above were sent on October 7, 1985 and a certificate of discharge was promised for the following month.

18. On November 12, 1985, Jacques Albert contacted the taxpayer and asked for supplementary information. This request was confirmed in writing on November 19, 1985. The taxpayer still had not received the explanation requested. Moreover, more than 21 months after the death of the taxpayer, his beneficiaries were informed that notwithstanding the fact that the request for a certificate of discharge had been cancelled [When? No one knows], such a certificate could be sent to them soon after receipt of the supplementary information requested.

19. On November 20, 1985, the information requested was sent to the Department with full details.

20. On November 28, 1985, the taxpayer was told that on or about December 15, 1985 the case would be settled and that in the meantime the investigation would take its course.

With respect to paragraph 8, which is set out above, I am led to conclude that there was only one income tax refund and not two, as is stated in that paragraph. With respect to paragraph 10, set out above, I do not hesitate to believe the appellant's agent, who states that the explanation concerning the assessment of November 23, 1984 was not provided I would add that the notice of late payment referred to in that paragraph is simple a request for payment.

During this period of more than a year beginning in September 1984 and ending in December 1985, the appellant's agent did not receive the information requested, but instead a notice of assessment dated November 23, 1984, not accompanied or followed by any explanation, a request for payment dated January 9, 1985, an acknowledgement of receipt of the payment in question dated February 18, 1985 and a new request for information on form T-3 for the estate's 1984 tax year. There was no effort to provide the information requested concerning the appellant's case for the tax year ending with Mr. Lavigne's death, and the certificate of discharge which had been the subject of several requests. It seems to me that a meeting between the estate agent and the respondent's official who was dealing with this case could have solved the misunderstandings that by all appearances existed between the taxpayer and the representatives of the respondent at the time. Moreover, during this same period, as well as subsequently, the appellant, through its agents, demonstrated the fullest cooperation by providing to the respondent the information requested within a short time.

As is stated in paragraphs 21 and 22 of the notice of appeal, following intensive discussions during the month of December 1985 between the representatives of the two parties, an agreement was reached as to the fair market value of certain property and real estate of which Mr. Lavigne was deemed to have disposed immediately before his death. The respondent acted on this agreement by issuing an assessment dated February 25, 1986. This assessment, in the total amount of $15,568.73, included $1,486.30 in interest calculated on the $7,177.93 of income tax added to the previous assessment by the assessment of February 25, 1986. As was noted at the beginning of these reasons, the appeal deals only with the interest in the amount of $1,486.30 established by the assessment of February 25, 1986. In paragraph 23 of the notice of appeal, with respect to the notice of assessment of February 25, 1986, the appellant wrongly stated that there could be no reassessment since, in its view, a notice of assessment had not first been issued. The appellant is forgetting that the notice of February 25, 1986 had been preceded by two other notices, the first dated July 10, 1984 and the second dated November 23, 1984; it is even mentioned in paragraphs 5 and 8 of the notice of appeal.

The respondent also seems to be somewhat confused as to the computation of the amount owing by the appellant to the respondent in respect of the part of the 1983 year ending with the taxpayer's death. For example, in Exhibit A-18, the respondent acknowledges receipt of a payment of $7,177.93 representing the income tax portion of the tax debt added by the assessment of February 25, 1986, but there is the additional statement in the body of this notice that the credit balance of $7,177.93 does not include the unpaid amount of $8,664.23. The $7,177.93 should have been deducted from the $8,664.23, which would have given a balance of $1,486.30, the amount of the interest in issue in this appeal. Paragraphs 31 and 32 of the notice of appeal refer to this error in calculation by the respondent. In paragraph 5(i) of the reply to the notice of appeal the respondent admits that [Translation] "the appellant paid $7,177.93 on April 12,1986 but not the interest of $1,486.30 to February 25, 1986”.

In light of these somewhat tangled facts, we must now consider the question of law relating to whether or not the appellant is required to pay interest in the amount of $1,486.30.

As was discussed above, the interest in question was established by the assessment of February 25, 1986. This assessment of interest resulted primarily from the addition to Mr. Lavigne's income, for the part of the year ending with his death, of capital gains that he experienced thereafter because he was deemed to have disposed of lands and buildings belonging to him on that date, immediately before his death; of recaptured depreciation with respect to certain buildings; and of the increase in rental income. These additions to taxable income, described in the T7W-C document accompanying the notice of assessment of February 25, 1986, are not contested by the appellant and must therefore be taken to be correct for the purposes of this case. The amount of income tax—as opposed to the amount of interest—established by the assessment of February 25, 1986 was also no longer in dispute.

A detailed statement of the calculation of the interest was filed by the respondent at the hearing of this appeal as Exhibit 1-4. None of the factors in the calculation was disputed. In short, the appellant opposes the assessment of interest on the ground that the respondent did not act with due dispatch as required by the Act in establishing the appellant's income tax in respect of Mr. Lavigne's final return; that he acted in bad faith in dealing with the taxpayer's case by refusing to comply with requests for information and to provide the taxpayer with the information requested; and that he incorrectly applied the provisions of the Income Tax Act with respect to interest, to summarize in a few words the main arguments set out in paragraphs 40 to 48, quoted above.

First, the courts have considered the obligation of the Minister to assess income tax, interest and penalties with all due dispatch on several occasions. On this point, the comments of Mr. Justice Fournier in Joseph Baptiste Wilfrid Jolicoeur v. M.N.R., [1961] Ex. C.R. 85; [1960] C.T.C. 346; 60 D.T.C. 1254, at page 358 (D.T.C. 1268; S.C.R. 98 et seq.), still apply, and have not to my knowledge been questioned by any higher court. The following passages from his judgment clearly express the recognized rule of law in these matters;

In my opinion the words “with all due dispatch” have the same meaning as. "with all due diligence” or "within a reasonable time”. They appear in Sections 46(1), 58(3) and 105(2) of the Income Tax Act and other fiscal statutes. In a legal sense, they are interpreted as giving a discretion and freedom, justified by circumstances and reasons, to the person whose duty is to act. The acts involved are not submitted to a strict and general rule.

There is no doubt that the Minister is bound by time limits when they are imposed by the statute, but, in my view, the words “with all due dispatch” are not to be interpreted as meaning a fixed period of time. The “with all due dispatch” time limit purports a discretion of the Minister to be exercised, for the good administration of the Act, with reason, justice and legal principles.

There is no doubt that the Minister is required to reconsider the assessment upon receipt of a notice of dissatisfaction in the time best suited for the accomplishment of his duty; however, the determination in each case as to whether he has executed his duty “with all due dispatch" is a question of fact. He may be delayed in his determination by many reasons and factors. But as said above, it is exclusively for him to decide how he should, in any given case, ascertain and fix the liability of the taxpayer and the extent of his reconsideration. This being so, how can the courts interfere and decide that an assessment becomes null and void because notice of reconsideration was not served in the time limit of 180 days?

This judgment by Mr. Justice Fournier interprets provisions equivalent to sections 152 and 165 of the present Act.

This decision was followed by Mr. Justice Strayer of the Federal Court of Canada in Richard G. Lipsey v. M.N.R., Noel O'Neill and Donald J. Woodcock, [1984] C.T.C. 675; 85 D.T.C. 5080.

In the case at bar, the time taken in establishing the assessments appears to me to have been entirely reasonable. In this respect, it must be recalled that the initial assessment was established on July 10, 1984 and that the three-year limitation—some years ago, it was four years—provided in paragraph 152(4)(c) of the Act does not start to run until after this initial assessment. The assessment of February 25, 1986 which is the subject of this appeal was therefore established well before the expiry of the time within which it was to be made.

The statement in paragraph 36 of the notice of appeal relies on an incorrect point of departure in calculating this limitation, and moreover the limitation does not apply to a notice of ratification of an assessment issued following filing of a notice of objection.

In some paragraphs of the notice of appeal, and more specifically in paragraphs 47.3, 47.6 and 47.8, referred to above, the appellant appears to take for granted that the respondent's officials are required to inform it as to its rights and provide it with any assistance requested so that it may fulfil its income tax obligations. On this point, it should be recalled that there is no legal obligation on the part of the respondent to provide notices to the taxpayer on how to proceed and on any other questions respecting the Income Tax Act, although in accordance with the practices of the Department of National Revenue and the guidelines contained specifically in the taxpayers' bill of rights that was made public in February 1985 the Department provides assistance and information to taxpayers whenever possible. In this respect, the associate chairman of the Tax Review Board—who later became the Chief Judge of this Court—provided a good summary of the obligations of the taxpayer and of the Department of National Revenue in Lawrence J. Barron v. M.N.R., [1975] C.T.C. 2279; 75 D.T.C. 221, in which he had to apply subsection 54(1) of the Income Tax Act, which substantially corresponds to the version of subsection 161(1) which applies to this case, although the wording was different. He stated the following on this issue (at page 2280 (D.T.C. 222-23)):

In my view, and in order to avoid any misunderstanding in the matter, the taxpayers should be advised and made well aware of the long-standing principle that the Minister of National Revenue is not bound by any errors or faulty advice inadvertently given to a taxpayer in respect of his tax liability by a representative of the Department of National Revenue. The role of the Minister of National Revenue is to collect the tax payable in accordance with the Income Tax Act passed by the Government of Canada, and the liability for tax as set out in that Act is the responsibility of the taxpayer and of no one else. Because the Minister is dealing with the public’s money, and because it is only equitable that all tax payable be collected by him, he may, within the limits set down in the Act, assess or reassess at any time he feels that tax payable by a taxpayer has not been fully paid.

Regardless of what calculations were made by the representative of the Department of National Revenue or what advice he may have been given, the appellant was legally and personally liable for the full amount of tax payable, pursuant to the Income Tax Act, including the amount of $894.90 which the appellant, himself, now admits was payable in 1971.

Since the amount of tax paid by the appellant in 1971 was, in fact, less that the amount of tax payable by him in that year, subsection 54(1) of the Income Tax Act which imposes an interest charge on the unpaid portion of the tax payable, must apply.

Although it is unquestionable that the respondent's officials’ handling of this case was inappropriate in many respects, nonetheless the obligation to pay interest, if such obligation exists in the present case, is governed by subsection 161(1) of the Act, the provisions of which, as they applied to the period in issue in this appeal, are as follows:

Where at any time after the day on or before which a return of a taxpayer's income was required under this Part to be filed for a taxation year,

(a) the amount of his tax payable for the year under this Part

exceeds

(b) the aggregate of all amounts each of which is an amount paid at or before that time on account of his tax payable and applied as at that time by the Minister against the taxpayer's liability for an amount payable under this Part for the year,

the person liable to pay the tax shall pay to the Receiver General interest at the prescribed rate on the excess computed for the period during which that excess is outstanding.

This provision is clear and it is not necessary to resort to interpretation. It provides, in short, that a taxpayer is required to pay interest at an annual rate prescribed by regulation on the amounts of tax that are unpaid after the end of the time allowed for filing the return. This subsection clearly indicates that interest is payable on the difference between the amount paid by the taxpayer on or before the expiry of the time for filing an income tax return and the amount of tax payable for the year under the Act. The date for filing the return, in view of Mr. Lavigne’s death on July 3, 1983, could have been either within six months following the death, if we apply paragraph 150(1)(b) of the Act, or on April 30, 1984, if we look to paragraph 150(1)(d). In any event, the respondent took the latter of these dates as the starting point and calculated interest from April 30, 1984; clearly the appellant complained not about this choice of date, but about the actual principle of the assessment of interest.

Because it is in evidence here that certain amounts of additional income tax established by the assessments of November 23, 1984 and February 25, 1984 had not been paid on April 30, 1984, it follows that interest is payable on the amount that was unpaid on that date. This result is understandable from the financial point of view, since the appellant had available to it for its use, after the due date of its tax debt on April 30, 1984, funds which should have been in the hands of the state.

I therefore find that interest in the amount of $1,486.30 was validly assessed. I am therefore required to dismiss the appeal.

Given the manner in which this case was handled, the respondent might consider applying section 23 of the Financial Administration Act to the present case, which provides that [Translation] "The Governor in Council may, on the recommendation of the Treasury Board and when he considers it in the public interest, remit any tax, fee or penalty".

Appeal dismissed.