Mackay Construction Limited v. Her Majesty the Queen, [1989] 1 CTC 285

Reed, J.: —The plaintiff is appealing, by way of trial de novo, a decision of the Tax Court. The defendant has brought a motion to strike the plaintiff's statement of claim, pursuant to Rule 419(1)(a) of the Federal Court Rules, on the ground that this Court has no jurisdiction to hear the appeal (trial de novo). The defendant argues that the plaintiff's action was not instituted in any manner contemplated by the Income Tax Act: specifically, the plaintiff has never filed a notice of objection sufficient to properly found its appeal to the Tax Court. It is argued that all proceedings which have taken place subsequent to that failure are a nullity and thus there is no jurisdiction in this Court to hear the appeal (claim).

The facts are as follows: in a notice of reassessment dated June 21, 1983, the plaintiff was informed by Revenue Canada that there were no taxes owing by it for the 1980 taxation year. On September 16, 1983 the plaintiff filed a notice of objection to this "nil assessment". The plaintiff contested the classification of certain gains made by it on the sale of a particular property. By letter dated January 4, 1984 the plaintiff was informed by Revenue Canada that one could not object to a “nil assessment"; the plaintiff was advised to apply for a determination of loss pursuant to subsection 152(1.1) of the Income Tax Act. The plaintiff did so and was subsequently sent a notice of redetermination of a loss dated April 30, 1984. At the same time the plaintiff was sent a notice of confirmation by the Minister, also dated April 30, 1984. That notice of confirmation reads in part:

The formal objection(s) which you made to the notice(s) of Redetermination of a Loss for income tax in respect of taxation year(s) 1979 & 1980 has (Have) been carefully considered in accordance with paragraph 165(3)(a) of the Income Tax Act.

The Minister of National Revenue has considered the facts and reasons set forth in your Notice(s) of Objection and hereby confirms that the Notices of Redetermination of a Loss has (have) been made in accordance with the provisions of the Income Tax Act for the following reasons:

Consequent upon receipt of the notice of confirmation the plaintiff proceeded with its appeal to the Tax Court. This appeal was unsuccessful. It now appeals that decision to this Court.

Counsel for the defendant argues that the Minister’s notice of confirmation dated April 30, 1984 was a nullity because it could only be properly issued after the taxpayer had filed a notice of objection to the notice of redetermination of loss. She argues that the filing of the notice of objection is a statutory requirement which the Minister cannot waive and that consequently everything done after that date, including the issuing of the notice of confirmation, is a nullity. Subsection 165(3) of the Income Tax Act provides:

(3) Upon receipt of a notice of objection under this section, the Minister shall,

(a) with all due dispatch reconsider the assessment and vacate, confirm or vary the assessment or reassess, or

(b) where the taxpayer indicates in the notice of objection that he wishes to appeal immediately either to the Tax Court of Canada or to the Federal Court and that he waives reconsideration of the assessment and the Minister consents, file a copy of the notice of objection with the Registrar of the Tax Court or in the Registry of the Federal Court, as the case may be, and he shall thereupon notify the taxpayer of his action by registered mail.

The decisions in Lapointe-Fisher Nursing Home, Limited v. M.N.R., [1986] 1 C.T.C. 2462; 86 D.T.C. 1357 (Tax Ct.) and Taubler v. M.N.R., [1987] 2 C.T.C. 2058; 87 D.T.C. 393 (Tax Ct.) were cited in support of the defendant's position.

Counsel for the plaintiff argues that section 169 of the Income Tax Act, not subsection 165(3), is the applicable section:

Where a taxpayer has served notice of objection to an assessment under section 165, he may appeal to the Tax Court of Canada to have the assessment vacated or varied after either

(a) the Minister has confirmed the assessment or reassessed, or

(b) 180 days have elapsed after service of the notice of objection and the Minister has not notified the taxpayer that he has vacated or confirmed the assessment or reassessed;

but no appeal under this section may be instituted after the expiration of 90 days from the day notice has been mailed to the taxpayer under section 165 that the Minister has confirmed the assessment or reassessed.

Counsel for the plaintiff argues that the significant factor clothing the Tax Court with jurisdiction is the issuing of the notice of confirmation by the Minister, not the filing of the notice of objection by the taxpayer. He also argues that the Taubler and Lapointe decisions can be distinguished; and, that it is inequitable to seek to deny the plaintiff its appeal rights now, when no objection on the ground of procedural defect has been made previously. He notes that the objection being made is based on an error made five years ago which error was induced by the Minister's own error in sending out the notice of confirmation before any formal notice of objection had been filed by the taxpayer.

It is necessary, first of all, to review the decisions in the Lapointe and Taubler cases. In the Lapointe case, taxes owed by a corporation for the fiscal year ending March 31, 1978, were in issue. The Minister sent a notice of assessment (dated April 9, 1980) and then a notice of reassessment (dated April 27, 1983). These were sent to a non-existent company. The company was non-existent because it had been amalgamated into a new corporation. A notice of objection was filed with respect to the April 27, 1983 reassessment; part of that objection cited the fact that the notice of reassessment had been issued to a non-existent company. An assessment with respect to the taxes alleged to be owing was then sent on August 1, 1984 to the amalgamated company (assessment #1122932). A notice of objection was not filed to this assessment,. Shortly after the August 1, 1984 assessment (#1122932) had been sent to the amalgamated company, a letter was sent by officials of Revenue Canada which stated, in part:

The Notice of Assessment issued on August 1, 1984 has the effect of nullifying the earlier assessment and the Notice of Objection filed in respect of 1978.

However, under the authority of Subsection 165(7) of the Income Tax Act, you may appeal the Minister's action directly to the Tax Court of Canada or the Federal Court without serving a new Notice of Objection, or you may file a Notice of objection to assessment #1122932.

Judge Bonner of the Tax Court indicated that he could not construe this letter as indicating a waiver by the Department officials of the requirement to file a notice of objection to assessment #1122932. It is clear when the above-mentioned paragraphs of the letter are read, in the context of the letter as a whole and the statutory provision in question, that the taxpayer was being told: either the April 27, 1983 assessment could be appealed, in which case no new notice of objection would be required, since one had already been filed; or, the assessment #1122932 which had been issued to the new company could be appealed, in which case a notice of objection would be required. Judge Bonner went on to say, that even if he had been able to construe the letter as a waiver of the requirement to file a notice of objection this would not be effective to clothe the Tax Court with jurisdiction. He quoted the words of Moss, C.J.O. in Re Port Arthur Election (1906), 13 O.L.R. 17 at 20:

The Court must be careful to see that it does not usurp a jurisdiction it does not possess. The jurisdiction it has is wholly statutory, and only such as is conferred by the statute can be exercised.

Judge Bonner held that officials of Revenue Canada could not clothe the Tax Court with jurisdiction by "waiving" a statutory requirement.

In the Taubler case a notice of assessment was sent to the taxpayer; this was appealed by filing with the Tax Appeal Board a notice of appeal but not within the time limits prescribed for such filing. The Minister filed a reply to the notice of appeal. It was held that the Minister's filing of a reply could not cure the defective notice of appeal. The taxpayer attempted to argue that although his appeal had been filed out of time, the Minister's filing of a reply thereto had cured or waived that defect. The Tax Court held, at page 2060 (D.T.C. 394), that it was without jurisdiction to hear the appeal:

The filing by the respondent of a reply to the notice of appeal cannot remedy the late filing of the appeal. This does not result in an estoppel. The respondent's actions could not change the requirements set out in the Income Tax Act or give effect to an invalid notice of appeal. I would cite the words of Christie, C.J.T.C. (as he then was) in Jay Wollenberg v. M.N.R., [1984] C.T.C. 2043 at 2045; 84 D.T.C. 1055 at 1057:

Estoppel is incapable of putting aside or overriding the provisions of the Act as enacted by Parliament. There is ample authority for this. I need only refer to two decisions of the Federal Court-Trial Division and the cases referred to therein: Stickle v. M.N.R., [1972] C.T.C. 210; 72 D.T.C. 6178, and Gibbon v. The Queen, [1977] C.T.C. 334; 77 D.T.C. 5193.

Counsel for the plaintiff does not disagree with the holdings in those two cases. He simply says they do not apply in this case. With that argument I agree.

It is first of all relevant to note that the "waiver" which was alleged to exist in the Lapointe case was based on a letter sent by departmental officials. The waiver alleged in the Taubler case was said to have occurred as a result of a procedural step being taken in court proceeding (a reply being filed) in response to an appeal which was filed after the time for filing had expired. Neither of these events, however, could be effective to overrule a statutory requirement. In the present case, the “waiver” if one can refer to it as such occurs because the Minister has taken a step prescribed by statute (the issuing of a notice of confirmation) which itself is defined by statute as resulting in certain consequences (see section 169 of the Income Tax Act set out above). That is, I think counsel for the plaintiff is correct when he says that attention should be focused on section 169 of the Income Tax Act and the consequences which flow from the issuing, by the Minister, of a notice of confirmation, rather than on subsection 165(3).

More importantly however, I do not think this Court's jurisdiction in the case of an appeal from a Tax Court decision is based on a notice of objection having been filed. The situation may be different when an appeal is taken directly to this Court, in the first instance, pursuant to section 165. In the present case, however, this Court's jurisdiction flows from subsection 172(1) of the Income Tax Act and section 24 of the Federal Court Act. Subsection 172(1) of the Income Tax Act provides:

(1) The Minister or the taxpayer may, within 120 days from the day on which the Registrar of the Tax Court of Canada mails the decision on an appeal under section 169 to the Minister and the taxpayer, appeal to the Federal Court of Canada.

Section 24 of the Federal Court Act states:

Except as otherwise provided by the Rules, the Trial Division has original jurisdiction to hear and determine all appeals that, under the Income Tax Act or the Estate Tax Act, chapter E-9 of the Revised Statutes of Canada, 1970, may be taken to the Court.

In my view, in a case such as the present, this Court's jurisdiction is founded upon a decision of the Tax Court having been rendered. A procedural defect which occurred prior to that time is not relevant. The defendant's motion will, therefore, be dismissed. The plaintiff should have its costs of this application in any event of the cause.

Motion dismissed.