Gerd P. Weih v. Minister of National Revenue, [1988] 2 CTC 2013, 88 DTC 1379

Kempo, T.C.J.: —Dr. Gerd P. Weih has launched an appeal for his 1978 taxation year. The sole issue defined by the appellant's counsel for determination by the Court is extracted from the notice of appeal and reads:

The Appellant submits that the Respondent failed to examine his return of income for his 1978 taxation year with all due dispatch as required by subsection 152(1) of the Act and that therefore the Reassessment dated December 12, 1984 is invalid pursuant to the provisions of subsection 152(4) of the Act.

The relief sought by the appellant was:

That the Reassessment bearing the date of December 12, 1984 be referred back to the Respondent as being invalid on the basis that it was not issued on a timely basis.

Counsel for the appellant's position was that no objection or appeal was being advanced herein from the notice of assessment dated December 12, 1980 (hereafter the "first" assessment) and that no issue was being made with respect to the underlying calculations or the amount of tax liability upon which the reassessment dated December 12, 1984 (hereafter the "last" assessment) had been premised. What was under appeal was the very validity of the last reassessment in that the first assessment had not been made with “all due dispatch" as mandated by subsection 152(1) of the Income Tax Act (the "Act") with the consequence that the Minister is precluded from relying on the subsection 152(4) four-year limitation period. In argument, counsel for the appellant had submitted "[i]f I can show that the original assessment was improper, then the Minister shouldn't be entitled to rely on that four-year provision starting at an improper assessment date. . . . if he [the Minister] hasn't acted with due dispatch, surely he can't benefit by his own wrong doing . . .”. (Transcript of argument at page 81).

The applicable provisions of the Act as they read in 1978 are as follows:

152. (1) The Minister shall, with all due dispatch, examine each return of income, assess the tax for the taxation year, the interest and penalties, if any, payable and determine the amount of refund, if any, to which the taxpayer may be entitled by virtue of section 129, 131, 132 or 133 for the year.

(2) After examination of a return, the Minister shall send a notice of assessment to the person by whom the return was filed.

(3) Liability for the tax under this Part is not affected by an incorrect or incomplete assessment or by the fact that no assessment has been made.

(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

(a) at any time, if the taxpayer or person filing the return

(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or

(ii) has filed with the Minister a waiver in prescribed form within 4 years from the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year, and

(b) within 4 years from the day referred to in subparagraph (a)(ii), if any other case,

reassess or make additional assessments or assess tax, interest or penalties under this Part, as the circumstances require.

The chronology of facts is as follows:

(1) The appellant, through his accountants, had mailed in his 1978 return of income on or about April 20, 1978 [sic] (Exhibit A-2).

(2) By notice dated September 17,1979 Revenue Canada Taxation requested the appellant to file an income tax return for the 1978 taxation year (Exhibit A-3) to which his accountants had responded by correspondence dated September 21, 1979 enclosing a copy of the previously filed return (Exhibit A-4).

(3) By letter dated April 24, 1980 the appellant's accountants sought an amendment to the 1978 return with respect to some items inadvertently omitted, namely eligible interest income in the amount of $2,418.77 and interest expense on rental property of $3,836.90 (Exhibit R-3).

(4) On April 30, 1980 the appellant's 1979 return of income was mailed in (Exhibit A-7).

(5) On June 30, 1980 the appellant's 1978 T1 Return was the subject of a Revenue Canada internal round-trip memorandum of inquiry and a reply thereto was sought on September 24, 1980 to the effect that the subject return was "at the Ottawa Taxation Centre Accounts Unit due to serious problems with the account; please hold correspondence until return is received in taxroll" (Exhibit R-7).

(6) The 1979 return of income was assessed, as declared, by notice of assessment dated November 27, 1980 (Exhibit A-8).

(7) The 1978 return of income was first assessed by notice dated December 12, 1980 in which adjustments had been made with respect to interest on late or deficient instalments, and a disallowance of some child deductions, general averaging and an employment expense deduction (Exhibit A-5). The first assessment was silent with respect to the requested amendment as per item (3). Federal and provincial tax was assessed in the total amount of $107,223.08.

(8) On January 7, 1981 the appellant's accountants wrote to Revenue Canada responding to some of the particulars reflected in the first assessment for 1978 (Exhibit R-6).

(9) By notice of reassessment for the 1978 year dated August 4, 1981 (hereafter the "second" assessment) it was stated that "T1 return had been adjusted to include additional interest income of $2,418.77 and to allow additional rental expenses of $4,335.90" (Exhibit R-4). The combined federal and provincial tax was decreased to $106,081.92.

(10) By letter dated December 7, 1981 the appellant's accountants responded to the second assessment (Exhibit R-5).

(11) Some time during 1982 and 1983 the two rental properties which were reported as having been disposed of in 1978 were repossessed through foreclosure proceedings and then resold in 1983.

(12) The appellant was unaware of any discussions or meetings that his partner or his accountants may have had with Revenue Canada officials concerning these two properties or of any Valuation-Day value appraisals, disagreements or discussions thereto. A strong inference exists that such matters and events had transpired in 1982 and 1983.

(13) The last assessment for the 1978 year was by notice dated December 12, 1984. Adjustments to income were made arising out of the respondent's Valuation-Day values of the two rental properties as set out in form T7W-C attached thereto (Exhibit A-6), and the combined federal and provincial tax was increased to $131,878.93.

The appellant submits the respondent had failed to comply with the “all due dispatch” requirement of subsection 152(1) as the duration of the time span between April 20, 1979 or September 1979 and the first assessment date of December 12, 1980 was without justification and that collection activity or concern for accounts for previous years does not warrant unduly delaying an assessment of a subsequent year. The facts were such that the first assessment basically reflected the return as filed, and that it was the second assessment that had dealt with the requested amendment. If the first assessment was invalid for want of due dispatch then the last assessment now under appeal, which was issued on the very fourth-year anniversary date thereafter, is also to be invalidated. Counsel urged that "the only constraint that the Court can produce is limiting the Minister’s ability to continue reassessments in the future. If not, then those words ‘with all due dispatch' are meaningless, because there is no penalty on the Minister for not doing the duty imposed on him” (Transcript of argument at page 80). Counsel further noted that since the first assessment had basically corresponded with the return as filed, there was nothing in the calculations underlying that assessment to object to and so that would not have been an appropriate course of action.

Respondent's counsel submitted that a jurisdictional problem may exist because it is the subsection 152(4) last reassessment which is under appeal and, by law, it had fully replaced the second one which had fully replaced the first one which is now non-existent. At page 161 (D.T.C. 5383) of the case The Queen v. Bowater Mersey Paper Company Limited, [1987] 2 C.T.C. 159; 87 D.T.C. 5382 (F.C.A.), it was stated:

The reassessments of March 6, 1984, were reassessments of the totality of the tax payable by the respondent for 1981 and 1982. They, therefore, replaced prior assessments that had been made for those years. Those prior assessments were no longer in existence and could not, for that reason, be the subject of an appeal.

[Emphasis added.]

Respondent's counsel urged that since there was no complaint advanced that the tax as assessed on the last assessment was too high, there is nothing that the Court is enabled to vary. And if the Court did vacate or quash the last assessment, then the appellant may thereby not be liable to pay any tax at all.

Appellant's counsel had made it clear that the appellant was not seeking to avoid tax altogether and that there had never been any real objection to paying the tax as initially declared and determined. He submitted that tax liability would not be avoided if the last assessment was vacated or quashed due to its invalidity in that liability would be preserved under subsection 152(3).

The novel proposition raised by the appellant is simple: if it can be shown that the first assessment was improper, then the Minister ought not to be entitled to rely on the four-year limitative provision starting from an improper assessment date, for to do so would be permitting an abuse, and the mandated "due dispatch" of subsection 152(1) would be meaningless.

Some judicial pronouncements have been made as to the meaning of the phrase “with all due dispatch”. Mr. Justice Fournier of the Exchequer Court in Jolicoeur v. M.N.R., [1960] C.T.C. 346 at 358; 60 D.T.C. 1254 at 1261 was of the view that:

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.

Mr. Justice Fournier added, at page 360 (D.T.C. 1262), that it was the Minister who had to decide on the time to be taken and that this would "vary and no two cases may take the same time [and that] many factors may arise to prolong his investigation or examination of the facts underlying his determination of the assessment or the fixing of the taxpayer's tax liability”.

In the case of Rodmon Construction Inc. v. The Queen, [1975] C.T.C. 73; 75 D.T.C. 5038 (F.C.T.D.) which involved a Part III withholding tax assessment, Mr. Justice Décary, at page 78 (D.T.C. 5041), was of the view that due dispatch meant "promptitude, speed".

In M.N.R. v. Appleby, [1964] C.T.C. 323 at 339 64 D.T.C. 5199 (Ex. Ct.) at 5205, Mr. Justice Dumoulin held that "a lapse of 22 months, in ordinary conditions, exceeds even a very liberal interpretation of ‘all due dispatch'".

The issue was raised in the case of Hutterian Brethren Church of Wilson v. The Queen, [1979] C.T.C. 1; 79 D.T.C. 5052 (F.C.T.D.) at pages 6-7 (D.T.C. 5056-57). There the taxpayer-appellants had made a timely filing of their respective corporate income tax returns throughout the 1967 to 1975 inclusive years. However, the respective notices of assessment may have issued as much and eight years after the respective returns had been filed. The Court agreed that it was not unreasonable for the Minister to have delayed assessment of the returns pending disposition of the appeal process concerning the personal assessments and noted, at page 6 (D.T.C. 5057), that the time lag considered in the context of "all due despatch" was the period which commenced with the date of the decision of the Supreme Court of Canada. The held-up returns were assessed for the first time some ten to fifteen months after that decision. The Court considered the timing of those assessments as having met the "due dispatch” parameters imposed on the Minister. It declined to consider the consequences if that had not been the case and mentioned the provisions of subsection 152(3) of the Act without elucidation.

As to the facts of the case at bar, it may reasonably be assumed that the appellant's 1978 return was actually in the respondent's possession no later than the first part of October 1979, and accordingly the delay alleged to be undue would be in the order of 15 months for which the sole proferred explanation was the aforesaid perceived serious collection problem on the account. The jurisprudence previously noted indicates that a 22-month delay under normal circumstances would be unacceptable (Appleby) and that a ten to fifteen month delay would not be unreasonable (Hutterian Brethren Church).

Both parties have noted the relevant facts and circumstances in the case of R.G. Lipsey v. M.N.R. et al., [1984] C.T.C. 675; 85 D.T.C. 5080 (F.C.T.D.). That situation concerned search and seizure matters as well as an application for an order directing the Minister to issue a notice of assessment for the 1980 year. It appears that the search and seizure occurred in August 1983 and that some two years had passed by then without any assessment having been issued. Mr. Justice Strayer dealt with the situation in the following way at pages 678-79 (D.T.C. 5083).

Counsel was unable to refer me to any authority that this Court has to direct the issue of a notice of assessment, nor did he establish a statutory basis for such a duty in the Minister to issue an assessment as might be enforceable by mandamus. I assume that such duty as there is arises under subsection 152(1) of the Income Tax Act. . .

Presumably the question of sending a notice under subsection (2) does not arise until the assessment has been completed under subsection (1) which according to that subsection is to be effected "with all due dispatch”. This phrase was considered by Fournier, J in Joseph Baptiste Wilfrid Jolicoeur v. M.N.R., [1961] CR 85 at 98 where he said that these words "have the same meaning as ‘with all due diligence’ or ‘within a reasonable time' ”. I respectfully agree with this interpretation. To issue mandamus the Court must be satisfied that all the conditions have been met for the exercise of the power, and that in the circumstances the official in question has no discretionary power to delay or to refuse taking the step which is sought to be ordered by mandamus. It seems doubtful that a judge could ever be in that position vis-a-vis the issuance of a notice of assessment. If it were possible, the present case is not one in which the Court can be satisfied that an unconditional obligation now exists on the part of the Minister to issue a notice of assessment for 1980. The words "with all due dispatch" invoke a test of reasonability and the evidence does not demonstrate to me that any further delay in issuing this notice of assessment is utterly unreasonable. While there were some considerable de- lays, for which no explanation was offered, prior to the search and seizure of August 1983, since that time the matter has largely been in suspense because . . . . In the face of these circumstances, it is certainly not clear that the delay in issuing the notice of assessment up to this point has been so unreasonable that there is an absolute duty now on the Minister to issue the notice, a duty which can be enforced by mandamus. Therefore I am unable to direct the delivery of a notice of assessment for the year 1980.

Counsel for the appellant cited Lipsey for the proposition that the "due dispatch” requirement upon the Minister could rarely be enforced by mandamus, and counsel for the respondent cited it for the proposition that the passage of two years prior to the search and seizure, for which no explanation had been proffered, was not perceived to have been unreasonable.

In the final analysis it appears that the appellant’s overall situation (of some 15 months) was no worse than the unexplained time lapse situation of the ten to fifteen months in Hutterian Brethren Church and of the two years in Lipsey. It would therefore be inappropriate to apply any differing result. Accordingly, as I am unable to conclude that the assessment dated December 12, 1984 should be vacated or quashed, the appeal fails and is to be dismissed.

Appeal dismissed.