Multi-Malls Inc. v. Minister of National Revenue, [1986] 2 CTC 2306, 86 DTC 1724

Taylor, T.C.J.:—This is an application heard in Toronto, Ontario, on July 14, 1986, for an order extending the time within which to file a notice of objection under section 167 of the Income Tax Act. The application dated July 12, 1985 reads as follows:

A. Statement of Facts

1. The Applicant applies for an Order extending the time within which it may file a Notice of Objection to a Notice of Assessment dated December 10, 1984 for its 1983 Taxation year.

2. The Applicant did not initially receive a copy of the aforesaid Notice of Assessment and it was not until its Solicitor, Mr. Fred Baker was contacted by the Collections Section of the Department of National Revenue advising that the Applicant owed $1,218,736.51 in taxes that the Applicant became aware of the Assessment.

3. The Collections Officer refused to provide the Applicant’s Solicitor, with details of said Notice of Assessment as he advised that he had no authorization from the Applicant to do so.

4. The Principal Officer of the Applicant was out of the country from about the beginning of January 1985 to about the beginning of May 1985, and in May 1985, the said Principal Officer contacted the Collections Section of the Department of National Revenue and towards the end of May 1985, a copy of the aforesaid Notice of assessment together with the T7WC was forwarded to the Applicant.

5. This Application is made within one year after the expiration of the time otherwise limited by the Income Tax Act for objection to the above noted Assessment.

6. Neither the Tax Court of Canada or the Federal Court has previously made an Order extending the time for objecting to or appealing from the above noted Assessment.

7. But for the fact that the Assessment was not received by the Applicant until towards the end of May 1985, an objection would have been served within the time otherwise limited for so doing.

8. This application is being brought as soon as circumstances permit it to be brought.

9. There are reasonable grounds for objecting to the above noted Assessment, which grounds are particularly set out in the Notice of Objection annexed hereto.

10. This Assessment was made without consultation with the Taxpayer and without an examination of the books and records of the Taxpayer and in fact was an arbitrary Assessment.

11. The Applicant submits that the circumstances of this case are such that it would be just and equitable for this Honourable Court to make an Order extending the time within which a Notice of Objection may be served.

In response thereto, the Minister of National Revenue asserted as follows:

A. Statement of Facts

1. The Respondent states that the Applicant late filed its 1983 income tax return on August 8, 1984. This return did not contain the financial statements of the Applicant and despite repeated requests none were provided prior to December 10, 1984.

2. The Respondent states that in filing its income tax return for the 1983 taxation year, the Applicant indicated on that return that its mailing address was: c/o Mr. Jack Burnett, 2 Castle Frank Road, Toronto, M4W 2Z4.

3. The Respondent states that a Notice of Assessment with respect to the Applicant’s 1983 taxation year was mailed to the Applicant c/o Mr. Jack Burnett, 2 Castle Frank Road, Toronto, M4W 2Z4 on December 10, 1984. The Respondent has no record of the Notice of Assessment being returned. A copy of the assessment was sent to Theodore Burnett c/o Burnett and Associates, Barristers and Solicitors. Theodore Burnett is an officer and director of the Applicant and brother of Jack Burnett. The Respondent has no record of the copy of the Notice of Assessment being returned.

4. The Respondent states that the 90th day following the date of mailing of the aforementioned Notice of Assessment was Monday, March 11, 1985.

5. The respondent admits that the Collections Section of the Department of National Revenue (the “Department”) contacted the Applicant’s solicitor, Mr. Fred Baker, concerning the Applicant’s outstanding 1983 income tax payable and states that such contact was by way of letter dated January 29, 1985.

6. The Respondent states that by letter dated February 27, 1985, the Applicant’s solicitor, Mr. Fred Baker, wrote to the Department inquiring about the assessment referred to in paragraph 3 above.

7. The Respondent admits that towards the end of May 1985 a copy of the aforesaid Notice of Assessment was sent to, and received by, the Applicant.

8. By Application dated July 12, 1985 and received by the Registrar of the Tax Court of Canada on July 15, 1985, the Applicant applies for an extension of time within which to serve a Notice of Objection for its 1983 taxation year.

9. The Application referred to in paragraph 8 above was received by the registrar of the Tax Court of Canada 126 days following the time limited by section 165 of the Income Tax Act, R.S.C., 1952, c. 148 as amended (the “Act”) for serving a Notice of Objection for the 1983 taxation year.

B. Submissions of the Respondent

10. The Respondent submits that the Applicant has not shown that, but for the circumstances pleaded in the Application, a Notice of Objection would have been made within the time otherwise limited by the Act, for so doing. Accordingly, pursuant to subparagraph 167(5)(c)(i) of the Act, an Order to extend the time for serving a Notice of Objection should not be made.

11. The Respondent submits that the Application was not brought as soon as circumstances permitted it to be brought; therefore by virtue of subparagraph 167(5)(c)(ii) of the Act an Order to extend the time for serving a Notice of Objection should not be made.

12. The Respondent submits that the circumstances of the case are not such that it would be just and equitable to make an Order extending the time to serve a Notice of Objection pursuant to subsection 167(1) of the Act.

In addition an affidavit was filed to the Court by the respondent as follows:

Affidavit

I, Esther Samuel, of the Town of Markham, in the Judicial District of York Region, in the Province of Ontario, MAKE OATH AND SAY AS FOLLOWS:

1. I am an officer of the Department of National Revenue (herein referred to as the “Department”) and as such have knowledge of the practice of the Department and the facts to which I hereinafter depose.

2. I have charge of the Department’s records with regard to the Applicant’s 1983 taxation year.

3. An examination of the records of the Department shows that the Applicant late filed its 1983 income tax return on August 8, 1984, and that this return did not contain the financial statements of the Applicant and despite repeated requests none were provided prior to December 10, 1984. Attached to this my Affidavit and marked as Exhibits 1 and 2 are true copies of letters dated November 23, 1983 and February 29, 1984 requesting that the Applicant file an income tax return and financial statements for its 1983 taxation year.

4. An examination of the records of the Department shows that in filing its income tax return for the 1983 taxation year, the Applicant indicated on that return that its mailing address was: c/o Mr. Jack Burnett, 2 Castle Frank Road, Toronto, M4W 2Z4.

5. An examination of the records of the Department shows that a Notice of Assessment with respect to the Applicant’s 1983 taxation year was mailed to the Applicant c/o Mr. Jack Burnett, 2 Castle Frank Road, Toronto, M4W 2Z4 on December 10, 1984, pursuant to the Income Tax Act, and that a copy of the Notice of Assessment was sent to Mr. Theodore Burnett c/o Burnett and Associates, Barristers and Solicitors.

6. After a careful examination and search of the records of the Department, I have been unable to find that the Notice of Assessment or the copy of the Notice of Assessment referred to in paragraph 5 herein was returned to the Department.

7. Attached to this my Affidavit and marked as Exhibit 3 is a true copy of a letter dated February 27, 1985 from the Applicant’s solicitor, Mr. Fred Baker, to the Department.

8. After a careful examination and search of the records of the Department, I have been unable to find that a Notice of Objection to the assessment referred to in paragraph 5 herein was received by the Department prior to July 15, 1985.

Exhibit 1
Revenue Canada Taxation	Revenu Canada Impôt
Taxation Centre	Centre fiscal
Nov. 23, 1983	Our file Notre référence
	T2 Corporations—Taxroll Rôle
Multi-Malls Inc.
c/o C. M. Zelfman (sic) & Co.
3101 Bathurst St. Ste. 401
Toronto, Ont.
M6A 2A6

For purposes related to the administration and enforcement of the Income Tax Act, pursuant to the provisions of paragraph 231(3)(a) of the said Act, I hereby require from you within thirty-five (35) days from the date of this demand:

A Statement of Assets and Liabilities, in duplicate, as at April 30, 1983.

A Statement of Profit and Loss, in duplicate, for the fiscal period ended April 30, 1983.

A Statement, in duplicate, showing the calculation of the amount of Capital Cost Allowance claimed, if any, for the fiscal period ended April 30, 1983.

Statement, in duplicate showing the reconciliation of Net Income to Taxable Income, if applicable, for the fiscal period ended April 30, 1983.

If this requirement is not complied with, you will be liable to prosecution without further notice. Subsection 238(2) of the said Act provides that a person who fails to comply with this requirement is guilty of an offence and is liable on summary conviction to a fine of not less than $200.00, and not more than $10,000.00, or both the fine and imprisonment not exceeding six months.

The information above required is to be forwarded to the Taxation Centre Ottawa indicated below.

Yours truly

T.S. Blanchard, Director

Ottawa Taxation Centre of the

Department of National Revenue, Taxation

Refer telephone inquiries to office indicated below:

Ottawa, Ont. Ottawa (Ont.) Toronto District Taxation Office KIA 0Y6 KTA 0Y6

Exhibit 2
Registered
Multi-Malls Inc.	143-2-8
14 Elgin Avenue	369-4553
Toronto, Ontario
M5R 1G6

Attn: Mr. Jack Burnett

29 February 1984

Gentlemen

Re: 1981-1982 and 1983 Income Tax Returns

Your chartered accountants C. M. Zeifman and Co. filed your 1981 and 1982 income tax returns incomplete and unverifiable. No financial statements were submitted despite repeated requests. Your 1983 return due October 30, 1983 has not been received.

Based on available information, you have taxable income in the amount of $1,388,122 after deducting non-capital loss of $2,428,438.

Please be advised that adjustments based on available information will be made if the required return and information are not received in this office by March 30, 1984.

Yours truly

E. Sarmiento

Business Audit

c.c.: Mr. Theodore Burnett, Director

c/o Burnett and Associates

One St. Clair Ave. East, suite 200

Toronto M4T 2V7

C.M. Zeifman and Co., Chartered Accountants

3101 Bathurst Street, Suite 401

Toronto M6A 2A6

Exhibit 3

BAKER & PARKER

BARRISTERS AND SOLICITORS

FILE NO. 6108/84

February 27, 1985.

Revenue Canada — Taxation

36 Adelaide Street East

Toronto, Ontario

MSC 1J7

Attention: Mr. R. Bryson — Collections

Re: 165-1-1, 2nd. F1 E

Multi-Malls Inc.

Account No. 7-948-675-9

Dear Sir:

My client Mr. Jack Burnett is out of Toronto until the end of April and I have a copy of your letter of January 29, 1985, with respect to the arrears owing by the above-noted company. Could you please advise me as to the nature of the problem and I shall attempt to contact my client to obtain further instructions from him.

Yours very truly,

BAKER, PARKER & ZENER

Signed:

FRED BAKER

The most unusual feature of this application however is that described in these opening comments by counsel for the respondent:

MRS. VAN DER HOUT: With the indulgence of the Court, I wonder, before Mr. Baker proceeds with his testimony, if I might bring something to the attention of the Court, which I’ve already brought to the attention of Mr. Baker?

An affidavit was filed as part of this application and I noticed that there is an error in paragraph 3 of that application, which I brought to Mr. Baker’s attention and which I wish to bring to the Court’s attention, so that the Court understands on what basis — the correct facts upon which the application is proceeding.

Your Honour, the applicant did not file, late file his income tax return on August 8th, 1984. Your Honour, in fact that is a 152(7) assessment and that date is the date that that assessment is stamped as being received by the Department, that is, the return was prepared, the tax determined, and the return was prepared by the Department and hence that is the date that that return was prepared.

MR. BAKER: You’re saying it was an arbitrary assessment?

MRS. VAN DER HOUT: This is an assessment pursuant to 152(7).

Your Honour, with respect to the second comment that the financial statements were not received prior to December 10th, 1984, your Honour, neither the return nor the financial statements were received in fact until . . . your Honour, until July of 1985. Now, December 10th, 1984, as you can see, is the date of the mailing of the assessment.

During the course of the hearing there was a total of some 18 documents filed as evidence, two by the applicant, 16 by the respondent. Those which the Court considers significant will be referenced in the body of this decision. The main testimony for the applicant was that of Mr. Jack Burnett, President, stating that Multi-Malls Inc. (“Multi-Malls") had been inactive since 1981, and that the books and records were left with the auditors C. M. Zeifman & Company, Chartered Accountants, of Toronto, Ontario. Mr. Jack Burnett now lives in Europe, and it was his assertion that the delays and difficulties with Revenue Canada had arisen because relations between the principals of Multi-Malls (Jack, and his brother Theodore Burnett) on the one hand, and the auditors (Zeifman) on the other hand had broken down during this period, and there had been virtually no communication. After some period of time the books and records finally had been returned from Zeifman’s, and efforts were being made through another accountant — Janice Haugh — To respond to the Revenue Canada questions. According to the President of the corporation, his first exposure to the fact that there was any serious problem with Revenue Canada was when he was made aware of a letter dated January 29, 1985, from Revenue Canada (Exhibit A-1) which reads as follows:

It is important that you telephone the writer or visit this office within 30 days to discuss your Income Tax arrears.

Yours truly

Signature:

R. Bryson

Collections Section

Collection Investigation Officer

36 Adelaide St. E.	36 est, rue Adelaide
Toronto, Ont.	Toronto (Ont.)
M5C 1J7	M5C 1J7

The action of Mr. Jack Burnett, on this letter was indirect — and it came about by virtue of a visit back to Canada from Europe, of Mr. Jack Burnett's wife in February 1985. She stayed with Mr. Burnett's mother, whose address was 2 Castle Frank Road (supra) and finding the letter, she read it to Mr. Burnett, and was instructed by him to contact Mr. Fred Baker, now solicitor for the applicant, and the procedures before this Court arose.

The critical points in the testimony of Mr. Theodore Burnett were that he had not taken an active role in the operation of Multi-Malls, and that he had not seen the 1983 assessment notice at issue until long after the period of time critical to this application.

It seems to me that the first point to be addressed is whether the applicant has succeeded in properly establishing that subsection 152(2) of the Act was not met by the Minister, that is, whether proper notice of the assessment was provided to the corporation. The applicant’s way of dealing with that point, is to assert that the assessment notice was “not received” but in my view that is not the correct way of viewing subsection 152(2) of the Act. If this subsection was not fulfilled by the Minister — then I see little value in pursuing the points raised regarding the “intention to file a notice of objection'" — if the assessment notice “had been received'".

There was no question raised at the hearing, whether the assessment itself was valid — arbitrary as it is, and admittedly based on third party information, but it would appear to me that subsections 152(7) and 152(8) of the Act support the Minister’s right to strike the assessment under these circumstances. However, I have considered whether the phrase from subsection 152(8) — “notwithstanding any . . . defect . . . therein or in any proceeding under this Act relating thereto . .."" would cover the situation if the address to which the valid assessment was sent did not accord with the provisions of subsection 152(2) of the Act. In a most extreme example, let us assume that the address to which the Minister sent the assessment notice was completely incorrect (for whatever reason) and thereby non-delivery was almost assured. Would the phrase “to the person"" be fulfilled, when (as in this case) no person had filed any return for the relevant year? I would have serious doubts. A question regarding the adequacy and correctness of the address to which the assessment notice was sent, might well be raised. Accordingly in this matter, that question of “address"" is a fundamental aspect of the issue of “not received"" as raised by the applicant, and “send"" as required by subsection 152(2) of the Act.

It is evident from the documentation filed with the Court, that the address on the disputed assessment notice, was taken — for purposes of mailing — from the 1983 corporation income tax return prepared internally by officers of Revenue Canada. On that tax return (Exhibit R-16) Revenue Canada has printed the following in the upper portion:

Exhibit R-16

TAX RETURN — REVENUE CANADA

	IDENTIFICATION 93
Account Number	7 948 675 9		Is this the first year of
			filing?	NO
Name of Corporation (Print)			Is this an amended return?	NO
MULTI-MALLS INC.
Address of Head Office			Mailing Address (if different
			from Head Office address)
14 ELGIN AVENUE			c/o MR. JACK BURNETT
			2 CASTLE FRANK ROAD
City and Province or Territory			City and Province or Territory
TORONTO, ONTARIO			TORONTO
Postal Code			Postal Code
			M4W 2Z4
Return for taxation year			(a) Has the above address
from 01 05 1982 to 30 04 1983			changed since last
			return was filed?	YES
Has the fiscal period			(b) If “Yes”, has the
changed since last return filed?		NO	Department been
			previously notified
			of the change?
(a) Has the above address			Is the corporation a
changed since last return			resident of Canada &	YES
was filed?		NO
(b) If “Yes”, has the			If “NO”, provide
Department been previously			country of residence
notified of the change?

Type of corporation at end of	Did the type of corporation
taxation year	change during this taxation
X Canadian-controlled Private	year	NO
(Note: — Underlining indicates items completed by Revenue Canada)

In the 1982 corporation tax return, the head office address had been given as 14 Elgin Avenue, and the mailing address as:

c/o C.M. Zeifman & Co.

3101 Bathurst Street, Suite 401

Toronto, Ontario M6A 2A6

Mr. Jack Burnett had signed that return as president and had given no personal address other than Toronto, Ontario.

In the 1987 corporation tax return, the only address shown for the corporation was:

1 St. Clair Avenue East

Toronto, Ontario

Mr. Jack Burnett as president had signed that return and given his address as 2 Castle Frank Road, Toronto, Ontario.

Mail (particularly an earlier critical letter dated February 29, 1984 entered as Exhibit R-6 (shown below — but already reproduced as Exhibit 2 to the Affidavit — (supra)) addressed to the 14 Elgin Avenue address was returned unopened. The copy of the same letter, addressed to Mr. Theodore Burnett, at the One St. Clair address was not returned to Revenue Canada. The copy of the same letter addressed to the Zeifman firm apparently was also received.

Exhibit R-6

REGISTERED

Multi-Malls Inc.

Toronto, Ontario

MSR 1G6		Our file 143-2-8
.	.	369-4553
Attn: Mr. Jack Burnett
29 February 1984
Gentlemen
Re: 1981, 1982 and 1983 Income Tax Returns

Your chartered accountants C.M. Zeifman and Co. filed your 1981 and 1982 income tax returns incomplete and unverifiable. No financial statements were submitted despite repeated requests. Your 1983 return due October 30, 1983 has not been received.

Based on available information, you have taxable income in the amount of $1,388,122 after deducting non-capital loss of $2,428,438.

Please be advised that adjustments based on available information will be made if the required return and information are not received in this office by March 30, 1984.

Yours truly

Signed:

E. Sarmiento

Business Audit

c.c.: Mr. Theodore Burnett, Director

c/o Burnett and Associates

One St. Clair Ave. East, Suite 200

Toronto, M4T 2V7

C.M. Zeifman and Co., Chartered Accountants

3101 Bathurst Street, Suite 401

Toronto M6A 2A6

Further there is a follow-up letter to Zeifman from Revenue Canada — (Exhibit R-7) dated April 24, 1984 — with a copy of this letter sent to Mr. Theodore Burnett at One St. Clair Avenue, neither of which was apparently returned to Revenue Canada. So, at least up until April 24, 1984, Revenue Canada was dealing with the applicant at or through, one or both of the Zeifman firm on Bathurst Street, or Theodore Burnett at one St. Clair Avenue. To this point there is only the one reference to the 2 Castle Frank Road address — as a personal address of Mr. Jack Burnett, president.

The only other indirect (not originating from corporation tax returns) reference to 2 Castle Frank Road was in a document stamp dated May 27, 1983 provided to Revenue Canada, from the Province of Ontario, listing officers and directors of the corporation — including that of Mr. Jack Burnett as 2 Castle Frank Road — but also showing as the “full address of the Head office” c/o Suite 200 One St. Clair Avenue East, Toronto, Ontario. Incidentally, the address for service of the vice-president, Mr. Theodore Burnett is shown thereon not as “One St. Clair Avenue East” (which testimony showed to be his law office address) but as 63 Forest Hill Road, Toronto, which was his home address.

In the conduct of the corporation's affairs over the several years reviewed at the hearing, the officers and directors of the applicant made little or no effort whatsoever to accommodate the legitimate requirements of Revenue Canada, particularly in maintaining current mailing addresses on file. Both the written record and the testimony of witnesses for the respondent — which has been only touched on briefly in this decision — shows continued effort and dedication by Revenue Canada to maintain contact and pursue necessary measures. It was met by only frustration or neglect on the part of the applicant, its officers and agents, notwithstanding the reasons or excuses provided to the Court of difficulties with accountants, communications, etc. Nevertheless, in the stringent and poignant circumstances of this application, I can only look at one thing. Was the choice of the 2 Castle Frank Road address by Revenue Canada that which can be determined as the logical, best and appropriate one, almost to the exclusion of any other choice? The answer to that question must be in the negative. As I see it, at least as good an argument could be made for sending the assessment notice to any one of 14 Elgin Avenue; One St. Clair East; or the Zeifman firm, as can be made for the 2 Castle Frank Road address. Whether any of these would have reached the intended party — the corporation — could be a point of discussion, but that is not the precise point at issue as I see it. In the circumstances of this application, Revenue Canada selected as the mailing address, to "send” — "to (that) person” — the critical notice of assessment, which address prior to that time had never been used, successfully or unsuccessfully, in attempts to contact the taxpayer, and without authorization from any responsible party of the corporation to do so. I can understand that from a practical viewpoint, the selection of 2 Castle Frank Road may have appeared the most sensible and reasonable to Revenue Canada since difficulties had been encountered with other addresses, and perhaps even because it was a new address. But that does not assist me greatly when faced with the applicant’s assertion that the assessment notice was not received. I am expressing no view as to whether the assessment notice was received at 2 Castle Frank Road, or even whether it should have been so received, only that it would be just and equitable under the circumstances to give consideration to this application, because it cannot with certainty be determined that it was sent, as I comprehend subsection 152(2) of the Act. The application is granted.

Application granted.