William R Sinclair v. Minister of National Revenue, [1984] CTC 2900, 84 DTC 1759

Tremblay, TCJ:—This appeal was heard in Toronto, Ontario, on February 28, 1984.

1. The Point at Issue

Pursuant to the notice of appeal, the point is whether the appellant is correct in refusing to pay interest in the amount of $1,350 concerning his 1979 taxation year. The appellant contends that the capital amount of $45,078 was mailed by cheque with the 1979 tax return on April 30, 1980. It was never cashed by the respondent. The latter, however, in December 1980, reassessed the interest.

The respondent, pursuant to the reply to notice of appeal, contends first that the amount of interest involved is not $1,350 but $3,048.31. Moreover, the employee who opened the envelope containing the appellant’s return made a notation that “no payment received May 6, 1980’’.

2. The Burden of Proof

2.01 The burden of proof is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his assessments, or reassessments, are also deemed to be correct. In the present case, the assumed facts are described in the reply to notice of appeal as follows:

5. The assessment was made on the basis of the following assumptions:

(a) the appellant filed his 1979 income tax return on or about April 30, 1980;

(b) the appellant reported total tax payable of $56,936.00, tax paid plus credits of $11,858.00 and taxes owing of $45,078.00;

(c) the filed return was received by the Department of National Revenue but no payment of $45,078.00 was enclosed at that time nor was ever received as of December 11, 1980.

3. The Facts

3.01 The appellant testified that his 1979 tax return was prepared by his accountant Mr Andrew C Sherwood, CA.

3.02. At the end of April 1980, the prepared and typed return was presented to the appellant. On the return, in the box concerning “Balance Due’’, one can read the amount of $45,078. Under the latter, another box concerning “Amount Enclosed’’, one can read $45,078.

3.03 Mr Sinclair said that his secretary prepared the cheque for this amount; he signed it. It was issued on bank account No 84-00512 of the Canadian Imperial Bank of Commerce. The cheque was handed to Mr Sherwood who attached it to the tax return.

3.04 Mr Sherwood in substance, testified to the same facts as related by the appellant. He said however, that unfortunately, the cheque book used on the said account does not provide for cheque stubs on which the preparation of the cheque could have been recorded.

3.05 The said tax return was mailed and received by the respondent at the beginning of May 1980. On the tax return, one can read a note near the box “Amount Enclosed”: “No payment received, May 6, 1980; it is signed G S May”.

3.06 On December 11, 1980, the respondent issued an assessment claiming an amount of $51,296.73, including interest arrears of $3,048.31.

3.07 In the notice of objection, prepared by Mr Sherwood on May 29, 1981, one can read in the third paragraph: “On March 17, 1981,1 issued another cheque in the amount of $52,471.72 and mailed it along with a letter outlining the above to the Hamilton office of Revenue Canada. Apparently, this cheque as well as the first one has not been cashed”. Mr Sherwood testified that, in fact, this cheque was not mailed but was delivered to the respondent by himself. (This second cheque was never cashed by the respondent.)

3.08 Pursuant to the above, a third cheque had been issued which was finally cashed by the respondent. That cheque was debited in the bank account on June 8, 1983.

3.09 Counsel for the respondent filed as Exhibit R-l, eleven sheets of the statement of bank account No 84-00512 at the Canadian Imperial Bank of Commerce from the end of February 1980 to the end of December 1980. On April 30, 1980, one can see that the credit balance was $20,314. On May 9, 1980, the balance was $48,691.18; on May 12 it was $45,947.05 and on May 13 it was $22,670.05. On that date of May 13, two amounts of $10,000 and one of $12,000 were. debited. After the said amounts, one can read the letter “D”. Mr Sherwood said it meant that these amounts were transferred by the bank to another bank account, or as payment of a loan.

3.10 From that date (May 13, 1980) to September 9, 1980, the credit went down to $1,812 but never reached $45,000. On September 12, 1980, the balance went up to $298,831.30 but was debited by $300,000 on September 15. Again the letter “D” followed the said amount. From that date to the end of December 1980, the highest balance was $25,317.49.

3.11 The appellant said he had many accounts at the Canadian Imperial Bank of Commerce because he was involved in many small companies:

A. Well, we do not — I do not let money sit in banks. I have a business; we move money all the time. It’s a typical operation of most businesses — that you move money and keep moneys moving, and don’t let it sit in banks paying interest to banks. We have other moneys moving, so if by chance that cheque came due, it had not been returned — it would not have been returned to the department, it would have — they would call us and say, “you’re short in your account by this much money’’ and we would move money, because I also have usually in my company a credit of my own funds that’s actually working at my own company at all times.

In 1979, the appellant declared a total income of $152,600, of which $121,000 was dividend and interest.

3.12 Mr Sherwood confirmed that with the kind of bank account No 84-00512, there was no cheque stub. That’s why he could not file it.

4. Law — Cases at law — Analysis

4.01 Law and Regulation

The main provisions of the Income Tax Act involved in the instant case are 161(1), 161(2) and one provision of Income Tax Regulations (section 4300). They shall be quoted in the Analysis if necessary.

4.02 Analysis

4.02.1 Despite the legal provisions referred to above, counsel for the respondent informed the court: . . it’s just a case of mistake: there is no principle in it. If the Minister made a mistake we are quite prepared to cancel the Assessment of Tax,. . . this is just a situation where we want to ascertain the facts, if possible”.

In fact, if it is true that a cheque of $45,078 was mailed in April 1980 to the respondent and that it was lost because of an error made by one of the respondent’s employees, it is difficult to require payment of the interest. The issuance of a cheque indeed means that the money is then available for the receiver. The said money cannot be used by the taxpayer — it cannot produce interest.

4.02.2 On one hand, it would have been better if the cheque stub had been filed. However, the evidence is to the effect that because of the nature of the bank account, there was no stub. (Par 3.04, 3.12)

On the other hand, the testimony of the appellant, confirmed by the testimony of Mr Sherwood who prepared the tax return and who attached the cheque to the said return that had just been signed by the appellant (Par 3.01 to 3.04), stated that the cheque had been mailed.

Moreover, the Court believes the appellant when he says that the cheque of $45,000 would have been honoured if the respondent had cashed it. His income and the balance sheet filed with his return and the policy of the bank in such a case confirm this testimony. (Par 3.11).

Finally, the respondent’s employee who received the tax return and opened the envelope was not heard as a witness. It would have been interesting to examine him as to the impossibility of errors having been made when a second cheque being delivered was not cashed (Par 3.07).

The Court concludes that the preponderance of the evidence favours the appellant’s thesis.

5. Conclusion

The appeal is allowed and the matter referred back to the respondent for reassessment in accordance with the above reasons for judgment.

Appeal allowed.