M D Glazier LTD v. Minister of National Revenue, [1983] CTC 2061

D E Taylor [ORALLY]:—This is an appeal of M D Glazier Ltd for the years 1974 and 1975. Three possible questions arose, as outlined by counsel for the appellant, and agreed to by counsel for the respondent:

(1) whether the assessments at issue are statute-barred under subsection 152(4) of the Income Tax Act;

(2) if indeed they are not statute-barred, whether the amount at issue in both of those years represents capital or income; and

(3) if the amounts represent capital, then the question of the appropriate value to be attributed to the asset would be in question.

For reasons which will become obvious in the next few remarks, it is not necessary for the Board to deal with items (2) and (3) and the question of the statute-barred nature of the reassessments is the only matter with which the Board needs to deal. As counsel have noted, the Income Tax Act itself is a difficult one, and I would suggest to you that the precise interpretation of subsection 152(4) is the upper limits of those difficulties. It may well be that it has not been sufficiently examined up to this point in time and perhaps some of the appeals presently awaiting hearing will assist. For example, Mrs Lloyd has indicated that the decision given in Jet Metal Products Limited v MNR, [1979] CTC 2738; 79 DTC 624, has been appealed although I have not noticed any great effort on the part of the appellants to bring the matter to trial.

With your indulgence, I shall deal with this matter orally, recognizing that there may be areas of improvement or definitions that could have been added in a written decision. I should first of all make the comment that I understand, respect and sympathize with the difficulties of the staff of Revenue Canada in keeping up to date with their work and in interpreting the facts of any particular situation as they must in applying the Income Tax Act to a complex question such as arises in subsection 152(4). Nothing that I say is meant to be in any way critical of their efforts.

As for the facts of this matter, on the 9th day of February 1981, an amount of $86,000 was added to the appellant’s income for the 1974 taxation year, and a non-capital loss of $41,461.14 was claimed by the appellant for the 1975 taxation year and disallowed by the Minister. In calculating such a noncapital loss, the appellant had deducted the sum of $86,000 (the purported value as at December 31, 1971) from its net income which included the gain on the sale of an option on real property. In so reporting a non-capital loss for its 1974 taxation year and in carrying forward a portion of such noncapital loss to its 1975 taxation year, the appellant made a misrepresentation which was attributable to neglect or carelessness, according to the Minister’s assessment.

On the 1st day of April 1975, the Minister of National Revenue had issued a notice of assessment for the appellant’s 1974 taxation year. On the 29th day of April 1976, the Minister of National Revenue had issued a notice of assessment for the appellant’s 1975 taxation year. The appellant maintained that its 1974 taxation year became statute-barred on the 2nd day of April 1979, and its 1975 taxation year became statute-barred on the 30th day of April 1980.

First, it might be useful to read into the record precisely the words from subsection 152(4) which affect this appeal:

152. (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 . . .

(I emphasize that word “misrepresentation” in light of the Minister’s restriction to that terminology in his assessments.)

Reference has been made during counsel’s able argument to certain cases, one of which was Jet Metal (supra) and to the case of Robert Charron v MNR, [1981] CTC 2271; 81 DTC 271. The Minister presented officials from the Department of National Revenue who outlined the basis on which the assessments at issue had been struck. Counsel for the appellant presented on behalf of the appellant the President of that company, who gave his version of the events as they transpired.

It is clear from the evidence that what was sold (and that which is referenced in both the notice of appeal and the reply) was an option on real property rather than any real property itself. Section 49 of the Act deals with options and again it is not a section that has been very much contested in appeals so far, at least not before this Board. It may or may not have any bearing on this particular appeal, but the fact that this was an option has struck me right from the start. That the “property” in itself was an option is unusual, and I do not believe it can be disregarded as a possible contributing factor to this resulting tax problem. On its 1974 tax return the taxpayer identified the sale as “a property”, which might well include such an option.

On a general basis I should like to note — first, that according to the evidence given by both representatives of Revenue Canada and by the President of the appellant corporation, to whatever degree the loss is deductible at all for the entire five-year period which would end in 1979, the appropriate deduction was taken in its calculations by the taxpayer in preparing tax returns for those years. Second, the Revenue Canada audit which raised this matter did not start until 1981, some two years later than the final 1979 year for which deductions of the losses were applicable. Third, I have seen no evidence that the taxpayer had any exposure to the general subject of the differences between capital gain and income prior to the one specific transaction which has been brought before this Board. And finally, I do note with some emphasis that the President of the appellant corporation himself testified before the Board and, so far as I am concerned, answered all the relevant questions put to him about the issue.

In my view, the question of whether the income tax treatment accorded the sale in question in this appeal by the taxpayer originally was correct or incorrect, remains in doubt. I am certainly not satisfied that the taxpayer was Clearly wrong. I would speculate that an argument might well be made that the nature of the option at issue could have changed from income to capital, or vice versa, at some time during its holding of that option and, possibly, for good business reasons. However, I am very much of the opinion that the taxpayer was neither careless nor negligent in attempting to describe for Revenue Canada the circumstances of the transaction. The appellant’s officials put Revenue Canada on reasonable notice that it was an unusual transaction.

I should like to read just very briefly from the dictionary definitions provided to the Board by counsel for the respondent. Perhaps I might not emphasize the particular wording that counsel might emphasize, but I do read the definitions given therein. With regard to “neglect”:

. . . to pay little or no respect or attention to; to fail to bestow proper attention or care upon; to omit through carelessness .. .

And with regard to “carelessness”:

inattentive, thoughless, indifferent and unconcerned . . .

I would refer to a sentence read into the record by counsel for the respondent, to be found at 2755 and 637 respectively of the Jet Metal Products case, which citation I provided earlier:

If challenged by the taxpayer, the Minister must prove at a minimum that any (one) error has been made in good faith, that it was nevertheless not one which a normally wise and cautious taxpayer could have committed.

I emphasize the term “normally wise and cautious taxpayer”. To my knowledge that phrase is extracted directly, in essence if not in wording, from Bisson, [1972] CTC 446; 72 DTC 6374, which has been cited in the Jet Metals case — “a normally wise and cautious taxpayer”.

I would note Schedule A which is attached to the tax return for 1974 of the appellant corporation. While it is not in great detail, it provides some very interesting and unusual explanations and comments. It is very clear thereon what the appellant did in this particular matter. Its approach to it was unusual and might even be considered bizarre but, in total, Schedule A which deals with the item at issue is a rather reasonably detailed statement, as I read the information. Rather than being struck by anything approximating “misrepresentation”, I am frankly impressed by the exposure presentation and the clear interpretation of any possible problems which were given by the taxpayer.

I might make a comment with regard to the case of Froese, cited by counsel for the respondent and to be found at [1981] CTC 2282; 81 DTC 240, I believe. I have on several occasions, notably in Howell v MNR, [1981] CTC 2241; 81 DTC 230, held that obtaining professional advice in itself, and even following that advice, does not absolve a taxpayer from his own responsibility with regard to the preparation of his tax return. Therefore, I do not espouse the opposite proposition that not hiring professional advice, in itself, should put the same taxpayer in jeopardy. It is my opinion that the dismissal decision in Froese (supra) was based on a much wider range of facts than just the lack of any such action on the part of that taxpayer.

Ultimately, therefore, there remains the view in my mind that what happened in this instance should not be characterized as misrepresentation. A mistake it may have been, but I am prepared at this stage of the development of the law on subsection 152(4) to believe that a mistake is different from misrepresentation, as it is applied to the facts in this case. I cannot see from the evidence presented that there was neglect or carelessness to the degree that one might not expect to find in the work of a normally cautious and wise taxpayer.

The appellant corporation, I believe, did everything within its grasp to put forward for the Minister the circumstances as it interpreted and saw them. I see nothing of either misrepresentation, neglect or carelessness in its conduct.

The appeal is allowed based on the facts of this case presented at the hearing, and the interpretation I read into the relevant jurisprudence.

Appeal allowed.