D McKinnon Holdings LTD v. Minister of National Revenue, [1982] CTC 2460, 82 DTC 1445

The Chairman:—D McKinnon Holdings Ltd filed an application under subsection 167(1) of the Income Tax Act, SC 1970-71-72, c 63, as amended for leave to extend the time for filing notice of objection with respect to its 1976, 1977 and 1978 taxation years. The Minister formally opposed the application and sought its dismissal.

Facts

Mr Derek McKinnon is president and sales manager of the taxpayer whose business was that of sales agency. The nature of Mr McKinnon’s work forced him to travel considerably. In May 1981 Mr McKinnon had an office in Edmonton, Alberta but it is my understanding that he had no permanent residence until November 1981 when he moved to 136 Bayview Drive SW in Calgary, Alberta.

Prior to 1981 the taxpayer’s accountant was Mr Hugh McLelland. In February 1981 all the taxpayer’s books and records were transferred to the accounting firm of Mr G Csokonay.

The Minister filed an affidavit which was not disputed by the taxpayer. According to Exhibits “A” and “B” attached to the affidavit, the taxpayer (whose taxation year ended on September 30) filed its tax returns for 1976 and 1977 beyond the prescribed time limit.

The Department of National Revenue forwarded to the taxpayer’s address at 136 Bayview Drive SW a letter requesting its tax return for the 1978 taxation year (Exhibit “C” of Affidavit). The return was received by National Revenue on February 26, 1980 (Exhibit “D” of Affidavit).

The Minister commenced an audit of the taxpayer’s books in March of 1980 which was terminated in February of 1981. It was found that the taxable income of the taxpayer had been underestimated and a letter to that effect was sent to the taxpayer at 136 Bayview Drive SW (Exhibit “E” of Affidavit). The taxpayer did not respond to the letter.

Notice of reassessment for the 1976, 1977 and 1978 taxation years was dated May 5, 1981 (Exhibits A-2, A-3 and A-4). The 90-day delay for filing notice of objection expired on or about August 25, 1981. The application requesting leave for late filing was dated November 12, 1981 and was received by the Tax Review Board on December 4, 1981.

Mr McKinnon recalls having received the notice of reassessent and having taken the notice and pertinent documents to Mr Csokonay shortly afterwards. Mrs Sylvia Lynne McKinnon, Derek McKinnon’s wife, was secretary treasurer of the taxpayer and was in charge of the day-to-day running of the company.

Both Mr and Mrs McKinnon alleged they were not aware of the August 25, 1981 deadline for filing notice of objection and claimed they had not seen the Minister of National Revenue’s letter of February 25, 1981 (Exhibit “E” of Affidavit) which was addressed to 136 Bayview Dr SW, Calgary, their home and business address.

Mrs McKinnon, as the company’s bookkeeper, had several contacts with the Csokonay accounting firm on other matters during the period of May to end of August 1981 but not once was an enquiry made of Mr Csokonay with respect to the filing of this notice of objection. Mrs McKinnon was aware of messages for Mr McKinnon to phone Mrs Crawford of the Csokonay accounting firm but Mr McKinnon apparently never returned the calls.

Findings

The taxpayer’s counsel was well aware that ignorance by the taxpayer of the prescribed delay in which to file notice of objection is not a valid defence and he admitted that both Mr and Mrs McKinnon were to blame for not having assumed their responsibility of ascertaining that a notice of objection to reassessment, which they knew had serious consequences, had in fact been filed on time.

Subsection 167(2) of the Act reads as follows:

(2) Idem. The application referred to in subsection (1) shall set forth the reasons why it was not possible to serve the notice of objection or institute the appeal to the Board within the time otherwise limited by this Act for so doing.

It is the taxpayer’s position that subsection 167(2) of the Act is not an operative section but simply one of the procedural requirements that must be followed in applying subsection 167(1) of the Act. No problem arises of course if it is established that it was not possible to serve the notice of objection within the time limited by the Act.

However, in my opinion, setting forth the reasons why it was not possible to serve the notice of objection as prescribed by the Act is more than a procedural requirement of subsection 167(1) of the Act. If the evidence is that it was possible to file the notice on time but the taxpayer failed to do so because of carelessness or negligence, it is difficult indeed, particularly when taking into account the provisions of subsection 167(5) of the Act, to imagine circumstances such that it would be just and equitable for the Board to make an order granting the application. If ignorance of the law is not a valid defence, neither in my view is carelessness and negligence in complying with the clear requirements of the Act.

In the present instance, for three consecutive years, the taxpayer “late- filed” its tax returns and in one year the Minister of National Revenue had to request the filing of the taxpayer’s return. Accepting that Mr McKinnon instructed his accountant Csokonay to file the notice of objection, although contact with the accounting firm was maintained on other matters, no further interest was shown by either Mr or Mrs McKinnon in the notice of objection and no contact was made with the Minister of National Revenue with respect to reassessment, the purport of which was at the time known to the taxpayer as being serious.

On the basis of the evidence, the taxpayer’s general attitude with respect to income tax and more pertinently in respect of the filing of its notice of objection for 1976, 1977 and 1978 is one of indifference and/or negligence. In my opinion, it was possible for the taxpayer to file its notice of objection within the prescribed time, had it given the matter the reasonable attention and care it would normally give to its other business responsibilities.

The circumstances of the case are not such as to justify the Board in making an Order extending the time for objecting. The application is therefore dismissed.

Application dismissed.