Paul-Emile Jodoin v. Minister of National Revenue, [1982] CTC 2506, 82 DTC 1506

Guy Tremblay [TRANSLATION]:—

1. Issue

It is necessary first to determine whether the appellant correctly computed his basic federal tax for 1978 on his income of $42,764 in the said year, using general averaging pursuant to section 118 of the Income Tax Act.

Then it is necessary to determine whether, if the said tax was not computed correctly according to the said section but was computed correctly according to the Department’s form (T2077 Rev 78), the appeal should be allowed.

2. Burden of Proof

2.01 The appellant has the burden of showing that the respondent’s assessment is incorrect. This burden of proof results not from a single section of the Act but from several judicial decisions, including the judgment of the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 Moreover, this judgment lays down that the presumptions of fact relied on by the respondent in making the assessment are also presumed to be true.

The facts presumed by the respondent are set out in subparagraphs (a) to (e) of paragraph 3 of the reply to the notice of appeal. They read as follows:

3. In assessing the appellant for the 1978 taxation year, the respondent, the Minister of National Revenue, relied on the following facts, inter alia:

(a) The appellant’s net income for each of the 1974 to 1978 taxation years was as follows:

1974	$250,910
1975	$ 30,762
1976	$ 32,298
1977	$ 35,568
1978	$ 42,764

(b) For the 1978 taxation year the appellant did the general averaging tax calculation on form T-2077;

(c) In his 1978 general averaging tax calculation, the appellant erroneously used the tax tables instead of the 1978 rates of federal income tax;

(d) The appellant’s basic federal tax for the 1978 taxation year computed using general averaging is $9,487.61, the same amount as the appellant’s basic federal tax computed using the 1978 rates of federal income tax provided for in section 117 of the Income Tax Act:

(e) It is of no advantage to the appellant to use general averaging in computing the tax he owes for the 1978 taxation year.

3. Facts

3.01 At the hearing before the Board the appellant admitted the presumptions of fact set out in subparagraphs 3(a) and 3(b) of the reply to the notice of appeal cited above.

3.02 In his general averaging tax calculation using form T2077 Rev 78, the appellant arrived at a tax payable under general averaging of $7,417.42.

The respondent, on the other hand, arrived at a total income tax under general averaging of $9,487.61.

3.03 Even though the basic data, namely the net income for 1974 to 1978, which the respondent used in his calculations are $175 higher, this does not explain the difference of over $2,000 in the total tax payable.

The appellant and the respondent both arrived at a “Taxable Income for Averaging Calculation” of $32,760.99. It was in computing the tax on the basis of this amount that the divergences occurred.

Using the said amount of $32,760.99 the appellant arrived at a figure of $6,450.07 for the item described on the form as “Total Federal Income Tax , whereas the respondent arrived at $8,323.44.

The respondent took the position that this item corresponded to the “Total Federal Income Tax on Taxable Income” that appears in Schedule 1 of the T1 form (the general return of income every taxpayer must normally file).

The appellant was of the view that the description of the said item was closer to that of the “Federal Tax Payable” also found in the said Schedule

1. This latter item corresponds to the final tax payable after the deductions have been made from “Total Federal Income Tax on Taxable Income”.

It is clear that for the taxpayer “Total Federal Income Tax” and “Federal Tax Payable” were the same thing.

At first sight, when we look at the forms in question, it is easy to understand the appellant’s position.

3.04 If we examine the forms closely, however, we see in small letters under “Total Federal Income Tax” the words “Do not use the Tax Tables, use ‘1978 Rates of Federal Income Tax’ on Schedule 1 or Schedule 5 of the T3 Return”. When these rates set out in Schedule 1 are used, it is clear that this can only be the first computation of tax on taxable income.

Form 12077 would no doubt have been clearer if it had stated “Total Fed

3.05 The appellant made a similar error in computing “total tax”, this time on the sum of $33,485.05. The appellant arrived at $6,643.54 and the respondent at $8,555.97.

3.06 It was these two errors, which are easy to make, that led to the final difference of $2,000 in tax.

4. Act — Analysis

4.01 Act

The principal provisions involved in this case are sections 117 and 118.

Section 117 sets out the tax rates for the different years and section 118 provides for general averaging available to a taxpayer when his net income for one year substantially exceeds his income for the previous year or the average for previous years (not exceeding four).

Subsection 118(1) reads as follows:

118. (1) Notwithstanding section 117, where, in the case of an individual who was resident in Canada throughout the taxation year immediately preceding a particular taxation year (which particular taxation year is hereafter in this section referred to as the “year of averaging”), any excess remains when

(a) the greater of 110% of his income for the immediately preceding taxation year and 120% of the quotient obtained when

(i) the aggregate of all amounts each of which is the individual’s income for a taxation year in the period of such of the consecutive taxation years (not exceeding 4) immediately preceding the year of averaging as were years throughout which he was resident in Canada

is divided by

(ii) the number of years in the period described in subparagraph (i)

is deducted from

(b) the individual’s income for the year of averaging,

(which excess is hereafter in this subsection referred to as the “averaging excess”), the tax payable by the individual under this Part upon his amount taxable for the years of averaging is the aggregate of

(c) the amount that would be determined under section 117 for the individual for the year of averaging if his amount taxable for the year were the remainder, if any, obtained when the averaging excess computed without regard to this subsection, and

(d) 5 times the amount, if any, by which

(i) the amount that would be determined under section 117 for the individual for the year of averaging if his amount taxable for the year of averaging were the aggregate of the remainder described in paragraph (c) and an amount equal to 1/5 of the lesser of the averaging excess and the individual’s amount taxable for the year of averaging

exceeds

(ii) the amount determined under paragraph (c).

4.02 Analysis

4.02.1 Subsection 118(1) above, which consists of a single sentence and requires considerable fortitude to read, is described in form T2077.

The form describes the general averaging tax calculation in four major steps spread out over 21 numbered lines. This is a highly laudable attempt to simplify the application of section 118(1) of the Act.

Even for those who deal regularly with tax matters, it must be admitted that this is a veritable labyrinth. What then must it be for an average taxpayer?

4.02.2 Since the problem lies in computing the tax (as the two parties have arrived at substantially the same taxable income) the issue to be determined is whether the form in question corresponds to what is set out in subsection 118(1) of the Act.

The said provision refers explicitly to the computation of tax in paragraphs (c) and (d). It speaks of “the amount that would be determined under section 117”.

The section 117 rates for 1978 are those that appear in the last part of Schedule 1 and to which form T2077 refers when in the computation of the two “Total Federal Income Tax” items (see paragraphs 3.03 and 3.05) it states in small letters in parentheses “Do not use the Tax Tables, use ‘1978 Rates of Federal Income Tax’ on Schedule 1 or Schedule 5 of the T3 Return”.

It seems that even this information is not very clear since Schedule 1 seems to refer to the T3 return here when in fact it is Schedule 1 of the T1 return that is relevant.

4.02.3 Is the respondent bound to accept the appellant’s computation owing to the ambiguity in the form? The Board cannot accept this argument.

Even though the form could have been better drafted, this is nonetheless not a flagrant error. Moreover, even if there were a flagrant error, since this is not one of the numerous forms prescribed in the Act which must be approved by Order in Council, the said administrative error cannot bind the Crown in this case.

Since the appellant has not discharged the onus of proof, the Board must uphold the assessment.

3. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.