François Marquis Ltee, Lucien Marquis, Beaudet & Fils Inc v. Minister of National Revenue, [1982] CTC 2651, 82 DTC 1666

D E Taylor [TRANSLATION]:—This decision, which was rendered on June 4, 1982, relates to the applications to extend the time for filing notices of objection to reassessments issued by the Minister of National Revenue against the applicants for the following years:

The applications in question were heard on common evidence at Quebec City, Quebec on February 3, 1982 and related to both the tax and the penalties imposed in the said assessments.

The Notice of Application stated in part:

Re Lucien Marquis (“Marquis”)

1. During the 1969, 1970, 1971, 1972, 1973 and 1974 taxation years I was a

businessman carrying on various businesses in and around Quebec City;

2. On November 19, 1980 the Minister of National Revenue issued reassessments against me for the 1969 to 1974 taxation years;

5. After the reassessments were issued, I contacted the appropriate officials in the Department of National Revenue to dispute the validity of the changes made with respect to my additional income;

6. On October 6, 1981 I was informed that the Minister of National Revenue intended to take legal action under section 239 of the Income Tax Act against the undersigned on the basis of the above-mentioned changes.

Re François Marquis Ltée (“Marquis Ltée”)

2. During the 1969 to 1972 taxation years the applicant was active in the construction field;

3. During the 1966 to 1972 taxation years Marquis Ltée and Beaudet & Fils Inc (hereinafter “Beaudet Inc”) founded and operated a company known as Beaudet & Marquis Enrg, which became Beaudet & Marquis Inc on January 1, 1973;

4. In a notice of reassessment dated October 27, 1980 the Minister of National Revenue issued reassessments that substantially changed the reported income of Marquis Ltée and Beaudet Inc;

6. Of all the changes made in the reported income of the applicant only one item was objected to in the notice of objection concerning the 1970 and 1971 taxation years, duly filed and sent to the Deputy Minister of National Revenue on January 7, 1981;

7. After the reassessments were issued, the applicant contacted the appropriate officials in the Department of National Revenue in order to object to the vaildity of the changes made with respect to its additional income;

8. On October 6, 1981 the applicant learned that legal action would be taken against it under section 239 of the Income Tax Act with respect to all the changes made in the reassessments.

Re Beaudet & Fils Inc (“Beaudet Inc”)

2. During the 1969 to 1972 taxation years the applicant was involved in the construction field;

3. During the 1966 to 1972 taxation years Marquis Ltée and Beaudet Inc founded and operated a company known as Beaudet & Marquis Enrg, which became Beaudet & Marquis Inc on January 1, 1973;

4. In a notice of reassessment dated October 23, 1980 the Minister of National Revenue issued reassessments that substantially changed the reported income of th applicant;

6. Of all the changes made in the reported income of the applicant only one item was objected to in the notice of objection duly filed and sent to the Deputy Minister of National Revenue on January 7, 1981;

8. On October 6, 1981 the applicant learned that legal action would be taken against it under section 239 of the Income Tax Act with respect to almost all the items mentioned in the notice of reassessment.

Mr Lucien Marquis testified for the applicants and his testimony contained three essential points. First, there was a search and a lengthy special investigation into the affairs of the three taxpayers; second, Mr Marquis himself decided to file the notices of objection for Marquis Ltée and Beaudet Inc only against the assessments for 1971 and 1972, because he thought it would be too costly to object to all the assessments because of the lawyers and accountants who would be required; third, nobody warned him of the possibility of criminal charges being laid.

Mr Charles Fournier, Chief of the Appeals Branch in the Department of National Revenue, explained to the Board the reasons for the special investigation and noted certain problems encountered during this investigation.

In the proceedings counsel made the following arguments. to the Board:

For the applicants

In the circumstances, since the Minister did not even condescend to provide us with any arguments whatsoever, despite our invitation to him to do so, I would submit, Mr Chairman, that this implies that the Department elected to attack or to dispute the exercise of your discretion at its root. Even if that is not what was implied, I think that if that is not the sanction, if the sanction is not to proceed ex parte, then it is at least to take the position that is most favourable to the taxpayer.

Then the danger for the taxpayer is quite simple. If for example, criminal charges were laid against Mr Lucien Marquis, it is clear that the Department of National Revenue would explain to the Court that the taxpayer did not object to the assessment before the Tax Review Board or by a notice of objection. How can he present a defence in criminal proceedings? it is no more and no less than an admission or a confession by the taxpayer that he has no defence to rely on if he has not objected to the civil assessment.

Even if it is admitted that it is not a confession, that it cannot be used against the taxpayer in a criminal trial, it will at least be used to weaken the credibility of the principal witness for the defence.

We are speaking of a civil penalty. The risk for these applicants is a criminal conviction or a finding of guilt; thus, the risk is all the greater for the taxpayer in this case.

At first, then there is no prejudice to the Department of National Revenue. Later the prejudice to the applicants becomes serious and broad in scope.

Third, the particular facts of this case. After all, we must understand that at first the predecessors of Mr Boucher undertook a search in 1975, on September 30, 1975; they waited six years before bringing their action, they took five years to file their assessments. The assessments relate to the years — these are all statute- barred assessments, they relate to periods varying from twelve years, the oldest, to eight years with respect to 1982.

You can imagine what fun we shall have defending ourselves when we have to remember facts dating back to 1969! And finally, they took, between the civil assessments and the criminal assessment, they took a year before laying the complaints.

From the start then, the Department has taken a ridiculously long time, and this borders on an abuse of power in the circumstances when they go back to transactions from twelve years ago. And we are now being denied the right to protect ourselves against a criminal charge. Because in fact that is what it is, the purpose of this application.

As Mr Marquis clearly explained in his testimony, if there had been no criminal charge, the settlement would certainly have been accepted, except for the question of Lauréat Giguere Inc, that is to say that Mr Marquis would have bought some peace, as he so aptly put it in his testimony.

For the Minister

I should like to file a copy of a decision by Walsh J in Inge Stephens v The Queen, [1977] CTC 488; 77 DTC 5342, with which you are probably familiar; and I should like to refer you to a passage at page 5344, (and 490), in the left-hand column in the middle of the page:

Plaintiff has failed to fulfil the requirement of subsection (c)(i) since no circumstances have been disclosed indicating why the appeal was not brought within the time provided for in the Act, the suggestion that plaintiff was awaiting a reassessment following the decision not being a valid reason for failing to appeal the decision itself if this was desired.

Now, Mr Chairman, if it was desired in this case to object to the notices of assessment, there was nothing to prevent the applicants from doing so.

The facts on which the assessment was based were well known, since there was an explanatory table. Mr Marquis explained that he himself made the decision to settle after considering the situation; although he has not practised for a long time, Mr Marquis is still a chartered accountant and should, in any case, certainly be as well informed, if not better informed than the average citizen as to his rights to object.

This, . . . if it had been desired at that time, if they had chosen to object, there was nothing to prevent them from doing so.

In any case, the argument made, namely, that ignorance of the fact that the Department was going to lay criminal charges, it is for you to weigh the evidence, but in any case I can certainly remember that it was submitted in evidence that Mr Marier, who was duly authorized by the three applicants present here, at a meeting with Mr Boucher* [1] and the Chief of his Special Investigations Group in the Department of National Revenue, was informed of the result of the investigation on the civil side and of the fact that the Department recommended the laying of criminal charges . ..

And in light of the fact that the search was carried out by an imposing group of RCMP officers and officials from the Department — it was Mr Marquis himself who said it, he remembers it very well — in the light of the assessment project and the notices of assessment themselves which reflected the items, and because Mr Marquis himself chose at that time, after considering them, not to object to them, so that in light of his experience as a businessman and his qualifications as an accountant, I would submit . .. that if Mr Marquis in no way doubted and never doubted that criminal charges would be laid, then we can certainly say at the very least that his duly authorized agent at the time, Mr Marier, had been informed of this.

With respect to the fact that the assessments — that the investigation lasted five years . . . , and that the assessments for most of the years in question are already statute-barred, I would submit that that should not influence your decision on the application before you today.

Findings

The Board can approach this question by first considering subparagraph 167(5)(c)(i) of the Act:

(5) No order shall be made under subsection (1) or (4)

(c) unless the Board or Court is satisfied that,

(i) but for the circumstances mentioned in subsection (1) or (4), as the case may be, an objection or appeal would have been made or taken within the time otherwise limited by this Act for so doing.

I find that the argument of counsel for the applicants contained three “circumstances” of this kind. First, the time taken by the Minister to examine the taxpayer’s affairs and issue the assessments; second, the fact that Mr Marquis decided, on receiving the assessments, to file notices of objection for two of the taxpayers only and then only with respect to certain taxation years and for specific amounts; and third, the fact that Mr Marquis had not been informed of the criminal charges under section 239 of the Income Tax Act.

The first of the above-mentioned reasons is difficult to sustain. Although the deadline for the assessments is not in the Minister’s favour, this should not in itself serve as a pretext for the taxpayers not to fulfil their duties and file the required notices of objection.

As for the second point, Mr Marquis, according to his own testimony, felt that it would be costly to object to the assessments and decided that it would be preferable to pay the assessments and the penalties. I do not see how his decision, which appears to have been an error of judgment, could be considered “a circumstance” fulfilling in itself the conditions laid down in subparagraph 167(5)(c)(i) simply because he now maintains that he made the wrong decision.

The third circumstance relating to section 239 (criminal charges) is somewhat strange. In effect, the applicants claim that following the assessments they should have been informed of any possibility of criminal charges being laid and that, moreover, this should apply to any taxpayer. No requirement of this kind is laid down by the Act and the argument is not persuasive on its Own.

Nevertheless, subparagraph 167(5)(c)(i) speaks of “circumstances” in the plural. In fact, in these applications the taxpayers contend that the combination of the three above-mentioned circumstances and a desire to bring the investigation and the problem to an end persuaded them not to file the notices of objection in question. Although the circumstances are weak, I am of the opinion that it would be just and equitable to allow the applications.

The applications are allowed.

Applications allowed.