Giulio Magliocchetti v. Her Majesty the Queen, [1996] 3 CTC 2660 (Informal Procedure)

Margeson J.T.C.C.: — This appeal is from reassessments of the taxpayer for the 1991 and 1992 taxation years, notices of which were allegedly mailed to the Appellant on May 6, 1994, in which the Minister disallowed the deduction of rental losses, carrying charges and expenses.

Facts

The Appellant called one Carlo Franzoi who was president of Diamond Transmission, the Appellant’s employer. This witness was familiar with the Appellant. He identified his own social security number on Exhibit A-l which was a letter dated November 25, 1993 sent by Revenue Canada to the Appellant.

He said that the Appellant gave him a brown envelope which he delivered to Revenue Canada, at the Town Centre, 4th Floor, Scarborough Ontario on January 24, 1994. The envelope was addressed to Revenue Canada and on the top left hand corner was indicated, Attention: J. Sikora. On the left hand side of the envelope was the address of the Appellant given as 121 Lawn Side Drive, Toronto, Ontario, M6L 1Z8 (the new address).

In cross-examination this witness admitted that he did not know what was in the envelope. The Appellant testified that he lives at 121 Lawn Side Drive, Toronto, Ontario, M6L 1Z8. He identified Exhibit A-1 and said that the social security number on the document was not his number. The address shown as 2470 Eglinton Ave. W., Ste. 603, Toronto, Ontario M6M 5E7 was his former address (the old address). He said that he had received this letter from J. Sikora, Business Audit for Revenue Canada. This letter was brought to his address from his mother’s house by hand around the end of November 1993.

The Appellant perused the letter, gathered up receipts, completed the questionnaire and had the envelope hand delivered by Carlo Franzoi to Revenue Canada. He also spoke to someone at Revenue Canada and asked for some time. The envelope that he sent to Revenue Canada contained his new address and his name.

He received another letter from Revenue Canada dated January 26, 1994 from J. Sikora indicating that because they had not received any response to Exhibit A-1, they would reassess his 1991 and 1992 returns to disallow losses and expenses claimed. It also denied his request for an adjustment of his 1990 return.

The letter indicated that a notice of reassessment for his 1991 and 1992 income tax returns would be “in the mail shortly” and that there would be no reassessment issued for 1990.

The social insurance number on this letter did not belong to him but to one Carlo Franzoi. This letter was received by him at his new address even though it was addressed to his old address. The Appellant did not pay any attention to the letter as he believed that Revenue Canada had received the envelope delivered by Carlo Franzoi on January 24, 1994. He received no query to the information contained in this envelope even though he asked Revenue Canada to telephone him if there were any questions.

On June 2, 1994, the Appellant received Exhibit A-3, a Notice of Assessment for 1993 bearing his correct social insurance number and his new address. This was the first contact from Revenue Canada since January 1994. This notice claimed an amount owing of $23,495.37. He believed that something must have transpired in the meantime.

He wrote a letter to Revenue Canada on June 7, 1994, Exhibit A-4, indicating that he did not understand why he owed $23,495.37 and asked for an explanation.

On June 24, 1994, he received a Statement of Account, Exhibit A-5 and a request to pay the outstanding balance. This statement contained his correct social insurance number and his correct address (new address). Exhibits A-5, A-6, A-7 and A-8 were subsequent reminders sent to the Appellant at his new address and containing his correct social insurance number.

Subsequent to this the Appellant was contacted by a Mr. Arnott at Revenue Canada. He then wrote to the Chief of Appeals on August 30, 1994, Exhibit A-9, indicating that he was objecting to the 1993 assessment, notice of which was dated June 2, 1994 (Exhibit A-3). The letter was received by Revenue Canada on September 6, 1994. This was also a Notice of Objection for the 1991 and 1992 taxation years and was so considered by Revenue Canada.

The Appellant received an acknowledgement to his Notice of Objection. The acknowledgement was dated September 9, 1994, (Exhibit A-10).

By letter from N.J. Arnott for the Chief of Appeals, dated January 11, 1995, sent to the Appellant’s accountant, Revenue Canada Taxation referred to the Notice of Objection dated June 30, 1994 and pointed out that the notices of reassessments for 1991 and 1992 were mailed on May 6, 1994, the objection was late but was being treated as a request for an extension of time to file and objection and that they expected that it would be granted. The letter also contained copies of the purported notices of reassessments for 1991 and 1992. The letter also sought clarification as to whether the assessment for 1993 was being challenged.

The Appellant maintained that he has never received copies of the Notices of Reassessments for 1991 and 1992. He also said that he did not receive a reply to his Notice of Objection.

In cross-examination the Appellant identified Exhibits R-l and R-2 as his income tax returns for 1991 and 1992. He denied that he had ever seen Exhibits R-4 and R-5 which were Notices of Reassessments for 1991 and 1992 respectively and he denied that he had ever received them.

The Appellant said that he moved in 1993 but still received his mail. His change of address was put in to the Post Office at the end of November 1993 and he actually moved around the beginning of November 1993.

He identified a letter sent to Mr. N.J. Arnott dated January 18, 1995, (Exhibit R-3) referrable to his new address stating his objection and his insistence that the procedure used for his 1991 and 1992 taxation years was incorrect. He had not received an explanation for the alleged reassessments in issue.

The Appellant also identified Exhibits A-4 and R-3 which appeared to indicate that he had moved in 1994. However, he said that such indications were wrong and that he had moved in 1993. He also said that the first letter that he received after moving was delivered by his mother and the second one was received through the Post Office.

The Respondent called Cesare Chiarotto who had been an Appeals Officer with Revenue Canada for 18 years. He identified the Notice of Reassessment for 1991, (Exhibit R-4) and said that it would have been sent out to the last address in their files, which was the address on the return (the old address). This was dated May 6, 1994. This would have been sent out before he received the Notice of Objection. Similarly, he referred to Exhibit R-5 for 1992.

Mr. Chiarotto identified Exhibits R-6 and R-7 as reconstructed explanations of changes from Revenue Canada’s records on file. His position was that these notices indicated that the notices of reassessments in question had gone out to the Appellant at his old address. Exhibit R-8 was an excerpt from Revenue Canada’s records with respect to the Appellant. It was entitled, “Notes pour le dossier”. The address given was the old address. It contained two notations: One dated November 25, 1993 says: “sent taxpayer a 30 day letter requesting information.” and the second note, dated January 26, 1993(4) says: “sent taxpayer a letter informing him that we are proceeding with a reassessment of his 1991 and 1992 income tax returns.” The number (4) replacing the number 199(3) in the date is in a different coloured ink. No explanation was offered for this change.

The witness also indicated that the Appellant had been sent refund cheques for 1991 on August 17, 1992 and for 1992 in June 16, 1993 that these had not been returned.

In cross-examination, the witness said that he was looking after the Appellant’s file since Mr. Arnott had passed away. He has had some dealings with the Appellant since August 1, 1995.

He could not say whether notices of reassessments were sent out to the Appellant for the years in issue. The address in the file for the Notice of Objection was a new address. He did not know if another address was entered into the computer or not.

He said that he could not identify the social insurance number referred to but there was some discussion about the apparent error. He was able to find the Appellant’s telephone number in the file and call him. He could not remember whether he received a brown envelope with information and material in it. He reviewed what was in the file. It was not his job to mail out Notices of Reassessments. No Notices of Reassessments were ever returned to the Department.

He re-direct, he said that he became involved in this file in 1995 and “it had no unusual ear marks”. There was no response to Exhibits A-l and A-2.

Argument of the Appellant

The Agent for the Appellant argued that the Appellant completed the information request of the Minister of November 25, 1993 and had it hand delivered to J. Sikora. The Exhibit A-1 contains the social insurance number of the Appellant’s employer and the name of the Appellant. Both were audited at the same time. It appears that there was a “mix-up” of documentation by the Respondent.

Between November 25, 1993 when Exhibit R-l was sent out and January 26, 1994 when Exhibit A-2 was composed, it is reasonable to conclude that the Minister discovered the error in the social security number and contacted the holder of that number. Therefore Exhibit A-2 was not sent out.

The social insurance number was subsequently corrected so where did the information come from? The Appellant moved around the beginning of November.

The witness from Revenue Canada said that the notices were reconstructed and he could not say that the original notices of reassessments were sent out. There is no evidence that they were sent out by registered mail. There was no compliance with the provisions of subsection 244(5) of the Income Tax Act, (the Act). The evidence given in Court did not satisfy this provision nor did it prove that the notices of reassessments were sent out. No information was communicated to the Appellant after the objection was filed.

The witness for the Respondent testified that no notice was sent to the Appellant about correcting the social insurance number. No documents were returned to the Department. If nothing had been received from the Appellant, Mr. Sikora would have called the Appellant. Mr. Chiarotto had no difficulty contacting him by telephone.

Exhibit R-8 shows a change of date in the Respondent’s file, November 1993 to 1994. There was no explanation for this change. It was made in ink different from the original note.

The evidence proves that the Notices of Reassessments were not sent out. The appeal should be allowed and the assessments should be vacated.

Even if the Court is satisfied that the Notices of Reassessments were sent, the Minister did not act with due dispatch as required by paragraph 165(3)(a) of the Act and the assessments should be vacated.

Argument of the Respondent

The evidence suggests that Revenue Canada handled this file according to the same procedure that it always follows. The file appeared to be in order.

Nothing turns on the change in the date in Exhibit R-8. The notes indicate that there was no response to the request for information. The Minister had no knowledge about the changes until he received the information from the Appellant. He does not know what was in the file.

The Minister referred to the case of Weih v. Minister of National Revenue, [1988] 2 C.T.C. 2013, 88 D.T.C. 1379 (T.C.C.). In that case, Judge Kempo referred to Jolicoeur v. Minister of National Revenue, [1960] C.T.C. 346, 60 D.T.C. 1254, at page 358 (D.T.C. 1261) where Mr. Justice Fournier in relation to the interpretation of the words “with all due dispatch” indicated that judicial pronouncements on this phrase led him to the view that:

In a legal sense, they are interpreted as giving a discretion and freedom, justified by circumstances and reasons, to the person whose duty is to act. The acts involved are not submitted to a strict and general rule.

There is no doubt that the Minister is bound by time limits when they are imposed by the statute, but, in my view, the words “with all due dispatch” are not to be interpreted as meaning a fixed period of time. The “with all due dispatch” time limit purports a discretion of the Minister to be exercised, for the good administration of the Act, with reason, justice and legal principles.

Counsel also referred to Drautz v. R., [1996] 2 C.T.C. 102, 96 D.T.C. 6173 (F.C.T.D.), at page 6174 in support of his proposition that the requirement of the Minister is to send the notice, there is no requirement that the notice has to be received.

In the case at bar any delay was caused by the Minister’s attempt to accommodate the taxpayer.

The evidence indicated that the taxpayer received the refund cheques. The Appellant experienced no difficulty in receiving other mail.

The Appellant has failed to meet the burden of proof. The appeal should be dismissed.

Rebuttal

In rebuttal the Agent for the Appellant asks, “how do you prove a negative?”

The Agent asks, “how did the Minister determine the correct address as shown by Exhibit A-3, dated June 2, 1994, if he did not receive the information that the Appellant testified he had delivered to Revenue Canada’s office?”

The witness called by the Respondent said that the only documents available were the reconstructed Notices of Reassessments. If the originals were sent, why do they not have copies? They would have to be in the file.

Analysis and Decision

In the Reply to Notice of Appeal, (Reply), the Respondent set out that if the Minister had not proceeded to act with all due dispatch such failure would not found a basis for vacating the assessments because it would only be an irregularity, error, omission or informality on the part of such person in observing the provisions of paragraph 165(3)(a) and the vacation of such assessments is saved by the provisions of section 166 of the Act.

With that proposition the Court cannot agree. Section 166 refers to the observation of any directory provisions of the Act only and the failure by the Minister to act with due dispatch is substantive and not directory only. The very cases that the Respondent cited appear to suggest the contrary of his view.

However, the Court is satisfied on the basis of the evidence that the Minister did act with due dispatch in the case at bar considering all the circumstances. Some delay was in part due to the Minister’s efforts to accommodate the taxpayer and in any event, any delays that there were, were not so prolonged nor unexplained that the provisions of paragraph 165(3)(a) should be invoked to vacate the assessments.

The main issue is whether or not the Appellant has established on a balance of probabilities that the Minister did not mail the reassessments to the taxpayer as required by subsection 165(3) of the Act. That subsection requires the Minister to:

(3) Duties of Minister. Upon receipt of a notice of objection under this section, the Minister shall,

(a) with all due dispatch reconsider the assessment and vacate, confirm or vary the assessment or reassess, or

(b) where the taxpayer indicates in the notice of objection that the taxpayer wishes to appeal immediately to the Tax Court of Canada and that the taxpayer waives reconsideration of the assessment and the Minister consents, file a copy of the notice of objection with the Registrar of that Court,

and he shall thereupon notify the taxpayer of his action by registered mail.

The Appellant testified that he did not receive any notification from the Minister as to the purported reassessments in issue here for the 1991 and 1992 taxation years which were purportedly mailed to him on May 6, 1994. The Court believes the Appellant in this regard.

The Court is satisfied that the non-receipt of the Notices of Reassessments had nothing to do with the Appellant’s actions. The Appellant was not trying to avoid receiving the documents and the Court is satisfied that the Appellant made every effort to keep in touch with Revenue Canada and provide all information that he could following the letter from Revenue Canada to the Appellant dated November 25, 1993. By that letter, the Minister sought further information from the taxpayer regarding the review of his 1991 and 1992 tax returns.

The Court accepts the evidence of the Appellant and Carlo Franzoi that the material requested was delivered to J. Sikora on January 24, 1994 and that the envelope contained information and material in response to the letter of inquiry from the Minister of November 25, 1993.

There is no explanation of what happened to that envelope. It was obviously in the hands of the Respondent. That envelope also contained the correct social insurance number of the Appellant and the Appellant’s new address. The Court is satisfied that the Appellant reasonably concluded that this new information was being considered by the Minister and he could not have been expected to act differently than he did when he was confronted with the next letter from Revenue Canada dated January 26, 1994 indicating that they had not received a response and would reassess him shortly.

The Court accepts the Appellant’s position that he believed that the delivery of January 24 would have supplied the missing information and that he need do nothing further. There was no query directed by the Minister to the Appellant after the material was delivered.

The next correspondence received by the Appellant bore the correct social insurance number and his new address and there was no other way that the Minister could have received that information except through receipt of the missing envelope and its contents.

The actions of the Appellant thereafter were consistent with his belief that he had not received the assessments purportedly sent out on May 6, 1994.

The Appellant had no difficulty receiving other mail at his old address and at his new address. If the notices in question were sent out, why would they not have been received or why would they not have been returned to the Minister.

This evidence is sufficient to require the Minister to prove that the Appellant was notified of the reassessments. That should not have been a difficult task if they were sent out.

The Exhibit R-8 makes it clear that the Respondent had records of the file in question. These notes lead the Court to conclude that the receipt of the envelope by Revenue Canada on January 24 and the sending of the letter on January 26, 1994 by the Minister crossed, their information was received and the Minister did not reassess shortly as he indicated he would or if he did, he did not send out the Notices of Reassessments or the file notes would have contained that information. The notes are completely void of any reference to the notices having been sent out and neither the evidence of Mr. Chiarotto nor any other evidence could reasonably lead the Court to conclude that the Notices of Reassessments were sent out.

The evidence of Mr. Cesare Chiarotto that there was nothing out of the ordinary about the file and that it was handled the same way as other files were, does not assist the Court in deciding whether or not the notices were sent out.

The control of the file and its contents were completely within the power of the Respondent and although the inability to explain the change of date in the file notes is not conclusive of anything, it is a factor that indicates that there was something “out of the ordinary” about this file.

The incorrect social security numbers and the lack of evidence as to how these numbers were rectified is a further mystery, the answer to which should have been supplied by the Respondent.

Subsection 224(5) of the Act is of no assistance to the Respondent and indeed no one was able to testify that the notices had been sent out even on the basis of any reasonable belief.

Counsel for the Respondent pointed out that the Appellant had no difficulty in receiving his refund cheques and this is a further indication that the Notices of Reassessments should have been received by the Appellant if they were indeed sent out. The Court is satisfied that they were not received by the Appellant. There is no other explanation for them not having been received except the conclusion they they were not sent out.

The Notice of Reassessments placed in evidence were reconstructions and the argument of counsel for the Appellant, that if the originals were sent out, then one could expect to be able to find copies in the file or copies of correspondence indicating the Minister’s reassessments to the Appellant, is not without merit.

The Court is satisfied that the Appellant has satisfied the burden of proof that the Notices of Reassessments in question were never sent to the Appellant.

The appeals are allowed, without costs and the reassessments in issue are vacated.

Appeal allowed.