Fink v. R., [1999] 2 CTC 2088, 99 DTC 582

Rip T.C.J.:

The respondent in these appeals has moved to strike out paragraph 33 in the Notices of Appeal of George F. Fink (“Fink”), Ursen Developments Ltd. (“Ursen”), Murray W. Pyke (“Pyke”), Altawan Oil and Gas Ltd. (“AL tawan”) and North West Exploration Co. Ltd. (“North West”) and paragraph 34 of the Notice of Appeal of Francis William Woodward (“Woodward”). The appeals of Fink, Ursen, Pyke, Altawan and North West are from income tax assessments for 1992; the appeal of Woodward is from an assessment for 1989 [1] . The motions were heard on common evidence.

The grounds for the motions are that the paragraphs in the appellants’ Notices of Appeal raise an irrelevant issue that may prejudice or delay the fair hearings of the actions, pursuant to paragraph 53(a) of the Tax Court of Canada Rules (General Procedure) (“Rules”) and that the said paragraphs in the Notices of Appeal are scandalous, frivolous and vexatious, within the meaning of paragraph 53(b) of the Rules.

The appellants are several of approximately 350 shareholders of Comaplex Resources International Ltd. (“Comaplex”) who, in 1992, received the amount of $2.60 per Comaplex share owned by each of them by R-M Trust Company as depositary and paying agent for Schaffhauser Kantonalbank, a Swiss bank (“Swiss bank”), as a result of what the appellants’ counsel referred to as an illegal takeover bid by the Swiss bank.

In the appellants’ view the Swiss bank elected to pay the sum of $2.60 per Comaplex share to each shareholder as goodwill; for tax purposes the receipt of the money is a windfall to the shareholders, including the appellants. The respondent’s position is that the amount of $2.60 per share was paid by the Swiss bank to the appellants (and other shareholders of Comaplex) as compensation for property injuriously affected by the Swiss bank and is proceeds of disposition within the meaning of paragraph 54(b) of the Income Tax Act (the “Act”).

The appellants allege that the proceeds to pay the shareholders came from a single fund. All shareholders of Comaplex were treated as a single group without distinction by the Swiss bank for all purposes relating to the amount of money to be paid per share and how and when the shareholders were to be paid.

Paragraph 33 of the appellant Fink’s Notice of Appeal reads as follows: 33. The appellant is one of approximately 350 Comaplex shareholders who received the goodwill payment of $2.60 per Comaplex share. Notwithstanding this fact, the appellant further understands that Revenue Canada has reassessed fewer than 10 of such recipients in respect of such payment, and has failed to reassess certain recipients of the $2.60 per share goodwill payment whose taxation year in which the goodwill payment was received was not yet statute-barred when such recipients were identified.^ [2]

In replying to the Notices of Appeal, the Deputy Attorney General of Canada pleaded:

22. In respect of the facts alleged in paragraph 33 of the Notice of Appeal, he admits only that the appellant is one of the recipients of the so-called goodwill payment. He denies the remaining facts alleged in this paragraph. He also states that the remaining facts alleged in this paragraph are irrelevant.

The Notices of Appeal were filed on June 11, 1998, the Replies were filed August 17, 1998 and the Notices of Motion were filed on November 13, 1998. No discoveries have taken place.

How the Minister of National Revenue (“Minister”) treated or assessed other taxpayers in the same situation as the appellants is irrelevant, respondent’s counsel argued. Counsel referred to Hawkes v. R. (1996), 97 D.T.C. 5060 (Fed. C.A.), a decision of the Federal Court of Appeal. In Hawkes the taxpayers presented a motion requiring the Minister to produce documents relating to the tax treament of a third party assessed more favourably than the taxpayers in similar circumstances. In other words, the Minister acted inconsistently. Strayer, J.A., at pp. 5061-62, observed that:

...this court in no way condones inconsistent assessments or conflicting information being provided to taxpayers as is virtually admitted to have happened here. Such conduct must surely be avoided if at all possible if taxpayers are to perceive the system as fair, equitable, and reasonable in application, a system with which they are expected to cooperate voluntarily.

It is quite another matter, however, to say that the Minister must always be bound by his own mistakes. I do not understand that to be the established law.

This Court had occasion recently to review the law in respect of inconsistent assessments concerning the same taxpayer and as between different taxpayers. In Ludmer et al v. H.M. [3] this Court considered earlier jurisprudence and confirmed the basic principle that it is the duty of the Minister to assess, and if necessary reassess, taxpayers’ returns so as to apply correctly the law to the facts. If the taxpayer disagrees with any particular assessment he or she has the right to appeal to the Tax Court of Canada where the law and the facts can be fully reviewed and a further appeal may be brought to this Court. Thus the fact that the Minister has assessed one return of a taxpayer in a different way from another return, or has assessed two taxpayers involved in similar activities differently, is not proof that any particular assessment is incorrect. That is a matter for determination on appeal.

Respondent’s counsel conceded that the respondent had pleaded to the allegation in question stating among other things that the allegation was irrelevant. In cases such as this, counsel argued, a pleading should not be a bar to a motion to strike. He referred to Ricafort v. Canada (Treasury Board) (1988), 24 F.T.R. 200 (Fed. T.D.), per Strayer, J.A. [4]

Appellant’s counsel declared that all the shareholders of Comaplex were treated as one group and the Swiss bank did not differentiate between the shareholders and that all payments were made from the same fund. There was, in fact, only one transaction between the Swiss bank and the shareholders. Nevertheless the Minister discriminated against the appellants by assessing them differently from the other shareholders. This, he submitted, is contrary to article 15( 1 ) of the Canadian Charter of Rights and Freedoms (“Charter”) which provides that:

Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.^ [5]

Counsel for the appellant referred to an article by Mr. C.Y. Fien, entitled “Retroactive Legislation; Administrative Matters”^ [6] in which the author discusses whether a duty of consistency can be imposed on Revenue Canada when it has assessed a taxpayer on the basis of a legal interpretation of the Act which is correct in the court’s view but which Revenue Canada has not applied to similarly situated taxpayers. Mr. Fien concedes that the courts in Canada have largely rejected recognizing a duty of consistency on the part of the fisc. However, on pp. 4:18 and 4:19 he cites Riddell v. Minister of National Revenue [7] where Rouleau, J. allowed an appeal since it “is not open to the Minister to examine his discretionary power to implement policy in an arbitrary and capricious fashion”.

The author also reviewed the situation in English case law [8] which has allowed appeals on the basis of discriminating practice by the taxing authority. However, Chevalier, D.J. held that English tax assessing procedure is fundamentally different from that in Canada where neither the Minister nor his employees have any discretion whatever in the way in which they must apply the Acfi. [9]

In my view the case law in Canada is to the effect that the courts condemn inconsistent assessments but if an assessment is based on the provisions of the Act, it is a good assessment, whether or not the Minister acted consistently [10] .

Since the bona fides of an assessment depend not on any consistency or inconsistency in the assessment process but whether the assessment was made in accordance with the Act, the suggestion of inconsistency in the attacked paragraphs in the Notices of Appeal are not relevant and ought to be struck. However, there may be some valid reason the Minister did not assess the other shareholders and the appellants ought to be informed of the reason they have been assessed differently. The reason the other shareholders were assessed in the way they were may be relevant to the appellants’ assessments. That is not to say the Court is bound by the Minister’s assessments of the other shareholders. However, like an interpretation bulletin, the Minister’s consideration in assessing the other shareholders may be significant in considering the appellants’ appeals. I refer to the recent appeal of Beaudry v. R. (1998), 98 D.T.C. 1898 (T.C.C.) , in which the Minister assessed the appellant in a different manner than another taxpayer. The Minister allowed the other taxpayer to write off a bad debt owed by a corporation but did not allow Mr. Beaudry to write off a debt as a bad debt owed by the corporation solely because he was a shareholder of the corporation and the other taxpayer was not a shareholder when the debt became bad. In Beaudry it would be commercially inconsistent for a corporation’s debt to be both good and bad. In the case at bar, paragraphs 33 in the Notices of Appeal of Fink, Ursen, Pyke, Altawan and North West and paragraph 34 in Woodward’s Notice of Appeal do not offend and are not irrelevant, scandalous, frivolous and vexatious. The appellants are entitled to know if there are any facts or law that the Minister applied in assessing the other shareholders that he did not apply in assessing the appellants and, if so, if they are relevant to their own assessments.

The motions shall be dismissed. Costs shall be in the cause. Nevertheless, the respondent shall have the right to demand particulars of matters pleaded in paragraph 33 of the Notices of Appeal of Fink, Ursen, Pyke, Altawan and North West and paragraph 34 of the Notice of Appeal of Woodward. The appellants shall, within forty days of these reasons, amend their Notices of Appeal to delete reference to the Charter or set out the provisions of the Charter on which each relies.

Application dismissed.