Hamlyn T.C.J.:
1 The Appellant in these income tax appeals seeks the determination of a question of law under paragraph 58(1)(a) of the Tax Court of Canada Rules (General Procedure).
2 The question to be determined is whether or not the Tax Court of Canada has the jurisdiction to consider, give effect to, and apply the Indian Income Tax Remission Order (the “Remission Order”).[FN1: <p>P.C. 1993-523, 16 March 1993, (SI/93-44), as amended by P.C. 1994-799, 12 May, 1994 (SI/94-69).</p>]
3 The Appellant appeals from reassessments (December 15, 1994) of his 1991, 1992 and 1993 taxation years in which the Minister of National Revenue (the “Minister”) included certain amounts in the Appellant's income on the grounds that such amounts were not the personal property of an Indian situated on a reserve. While the central issue in the matter is the application of paragraph 87(1)(b) of the Indian Act to the Appellant's income, the Appellant has also submitted that the income he earned in the 1992 and 1993 taxation years is exempt from taxation by virtue of the Remission Order and that the Minister failed to apply the Remission Order when assessing the Appellant.
The Position of the Parties
4 The Appellant and the Respondent are in agreement that the Tax Court of Canada is given exclusive original jurisdiction to hear an appeal from an assessment under the Income Tax Act and to dispose of that appeal by dismissing it, or allowing it and vacating the assessment, varying the assessment, or referring the reassessment back to the Minister for reconsideration and reassessment.[FN2: <p>See sections 169, 171 of the<em>Income Tax Act</em>and section 12 of the<em>Tax Court of Canada Act</em>.</p>] The parties disagree, however, as to the nature and effect of a remission order made under the Financial Administration Act.
5 The Appellant submits that a remission order operates to exempt certain taxpayers from taxes payable. Under paragraph 81(1)(a) of the Income Tax Act, amounts exempted from tax under an enactment of Parliament are not to be included in computing the income of a taxpayer for a taxation year. The Appellant submits that because the Remission Order is an enactment of Parliament, the amounts stipulated therein should not have been included in his income by virtue of paragraph 81(1)(a) and, therefore, the reassessment is incorrect. The Appellant cited, inter alia,Henry v. Minister of National Revenue[FN3: <p>(1987), 87 D.T.C. 338 (T.C.C.).</p>] in support of his submissions.
6 The Respondent submits that the effect of the application of the Remission Order is to release an individual from the debt or portion of the debt that is otherwise payable under the Income Tax Act. The Remission Order does not exempt the individual from taxation. A remission order is not ancillary to, or part of, an assessment; it is a post-assessment activity that relates to the collection of taxes. The Respondent cited Pachanos v. Minister of National Revenue[FN4: <p>(1990), 90 D.T.C. 1668 (T.C.C.).</p>] in support of her submissions.
Analysis
Paragraph 81(1)(a) of the Income Tax Act
7 Paragraph 81(1)(a) of the Income Tax Act codified the common law rule that amounts declared to be exempt from income tax by any other enactment of Parliament shall not be included in computing the income of a taxpayer.
81(1) There shall not be included in computing the income of a taxpayer for a taxation year,
(a) an amount that is declared to be exempt from income tax by any other enactment of the Parliament of Canada, other than an amount received or receivable by an individual that is exempt by virtue of a provision contained in a tax convention or agreement with another country that has the force of law in Canada.
The Financial Administration Act
8 Remission orders are granted under section 23 of the Financial Administration Act, the relevant portions of which read as follows:
(1) ...
“tax” includes any tax, impost, duty or toll payable to Her Majesty, imposed or authorized to be imposed by any Act of Parliament.
(2) The Governor in Council may, on the recommendation of the appropriate Minister, remit any tax or penalty, including any interest paid or payable thereon, where the Governor in Council considers that the collection of the tax or the enforcement of the penalty is unreasonable or unjust or that it is otherwise in the public interest to remit the tax or penalty.
(3) A remission pursuant to this section may be total or partial or conditional or unconditional and may be granted
(a) before, after or pending any suit or proceeding for the recovery of the tax, penalty or other debt in respect of which the remission is granted;
(b) before or after any payment of the tax, penalty or other debt has been made or enforced by process or execution; and
(c) with respect to a tax or other debt, in any particular case or class of cases and before the liability therefor arises.
The Indian Income Tax Remission Order
9 Under the Remission Order, the Governor General in Council, on the recommendation of the Minister, ordered that tax payable on an Indian taxpayer's income which is paid to him by an employer residing on a reserve or Indian settlement was to be remitted to that taxpayer. The remission mechanism is found in section 3 of the Remission Order:
(1) Remission is hereby granted to a taxpayer who is an Indian of the amounts payable by the taxpayer under part I to I.2 of the Act for a taxation year that would not be payable by the taxpayer if, in the calculation of the taxpayer's income for the year, there were not included an amount equal to the product obtained by multiplying the income for the year from each office or employment of the taxpayer by the proportion that
(a) the amounts that are required to be included in the computation of the income from that office or employment for the year and that are payable to the taxpayer by an employer residing on a reserve or Indian settlement
are of(b) the amounts that are required to be included in the computation of the income from that office or employment for the year.
Jurisprudence of the Tax Court of Canada
Concerning Remission Orders
10 In Henry (supra)[FN5: <p>The Crown appealed this decision to the Federal Court Trial Division by way of trial<em>de novo</em>. A consent to judgment was filed on August 19, 1991.</p>] , it was held that certain amounts the taxpayer received by way of severance payment were reasonably attributable to the taxpayer's duties of employment on a reserve and that they were therefore exempt from taxation pursuant to the Remission Order.
11 Associate Chief Judge Christie was of the opinion that a remission order made under the Financial Administration Act could exempt an individual from liability under provisions of the Income Tax Act (at page 340):
I do not think that the Indian Remission Order can be equated to a declaration by an enactment of the Parliament of Canada. The Order is the operative instrument and is subordinate legislation in relation to enactments by Parliament. Still I have no doubt that an order made under section 17 of the Financial Administration Act can exempt a person from liability to tax under the provisions of the Income Tax Act.
12 Associate Chief Judge Christie than applied the criteria in the Remission Order to the facts before him and held that sums the taxpayer had received fell within the ambit of the order and therefore allowed the appeal.
13 In Pachanos (supra) the taxpayer wanted the Tax Court to apply Indian Statute-Barred Income Tax Assessment Remission Order and to order the Minister to remit taxes to the taxpayer. The Minister submitted that the Tax Court had no jurisdiction to consider the Order-in-Council since the order dealt not with tax assessment, but with the collection of an amount payable as tax.
14 Section 3 of the Indian Statute-Barred Income Tax Assessment Remission Order reads as follows:
3. Remission is hereby granted to any Indian of income tax equal to the amount payable by that Indian pursuant to an assessment under the Income Tax Act, including any assessed penalty relating thereto and all interest payable thereon, where the amount assessed, the penalty and the interest have not been paid and the statutory limitation period in respect of the assessment expired before 1988.
15 Judge Lamarre Proulx held that the application of the order was not within the jurisdiction of the Tax Court because the order concerned the procedures for collecting taxes that are owing and unpaid and not the assessment of income tax. Her Honour distinguished the decision in Henry (supra) at pages 1669 and 1670:
The situation is, in my opinion, different from the one that obtained with regard to Order in Council P.C. 1985-2446, which was referred to in Valerie Henry v. Minister of National Revenue In the circumstances of that judgment, this Court interpreted the Order in Council as an exemption order and took this into account in its judgment. In the case of P.C. 1989-740, which we are concerned with, the issue is not the validity of the assessment but simply the procedures for collecting taxes that are owing and unpaid. The application of this Order in Council is not, therefore, within the jurisdiction of this Court, in my opinion.
Jurisdiction
16 The Court has jurisdiction under section 12 of the Tax Court of Canada Act to hear and determine appeals on matters arising under the Income Tax Act. Under the Income Tax Act, the Tax Court has the power to determine the correctness of an assessment of income, penalties and interest.
17 The relief the Court is empowered to give in disposing of an appeal is found within subsection 171(1) of the Income Tax Act:
(1) The Tax Court of Canada may dispose of an appeal by
(a) dismissing it; or
(b) allowing it and(i) vacating the assessment,
(ii) varying the assessment, or
(iii) referring the assessment back to the Minister for reconsideration and reassessment.
18 In R. v. Riendeau[FN6: <p>(1991), 91 D.T.C. 5416 (Fed. C.A.).</p>] at page 5417, Stone J.A. stated:
...liability for tax is created by the Income Tax Act, not by a notice of assessment.
and...the Minister's mental process in making an assessment cannot affect a taxpayer's liability to pay the tax imposed by the Act itself.
19 Thus, it is clear assessments do not create liability to pay tax, tax liability is created by legislation.
20 In this case, the liability for tax as legislated in the Income Tax Act and the remission as ordered in the Remission Order precedes the reassessments under appeal.
21 Thus, I conclude this Court does have the jurisdiction to consider the applicability of the Remission Order in the determination of the correctness of the reassessments under appeal.
Answer to the Question of Law
22 Consequently, the question is answered positively: the Tax Court of Canada in this case in the determination of the correctness of the reassessments of income, penalties and interest does have jurisdiction to consider, give effect to, and apply the Remission Order.
23 Costs of the motion are costs in the cause in relation to the 1992 and 1993 taxation years.
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