J a Stephenson v. Minister of National Revenue, [1978] CTC 2660, [1978] DTC 1480

Delmer E Taylor:—The taxpayer appealed against an income tax reassessment dated October 11, 1974 for the year 1972. The original assessment for that year was dated June 29, 1973 and showed the appellant’s liability for tax based on his filed income tax return to be a total of $4,049.30. The liability for tax in the reassessment which is the subject of this appeal remained unchanged at the same amount ($4,049.30), and there was no change in the amount of taxable income between the assessment and the reassessment—it rested at $12,882.82. The explanatory form T7W-C attached to the disputed reassessment reads as follows:

ADJUSTMENTS TO DECLARED INCOME—AJUSTEMENTS DU REVENU DECLARE

Total Income previously assessed		$16,644.22
Add: accounts receivable from professional activity
(Dec 31/71)	$67,461.82
Deduct: Less reserve under ITAR 23(3)	67,461.82	Nil
Revised Total Income		$16,644.22
Deduct: Deductions to arrive at Net Income
No Change		211.40
Revised Net Income		$16,432.82
Deduct: Deductions to arrive at Taxable Income
No Change		3,550.00
Revised Taxable Income		$12,882.82

Facts

The appellant is a lawyer practising with a firm of solicitors in Toronto, Ontario. The basis of the appeal however did not arise directly from his profession, but from an ancillary real estate activity for a syndicate under the business name of Queensbury Inn Limited.

Contentions

The position of the appellant, as raised in the notice of appeal, was as follows:

—The form T/7W-C attached to the re-assessment notice indicates accounts receivable from professional activity (December 31, 1971) in the amount of $67,461.82 added to income and a reserve under ITAR 23(3) in the same amount deducted from income.

—It is submitted that the taxpayer’s income from the Queensbury transaction is only $18,000. It is further submitted that the remaining $49,461.82 is a capital gain inadvertently realized in an attempt to protect the realization of the $18,000 finder’s fee.

The respondent submitted in the reply to notice of appeal:

—The respondent relies, inter alia, upon sections 3, 4 and 34, subsections 171(1) and 248(1) of the Income Tax Act, RSC 1952, chapter 148 as amended by SC 1970-71-72, chapter 63 and subsection 23(3) and paragraph 23(5)(c) of the Income Tax Application Rules of the Income Tax Act, RSC 1952, chapter 148 as amended by SC 1970-71-72, chapter 63.

—That the appellant earned the sum of $67,461.82 in 1971 as the result of rendering services to a syndicate known as the “Queens- bury Syndicate” and as a result the said sum of $67,461.82 became a “1971 receivable” within the meaning of paragraph 23(5) (c) of the Income Tax Application Rules of the Income Tax Act and accordingly the respondent properly computed the appellant’s income for the 1972 taxation year by including the said amount of $67,461.82 and allowing an equivalent reserve pursuant to section 34 of the Income Tax Act and subsection 23(3) of the Income Tax Application Rules.

—In tne alternative, the respondent submits that the appeal should be dismissed since there is no relief to which the appellant is entitled or which the Board could properly grant pursuant to subsection 171(1) of the Income Tax Act in respect of the appellant’s 1972 taxation year.

At the commencement of the hearing, counsel for the respondent moved that the Board dismiss the appeal on the grounds outlined in the alternative submission of the Minister quoted immediately above. The hearing dealt only with that motion of the Minister, and the merits of the appeal itself were not raised.

Argument

Counsel for the respondent relied considerably upon the following decisions:

Pure Spring Company Limited v MNR, [1946] CTC 169 at 198; 2 DTC 844 at 857:

The assessment is different from the notice of assessment; the one is an operation, the other a piece of paper. The nature of the assessment operation was clearly stated by the Chief Justice of Australia, Isaacs ACJ, in Federal Commissioner of Taxation v Clarke, (1927) 40 CLR 246 at 277:

“An assessment is only the ascertainment and fixation of liability,”

a definition which he had previously elaborated in The King v Deputy Federal Commissioner of Taxation (SA); ex parte Hooper (1926), 37 CLR 368 at 373;

“An ‘assessment’ is not a piece of paper: it is an official act or operation; it is the Commissioner’s ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount he sends by post a notification thereof called ‘a notice of assessment’ . . . But neither the paper sent nor the notification it gives is the ‘assessment’. That is and remains the act or operation of the Commissioner.”

It is the opinion as formed, and not the material on which it was based, that is one of the circumstances relevant to the assessment. The assessment, as I see it, is the summation of all the factors representing tax liability, ascertained in a variety of ways, and the fixation of the total after all the necessary computations have been made.

Louis J Harris v MNR, [1964] CTC 562 at 571; 64 DTC 5332 at 5337:

I do not think, however, that this is the correct way to deal with the matter. On a taxpayer’s appeal to the Court the matter for determination is basically whether the assessment is too high. This may depend on what deductions are allowable in computing income and what are not but as I see it the determination of these questions is involved only for the purpose of reaching a conclusion on the basic question.

The argument of counsel was that since the inclusion of the amount of $67,461.82 and its subsequent exclusion by virtue of the reserve had not affected the liability for tax:

—the amount does not form part of the appellant’s taxable income;

—tax has not been assessed on that amount in the 1972 taxation year;

—the appellant has no cause to complain to this Board;

—no relief is available to the appellant from this Board, under the powers provided to it.

In essence the position of the Minister was that an appeal could only be against the amount involved, not against the process by which the amount was determined.

Counsel for the appellant in disagreeing, pointed out that the particular provisions of the Income Tax Act and those of the Income Tax Application Rules which were involved, related to “transition” sections providing .for the changes under the new Act to treat professional income on an accrual basis rather than on a cash basis. The determination rested with the taxpayer, not with the Minister, to classify certain amounts as “receivables”, and to utilize the reserve provisions if he so wished.

Findings

It would appear that this issue, and in particular the motion to dismiss, has reached the Board because there was an amount of tax liability calculated—$4,049.30—whereas had the calculation resulted in a “nil” assessment it would be clear that no appeal could be brought forward. This is shown in a recent case decided by the Chairman of the Board, the Honourable Lucien. Cardin, QC, in Stringham Farms Limited v MNR, [1977] CTC 2438; 77 DTC 317. It is noted that counsel for the respondent did not rely upon this case or others dealing with the “nil” assessment question in presenting argument. In the view of the Board, the question posed in the motion to dismiss therefore was recognized by counsel as containing at least some elements of a slightly different character. In effect the question is— can the Minister include in the rationale supporting a reassessment elements which might be repugnant or unacceptable to the taxpayer, but, by virtue of the fact that the liability for income tax based thereon has not increased, deprive that taxpayer of the right of appeal to this Board with respect to those elements? in the Pure Spring judgment (supra) a major matter at issue was the discretionary powers of the Minister and the right of the Court to either delimit these or require appropriate substantiation for the use of such discretion. The decision clearly left such discretion to the Minister. While this is not a relevant point in this appeal, I do, however, note with interest one particular sentence from the Pure Spring decision (supra), at pages 198 and 857 respectively:

The purpose of providing an appeal from the assessment is to ensure to the taxpayer that it shall be correct in fact and in law.

The concern of the taxpayer regarding the potential for future income tax liability against which he might have no ready defence is hardly allayed by assurances from counsel for the respondent that the proper opportunity for appeal would be when he was assessed to tax on the pertinent amount. Nevertheless, in the instant case the fact is that the taxable income of the appellant (without dissent by him) was $12,882.82, and the law regarding the rate of tax to be applied against that has not been questioned by him. Taken in conjunction with the quotation also given earlier by counsel for the respondent from Harris (supra), the only decision of this Board can be to grant the motion requested by the Minister.

Decision

The appeal is quashed.

Judgment

Upon motion made by counsel for the respondent requesting that the appeal be quashed; and upon hearing what was alleged by the parties; it is ordered and adjudged that the motion be and the same is hereby allowed and the appeal in respect of the 1972 taxation year is quashed.

Appeal dismissed.