The Queen v. Bowater Mersey Paper Co. Ltd., 87 DTC 5382, [1987] 2 CTC 159 (FCA)

Pratte, J.: —This is an appeal from an order of the Trial Division dismissing an application made by Her Majesty under Rule 341 of the Federal Court Rules. By that application, Her Majesty sought a judgment summarily dismissing the appeal brought by the respondent from income tax reassessments for its 1981 and 1982 taxation years on the ground that the only existing income tax assessments with respect to the respondent's 1981 and 1982 taxation years were nil assessments from which there could be no appeal.

The facts and proceedings are easily summarized.

On January 4, 1984, the Minister of National Revenue sent the respondent notices of reassessment of its income tax for the 1981 and 1982 taxation years. According to those notices, the respondent owed an amount of income tax in excess of $2 million for each one of those years. Those reassessments were apparently made as a consequence of the rejection by the Minister of the respondent's view that, in calculating its income tax for those years, certain property acquired by it in 1981 was to be treated as depreciable property falling within Class 29 of Schedule II of the Income Tax Regulations. Two months later, on March 6, 1984, pursuant to a request made by the respondent that investment credits earned in 1983 be carried back to its 1981 and 1982 taxation years, the Minister reassessed the respondent and sent it notices of reassessment showing that no tax was payable for those years. Notwithstanding those notices, the respondent, on April 2, 1984, served on the Deputy Minister of National Revenue notices of objection with respect to the notices of reassessment of January 4, 1984, and, on February 7, 1985, the Minister issued a notice of confirmation with respect to those notices. The respondent thereafter filed a statement of claim in the Trial Division appealing the confirmation of the notices of reassessment of January 4, 1984. That is the action of which Her Majesty unsuccessfully sought the dismissal under Rule 341 on the ground that the only assessments that were still in existence with respect to the 1981 and 1982 taxation years were the “nil” reassessments of March 6, 1984, from which there could be no appeal.

In his reasons for judgment, the judge of first instance recognized the existence of the well-established rule that there can be no appeal from a “nil” assessment. He did not ignore, either, the rule established in Coleman

C. Abrahams (No. 1) v. M.N.R., [1966] C.T.C. 690; 66 D.T.C. 5451, to the effect that the reassessment by the Minister of a taxpayer's total income tax for a year nullifies and replaces any previous income tax assessment for that year. He was of opinion, though, that the rule in Abrahams had no application in this case and that, as a consequence, it could not be said that the “nil” reassessments of March 6, 1984, had had the effect of replacing and nullifying the January 4, 1984 reassessments.

The judge reached that conclusion for two reasons. The first one was that, in his view, the rule in Abrahams applies only in cases where, as a consequence of a reassessment, there is no longer any issue relating to the previous assessment that remains outstanding and unresolved. In support of that proposition, he quoted a passage of the decision of Mr. Justice Walsh in Walkem v. M.N.R., [1971] C.T.C. 513; 71 D.T.C. 5288. As the reassessments of March 6, 1984, were made for the sole purpose of giving effect to the taxpayer's intention of deducting the investment tax credit earned in 1983 from the tax otherwise payable for the 1981 and 1982 taxation years, those reassessments, according to the judge, left outstanding the question whether the calculation of the tax for those years had been properly made. More precisely, they left unresolved the question of the proper classification for capital cost allowance purposes of that asset which, according to the respondent, was to be treated as falling within Class 29 of Schedule Il of the Income Tax Regulations.

The second reason on which the learned judge based his conclusion that the rule in Abrahams had no application was that, in his view, the reassessments of March 6, 1984, were not real tax reassessments since they had been made for the sole purpose of applying a tax credit earned in 1983 to the tax otherwise payable for 1981 and 1982.

The judge also saw a confirmation of his opinion in the fact that the Minister had confirmed the reassessments of January 4, 1984, long after the issuance of the notices of reassessment of March 6, 1984.

This appeal, in my view, must succeed. The reassessments of March 6, 1984, were reassessments of the totality of the tax payable by the respondent for 1981 and 1982. They, therefore, replaced prior assessments that had been made for those years. Those prior assessments were no longer in existence and could not, for that reason, be the subject of an appeal.

I see no merit in the reasons invoked by the judge of first instance in support of his conclusion.

First, it is simply untrue that the rule in Abrahams does not apply in cases where, in spite of the reassessment, the taxpayer retains an interest in the solution of an issue relating to a prior assessment. This presupposes that a taxpayer may appeal from alleged errors made by the Minister in calculating the tax owed by him. There is no such right of appeal. The right of appeal that exists is from the result of the calculation made by the Minister, not from those calculations. The decision rendered by Walsh, J. in Walkem, supra, which was cited by the judge of first instance, does not support his conclusion. In that case, Walsh, J. merely applied the rule established in the Abrahams case.

As to the assertion that the reassessments here in question were reassessments of a special kind, I can find no support for it in the statute. Like all reassessments, those of March 6, 1984, were made in the exercise of the power of reassessment conferred on the Minister by subsection 152(4) of the Income Tax Act. The power of reassessment conferred by that subsection is the same, whatever be the circumstances that warrant its exercise.

Finally, I see no pertinence in the fact that the Minister, after having issued the March 6, 1984, notices of reassessment, confirmed the January 4 notices. Only one inference can be drawn from that confirmation: that the Minister was of opinion that the respondent still had the right to appeal from the January 4, 1984, reassessments. But the question that must be decided in this case is precisely whether that opinion was well founded in law. The fact that it was entertained by the Minister cannot help in answering that question.

Counsel for the respondent also argued in support of the judgment that the notices of reassessment of January 4, 1984, were not superseded by those of March 6 because the latter left intact the assessment of provincial tax contained in the earlier ones. This argument has no merit since this Court has no jurisdiction to entertain an appeal from an assessment of provincial income tax.

I would allow the appeal, set aside the order of the Trial Division and, allowing the appellant's motion under Rule 341 of the Federal Court Rules, I would dismiss the respondent's action, the whole with costs both in this Court and in the Trial Division.

Appeal allowed.