Citation: 2011 TCC 470
Date: 20111005
Dockets: 2011-1501(IT)G
2011-1504(IT)G
BETWEEN:
PANKAJ DOSHI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
AND BETWEEN:
JUDITH H. DOSHI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Woods J.
[1]
The respondent brings applications
requesting orders to strike out notices of appeal filed by Pankaj and Judith
Doshi. The issues are the same in both applications and the motions were heard
together.
[2]
The appellants responded to the
applications by filing Amended Notices of Appeal at the hearing. The focus at
the hearing was on these rather than the original notices of appeal.
[3]
Two main questions are raised: (1)
Should part of the statement of facts in the Amended Notices of Appeal be
struck out as not being relevant or material? (2) Should claims based on s.
15(1) of the Canadian Charter of Rights and Freedoms be struck out on
the ground that it is scandalous, frivolous or vexatious?
Background
[4]
The appellants emigrated from
Canada in 1999 when Mr. Doshi was transferred by his employer to the United States. The
appeals concern certain provisions of the Income Tax Act that are generally
known as the departure tax. The main issue is whether the appellants were properly
assessed tax on capital gains deemed to have been realized by them with respect
to securities held at the time of emigration. It appears that the deemed gains
are in the neighbourhood of $85,000 for each appellant.
[5]
According to the facts in the
Amended Notices of Appeal, the value of the securities dropped significantly
after the appellants left Canada, with the result that the deemed gains were
never realized. One security in particular represented 70 percent of the deemed
gains. That security was still owned by the appellants when they returned to Canada in 2003.
The appellants seek to have the tax adjusted so that it does not exceed the
amount payable had they never left Canada.
[6]
Three grounds of appeal are raised:
a) that the assessments are contrary to Parliament’s
intent in enacting subsection 128.1(4),
b) that the relevant provisions of the Act
contravene subsection 15(1) of the Charter, and
c) that s. 128.1(4)(b) of the Act was not
properly applied to pre-immigration securities.
[7]
By way of background, it would
have been very difficult for the respondent to reply to the original notices of
appeal because the statement of facts seemed to contain quite a bit of evidence
and argument. After these motions were instigated, the appellants made efforts
to correct the deficiencies and sent amended notices of the appeal to the
Court. Due to further objections from the respondent, which were outlined in
detail in written submissions, the appellants attempted to further remedy the
deficiencies and new amended notices of appeal were filed at the hearing. Counsel
for the respondent agreed to focus on these at the hearing.
Analysis
[8]
I will consider the Charter
issue first.
[9]
The appellants argue that the
departure tax provisions contravene subsection 15(1) of the Charter. The
provision reads:
15. (1) 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.
[10]
The appellants’ argument as set
out in the Amended Notices of Appeal is reproduced below.
II. THE DEEMED DISPOSITION CLAUSE IS CONTRARY TO
SECTION 15 OF THE CHARTER OF RIGHTS AND FREEDOMS
1)
Section 15(1) of the Canadian Charter of Rights and Freedoms 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.” The
application of the deemed disposition sections of the Income Tax Act
differentially burdens us, compared to other similarly-situated groups, in two
ways.
a.
First, Canadians within Canada are treated more favorably than Canadians
who were directed by their employer to leave Canada temporarily. Had we
remained in Canada, we would be subject only to ordinary capital gains tax,
measured at the time of actual sale of the Applicable Securities.
b.
Second, taxpayers subject to this clause are penalized if they happen to
emigrate from Canada at a time when equity markets are at a peak, such that the
deemed capital gains are high but actual equity values are likely to fall
subsequently, taxpayers who emigrate from Canada when equity markets are at a
low point would not see such unfavorable treatment.
2)
When an employee of a Canadian employer is directed by his or her
employer to relocate temporarily to work for the same employer outside of Canada,
the employee’s resulting status should be viewed as “constructively immutable”,
and thus an analogous ground of discrimination, within the meaning of Section
15 jurisprudence. Due to our resulting status as temporary emigrants, the
deemed disposition sections of the Income Tax Act discriminate against us.
[11]
The respondent submits that this
ground of appeal has no chance of success and should be struck out. Counsel
relies on the interpretative principles relating to s. 15(1) set out in R. v
Kapp, 2008 SCC 41, [2008] 2 S.C.R. 483. Kapp informs that there are two
questions relating to s. 15: (1) Does the law create a distinction based on an
enumerated or analogous ground? (2) Does the distinction create a disadvantage
by perpetuating prejudice or stereotyping?
[12]
In this case, the question is
whether the departure tax provisions create a distinction based on an analogous
ground, and if so whether the distinction amounts to discrimination by
perpetuating prejudice or stereotyping.
[13]
I have some sympathy for the
position of the respondent in these motions. Reading the Amended Notices of
Appeal, it is difficult to determine a distinction that could be an analogous
ground as interpreted by the jurisprudence. The distinctions suggested by the
appellants seem to relate to the employer requiring the move and that the stock
market was high at the relevant time. Moreover, even if there is a distinction
based on an analogous ground, the Amended Notices of Appeal fail to clearly set
out how the relevant provisions of the Act amount to discrimination in
the sense of perpetuating a prejudice or stereotyping.
[14]
In a nutshell, the appellants have
a steep hill to climb to make a convincing Charter argument. However, two
factors militate against striking out the argument at this preliminary stage.
[15]
First, considerable latitude
should be given to taxpayers who are bona fide in their belief that they
have been discriminated against. Section 15 of the Charter is a
difficult provision to interpret even for those learned in the law. It is a
daunting task for the appellants, who are self-represented, to muster legal
arguments on concepts such as analogous grounds, and discrimination. There is
no reason for me to think that these appeals are motivated by reasons other than
a genuine belief that the appellants have been victims of discrimination.
[16]
Second, this Court has a laudable
history of promoting access to the Court so that complaints about tax
assessments may be heard. If the respondent’s motions were to succeed, the appellants
would be denied the opportunity of making aCharter argument. I am
reluctant to do this, unless making the argument would an amount to an abuse of
the Court. It does not, in my view. The interests of justice in this case are best
served by not striking out the Charter argument at this stage.
[17]
I would comment that there are
appropriate cases to strike out Charter arguments on the basis that they
are scandalous, frivolous or vexatious, such as where the issue has been
settled by jurisprudence or where the argument is so frivolous as to be an
abuse of the judicial system. See for example Sinclair v The Queen, 2002
DTC 1988, aff’d 2003 FCA 348, 2003 DTC 5624. The appellants’ argument does not
fall into this category.
[18]
The respondent submits it is settled
law that residence is not a personal characteristic that gives a right under
section 15 of the Charter. It is not clear to me that residence is the
characteristic that the appellants seek to focus on. In any event, the
respondent’s submission overstates the applicable principles from the judicial
decisions that were referred to me. The cases suggest that residence is not
usually a distinction recognized for purposes of section 15, but the door has
been specifically left open for an appropriate case.
[19]
For these reasons, the
respondent’s request to strike out the Charter argument is denied.
[20]
I now turn to the other relief
requested by the respondent. It concerns the statement of facts in the Amended
Notices of Appeal. I will refer only to Mrs. Doshi’s pleading since there is no
relevant difference between them.
[21]
I would first comment that the
appellants have tried to comply with the applicable rules relating to pleadings
with the assistance of the respondent’s motion material. The newly-filed
pleadings overcome many of the original deficiencies, but a few remain. The
appellants do not take issue with the respondent’s arguments.
[22]
The respondent submits that the following
statements of fact from Mrs. Doshi’s Amended Notice of Appeal are improper.
12)
Pursuant to Section 128.1(4), CRA has asked me to pay $28,713 in capital
gains for Tax Year 1999, and $18,404 of arrears interest, in connection with
the Applicable Securities.
13)
In a speech delivered to Parliament on March 27, 2001, Roy Cullen, who was
Parliamentary Secretary to Finance Minister Paul Martin, described Bill C-22,
which proposed to modify the Income Tax Act in various ways. Addressing the
proposed change to the deemed disposition rules for emigrants, Mr. Cullen
states that the bill “would allow returning former residents to reverse the tax
effects of their departure, regardless of how long they were a non-resident.”
14)
Bill C-22 was passed on June 14, 2001. It modified, inter alia,
Sections 7(1.6) and 220 of the Income Tax Act.
15)
On February 4, 2003, I received a letter from CRA showing my foreign tax
credit for capital gains income tax paid to the U.S. government in connection
with the Applicable Securities.
19)
Ms. Leslie Morancie-Alexis at CRA’s International Tax Office in Toronto
advised me on February 7, 2005 that the CRA had undertaken a review of the
“Deemed Disposition” clause. She indicted that penalizing taxpayers were not
the intent of the clause and that the appropriate government official(s) were
reviewing the clause with the intent to modify it so the taxpayers would not be
unnecessarily “penalized”.
20)
Throughout this process over the last 11 years, CRA took long periods of
time (from months to years) to conduct most of the reviews.
[23]
My comments will be brief since
the appellants do not dispute this part of the motions. I accept the
respondent’s position with respect to all of the above paragraphs except
paragraphs 12 and 15.
[24]
Paragraphs 12 and 15 could be
phrased differently but in substance they contain material facts. I propose
that these paragraphs be left in. The remaining paragraphs should be struck out.
Some are legal argument, some are irrelevant facts and some are evidence.
[25]
Finally, I would address a
paragraph that was added to the Amended Notices of Appeal for the first time. Paragraph
(2)(b) of section (g) seeks a waiver of interest on the basis that the audit
took an inordinate amount of time. The respondent submits that this paragraph
should be struck out. I agree; this Court has no authority to grant such relief.
[26]
In conclusion, the motions will be
allowed in part. Paragraphs 13, 14, 19, and 20 of section (c) and paragraph
(2)(b) of section (g) will be struck out with leave to file Fresh as Amended
Notices of Appeal.
[27]
As for costs, it is appropriate in
my view to award costs to the respondent in respect of these motions. The
original notices of appeal were so defective that it would have been very
difficult for the respondent to reply to them. It was only after the respondent
prepared detailed submissions as to the defects that the appellants were able
to substantially correct them. I appreciate that it is difficult for
self-represented litigants to comply with the proper procedures of this Court,
but on the other hand the respondent should be compensated for its costs where
a notice of appeal is as defective as in this case.
[28]
Finally, the appellants are
reminded that notices of the Charter argument must be given to the
appropriate authorities in accordance with the Tax Court of Canada Act. The
relevant section provides:
19.2 (1) If the constitutional validity, applicability or
operability of an Act of Parliament or its regulations is in question before
the Court, the Act or regulations shall not be judged to be invalid,
inapplicable or inoperable unless notice has been served on the Attorney
General of Canada and the attorney general of each province in accordance with
subsection (2).
(2) The notice must be served at least 10 days before the day on which
the constitutional question is to be argued, unless the Court orders otherwise.
(3) The Attorney General of Canada and the attorney general of each
province are entitled to notice of any appeal made in respect of the
constitutional question.
(4) The Attorney General of Canada and the attorney general of each
province are entitled to adduce evidence and make submissions to the Court in
respect of the constitutional question.
(5) If the Attorney General of Canada or the attorney general of a
province makes submissions, that attorney general is deemed to be a party to
the proceedings for the purpose of any appeal in respect of the constitutional
question.
Signed at Toronto,
Ontario this 5th day of October 2011.
“J. M. Woods”
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