Citation: 2007TCC221
Date: 20070416
Dockets: 96-4298(IT)I
96-4380(IT)I
2004-89(IT)I
BETWEEN:
ROGER ADM,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx
J.
[1] These appeals are
for the 1991 to 1994 taxation years.
[2] At the beginning of
the hearing, the Appellant informed the Court that he did not dispute the
relief sought by the Respondent in the Replies to the Notice of
Appeal. However, he wished to add three additional grounds to his Notices of
Appeal. The Respondent did not oppose those amendments.
[3] For a useful understanding
of this case, I quote the relief sought as set out in the Reply to the Notice
of Appeal for 1993 and 1994. The relief sought in the other years in issue is
substantially different.
Provisions and grounds relied upon and
relief sought
8. The Deputy Attorney General of
Canada relies, inter alia, on the version of sections 3, 9, 18(1)(a),
37, 96, 127, 237.1 and 248(1) of the Income Tax Act, R.S.C. 1985 (5th
Supp.) c. 1, which apply to this matter. The Deputy Attorney General of Canada also relies
on section 2900 of the Income Tax Regulations,
C.R.C., 1978, c. 945, as amended.
9. He submits that, given
the circumstances as a whole, there is no genuine partnership carrying on a
business, which means that its expenses or losses, if any, are not deductible.
10. He submits that, in that
case, the Appellant is a
limited partner within the meaning assigned by subsection 96(2.4) of the Income
Tax Act and, consequently, his share in the loss and tax credit of the
alleged partnership is limited to
his at-risk amount, in accordance with subsections 96(2.1), 96(2.2)
and 127(8.1) as well as paragraph 96(1)(g) of the Act.
11. He further submits that
the Appellant is a member of the partnership other than a member who is
actively engaged in the activities of the alleged partnership business or who
is carrying on a similar business as that purported to be carried on by the
alleged partnership in the year in issue.
12. He submits that in accordance
with subsection 237.1(6) of the Income Tax Act, the Appellant
can neither claim a deduction in respect of participation in a tax shelter or a
tax credit as he did not apply for a tax shelter number.
13. Moreover, the Deputy
Attorney General of Canada respectfully submits that, based on the above facts
as a whole, the Court can find
- that
the “tax shelter” in question is a sham that does not qualify for any of the
deductions claimed; and
- that
the Appellant was not a member of a partnership either on
December 31, 1993, or
December 31, 1994.
[4] The first
additional points raised by the Appellant refers to a guide published by
Revenue Canada entitled “Scientific Research and Experimental Development -An
Information Guide to the Tax Incentive Program.” The Appellant refers to the
paragraphs entitled “Qualifying Canadian-controlled private corporations
(refundable claims)” and “Other Canadian companies (refundable claims)” at
pages 11 to 13 of the Guide. The paragraphs read as follows:
[TRANSLATION]
Qualifying Canadian-controlled private
corporations (refundable claims)
We validate all refundable claims before
we assess the return and issue the final refund. At
Revenue Canada, we usually complete this process within 120 days of receiving a
complete claim. This enables claimants to be sure about their entitlement
within a reasonable period of time. If the claim is incomplete, a letter will
be sent advising them that they have 30 days to submit the missing information.
Sometimes we can fast track claims, which means their claim is validated
without an audit.
Fast tracking – This procedure allows us
to expedite the processing of claims for refundable investment tax credits.
We can usually validate the claim and issue a refund to
qualifying Canadian-controlled private corporations within 60 days
of a complete claim being filed that does not create any problems.
When we fast track claims, we will usually not review the claim
again. Our field staff will determine whether a claim will be fast tracked or
whether an audit is necessary.
Other Canadian companies (non-refundable claims)
Corporations that are not in the refundable program can still earn
non-refundable SR&ED ITCS that they ca apply to reduce taxes payable. These
companies are subject to the same filing requirements as the refundable corporations.
We review these claims for completeness and, if incomplete, we request the
missing information.
We will send them a letter within 120 days of receiving a complete
form. In the letter, we will inform them whether we have accepted their claim as
filed without a standard audit, or whether we will begin a review of their
claim shortly.
[5] The Guide was filed
as Exhibit A-1.
[6] The Appellant
argues that the Minister of National Revenue (“Minister”) committed to validating the
refundable claims before making the initial assessment and issuing the refund, within a period not
exceeding 120 days. Therefore, the Appellant submits that, in the instant case,
the Minister should stick to his original assessment.
[7] The second point
raised was that the Appellant accepted the settlement proposed by Revenue
Canada for the 1991 and 1992 taxation years. Those years involve the
partnership Société de recherche Sécuri-Mines enr. According to the Appellant,
the Minister was bound. In that regard, the Appellant produced
Exhibits A-3 and A-2. The exhibits are dated August 7 and 22 and pertain to the
settlement proposal.
[8] The third point
raised pertains to 1992. The Appellant claims the deduction of $6,770.20 in
computing the income. According to him, he included the tax advantages obtained
for 1991 in computing his income for 1992. The Appellant alleges that he was
under the impression that he had to include the tax advantages received in
1991in 1992.
[9] With respect to the
first point, Jean-Marie Boucher, a witness for the Respondent, points out that
the Guide produced by the Appellant is for 1995, whereas the years in issue are
from 1991 to 1994. He explains that the Canadian-controlled private
corporations as well as the other Canadian corporations identified in the Guide
are business corporations and not partnerships. However, in the instant case,
there is a partnership. The part of the Guide the Appellant referred is
therefore not pertinent.
[10] The versions of the
Guide for 1990, 1991 and 1993 were produced in Tabs 13, 14 and 15 of
Exhibit I-2. It is stated that the audit may result in a reassessment after the
refund or credit are received.
[11] Mr. Boucher
explained that the guides were usually handed out to business corporations at
seminars held to provide them with information on Scientific
Research and Experimental Development (“SR&ED”) projects. If there were
individuals, they were partnerships. According to the witness, the guide
certainly did not pertain to partnerships that were tax shelters. Mr. Boucher
explains that the guide was amended in 1995 to provide businesses whose
projects were allowed as SR&ED projects with more financial certainty.
[12] As for the stated
government’s position on tax shelters, the witness for the Respondent refers to
the “Statement of Tax Shelter information,” Form T5003, which is found in the
Appellant’s various income tax returns. The prescribed form clearly states that
[translation] “Revenue Canada may verify and adjust tax shelter deduction
claims.” The statement also states that [translation] “The
identification number issued for the tax shelter shall be included in any
income tax return filed by the acquirer. Issuance of the identification number
is for administrative purposes only and does not in any way confirm the
entitlement of an acquirer to the deduction of losses or other amounts that may
be associated with the tax shelter” (Tab
5, Exhibit I‑1).
[13] Counsel for the
Respondent had the Appellant read some excerpts from the fact sheets of the
Société Sécuri-Mines enr., partnership in issue for the years 1991 and 1992,
notably at page 11 of the document which is found in Tab 2 of Exhibit
I-2:
Although the Société is committed to
investing partner funds in activities which, in its opinion, are eligible as Scientific
Research and Experimental Development expenditures, there is no guarantee that Revenue Canada,
Taxation, or the Ministère du Revenu du Québec, will share that view.
[14] Thus, the document
informs shareholders of the uncertainty as to the fiscal fate of their
participation. Also, at
page 9 of the same document, in a paragraph entitled [translation] “Warning,”
provides the same uncertainty [translation]: “Also, it might be possible
that the tax authorities will feel adversely affected by the operations of the
partnership and its members . . . .” A similar document is found in Tab 4
of Exhibit I-2.
[15] The same type of warning, this time in
relation to the Société de Recherche Minobec
enr., another partnership in issue, is found in a document produced in Tab 10
of Exhibit I-2.
[16] The Appellant’s
second point pertains to the settlement offer made by Revenue Canada in June
1995 to the partnerships used as tax shelters in SR&ED projects. The
Appellant claims that he accepted that offer for 1991, Exhibit A-3. However, at
the end of the proposed settlement, the Appellant added the following
condition:
This agreement is based on the
information provided by the Ministère du Revenu and shall be null and void if
said information should prove incorrect or incomplete to my detriment.
[17] The Appellant also made two more rather
minor changes to the draft settlement.
[18] According to the Appellant, his acceptance
was refused over the telephone on the basis that the Appellant had to include
all the partnerships used as tax shelters in which he invested. The Appellant
argues that in September 1995, when he signed the settlement offer, the
condition to include all partnerships was not part of the terms and conditions
of the settlement offer. He is referring to the letters accompanying the draft
settlement, dated August 7 and 22, 1995, produced with Exhibits A-3 and A-2.
[19] Mr. Huppé, a witness for the Respondent
stated that, since the beginning, the Minster’s officers who were responsible
for the receipt of settlements received instructions that an Appellant had to
include all partnerships used as tax shelters. That is what, according to him,
was explained to the agents for the Appellants.
[20] The letter of November 23, 1995, produced
in Tab 19 of Exhibit I-2, clearly indicates that
This settlement is an overall solution and shall apply to all
partnerships used as tax shelters in which you have invested.
[21] The Appellant did not reply to the letter
of November 23 but argues that when he signed the settlement offer, that
condition was not specified in any document.
[22] The third point
raised by the Appellant pertains to the deduction of $6,770 for 1992. The
Appellant’s income tax return for the 1992 taxation year is found in Tab 6 of
Exhibit I-1. The amount entered in line 130, “Other income,” is $6,770.20 and
the amount of $6,770.20 also appears at page 20, on a sheet entitled
[translation] “List of other income,” under [translation] “Other income
included in line 130.” Nowhere in the tax return is a more specific explanation
of the derivation of the amount of $6,770.20 to be found.
[23] During his
testimony, the Appellant explains that that amount represented the inclusion of
tax advantages received the previous year, that is in 1991. He says he was
under the impression that those tax advantages had to be included the following
year. Counsel points out to him that those advantages were not included in the
1993 and 1994 taxation years. He replies that he was in doubt whether to
include the advantages or not in 1992 and that he did not do so in the other
years. An accountant or other person prepared the income tax return for the
Appellant, as evidenced by his assertion at page 25 of the return that someone
else completed that return for a fee. That person did not come to testify to
explain the amount of $6,770.20.
[24] It was one week
before the hearing that the Appellant mentioned this to counsel for the
Respondent to whom he sent a description of the items included in that amount
and the calculation of the amount of $6,770.20. The calculation was also made
that same week.
[25] The Appellant
apparently had several opportunities to mention to the Minister the inclusion
of the tax advantages which he now claims he included in 1992. Letters were
sent to him on February 20 and March 15 by Francine Dufort of the audit
division concerning his SR&ED claims. The Appellant did not reply to those
letters. The Appellant submits that he discussed it with an officer of the
Minister, Mario Desmarais, in 2002 or 2003. It was also the first time
counsel for the Respondent heard of this. The Respondent produced as Exhibit
I-5 the Reply to the Notice of Appeal for 1993 and 1994, produced on
March 25, 2004, which contains the signature of Mario Desmarais as agent for
the Respondent, which would explain why his name was mentioned at the hearing.
Mr. Desmarais was not called to testify.
Analysis and conclusion
[26] I do not see in the
documentation provided by the Appellant any assertion by the Minister that the
initial assessment is a final assessment, in the sense that, once the initial
assessment was made, the Minister undertook not to verify the merits of the
assessment, as he is allowed to under the Income Tax Act (the “Act”),
namely subsection 152(4) of the Act.
[27] The Guide upon which
the Appellant relies was for the years subsequent to the years in issue. The
guides for the years in issue do not provide the same certainty. What is
more, these guides do not address tax shelters. It should also be noted that
even the promoter does not provide any guarantee for tax purposes.
[28] In any case, it is
the legislative and regulatory provisions which prevail when the time comes to
determine the merits of an assessment. The current state of the law and
the case law are very clear and consistent in that respect.
See Roitman v. Canada, [2006] F.C.J. No. 1177,
(Q.L.), Ludmer v. Canada, [1995] 2 F.C. 3., Redclay
Holdings Ltd. v. R., [1996] 2 T.C.J. 2347 and
946406 Ontario Ltd. v. Canada, [1993] G.S.T.C. 57.
[29] Wit respect to the
acceptance by the Appellant of the settlement proposed by Revenue Canada, article 1393 of the Civil Code of Québec
provides that
Acceptance which does not correspond substantially to the
offer or which is received by the offeror after the offer has lapsed does not
constitute acceptance.
[30] I am of the opinion that the clause added
by the Appellant substantially amended the settlement offer and that as a
result, there was no exchange of consent required for entering into an
agreement. The purpose of the settlement is to end a litigation. The amendment
added by the Appellant did not make it possible to arrive at a final resolution
of the case. The acceptance of the settlement by the Appellant was therefore
not an acceptance. See Trillium Steel Doors v. Gaboury (Distribution
Jacques Gaboury) [1998] J.Q. No. 1647.
[31] I am also referring
to the first article of the
proposed agreement, which reads as follows:
(1) I have invested in the following partnerships
(hereinafter “partnership” or “tax shelter”) and the following are details of
the purchase and sale of my investments in the partnership:
[32] This clause, in my opinion, is indicative
that all partnerships used as tax shelters in which an Appellant invested
should be included and appears to corroborate the statements of the Minister’s
witness.
[33] I am therefore of
the opinion that there was no valid acceptance of the settlement offer for the
19914 taxation year for the two reasons mentioned above.
[33] With respect to the
third point, I find it difficult to accept that the Appellant included in his
1992 tax return the tax advantages he received in 1991. It is not logical that
a taxpayer would include in his income for the subsequent year the tax
advantages sought in the investment of a tax shelter the previous year. The
accountant who prepared the Appellant’s income tax return did not come to
testify and did not provide any written explanations in that regard. The
description of the items making up the amount of $6,770.20 was provided the
week before the hearing. As mentioned earlier during the description of the
facts, the Appellant apparently had several opportunities to raise this issue.
He did not do so. The preponderance of evidence does not make it possible to
exclude from the computation of the Appellant’s income for 1992 the amount of
$6,770.20 as an amount that was erroneously included by the Appellant.
[35] Accordingly, the
appeals are dismissed.
Signed at Ottawa, Canada, this 16th day of April 2007.
“Louise Lamarre Proulx”
Translation certified true
on this 6th day of September 2007.
Daniela Possamai, Translator
Email this Content