Citation: 2008TCC121
Date: 20080228
Docket: 2007-2584(IT)I
BETWEEN:
LANDMARK AUTO SALES LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant,
Landmark Auto Sales Ltd., is appealing the reassessment of the Minister of
National Revenue of its 2002 taxation year. The Appellant is seeking to have
the Minister of National Revenue apply to the tax owing in other taxation years
a credit amount of $5,842.96 shown in the Notice of Reassessment for its 2002
taxation year.
[2] The Appellant is
a small used car business. Catherine Henderson, the spouse of its owner and
director, represented the Appellant and testified at the hearing. Ms. Henderson
was the bookkeeper for the Appellant during the years in question.
[3] The Appellant's
difficulties began with its failure to file income tax returns for certain
years, 2002 being the only one under appeal.
[4] In April 2005,
following the Appellant's failure to comply with requests to file its returns,
the Minister made an arbitrary assessment of the Appellant's 2002 and 2003 taxation years. The
total amount assessed for 2002 was $5,720.95, which included federal and
provincial tax, interest and a late-filing penalty.
[5] After
discussions between its principals and the Collections department of the Canada
Revenue Agency, in July 2005 the Appellant began making monthly payments of
$2,200 towards its outstanding tax liability pending the filing of its returns.
The Appellant made six such payments in 2005.
[6] On September 26,
2006, the Appellant filed its 2002 income tax return.
[7] On November 24,
2006, the Minister issued a Notice of Reassessment
based on the Appellant's return. Certain adjustments were made to the arbitrary
assessment of April 2005, including the cancellation of the late filing
penalty. The Notice of Reassessment concluded with the following descriptions
and amounts:
|
Result of this
Reassessment:
|
$
|
5,842.96
|
Cr
|
|
Prior
balance:
|
$
|
787.07
|
|
|
Total
balance:
|
$
|
787.07
|
|
[8] The Appellant
does not dispute the amounts shown in the Notice of Reassessment but is asking
this Court to direct the Minister to apply the $5,842.96 credit to the tax
owing in other taxation years. In particular, the Appellant anticipates tax
liability in respect of certain unpaid GST remittances.
[9] The Minister
submits that the appeal ought to be dismissed on two grounds: first, that on a
proper reading of the Notice of Reassessment for the 2002 taxation year, no
federal tax has been assessed and accordingly, it is a 'nil' assessment from
which there can be no appeal. Secondly, even if the appeal were valid, the
Respondent argues that, because the Appellant did not file its returns within
the time required by subsection 164(1) of the Act, the Minister is
without statutory authority to refund the $5,842.96 credit amount shown in the
Notice of Reassessment.
[10] The Respondent
called Wendy Faddis, an Appeals Officer with some 16 years experience, to
explain the calculations set out in the Notice of Reassessment. Ms. Faddis was
a knowledgeable witness who took great care in explaining the details of the
documents pertaining to the assessment and reassessment.
Analysis
[11] This matter first came before me in the form of an application by the
Respondent to dismiss the Appellant's appeal on the basis that it was based on
a 'nil' assessment. As it was not clear from the affidavit evidence in support
of the Respondent's application that no tax had been assessed in respect of the
Appellant's 2002 taxation year, I dismissed
the Respondent's application.
[12] Having now heard
the evidence and considered the applicable provisions of the Act and the
relevant jurisprudence, I regret to say that there is no basis upon which the
Appellant's appeal can be allowed. I use the word 'regret' because there is no
question that the Appellant paid to the Minister the $5,842.96 shown as a
credit balance in its 2002 Notice of Reassessment or that there is tax owing in
other years not under appeal. Worse, the Appellant can ill afford to pay such a
large amount for no purpose. Losing that amount will no doubt mean hardship for
Ms. Henderson and her family.
[13] In her testimony, Ms.
Faddis reviewed the amounts shown in the Notice of Reassessment. She confirmed
that the credit amount of $5,842.96 had accrued as a result of the monthly
payments of $2,200 paid in the period between the issuing of the arbitrary
assessment and the filing of the Appellant's 2002 income tax return. She
explained that the "Prior balance" of $787.07 shown as owing
(notwithstanding the credit amount) was in respect of the 2003 taxation year
which, by the time of the 2002 Notice of Reassessment, had already been
assessed. The credit could not be applied to that amount because the Appellant
had filed its 2002 income tax return beyond the period within which the
Minister was permitted to refund overpayments pursuant to subsection 164(1):
If the return
of a taxpayer's income for a taxation year has been made within 3 years from
the end of the year, the Minister
(a) may,
(i) before
mailing the notice of assessment for the year, where the taxpayer is a
qualifying corporation (as defined in subsection 127.1(2)) and claims in its
return of income for the year to have paid an amount on account of its tax
payable under this Part for the year because of subsection 127.1(1) in
respect of its refundable investment tax credit (as defined in subsection
127.1(2)), refund all or part of any amount claimed in the return as an
overpayment for the year, not exceeding the amount by which the total
determined under paragraph (f) of the definition "refundable
investment tax credit" in subsection 127.1(2) in respect of the taxpayer
for the year exceeds the total determined under paragraph (g) of that
definition in respect of the taxpayer for the year,
(ii) before
mailing the notice of assessment for the year, where the taxpayer is a
qualified corporation (as defined in subsection 125.4(1)) or an eligible
production corporation (as defined in subsection 125.5(1)) and an amount is
deemed under subsection 125.4(3) or 125.5(3) to have been paid on account of
its tax payable under this Part for the year, refund all or part of any amount claimed
in the return as an overpayment for the year, not exceeding the total of those
amounts so deemed to have been paid, and
(iii) on
or after mailing the notice of assessment for the year, refund any overpayment
for the year, to the extent that the overpayment was not refunded pursuant to
subparagraph (i) or (ii); and
(b) shall, with all due dispatch, make the refund
referred to in subparagraph (a)(iii) after mailing the notice of
assessment if application for it is made in writing by the taxpayer within the
period within which the Minister would be allowed under subsection 152(4) to
assess tax payable under this Part by the taxpayer for the year if that
subsection were read without reference to paragraph 152(4)(a).
[14] Given that the
Appellant's return for its December 31, 2002 year end was filed on September
26, 2006, there is no question that it is out of time to seek a refund under
subsection 164(1). Further, because the Appellant is a corporate rather than an
individual taxpayer, it cannot take advantage of the relief offered to individual
taxpayers in subsection 164(1.5) which, notwithstanding a late filing, permits
the Minister in certain circumstances to refund an overpayment.
[15] Ms. Henderson has
no legal background. She made a great effort, however, to research the
provisions of the Act in the hope of finding something to permit the recovery
of the Appellant's overpayment. She argued that the Minister could apply
the credit amount to the Appellant's other debts under subsection 164(2):
(2)
Application to other debts. Instead of making a refund or repayment that
might otherwise be made under this section, the Minister may, where the
taxpayer is, or is about to become, liable to make any payment to Her Majesty
in right of Canada or in right of a province, apply the amount of the refund or
repayment to that other liability and notify the taxpayer of that action.
[Emphasis added.]
[16] That argument can
succeed only if the clause "that might otherwise be made under [section 164]" is ignored. For the
Minister to apply the $5,842.96 credit to other amounts for which the Appellant
is or may become liable under subsection 164(2), the refund or repayment must
first be "otherwise" payable under section 164. Given that subsection
164(1) prevents the repayment because of the lateness of the filing of the
Appellant's returns and that the exception to that rule in subsection 164(1.5)
does not apply to corporate taxpayers, there is no refund or repayment that
could "otherwise" be made to the Appellant under section 164. Accordingly,
subsection 164(2) does not permit the repayment of the credit amount to the
Appellant's other tax debts.
[17] Ms. Henderson also directed the Court's
attention to a "Statutory Set-Off" signed by the Collections Officer dated
November 7, 2005. In this document, the Appellant is named as the "Tax Debtor"
and the Canada Revenue Agency is directed to retain $9,049.13 by way of
deduction or set-off "from such amounts as may be or may become payable by
[the CRA] to the [Appellant]". Ms. Henderson argued that the effect of
this document was to authorize the Minister to apply the $5,842.96 credit to the Appellant's other tax debts.
[18] This is a tempting argument but again, one
which I think cannot succeed. As of the date of the Statutory Set-Off, November
7, 2005, the Appellant had made four monthly payments of $2,200. At that time,
no amounts were "payable" to the Appellant as the Minister was still
waiting for the Appellant to file its delinquent returns. At that time, the extent
of the Appellant's tax liability was still unknown. When the Appellant did file
its 2002 return on September 26, 2006, the time was long past for it to rely on
subsection 164(1) to claim a refund of the amounts paid in excess of the tax
ultimately assessed in November 2006. Thus, the $5,842.96 credit
balance shown in the Notice of Reassessment did not ever "become payable"
to the Appellant and accordingly, was never attached (for lack of a better
word) by the Statutory Set-Off to permit its application to other tax debts.
[19] To her credit, Ms.
Henderson acknowledged that the Appellant's troubles lay in her failure to
comply in a timely fashion with the Act's filing requirements. I accept
her evidence that as a result of her discussions with Canada Revenue Agency
officials (in particular, the Collections Officer with whom she had been
cooperating to get the Appellant's tax debt paid off), she had understood that
any amounts paid in excess of the tax ultimately assessed upon the filing of the
2002 return would be refunded or applied to the Appellant's other tax debts. Unfortunately,
what the Collections Officer told her turned out to be if not inaccurate at the
time, incomplete. The law is clear that the Minister cannot be bound by
erroneous interpretations of the law made by his officials.
Conclusion
[20] Notwithstanding
the impression left by the "Prior balance" of $787.07 shown in the
Notice of Reassessment, no tax was actually owed for the 2002 taxation year. Further,
the Appellant's purpose in appealing is not to dispute the amounts assessed. In
these circumstances, there can be no appeal from the assessment.
Even if the appeal were valid, there is no statutory provision that authorizes
the Minister to make a refund to the Appellant given its failure to file its
return within the three-year period set out in subsection 164(1) of the Act.
[21] For these
reasons, the appeal must be dismissed.
Signed at Ottawa,
Canada, this 28th day of February, 2008.
"G. A. Sheridan"
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