Citation: 2006TCC36
Date: 20060116
Docket: 2002-4525(IT)G
BETWEEN:
HUGUETTE BLEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1] Huguette Bleau is
appealing from an assessment established on June 28, 2001 by the
Minister of National Revenue (the Minister) pursuant to subsection 160(1)
of the Income Tax Act (the Act). The Minister holds
Ms. Bleau jointly and severally liable for the tax debt of 2525-6421
Québec Inc. (6421) in respect of the 1990 taxation year. The assessment
of the Minister with regard to 6421 was established on
March 13, 1995, the amount of tax demanded being $39,368 with
interest, amounting to approximately $63,416. The amount of the tax debt is not
of itself at issue. The assessment in respect of Ms. Bleau stems from the
transfer to Ms. Bleau by 6421 in 1992 of an amount of $53,244. On the date of
this assessment, the amount of the tax debt of 6421 stood at $174,331. Ms.
Bleau maintains that the assessment as it pertains to her is unfounded for
several reasons, the most important of which is that the tax debt of 6421 was
extinguished at the time of the assessment of June 28, 2001, by virtue of the
prescription set out at section 32 of the Crown Liability and
Proceedings Act (Crown Liability Act), R.S.C. 1985, chapter C‑50.
In addition, the Supreme Court of Canada recognized in Markevich v. Canada,
[2003] 1 S.C.R. 94, that this section applies to the recovery of
tax debts.
The facts
[2] Corporation 6421
belonged in equal parts to two shareholders, Ms. Bleau and her sister,
Cécile Bleau. This corporation was established to operate a rental
building located on St-Hubert Street in Montreal. The two sisters were also
shareholders in another corporation operating the same type of business, Les
Projets C.H. Bleau Inc. (Projets). Projets was, moreover, the first of
the two corporations to operate a rental building. Huguette Bleau advanced
approximately $85,000 to Projets in 1987 to finance the renovation of a Projets
building on Clark Street in Montréal. According to the financial statements of
this corporation on February 28, 1992, an amount of $110,757 was owed by
Projets to its directors. According to Ms. Bleau, the entire amount was owed to
her. One year later, on February 28, 1993, the amount of this debt appearing on
the financial statements had been reduced to $8,946. According to its financial
statements dated February 28, 1992, Projets had advanced an amount of $118,140 to other private corporations. On the
balance sheet of 6421 of that same date, a total of $46,693 appears as being
owed to associated companies. According to a letter from Ms. Bleau dated
October 24, 1994, addressed to the Minister's auditor, this amount was owed to
Projets (Exhibit I‑1, tab 27, at page 4). As of February
28, 1993, nothing more was owed by 6421 to associated corporations.
[3] A few months
previously, on September 11, 1992, 6421 had sold its building on St-Hubert
Street and on September 22, 1992, from the proceeds of this sale, deposited
through an inter-bank transfer an amount of $80,384 into the bank account of
Ms. Bleau. On December 14, 1992, Ms. Bleau deposited into her account an
additional amount of $18,597 paid by 6421 through the payment of the balance of
the purchase price paid by the purchaser of the building in question. Lastly,
6421 paid a monthly amount of $956 owing in respect of the mortgage granted by
Ms. Bleau to finance the activities of Projets. According to the Minister's
auditor, this amount of $956 and that of $18,597 – totalling $19,553 – was
treated, from an accounting standpoint, by 6421 as an advance by this
corporation to its shareholders.
[4] At the time of his
audit of Ms. Bleau, the Minister's auditor submitted a draft assessment in
which he added to her income the amount of $80,384 as an appropriation of funds
in accordance with subsection 15(1) of the Act and $19,553 as a loan not repaid
before the end of the second year, in accordance with subsection 15(2) of the
Act. During her meeting with the auditor, Ms. Bleau was able to convince him
that an amount of $46,693 should be subtracted from the appropriation of
$80,384, because 6421 owed this amount to Projets and Projets owed
approximately $70,000 to Ms. Bleau. The auditor thus accepted that a portion of
the payment made by 6421 to Ms. Bleau be considered a reimbursement by 6421 of
an amount due by Projets to Ms. Bleau.
Consequently, the amount of the inclusion in the income of Ms. Bleau was
reduced to $53,244 ($80,384 + $19,553 – $46,693).
[5] The auditor of the
Minister explained that this is not the standard procedure, but that in certain
circumstances it is possible to act in this way for reasons of fairness,
particularly when dealing with a taxpayer who has little experience in the area
of accounting and taxation. On the other hand, the decision to grant this
treatment was subject to the condition that Ms. Bleau accept the other proposed
changes to her tax returns for 1990, 1991 and 1992, changes which included a
penalty imposed under subsection 163(2) of the Act. The compensation of
advances was done by the auditor "to achieve a final settlement of the
file in its entirety".
[6] The evidence also
revealed that the Minister took no collection action in respect of the tax debt
of 6421 for the 1990 taxation year between March 13, 1995 (the date of the
assessment of 6421) and June 28, 2001 (the date of the assessment of Ms. Bleau
under section 160 of the Act).
[7] Lastly, mention
must be made of the fact that Counsel for Ms. Bleau maintained that there may
have been other advances by Projets to 6421. This statement is based on the
fact that the financial statements of Projets show advances to associated
corporations totalling $118,140 and that the auditor would have had to audit
the details of the advances given by Projets to these various corporations. On
the other hand, the financial statements of 6421 dated
February 28, 1992, show that the amount due under the heading of
loans granted by associated corporations totalled only $46,693. Furthermore, in
a letter to Revenue Canada dated February 11, 1994, Ms. Bleau states that there
was no advance to 6421 by the shareholders for the period from
January 1, 1990 to December 31, 1992. Furthermore, in her
letter of October 24, 1994, Ms. Bleau states that at the time of the
sale of the building by 6421, 6421 owed $46,693 to Projets. There is thus no evidence
of advances in addition to that of $46,693 by Projets.
Position of the parties
[8] Counsel for Ms.
Bleau maintained that at the time the assessment pursuant to section 160 of the
Act was arrived at, on June 28, 2001, the tax debt of 6421 was barred by
limitation under section 32 of the Crown Liability Act, which stipulates that
proceedings shall be taken within six years. Pursuant to section 225.1 of the
Act, the date for calculating the time limit for the recovery of this tax debt
is, according to Counsel for Ms. Bleau, June 10, 1995, or 90 days after March 13, 1995, the
date on which the assessment in respect of 6421 was established. As was
recognized by the Supreme Court of Canada in Markevich (supra),
the recovery of a tax debt is subject to a limitation of six years from the
cause of action. Consequently, since no recovery action was taken during the
period from March 13, 1995 to June 28, 2001, the tax debt of 6421 was
extinguished on June 10, 2001, or became, at the very least, not payable.
[9] Counsel added that
one must refer to the provisions of the Civil Code of Quebec (Civil
Code) because of the use of the concept of joint and several liability
stipulated by section 160 and because of the application of section 8.1 of the Interpretation
Act. Since section 160 creates joint and several liability and we are
dealing here with joint and several liability in respect of the same debt and
not two separate debts, articles 1531 and 1671 of the Civil Code apply.
[10] Subsidiarily, he
maintains, rightly, that repayment of an advance is not a transfer within the
meaning of section 160 of the Act. However, the only repayment of an advance
that has been demonstrated before me is the repayment of the $46,693 which
6421 owed to Projets and this amount does not form part of the amount of the
assessment. This argument is accordingly unfounded, in light of the facts.
[11] The final argument
of Counsel for Ms. Bleau is that the Minister had informed her that the
settlement offer was comprehensive; Ms. Bleau could not, consequently, suspect
that an assessment would be established under section 160 of the Act.
[12] As far as the
Respondent is concerned, Counsel maintains that the tax debt of 6421 in respect
of its 1990 taxation year was not extinguished, since Ms. Bleau's
liability was created at the time of the transfer in 1992 (less than two years
after the creation of the tax debt), and not at the time of the assessment of
June 28, 2001, as Counsel for Ms. Bleau stated. Counsel based her argument on
the decision by the Federal Court of Appeal in Heavyside v. Canada,
[1996] F.C.J. No. 1608 (QL), in particular paragraphs 9 and 10 of the reasons
given by Décary J.A., which I will reproduce:
9 Once the conditions of subsection
160(1) are met, as they are in the present case, the transferee becomes
personally liable to pay the tax determined under that subsection (here,
$2,759.50). That liability arises at the moment of the transfer (here,
June 6, 1989) and is joint and several with that of the transferor. The
Minister may "at any time" thereafter assess the transferee
(subsection 160(2) and the transferee's joint liability will only disappear
with a payment made by her or by the transferor in accordance with subsection
160(3)).
10 The moment chosen by the Minister
to assess the transferee is of no consequence. It is trite law that liability
for tax results from the act and not from the assessment and that in the
instant case it is the transfer that triggers the liability. The
respondent, therefore, was personally liable, in her 1989 taxation year, for
income tax in respect of the gains from the disposition of the property
transferred and her liability being joint and several with that of her
husband, it had a life of its own and survived the eventual extinguishment
through bankruptcy, in 1994, of her husband's own tax liability. The
fact that she was assessed only in 1994 and only after her husband's discharge
is irrelevant as far as her own liability is concerned.
[My emphasis.]
[13] Counsel for the
Respondent also cites paragraph 16 of the decision of the Supreme Court of
Canada in Markevich (supra), where the said Court emphasises that
an assessment under section 160 of the Act may be made at any time by virtue of
subsection 160(2):
16 This conclusion is supported by the
explicit manner in which the ITA addresses limitation periods in its
assessment provisions. The Court held in Friesen, supra at para. 27,
that [r]eading extra words into a statutory definition is even less acceptable
when the phrases which must be read in appear in several other definitions in
the same statute". Numerous provisions in the ITA expressly
stipulate that that the Minister may make an assessment "at any time":
see ss. 152(4), 152(4.2), 159(3), 160(2), 160.1(3), 160.2(3), 160.3(2),
160.4(3) and 227(10.1). Parliament has demonstrated a clear willingness to
address the issue of limitation periods in the ITA where it sees fit to
do so. As Rothstein J.A. noted at para. 22, "Parliament has put its
mind to the limitation question in the Income Tax Act and when it
intends there to be no limitation period, it has so stated." Accordingly,
the unescapable conclusion is that the plain language used in the collection
provisions does not support the inference that Parliament intended to exclude
the application of limitation provisions to the Minister's collection powers.
[My emphasis.]
[14] Consequently, since
the Minister was able to issue an assessment under section 160 at any time,
that at the relevant moment, namely on the date of the transfer by 6421 to Ms.
Bleau, the tax debt of that corporation was not extinguished because of the
application of a limitation period and the other conditions for the application
of section 160 are met, the assessment of the Minister is well founded.
[15] Subsidiarily, the
Respondent maintains that the changes made to section 222 of the Act, in
particular the addition of the new subsection 222(10), have the effect that,
even if the Court were to conclude that the tax debt of 6421 is extinguished,
this tax debt was re-established with effect from March 4, 2004, and, as a
result, the assessment pursuant to section 160 is well founded. The Respondent
cited, in support of her position, the decision of the Federal Court in Gibson
v. Canada, [2005] F.C.J. No. 817(QL), 2005 FCA 180.
Analysis
[16] The relevant provisions
of section 160 of the Act are as follows:
[17] For the reasons
cited by Counsel for the Respondent and analyzed at paragraphs 12 to 14 above,
I believe that the tax debt of 6421 was not extinguished at the relevant
moment. In fact, the assessment under section 160 may be made at any time and
is thus not subject to a time limit. With regard to the conditions under which
section 160 is applicable, the only condition that applies here was the
existence of a debt owed by the transferor to the Crown and, since the relevant
moment for determining whether such a tax debt existed is the date of transfer
– here less than two years after the creation of the tax debt, - this date is
not extinguished as a result of a time limit. Consequently, the Minister's
assessment is well founded
and it is not necessary to comment on the subsidiary argument of Counsel for
the Respondent.
[18] With regard to the
subsidiary argument of Ms. Bleau, based on the concept of joint and several
liability and on the modes of extinction set out in the Civil Code, also seems
to me ill founded. In fact, in order to apply the provisions of the Civil Code,
such application must be in accordance with the requirements of
section 8.1 of the Interpretation Act. Its rules must be used in applying the
Act and there must be no rule of law that militates against it. This section
stipulates the following:
8.1 Both the common law and the civil law are
equally authoritative and recognized sources of the law of property and civil
rights in Canada and, unless otherwise provided by law, if in interpreting
an enactment it is necessary to refer to a province's rules, principles or
concepts forming part of the law of property and civil rights, reference
must be made to the rules, principles and concepts in force in the province at
the time the enactment is being applied.
[My emphasis.]
[19] I see nothing here
that might indicate the need to revert to the concept of solidarity found in
the Civil Code or to the causes of extinction provided for under articles 1531
and 1671 of the Civil Code. On the contrary, section 160 of the Act, in my
view, provides a complete code of rules regarding the liability of a transferee
of a good in respect of the tax debt of the transferor. The amount in respect
of which a transferee may be held liable is calculated on the basis of
paragraph 160(1)(e) of the Act. Subsection 160(3) of the Act describes
the circumstances under which the obligation of the transferee to pay the tax
debt of the transferor may be extinguished. Use of the provisions of the Civil
Code would constitute an unjustified interference in the exercise of the powers
conferred by the Act on the Minister to collect federal taxes.
[20] In support of this
interpretation, there are these comments by Décary J.A. in Heavyside, at
paragraphs 12 and 14:
12 There is
no doubt that the husband's discharge from bankruptcy relieves him from paying
the Minister the amount due by him under section 160 of the Income Tax Act;
this is made clear by subsection 178(2) of the Bankruptcy Act. But the order of
discharge does not extinguish the debt; it is personal to the husband and does
not affect the liability of the respondent who is jointly bound. As noted by Sarchuk T.C.J., in Garland, when referring to Section
179 of the Bankruptcy Act, it is clear that the Bankruptcy Act did not intend a
person who was "jointly bound" with the bankrupt to be released by
the discharge of the bankrupt. Unless a payment be made under the terms of
subsection 160(3) of the Act, the transferee's liability remains, and a
discharge under the Bankruptcy Act is simply not a payment under the terms of
subsection 160(3).
...
14 To allow the Respondent to escape
her tax liability in the present case because of her husband's discharge from
bankruptcy would be to allow what Parliament precisely sought to prevent by
the adoption of section 160.
[My emphasis.]
[21] Lastly, I believe
that the argument to the effect that the agreement reached at the time of the
assessment in respect of Ms. Bleau under section 15 of the Act would constitute
a final settlement which would prevent the Minister from establishing an
assessment in accordance with section 160 of the Act. First, we should mention
that there was never any question in this settlement under this rule, of
assessments under section 160. An assessment under this section is not intended
to impose a tax on the income of the taxpayer; it is a procedure for collecting
tax from a third party. Although the evidence is silent on this point, it would
be highly surprising if the auditor of the Minister in charge of the personal
file of Ms. Bleau were aware of the Minister's collection problems in respect
of the tax of 6421.
[22] Furthermore, it
seems to me that the subject of the comprehensive agreement reached by the
parties focuses more on the arrangement under which Ms. Bleau was allowed to
take advantage of a reduction in the amount to be included in her income under
section 15 of the Act if she accepted the application of the penalty, as was
stated by the auditor of the Minister, who testified at the hearing.
[23] Even if one could
believe that the comprehensive agreement covered section 160, Counsel for Ms.
Bleau did not cite any case law in support of the argument that the Minister
could not produce a reassessment pursuant to section 160 of the Act. If all the
conditions set out at section 160 are met, the Court must apply that section
and has no other choice than to confirm the assessment.
[24] For all these
reasons, the appeal by Ms. Bleau is dismissed without costs.
Signed at Ottawa,
Canada, this 16th day of January 2006.
"Pierre Archambault"
Translation
certified true
on this 21st
day of June 2006
Monica F. Chamberlain, Reviser
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