Date: 20001201
Docket: 1999-3278-IT-I
BETWEEN:
ROSAIRE RAINVILLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Lamarre Proulx, J.T.C.C.
[1]
This is an appeal under the informal procedure for the 1993
taxation year. When the hearing began, the parties told the Court
that they had reached an agreement on two of the points at issue.
The respondent agreed that the appellant could claim $34,158 in
rental losses. The appellant gave up his claim for a $30,000
non-capital loss carryover.
[2]
One point remains, and it concerns the application of subsection
169(2.2) of the Income Tax Act ("the
Act"). It is whether the appellant can appeal on an
issue for which the right of objection or appeal appears to have
been waived through a waiver signed by him on May 5, 1998.
[3]
The appellant is in substantial agreement with the assessment
that followed the waiver in the sense that he agrees with the
$218,541 added to his 1993 income as shareholder benefits under
subsection 15(2) of the Act. That amount is made up of
$209,606 in advances and $8,935 in interest on the advances. He
also agrees with the amount of $92,527—being a loan made by
a shareholder that can be deducted from the advances under
paragraph 20(1)(j) of the Act—which amount
was calculated for 1996. That repayment of advances created a
loss that could be carried back to 1993. The appellant said that
he did not realize he would have to pay about $18,000 in interest
on the amount assessed as tax payable for 1993 to 1997, on which
date the carryover became effective. He argued that the deduction
could just as well have been made in 1993 as in 1996, since the
loan or repayment was made in 1993 and the conditions under which
it was made did not change.
[4]
Mr. Beaudoin, the auditor, relied on the financial statements of
Édifice Rainville Inc. that had been prepared by its
accountant for 1993 (Exhibit A-2). The amount was
included in long-term liabilities as follows:
[TRANSLATION]
Notes to financial statements
as at May 31, 1993
. . .
Owed to a director, face value of $100,000, 6.75%, repayable in
monthly instalments of $754.84, principal and interest.
. . .
[5]
The Minister's official explained that, according to an
interpretation bulletin—the reference for which had slipped
his mind at the time of his testimony—it is the
Department's policy to consider such a loan as being separate
from the advance account and as not offsetting the advances. In
the 1995 financial statements, the description had been changed
to read [TRANSLATION] "$100,000 loan
R. Rainville". That was why he took it into account to
reduce the shareholder benefit account in 1996. He did not
explain why he had not taken it into account in 1995 instead.
[6]
According to the appellant, all that was involved in 1993 was an
accounting entry. The nature of the loan agreement did not change
over the years in question. He argued that what he had agreed
with the Minister's official was that he would be assessed
for 1993 on the amount of income resulting from the advances to a
shareholder minus the shareholder's loan to the corporation.
If he had known that he had to pay interest from 1993 to 1996 on
the total advances, he would not have agreed or would at least
have strongly argued that the nature of the loan had not changed
from 1993 to 1996 and that the loan had to be taken into account
in 1993 and not 1996.
[7]
The waiver (Exhibit I-1) reads in part as follows:
[TRANSLATION]
. . .
I waive any right of objection or appeal in respect of . . .
THE ASSESSMENT, AS REVISED, WITH RESPECT TO THE ADVANCE ACCOUNT
(15(2)) AND THE AMOUNT GRANTED AS A REPAYMENT (20(1)(J)).
THE AMOUNT ASSESSED IN ACCORDANCE WITH SECTION
15(9)—INTEREST ON ADVANCES—REMAINS UNCHANGED.
. . .
Stapled to that first sheet was the proposed adjustment, which
was a table showing the amounts at issue for 1993 to 1996. The
tax computation was not included.
Argument and conclusion
[8]
Counsel for the respondent referred to the Supreme Court of
Canada's decision in Smerchanski v. M.N.R., [1977]
2 S.C.R. 23, at page 31:
Since it is not contested that a taxpayer may validly waive
his rights of appeal against a tax assessment and that no
question of public policy is involved to preclude such a waiver,
the only issue of importance in this appeal is whether the tax
authorities, seriously contemplating prosecution, and by
indictment as in the present case, are entitled to exact a waiver
of rights of appeal as a binding term of settling a clear tax
liability when overtures for settlement are made by the taxpayer
and, in consequence, to abandon their intention to prosecute.
[9]
Counsel for the respondent argued that the appellant signed the
waiver freely and that the waiver is valid. He submitted that the
effect of the waiver is that this Court has no jurisdiction to
rule on the issue dealt with by the waiver.
[10] The
appellant's agent argued that the auditor did not explain to
the taxpayer what effect taking the loan into account in 1996
rather than 1993 would have in terms of interest. That is
not—as it was later interpreted to be by the officials who
made the assessment—the matter with respect to which the
appellant gave a written waiver. The appellant agreed to be
assessed for 1993 on an amount of advances that excluded his loan
to the corporation.
[11]
Subsection 169(2.2) of the Act reads as follows:
(2.2) Waived issues. Notwithstanding subsections (1)
and (2), for greater certainty a taxpayer may not appeal to the
Tax Court of Canada to have an assessment under this Part vacated
or varied in respect of an issue for which the right of objection
or appeal has been waived in writing by the taxpayer.
[12] The
Supreme Court of Canada's decision in Smerchanski,
supra, accepting the validity of a waiver of the right of
appeal dates back to 1977. Subsection 169(2.2) of the
Act is relatively recent. According to the application
provision, that subsection is applicable after June 22, 1995 (the
date it was given Royal Assent) to waivers signed at any time.
The wording of subsection 169(2.2) of the Act, and of the
application provision, suggests that it does not create a new
right but is a clarification provision. The explanatory note also
confirms this interpretation:
New subsection 169(2.2) clarifies that a taxpayer may not
appeal an issue to the Tax Court of Canada in respect of which
the taxpayer has waived in writing the right to object or appeal.
This rule applies after the day this provision receives Royal
Assent to waivers signed at any time.
[13] In
Smerchanski, the appellant disputed the validity of the
waiver he had signed on the basis that he signed it to avoid the
threat of criminal prosecution. Here, the validity of the waiver
is not being disputed; rather, it is a matter of determining the
issue in respect of which the appellant waived his right of
appeal in writing. It is a matter of interpreting the agreement
reached by the parties.
[14] In the
context of a waiver of a right of appeal, there seems to be no
case law on the question of the actual content of the agreement.
There are a few decisions on the legal effect of such a waiver,
and I refer in particular to the following: Yott et al. v.
M.N.R., 91 DTC 611, Lagacé v. M.N.R.,
93 DTC 1144, and Proulx v. The Queen, [1995] TCJ No.
1301 (QL) (96 DTC 2028). In those cases, the respondent had
argued that the settlements in question were transactions within
the meaning of articles 2631 et seq. of the Civil Code
of Québec and that they had the authority of a final
judgment (res judicata). It was the concept of authority
of a final judgment that proved to be the stumbling block for the
respondent's argument, there having been no denial that the
settlements could be binding.
[15] In my
opinion, the decisions that may help in resolving the present
debate are those that relate to the interpretation of paragraph
152(4.01)(a) of the Act, a provision whose wording
is very reminiscent of that of subsection 169(2.2) of the
Act. Paragraph 152(4.01)(a) reads as follows:
Notwithstanding subsections (4) and (5), an assessment,
reassessment or additional assessment to which paragraph
(4)(a) or (b) applies in respect of a taxpayer for
a taxation year may be made after the taxpayer's normal
reassessment period in respect of the year to the extent that,
but only to the extent that, it can
reasonably be regarded as relating to,
(a)
where paragraph (4)(a) applies to the assessment,
reassessment or additional assessment,
(i)
any misrepresentation made by the taxpayer or a person who filed
the taxpayer's return of income for the year that is
attributable to neglect, carelessness or wilful default or any
fraud committed by the taxpayer or that person in filing the
return or supplying any information under this Act, or
(ii)
a matter specified in a waiver filed with the Minister in
respect of the year.
(Emphasis added.)
[16] With a
view to extending the normal assessment period, this provision
allows a taxpayer to waive the limitation of that period in
respect of a matter specified in the waiver. The courts have
considered the content and scope of such a matter a number of
times, inter alia in Bailey v. M.N.R., 89 DTC
416, Cal Investments Ltd. v. The Queen, 90 DTC 6556,
Canadian Marconi Co. v. Canada, [1992] 1 F.C. 655,
Solberg v. The Queen, 92 DTC 6448, Placements T.S.
v. The Queen, [1993] T.C.J. No. 869, and Charron v. The
Queen, [1997] T.C.J. No. 303. In Solberg, Reed J.
stated the following at page 6452:
. . . The appropriate approach to the interpretation of the
waiver is to seek to ascertain the intention of the parties as
expressed in that document together with any relevant
circumstances for which evidence is available. This is consistent
with the approach taken in interpreting taxing statutes
themselves, see, for example, Stubart Investments Ltd. v. The
Queen, 84 DTC 6305 at 6323 (S.C.C.).
[17] Just as
the above decisions interpret the meaning of the matter covered
by a waiver signed under paragraph 152(4.01)(a) of the
Act, the meaning of the issue covered by a waiver signed
under subsection 169(2.2) of the Act is subject to
interpretation by this Court when the parties are not in
agreement on it. In the case of subsection 169(2.2) of the
Act, the interpretation will, in my opinion, have to be
rather more strict than in the case of paragraph
152(4.01)(a) of the Act, since what is at stake
under subsection 169(2.2) is the right to sue. If the issue
waived is the one suggested by the Minister, the appellant will
have no cause of action as regards that issue. Otherwise, the
appellant will be entitled to appeal and to have the case decided
by this Court.
[18] However,
as the Minister's official said, concessions are made by both
sides in such settlements. If the evidence showed that no such
agreement would have been reached had it not been for a given
undertaking, that could be a possible reason for setting aside
the waiver or having recourse to other appropriate relief. The
more the agreement is precise and incorporates the assessment
amounts, the easier it will be to ascertain its content for the
purposes of applying subsection 169(2.2) of the Act.
[19] In the
case at bar, I have concluded on the basis of the parties'
testimony that their true agreement was that, in 1993, the
appellant's income was the amount of the advances minus the
repayment. I would not have reached this conclusion if the
outlays had actually been made in 1996. However, it is accepted
by both sides that the cash inflow occurred in 1993. The
accounting entries have some importance, but they do not preclude
taking into account other relevant factors, such as when the
outlays were actually made and the terms on which they were made.
It was therefore possible to argue that the repayment was made in
1993. Moreover—and this aspect is just as important as the
first—the evidence did not show that the Minister's
auditor considered the matter of the interest accruing on the
amount of the benefits up to the year in which the amount of the
losses that could be carried over was established. I think that,
if that aspect had occurred to him, he would have informed the
appellant about it. The taxpayer thought that the amount of his
income for 1993 would be the amount of the benefits minus the
losses that could be carried over, and I have every reason to
believe that the auditor was also under that impression. That is
the common denominator between the two parties.
[20] Since it
is my view that the parties' mutual agreement in this case
was that suggested by the appellant, the assessment in that
regard is not in keeping with the agreement and the appellant is
entitled to appeal with respect to that aspect.
[21] The
appeal is allowed as regards the rental losses referred to in
paragraph [1] of these reasons. It is also allowed as
regards the amount of advances to be taken into account in the
1993 assessment: that amount is the amount of benefits on which
the parties are agreed, namely $218,541, minus the amount of
money advanced by the appellant to his corporation, namely
$92,527. The assessment is otherwise correct.
Signed at Ottawa, Canada, this 1st day of December 2000.
"Louise Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
[OFFICIAL ENGLISH TRANSLATION]
1999-3278(IT)I
BETWEEN:
ROSAIRE RAINVILLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on August 28, 2000, at Sherbrooke,
Quebec, by
the Honourable Judge Louise Lamarre Proulx
Appearances
Agent for the
Appellant:
Gérald Tessier
Counsel for the
Respondent:
Simon-Nicolas Crépin
JUDGMENT
The
appeal from the assessment made under the Income Tax Act
for the 1993 taxation year is allowed without costs and the
assessment is referred back to the Minister of National Revenue
for reconsideration and reassessment in accordance with the
attached Reasons for Judgment.
Signed at Ottawa, Canada, this 1st day of December 2000.
J.T.C.C.
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