[1] The Attorney General of Canada applies for judicial review of a June 27, 2001 costs decision of the Tax Court of Canada. The sole issue is whether, in view of paragraph 18.3009(1)(b) of the Tax Court of Canada Act, R.S.C. 1985, c. T-2, and rule 9(1) of the Tax Court of Canada Rules of Procedure Respecting the Excise Tax Act (Informal Procedure), SOR/92-42, the Tax Court Judge had the authority to award costs.

DECISION OF THE TAX COURT

[2] By decision dated April 26, 2001, the Tax Court Judge found that the respondents had satisfied the due diligence test in subsection 323(3) of the Excise Tax Act, R.S.C. 1985, c. E-15, and, therefore, were not liable as directors of a corporation for the failure of that corporation to remit GST. Each of the respondents had been assessed $23,847.12 comprising net tax, interest and penalties.

[3] At the time of the Tax Court Judge's decision, paragraph 18.3009(1)(b) of the Tax Court of Canada Act provided:

18.3009 (1) Where an appeal referred to in section 18.3001 is allowed, the Court

...

(b) where the judgment reduces the amount of tax, net tax, rebate, interest and penalties in issue in the appeal by more than one-half, may award costs, in accordance with the rules of Court, to the person who brought the appeal where

(i) the amount in dispute was equal to or less than $7,000, and

(ii) the aggregate of supplies for the prior fiscal year of that person was

equal to or less than $1,000,000.

18.3009 (1) Dans sa décision d'accueillir un appel visé à l'article 18.3001, la Cour:

...

(b) peut, conformément aux modalités prévues par ses règles, allouer les frais et dépens à cette personne si le jugement réduit de plus de moitié le montant de la taxe, de la taxe nette, du remboursement, de intérêts ou de la pénalité qui font l'objet de l'appel et si les conditions suivantes son réunies:(i) le montant en litige est égal ou inférieur à 7 000$,

(ii) le total des fournitures pour l'exercice précédent de cette personne est égal ou inférieur à 1 000 000$.

Subsection 18.3009(1) has since been amended (An Act to amend the Customs Act and to make related amendments to other Acts, S.C. 2001, c.25, s. 109), however the amendments are inconsequential for the purposes of this judicial review.

[4] Rule 9(1) of the Informal Procedure provides that: "Costs on an appeal shall be at the discretion of the judge by whom the appeal is disposed of in the circumstances set out in subsection 18.3009" of the Tax Court of Canada Act.

[5] Notwithstanding the apparent limitation that, under subparagraph18.3009(1)(b)(i), costs may only be awarded where the amount in dispute is equal to or less than $7,000, the learned Tax Court Judge in this case found that the respondents were entitled to costs. He agreed with the respondents that rule 9(1), which references section 18.3009, "does not contemplate an appeal by a person who may be vicariously liable like a director of a corporation who has been assessed under section 323 of the GST legislation." He found that there was no amount in dispute, as required by subparagraph 18.3009(1)(b)(i), as the respondents in the appeal were not attempting to reduce the amount of tax, interest or penalties and the judgments of the Tax Court did not extinguish the liability of the corporation. The Tax Court Judge found that the $7,000 limit was to prevent a taxpayer who was primarily liable, as opposed to vicariously liable, under the GST legislation from recovering costs under the Informal Procedure when there is a significant amount in dispute.

[6] On this reasoning, the Tax Court Judge concluded that there was a gap in rule 9(1) with respect to a corporate director who successfully appeals from an assessment issued under section 323 of the Excise Tax Act.

[7] The Tax Court Judge then had regard to section 18.3001 of the Tax Court of Canada Act, as it read at the time of his decision, which provided:

18.3001 Subject to section 18.3002, where a person has so elected in the notice of appeal for an appeal under Part IX of the Excise Tax Act or at such later time as is provided in the rules of Court, this section and sections 18.3003 to 18.302 apply, with such modifications as the circumstances require, in respect of the appeal.

18.3001 Sour réserve de l'article 18.3002, le présent article et les articles 18.3003 à 18.302 s'appliquent, avec les adaptations nécessaires, aux appels interjetés aux termes de la partie IX de la Loi sur la taxe d'accise, si une personne en fait la demande dans son avis d'appel ou à toute date ultérieure prévue par les règles de la Cour.

[8] Having regard to the words "with such modifications as the circumstances require", the Tax Court Judge ruled that subsection 18.3009(1) should be modified to allow for an award of costs in the following circumstances:

(i) a director of a corporation has appealed from an assessment issued under section 323 of the GST legislation and has elected the informal procedure;

(ii) the director/Appellant is not attempting to reduce the amount of tax, net tax, interest or penalty previously assessed against the corporation;

(iii) the director/Appellant is attempting to avoid personal liability only by proving due diligence within the meaning of subsection 323(3); and

(iv) the personal liability of the director/Appellant under subsection 323(1) is greater than $7,000 but reasonably low having regard to the $7,000 limitation in subparagraph 18.3009(1)(b)(i), and having regard to the costs of litigation.

[9] Having made these modifications, he concluded that the personal liability of the respondents of $23,847.12 was reasonably low having regard to the $7,000 statutory limit and the costs of litigation. Accordingly, he determined that respondents were entitled to costs.

ANALYSIS

[10] I am of the respectful view that the Tax Court Judge erred in law. In my opinion, there is no gap in rule 9(1) or paragraph 18.3009(1)(b). The amount in issue in an appeal from an assessment under section 323 of the Excise Tax Act is the amount of tax, interest and/or penalties stated in the notice of assessment. That is the "amount in dispute" referred to in subparagraph 18.3009(1)(b)(i) and the amount in issue referred to paragraph 18.3009(1)(b).

[11] The fact that in a particular appeal, the directors do not take exception to the amount of the assessment against the corporation, or indeed against them, does not mean there is no amount in dispute. In such a case, if they are successful in satisfying the due diligence test, they will obtain a judgment that reduces the tax, interest and/or penalties assessed against them to nil. If they are unsuccessful, the judgment will sustain the assessed amount. In either case, both the amount in issue in the appeal and the "amount in dispute" is the assessed tax, interest and/or penalties. That being the case, there is no gap in rule 9(1) or paragraph 18.3009(1)(b) and the $7,000 maximum "amount in dispute" applies to the case of an assessment under section 323 of the Excise Tax Act.

[12] Put another way, the question of costs in the informal procedure only arises if the judgment reduces the "tax, net tax, rebate, interest and penalties in issue in the appeal by more than one-half" as required by paragraph 18.3009(1)(b). If there is no such reduction, there is no entitlement to costs. In this case, the Tax Court Judge must be taken to have found that this condition was satisfied since he went on to consider whether the amount in dispute exceeded $7,000, under subparagraph 18.3009(1)(b)(i). But if the Tax Court Judge was satisfied that the judgment reduced the amount of tax in issue by more than one half, as he must have been, I am unable to see how he could conclude that there was no amount in dispute. Either there was a reduction of more than one half in the amount in issue in the appeal or there was not. If there was a reduction, then clearly there was an amount in dispute in the appeal.

[13] In my view, the Tax Court Judge was right to conclude that the amount of tax, interest and penalties had been reduced by more than half, since the amount which the respondents were required to pay was reduced to nil. The fact that the corporation's liability for tax remained unchanged is irrelevant since it was not the corporation's tax liability which was in issue in this appeal. The respondents were successful in reducing their liability for tax and therefore satisfied the threshold condition. It is clear that the amount in issue in the appeal and, therefore, the amount in dispute, for purposes of subparagraph 18.3009(1)(b)(i) exceeded $7,000 since, had they not succeeded, the respondents would have remained liable for $23,847.12.

[14] The respondents argue that subparagraph 18.3009(1)(b)(ii) could not apply in the case of an appeal by directors against an assessment issued under section 323 of the Excise Tax Act. It is said that the person referred to must be the corporation and not the directors and this again shows a gap in paragraph 18.3009(1)(b) in the case of appeals from assessments under section 323 of the Excise Tax Act.

[15] It is true that a director assessed under section 323 will not have aggregate supplies. However, subparagraph 18.3009(1)(b)(ii) only requires that the person's aggregate supplies be equal to or less than $1 million. A director who did not have supplies relevant to the appeal would be a person whose aggregate supplies were less than $1 million for purposes of subparagraph 18.3009(1)(b)(ii).

[16] The respondents also argued that rule 9(1) gives the Tax Court Judge discretion to award costs when the amount in dispute exceeds $7,000. Sharlow J.A. disposed of the same argument succinctly in Moncton Computer Exchange Ltd. v. Canada, 2001 FCA 381, [2001] F.C.J. No. 1856, at paragraph 22:

It was argued for the respondent that section 9 of the Tax Court Rules relating to GST or GST/HST appeal under the informal procedure gives the Tax Court Judge the discretion to award costs despite any apparent limitations in subsection 18.3009(1). I cannot accept that argument. In my view, subsection 18.3009(1) must be read as limiting the jurisdiction of the Tax Court to award costs in any GST or GST/HST appeal under the informal procedure. The Tax Court Rules cannot extend the statutory jurisdiction of the Tax Court.

[17] In this instance, the Tax Court Judge used the words "with such modifications as the circumstances require" in section 18.3001 as authority to modify the $7,000 limit in subparagraph 18.3009(1)(b)(i) . The modifications he proposed were extensive. It is of course fundamental that a court is not the forum for legislative change. In Moncton Computers at paragraph 23, Sharlow J.A. dealt squarely with this issue:

It was also argued for the respondent that the words "with such modifications as the circumstances required" in section 18.3001 give the Tax Court the authority to alter the $7,000 limitation referred to in paragraph 18.3009(1)(a) if there is good reason to do so. I cannot accept that argument. The "modifications" referred to in section 18.3001 refer only to such modifications as may be required to ensure that GST or GST/HST appeal under the informal procedure are conducted as nearly as possible to income tax appeals under the informal procedure by no stretch cannot include an alteration to the $7,000 limitation in paragraph 18.3009(1)(a).

Sharlow J.A.'s reasoning is directly applicable to this case and I adopt it here.

[18] The application for judicial review should be allowed and the decision of the Tax Court of June 27, 2001, should be quashed. The matter should be remitted to the Tax Court in order that the decision of April 26, 2001, be modified by deleting therefrom the reference to costs.

[19] By agreement of the parties, the respondent Anson Quon should be entitled to costs of $5,000 inclusive of disbursements in respect of this appeal. There should be no award of costs for or against the respondent Edward Gryshchuk.

"Marshall Rothstein"

J.A.

"I agree

J. Edgar Sexton J.A."

"I agree

J.D. Denis Pelletier J.A."

FEDERAL COURT OF APPEAL

Names of Counsel and Solicitors of Record

DOCKET: A-437-01

A-439-01

STYLE OF CAUSE: Attorney General of Canada

Applicant

- and -

Anson Quon

Edward Gryschuk

Respondents

DATE OF HEARING: MARCH 6, 2003

PLACE OF HEARING: TORONTO, ONTARIO

REASONS FOR JUDGMENT BY: ROTHSTEIN J.A.

CONCURRED IN BY: SEXTON, PELLETIER JJ.A.

DATED: MARCH 24, 2003

APPEARANCES BY:

Michael Ezri For the Applicant

A. Christina Tari For the Respondent Anson Quon

Edward Gryschuk ON HIS OWN BEHALF

SOLICITORS OF RECORD:

Morris Rosenberg

Deputy Attorney General of Canada FOR THE APPLICANT

A. Christina Tari

Toronto, Ontario FOR THE RESPONDENT ANSON QUON

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Canada (Attorney General) v. Quon, 2003 FCA 153

Citations2003 FCA 153

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2003 FCA 153