Louis H. Ruppert v. Her Majesty the Queen (Informal Procedure), [1994] 1 CTC 2065

Couture, C.J.T.C.C.:—These appeals which were heard under the rules governing the informal procedure are in respect of reassessments for the taxation years 1987, 1988, 1989 and 1990. The appellant acted on his own behalf.

Before dealing with the substantive element of these appeals a procedural issue must be disposed of.

The reassessments for the taxation years under appeal were issued on April 19, 1992. No notices of reassessment were transmitted to the Court by the Minister of National Revenue in spite of the statutory obligation of subsection 170(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") compelling him to do so. The notices of the original assessments were also missing. The subsection reads:

170(2) Notices, etc., to be forwarded to Tax Court of Canada.— Forthwith after receiving notice under subsection (1) of an appeal, the Deputy Minister of National Revenue for Taxation shall forward to the Tax Court of Canada copies of all returns, notices of assessment, notices of objection and notification, if any, that are relevant to the appeal.

As the only notices of reassessment transmitted to the Court were dated February 1,1993, and no late filing penalty had been assessed, at first glance from reading the notice of appeal, it appeared that at least one or maybe more reassessments might have been issued after the three year limitation period prescribed by paragraph 152(4)(c) of the Act had lapsed since the first taxation year under appeal was 1987. There was no allegation of misrepresentation or fraud in the reply to the notice of appeal.

In a letter dated March 9, 1993, addressed to the registry office of the Court in Toronto, a W.L. Tjia of the appeals division of the Kitchener district office of Revenue Canada confirmed that the reassessments under appeal were issued on April 19,1992.

When this matter was brought to the attention of counsel for the respondent, he explained that while the copy of the original assessments were not transmitted to the Court, certain computer printed data on the returns as assessed indicated the date of issue of the original assessments and that their dates could be easily determined. This information was reflected on the copy of the income tax returns filed by the appellant with Revenue Canada and filed with the Court at the hearing by counsel as an exhibit.

For the taxation year 1987, the information shows that the original assessment was issued on May 9, 1988, which confirms that the reassessment of April 19,1992 was definitely issued beyond the three year limitation prescribed by the Act. Based on this information the notices of reassessment for the remaining taxation years were issued within the prescribed period.

The reassessments of February 1, 1993, were the response of the Minister to the notices of objection pursuant to subsection 165(3) of the Act filed by the appellant.

Paragraph 152(4)(a) authorizes the Minister to reassess a return beyond three years from the date of an original assessment if the taxpayer has made a misrepresentation or committed fraud in filing his return. There are other situations where the Minister is authorized to issue a reassessment beyond the limitation, but they are not relevant for the purpose of this appeal.

vague allegations of fraud; but I have always understood it to be a rule in equity that where you allege fraud you must state the facts which constitute the fraud. You are not entitled on a petition any more than in an action to say to the other side, “ You have defrauded me; you have obtained my money by fraud.” You must state the facts which you say amount to a fraud, so that the other party may know what he has to meet.

When such an assessment is appealed to the Court, it is a fundamental requirement for the purpose of a valid disposition of the appeal and in accordance with the principles governing pleadings that the respondent allege misrepresentation or fraud in his reply. Without an allegation the Court is looking at a purported reassessment that was issued beyond the limitation period which was not legally issued. In my opinion if the Court becomes aware of such a situation by itself and even though it has not been raised in the notice of appeal, it is bound to deal with the issue and allow the appeal as the reassessment does not meet the requirements of paragraph 152(4)(a). For the Court to ignore the fact that a reassessment has been issued beyond the limitation period without the respondent alleging misrepresentation or fraud would amount to rehabilitating an otherwise illegal reassessment. The Court is not vested with that authority.

When the late reassessment for the taxation year 1987 was brought to the attention of counsel for the respondent, he submitted to the Court that the provisions of subsection 152(8) were authority for its validity. The subsection reads:

152(8). An assessment shall, subject to being varied or vacated on an objection or appeal under this Part and subject to a reassessment, be deemed to be valid and binding notwithstanding any error, defect or omission therein or in any proceeding under this Act relating thereto.

In my opinion this subsection has no application to the 1987 reassessment as it presupposes the existence of assessment validly issued but which is marked by some technical defects. Where an appeal against a statute-barred reassessment is made to this Court, subsection 152(8) does not validate what otherwise was invalid. In the present instance the question to be answered is whether the reassessment itself was legally issued. (See Marconi, supra.)

Counsel also submitted that he should be allowed to amend the reply. I refused. A number of reasons motivated my decision. It would have been unfair to the appellant to permit an amendment at that late moment in the proceedings. It would have permitted the respondent to correct a basic error on his part without any apparent justification. Raising an accusation of misrepresentation or fraud against a taxpayer is a serious matter which must not be dealt with in a haphazard manner by the respondent.

In Halsbury's Laws of England, fourth edition, volume 36 at page 55 of the chapter captioned "The System of Pleading” we read the following comments:

An amendment for the purpose of adding a plea of fraud is generally allowed at an early stage if the circumstances warrant it, but it will only be allowed at a late stage in exceptional circumstances.

In the present instance there were no circumstances exceptional or otherwise that would justify permitting the respondent to amend the reply to allege fraud or misrepresentation — allegations that go to the very root of the validity of the reassessment before the Court.

In Hendriks v. Montagu (1881), 17 Ch. D. 638 at page 642 Jessel M.R. said:

There is no judge more liberal, if I may use the expression, in allowing amendments, in order to try the real case, than I am, at any stage of the case; but I make one exception, that is as to charges of fraud. I do not, as a rule, allow amendments to make a charge of fraud at a time when the case is launched, independently of fraud.

For the above reasons the appeal for the taxation year 1987 is allowed.

With respect to the remaining taxation years the appellant filed his income tax returns on the basis that he was an independent contractor and the respondent assessed him accordingly. From the evidence it is obvious that he was an employee but this contention is immaterial for the purpose of disposing of these appeals. In his income tax returns he deducted expenses in computing his income for each of the taxation years under appeal on the basis that they were incurred for the purpose of earning income. It is sufficient to deal With the 1988 taxation year only as the same evidence was adduced for the other years.

In his reply the respondent provided the following summary of expenses claimed and allowed:

REVISED EXPENSES

1988

	Previous	Revised
Accounting, Legal, Consulting	$110
Insurance	591.64
Bank Charges	4.91
Vehicle Expenses	3,646.93	$3,263.62
Office and Telephone Expenses	1,857.61
Rent	2,346.10
Board	4,896
Auto Capital Cost Allowance	720.66	720.66
Subtotal	14,173.85	3,984.28
Less: Personal Use of Auto	729.39 20%	3,585.85 90%
Net claim	$13,444.46	$ 398.43

The first item in the amount of $110 referred to as "accounting, legal, consulting” was paid for marriage counseling. The insurance item of $591.64 was the premium for a disability insurance policy of the appellant. The bank charges of $4.91 was in respect of his personal bank account.

The vehicle expenses were incurred mostly for trips to visit his doctor or his son, a student, both residing in Toronto. There could have been a portion of legitimate business expenses, but no clear evidence was adduced by the appellant either by way of receipts or description of the alleged trips in support of his claim. The evidence with respect to the" office and telephone expenses" was not satisfactory. I surmise from the evidence that the office was not required by his contract of employment and the deduction for the telephone was for his personal use. Rent in the amount of $2,346 was for his son's apartment in Toronto. The amount of $4,896 for" board” represents the cost of his living expenses related to his travellings referred to above. Again no specific evidence was submitted by the appellant in support of this claim.

The capital cost allowance was in respect of his automobile. His total claim for his automobile including capital cost allowance was $4,367.59. The appellant had claimed 90 per cent of this amount as a business expense allowing ten per cent for personal use. In assessing the return the respondent, after reducing these expenses by $383.31, allowed only ten per cent as business expense or $398.43.

Insofar as the 1989 and 1990 taxation years are concerned, the bulk of the expenses were personal in nature and similar to those claimed for 1988 and no satisfactory evidence whatsoever was adduced by the appellant in support of those that might have been allowable as business expense.

Accordingly, the appeal for the taxation year 1987 is allowed and the appeals for the taxation years 1988, 1989 and 1990 are dismissed.

Appeals allowed in part.