Robert Cosby v. Her Majesty the Queen, [1994] 1 CTC 2868, 94 DTC 1561

Christie, A.C.J.T.C.C.:—The year under review is 1987. In his return of income for that year the appellant sought to deduct capital cost allowance in respect of two backhoes that he purchased and rented to C & F Equipment Rentals Limited ("the company"). The amount deducted was $49,154.

The original assessment was made on June 20, 1988. By notice of reassessment dated November 22, 1991, the appellant was informed that $49,154 had been reduced to $22,362.

Prior to the reassessment the appellant was told, inter alia, by letter dated May 21, 1991, from E. J. Leaker of Revenue Canada that it was proposed to adjust his 1987 income tax return by reducing the claim for capital cost allowance as just indicated. The last two paragraphs read:

These proposed adjustments will be held in abeyance for 15 days to allow you to make further representation. If no reply is received in that time, these adjustments will be processed.

The normal reassessment period for your 1987 tax return ends June 20, 1991. If you require more than 15 days to make further representation on the 1987 proposed adjustment, you may wish to file a waiver. Two copies of Form T2029 waiver in respect of the normal reassessment period have been enclosed.

On June 11, 1991, the appellant signed a waiver, in the prescribed form.

Paragraph 21 (1 )(a) together with Form 21 (1 )(a) of the Tax Court of Canada Rules (General Procedure), SOR/92-41, require that a notice of appeal regarding an appeal under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") specify the issues to be decided. There is a similar requirement under paragraph 49(1 )(f) of the rules with reference to a reply to such notice of appeal.

Paragraphs 14, 15, 16 and the heading relating to the issues in the notice of appeal read:

14. The appellant alleges that Revenue Canada had a duty to act fairly to the appellant and in good faith, and that that duty was breached by the misrepresentation by agents of Revenue Canada for the purpose and effect of the waiver.

15. The appellant alleges further that Revenue Canada demonstrated bias toward the Appellant by imposing a shorter period of time to respond to the proposal of tax adjustments than is normally allowed because Revenue Canada was running out of time to reassess the appellant’s tax return before the expiration of the 3-year limitation.

16. As a consequence of the bias and breach of duty of the Respondent the appel lant was reassessed at a higher rate of personal income tax.

THE ISSUES to be decided are as follows:

1. Did Revenue Canada owe a duty to act fairly to the appellant and in good faith, and did it breach that duty?

2. Did Revenue Canada demonstrate bias toward the appellant in allowing the appellant only 15 days to respond to the proposed adjustments to his 1987 income tax return?

The reply is silent about paragraph 14 of the notice of appeal and it denies the allegations made in paragraphs 15 and 16 thereof. Paragraph 10 of the reply reads:

10. The issues to be decided in this appeal are whether or not the waiver referred to in paragraph 8(f) (i.e., The waiver dated June 11, 1991) was valid, and whether the Minister acted with bias towards the appellant.

What is relevant to these reasons in subsection 244(14) of the Act provides that for the purposes of the Act, the day of mailing of any notice of assessment shall be presumed to be the date of that notice. Subsection 244(15) reads: "Where any notice of an assessment has been sent by the Minister as required by this Act, the assessment shall be deemed to have been made on the day of mailing of the notice of the assessment." What is relevant in subsection 152(3.1) and paragraph 152(4)(c) of the Act states that for the purposes of subsection 152(4) the normal reassessment period for a taxpayer in respect of a taxation year is the period that ends 3 years after the day of mailing of a notice of an original assessment in respect of the taxpayer for the year or the day of mailing of a notification that no tax is payable by the taxpayer for the year. The Minister may at any time assess tax for a taxation year, interest or penalties, if any, payable by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, and may within the normal reassessment period for the taxpayer in respect of the year reassess as the circumstances require.

The appellant’s evidence is very brief. He acknowledged receipt of the letter of May 21, 1991, and said that his understanding of it was this: "That if I didn't reply I would be assessed, you know, as per the paragraph here with no further recourse, basically. I didn't have — I wouldn't have any way of going back on it so I signed the waiver and sent it back.”

The waiver is stamped as having been received by Revenue Canada on June 14, 1991. It reads:

WAIVER IN RESPECT OF NORMAL REASSESSMENT PERIOD

— For use by a taxpayer to waive the normal reassessment period in respect of a taxation year, as defined in subsection 152(3.1), within which the Minister may assess, reassess or make additional assessments under subsection 152(4) of the Income Tax Act.

— One completed copy of this waiver is to be filed with the District Taxation office within:

(1) four years, where at the end of the year the taxpayer is a mutual fund trust or a corporation other than a Canadian-controlled private corporation, or

(2) three years in any other case,

after the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year.

— In order for a waiver to be valid, the matter(s) being waived must be specified in the space provided and the waiver must not specify a time limit in respect of its period of application.

— A waiver may be revoked only by filing a notice of revocation of waiver (Form T652), and such revocation is effective on the day that is six months after the date on which the notice is filed.

— This waiver must be signed by the taxpayer or legal representative, or if a corporation, by an authorized officer.

Name of Taxpayer (Print) (If there has been a name change or amalgamation, also indicate the previous name in brackets)

ROBERT L. V. COSBY

Address

Box 4 RR 7 1724 Woodsend Road Victoria, B.C. vex 3X3

Social Insurance Number or		Waiver for the Taxation Year Ended
Corporation		Day	Month	Year
Number	705 229 276	33	12	87
		31	12	87 RCa

WAIVER

The normal reassessment period referred to in subsection 152(4) of the Income Tax Act, within which the Minister may reassess or make additional assessments or assess tax, interest or penalties under Part* I of the Act is hereby waived for the taxation year indicated above, in respect of:

Expenses against business income, in particular capital cost allowance.

* Enter the applicable Part

Signature of Taxpayer, Legal Represent	Date
ative or Authorized officer
Robert Cosby	June 11, 1991
Position or Office:
President

It will be noted that the date 33-12-87 was changed to 31-12-87 and initialled. The word "President" at the foot of the document was placed there by the appellant's bookkeeper. It is in her handwriting. He concluded his testimony in chief with the allegation that he understood that the waiver related to the company.

It was established in the course of cross-examination that the company's year- end was April 30. Also his accountant, Mr. Murray Ellis, C.A., made representations to Revenue Canada with respect to the appellant's 1987 and 1988 taxation years after the waiver was filed. The appellant's social insurance number is 705 229 276. Three letters dated August 10, October 25, October 31, 1990, were referred to. The first two are from Revenue Canada to the appellant. The third is a letter to Revenue Canada from the appellant’s bookkeeper. They included reference to one of the backhoes and related capital cost allowance. The subject lines all make reference to the appellant’s 1987 and 1988 income tax returns and his social insurance number.

Mr. Ellis testified that he has acted as accountant for the company for ten years. All of its shares are held by the appellant. The gist of his evidence that might be regarded as relevant to the issues stated in the pleadings is that in 20 years of practising his profession his experience is that the time allowed is 30 days rather than the 15 days specified in the letter to the appellant from Revenue Canada dated May 21, 1991.

In his opinion it was not in the appellant’s best interest to sign the waiver. Revenue Canada was running out of time in which to reassess. If the waiver had not been signed it would not have been "practicable or possible to reassess" because of the administrative structure of the Taxation Centre at Surrey in 1991. It would have taken two months to reassess. Things have accelerated there since that time.

Mr. Edward J. Leaker is a former employee of Revenue Canada and in that Capacity dealt with the appellant's returns for 1987 and 1988. He is the author of the letter of May 21, 1991, to the appellant. He said that the 15-day period specified in the letter would have advanced the matter to June 5, 1991, and left sufficient time to reassess the appellant in respect of 1987. In the ordinary course 30 days is allowed to respond, but if the statute-barred day is near it is not unusual to shorten the period. The reassessment could have been made on time in the absence of a waiver by resorting to a “walk-through” procedure. This involves sending the necessary information by courier to the Surrey Taxation Office and advising it by telephone that the material is on its way. It would be dealt with immediately on arrival without reference to other adjustments waiting in queue to be processed.

During argument this was said from the bench and by counsel for the appellant:

HIS HONOUR: Counsel, what do you say should have been said in the letter (of May 21, 1991) that wasn't said.

MR. SOUTHWARD: I submit that what should have been said in respect to the last sentence or two was: You may or may not wish to sign the waiver; we suggest you consult your accountant in regard to this matter.

Based on the course of dealings that Mr. Leaker knew of that had proceeded for some time, and the obvious disagreement over this issue, those are the words that should have been included. This is not a letter that comes to the taxpayer out of the blue with no prior consultation or no involvement between the taxpayer and the Department.

At this stage, we submit that the Department clearly had an obligation to make this letter intelligible, keeping in mind what had happened, and what may or may not have been in Mr. Cosby's best interests.

HIS HONOUR: And that omission, I take it, brings paragraphs 14 and 15 of your notice of appeal into play. That omission leads to the conclusion that Revenue Canada failed in its duty to act fairly, and in good faith, and that it demonstrated bias. Is that your position?

MR. SOUTHWARD: That's correct.

I can give no credit to the appellant's assertion that when he signed the waiver he thought it related to the company. The waiver he signed was included in the letter to him from Revenue Canada of May 21, 1991, and that letter clearly pertains to his tax liability, not that of the company. So do the letters of August 10, October 25, October 31, 1990 that preceded it. On the face of it the waiver has nothing to do with reassessing the company. In it the appellant is described as the taxpayer and it contains his social insurance number. The waiver is for the taxation year ended December 31, 1987. The company’s year-end is April.

I accept the evidence of Mr. Leaker that if the waiver had not been signed and filed the appellant could have been reassessed in respect of 1987 before the three year limitation period took effect. I also accept that there was nothing unusual in the circumstances in specifying 15 instead of 30 days in the letter of May 21, 1991.

Finally I find no valid criticism of that letter. It is a perfectly proper and sensible document and certainly, to my mind, provides no basis upon which to rest allegations that Revenue Canada failed in the alleged duty to the appellant to act fairly or in good faith or that bias [1] was demonstrated against him.

The appeal is dismissed with costs to the respondent.

Appeal dismissed.