Rideau Arcades Ltd. v. Minister of National Revenue, [1992] 1 CTC 2239, [1992] 1 CTC 2717

Garon, T.C.C.J.:—This is a motion by the Minister of National Revenue for dismissal of the appeal brought by the appellant with respect to its 1981 taxation year, on the ground that this Court does not have jurisdiction. The notice of motion herein was dated July 30, 1991.

At the hearing of this motion, most of the evidence and oral arguments were presented in the French language. These reasons are accordingly written in that language, although the notice of motion itself was written in English.

The facts, which were not disputed by either party, may be summarized easily.

The original assessment for the appellant's 1981 taxation year was dated September 20, 1982. A first reassessment was subsequently issued by the Minister of National Revenue on March 5, 1985. A notice of objection dated May 31,1985 was properly served by the appellant within the time provided by section 165 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

c. 63) (the "Act").

In December 1987, the appellant filed a notice of appeal which, as it sets out, was in part an appeal with respect to the 1981 taxation year. It is not disputed that the notice of appeal in question constitutes a valid appeal from the assessments issued for the appellant's two taxation years which ended in August 1980 and December 1980 respectively, as well as for the appellant's 1982 taxation year.

Apart from the facts noted above, the respondent alleges that a second reassessment had been issued. The notice concerning that second reassessment was dated April 17, 1986. The appellant claimed that it had never received the notice with respect to this second reassessment.

On the evidence adduced at the hearing of this motion, I find that it has been established that the notice with respect to this second reassessment was sent by the Department of National Revenue in accordance with normal practice. I also find that, on the balance of evidence, the notice with respect to this second reassessment was not received at the address of the agents appointed by the appellant at the time in question to receive communications from the Department of National Revenue. On this point, I accept the evidence of Jeffrey Schrier of the accounting firm of Friedman & Friedman, whose services had been retained by the appellant in 1983.

It emerged from the evidence that the reassessment of April 17, 1986 was not issued by the Minister of National Revenue under subsection 165(3) of the Income Tax Act, which provides, inter alia, that upon receipt of a notice of objection and considering the assessment, the Minister may vacate, confirm or vary an assessment or reassess, and advise the taxpayer of his action by registered mail. This assessment was rather issued under the powers given to the Minister under the provisions of subsection 152(4) of the Act.

It is also in evidence that the notice of reassessment dated April 17, 1986, together with the form T7WC, was sent by an officer in the appeals division with a letter dated February 1, 1988, at the request of the appellant's lawyers.

It seems we can infer from the evidence that the appellant was informed of the existence of the assessment of April 17, 1986 after the notice of appeal referred to above was filed in December 1987, and shortly before February 1, 1988. No direct evidence was submitted with respect to the circumstances in which the appellant became aware of the fact that this assessment had been issued at the time when the question arose.

To complete this chronology of events with respect to these notices concerning the two reassessments for the appellant's 1981 taxation year, it is worth mentioning that a notice of confirmation by the Minister of National Revenue, dated November 13, 1987, was sent to the appellant, but that notice of confirmation mentioned only the company's taxation years ending on August 31, 1980, December 31, 1980 and December 31, 1982. No mention or comment was made in that notice with respect to the assessment for the 1981 taxation year. No other notice of confirmation was given by the Minister of National Revenue in response to the notice of objection dated May 31, 1985, to the reassessment dated March 5, 1985, which was properly served by the appellant on the Minister of National Revenue.

The respondent argued that the only valid assessment, on the facts in evidence at the hearing of this motion, was the assessment of April 17, 1986, and because no notice of objection was served by the appellant with respect to that assessment, this Court had no jurisdiction to hear this appeal. In other words, according to counsel for the respondent, the appeal instituted by the appellant in December 1987 with respect to the 1981 taxation year is simply a nullity.

In the alternative, counsel for the respondent argued that if the time provided by subsection 165(2) of the Income Tax Act for service of the notice of objection could not start to run from the date of the reassessment, April 17, 1986, at the very least it started to run on February 1, 1988, the date on which, it will be recalled, the notice of assessment of April 17, 1986 was sent by the respondent to the appellant's agents. Following this argument, the appellant is out of time for serving this notice of objection and for asking this Court for an extension of time in order to do so. Accordingly, following this second argument, the appeal with respect to the 1981 taxation year is not valid: it is settled law that prior service of a notice of objection on the Minister of National Revenue under section 165 is an essential condition for instituting a valid appeal to this Court. This requirement results from section 169 of the Income Tax Act, inter alia.

In support of her main argument, counsel for the respondent relied heavily on subsection 152(8), which provides as follows:

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.

It has been held that for an assessment to take effect it is essential that a notice of assessment be sent by the Minister. When he was a judge of the Exchequer Court of Canada, Thurlow, J. made the following useful and clear observations on the matter in Lawrence B. Scott v. M.N.R., [1960] C.T.C. 402, 60 D.T.C. 1273, at page 416:

I am accordingly of the opinion that the giving of notice of assessment is part of the fixation operation referred to as an assessment in the statute and that an assessment is not made until the Minister has completed his statutory duties as an assessor by giving the prescribed notice.

In that case, the situation was that the assessment had been mailed neither to the address indicated in the tax return nor to the address where the taxpayer was living at the time it was sent, but to the address of a lawyer who was no longer the agent of the taxpayer in question. Thurlow, J. then decided that the assessment had thus not been validly established within the time provided by former subsection 46(4) of the Income Tax Act, which became, with some changes, subsection 152(4) of the Act. This decision in Scott clearly demonstrates that an assessment issued under the Income Tax Act is not complete until the notice with respect to the assessment is in fact communicated to the taxpayer.

It follows from this decision that if, in the absence of any negligence or wrongdoing on the part of a taxpayer, a notice of assessment is not received by the taxpayer, the assessment in question cannot affect the rights the taxpayer would have and the obligations would have rested on him or her if the assessment had been received.

This seems to me to have been the approach taken by Judge Brulé of this Court in Christos Antoniou v. M.N.R., [1988] 2 C.T.C. 2055, 88 D.T.C. 1415. In that case, the taxpayer alleged that he had never received the notices of reassessments and that the existence of those notices had not come to his attention until much later, and only indirectly. Because of these circumstances, the taxpayer believed that he was obliged to apply to this Court for an extension of time to serve notices of objection on the Minister of National Revenue, which the Minister opposed on the ground that the one-year period referred to in subsection 167(5) had expired.

Judge Brulé decided in that case that no application for an extension was necessary. In coming to that conclusion, Judge Brulé stated the following at page 2057 (D.T.C. 1416):

The time limited for making the present application runs, pursuant to paragraph 167(5)(a) of the Act, from the day of mailing. The Court finds that, in order for the day of mailing to validly mark the start of the limitation period set out in paragraph 167(5)(a), the Notice must have been received by the taxpayer within that period. Although an affidavit as to mailing was filed with the Court this does not absolutely presume that the Notice was received. Perhaps the Notice was not mailed even though so indicated.

Section 167 must be construed in such a way as to recognize that the legislator did not intend to deprive a taxpayer who has not received a Notice of an assessment of the right to object. An indication of the legislator's intention may be gathered from the wording of subsection 244(10) of the Act, providing for proof of mailing of the Notice which reads as follows:

An affidavit of an officer of the Department of National Revenue, sworn before a commissioner or other person authorized to take affidavits, setting out that he has charged [sic] of the appropriate records and has knowledge of the practice of the Department and that an examination of the records shows that a notice of assessment for a particular taxation year was mailed or otherwise communicated to a taxpayer on a particular day pursuant to this Act and that, after careful examination and search of the records, he has been unable to find that a notice of objection or of appeal from the assessment was received within the time allowed therefor, shall be received as prima facie evidence of the statements contained therein.

The wording of the provision indicates that the mailing of the Notice serves as prima facie evidence that the Notice has been received. If receipt by the taxpayer of the Notice sent by mail had not been deemed a necessary condition for the limiting of the right to appeal, the legislator would not have found it necessary to provide a means of proving such a receipt.

Later, at page 2059 (D.T.C. 1418), Judge Brulé made the following observations:

It would seem difficult to have a statutory period commence without rights being given to a taxpayer. When given a right he must be in a position to act. By being unaware of any problem the applicant could not commence any remedial action.

In light of the evidence adduced, the Court is satisfied that the Notice of Reassessment was sent by mail addressed to the appellant at his proper address on November 4, 1985. The Court also finds the appellant has established on a balance of probabilities he never received the Notice of Reassessment that had been mailed to him.

The date of mailing of a Notice of Assessment is presumed to be the date indicated in the Notice [subsection 244(14)]. This of course is in the absence of evidence to the contrary. No evidence was introduced as to the mailing except by a Revenue Canada record officer's affidavit. After receipt of the reassessment was denied by the applicant herein and his testimony not disturbed under cross- examination and no rebuttal evidence offered, the Court concludes that there was no receipt of the Notice.

Judge Brulé concluded as follows:

There is no basis to apply for an extension of time to file a Notice of Objection as the manner in which the purported reassessments for 1982 and 1983 was carried out was insufficient to complete the reassessment process. The present application is therefore a nullity.

Because, on the evidence, the appellant had not received the notice of assessment of April 17, 1986 directly or through his agents before February 1, 1988, it follows therefore that the appeal instituted in December 1987 is valid, having been instituted before the expiry of the time provided by paragraph 169(b) of the Act. The starting point for computing this time in the present case is the date when the notice of objection dated May 31, 1985 was served on the Minister of National Revenue.

I do not believe that, in concluding this way, I am going against the decision of the Federal Court of Appeal in Herbert Flanagan v. The Queen and M.N.R.,

[1987] 2 C.T.C. 167, 87 D.T.C. 5390, in which the Court dealt with a situation where the Minister of National Revenue had not sent any notice of assessment. The following observations by the Court at page 168 (D.T.C. 5391) should be seen from this angle:

We are all in agreement with the trial judge's view that the sending contemplated by subsection 152(2) is to be understood as a dispatching which does not necessarily include receipt; it is certainly not obligatory that the sending be by mail, as is made quite clear by subsection 244(10).

It remains for me to consider the alternative argument submitted by counsel for the respondent, which was that the procedure for communicating the notice of assessment of April 17, 1986 to the appellant was completed in February 1988 at the latest.

First, if I accept the premise that the assessment was completed by receipt of the notice of assessment at the beginning of February 1988 by the appellant's agents, I am of the view that, contrary to the position taken by the respondent, such receipt did not operate to invalidate an appeal which had already been properly instituted, given, inter alia, the provisions of subsection 165(7) of the Income Tax Act, as it read at the relevant time. In order to comply with those provisions, the appellant should amend his notice of appeal by joining an appeal with respect to the assessment of April 17, 1986.

If, on the other hand, I do not accept the premise that the procedure with respect to the assessment of April 17, 1986 was completed in February 1988, the appeal with respect to the assessment of March 5, 1985, for 1981, would be valid and the appeal could be heard on the merits.

I have not found it necessary to consider this second question in depth, that is, whether or not the process with respect to the assessment was completed in February 1988 by the receipt of the notice of assessment dated April 17, 1986 by the appellant's agents, given that the impact of a decision either way appears to me prima facie to be negligible.

Subject to the observations set out in the previous paragraph, I am persuaded that the process with respect to the assessment of April 17, 1986 was completed some time in February 1988, by the receipt of the notice of assessment of April 17, 1986 by the appellant's agents.

For these reasons, the motion by the Minister of National Revenue for dismissal of the appeal with respect to the 1981 taxation year is dismissed.

With regard to costs, the "Tax Court of Canada Rules of Practice and Procedure for the Award of Costs (Income Tax Act)”, which apply to appeals instituted before January 1, 1991, do not permit me to award costs of this motion to the appellant. Accordingly, no award is made as to costs.

Minister's application dismissed.