Doreen Del Valle v. Minister of National Revenue, [1986] 1 CTC 2288, 86 DTC 1235

Sarchuk, T.C.J.:— This is an appeal from reassessments of income tax for the 1980 and 1981 taxation years. The issue is whether the respondent was correct in reassessing the appellant on the basis that the sum of $5,100 was properly deemed to have been received by her from her husband Ramon del Vaile in each of her 1980 and 1981 taxation years in accordance with the provisions of subsection 56(1) of the Income Tax Act.

The essential facts are not in dispute. The appellant is a resident of the City of Lethbridge and throughout the taxation years in issue resided at 2008 - 28th Street South, in that city. The registered owner of the said property was Delva Investments Ltd., a company incorporated under the Alberta Companies Act which was controlled by Ramon del Valle (del Valle). At all relevant times the appellant was the petitioner and del Valle was the respondent in divorce proceedings commenced in the Trial Division of the Supreme Court of Alberta.

On September 12, 1978 an Order (Ex. A1) was made by that Court, the relevant terms of which are:

1. IT IS HEREBY ORDERED that the Respondent pay to the Petitioner the sum of $925.00 per month commencing on the 1st day of October, A.D. 1978 for the maintenance and support of the Petitioner and the infant children of the marriage.

2. IT IS FURTHER ORDERED that upon the Respondent granting to the Petitioner possession of the premises known as 1658 Scenic Drive or 2008 - 28th Street South, in the City of Lethbridge, in the province of Alberta and continuous use of either premises thereof without charge, the Respondent shall then in that event pay to the Petitioner the sum of $500.00 per month for the support and maintenance of the Petitioner and the infant children of the marriage.

Del Valle granted the appellant possession of the property at 2008 - 28th Street South and the continuous use thereof without charge throughout the taxation years in issue and paid the appellant the sum of $500 per month in accordance with paragraph 2 of the order. The appellant filed income tax returns for the 1980 and 1981 taxation years and included in income, inter alia, the sum of $500 per month paid to her by del Valle. The respondent reassessed and included an additional amount of $5,100 for each year in computing the income of the appellant.

In reassessing the income tax of the appellant for the 1980 and 1981 taxation years the respondent made the following assumptions of fact:

(a) An Order of the Trial Division of the Supreme Court of Alberta dated September 12, 1978 provided for the periodic payment by the Appellant’s husband of $925.00 per month for the benefit of the Appellant and the infant children of the marriage.

(b) The said payments were at the complete disposition of the Appellant and were paid by the Appellant’s husband during the taxation years in issue.

(c) During the taxation years in issue the Appellant resided apart from her husband.

Counsel for the appellant advised the Court that assumptions (a) and (c) were not disputed and that with respect to assumption (b) the appellant was prepared to admit that the payments actually received during the relevant taxation years, that is $500 per month, were at the complete disposition of the appellant and were paid by the appellant’s husband.

The appellant’s position was that the notices of assessment and the reply failed to adequately disclose the reasons for the reassessment; failed to disclose any assumption of facts made which could provide a basis for the reassessment and failed to disclose the statutory provisions upon which the reassessment was made.

The respondent's reply to the notice of appeal specifically pleads, as an assumption of fact, that del Valle made periodic payments of $925 to the appellant and that such payments were at her complete disposition. In the same reply the respondent also admitted the allegations of fact contained in paragraphs 6, 7 and 8 of the notice of appeal. The import of these admissions is that as a matter of accepted fact, del Valle opted to fulfil his obligations under the order by granting possession of a residence and the continuous use of it to the appellant without charge and to pay her the sum of $500 per month for her support and maintenance. There was no evidence before the Court to establish the payment to her of an additional sum of $5,100 in each taxation year nor was any factual basis or assumption pleaded in support of the respondent's allegation that the sum of $5,100 was properly deemed to have been paid to and received by the appellant. Yet it was on this latter basis that the reassessments appear to have been founded.

It is the appellant's submission that there is nothing contained in the pleadings, nor for that matter in any of the material submitted by the respondent to the taxpayer, to indicate the facts essential to the validity of the assessments and that therefore the appellant has no case to meet. I did not take this to mean that counsel was suggesting that the Court should, on that basis alone, allow the appeal but that if the Court were to agree with this submission the respondent would have to bear the onus of proof with re- spect to the facts sought to be proven or any law applicable so as to support the reassessments under appeal.

It is settled law that a taxpayer is entitled to know the assumptions made by the respondent at the time of assessment particularly so because the onus is upon him to demonstrate that the basic assumptions of fact upon which the taxation rested are not capable of supporting the assessment. (See Johnston v. M.N.R., [1948] C.T.C. 195; 3 D.T.C. 1182).

The Johnston case (supra), was considered in Hillsdale Shopping Centre Limited v. M.N.R., [1981] C.T.C. 322; 81 D.T.C. 5261 and at 328 (D.T.C. 5266) Urie, J. made the following comments:

If a taxpayer, after considering a reassessment made by the Minister, the Minister’s reply to the taxpayer’s objections, and the Minister’s pleadings in the appeal, has not been made aware of the basis upon which he is sought to be taxed, the onus of proving the taxpayer’s liability in a proceeding similar to this one would lie upon the Minister. This defect may be due to a number of reasons such as a lack of clarity on the part of the Minister in expounding the alleged basis of the taxability which could include an attempt by the Minister to attach liability on one of two or more alternative bases thus failing to make clear to the taxpayer the assumption upon which he relies.

I believe this is the approach which should be followed in the case at bar. In my view the respondent has failed to allege as a fact an ingredient essential to the validity of the reassessment. There is no onus on the appellant to disprove a phantom or non-existent fact or an assumption not made by the respondent.

While it was possible for the respondent to have alleged further and other facts the respondent did not choose to do so in this case but simply relied on the facts assumed at the time of the reassessments. I emphasize that if the respondent had alleged such further or other facts the onus would have been on him to establish them. (See M.N.R. v. Pillsbury Holdings Limited, [1965] 1 Ex. C.R. 678; [1964] C.T.C. 294).

The facts relied upon do not support the reassessments. For these reasons the appeal is allowed and the matter is referred back to the respondent for reassessment on the basis that the sum of $5,100 was improperly added in computing the appellant’s income in each of her 1980 and 1981 taxation years.

Appeal allowed.