Morris M Menzies v. Minister of National Revenue, [1984] CTC 2564, 84 DTC 1459

Brulé, TCJ:—This is an application by Morris M Menzies made pursuant to section 167 of the Income Tax Act (“the Act”) to extend the time within which notices of objection may be served on the Minister of National Revenue in respect of the applicant’s 1977, 1978, 1979 and 1980 taxation years.

Issue

This involves whether or not the applicant can bring himself within the pertinent parts of section 167, namely subsections (1), (2) and (5) which read as follows in the 1980 taxation year:

167 (1) Where no objection to an assessment under section 165 or appeal to the Tax Review Board under section 169 has been made or instituted within the time limited by section 165 or 169, as the case may be, for doing so, an application may be made to the Tax Review Board for an order extending the time within which a notice of objection may be served or an appeal instituted and the Board may, if in its opinion the circumstances of the case are such that it would be just and equitable to do so, make an order extending the time for objecting or appealing and may impose such terms as it deems just.

(2) The application referred to in subsection (1) shall set forth the reasons why it was not possible to serve the notice of objection or institute the appeal to the Board within the time otherwise limited by this Act for so doing.

(5) No order shall be made under subsection (1) or (4)

(a) unless the application to extend the time for objecting or appealing is made within one year after the expiration of the time otherwise limited by this Act for objecting to or appealing from the assessment in respect of which the application is made;

(b) if the Board or Court has previously made an order extending the time for objecting to or appealing from the assessment; and

(c) unless the Board or Court is satisfied that,

(i) but for the circumstances mentioned in subsection (1) or (4), as the case may be, an objection or appeal would have been made or taken within the time otherwise limited by this Act for so doing,

(ii) the application was brought as soon as circumstances permitted it to be brought, and

(iii) there are reasonable grounds for objecting to or appealing from the assessment.

Facts

Mr Menzies has been a prominent person in the mining community of British Columbia; in fact in 1968 he was named “Mining Man of the Year”. After a successful career with a large company he embarked on a course of exploring and acquiring mining properties, along with other individuals. The company employed for this purpose became public and the applicant herein signed large personal guarantees. Eventually he was called upon to honour these guarantees and to so do he had to sell certain shares. The profits on the sale of the shares involved were reported by his accountants as capital gains. Subsequently by letter of April 26, 1982, delivered to the applicant’s accountants, the audit division of Revenue Canada proposed that the reported capital gains be assessed as income gains. In that letter certain information was requested of the applicant. A reply was forwarded by the applicant’s solicitor, Mr Little, including a waiver in respect of the four year time limit. Subsequently in December of 1982 in a letter, addressed to Mr Little, Revenue Canada indicated reassessments would be processed as originally proposed.

On June 10, 1983 notices of reassessment were issued and forwarded not to Mr Little who had been dealing with the respondent but to Mr Menzies’ accountants. The accountants did not advise the applicant to file notices of objection but rather to declare bankruptcy. The applicant attempted to locate the member of the accounting firm with whom he was dealing but this proved difficult as the individual had taken employment elsewhere.

When the applicant then approached Mr Little and a new firm of accountants he was advised that he should have filed notices of objection prior to September 8, 1983. These new advisors suggested that the applicant could avoid a bankruptcy and Mr Little proceeded to file this application on behalf of Mr Menzies.

Taxpayer’s position

The applicant, by his counsel Mr Little, indicated to the Court that his client had met all the requirements of section 167 of the Act in order to be granted an extension of time to serve notices of objection. He cited the surrounding circumstances and why an extension would be proper, dwelling particularly on the fact that the applicant had been misled by his accountants into believing that the only solution was to declare bankruptcy and avoid paying the reassessed taxes. When it was subsequently decided that it might be possible to avoid the bankruptcy the outcome of the tax reassessments became paramount and this required an extension under section 167. It was suggested that the circumstances of the case were such that an extension would be just and equitable. Coupled with the above, and as set out, the reasons for not filing within the time limit of 90 days were explained. Counsel also pointed out that the application met the requirements of subsection 167(5) of the Act.

In support of this submission on behalf of the applicant there was pointed out the decision granted in Skirt-Togs Industries Ltd v MNR, [1982] CTC 2156; 82 DTC 1155. In that case an extension of time was granted when the application was brought as soon as circumstances permitted and reasonable grounds existed for objecting. No objection was made as to reasonable grounds existing in this case and such were set out in detail along with the application. The applicant had been led to believe that the only avenue open to him was to declare bankruptcy. When new accountants were retained and with the advice of legal counsel this application was brought and as soon as circumstances permitted. It was then pointed out that in the Skirt Togs case reference was made to Murray Bowen v La ville de Montreal, [1979] 1 SCR 511 wherein the Supreme Court of Canada said, inter alia, “. . . in accordance with the principle that a party may not be deprived of his rights on account of an error of counsel where it is possible to rectify the consequences of such error without injustice to the opposing party . , .”.

Reference was also made to Robert Kidd v MNR, [1983] CTC 2747; 83 DTC 639 in which Christie, CJTC, reviewed the principles involved in such applications and included an excerpt from the judgment of the Honourable Keith Flanigan who was then Chairman of the Tax Review Board in Savary Beach Lands et al v MNR, [1972] CTC 2608; 72 DTC 1497 as follows: “Human frailty will no doubt give rise on occasion to unusual circumstances . . . wherein it is fair and reasonable to grant such an extension.’’ It was submitted that the facts of this case fall within such a description.

Finally the applicant felt that the broad application of the decision rendered by the Federal Court in Tic Toe Tours Ltd v MNR, [1982] CTC 264; 82 DTC 6231 applied in the present circumstances. There the Court held that subsection 167(2) of the Act was a procedural provision which merely required that the applicant set forth in his application for an extension of time the reasons why the notice was not served within the time prescribed.

Minister’s position

Counsel for the Minister reviewed the provisions of section 167 of the Act and suggested that these had not been fully met by the applicant. He referred to the Robert Kidd v MNR case, (supra), and indicated that the exceptions outlined therein did not fit the facts in this case. He pointed to the case of Robert Newton v MNR, [1981] CTC 2978; 81 DTC 905 wherein the application to extend time to file a notice of objection was denied. It was intimated that if the applicant wished to avoid bankruptcy he should have properly appealed his tax assessment. It was argued that even though there was no compliance with the 90-day limit the applicant did not comply with subparagraph 167(5)(c)(ii) of the Act in that the application was not brought as soon as circumstances permitted.

Analysis

There is no doubt that the applicant, Mr Menzies, who gave evidence on his behalf is a person to be believed. To say the least, a successful individual who suddenly found himself in a difficult situation is to be commended for not simply accepting advice to declare bankruptcy. When he believed there was a way out after unsuccessfully attempting to locate the person he was paying to counsel him he acted properly. After retaining new accountants and returning to his solicitor he gave written instructions to National Revenue asking that the persons there contact his accountants and solicitor. These directions were given to the last individuals with whom he had contact, albeit not the persons involved with the reassessments. Mr Little had contacted the department before the reassessments were issued on behalf of the applicant but when the reassessments came forth they went to the applicant’s former accountants and not to Mr Little. When they came to Mr Little’s attention he took action.

In the Bowen case, (supra), it was held that a party may not be deprived of his rights on account of an error of counsel. In this application counsel at the relevant time was the firm of accountants and it was not argued that as a result of the Bowen case the word “counsel” be restricted to “‘legal counsel”. Counsel for the Minister referred to the Newton case, (supra), but in that case the notices of reassessment with the time limit set out on the reverse side thereof were forwarded to the applicant. This was not so here — they went to his accountants.

In the case of Leo Lesage v MNR, [1981] CTC 3070; 82 DTC 1003, Taylor, TCJ, who was then a Member of the Board, said at 3072 [1005]: “It appears to me that nothing which comes before the Board is more critical than the prospect of terminating the right of a taxpayer to appeal from an assessment.”

Application granted

To me the facts in this case indicate that the applicant has met the relevant requirements of section 167 of the Act and his rights as a taxpayer to appeal from an assessment by requesting an extension for filing a notice of objection should not be terminated. Accordingly this application is granted.

Application granted.