Apl Oil & Gas Ltd. v. Her Majesty the Queen, [1996] 3 CTC 2001

Margeson J.T.C.C.: — The Appellant filed an appeal from the reassessment dated August 14, 1991, number 3532072, with respect to its taxation year ending January 2, 1987.

The Appellant contends that the reassessment is invalid because it was issued outside of the three year limitation period as prescribed by paragraph 152(3.1)(b), being three years from the date of mailing the original assessment.

An Agreed Partial Statement of Facts was filed as Exhibit A-l. An Agreed Book of Exhibits was filed as Exhibit A-2. Further exhibits were filed by consent. The Agreed Partial Statement of Facts follows:

The parties hereto, by their respective solicitors, and for the purposes of this appeal only, hereby admit the following facts.

1. The Appellant is a Canadian-controlled private corporation whose principal place of business is 300-2924 11th Street N.E., Calgary, Alberta, T2E 7L7.

2. On January 2, 1987 the Appellant amalgamated with Nasa Hydrocarbon Resources Ltd., a Canadian-controlled private corporation.

3. At all material times prior to the said date the Appellant’s normal fiscal period ended on March 31 of each year.

4. As a result of the amalgamation referred to in paragraph 2, herein, the Appellant filed with the Minister of National Revenue a T2 return of income (“Return”) for the pre-amalgamation period. Attached herewith as Exhibit “A” is a copy of the Return on which is indicated a fiscal period ending on December 31, 1986.

5. Subsequent to the taxation year that was ended by the amalgamation, the successor corporation to the Appellant selected a March 31 fiscal period and, on or about September 25, 1987, filed a T2 return of income for the period January 3, 1987 to March 31, 1987.

6. By letter dated August 17, 1987, Vennard Johannesen & Co., on behalf of the Appellant, notified Revenue Canada that the Return covered the period of April 1, 1986 to January 2, 1987 and requested that Revenue Canada’s records be amended to reflect this date. Attached herewith as Exhibit “B” is a copy of the August 17, 1987 letter from Vennard Johannesen & Co. to Revenue Canada.

7. By letter dated September 22, 1987, Vennard Johannesen & Co., on behalf of the Appellant, requested that Revenue Canada make adjustments to the Return as a result of revised capital cost allowance claims, resource allowance calculations and investment tax credit claims, and specifically referred to the January 2, 1987 taxation year. Attached herewith as Exhibit “C” is a copy of the September 22, 1987 letter from Vennard Johannesen & Co. to Revenue Canada.

8. On October 13, 1987, the Appellant was issued a Notice of Assessment (the “October 1987 Assessment”) indicating a fiscal period ending December 31, 1986. The form T462 attached to the Assessment indicated that the Return was assessed as filed, except that charitable donations carried forward from the previous taxation year had not been deducted in calculating taxable income. The October 1987 Assessment did not reflect any of the items discussed in the Appellant’s August 17, 1987 and September 22, 1987 letters. Attached herewith as Exhibits “D” and “E” is the October 1987 Assessment and form T462, respectively.

9. By letter dated October 15, 1987, Revenue Canada’s T2-T3 Assessing Division notified the Appellant, c/o Vennard Johannesen & Co., that a response regarding the additional information submitted for the 1986 taxation year would be delayed because the return was not available to the Section at the time. Attached herewith as Exhibit “F” is a copy of the October 15, 1987 letter from Revenue Canada’s T2-T3 Assessing Division to the Appellant in care of Vennard Johannesen & Co.

10. By letter dated November 20, 1987, Vennard Johannesen & Co. on behalf of the Appellant requested Revenue Canada to adjust the assessment to reflect the following:

(a) That the year end of the return filed should have been January 2, 1987, as indicated in prior correspondence.

(b) The incorrect date should not change the figures in the return.

(c) The adjustments requested in a letter dated September 22, 1987.

d) To allow additional donations based on previous years’ carry forward.

Attached herewith as Exhibit “G” is a copy of the November 20, 1987 letter from Vennard Johannesen & Co., on behalf of the Appellant to Revenue Canada.

11. By letter dated February 15, 1988 the Appellant requested that Revenue Canada adjust the Return by deducting charitable donations carried forward from a previous taxation year in calculating taxable income in the Return. Attached herewith as Exhibit “H” is a copy of the February 15, 1988 letter from the Appellant to Revenue Canada.

12. By letter dated May 20, 1988, Revenue Canada’s T2 Revenue Accounting notified the Appellant that the October 1987 Assessment was incorrect and should be disregarded and that a new Notice of Assessment would be issued at a later date. The Appellant does not have a record of having received the said letter until it was brought to its attention by the Respondent in February, 1991. Attached herewith as Exhibit “I” is a copy of the May 20, 1988 letter from Revenue Canada to the Appellant.

13. On August 15, 1988, the Minister of National Revenue issued a Notice of Assessment in respect of the Appellant for the fiscal period ending January 2, 1987. The said assessment did not reflect the adjustments requested by the Appellant in its letter of September 27, 1987. Attached herewith as Exhibits “J” and “K” are copies of the August 15, 1988 Notice of Assessment and form T462, respectively.

14. On August 14, 1991, the Minister of National Revenue issued a Notice of reassessment in respect of the Appellant for the fiscal period ending January 2, 1987. Attached herewith as Exhibits “L” and “M” are copies of the August 14, 1991 Notice of reassessment and form T7W-C, respectively.

15. By Notice of Objection filed with the Minister of National Revenue on November 15, 1991, the Appellant objected to the Notice of Assessment referred to in paragraph 13, herein. Attached herewith as Exhibit “N” is a copy of the Notice of Objection filed on November 15, 1991.

16. By Notice dated February 2, 1994, the Minister of National Revenue confirmed the reassessment, referred to in paragraph 14, herein. Attached herewith as Exhibit “O” is a copy of the Notice of Confirmation dated February 2, 1994.

17. The Appellant has neither filed a waiver in respect of its taxation year ending on January 2, 1987 nor requested a loss carryback to the said year.

18. The Appellant has not made an application to change its fiscal period as provided by the definition of “fiscal period” in subsection 248(1) of the Income Tax Act (Canada).

DATED at the City of Calgary, in the Province of Alberta, this 22 day of April, 1996.

Reid Olson Solicitors for the Appellant

PER:

Thomas Olson

DATED at the City of Edmonton, in the Province of Alberta, this 22 day of April, 1996.

George Thomson Deputy Attorney General of Canada Solicitor for the Respondent

PER:

Patrick Bendin

Further evidence was given by Ms. Jamie-Lynn Bogart who was a technical research officer with Revenue Canada in Winnipeg, Manitoba, in the Corporate Services area.

She testified as to the process normally followed in her office after a corporate return is received. She said that the first return filed establishes the fiscal year-end for a corporation. The year- end fluctuate between 365 and 371 days and the computer will accept any such returned filed within 6 days of its established fiscal year- end.

The return of the Appellant was filed on June 30, 1987. This return did not indicate a date of amalgamation nor did it indicate any change of consequence so it was accepted by the computer and placed on the inventory shelf. She then described the process through which the return was processed after having been accepted as filed. After the file leaves Winnipeg there is no facility for tracking of this file by the Winnipeg office and that office loses control of it. She identified Exhibits R-l to R-5, all introduced by consent, which were all referrable to the history of this return from the date of filing.

She acknowledged a letter dated August 17, 1987 sent to Revenue Canada in Winnipeg on behalf of the Appellant pointing out what the Appellants referred to as an incorrect date with respect to the appropriate year-end. The fiscal year was described as April 1, 1986 to December 31, 1986 whereas it should have read April 1, 1986 to January 2, 1987. This letter would have been read for the first time on October 13, 1987 and an acknowledgement provided on October 15, 1987. The witness then traced what was done to retrieve the file from Ottawa and thereafter culminating in the acceptance of the change of year-end date.

She admitted that the date of August 15, 1988 was regarded by Revenue Canada as the date of the original assessment. She said that Revenue Canada observes Provincial Royal Gazettes with respect to amalgamations and noted the entry in Exhibit R-5 (History of the Appellant) on March 16, 1987, showing the fiscal year-end date of January 2, 1987.

In cross-examination the witness agreed that the Appellant had indicated in the return filed on June 30, 1987 that it had changed its year-end since the last return had been filed. She indicated that Revenue Canada knew that the Appellant had amalgamated because it updated its records of March 16, 1987.

She further agreed that under subsection 249(4) of the Income Tax Act, (the Act) a deemed change of year-end takes place immediately before the amalgamation and the Minister does not disregard such a provision.

Argument of the Appellant

Counsel for the Appellant submitted that the sole issue is whether or not the date of October 13, 1987, (date of issue of the “first assessment”) was the proper starting point for the calculation of the three-year limitation period under paragraph 152(3.1 )(b) of the Act.

Of significance is the definition of “taxation year” for the Appellant which is its “fiscal period” under paragraph 249(1)(a) of the Act.

This fiscal period in the case of the Appellant was altered by the Act because of its amalgamation as governed by paragraph 87(2)(a) of the Act. This period for the predecessor corporation, (the Appellant) is deemed to be the day immediately before the amalgamation. This is a matter of statute and the taxpayer has no choice in the matter.

Section 152 of the Act gives the Minister the power to reassess the taxpayer and to make corrections to the original assessment.

The Appellant must succeed in the case at bar unless the Respondent is entitled to ignore the “first assessment” of October 13, 1987 which was the date of mailing of the Notice of Assessment under subsection 244(14) of the Act. Once the notice of the “original assessment” is mailed, the limitation period starts to run. This is so even though the Minister makes changes or corrections, otherwise the Minister could extend indefinitely the limitation period by a reassessment.

The facts in this case are not in issue. By those facts the return filed by the Appellant related to one “fiscal period” as prescribed by law. When the Appellant discovered an error in its return, he went to great lengths to correct it as shown by paragraphs 6, 7 and 8 of the Agreed Statement of Facts. Such action took place both before and after the “original assessment”.

It is not of material significance if there is an error in the return filed. Both the Minister and the Appellant are entitled to correct the error under the Act. However, the Act does not give power to the Minister to ignore the “original assessment” or to stop the limitation period from running.

The Appellant relies upon the case of Paramount Productions Inc. v. R. (sub nom. Paramount Productions Inc. v. Canada), [1993] 2 C.T.C. 47, 93 D.T.C. 5285 (F.C.T.D.) at page 52 (D.T.C. 5289).

The Appellant did not apply to change its “fiscal period”. By March of 1987 the Respondent was aware of the amalgamation and the resulting change of fiscal year-end. The taxpayer had advised the Respondent about it and acted accordingly.

The amount of tax calculated as the result of the “original assessment” and that calculated in the “second assessment” was the same (except for one cent). No additional income was alleged. At all times the Appellant treated the “original assessment” as its pre-amalgamation return. This was not a case of assessing the wrong taxation year. The return and the “original assessment” referred to the whole pre- amalgamation period. The taxpayer knew the year to which it related. The Respondent seeks to inpune its own assessment to extend the limitation period beyond that permitted by Statute.

Section 152 of the Act does not prescribe any particular form. It is the assessment of a taxpayer for taxes for the taxpayer’s year. It is not necessary to describe a fiscal period in any particular way. It is not necessary to specify the beginning and last day and that date was already established because of the amalgamation. The witness called by the Respondent established that. There was only one return assessed. Even the Respondent’s documents (Exhibit R-l) indicated only a taxation year and not the specific dates thereof.

There was no misleading by the taxpayer of the Respondent, it was an error in form only. Both parties knew this. Even the Respondent’s letter to the taxpayer on May 20, 1988 referred to the first assessment as an “incorrect assessment” and not a “nullity”. Exhibit R-3, the Respondent’s round trip memorandum refers to a “reassessment” in the first part of the note. The second part of the note confirms that the Respondent knew that the entire year prior to the amalgamation was the one assessed. Exhibit R-4 confirms that the date of amalgamation was accepted.

The evidence indicated that the Respondent treated it as a clerical error only and accepted the “first assessment” as the “original assessment”. See Greenwood Estate v. R. (sub nom. Greenwood Estate v. Canada), [1991] 1 xxxC.T.C. 47, 90 D.T.C. 6690 (F.C.T.D.), affirmed [1994] 1 C.T.C. 310, 94 D.T.C. 6190 (F.C.A.) at page 49-50 (D.T.C. 6692) in support of the argument that so long as there is no confusion by the taxpayer as to what years it refers to, it is not a “nullity”. See also the Interpretation Act, R.S.,

c. 1-23, s. 32:

32. Where a form is prescribed, deviations from that form, not affecting the substance or calculated to mislead, do not invalidate the form used.

The assessment is deemed to be valid under subsection 152(8) of the Act. The Minister cannot repudiate it because it is wrong in some respect. Subsection 152(4) allows it to be altered. Such a position is confirmed by the Federal Court, Trial Division, in R. v. Leung (sub nom. Leung v. Minister of National Revenue), [1993] 2 C.T.C. 284, 93 D.T.C. 5467 (F.C.T.D.) at page 301 (D.T.C. 5479). This case indicates that a rigid formalistic approach should not be taken with respect to a notice of assessment or the proceedings which flow from it so long as it has all the essential ingredients which the Statute contemplates.

The return filed here and the notice sent thereafter fulfilled all the requirements of the Act.

The only equitable and practical result is reached if the first assessment is found to be the “original assessment”. The limitation period established by the Act is there for the purpose of establishing finality to the assessment process.

The purported assessment of August 14, 1991 is a nullity. The appeal should be allowed with costs and the assessment in question vacated.

Argument of the Respondent

Counsel for the Respondent argued that there are some errors that are of such seriousness that irregardless of the consequences, such errors render the purported assessment a nullity, such as assessing for the wrong fiscal period. Such an error cannot be corrected under the provisions of subsection 152(4) of the Act.

In the case at bar, in the context of the evidence given, the Minister assessed for a particular taxation year in the “first assessment” and for a different fiscal year-end in the “second assessment” of August 15, 1988 which it considered to be the “original assessment”. The Minister considered the purported “first assessment” as a nullity.

The word nullity was never used but that is not determinative of how the Minister viewed the process by which he reacted to the filing of the return.

All the steps taken by the Minister showed that he considered the assessment of August 15, 1988 as the “original assessment” as can be seen from a reasonable interpretation of the evidence of Ms. Bogart in regard to the Notice of Assessment of August 15, 1988.

Counsel referred to the case of Pure Spring Co. v. Minister of National Revenue, [1946] C.T.C. 169, 2 D.T.C. 844 at page 198 (D.T.C. 857), Exchequer Court of Canada, in respect to his position that the assessment is more than just a piece of paper. It is a summation of all the factors representing the tax liability, ascertained in a variety of ways and a fixation of the total after all the necessary computations have been made. It is an issue of determining the correct fiscal period and an error in that regard renders it a “nullity”. It is not an assessment.

Even though the letter of May 20, 1987 from the Respondent referred to an “incorrect notice of assessment” and does not use the word “nullity” the phrase is not used in “context”. If the Minister considered the “first assessment” to be the “original assessment” he would have used the term “reassessment” in reference to the new assessment which was to follow after the first one was disregarded.

Even if the Court concluded that the Minister accepted the “first assessment” as the “original assessment” the Court must consider whether the Minister was correct or incorrect in doing that. Counsel suggested that the evidence showed that that was not the Minister’s intention.

Counsel argued that even if the Minister was seized with the information as to the amalgamation, there was still a possibility that the fiscal year assessed was not the fiscal year in issue.

Counsel relied heavily upon the english case of Craven v. White, [1987] STC 297 (C.A.), at page 323. This case dealt with the assessment of the wrong fiscal year.

The case held that the treatment of an assessment for one fiscal year could not be treated as the assessment for another fiscal year. The remedy was to issue a new assessment for the correct year.

Counsel argued that this case provided some basis for his argument that the type of error found in the case at bar makes the purported assessment a “nullity”. The “first assessment” was not an assessment under subsections 152(1) and 152(4).

Counsel was prepared to concede that the Minister may have had the correct fiscal year period in mind when he made the assessment but left it open for consideration that he might also have had the wrong fiscal period in mind.

Counsel argued that at the end of the day, the question comes down to whether or not on the basis of all the evidence the Minister might possibly have been dealing with another period of time.

Rebuttal

In rebuttal, counsel for the Appellant repeated his arguments that there was no doubt as to the proper period of time because of paragraph 87(2)(a) and the date of the amalgamation. The letters establish this.

Paragraph 18 of the Agreed Statement of Facts makes it clear that there was no other period open to the Minister because there was no application to change the year-end and that is the only situation that would give rise to another fiscal period.

Counsel argued that Craven v. White, supra, was not a time limitations’ case. The taxpayer was assessed for a different fiscal period and the appropriate statutory provision under the English Statute was less broad than the provision under the Act in this case.

Analysis and Decision

The validity of the assessment appealed from, number 3532072 dated August 14, 1991 depends upon whether or not the “first assessment” of October 13, 1987 was the “original assessment” under paragraph 152(3. l)(b) of the Act. If this is the original assessment then what followed thereafter in the second and third assessments were reassessments, the limitation period started to run on October 13, 1987 and the “third assessment”, notice of which was given on August 14, 1991 is invalid and must be vacated.

The only reasonable conclusion that can be drawn from the evidence is that the Appellant regarded the “first assessment” as the “original assessment”, that it considered the affixing of the date of December 31, 1986, as the company’s year-end, to be a technical error, an incorrect piece of information and that it commenced to take all reasonable steps to advise Revenue Canada as to this error and to have the return corrected.

Further, there is uncontradicted evidence that the Minister knew of that error prior to making the “first assessment”. It is also an uncontradicted fact that the Minister was aware of the amalgamation date by March of 1987 and the Appellant made no attempt to alter its fiscal year-end. Since the amalgamation date was known to the Minister there can be no doubt that the provisions of paragraph 87(2)(a) operate to fix the taxation year of the predecessor corporation as ending immediately before the amalgamation. Therefore, the fiscal year-end is determined.

Nothing that the Appellant did changed these facts and nothing that the Minister did indicated anything to the contrary. Indeed all of the actions of both the Appellant and the Respondent could lead to no other conclusion but that both parties knew what fiscal period was involved, that the “first assessment” related to that period and that it could relate to no other period. The amount of tax assessed as a result of the filing of the return by the Appellant was the same in both the “first and second assessments” (except for one cent).

When the Court considers all the evidence, it leads to the undeniable conclusion that the Minister considered the “first assessment” to be an “assessment” not a “nullity”. The Minister used such terms as “an incorrect assessment” when referring to it and “reassessment” when referring to the “second assessment”. Nothing in the Minister’s actions even suggested that the supplying of the incorrect date of December 31, 1987 was considered to be anything more than a mistake, a technical error or an incorrect bit of information which could be the subject matter of change or correction as envisaged by subsection 152(4) of the Act and that was what was contemplated by the Appellant in its communications to the Minister and by the Minister in his communications to the Appellant.

There is nothing in the evidence which supports the argument of counsel for the Respondent that the Minister at any time considered the “first assessment” to be a “nullity”, nor was there any evidence to support his argument that the Minister considered the assessment of August 15, 1988 to be the “original assessment”.

Further, there was nothing in the evidence to allow the Court to conclude that if the Minister considered the “first assessment” to be a valid assessment, that he was wrong in so doing.

The Court rejects the Respondent’s position that the case of Craven v. White, supra, supports the Respondent’s position or that an error such as the type found in this case makes the “first assessment” a “nullity”. The Craven case, supra, involved assessments for two different periods of time and that is not the situation in the case at bar.

The ratio decendi expressed in the cases of Greenwood Estate, supra, Paramount Productions Inc., supra and The Queen v. Leung, supra, are applicable to the case at bar.

The Court agrees with the submission made by counsel for the Appellant that there was no evidence that would prevent the presumption contained in subsection 152(8) of the Act from applying in this case and indeed the evidence confirms such a conclusion.

The Minister cannot repudiate a valid assessment because of a correc- tible error in form which existed in the present case.

The appeal is allowed, with costs and the assessment appealed from, number 3532072, dated August 14, 1991 is vacated.

Appeal allowed.