Debou v. R., [1999] 4 CTC 2382 (Informal Procedure)

Margeson 1.C.J.:

This matter proceeded on the basis of an agreed statement of facts as set out below.

Statement of agreed facts

Statement of agreed facts as typed written and attached.”

Argument on behalf of Appellant

Counsel for the Appellant argued that the Minister’s assessment issued under subsection 159(3) was statute barred as it was issued outside of the normal assessment period.

Counsel relied upon the provisions of subsections 152(1), 152(3), 152(4), 159(3), and 220(3.1) of the Income Tax Act (the Act) as amended, and the Regulations thereto. His position was that when the Minister assesses the executor of the deceased taxpayer’s estate pursuant to subsection 159(3) of the Act, such assessment is to be made “in the same manner and with the same effect as an assessment made under section 152’’.

Paragraph 152(4)(c) of the Act provides that, the Minister may only assess tax within the “normal assessment period”, unless specific exceptions apply. An assessment pursuant to subsection 159(3) is not one of those exceptions. The “normal assessment period” for taxpayers is defined in paragraph 152(3.1 )(a) of the Act as the period that ends three years after the day of mailing of an original notice of assessment for a taxation year. Counsel pointed out that pursuant to Bill C-28, an amendment has been proposed to subsection 159(3) of the Act to allow the Minister to assess a legal representative at any time. Such amendment will have no application to assessments made prior to Royal assent with respect to Bill C-28, and as such does not apply to the Appellant in these circumstances.

In the case at bar the 1997 notice was issued outside the Appellant’s normal reassessment period as specified in subsection 152(4) to the Act and is, accordingly, statute barred because: (a) the estate assets were distributed on about March 26th, 1991, during the Appellant’s 1991 taxation year, and (b) the Appellant’s original assessment for the 1991 taxation year was issued in 1992.

As indicated by counsel, section 159 of the Income Tax Act provides a mechanism whereby a legal representative of a taxpayer, in the case at bar, the executor of the estate, may in certain circumstances be liable for the unpaid tax liability of the taxpayer, in this case the estate of Ms. McKillop. Subsection 159(2) requires an executor to obtain a clearance certificate from the Minister prior to distributing the assets of the estate. A certificate is issued when the Minister is satisfied that the estate tax liability has been paid and once issued, serves to protect the executor from liability for any tax debt of the estate, which may be later determined.

Subsection 159(3), which is a critical provision in this case, gives the Minister the power to assess an executor for the outstanding tax liability of the estate. The executor has distributed property of the estate without obtaining a clearance certificate in respect of the estate tax liability.

In accordance with the statement of agreed facts at paragraph 16 on page 3, subsection 159(3) was very recently amended substantially. Prior to that time, and at all times material to the facts in this matter, subsection 159(3) read as follows: “when a responsible representative distributes to one or more persons property over which the responsible representative has control in that capacity without obtaining a certificate under subsection (2) in respect of the amounts referred to in that subsection, the responsible representative is personally liable for payment of those amounts to the extent of the value of the property distributed and the Minister may assess the responsible representative thereafter in the same manner and with the same effect as an assessment made under section 152”.

According to counsel for the Appellant there are three key points to be made in respect of subsection 159(3). (1) The executor, or responsible representative, is made the person liable for the outstanding tax liability of the estate. (2) This liability for tax arises upon the distribution of the taxpayer’s property, in this case the distribution of the estate property to its beneficiaries. (3) An assessment issued against an executor by the Minister pursuant to the section must be made in the same manner and with the same effect as an assessment made under section 152.

Subsection 152(4) essentially provides the Minister with the power to make an assessment, reassessment or additional assessment of tax payable for the taxation year by a taxpayer provided such assessment, reassessment or additional assessment is made within the taxpayer’s normal reassessment period in respect of the year. There are circumstances set out in section 152 which may justify an assessment outside of the normal reassessment period with respect to the year. However, those circumstances do not apply in this case and the Respondent has not alleged such in its reply.

Subsection 152(3.1) sets out that the “normal reassessment period” for a taxpayer in respect of a taxation year is the period that ends three years after the day of mailing of a notice of an original assessment in respect of the taxpayer for the year. Applying the ordinary meaning of these provisions and the facts in this matter counsel argued that the Minister’s assessment was currently statute barred since, (a) as per the statement of agreed facts, the Appellant distributed the assets of the estate on about March 26th, 1991. Pursuant to subsection 159(3), upon distributing the estate’s property the Appellant became personally liable for the outstanding taxes of the estate as he did not obtain a clearance certificate prior to distribution. (b) This was a liability for tax personal to Mr. Debou which arose in his 1991 taxation year. Subsection 152(3) creates this liability which is not dependent on an assessment, (c) The Minister issued an original assessment to Mr. Debou for his 1991 taxation year by notice dated October 5th, 1992 (see paragraph 8 of statement of agreed facts). (d) Pursuant to subsection 152(3.1), the normal reassessment period for Mr. Debou’s 1991 taxation year ended three years after the date of mailing of his original assessment for that year. As a result, the normal reassessment period for the relevant year ended on October 5th, 1995. (e) As set out in paragraph 13 of the Statement Agreed Facts, on April 1st, 1997 the Minister issued an assessment to the Appellant in respect of an outstanding tax liability of the estate. The assessment, in effect, was in respect of a tax liability personal to Mr. Debou which arose in 1991 but for which he could not be assessed subsequent to October 5th, 1995. The assessment is therefor statute barred and ought to be vacated.

Counsel disagreed with what he determined was the Minister’s position that an assessment made pursuant to subsection 159(3) need not be made within the normal reassessment period or alternatively, that if the normal reassessment period applies at all, such period does not commence until the Minister first assesses a responsible representative pursuant to that provision, therefore characterizing the assessment in issue in this matter as an “original assessment” and concluding that the normal reassessment period started running from the date of its issuance.

This interpretation of subsection 159(3) would allow the Minister to assess a “responsible representative” at any time, rather than within the normal reassessment period. This interpretation cannot be concluded from a clear reading of the language of subsection 159(3) and the provisions of section 152. In order to arrive at this interpretation it would be necessary to read the word “at any time” into the provision.

It is a principle of statutory interpretation that words should not be read into a statutory provision where, on its face, an acceptable interpretation exists. Counsel referred to the decision of the Supreme Court of Canada in Friesen v. R., [1995] 3 S.C.R. 103 (S.C.C.) in support of this proposition. He also referred to the Tax Court of Canada decision in Taylor v. Minister of National Revenue, [1986] 1 C.T.C. 2313 (T.C.C.) where Judge Rip found that sections 159(2) and (3) of the Act where essentially penal in nature and must be strictly construed.

Further, counsel took the position that there are a number of assessing provisions in the Act which state that the Minister may make an assessment “at any time” and this had the effect of precluding arguments that an assessment is statute barred due to having been issued outside the normal reassessment period.

Clearly, the words “any time” form a substantive part of each assessing provision in the Act in which they are found. They have the effect of making the normal reassessment period inapplicable and, thereby, greatly expand the Minister’s power of assessment. In accordance with the decision in Friesen, (supra), it follows that the words “any time” should not be read into subsection 159(3) for the following three reasons: (a) the addition of these words effects a significant change in this meaning; (b) there are no other provisions of the Income Tax Act which contain the words at “any time”; and (c) there is an acceptable interpretation which does not require the insertion of additional wording.

Finally counsel reiterated, that effective June 18th, 1998 subsection 159(3) was amended so that the wording that is currently in force included the words “at any time”. Therefore, the language of the current version of subsection 159(3) is now modeled on those other assessment provisions of the Act which allow the Minister to assess at any time. Therefore, had the present provision been in place during the time material to this matter, the Appellant would be precluded from making the arguments he is making today.

For all of these reasons the appeal should be allowed with costs and the assessment should be vacated.

Argument on behalf of the Respondent

Counsel for the Respondent took the position that the power of the Minister to reassess at any time comes from the provisions of subsection 152(4) and the limiting provisions of that subsection are not applicable on the facts of this case because the assessment dated April 1st, 1997 was not a reassessment but an original assessment. The amount owing did not crystallize until after the estate liability had been ultimately determined. When the assessment was made on April 1st, 1997, this was an original assessment under the provisions of subsection 159(3). Therefore, the time did not start to run until that date. Consequently, the assessment of April 1st, 1997 was not statute barred under subsection 152(4).

With respect to the argument made that subsection 159(3) must be strictly construed, and therefore words should not be read in that are not there, counsel took the position that these words need not be read into subsection 152(4) as they already exist in the section.

With respect to the argument of counsel for the Appellant regarding the amended version of the section, the amendment clearly clarified the law but did not change it so that one could not conclude that because the amendment was made and the words “at any time” were included in the amendment and that because they did not appear in the earlier version that they should not be read in as having appeared.

Counsel referred to the case of Armstrong v. R. (1998), 99 D.T.C. 61 (T.C.C.). Although this case deals with the provisions of subsection 159(3) of the Income Tax Act, it does not deal with the specific issue raised in the case at bar. Counsel further referred to the case of Taylor v. Minister of National Revenue, [1986] 1 C.T.C. 2313 (T.C.C.), specifically at page 2316 were Rip, J. discussed the nature of subsection 159(2) and (3), but again he did not deal with the specific issue involved in the case at bar.

The appeal should be dismissed and the Minister’s assessment confirmed.

Analysis and decision

The Court will deal firstly with the subsidiary argument touched upon by both counsel with respect to whether or not the amendment to section 159 in 1998 changed the legal effect of the section by adding the words “at any time” to the subsection as argued by counsel for the Appellant or whether it merely codified these words which were presumed to be there in any event and that the words were basically added for cosmetic purposes, not effecting real change in the meaning of the provision. Counsel for the Respondent argued that because the words were added in the amended version, this does not necessarily mean that the law as it existed before the amended version should not be reasonably interpreted to have included those words in any event.

There was no evidence produced with respect to what the amendment was intended to effect apart from the explanatory notes found at tab 3 of the Joint Book of Authorities. These technical notes do nothing to resolve the issue raised by the above arguments as they are silent thereto.

However, it is obvious that the amended version of subsection 159(3) is considerably different that the version of the subsection that existed at all times relevant to this appeal. The most significant change is the addition of the words “at any time”. These words do not exist in the earlier version.

In the earlier version the subsection provided that “the Minister may assess the responsible representative therefore in the same manner and with the same affect as an assessment made under section 152.” The Court has to decide whether or not the addition of these words changes the nature of this section so that in effect the result is to prevent a taxpayer from raising the argument that the assessment is statute barred when the assessment is made under subsection 159(3).

The Court is satisfied that the addition of these words certainly alters the meaning of the subsection. They are not merely superfluous. The earlier version, which did not contain these words, could not have been intended to mean the same thing. The Court accepts the argument of counsel for the Appellant that the addition of the words “at any time” forms a substantive part of this assessing provision and the effect of the addition of these words is to make the normal reassessment period inapplicable. The Court is satisfied that these words should not be read into the earlier version of subsection 159(3).

The argument is well taken that there are numerous other provision of the Income Tax Act which contain the words “at any time” and that it would be reasonable to conclude that if the legislature intended those words to be included in the earlier version they would have done so. Further this subsection can be readily interpreted without the insertion of additional words insofar as this Court is concerned.

Counsel for the Respondent took the position that the words “at any time” are already found in the provisions of section 152(4) and therefore they need not be inserted in order for the Minister to have been incorrect in the interpretation that he made of this section in making the assessment that he did. However, it is obvious from a reading of subsection 152(4) that the words “at any time” as found there must be read in light of the following paragraphs and subparagraphs which have the effect of making these words applicable only where the taxpayer has in effect made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this act or, where the taxpayer has filed a waiver in the prescribed form in respect of the year. It is obvious from the agreement as to facts that the Minister was not relying upon either of these arguments in the case at bar.

Having decided thusly, the only other question remaining is whether or not the earlier version of the appropriate subsection, which did not include the words “at any time” permitted the Minister to make the assessment that he did in this case.

Counsel for the Respondent, in essence, argued that the provision of section 159(3) are dealing with the distribution of the assets of the estate by a legal representative and that the Minister could not reasonably have made an assessment of the legal representative until all of the facts in the case had been determined. The Minister could then make the assessment of the legal representative that he did. Counsel was arguing that the assessment made of the Appellant on April 1st, 1997 was not a reassessment but was an original assessment and therefore the limitation in subsection 152(4) of the Act is not applicable.

The Court is satisfied that a reasonable interpretation of section 159 is that the liability of the legal repesentative, the taxpayer in issue here, arises because the taxpayer has failed to obtain a tax clearance certificate and yet has disributed the estate. Some argument has been made that the provisions of section 159(3) are penal in nature and therefore should be strictly construed, but the Court does not see this as a significant matter because it is clear that the section imposes a liability upon the legal representative if he distributes the estate without obtaining the tax clearance certificate. Al- though the taxes that are owing were not his taxes the liability is imposed upon him because he has failed in a legal duty placed upon him by the statute.

The Court does not see this as particularly penal in nature or unduly burdensome as the obtaining of the certificate or the non-obtaining of the certificate was entirely his choice. By not obtaining the certificate he left himself open to the liability which the act imposed upon him and he could hardly be heard to complain thereafter as a result of his own conscious act.

However, the Court is satisfied that the version of subsection 159(3) that existed during the relevant period of time did not give, nor was it intented to give to the Minister the right to make the assessment at any time, irregard- less of the provisions of section 152(4).

The version of section 159(3) that existed during the relevant period of time clearly links the application of this subsection to the provisions of section 152(4). The appropriate subsection at the time read as follows: “the Minister may assess the responsible representative therefore in the same manner and with the same effect as in the assessment made under section 152.” Section 152(4) clearly refers to the assessment of the taxpayer and it refers to the “taxpayer’s normal reassessment period in respect of the year”.

Insofar as the Court is concerned the Minister issued an original assessment to Mr. Debou for his 1991 taxation year by notice dated October 5th, 1992. It is the assessment of “a taxpayer” that is in issue and not the assessment of the estate. It is true that the assessment of the taxpayer comes about as a result of taxes owing by the estate but nonetheless the assessment that is in issue is the assessment of the taxpayer and not that of the estate.

By paragraph 13 of the agreed statement of facts the parties agreed that the Minister issued to the Appelant a notice of reassessment number 03683 in the amount of $10,118.24 pursuant to subsection 159(3) in respect of property of the estate which was distributed on about March 26th, 1991 without obtaining a clearance certificate. Counsel for the Minister at the time of trial and in the pleadins argued that this was not a reassessment but an original assessment.

The Court accepts the argument of counsel for the Appellant that on April 1st, 1997 the Minister issued an assessment to the Appellant in respect of an outstanding tax liability of the estate. This assessment, in effect, was in respect of a tax liability personal to the Appellant which arose in 1991 but for which he could not be assessed subsequent to October 5th, 1995, since he was originallly assessed for this tax liability for the year 1991 by notice dated October 5th, 1992.

The Court is satisfied that the assessment is statute barred.

This appeal is allowed with costs and the assessment in issue is vacated.

Appeal allowed.