William a Gibbon v. Her Majesty the Queen, [1977] CTC 334, 77 DTC 5193

Walsh, J:—This income tax appeal was heard on the basis of an agreed Statement of Facts, the only witness testifying being plaintiff himself who had practised law in Winnipeg prior to 1965, but is now a school teacher in Toronto since 1967, and who represented himself at the trial. He and his wife had separated in 1963. There were three children of the marriage, only the two sons, whose ages were given in 1972 as 19 and 15 respectively, being in any way dependent in the 1972-73 taxation years. Plaintiff made voluntary alimony payments to his wife in 1972 and 1973 as he had been doing since their separation in 1963 but not pursuant to any decree, order or judgment of a competent tribunal nor to any written separation agreement. Plaintiff in his tax returns for the years in question did not claim these payments as deductions and he admits that he was not entitled to do so pursuant to paragraphs 60(b) and (c) of the Income Tax Act which read respectively as follows:

60. There may be deducted in computing a taxpayer’s income for a taxation year such of the following amounts as are applicable:

(b) an amount paid by the taxpayer in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage, if he was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year;

(c) an amount paid by the taxpayer in the year, pursuant to an order of a competent tribunal, as an allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage, if he was living apart from his spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year;

By a letter dated May 18, 1973, the Minister requested additional information from plaintiff with respect to the custody and control of the dependent children, their income for 1972, their address, and full particulars of any alimony or separation payments made during the year including the name and address of the recipient’s spouse, which information was furnished by plaintiff. Actually he made voluntary weekly payments of $40 a week during the 1972 taxation year for a total of $2,080 and by notice of assessment dated August 31, 1973, plaintiff was allowed these payments as a deduction from his taxable income for that year with the result that he was found to have an overpayment of $450.10 and the refund cheque was in due course sent to him for this amount. Accordingly, on his 1973 income tax return he deducted the sum of $2,340 which he paid his wife as alimony in that year, since he had voluntarily increased the payment to $45 a week. By notice of assessment dated May 22, 1974, his return was assessed as declared and he was declared to have an overpayment of $561.80.

It was not until June 19, 1975 that the Department wrote him stating that his 1972 and 1973 returns were under review, asking him to forward a copy of the separation agreement and copies of cancelled cheques covering the payments during the two years. Aside from the fact that there was no separation agreement the payments had always been made in cash. As the result of receiving this letter plaintiff soon thereafter attended at the office of the Department of National Revenue in Toronto and informed them that there never had been any written separation agreement or decree, order or judgment of a competent tribunal. As a result, on August 8, 1975 reassessments were issued disallowing as a deduction the amounts of $2,080 and $2,340 previously allowed to him for the 1972 and 1973 taxation years respectively. This was clearly in accordance with the law and the earlier assessments were clearly made in error and not as a result of any misrepresentations made by plaintiff.

Plaintiff contends that his wife had sufficient means to support herself and as the sons got older he was contemplating stopping the voluntary alimony payments and commencing to establish a registered retirement savings plan fund for himself which he could not afford to do as long as he was making the payments to his wife. When he received the tax refund for the 1972 taxation year following the assessment of August 31, 1973, he used this to commence such a fund making a $500 payment into it in February 1974 applicable to the 1973 taxation year. According to his evidence, when he found that he could deduct the alimony payments which he was making to his wife he continued to make them, but if this had not been the case he would have stopped them commencing in 1974 and put the amounts which he was paying his wife into a registered retirement savings plan for himself. When he found that the tax advantages for him were about the same, however, on the assumption that the payments he was making to his wife were allowable as deductions, he decided to continue making them. One would think that, even though his wife may have sufficient independent income without the alimony payments now that the children are older, the decision whether or not to continue them would be based on other factors than the tax advantages of same, and similarly that the decision whether or not to buy a registered retirement savings plan for himself should not be solely motivated by the tax advantages of such a plan. In any event plaintiff insists that he had the alternative of either continuing alimony payments to his wife and deducting them from his taxable income, which in view of the erroneous assessments he had received he believed to be acceptable, or in the alternative of stopping these payments and using the amounts to establish a registered retirement savings plan for himself, payments into which would also be deductible. In either event he would benefit by a deduction from his taxable income for the years in question, although in the case of the registered retirement savings plan contribution he would eventually pay tax on the benefits received when he commenced drawing the pension which he purchased with the fund. It is of some significance that his next contribution to the fund other than deposits of interest was the sum of $1,600 paid in on February 13, 1976, presumably attributable to the 1975 taxation year. This was subsequent to the reassessment notices of August 8, 1975, disallowing the deductions of the alimony payments made to his wife in 1972 and 1973. He claims that, had he not been misled by the erroneous assessments, he would have stopped the alimony payments sooner than he did and thus have had registered retirement savings plan contributions to claim as deductions in 1973 and subsequent taxation years. However, he had no indication that the payments to his wife could be deducted, and in fact had not attempted to deduct them until the first erroneous assessment of August 31, 1973, for the 1972 taxation year followed by the refund cheque. Certainly, therefore, he cannot claim that he would have conducted his affairs any differently prior to that date. Therefore this argument is worthless with respect to the 1972 taxation year in any event, and with respect to the 1973 taxation year it is significant that he paid alimony of $2,340 to his wife in that year and there is nothing in the evidence to establish that he would have stopped these payments precisely on August 31, 1973, and was only induced to con- tinue them as a result of the assessment notice indicating that he could deduct these alimony payments. In fact he commenced an RRSP for himself early in 1974, using the tax refund cheque for the first payment. It would appear, therefore, that, even accepting his argument, the only year for which he might have suffered prejudice would be the year 1974, for which no registered retirement savings plan contributions were made, but that taxation year is not an issue in the present proceedings. The payment in February 1976 of $1,600 attributable to the 1975 taxation year permitted deduction to that extent from taxable income for that year. Quite aside from the facts however which, as indicated, disclose that plaintiff suffered much less financial prejudice taxwise than he claims as the result of the course of conduct into which he contends he was induced by the erroneous assessments allowing the alimony payments as deduction, it is clearly not an acceptable argument in law to argue hypothetically what he might have done to reduce his tax liability had he known that another means of reducing it was not open to him.

Plaintiff relies on the case of Robertson v Minister of Pensions, [1948] 2 All ER 767, in which Denning, J, as he then was, had to consider the question of estoppel against the Crown. The claim was one for a war disability pension and the claimant was advised by the War Office that his disability had been accepted as attributable to military service. Accordingly he sought no further medical opinion at the time and X-ray plates of his injuries which were still available were destroyed. Subsequently the Pensions Appeal Tribunal decided that the disability was not attributable to military service. The question was whether the earlier letter was binding. The judgment states at page 770:

The next question is whether the assurance is binding on the Crown. The Crown cannot escape by saying that estoppels do not bind the Crown, for that doctrine has long been exploded.

Later on the same page he states:

. . . In my opinion, if a government department in its dealings with a subject takes it on itself to assume authority on a matter with which he is concerned, he is entitled to rely on it having the authority which it assumes. He does not know, and cannot be expected to know, the limits of its authority.

This statement has since been criticized, however, in the House of Lords in the case of Howell v Falmouth Boat Construction Co Ltd, [1951] AC 837, in a judgment by Lord Normand, at page 849. He refers to an almost identical statement by Lord Justice Denning, as he had become, in the lower court judgment in that case stating:

. . . As I understand this statement, the respondents were, in the opinion of the learned Lord Justice, entitled to say that the Crown was barred by representations made by Mr Thompson and acted on by them from alleging against them a breach of the statutory Order, and further that the respondents were equally entitled to say in a question with the appellant that there had been no breach. But it is certain that neither a minister nor any Subordinate officer of the Crown can by any conduct or representation bar the Crown from enforcing a statutory prohibition or entitle the subject to maintain that there has been no breach of it.

This judgment therefore makes a clear distinction between an erroneous decision on questions of fact which has nevertheless induced the beneficiary of the decision to act on it, and a failure to apply the law, and in the latter case no decision by a servant or officer of the Crown can bind it. The Canadian courts have consistently so held. In the case of MNR v Inland Industries Limited, [1972] CTC 27; 72 DTC 6013, dealing with the frequently litigated sections of the Act respecting the deductibility of past service contributions to a pension plan duly accepted by the Department of National Revenue for registration but with respect to which deductions are later refused, Pigeon, J in rendering the judgment of the Court said at page 31 [6017]:

. . . However, it seems clear to me that the Minister cannot be bound by an approval given when the conditions prescribed by the law were not met.

In the case of Bert W Woon v MNR, [1951] Ex CR 18; [1950] CTC 263; 4 DTC 871, one of the grounds of appeal was that the Commissioner had given a ruling that if the appellant followed a certain procedure tax would be imposed under a particular section of the Income War Tax Act. That procedure was followed but the Minister assessed the appellant to a much greater tax under another section of the Act which was applicable. It was argued that the Minister was precluded from alleging that the particular section under which the assessment was made was applicable because of the prior ruling of the Commissioner. Mr Justice Cameron after a detailed and analytical review of the leading authorities held that the Commissioner had no power to bind the Minister by a ruling limiting tax action other than in accordance with the tax Statutes; that the assessment must be made pursuant to the terms of the statute and that it was not open to the appellant to set up an estoppel to prevent the operation of the statute.

Both these cases were referred to in the case of Ernest G Stickel v MNR, [1972] CTC 210; 72 DTC 6178, in which Cattanach, J stated at page 219 [6185]:

In short, estoppel is subject to the one general rule that it cannot override the law of the land.

See also the judgment of Thurlow, J, as he then was, in Cam Gard Supply Ltd v MNR, [1974] CTC 487 at 491; 74 DTC 6429 at 6431, where he refers to the point having been well covered by the Inland Industries case stating:

. . . Where a statutory requirement for the deduction has not been met, the deduction for that reason must be disallowed and it does not matter that the approval of the payment, which is another of the essential conditions of deductibility, had been given.

Against this weight of jurisprudence plaintiff attempted to argue that he was not suggesting that estoppel should be invoked to interfere with the application of the provisions of the Income Tax Act to him but was relying on the wording of subsection 152(3) of the Act which reads as follows:

152. (3) Liability for the tax under this Part is not affected by an incorrect or incomplete assessment or by the fact that no assessment has been made.

His argument is that the words “‘liability for the tax’’ are very broad and that while he may have been liable for the additional tax resulting from the non-deductibility of the alimony payments made to his wife, and he had in fact always believed that this was the case until the erroneous assessment of 1972 cast doubt of this in his mind causing him to make the claim in 1973 which was later accepted by a second erroneous assessment, he nevertheless should not be liable for the additional tax claimed because establishment of registered retirement savings plans and the deductibility to certain limits of the amounts paid into same are part of the Act, so that he had at the time the alternative of making payments into such a plan with the result that he would not have been liable to the additional tax now imposed. His contention is therefore that since he would not have been liable for the additional tax now claimed had he established such a plan which he cannot now do retroactively for the years in question, his liability should not be affected by the incorrect assessments.

I cannot accept this argument. The new assessments were undoubtedly properly made. Subsection 152(8) of the Act reads as follows:

152. (8) 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.

This clearly foresees the possibility of a reassessment to correct an earlier error. Subsection (4) of section 152 permits a reassessment within four years from the day of mailing of the original notice of assessment and there is no dispute that this was done in the present case. The only issue before the Court is whether the reassessments for the 1972 and 1973 taxation years are correct or not and there is not the slightest doubt that they are in accord with the law. If, but for the previous errors, plaintiff might have acted otherwise and claimed certain other deductions which he is now not able to claim, thereby reducing his tax liability for the years in question, this is regrettable but cannot affect the validity of the reassessment. Plaintiff’s only action would be against the Crown in tort if he could establish that he had suffered damages as a result of negligence by servants of the Crown, and I am not suggesting that such an action is available to him, but am merely holding that he certainly cannot dispute the validity of the reassessments before the Court on the basis that he allegedly was induced into a course of conduct causing him a financial loss as the result of the earlier erroneous assessments.

Plaintiff's action is therefore dismissed, but under the circumstances of this case, without costs.