Brulé T.C.J.:
1 This is an appeal by Mr. Dubé concerning his 1986 and 1988 taxation years.
Issues
2 The issues to be decided are:1) whether the Minister of National Revenue (the “Minister”) was barred from issuing the Notice of Reassessment dated May 29, 1992 in respect of the appellant's 1986 taxation year;
2) whether the Appellant received a bonus in the amount of $109,771 in the 1988 taxation year; and
3) whether the Notices of Reassessment of June 6, 1995 should be barred due to the failure of the Minister to consider the appellant's objection with all due dispatch with the result that the appellant was prejudiced in this matter.
Analysis
3 This is a fact driven case and therefore it is necessary that all the facts be considered as well as the evidence thereon.
The 1986 taxation year
4 The Minister alleges that in computing his income for the 1986 taxation year, the appellant failed to report his gain from the disposition of a property known as Lot 85, Boisbriand Crescent, Gloucester, Ontario (“Lot 85”).
5 Lot 85 was acquired by the appellant on September 4, 1986 at a cost of $36,700 and was disposed of by him on December 3, 1986 for proceeds of $139,000, less a discount of $17,000 (described as a “deposit”). While Lot 85 was owned by the appellant, a building was erected on the site at a cost to the appellant of $71,866. The appellant's gain on the disposition of Lot 85 was $4,435.
6 The appellant's acquisition of Lot 85, and the cost of the building, was partially funded by the company on behalf of the appellant. The appellant was charged by the company by means of debits to his shareholder's loan account. The proceeds of disposition of Lot 85 were used to reduce the balance of the appellant's shareholder's loan account.
7 The Minister has also assumed that the appellant was grossly negligent in omitting to report the disposition of Lot 85 in his 1986 income tax return.
8 The Notice of Assessment for the appellant's 1986 taxation year was made on June 6, 1987. The Notice of Reassessment was mailed 4 years and 11 months later on May 29, 1992.
9 Subsection 152(4) of the Income Tax Act (the “Act”) provides that any reassessment made by the Minister must be issued within three years of the date of mailing of the original Notice of Assessment. If the Minister fails to issue the reassessment within the “normal reassessment period” (as the three-year period is known) the reassessment will be void ab initio and the original assessment will stand.
10 Under two circumstances, the normal reassessment period will not apply. The first occurs when the taxpayer has 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 the Act to the Minister. The second occurs when the taxpayer files a valid waiver with the Minister extending the reassessment period.
11 In the case at bar, the Minister has alleged that the taxpayer made a misrepresentation within the meaning of subparagraph 152(4)(a)(i) of the Act, and has filed a valid waiver under subparagraph 152(4)(a)(ii) of the Act. Therefore, even though the May 29, 1992 reassessment was issued 4 years and 11 months after the original Notices of Assessment were mailed, the reassessment is still valid.
12 The taxpayer has denied that any misrepresentation was made, and is silent as to the waiver. The test set out in subparagraph 152(4)(a)(i) for a misrepresentation is very broad, but the onus is on the Minister to establish a prima facie case that such misrepresentation occurred. If the Minister can establish that there was either a misrepresentation by the appellant or a valid waiver filed, the May 29, 1992 reassessment is not void.
13 As to any misrepresentation the Minister relies on the fact that the appellant did not report the disposition of Lot 85 in his 1986 tax return. The matter of a valid waiver being filed is found in Exhibit R-2 presented to the Court being a copy of the said waiver.
The $109,771 bonus in 1988
14 The Minister has stated that the appellant received a bonus from the company in the amount of $109,771 on August 31, 1988 by virtue of the company effectively forgiving any outstanding shareholder debts owed to it on that date.
15 The appellant has submitted that the Minister's reassessment which included the bonus in his income is “based upon the erroneous T4A which was issued to the appellant alleging “other income” which the appellant never received”. The appellant in particular alleges that the Minister has failed to substantiate this inclusion either to the Minister or to the appellant. This was essentially an allegation that the Minister lacked sufficient evidence to prove the appellant received the income.
16 The Minister has stated in his Reply that in reassessing the appellant he relied upon the assumption of fact that the bonus payable to the appellant in the amount of $109,771 was received by him on or about January 31, 1988.
17 It is well settled that where the Minister's assumptions are pleaded, they have the effect of reversing the burden of proof and of casting on the taxpayer the onus of disproving that which the Minister has assumed: Pollock v. R. (1993), 94 D.T.C. 6050 (Fed. C.A.). In the case at bar, therefore, the onus is on the appellant to “demolish” the basic facts on which the taxation rests.
18 It is possible that the appellant may have material evidence which demonstrates that he never received any bonus and that the Minister's reassessment is unsubstantiated and without basis. However, such was not pleaded nor was evidence given at trial on this point, other than a denial by the appellant.
19 It was evident that the appellant did not understand fully accounting principles and how his shareholder's account needed the bonus to put him onside before he left the company. The appellant admitted that he signed company records upon a request to do so and did not read over nor fully comprehend the meaning of the company statements. On the other hand, perhaps the company statements did not carry sufficient information but nothing stopped any inquiry by the appellant.
June 6, 1993 Notices of Reassessment for 1986 and 1988
20 The appellant filed Notices of Objection on August 29, 1992, to which the Minister responded 2 years and 6 months later, on June 6, 1995, with further Notices of Reassessment for the 1986 and 1988 taxation years.
21 Upon receipt of a taxpayer's Notice of Objection, the Minister is required, with all due dispatch, to reconsider the assessment and vacate, confirm or vary the assessment or reassess, and notify the taxpayer in writing under subsection 165(3) of the Act.
22 The length of the delay in the case at bar is not outside of the time limits which the Courts have considered to have been “with all due dispatch”. A delay under subsection 165(3) is not as significant as one under section 152, because the former has a built in remedy for the taxpayer to invoke. If the Minister has not responded with all due dispatch to a Notice of Objection, the taxpayer can file an appeal at the Tax Court of Canada and seek judicial review of the reassessment in issue. It appears from the jurisprudence that this is the only remedy open to a taxpayer.
Conclusion
23 As to the substantive issues regarding the gain on the disposition of Lot 85 in 1986 and the bonus paid to the appellant in 1988, there is insufficient evidence to draw a conclusion. The appellant has merely denied that these payments were ever made to him. Since the appellant is challenging the Minister's assessment of tax, he bears the burden of proof on this issue at the hearing of the appeal.
24 Such was not done by the appellant and as a result his appeal must be dismissed.
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