Leo Viens v. Minister of National Revenue, [1978] CTC 3018

The Chairman [TRANSLATION]: The applicant made an application for an extension of the time within which he should file a notice of objection to the notices of assessment issued by the respondent on June 28, 1977 (Exhibits -1, -2, -3, and -4) on January 5, 1978. Counsel for the respondent objected to the application being granted. A motion to exclude witnesses from the hearing room was allowed.

The Board must therefore decide whether the facts of this case meet the conditions contained in section 167 of the Income Tax Act, and whether it would be just and equitable for the Board to make an Order extending the time for objecting that was requested.

Facts

The evidence revealed that Mr Jean Godard, an officer in the Special Investigations Section, Department of National Revenue, had been conducting an in-depth investigation since April 1975 into the applicant’s affairs for the taxation years 1971 to 1974 inclusive. It was explained that the. Department of National Revenue conducted these special investigations when there were signs of fraud or tax evasion with a view to obtaining information for a possible criminal. prosecution. Mr Godard and another employee working in the Special Investigations Section met with Mr Viens on a number of occasions, the first meeting being on October 2, 1975, which Mr Viens attended alone.

At this meeting Mr Viens was asked to account for income he, had not reported for the taxation years in question. Mr Viens, who operated a small subcontracting business for masonry work, with eight employees, explained that in order to keep his employees he had to pay them some of their wages in cash “under the table’’, especially for overtime, and this increased his expenses, which was not shown on his books.

Mr Godard and a colleague met with Mr Viens and his accountant, Mr Claude Lavoie, on December 22, 1976 and February 16, 1977. At these meetings, a draft assessment of the appellant was submitted, and adjusted on March 2, 1977, allowing him additional expenses. The notice of assessment was formally issued on June 28, 1977.

On December 12, 1977, criminal proceedings were brought against the applicant pursuant to section 239 of the Income Tax Act. After the applicant had consulted a lawyer, an application to extend the time within which a notice of objection should be served was filed on January 5, 1978.

The question that arises is why the taxpayer did not serve a notice of objection within the prescribed time and why he waited until three months after this time period had expired to file his application for a time extension.

In my view, the evidence did not clearly demonstrate that Mr Godard had, as alleged, informed the applicant that the filing of notices of objection was pointless and unwarranted owing to the fact that the applicant had not produced any tangible evidence with respect to expenses incurred for additional cash payments to his employees for overtime. In fact, Mr Godard implied that notices of objection were never discussed with the applicant.

In his testimony the applicant’s accountant, Mr Lavoie, clearly stated that a notice of objection had never been considered and that he had not advised the applicant to do this because there was no documentary evidence that the said expenses had been incurred.

Counsel for the applicant submitted to the Board that it was only after the criminal proceedings had begun and a lawyer had been consulted that the applicant realized he could have filed a notice of objection. The application for a time extension was then made as soon as possible in the circumstances.

Counsel for the applicant further submitted that the criminal proceedings would turn on the actual amounts in the assessment of June 28, 1977 and on the applicant’s intention. The fact that the applicant, believing that he could not do so without documentary evidence of the alleged expenses, did not file a notice of objection to the assessment, would according to his counsel gravely prejudice him in his defence on the merits against the prosecution brought against him. On the other hand, counsel for the applicant pointed out, the Department of National Revenue would not be adversely affected if the Board granted the application. In fact, Mr Godard implied in his testimony that if the expenses that the applicant alleged he incurred are genuine, the recipients would be liable for tax on the money thus received.

Counsel for the respondent for his part submitted that the applicant did not meet one of the conditions of section 167, and that the application should be dismissed.

section 167 of the Income Tax Act allows the Board to make an Order extending the time limit for objection in circumstances in which it deems it would be just and equitable to do so. In my view, in the case at bar the conditions for making such an Order, provided for by Subsection 167(5) of the Income Tax Act, were met.

(1) The Board is convinced from the evidence that if his accountant had known that the applicant could file a notice of objection, even given the lack of the said documentary evidence, and if Mr Godard and his Department colleague in the circumstances had informed the applicant of his statutory right to file a notice of objection, the applicant would have exercised this right in good time.

(2) Once the assessment was issued, there was no contact and no correspondence between Mr Godard and the applicant. The applicant made an application as soon as he was informed of his right to file a notice of objection.

(3) Failure to file a notice of objection to an assessment for taxation purposes is one thing, but if the fact of not having filed such an objection can cause serious hardship to the applicant in a criminal prosecution and the possible outcome of such a prosecution, this is, in my opinion, quite another thing.

(4) Prima facie, the applicant had reasonable grounds for objecting to this assessment and the Board feels that it would not be impossible for him to submit valid, if not documentary, proof of the alleged expenses.

After considering all the facts of this case I conclude that it is just and equitable for the Board to make an Order for time extension.

The application is therefore allowed.

Application allowed.