[Starkman (P.H.) v. Canada, [1995] 2 CTC 2726

Mogan J.T.C.C.:-When the appellant in 1993 filed his income tax return for the 1992 taxation year, he made the usual computations of taxable income, tax payable and the amounts deducted and remitted by his employer with respect to income tax. As a result of these computations, the appellant claimed a refund in the amount of $3,958.52. By notice of assessment dated August 5, 1993 the Minister of National Revenue determined that the amounts paid to the Receiver General of Canada with respect to the appellant’s income tax for 1992 exceeded his actual income tax liability for that year and there was a credit balance in the appellant’s favour in the amount of $3,958.52. Attached to the notice of assessment was the following statement:

We have applied $3,958.52 of your refund to the debt you owe to Secretary of State. If you have questions concerning this debt, please call Secretary of State at 1-613-749-4200.

The appellant filed a notice of objection claiming that the Minister of National Revenue had no right to set off his refund against an alleged debt to the Secretary of State. In response to the appellant’s objection, the Minister of National Revenue confirmed the assessment. The appellant has appealed to this court electing the informal procedure.

When the appeal was called for hearing, the respondent moved for judgment dismissing the appeal because the appellant was not contesting the Minister’s determination of the amount of tax payable or the amount of the refund for 1992. Therefore, he was not seeking to have the assessment "vacated or varied" within the meaning of subsection 169(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). The appellant argued that he did not owe any debt to the Secretary of State and so there was no debt against which his refund could be set off. The Minister relies on the following provisions of the Income Tax Act:

164.(1) If the return of a taxpayer’s income for a taxation year has been made within three years from the end of the year, the Minister

(a) may,

(ii) on or after mailing the notice of assessment for the year, refund

without application therefor, any overpayment for the year...; and

(b) shall, with all due dispatch, make such a refund referred to in subparagraph (a)(ii) after mailing the notice of assessment if application therefor has been made in writing by the taxpayer within the period determined under paragraph 152(4)(b) or (c), as the case may be, within which the Minister may reassess tax payable by the taxpayer for the year.

164.(2) Instead of making a refund or repayment that might otherwise be made under this section, the Minister may, where the taxpayer is liable or about to become liable to make any payment to Her Majesty in right of Canada, apply the amount of the refund or repayment to that other liability and notify the taxpayer of that action.

The appellant filed as Exhibit A-l a statement with the following title "Secretary of State-Education Support Branch, Student Assistance Directorate-Canada Student Loans Program". The statement showed that the appellant had borrowed $5,087.27 as a student loan on May 1, 1986; that the appellant’s last payment on the student loan was $30 on March 10, 1987, leaving a "principal remaining" of $4,868.33; and that a payment of $3,958.52 had been credited to the loan on August 5, 1993. The appellant argues that the assessment under appeal which purports to apply his refund for 1992 against the student loan was issued on August 5, 1993, more than six years after the date (March 10, 1987) of his last payment on his student loan. Accordingly, the appellant as a resident of Ontario claims that he is protected by the Ontario Limitations Act (c. L.15) which provides in section 45:

45.(1) The following actions shall be commenced within and not after the times respectively hereinafter mentioned,

(g) an action for trespass to goods or land, simple contract or debt grounded upon any lending or contract without specialty, debt for arrears of rent, detinue, replevin or upon the case other than for slander.

within six years after the cause of action arose,

After hearing initial submissions from both parties concerning the respondent’s preliminary objection and the appeal itself, I asked for written submissions. Counsel for the respondent in her written submission argues as a preliminary objection that this appeal for the 1992 taxation year ought to be dismissed because the appellant is not appealing from an assessment of tax, interest or penalty as contemplated by section 169 of the Income Tax Act. I will not dismiss the appeal because dismissing this appeal implies that there is a valid appeal to be allowed or dismissed. In my opinion, the purported appeal with respect to the 1992 taxation year is not a valid appeal because the appellant is not contesting any determination made by the Minister with respect to the appellant’s liability for tax, interest or penalty. Set out below are certain provisions of the Income Tax Act concerning returns, assessments and appeals.

150.(1) A return of income for each taxation year...shall, without notice or demand therefor, be filed with the Minister in prescribed form and containing prescribed information.

152.(1) The Minister shall, with all due dispatch, examine a taxpayer’s return of income for a taxation year, assess the tax for the year, the interest and penalties, if any, payable and determine

(a) the amount of refund, if any, to which he may be entitled,

169.(1) Where a taxpayer has served notice of objection to an assessment under section 165, he may appeal to the Tax Court of Canada to have the assessment vacated or varied....

171 .(1) The Tax Court of Canada may dispose of an appeal by

(a) dismissing it, or

(b) allowing it and

(i) vacating the assessment,

(ii) varying the assessment, or

(iii) referring the assessment back to the Minister of National Revenue for reconsideration.

There is long-standing judicial authority for the proposition that an "assessment" is the determination of the amount of tax to be charged to a particular taxpayer. In Pure Spring Co. Ltd. v. M.N.R., [1946] 2 C.T.C. 844, 2 D.T.C. 844, Thorson P. stated at page 857 (D.T.C. 858):

The assessment is different from the notice of assessment; the one is an operation, the other a piece of paper. The nature of the assessment operation was clearly stated by the Chief Justice of Australia. Isaacs A.C.J. in Federal Commissioner of Taxation v. Clarke (1927), 40 C.L.R. 246 at 277:

An assessment is only the ascertainment and fixation of liability.

a definition which he had previously elaborated in R. v. Hooper, Dep. Fed. Comm. of Taxation ex parte Hooper (1926), 37 C.L.R. 368 at 373:

An "assessment" is not a piece of paper: it is an official act or operation; it is the Commissioner’s ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount he sends by post a notification thereof called "a notice of assessment".... But neither the paper sent nor the notification it gives is the "assessment". That is and remains the act or operation of the Commissioner.

It is the opinion as formed, and not the material on which it was based, that is one of the circumstances relevant to the assessment. The assessment, as I see it, is the summation of all the factors representing tax liability, ascertained in a variety of ways, and the fixation of the total after all the necessary computations have been made.

This concept of an "assessment" has been followed consistently by the Courts and caused the Supreme Court of Canada to conclude in Okalta Oils Ltd. v. M.N.R., [1955] S.C.R. 824, C.T.C. 271, 55 D.T.C. 1176 that there was no appeal from a nil assessment. In À. v. Garry Bowl Ltd., [1974] C.T.C. 457, 74 D.T.C. 6401, the Federal Court of Appeal held that there was no appeal from a nil assessment because the taxpayer had nothing to complain of in his appeal to the Court.

The Income Tax Act has extended the right to appeal in certain circumstances where the assessment of tax, interest or penalty is not the issue. For example, in subsection 152(1.1), a taxpayer may request that the Minister determine the amount of a loss (non- capital loss, net capital loss, etc.) and the Minister is required to determine the amount of such loss and send a ’’notice of determination" to the taxpayer. Under subsection 152(1.3), such a determination by the Minister is subject to a taxpayer’s rights of objection and appeal. Similarly, pursuant to a recent amendment, subsection 152(1.2) now provides that Divisions I and J (sections 150 to 180) apply to a determination of an amount deemed under section 122.61 to be an overpayment on account of a taxpayer’s liability. The appellant, however, does not attempt to come within any of these special provisions which extend the rights of appeal under the Income Tax Act.

The appellant acknowledges that for the 1992 taxation year he had income, taxable income and a tax liability of approximately $1,600. It just happened that in 1992 the amounts remitted or credited on behalf of the appellant were approximately $5,500 causing him to have a refund of $3,958.52. None of those amounts is in dispute. What is in dispute is the Minister’s use of subsection 164(2) to apply the amount of the refund to what the Minister claims is the appellant’s liability to the Queen in right of Canada being a student loan in default. In order to know whether the Minister was justified in applying the amount of the refund to the student loan in default, I would have to decide whether the apparent debt to the Secretary of State under the student loan plan could be recovered by the Federal Crown as at the date (August 5, 1993) of the assessment for the appellant’s 1992 taxation year or whether that debt was barred by the six year limitation period. I have concluded that I do not have the jurisdiction to make that decision.

I think that the appellant’s relief, if any, is by way of a declaration under subsection 18(1) of the Federal Court Act. If a valid appeal has been instituted under section 169 of the Income Tax Act, the Tax Court of Canada has jurisdiction to consider and decide all issues which are collateral to the appeal itself. In some cases involving the deductibility of amounts paid as alimony or maintenance, it is necessary to construe and rule upon the validity of certain clauses in a separation agreement. See Stewart v. M.N.R., [1990] 1 C.T.C. 2231, 90 D.T.C. 1110 (T.C.C.). In an appeal by Anderson, Estate v. Canada, [1995] 1 C.T.C. 2454, (1994), 6 E.T.R. (2d) 251 (T.C.C.) the issue was whether certain property transferred by the Estate to Doris Mayes resulted in a capital gain to the Estate or whether Doris Mayes had a beneficial interest in such property at the time of Merle Anderson’s death. I was required to decide as a collateral issue whether Doris Mayes had a prima facie case against the Estate for the imposition of a constructive trust. In the cases of Stewart and Anderson, however, there were valid appeals because the taxpayer in each case was contesting the amount of tax assessed by the Minister. In this purported appeal, Paul Starkman is not contesting any computation of tax, interest or penalty by the Minister of National Revenue. The appellant is contesting only the application of his refund (an admitted amount) to an apparent liability of the appellant which may not have been enforceable by the Queen in right of Canada on August 5, 1993. The purported appeal herein is quashed.

Appeal quashed.