Date: 19971215
Dockets: 95-1363-IT-G; 95-1394-IT-I
BETWEEN:
RICHARD W. BURKART, LISE M.J. GIRARD-BURKART,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Brulé, J.T.C.C.
[1] This appeal was heard on common evidence, even though two separate appeals were filed, one by the husband under the General Procedure and one by the wife under the Informal Procedure, together with a motion by the Appellant Richard W. Burkart in which he sought to make an amendment to the Amended Notice of Appeal. The assessments under appeal are the amended returns for the taxation years 1986, 1987 and 1988. The appeals involved unreported capital gains as well as penalties pursuant to subsection 163(2) of the Income Tax Act (the "Act") as well as disallowed an allowable business investment loss in the 1988 taxation year.
The Motion
[2] It was decided that the Motion be heard as a preliminary matter to the appeal and then the appeal would be heard. Mr. Burkart brought the Motion because when "discoveries" were heard a new matter came to life and he wished to include this in his Amended Notice of Appeal. Counsel for the Minister of National Revenue (the "Minister") objected on grounds that at a previous hearing the judge ruled that all issues needed by the Appellant for the Court to decide must be included and said that if such were not written in the Notice of Appeal, then such could not be added.
[3] This, of course, was before "discoveries" and before the Appellant was aware of the deficiency.
[4] Pursuant to section 54 of the Tax Court of Canada General Procedure Rules (the "Rules"), the Court has the power to grant leave to amend pleadings. In granting such leave the Court has the discretion of imposing terms, but where terms are imposed they must be just.
[5] Section 54 of the Rules reads as follows:
"A pleading may be amended by the party filing it, at any time before the close of pleadings, and thereafter either on filing the consent of all other parties, or with leave of the Court, and the Court in granting leave may impose such terms as are just."
[6] In deciding whether to exercise this power the general rule is that an amendment should be allowed at any stage in a proceeding provided that the allowance would not result in an injustice to the other party that is not capable of being compensated by an award of costs and that it would serve the interests of justice. In The Queen v. Canderel Limited, 93 DTC 5357 at 5360, Décary, J.A. of the Federal Court of Appeal applied this rule. In summary it indicated:
- Whether an amendment should be granted is a matter for the discretion of the trial judge and he should be guided in the exercise of the discretion by his assessment of where justice lies (at page 5361, quoting from Lord Griffiths in Ketteman v. Hansel Properties Ltd., [1988] 1 All E.R. 38).
- No single factor predominates nor is its presence or absence necessarily determinative. All must be assigned their proper weight in the context of the particular case. Ultimately it boils down to a consideration of simple fairness, common sense and the interest that the courts have that justice be done (quoting from Bowman, J. in Continental Bank Leasing Corporation et al. v. The Queen, 93 DTC 298 at 302).
- Factors to be emphasized include (1) the timeliness of the motion to amend or withdraw, (2) the extent to which the proposed amendments would delay the expeditious trial of the matter, (3) the extent to which a position taken originally by one party has led another party to follow a course of action in the litigation which it would be difficult or impossible to alter and (4) whether the amendments sought will facilitate the court's consideration of the true substance of the dispute on its merits (at 5361, quoting from Bowman, J. in Continental Bank Leasing Corporation et al. v. The Queen, supra.
- There is no injustice if the other side can be compensated by costs (at 5360, quoting from Lord Esher in Steward v. North Metropolitan Tramways Co. (1886), 16 Q.B.D. 556 at 558).
- An amendment is to be allowed whenever you can put the parties in the same position for the purposes of justice that they were in at the time when the slip was made (at 5360, quoting from Lord Esher in Steward v. North Metropolitan Tramways Co. supra.
[7] In Canderel, the Crown moved, on the fifth day of the trial, for leave to amend its amended Reply to the Notice of Appeal (for a fourth time). Until this motion for leave to amend, the issue between the parties had, by agreement, been one of timing only. In dismissing the Crown's appeal the Court of Appeal held that on the facts before it the embarrassing pleading by the Crown surely involved an "injustice" to the taxpayer within the meaning of the case law and did not in any way help in determining the real question in controversy.
[8] After the motion was introduced it is difficult to stop the Appellants from claiming an amendment to the appeal brought about by "discoveries". What better use to make of discoveries than to realize that some new matter must be pleaded?
[9] The result of the above is that the Motion is allowed, the Appellant, Richard W. Burkart, may amend his pleadings and then the matter of the appeal itself must be considered.
The appeal
[10] The appeal in this case is rather strange in that the husband's appeal was filed under the General Procedure and the wife's was filed as an informal procedure. Whatever prompted the parties to accept that the evidence will be common to both is unknown but both Appellants and the Respondent agreed that the appeal be heard as one and on common evidence.
[11] At the outset counsel for the Respondent told the Court that the Crown was prepared to delete its assessment for 1986 in respect of the property at 327 Somerset Street. This applies to both Appellants even though the amounts in the assessment are different.
[12] The evidence of the husband Appellant was that he dealt in various properties from 1976 onward. For a person with an honours degree in economics and now working as a computer consultant, it is surprising that the Appellant could give little light on his knowledge of income tax including the necessity to file by April 30th of the following year. He admitted being grossly negligent in filing returns for 1986, 1987 and 1988. He acknowledged that there were penalties for late filing and these returns were only filed in 1989 and then again in amended form in 1995.
[13] Counsel for the Minister told the Court that the income tax returns for the Appellants were filed late, did not report taxable capital gains, nor was interest income reported, all of which allows the imposition of penalties. In addition the Appellants did not sustain business investment losses in any of the 1986, 1987 or 1988 taxation years.
Issues
[14] The issues are:
(a) whether the Appellants are entitled to capital gains deductions pursuant to section 110.6 of the Act for the 1986, 1987 and 1988 taxation years;
(b) whether the Minister properly assessed penalties pursuant to subsection 163(2) of the Act in those years; and
(c) whether the Appellants are entitled to deduct allowable business investment losses in any of the 1986, 1987 or 1988 taxation years.
Analysis
[15] The husband Appellant provided the argument and he believed that no income had been earned and therefore no penalties should be imposed even though the income tax returns for 1986, 1987 and 1988 had been late filed. He suggested that an innocent error had been committed but no cases were cited to back this argument.
[16] The Appellant-husband believed that the Somerset property had been sold in 1985 but could recollect nothing further. In fact it was sold in 1988. Other properties which were sold at various times could not be pinpointed as to the actual time of disposition. Such lack of memory was very surprising for an accountant-trained individual wherein the monies involved were substantial. The Appellant-husband, in evidence, did not realize receipts were necessary for certain alterations done and none were produced to the Court.
[17] Counsel for the Respondent did not rely on any cases decided by the Courts, but was content to quote the various sections of the Act which the Appellants violated.
[18] Counsel for the Respondent relied, inter alia, on sections 38, 39 and 110.6 and subsection 163(2) of the Act as amended for the 1986, 1987 and 1988 taxation years.
[19] Counsel submitted that the Appellants are precluded by subsection 110.6(6) of the Act from deducting any amount in respect of their capital gains under section 110.6 of the Act since:
(a) they failed to file income tax returns for the 1986 and 1987 taxation years by April 30, 1988 and for 1988 by April 30, 1989 respectively; and
(b) they failed to report capital gains in income tax returns for the 1986, 1987 and 1988 taxation years.
[20] Counsel further submitted that the penalties assessed the Appellants for the 1986, 1987 and 1988 taxation years were properly assessed in accordance with subsection 163(2) of the Act because at least the Appellant-husband knowingly, or under circumstances amounting to gross negligence in carrying out a duty or obligation imposed under the Act made or participated in, assented to or acquiesced in the making of false statements or omissions in the income tax returns filed for the 1986, 1987 and 1988 taxation years as a result of which the tax that would have been payable and assessed on the information provided in the income tax returns filed for those years was less than the tax payable for those years within the meaning of subsection 163(2) of the Act.
[21] Finally, counsel for the Respondent submitted that the Appellants are not entitled to deduct any amounts as allowable business investment losses in the 1986, 1987 and 1988 taxation years pursuant to sections 38 and 39 of the Act.
[22] The appeal is hereby allowed on the basis that the Appellants are entitled to deduct the following amounts for the 1986 taxation year in respect of the 327 Somerset Street property: Richard W. Burkart $36,391 and Lise M.J. Girard-Burkart $36,390.
[23] The Respondent is also entitled to costs in this appeal, such to be determined on an application for costs.
"J.A. Brulé"
J.T.C.C.