Tax Court of Canada Judgments

Date: 980205

Docket: APP-187-97-IT

BETWEEN:

NASHA PROPERTIES LTD.,

Applicant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Order

Christie, A.C.J.T.C.

[1]The issue to be determined is whether this Court has jurisdiction to extend the time within which Nasha Properties Ltd. (“Nasha”) may serve on the Minister of National Revenue (“the Minister”) Notices of Objection to assessments of liability for income tax in respect of its 1987 and 1988 taxation years.

[2]The applicable legislative scheme is embodied in these provisions of the Income Tax Act (“the Act”): Paragraph 165(1)(b); subsection 166.1(1); paragraph 166.1(7)(a); paragraph 166.2(1)(a); paragraph 166.2(5)(a). They provide:

“165(1) A taxpayer who objects to an assessment under this Part may serve on the Minister a notice of objection, in writing, setting out the reasons for the objection and all relevant facts,

...

(b) ... on or before the day that is 90 days after the day of mailing of the notice of assessment.

166.1(1) Where no notice of objection to an assessment has been served under section 165 ... within the time limited by those provisions for doing so, the taxpayer may apply to the Minister to extend the time for serving the notice of objection ...

166.1(7) No application shall be granted under this section unless

(a) the application is made within one year after the expiration of the time otherwise limited by this Act for serving a notice of objection ...

166.2(1) A taxpayer who has made an application under subsection 166.1 may apply to the Tax Court of Canada to have the application granted after either

(a) the Minister has refused the application, ...

166.2(5) No application shall be granted under this section unless

(a) the application was made under subsection 166.1(1) within one year after the expiration of the time otherwise limited by this Act for serving a notice of objection ...”

It is the position of counsel for the respondent that this Court has no jurisdiction to grant the extension of time referred to by reason of paragraph 166.2(5)(a).

[3]Nasha’s application to extend time is in the form of a letter addressed to the Tax Court dated May 8, 1997 from Donald L. Grant, Q.C. of Trenton who at that time was acting for Nasha Properties Ltd. (“Nasha”). It is stamped as having been received in the Registry on May 12, 1997. It reads:

“Re: Nasha Properties Ltd.

Account #82927682

Taxation Years 1987 & 1988

Our file number 12717

I am the solicitor for Nasha Properties Ltd. (‘Nasha’).

This is an application to extend the time for filing an objection to the Chief of Appeals.

This objection arises because Revenue Canada has assessed taxable income against Nasha for the taxation years ending December 31, 1987, and December 31, 1988, where Nasha’s expenses and costs exceeded any income for those years.

In 1993 and 1994, Nasha and related companies were audited by Revenue Canada. As a result Nasha received proposal letters from Revenue Canada dated September 8, 1993, and May 2, 1994.

I enclose a copy of those letters.

In January and March, 1994, representatives of Nasha met with Revenue Canada and thought they satisfied Revenue Canada that the expenses and costs of projects in which Nasha was involved in 1987 and 1988 exceeded any income for those years.

These meetings involved other companies and individuals who subsequently received Notices of Reassessment which were duly objected to in a timely matter but no notices or other correspondence were received by Nasha or its representatives.

As a result, they thought the audit of Nasha was completed and no adjustments were forthcoming.

Nasha first became aware of a balance outstanding in November, 1996, when it received a letter from Revenue Canada enclosing Notices of Assessment for 1987 and 1988 indicating for the taxation year 1987 a mailing date of August 10, 1995, and for the taxation year 1988 a mailing date of August 31, 1995.

You will note that although the proposal letters of September 8, 1993, and May 2, 1994, propose adjustments to the taxation years 1987, 1988, 1990, and 1991, no assessments have been received to date concerning 1990 and 1991.

Mr. Hasiuk, the principal of Nasha, expected an assessment for Nasha because of the proposal letters and Patrick Rutherford, his accountant, would regularly ask him if he had received any notice from the department about Nasha. Mr. Hasiuk says he did not receive any Notice of Assessments before November, 1996.

I enclose a copy of the Objection in triplicate.

Essentially, Nasha’s position is that its costs and expenses exceeded any income for 1987 and 1988 and therefore, there is no taxing owing.

Had Nasha been aware of the assessments in August, 1995, it would have filed an Objection within the time limited by the Act.

I, therefore, submit that it would be appropriate, in the circumstances, to extend the time for filing an Objection.”

[4]All documents referred to in Mr. Grant’s letter of May 8, 1997 are reproduced in the order they are referred to in that letter.

[5]The letters of September 8, 1993 and May 2, 1994 read:

“September 8, 1993

Dear Mrs. Pat Hasiuk

Re: Corporate Income Tax Returns for 1987, 1988,

1990, and 1991

Following an audit of Nasha Properties Ltd. for the above noted years, we are proposing to initially assess the following as taxable income of the corporation for the years given:

1987

Unreported business income from

various lot sales (see attached

schedules) $77,236

1988

Unreported business income from

various lot sales (see attached

schedules) $87,193

1990

Unreported business income on

the sale to Robert Hasiuk (see

attached schedules) $14,599

1991

Unreported business income on

the sale to Bill Hasiuk (see

attached schedules) $19,599

Should you wish to make any further representations regarding the above matter please do so by contacting myself within thirty days of this letter’s mailing. Failure to respond to this letter before this date will result in the assessment of the company’s 1987, 1988, 1990, and 1991 corporate income tax returns to include the above as taxable income.

May 2, 1994

Dear Mrs. Pat Hasiuk:

Re: Corporate Income Tax Returns for 1987, 1988,

1990 and 1991

Following our examination of Nasha Properties Ltd. for the above noted years, we are proceeding to initially assess the following as taxable income of the corporation for the years given:

1987

Unreported business income from

various lot sales (see attached

schedules) $43,797

Unreported taxable capital gain

on the sale to Edison Carvalho

($54,439 - $32,000 - $4,122) x 50% $9,159

$52,956

1988

Unreported business income from

various lot sales (see attached

schedules) $72,594

1990

Unreported business income on

the sale to Robert Hasiuk (see

attached schedules) $14,599

Unreported taxable capital gain

(reserve of $4,122 x 75%) 3,092

$17,691

1991

Unreported business income on

the sale to Bill Hasiuk (see

attached schedules) $19,599

The completion of our examination should not, however, be considered as permission to destroy any books and records. We wish to remind you that the authority for proper retention and destruction of books and records pursuant to subsection 230(4) of the Income Tax Act is detailed in Information Circular 78-10R available at this office upon request.

Yours truly,

Gordon Parr

Audit Division”

[6]The letter from Revenue Canada to Nasha dated November 13, 1996 reads:

“November 13, 1996

P.O. Box 722

Colborne, Ontario

K0K 1S0

Dear Sir or Madam:

Re: Income tax arrears -

Balance: $148,105.62

According to our records, you still owe $148,105.62, even though we have previously drawn this debt to your attention.

We would appreciate it if you would pay this amount right away.

If you fail to pay the full amount within 15 days, we may have to take appropriate legal action without further notice.

If you have already paid your account, please accept our thanks and disregard this letter. However, if you paid it more than 15 days ago, please give us further details so that we can credit the payment to your account.

Yours truly,

Mr. J. Andrews

Revenue Collections”

[7]The Notices of Assessment read:

“NOTICE OF ASSESSMENT

Name of corporation Acct/Business No.

NASHA PROPERTIES LTD. 8292 7682

Taxation year-end Date of mailing Tax centre

December 31, 1987 August 10, 1995 Sudbury

SUMMARY OF AMOUNTS ASSESSED

Part I tax $ 19,361.11

Total federal tax assessed $ 19,361.11

Total provincial & territorial tax assessed    0.00

Total tax assessed $ 19,361.11

Add (Deduct)

Penalties $ 3,291.38

Instalment interest

and instalment penalty 1,077.94

Arrears interest    28,962.91 $ 33,332.23

Balance owing on this assessment $ 52,693.34

Previous balance    0.00

Balance due (please pay this amount) $ 52,693.34

We are charging interest because one or more of your instalment payments were late or deficient. You had to make 12 instalment payments of $1,613.42. This requirement was based on option 1 which is explained in the ‘Corporation Instalment Guide’.

EXPLANATION OF CHANGES

This corporation income tax return has been prepared and assessed under the provisions of subsection 152(7) of the ‘Income Tax Act’.

NOTICE OF ASSESSMENT

Name of corporation Acct/Business No.

NASHA PROPERTIES LTD. 8292 7682

Taxation year-end Date of mailing Tax centre

December 31, 1988 August 31, 1995 Sudbury

SUMMARY OF AMOUNTS ASSESSED

Part I tax $ 23,538.81

Total federal tax assessed $ 23,538.81

Total provincial & territorial tax assessed    0.00

Total tax assessed $ 23,538.81

Add (Deduct)

Penalties $ 4,001.59

Instalment interest

and instalment penalty 1,229.55

Arrears interest 29,655.53 $ 34,886.67

Balance owing on this assessment $ 58,425.48

Previous balance $ 53,088.86

Balance due (please pay this amount) $111,514.34

We are charging interest because one or more of your instalment payments were late or deficient. You had to make 12 instalment payments of $1,613.42. This requirement was based on option 2 which is explained in the ‘Corporation Instalment Guide’.

EXPLANATION OF CHANGES

This corporation income tax return has been prepared and assessed under the provisions of subsection 152(7) of the ‘Income Tax Act’.

We have revised the base amount of Part I tax to agree with the amount indicated below.

We have revised the claim for federal tax abatement to agree with the amount indicated below.

We have revised the corporate surtax to agree with the amount indicated below.

THE FOLLOWING ARE REVISED AREAS OF YOUR CORPORATION INCOME TAX RETURN:

PART I TAX ON TAXABLE INCOME

Taxable income [127] $ 72,594.00

Part I tax on taxable income [202] 30,112.62 $ 30,112.62

Deduct:

Federal tax abatement [207] 7,259.40 $ 7,259.40

Net amount $ 22,853.22

Add: Corporate surtax [209] $ 685.59

Sub-total $ 23,538.81

Total Part I tax credits     0.00

Part I tax payable [129] $ 23,538.81”

[8]Notices of Objection were included in Mr. Grant’s letter regarding 1987 and 1988. To each was attached two documents consisting of a “Statement of Facts” and a “Statement of Reasons”. The first consists of seven numbered paragraphs and the other of four numbered paragraphs. With the exception noted in footnote 1 the wording is the same in respect of both years and is as follows:

“1. The taxpayer understands that it has 90 days from the receipt of the Notice of Assessment to file a notice of objection (copies of Notices attached).

The taxpayer and its’ representatives were not aware of any notices or balances owing until it received a statement dated November 13, 1996 (copy attached) together with the notice of assessment.

2. The taxpayer and related companies were audited by Revenue Canada in 1993 and 1994 which resulted in proposal letters dated September 8, 1993 and May 2, 1994 (copies attached).

3. The company representative and Revenue Canada personnel met in January and March, 1994 to review the costs of the project and review documentation of same. These meetings were after lengthy discussions and correspondence concerning the various issues.

4. The meeting concluded with resolution of issues concerning other companies and individuals and apparent resolve of the ‘Nasha’ audit where the expenses and costs exceeded any income from the project.

5. The other companies and individuals received notices of reassessment which were duly objected to in a timely matter.

6. No other correspondence was received by the taxpayer or the representatives and thus they felt the audit of ‘Nasha’ was completed and no adjustments were forthcoming.

7. The proposal letters (as noted in Note 2) proposed adjustments to the 1987, 1988, 1990 and 1991 tax years. At this point, the taxpayer is unaware of any assessments other than 1987 and 1988.

1. The taxpayer and its’ representatives did not receive the Notice of Assessment dated August 10, 1995 until November 1996 and was therefore unaware that an assessment had been issued until this time.[1]

2. The taxpayer and the representatives question why the company was assessed more than one year after the proposal letter dated May 2, 1994.

3. The taxpayer asks that an extension of the 90 day period be granted and this notice of objection be allowed.

4. The costs and expenses exceeded the income and thus there is no tax owing.”

[9] By motion dated September 29, 1997 Mr. Grant sought an order from the Tax Court removing him as solicitor of record for Nasha on the grounds that:

“(a) Donald L. Grant, Q.C. has been unable to obtain sufficient monies from the applicant to prosecute the motion;

(b) Donald L. Grant, Q.C. has been unable to obtain instructions from the applicant.”

In support of the application the Affidavit of Joan Grant, sworn on September 29, 1997, was filed and served. It reads:

“I, JOAN GRANT, of the City of Trenton, in the County of Hastings, MAKE OATH AND SAY:

1. I am a law clerk in the offices of Donald L. Grant, Q.C. and as such have knowledge of the matters hereafter deposed to;

2. Attached as Exhibit ‘A’ to this my affidavit is a copy of a letter I received from Gerald Hasiuk advising that he no longer requires my services in this matter.[2]

3. The last known address of Nasha Properties Limited is P.O. Box 722, Colborne, Ontario, K0K 1S0.”

Exhibit “A” to Affidavit:

“September 29, 1997

Don Grant

Attention: Don or Joan Grant

Dear Mr. Grant,

Please be advised that as of today we no longer require your services or legal counsel on the Revenue Canada case #12540.

Yours truly,

Gerald Hasiuk”

There are minutes on the Tax Court file indicating that this application was heard and granted on September 30, 1997 at Belleville by McArthur, T.C.J. Under the heading “Decision” the minutes state: “Motion granted removing Mr. Grant as counsel of record. Adjourned at request of appellant (Nasha) to next available sitting at Belleville”. Only that portion of the order pertaining to the adjournment appears to have been reduced to writing.

[10]By Notice of Motion dated September 25, 1997 counsel for the respondent seeks an order quashing the application to extend the time for filing Notices of Objection. It reads:

“TAKE NOTICE THAT the Respondent will make a motion to the Court on Wednesday, 1 October 1997, at 9:30 a.m., or as soon after that time as the motion may be heard, at the Ramada Inn, Moira Room, 11 Bay Bridge Road, Belleville, Ontario.

THE MOTION IS FOR an Order quashing the application for an extension of time to file Notices of Objection for the 1987 and 1988 taxation years.

THE GROUNDS FOR THE MOTION ARE:

(a) the Minister of National Revenue (the ‘Minister’) assessed the Applicant for the 1987 and 1988 taxation years by Notices of Assessment dated and mailed to the Applicant on 10 and 31 August 1995 respectively;

(b) the Applicant did not object to the assessments within the time required by s. 165(1)(b) of the Income Tax Act (the ‘Act’);

(c) on 14 January 1997, the Applicant applied to the Minister under s. 166.1 of the Act to extend the time for serving Notices of Objection;

(d) after considering the application, the Minister refused it, and notified the Applicant in writing of this decision on 3 March 1997;

(e) on 12 May 1997, the Applicant applied to the Court under s. 166.2 of the Act to extend time the time for serving Notices of Objection; and

(f) by virtue of s. 166.2(5)(a) of the Act, the Court may not grant the application because the application under s. 166.1 of the Act was not made within one year of the expiration of the time otherwise limited by the Act for serving a Notice of Objection.”

The Affidavit of W. Paul Young, sworn on December 3, 1997, was filed and served in support of this application. It reads:

“I, W. Paul Young, of the City of Belleville, in the Province of Ontario, make oath and say as follows:

1. I am an officer in the Appeals Division of the Belleville Tax Services Office of the Department of National Revenue (the ‘Department’) and, as such, have charge of the appropriate records, and knowledge of the practices of the Department.

2. I have carefully examined the records in respect of assessments for the Applicant’s 1987, 1988, 1990 and 1991 taxation years, and in respect of the Applicant’s application for an extension of time to serve Notices of Objection for the 1987 and 1988 taxation years.

3. I have personal knowledge of the matters hereinafter deposed to, except where they are stated to be based upon information and belief, in which case I believe them to be true.

4. My examination of the records shows that:

(a) the Minister of National Revenue (the ‘Minister’) assessed the Applicant for the 1987 taxation year by Notice of Assessment dated August 10, 1995;

(b) the Minister assessed the Applicant for the 1988 taxation year by Notice of Assessment dated August 31, 1995;

(c) the Minister assessed the Applicant for the 1990 taxation year by Notice of Assessment dated December 18, 1995; and

(d) the Minister assessed the Applicant for the 1991 taxation year by Notice of Assessment dated January 18, 1996.

5. Attached as Exhibits ‘A’ and ‘B’ are true copies of the Notices of Assessment for the Applicant’s 1987 and 1988 taxation years respectively. They are photocopies of part of the material submitted to the Court by the Applicant.

6. The Notices of Assessment for the Applicant’s 1987 and 1988 taxation years were computer generated. In the case of computer generated Notices of Assessment, as opposed to manually produced Notices of Assessment, one original is generated which is sent to the taxpayer. No physical copy is kept in the Department’s records.

7. The Department is able to reconstruct computer generated Notices of Assessment by reprinting the information contained in the computer system. When this is done, the reconstructed copies are clearly stamped ‘RECONSTRUCTED RECONSTITUE’. Exhibits ‘A’ and ‘B’ are not reconstructed Notices of Assessment.[3]

8. I am informed by Janice A. Crossman, the project leader of the T2 (Corporate) Assessing Production & Products Support Section at the Department’s Head Office that:

(a) the Department’s computer system processes corporate income tax assessments, and postdates them ten days after the processing date;

(b) corporate assessments are processed in batches and are released in cycles for control purposes;

(c) the Applicant’s assessments for the 1987 and 1988 taxation years were processed on July 31, 1995 and August 21, 1995 respectively, and the Notices of Assessment were postdated August 10, 1995 and August 31, 1995 respectively;

(d) a master file of all files in the batch is created on tape with a unique sequence number being created for each page to be printed;

(e) the tape is then used by the Media Services Print Shop - Magnetic Ink Character Recognition Room (the ‘MicrRoom’) to print the cycle;

(f) upon completion of the printing, the batch is transferred to the Mechanized Distribution Section for distribution; and

(g) there is no record of any problems with downloading the tape files on July 31, 1995 and August 21, 1995.

9. I am informed by Judie G. Thompson, the acting manager of the Mechanized Distribution Section at the Department’s Ottawa Taxation Centre that:

(a) this Section receives the batches of computer generated corporate assessments from the MicrRoom, places them in individual envelopes, and delivers them to on-site employees of Canada Post for mailing;

(b) the batch of Notices of Assessment dated August 10, 1995, was received on August 8, 1995, and was mailed on August 14, 1995;

(c) the batch of Notices of Assessment dated August 31, 1995, was received on August 22, 1995, and was mailed on August 31, 1995; and

(d) before a batch is delivered to Canada Post, the computerized count on the filling machine is matched with the expected count, and these counts were accurate on August 14, 1995 and August 31, 1995.

10. My examination of the records shows that Notices of Objection for the Applicant’s 1987 and 1988 taxation years were mailed to the Minister on January 14, 1997, as attachments to an application for an extension of time, and that no Notices of Objection have been served for the Applicant’s 1990 and 1991 taxation years.

11. My examinations of the records shows that the Minister considered the application for an extension of time for the 1987 and 1988 taxation years, but refused it because it was not filed within the time limited by subsection 166.1(7) of the Act. On March 3, 1997, he sent a letter notifying the Applicant of his decision. The letter was sent by registered mail, addressed to Nasha Properties Ltd., P.O. Box 722, Colborne, Ontario, K0K 1S0.

12. My examination of the records also shows that no Notices of Reassessment for the Applicant’s 1987 and 1988 taxation years have been issued after the Notices of Assessment dated August 10, 1995 and August 31, 1995 respectively.

13. This Affidavit is sworn in support of a motion to quash the application for an extension of time on the grounds that the Applicant failed to fulfil a necessary condition precedent to making the application.”

[11]When these matters came on for hearing at 9:30 a.m. on Monday, December 8, 1997 at Belleville Mr. Hasiuk requested an adjournment. No prior notice of this was given to counsel for the respondent or to anyone in the Court Registry. The history of the litigation was reviewed and, in the face of protestation by Mr. Hasiuk, it was ordered that the hearing proceed.

[12]As will be seen from the respondent’s Notice of Motion, it is the position of the Crown that (i) Nasha was assessed in respect of 1987 and the Notice of Assessment was dated and mailed to it on August 10, 1995; (ii) Nasha was assessed in respect of 1988 and the Notice of Assessment was dated and mailed to it on August 31, 1995; the corporation failed to file a Notice of Objection within 90 days as required under paragraph 165(1)(b) of the Act; on January 14, 1997 Nasha applied to the Minister of National Revenue for an extension of time under subsection 166.1(1) and that application was refused in writing on March 3, 1997; Nasha then applied to this Court under paragraph 166.2(1)(a) for an extension of time. As indicated at the commencement of these reasons, counsel for the respondent says that paragraph 166.2(5)(a) precludes this Court from extending time as requested.

[13]At the outset of the hearing counsel for the respondent explained why he brought a motion for an order quashing Nasha’s application for an extension of time rather than, as is usually the case, simply opposing that application. It relates to the decision of the Federal Court of Appeal in Aztec Industries Inc. v. Her Majesty the Queen, 95 DTC 5235.[4] It involved an application under section 28 of the Federal Court Act to set aside a decision of the Tax Court. Aztec Industries Inc. (“Aztec”) had made application to the Tax Court to extend the time for serving Notices of Objection. It was refused as being out of time. Mr. Justice Hugessen, who delivered the decision of the Court, cited subsections 166.1(1), 166.2(1), 166.2(5), 165(1) of the Act at page 5236 in that order. He emphasized these words in paragraph 165(1)(b) “90 days after the day of mailing of the Notice of Assessment” and said: “Thus, the date from which the conclusion of time must be reckoned is the ‘day of mailing of the notice of assessment’.” His Lordship went on at page 5237:

“Where as in the present case, a taxpayer alleges not only that he has not received the notice of assessment but that no such notice was ever issued, the burden of proving the existence of the notice and the date of its mailing must necessarily fall on the Minister; the facts are peculiarly within his knowledge and he alone controls the means of adducing evidence of them.”

After reviewing what was before the Court he held: “There was no evidence of any kind of notice of such assessment ever having been sent to the taxpayer.” The reasons for judgment concluded as follows at page 5238:

“The Tax Court judge had two questions before him. The first was whether the Minister had proved that notices of assessment had been issued and mailed as required by law. The second, assuming such proof, was to know if the taxpayer had rebutted the presumption that such notices had been received. If the first question is not answered affirmatively the second does not arise. With respect, the judge appears to have approached the matter as though the burden of proof was on the taxpayer from the outset, whereas in the circumstances, unless and until the Minister proved the notices of assessment and the dates of their mailing, there was simply nothing for the taxpayer to respond to or deny.

The question remains as to the proper disposition of this application. The Tax Court judge dismissed the application for extension of time on the grounds that it was itself out of time. He was right to dismiss it but he should have done so on a different ground, namely that the Minister had failed to prove the existence or mailing of the notices of assessment. Since it is not inconceivable that questions of res judicata or issue estoppel may arise, it is appropriate that the grounds for dismissal should be stated in the formal order of the Tax Court.

Accordingly, I would allow the section 28 application, set aside the order of the Tax Court dated July 7, 1994 and remit the matter to the Tax Court so that the applicant’s application for extension of time may be dismissed on the grounds that the Minister has failed to prove the existence or date of mailing of the notices of assessment.”

[14]Perhaps the best way in which to relate the appreciation by counsel for the respondent of Aztec is to simply quote what he said in this regard at the hearing:

“The Crown: As a result of the Aztec case --

His Honour: Which tab is that?

The Crown: It’s a decision of the Federal Court of Appeal. It’s at tab 3 of the book.

His Honour: Yes.

The Crown: What happens in some of these applications for time extension, especially ones in Aztec, it was some 10 years after the Notices of Assessment had been sent out. What happens in cases such as this is, the Crown takes the position that a Notice of Assessment was mailed on a certain date. As a result of that date, that starts the ball rolling. There are various time implications that follow.

A Notice of Objection has to happen within a certain period of time. If the Notice of Objection doesn’t happen within that time, there is then relief by which an application for time extension can be made, again within a certain time. And what happens in these cases quite often is, the position that the taxpayer takes is, ‘I never got the Notice of Assessment. And, since I didn’t get the Notice of Assessment, the clock never starts ticking. And, therefore, I can make an application for time extension any time I want because the clock is never ticking’.

What the Federal Court of Appeal said in Aztec, well, if that’s the situation and you didn’t get the Notice of Assessment or, more to the point, if the Crown can’t show the date of the Notice of Assessment, then you don’t really have to make an application for time extension because there is nothing for you to apply for. So really you don’t have to be here. so we will dismiss your application for time extension on the grounds that you don’t need one because the Crown has never shown that you were in fact assessed.

And so the Crown finds itself in the difficult position that the taxpayer’s application for time extension has been dismissed, which the Crown would normally be happy with. However, it’s been dismissed, not because it’s out of time, which would end the matter, but because the Crown hasn’t shown that there was a Notice of Assessment on the date that has been alleged.

And what usually happens is that the matter is now statute barred and so it’s too late for the Crown to go back and reassess and, therefore, the matter ends with no assessment against the taxpayer.

And because the motion for the time extension was dismissed, the Crown can’t even appeal because one appeals an order, not the reasons for the order.

So the Crown is in a very difficult position in those cases and there is nothing the Crown can do. It loses by default.

So what the Crown has done in this case here, this morning, is brought a motion to quash the application for a time extension. Now I don’t want to get ahead of myself. But obviously, if the motion to quash is granted on the basis that the condition precedent has not been fulfilled, the matter ends. The Crown is happy, the taxpayer can appeal if he wishes.

If the motion is dismissed, then I would suggest, obviously based on the reasons, but there would at least be a possible appeal, a potential or possible appeal by the Crown because what the Crown is asking for has not been granted. Therefore, the Crown could get, in the appropriate circumstances, could get before the Court of Appeal and have the matter reviewed.

So what I am proposing to do this morning is argue the motion to quash and at the end of that I will be inviting Your Honour to quash this application on the grounds that the condition precedent has not been fulfilled.”

[15]In addition to Mr. Young’s affidavit counsel for the respondent relied on the oral testimony of four employees of Revenue Canada located at Belleville.

[16]Mr. John G. Parr testified that in 1992 he was assigned the task of investigating Nasha regarding income tax liability. The last return of income that it had filed was for 1985. He discovered that the corporation had business income in 1987 to 1991 inclusive and had realized a capital gain in 1987. He completed his work in the spring of 1994 and recommended that Nasha be assessed in respect of the business income and the capital gain. In addition he recommended the imposition of a penalty under subsection 162(1) of the Act. [5]

[17]Norman H. Davis said that his responsibility pertained to the failure to file income tax returns. Assessment may issue against taxpayers who fail to file returns under subsection 152(7) of the Act.[6]

[18]In the spring of 1994 he received an audit report from Mr. Parr pertaining to Nasha in respect of its 1987 to 1991 taxation years inclusive. He completed a form TX73 which is in evidence as Exhibit R-1. In it reference is made to subsection 152(7) and the Gordon Parr audit. The date of completion is May 25, 1995. The proposed assessment including penalties prepared by Mr. Davis together with four corporate returns regarding Nasha were sent to the Corporate Assessing Section of the Sudbury Taxation Centre for assessing. By notice dated July 12, 1995 Mr. Davis was informed by Sudbury that “Request actioned”.

[19]He related that when the material he sent to Sudbury is received there it is checked over and sent to “that data input”. “From there it is input into the computer” and the issuance of assessments follows.

[20] A computer printout of Nasha’s corporate account transactions was then placed in evidence (R-3) through this witness. It relates to the period 1994 to 1997. It shows that on August 10, 1995 Nasha was assessed $52,693.54 tax, interest and penalty in respect of the period ending December 31, 1987. The printout also shows that on August 31, 1995 Nasha was assessed $58,425.48 tax, interest and penalty in respect of the period ending December 31, 1988.

[21]John L.D. Andrews is a collection inforcement officer. He was referred to the computer printout and stated it showed that two computer produced collection letters were sent to Nasha, one on October 2,1995 for $113,120.33, and the second on November 2, 1995 for $113,975.70.

[22]This witness became involved with the Nasha file in October 1996. He sent a “standard legal warning letter” to Nasha on November 13, 1996. It, like the first two collection letters, is in “standard form”. No copies of these letters are usually kept. Their having been sent is recorded in an electronic diary.

[23]The witness then read into the record from the documents referred to in paragraphs [8] - statements of fact and reasons attached to notices of objection; [7] -notices of assessment; and [6] - letter from Revenue Canada to Nasha dated November 13, 1996 - in these reasons in that order. A copy of the letter of November 13, 1996 received from Mr. Grant that is on the Court’s file has this note at the foot thereof in handwriting: “Please get back to me at 1-800-361-3228 Hasiuk Trailers”. Mr. Andrews said that this is not his handwriting and he was not familiar with the telephone number. He was specific about the fact that he did not send copies of the Notices of Assessment to Nasha Properties at any time and, in particular, with his letter of November 13, 1996.

[24]As already indicated, the affidavit of Mr. W. Paul Young was filed and served in support of the respondent’s application to quash. He was called by counsel for the respondent for the primary purpose of being cross-examined by Nasha’s agent. That cannot be regarded as a meaningful challenge to the salient points in his affidavit. Before cross-examination commenced he gave this testimony:

“Q. I just have one question to ask you. For a corporation in the Belleville area, one to whom a computer generated Notice of Assessment is issued, can you tell us what your understanding of the assessment process is from the time that the actual request to assess is sent to the Taxation Centre?

A. Yes.

His Honour: The Taxation Centre where?

The Crown: He will tell us that.

The witness: In this particular instance, the Taxation Centre for the Belleville District Office is Sudbury. However, T2 assessments, the actual printing of the assessment notice is done in Ottawa and the assessment is electronically sent from Sudbury to Ottawa and forms part of the larger batch and is received. It is downloaded from the electronic form to a tape form and, from that tape form, the assessment notices are actually printed.

The computer sets a date of 10 days after the actual assessment process, so that it has time to go from the electronic form to the tape form to the printing form, to be printed, to be sent to the area where they are mechanically put into the envelopes, and when they are delivered to then they are delivered to the post office. So that there is actually -- the actual date of the assessment, which in this particular instance the dates in question are the 10th August and 21st August.

The computer work for that was actually done 10 days prior to that in order to give the departments, because it is a very large operation, time to martial from electronic form to tape form to paper form to be put in envelopes and sent to the taxpayer. And post offices are actually inside the Ottawa Taxation Centre. There are actually employees of the post office who are physically on location in that plant. And I use the word ‘plant’ because technically it is.

Q. So you have mentioned two Taxation Centres then, Mr. Young, a Taxation Centre in Sudbury and another operation in Ottawa?

A. Yes.

Q. It sounds like the only thing that happens in Sudbury then is the actual inputting of the data into the computer system?

A. That is my understanding.

Q. And the rest is then sent to Ottawa and the rest happens in Ottawa?

A. Yes.”

It should also be specially noted that the conclusion to be drawn from his affidavit is that the Notice of Assessment dated August 10, 1995 was mailed on August 14, 1995 and the Notice of Assessment dated August 31, 1995 was mailed on August 31,1995. Further, these assessments were not reconstructed assessments.

[25]Under cross-examination Mr. Young said that Nasha received the Notices of Reassessment because those notices are included in Mr. Grant’s letter to the Registry and are original computer generated Notices of Assessment. Further, the information in them matched the Revenue Canada computer records.

[26]Mr. Young added that the Notices of Assessment that are exhibits to his affidavit are copies of what was received by Revenue Canada from Nasha’s lawyer in support of an application to extend time to serve Notices of Objection. They are copies of original documents and the only way for a taxpayer to be in possession of such documents is to have had the originals.

[27] The evidence-in-chief of Mr. Hasiuk is very brief. He said his wife owns all of the shares of Nasha. He assisted his wife in managing that corporation. He spoke about the commercial activities of Nasha which was part of a group of companies. Reference was also made to the carrying out of audits by Revenue Canada and the issuance of assessments. This evidence did not, however, bear on the issue to be determined.

[28]The Notices of Assessment that are exhibits to Mr. Young’s affidavit are addressed to P.O. Box 722, Colborne, Ontario, K0K 1S0. Under cross-examination Mr. Hasiuk said that this is the post office box of Hasiuk Trailers. He said he had no idea who arranged for the box. It was “likely” the correct and proper address for Nasha in August 1995. It was also Nasha’s address in 1994. He acknowledged that the telephone number 1-800-361-3228 at the foot of the letter of November 13, 1996 sent to Nasha by Mr. Andrews is his. He added that he did not write the note above the telephone number and does not know who did. He thought that the Notices of Assessment that Mr. Grant attached to his application to Revenue Canada for an extension of time came from Mr. Andrews. This exchange took place between counsel for the respondent and Mr. Hasiuk:

“Q. So you can’t really say whether or not Revenue Canada mailed these two Notices of Assessment to you back in August of 1992 -- sorry, to Nasha back in August of 1995, can you?

A. I say they didn’t.

Q. Well how do you say that?

A. Because I never got them.”

[29]Having regard to the legislation cited at the commencement of these reasons, if the Notice of Assessment regarding 1987 was mailed on August 14, 1995 the Notice of Objection should have been served on the Minister of National Revenue on or before the day that is 90 days after the day of the mailing of the Notice of Assessment, i.e. on or before November 8, 1995. If the Notice of Assessment regarding 1988 was mailed on August 31, 1995 applying the same formula, the Notice of Objection should have been served on the Minister on or before November 29, 1995.[7] These deadlines were not met. Nasha had until November 12 and November 29, 1996 respectively to apply to the Minister to extend the time for serving the Notices of Objection. Mr. Young states in his affidavit, which is not refuted, that the application to extend time was mailed to the Minister on January 14, 1997 which, of course, is well beyond the prescribed time.

[30]The answers to these questions is pivotal to what is now before the Court: were the Notices of Assessment pertaining to Nasha’s 1987 and 1988 taxation years mailed on August 14 and August 31, 1995 respectively? If the answer is yes, this Court is without jurisdiction to grant Nasha extensions of time within which it may serve Notices of Objection in respect of those years. It would follow that the respondent’s motion for an order quashing Nasha’s application to extend time succeeds.

[31]In my opinion when the whole of the evidence is taken into consideration it has been established on a balance of probabilities that the Notices of Assessment in question were issued by Revenue Canada and were mailed on August 14 and August 31, 1995.

[32]It is clear that these notices were received by Nasha because copies were included in Mr. Grant’s letter of May 8, 1997 sent to this Court seeking an extension of time to file Notices of Objection. It is not disputed that he received them from his client Nasha. It is said, however, that the notices were received by Nasha with Mr. Andrews’ collection letter of November 13,1996 that was sent to Nasha at P.O. Box 722, Colborne, Ontario, K0K 1S0. The evidence of Mr. Andrews is that Notices of Assessment were not included with his letter and I accept his evidence in this regard. I believe that the Notices of Assessment were received at this address in the ordinary course of post in relation to the mailing dates of August 14 and 31, 1995. P.O. Box 722, Colborne, Ontario, K0K 1S0 is also the address on the Notices of Assessment and it was the correct address for Nasha at the relevant time.

[33]This Court being without authority to grant the extensions of time sought by Nasha, the motion to quash its application to extend time is granted.

Signed at Ottawa, Canada, this 5th day of February 1998.

"D.H. Christie"

A.C.J.T.C.C.

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