Date: 20001201
Docket: 1999-3278-IT-I
BETWEEN:
ROSAIRE RAINVILLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Lamarre Proulx, J.T.C.C.
[1] This is an appeal under the informal procedure for the 1993 taxation year. When the hearing began, the parties told the Court that they had reached an agreement on two of the points at issue. The respondent agreed that the appellant could claim $34,158 in rental losses. The appellant gave up his claim for a $30,000 non-capital loss carryover.
[2] One point remains, and it concerns the application of subsection 169(2.2) of the Income Tax Act ("the Act"). It is whether the appellant can appeal on an issue for which the right of objection or appeal appears to have been waived through a waiver signed by him on May 5, 1998.
[3] The appellant is in substantial agreement with the assessment that followed the waiver in the sense that he agrees with the $218,541 added to his 1993 income as shareholder benefits under subsection 15(2) of the Act. That amount is made up of $209,606 in advances and $8,935 in interest on the advances. He also agrees with the amount of $92,527—being a loan made by a shareholder that can be deducted from the advances under paragraph 20(1)(j) of the Act—which amount was calculated for 1996. That repayment of advances created a loss that could be carried back to 1993. The appellant said that he did not realize he would have to pay about $18,000 in interest on the amount assessed as tax payable for 1993 to 1997, on which date the carryover became effective. He argued that the deduction could just as well have been made in 1993 as in 1996, since the loan or repayment was made in 1993 and the conditions under which it was made did not change.
[4] Mr. Beaudoin, the auditor, relied on the financial statements of Édifice Rainville Inc. that had been prepared by its accountant for 1993 (Exhibit A-2). The amount was included in long-term liabilities as follows:
[TRANSLATION]
Notes to financial statements
as at May 31, 1993
. . .
Owed to a director, face value of $100,000, 6.75%, repayable in monthly instalments of $754.84, principal and interest.
. . .
[5] The Minister's official explained that, according to an interpretation bulletin—the reference for which had slipped his mind at the time of his testimony—it is the Department's policy to consider such a loan as being separate from the advance account and as not offsetting the advances. In the 1995 financial statements, the description had been changed to read [TRANSLATION] "$100,000 loan R. Rainville". That was why he took it into account to reduce the shareholder benefit account in 1996. He did not explain why he had not taken it into account in 1995 instead.
[6] According to the appellant, all that was involved in 1993 was an accounting entry. The nature of the loan agreement did not change over the years in question. He argued that what he had agreed with the Minister's official was that he would be assessed for 1993 on the amount of income resulting from the advances to a shareholder minus the shareholder's loan to the corporation. If he had known that he had to pay interest from 1993 to 1996 on the total advances, he would not have agreed or would at least have strongly argued that the nature of the loan had not changed from 1993 to 1996 and that the loan had to be taken into account in 1993 and not 1996.
[7] The waiver (Exhibit I-1) reads in part as follows:
[TRANSLATION]
. . .
I waive any right of objection or appeal in respect of . . .
THE ASSESSMENT, AS REVISED, WITH RESPECT TO THE ADVANCE ACCOUNT (15(2)) AND THE AMOUNT GRANTED AS A REPAYMENT (20(1)(J)).
THE AMOUNT ASSESSED IN ACCORDANCE WITH SECTION 15(9)—INTEREST ON ADVANCES—REMAINS UNCHANGED.
. . .
Stapled to that first sheet was the proposed adjustment, which was a table showing the amounts at issue for 1993 to 1996. The tax computation was not included.
Argument and conclusion
[8] Counsel for the respondent referred to the Supreme Court of Canada's decision in Smerchanski v. M.N.R., [1977] 2 S.C.R. 23, at page 31:
Since it is not contested that a taxpayer may validly waive his rights of appeal against a tax assessment and that no question of public policy is involved to preclude such a waiver, the only issue of importance in this appeal is whether the tax authorities, seriously contemplating prosecution, and by indictment as in the present case, are entitled to exact a waiver of rights of appeal as a binding term of settling a clear tax liability when overtures for settlement are made by the taxpayer and, in consequence, to abandon their intention to prosecute.
[9] Counsel for the respondent argued that the appellant signed the waiver freely and that the waiver is valid. He submitted that the effect of the waiver is that this Court has no jurisdiction to rule on the issue dealt with by the waiver.
[10] The appellant's agent argued that the auditor did not explain to the taxpayer what effect taking the loan into account in 1996 rather than 1993 would have in terms of interest. That is not—as it was later interpreted to be by the officials who made the assessment—the matter with respect to which the appellant gave a written waiver. The appellant agreed to be assessed for 1993 on an amount of advances that excluded his loan to the corporation.
[11] Subsection 169(2.2) of the Act reads as follows:
(2.2) Waived issues. Notwithstanding subsections (1) and (2), for greater certainty a taxpayer may not appeal to the Tax Court of Canada to have an assessment under this Part vacated or varied in respect of an issue for which the right of objection or appeal has been waived in writing by the taxpayer.
[12] The Supreme Court of Canada's decision in Smerchanski, supra, accepting the validity of a waiver of the right of appeal dates back to 1977. Subsection 169(2.2) of the Act is relatively recent. According to the application provision, that subsection is applicable after June 22, 1995 (the date it was given Royal Assent) to waivers signed at any time. The wording of subsection 169(2.2) of the Act, and of the application provision, suggests that it does not create a new right but is a clarification provision. The explanatory note also confirms this interpretation:
New subsection 169(2.2) clarifies that a taxpayer may not appeal an issue to the Tax Court of Canada in respect of which the taxpayer has waived in writing the right to object or appeal. This rule applies after the day this provision receives Royal Assent to waivers signed at any time.
[13] In Smerchanski, the appellant disputed the validity of the waiver he had signed on the basis that he signed it to avoid the threat of criminal prosecution. Here, the validity of the waiver is not being disputed; rather, it is a matter of determining the issue in respect of which the appellant waived his right of appeal in writing. It is a matter of interpreting the agreement reached by the parties.
[14] In the context of a waiver of a right of appeal, there seems to be no case law on the question of the actual content of the agreement. There are a few decisions on the legal effect of such a waiver, and I refer in particular to the following: Yott et al. v. M.N.R., 91 DTC 611, Lagacé v. M.N.R., 93 DTC 1144, and Proulx v. The Queen, [1995] TCJ No. 1301 (QL) (96 DTC 2028). In those cases, the respondent had argued that the settlements in question were transactions within the meaning of articles 2631 et seq. of the Civil Code of Québec and that they had the authority of a final judgment (res judicata). It was the concept of authority of a final judgment that proved to be the stumbling block for the respondent's argument, there having been no denial that the settlements could be binding.
[15] In my opinion, the decisions that may help in resolving the present debate are those that relate to the interpretation of paragraph 152(4.01)(a) of the Act, a provision whose wording is very reminiscent of that of subsection 169(2.2) of the Act. Paragraph 152(4.01)(a) reads as follows:
Notwithstanding subsections (4) and (5), an assessment, reassessment or additional assessment to which paragraph (4)(a) or (b) applies in respect of a taxpayer for a taxation year may be made after the taxpayer's normal reassessment period in respect of the year to the extent that, but only to the extent that, it can reasonably be regarded as relating to,
(a) where paragraph (4)(a) applies to the assessment, reassessment or additional assessment,
(i) any misrepresentation made by the taxpayer or a person who filed the taxpayer's return of income for the year that is attributable to neglect, carelessness or wilful default or any fraud committed by the taxpayer or that person in filing the return or supplying any information under this Act, or
(ii) a matter specified in a waiver filed with the Minister in respect of the year.
(Emphasis added.)
[16] With a view to extending the normal assessment period, this provision allows a taxpayer to waive the limitation of that period in respect of a matter specified in the waiver. The courts have considered the content and scope of such a matter a number of times, inter alia in Bailey v. M.N.R., 89 DTC 416, Cal Investments Ltd. v. The Queen, 90 DTC 6556, Canadian Marconi Co. v. Canada, [1992] 1 F.C. 655, Solberg v. The Queen, 92 DTC 6448, Placements T.S. v. The Queen, [1993] T.C.J. No. 869, and Charron v. The Queen, [1997] T.C.J. No. 303. In Solberg, Reed J. stated the following at page 6452:
. . . The appropriate approach to the interpretation of the waiver is to seek to ascertain the intention of the parties as expressed in that document together with any relevant circumstances for which evidence is available. This is consistent with the approach taken in interpreting taxing statutes themselves, see, for example, Stubart Investments Ltd. v. The Queen, 84 DTC 6305 at 6323 (S.C.C.).
[17] Just as the above decisions interpret the meaning of the matter covered by a waiver signed under paragraph 152(4.01)(a) of the Act, the meaning of the issue covered by a waiver signed under subsection 169(2.2) of the Act is subject to interpretation by this Court when the parties are not in agreement on it. In the case of subsection 169(2.2) of the Act, the interpretation will, in my opinion, have to be rather more strict than in the case of paragraph 152(4.01)(a) of the Act, since what is at stake under subsection 169(2.2) is the right to sue. If the issue waived is the one suggested by the Minister, the appellant will have no cause of action as regards that issue. Otherwise, the appellant will be entitled to appeal and to have the case decided by this Court.
[18] However, as the Minister's official said, concessions are made by both sides in such settlements. If the evidence showed that no such agreement would have been reached had it not been for a given undertaking, that could be a possible reason for setting aside the waiver or having recourse to other appropriate relief. The more the agreement is precise and incorporates the assessment amounts, the easier it will be to ascertain its content for the purposes of applying subsection 169(2.2) of the Act.
[19] In the case at bar, I have concluded on the basis of the parties' testimony that their true agreement was that, in 1993, the appellant's income was the amount of the advances minus the repayment. I would not have reached this conclusion if the outlays had actually been made in 1996. However, it is accepted by both sides that the cash inflow occurred in 1993. The accounting entries have some importance, but they do not preclude taking into account other relevant factors, such as when the outlays were actually made and the terms on which they were made. It was therefore possible to argue that the repayment was made in 1993. Moreover—and this aspect is just as important as the first—the evidence did not show that the Minister's auditor considered the matter of the interest accruing on the amount of the benefits up to the year in which the amount of the losses that could be carried over was established. I think that, if that aspect had occurred to him, he would have informed the appellant about it. The taxpayer thought that the amount of his income for 1993 would be the amount of the benefits minus the losses that could be carried over, and I have every reason to believe that the auditor was also under that impression. That is the common denominator between the two parties.
[20] Since it is my view that the parties' mutual agreement in this case was that suggested by the appellant, the assessment in that regard is not in keeping with the agreement and the appellant is entitled to appeal with respect to that aspect.
[21] The appeal is allowed as regards the rental losses referred to in paragraph [1] of these reasons. It is also allowed as regards the amount of advances to be taken into account in the 1993 assessment: that amount is the amount of benefits on which the parties are agreed, namely $218,541, minus the amount of money advanced by the appellant to his corporation, namely $92,527. The assessment is otherwise correct.
Signed at Ottawa, Canada, this 1st day of December 2000.
"Louise Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
[OFFICIAL ENGLISH TRANSLATION]
1999-3278(IT)I
BETWEEN:
ROSAIRE RAINVILLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on August 28, 2000, at Sherbrooke, Quebec, by
the Honourable Judge Louise Lamarre Proulx
Appearances
Agent for the Appellant: Gérald Tessier
Counsel for the Respondent: Simon-Nicolas Crépin
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1993 taxation year is allowed without costs and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 1st day of December 2000.
|
"Louise Lamarre Proulx" |
J.T.C.C.