Tax Court of Canada Judgments

Date: 20010517

Docket: 2000-4338-IT-APP

BETWEEN:

JONATHON D. MEER,

Applicant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Order

Hershfield, J.T.C.C.

[1]            This application is for an extension of time to file appeals under the Tax Court of Canada Rules, General Procedure from Notices of Reassessment of the Applicant's 1994 and 1995 taxation years. The reassessments include in the income of the Applicant certain benefits afforded him in each of these years by Mearford Group Inc. pursuant to subsection 15(1) of the Income Tax Act (the "Act"). Permitting the application will afford the Applicant an opportunity to have certain factual assumptions made by the Respondent and disputed by the Applicant reviewed so as to determine whether in fact benefits asserted to have been conferred were in fact benefits conferred. The circumstance of when such opportunity can and should be granted is the subject of this application. Subsection 167(5) of the Act sets out the requirements for the granting of an application for an extension of time to file an appeal. That subsection provides as follows:

167(5) No order shall be made under this section unless

(a)            the application is made within one year after the expiration of the time limited by section 169 for appealing; and

(b)            the taxpayer demonstrates that

                (i)             within the time otherwise limited by section 169 for appealing the taxpayer

                (A) was unable to act or to instruct another to act in the taxpayer's name, or

                (B) had a bona fide intention to appeal,

                (ii)            given the reasons set out in the application and the circumstances of the case, it would be just and equitable to grant the application,

                (iii)           the application was made as soon as circumstances permitted, and

                (iv)           there are reasonable grounds for the appeal.

[2]            The Respondent does not take issue with the fact that this application was made within the time limit prescribed in paragraph 167(5)(a). The time limit so prescribed was October 24, 2000. The application was made on October 20, 2000. The Respondent's counsel, in argument at the hearing, also conceded the Applicant's bone fide intention to appeal and did not argue that there were no reasonable grounds to appeal. The Respondent did take issue with whether the Applicant made the application as soon as circumstances permitted and whether it would be just and equitable in the circumstances of this case to grant the application. These, then, are the issues under consideration.

Facts

[3]            The Applicant's counsel called two witnesses to give evidence in respect of the application. The first witness was the Applicant and the second witness was a collections officer employed by Revenue Canada, Ray Bond.

[4]            The Applicant testified that he was at all relevant times the president, not only of Mearford Group Inc., but also a number of other companies that I will refer to as the Mearford Companies including Mearford Energy Services Inc., Mearford Rentals & Leasing Inc., Mearford Camp and Catering Inc., Executive Real Estate North Inc., Antennae Wizard Inc. and 745122 Alberta Ltd., all Alberta companies over which the Applicant saw to the day-to-day business operations. With the exception of Executive Real Estate North Inc., which was active only in the Edmonton area, each of these companies was active in Saskatchewan, Alberta and British Columbia. The Applicant testified that in dealing with the day-to-day operations of these companies he was dealing with approximately 200 customers and was responsible in each case for personnel matters, negotiating third party contracts, banking arrangements, dealing with lawyers and accountants and the like. He testified that he was on the road in respect of these various operations about one-half of the time each week.

[5]            As a result of a personal tax audit in 1997 in respect of the subject years, the Applicant's accountant, Mr. Crozier, a chartered accountant in Edmonton, was retained by the Applicant to make submissions to Revenue Canada. Mr. Crozier also was, at that time, the accountant for the Mearford Companies. In June of 1997, the Applicant received a proposal letter from Revenue Canada in respect of the subject years and same was copied to Mr. Crozier. The assessments were not issued until April of 1998 and timely Notices of Objection were filed by Mr. Crozier as the Applicant's authorized representative. The reassessments were not confirmed by Notice of Confirmation until July 26, 1999. The objections denied that the full amount of the reassessed benefits, namely $188,097.00, were benefits. The objections also requested a credit for interest and penalties due to assessment delays. While the Confirmation that followed over a year later confirmed the reassessments, the letter enclosing the Confirmation dealt with the interest issue and acknowledged that some interest was being remitted under the fairness provisions of the Act as requested. The letter and Confirmation were sent to the Applicant and copied to Mr. Crozier.[1] The Applicant testified that he did not receive the Confirmation until some time in September as it was sent to an address in Calgary where he no longer lived. The Respondent does not take issue with the Applicant's late receipt of the Confirmation. The Applicant went on to testify that he spoke to Crozier after receiving the Confirmation and instructed him to follow up as required. He testified that he understood from talking to Crozier that he would file an appeal. He testified that he did not hear anything further until January 2000 when a collections officer called and said he owed money on account of the 1994-95 reassessments. It was not until then that he found out that no appeal had been filed. The Respondent does not dispute that it was not until the end of January 2000 that the Applicant learned from a collection officer that no appeal had been filed.[2]

[6]            The Applicant attempted to explain, and tendered evidence in support of such explanation, why his accountant did not file the appeal. Evidence tendered included correspondence between two accounting firms which suggested that there was confusion as to who would follow up with the appeal and the possibility of negligence actions was alluded to by the Applicant's counsel. I do not find it necessary to review this evidence as it likely raises more questions than it answers and does not in any event assist me in dealing with the issues before me.[3]

[7]            I accept, as the Respondent has, that the Applicant was under the misapprehension until the end of January 2000 that his appeal was being dealt with. There is no doubt that the Applicant wanted to appeal the reassessment and on that basis I accept that he would have taken steps to preserve his appeal rights if he knew that his interests were not being protected by his professional representatives. Further, circumstances during this period may not reasonably have permitted the Applicant to do much more than he did, namely, rely on the person who prepared the objection and knew the matter. In any event, the Respondent's position, in the main, is that the Applicant did not, after learning at the end of January that a timely appeal had not been filed, file the application for extension as soon as circumstances permitted. It is the approximate eight-month delay from learning that an appeal had not been filed to the time of filing the application that is of more concern to the Respondent. The Respondent argues that this delay resulted from the Applicant not diligently pursuing the application with his lawyers. The Respondent's position is that the delays during this period were caused by the Applicant's failure to provide, even though circumstances permitted, his lawyers with the information they needed to file the application more promptly. It is asserted by the Respondent that these matters were in the Applicant's control and that he failed to do the things necessary to file the application as soon as circumstances permitted. Given that this is the position of the Respondent, I will turn my attention to the evidence relating to the period of time commencing when the Applicant learned that a timely appeal had not been filed.

[8]            The Applicant introduced as Exhibit A-13 a diary of Revenue Canada actions respecting the subject reassessments since the Confirmation. The diary consists of entries made by each Revenue Canada employee working on the file each time they did something in respect of it. Such records are in the form of a computer generated daily diary, a hard copy of which was obtained by the Applicant's lawyers through access to information. The diary was attested to by the Applicant's second witness, a collections officer, Mr. Bond, employed by Revenue Canada in Edmonton who was familiar with the diary.

[9]            Before considering further diary entries, I will briefly summarize what other matters were being attended to by the Applicant at this time. Firstly, since 1998 the Applicant was required, in respect of some of the Mearford Companies, to pay out some unrelated investors. This, plus business conditions in general, had placed the Mearford Companies under financial stress. Indeed, as things unfolded, by the end of 1999, a financial crisis threatened the Mearford Companies if refinancing could not be put in place. Several potential investment bankers were considering financing possibilities. Their due diligence requirements added another level of strain on the Applicant's time and that of his staff. The Mearford Companies had December 31 year-ends and they all required year-end financial statements. Further, Revenue Canada came in in January 2000 for about two and one-half months and did an extensive audit of the Mearford Companies. Throughout this time the Applicant and his staff were given lists of required information and deadlines to produce same. The audit led to assessments and further demands for information. Exhibit R-1 is a Revenue Canada letter from Mr. Bond to the Applicant dated July 18, 2000. That letter sets out lists of required information in respect of five of the Mearford Companies and in respect of the Applicant personally. There has been no suggestion that the Applicant did not co-operate fully with Revenue Canada in respect of the audit and in respect of these ongoing demands. On top of all this, Revenue Canada collection activity started in April 2000.

[10]          I will now return to the Revenue Canada diary. On February 16, 2000 (two weeks after discovering his appeal had not been filed) the diary indicates that Mr. Bond spoke personally with the Applicant. The diary notes that the Applicant advised Mr. Bond of his intention to file an appeal in respect of the subject taxation years. There was also, at that time, an outstanding assessment in respect of the Applicant's 1997 and 1998 taxation years (which were not in dispute) and the diary notes that arrangements were being made for payment of outstanding taxes in respect of those years.

[11]          The Applicant testified that he spoke with his lawyer at about the end of February 2000 with respect to filing an appeal and was advised that expenses in relation to filing an appeal might make it beneficial to pursue a settlement with Revenue Canada. On March 14 the Applicant wrote to Mr. Bond suggesting they meet to see if they could resolve the 1994 and 1995 matters. The diary entry for March 23, 2000 indicates that Mr. Bond's take on the letter was a little different. Mr. Bond's entry at that date reads as follows: "It appears that he does not want to appeal the 94/95 tax assessments due to excessive legal costs." This appears to have contributed to commencement of collection activity. The file was transferred to a Mr. Hinds who began preparing for collection activity by April 7, 2000. At this time, the Applicant spoke to Mr. Hinds. The Applicant testified that Mr. Hinds assured him he would be given time to try to settle matters before any collection activity was commenced. Such time was not forthcoming. By April 26, 2000 a considerable number of garnishments, writs and requirements to pay were sent to banks, customers and possible creditors of not only the Applicant but some of the Mearford Companies. The Applicant testified that liens and personal property security registrations were also placed on millions of dollars of assets of all related companies without regard to who the owner of the asset was. Mr. Bond admitted to the possibility of this and specifically acknowledged that at least one lien had to be lifted as it had not been properly placed. The amounts payable to Revenue Canada at or about this time totalled some $500,000.00, which included amounts owed by some of the Mearford Companies in respect of payroll withholding obligations and GST remittances.[4]

[12]          Clearly, appropriate collection activity was warranted. However, such activity and the fresh audits in the early part of 2000 would have strained the time and personnel resources of the Applicant. Overzealous collection activity would have added yet more strain. He was struggling at this point to meet payrolls, keep his bankers, suppliers and customers on side and keeping the various business operations going. Further, the Applicant's endeavours to obtain financing for the Mearford Companies to ensure their survival, were being aggressively pursued.

[13]          The Applicant testified that he retained counsel to deal with the appeal and the application to late file some time in early May 2000, shortly after he realized that his efforts to settle the reassessments were for naught, i.e. when the collection activity started. He testified that he was not able to put together the information required by his lawyers given everything else that was happening. The July 5 diary entry indicates that Mr. Bond met with the Applicant's lawyer at that time. His discussion notes confirm the Applicant's financing efforts and the lawyer's advice that she would be filing an application for extension of time to file the appeal. The diary entry for July 18, 2000 indicates that Mr. Bond requested a letter from potential lenders confirming potential financing. On July 24, 2000 Canada West Financing wrote to Mr. Bond confirming potential refinancing in the range of $3,000,000.00 to $4,000,000.00. The letter does give some comfort as to the likelihood of refinancing but confirms that outstanding actions or seizures (presumably referring to Revenue Canada actions or seizures) would adversely affect the refinancing project.

[14]          The diary entry of July 20, 2000 indicates that Mr. Bond spoke to the Applicant's lawyer and confirmed that the application for an extension was not being filed until further information was available from their client. By this time the Applicant's lawyer had filed under access to information to get more information from Revenue Canada. The Applicant testified that he was trying to get information to his lawyer but internal resources were stretched. An in-house accountant for the Mearford Companies was busy with year-ends, responding to Revenue's other continuing audit demands (for example, the July 18, 2000 letter referred to above) and helping work up data for the refinancing efforts.[5] This was, as I believe Applicant's counsel put it, a time for putting out fires; keeping one step ahead of successive crises. Such circumstances would, to say the least, make it difficult to focus singularly on assembling information to facilitate filing an application for an extension of time. The Applicant's position is that given such circumstances during the winter and summer of 2000, the Applicant could not reasonably have been expected to attend to the filing of the application.

Decision

[15]          There are four periods that can, initially at least, be considered separately in examining whether the Applicant meets the requirements of subsection 167(5). The first period runs from the date of the Confirmation to the date the Applicant received it. While the time to file a timely appeal starts when the Notice of Confirmation is mailed, I would allow, in considering whether an application to late file has been made as soon as circumstances permit, that the date of receipt of the Confirmation should be the starting point. There is no suggestion here that the Applicant's testimony as to when he received the Confirmation is self-serving or unreliable. Revenue's diary notes confirm that the Applicant changed residences.

[16]          The next period is from the date the Confirmation was received to the date the Applicant realized his appeal had not been filed. While the Respondent has not argued that the Applicant did not act as soon as circumstances permitted during this period, I note that circumstances during this period were such that the Applicant, believing his appeal to have been filed, may have had no realistic choice but to rely on his professionals to protect his interests. This is not a case of simply ignoring the requirements of the appeal process or disregarding his responsibility to follow up on matters.

[17]          The third period is the period between the end of January 2000 (when the Applicant learned his appeal had not been filed) and the beginning of May (when he retained counsel to consider his appeal and to file an application for an extension of time to file an appeal). This is a three-month period and merits comment. The Respondent argues that the circumstances during this period, albeit difficult in terms of the demands on the Applicant's time and personnel resources, permitted ample opportunity to file an application or to have counsel file an application. The Applicant argues that he sought legal help shortly after learning of the problem and, under advice of counsel, sought to have settlement discussions with Revenue Canada.[6] On receiving such advice he acted quickly in terms of contacting Revenue but it was not until the end of this period (the end of April 2000) that he realized that Revenue Canada was not going to engage in settlement discussions. I accept that there was a misunderstanding here in that the diary clearly connects the settlement proposal with the collection activity. The proposal was taken to mean that the appeal was not being proceeded with due to costs and this was the green light for rigorous collection activity. Clearly this was not the message the Applicant intended to convey. If he understood the proposal would initiate collection activity, I have little doubt that he would have retained counsel earlier to consider his appeal. Arguably a misunderstanding caused a three-month delay. In any event, while hindsight might suggest that retaining counsel earlier (three months earlier), to start looking at his appeal and preparing an application to file late, was a reasonable possibility permitted by the circumstances, there is no evidence that the application could have been made earlier even if instructions had been initiated earlier. To the contrary, the evidence is that these were desperate times for the Applicant. He was struggling for economic survival. In these circumstances he could not reasonably have been expected to do other than what he did.

[18]          I will turn now to the last period commencing at the end of April 2000 and ending when the application was filed in October 2000. Lawyers were retained during this period to deal with the filing of the application. While the Applicant's lawyers might have acted faster, their client was preoccupied with survival and I will not second guess the law firm's not filing the application until shortly before the expiry of the one-year limitation period even when one of the requirements for granting the extension is to make the application as soon as circumstances permit. I believe these matters were pursued in good faith. Although I had no direct evidence on the point, I believe the lawyers needed more information to assess the appeal and the circumstances leading to the failure to file an appeal on time. In the absence of evidence of a lack of reasonable diligence, I do not think that the "as soon as circumstances permit" requirement in paragraph 167(5)(b)(iii) extends to preventing legal advisers from taking reasonable advantage of statutorily permitted time frames to assist a client in making a proper assessment of the merits of the application and of the appeal itself, while at the same time, assisting the client through such difficult times as those the Applicant was going through in the spring and summer of 2000.

[19]          The Respondent has not tried to put responsibility for delays on the lawyers. Rather, they argued that the lawyers could have acted faster if the Applicant was more diligent in getting the required information to the lawyers. Hence the Applicant, not the lawyers, was in control of the time for filing the application. The Applicant's failure to give information as circumstances permitted was in effect a failure to file the application as soon as circumstances permitted. This position might be an over-simplification of the dynamic between lawyers and their clients. There was no evidence that the client was in control of all matters about which the law firm needed information. Clearly the law firm wanted a lot of information. That it got Revenue Canada documentation through access to information to learn more about historical events leading to the failure to file an appeal evidences that at least some information gathering was in their control. That documentation proved valuable, so, as things turned out, the time spent during this period bore fruit. Further, even if I accept that the Applicant was in the controlling position, there is authority, with which I agree, that in circumstances such as these, delays caused by the Applicant will not necessarily result in a finding that the application was thereby not filed as soon as circumstances permitted.[7] The phrase "as soon as circumstances permit" does not preclude prioritizing what one can reasonably do in a particular time frame. The question as set down in Pennington v. M.N.R. comes down to what can be reasonably expected in the circumstances. One does not need to rely on a flood or imprisonment or hospitalization to argue that circumstances did not permit filing the application. This is an area of broad discretion. Keeping one's life work, one's business enterprises or one's financial stake from crumbling is a circumstance that might reasonably be attended to and relieved before circumstances can fairly be said to permit the filing of an application for an extension of time to file an appeal. Accordingly, in respect of the delay during this period, I find that the application was filed as soon as circumstances permitted.

[20]          The Respondent argued that it would not be just and equitable to permit the application in the circumstances of this case. Taking the time frame as a whole as a circumstance of this matter, from receiving the Confirmation to the date the application was filed, it is argued that it would not be just and equitable to grant the extension. Counsel for the Respondent argued that the requirement that the granting of an extension be just and equitable in the circumstances was a separate test that must be met as a condition to granting the application. Such condition does appear in subsection 167(5) as a separate test. But the condition is derived from the reasons for and circumstances of the request. The reasons and circumstances here do not give rise to any asserted injustice. There has been no assertion here of foul play, dishonesty or prejudice. I can find no cases, nor has the Respondent's counsel offered any cases, that would support the contention or give an illustration of a situation where all the other conditions for the granting of the application are met and it is still found not just and equitable to grant the application. The reassessment is not adversely affected by granting the application except that the reassessment can then be dealt with on its merits. In these circumstances it strikes me as inequitable not to apply the principle set down in Seater v. R., [1997] 1 C.T.C. 2204 wherein Judge McArthur concludes that it is preferable to have a taxpayer's issues decided on their merits than having them dismissed for missed time limits in the Act.

[21]          Accordingly, I would grant the application as requested.

Signed at Ottawa, Canada, this 17th day of May 2001.

"J.E. Hershfield"

J.T.C.C.

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