Date: 20001128
Docket: 2000-2560-IT-I
BETWEEN:
SOO YE LOK and JOHN S. LOK,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered orally from the Bench at Vancouver, British Columbia, on November 22, 2000)
Hershfield J.
[1] The Appellants, Soo Ye Lok and John S. Lok, have filed a common Notice of Appeal, which requests in paragraph one of the Notice a reimbursement of taxes paid on interest from Canada Savings Bonds that accrued during a period of non-residence. The requests in the Notice of Appeal are for adjustments to returns as filed for Soo Ye's 1994 and 1997 taxation years and, in respect of John S. Lok, the request is for an adjustment for his 1997 year.
[2] The requests for such adjustments had been made by the taxpayers to the International Tax Services office in Ottawa and, then, on not being satisfied with the response, the request for adjustments was again made to the Income Tax Rulings Directorate in Ottawa. The Rulings Directorate advised that the request would not be accommodated as the bond interest in question had been properly included in the income of the Appellants and taxes properly paid.
[3] So this appeal was then launched to review the refusal of Revenue Canada to make an adjustment in respect of Soo Ye's 1994 taxation year, and in respect of both Appellants' 1997 years. They seek an order to be reimbursed for taxes asserted by them to have been not properly payable under the terms of the Income Tax Act.
[4] Counsel for the Respondent has not filed a Reply to the appeal, but rather has moved for the dismissal of the appeal on two grounds: firstly, that separate appeals for each taxpayer are required; and, secondly, that the appeal does not conform to section 169 of the Act.
[5] As to the first ground for the motion, I acknowledge that the Appellant, John S. Lok, through his representative, was prepared to drop his appeal in order to avoid any irregularity in the appeal of Soo Ye. Whether or not such withdrawal is necessary or not would only be relevant if I found that the motion to dismiss would not be successful under the second ground. In that event, I would have to revisit the first ground for the motion to dismiss. I would say, though, that such an irregularity in pleadings in an informal case should probably not be a bar to proceeding. Section 4 of the informal rules provides essentially that there is no proper form for an appeal and, that being the case, it would be incumbent on the Court simply to, perhaps for an additional $100 filing fee, rectify its records so that there would be two separate appeals. In any event, this type of irregularity would not likely be grounds for dismissal. A finding on the point is not necessary because, as I have stated, a finding would only be necessary if the Respondent's second ground for dismissing the appeal failed.
[6] I would like to turn to that second ground, being that this appeal does not meet the requirements of section 169. Section 169 of the Act does set out the only way in which an appeal lies to this Court. The law on that is clear, not only in the letter of the law, the statute, but in virtually every case that has come before this Court and higher courts. No appeal lies to this Court except in accordance with the provisions of section 169. Section 169 contemplates the necessity of an assessment and an objection to that assessment that must be served by the taxpayer on Revenue Canada. Failing to comply with the requirements of that section, this Court has no jurisdiction to hear an appeal.
[7] I asked counsel for the Respondent at the outset of this hearing if he had shown the Appellants (or had for the Court) any case authority for this proposition. Counsel for the Respondent advised that he relied solely on the clear language of the section, which I acknowledge is in fact clear enough. But the Appellants, nonetheless, may have deserved the courtesy before the hearing, or certainly at the hearing, to be shown that the motion was well founded in law. The Appellants were already facing difficulties with the text of a complicated and difficult Act in terms of whether or not the interest was taxable in Canada, that is, with the merits of the basic question. They should not now have a procedural issue put in front of them without explanation. There is an abundance of jurisprudence, at least a half-a-dozen cases, on this procedural point that might have been presented to the taxpayers, to the Appellants, as authorities and that might have been helpful.
[8] In any event, I will refer, for the sake of the record and for the Appellants' information, that this procedural motion by the Crown is not invented to frustrate their appeal but is based on findings of this Court and higher courts in terms of how to bring an appeal, the only way to bring an appeal before this Court. In the case of Laforme v. The Queen, 91 DTC page 5372 -- I am only citing the pages and the citation for the record -- that was a case that was actually an appeal from a decision of this Court before the Federal Court, Trial Division and it was held in that case as follows:
In the absence of a notice of objection there is no jurisdiction in the Tax Court of Canada to hear an appeal . . .
So, in this case, where there is an admitted failure to file a Notice of Objection there is no appeal to the Tax Court of Canada.
[9] The question arises though -- and I am trying to give the Appellants every consideration -- as to whether or not it is possible to look at the correspondence that the taxpayers had with Revenue Canada to determine whether or not it is possible that that correspondence could constitute a Notice of Objection. I have had the chance now to consider that question. Counsel for the Respondent kindly provided, for which I am thankful, the authority, if you will, for the proposition that correspondence, although not sent in exact accordance with the requirements of section 169, could constitute a notice of objection (Wichartz v. The Queen, 94 DTC 1703, an informal procedure case).
[10] I would like to refer to that case because it is the only opportunity in this matter to find that an appeal might lie to this Court. I would like to refer to what the correspondence in that case said. It was a letter written by the taxpayer shortly after receiving a Notice of Assessment. An excerpt from the letter said as follows:
Needless to say, I received the shock of my life when I received my 1988 notice of assessment in the mail whereby they assessed me a late filing penalty of some $4,000.
I will not read on. The requirement of the Act is that there is no prescribed form that is required to constitute a Notice of Objection but section 165 does require that the Notice of Objection, regardless of the form, be sent to the Appeals Division. That is the division that considers what to do with objections and appeals. If it does not land in the Appeals office then it does not land at a desk that knows how to deal with objections and appeals. The purpose of having the provision in the Act that says you must give your notice to a particular branch or division of Revenue Canada is to make sure the right people, that can help make a determination of the issue, see it, and if any guidance is to be given to the taxpayer on how to proceed further, at least the right people will know the correct procedures.
[11] In the Wichartz case, the letter was not sent to the Appeals Branch. It was just sent to the Public Affairs department. The Court held in that case that there is no doubt that Revenue Canada received the letter. It was not dealt with as a Notice of Objection, however from the plain reading of the letter it is apparent that the Appellant was strenuously objecting and disputing the assessment and thereby found that, notwithstanding that the objection went to the wrong department of Revenue, it still constituted a Notice of Objection.
[12] What I have to do then in this case is to look at correspondence submitted or exhibits and determine whether or not it falls within the spirit and law of the case that I just read from, which is the Witchartz case, a decision of this Court.
[13] We have a number of letters. The first letter is exhibit A-1 which was introduced with the testimony of the Appellant Soo Ye Lok. That was a March 17, 1999 letter forwarded to the International Section and it says:
We respectfully request that a reassessment (adjustment) be made of the tax liability for Soo Ye, 1994 and 1997, and John, 1997, with the purpose of tax rebates.
If this was an objection it was outside the time limit for 1994 but within the time limit for 1997. (Soo Ye's 1997 reassessment was dated January 29, 1999 and John's 1997 reassessment was dated June 8, 1998. The reply was dated June 17, 1999. The second letter to the Ruling Directorate dated September 22, 1999 is too late to be an objection. If the June 17 reply is a confirmation, this appeal is too late unless an extension is granted.) As to whether the March 17, 1999 letter is an "objection", there is no reference in it to a prior assessment. There is no reference to objecting to an assessment or reassessment. Rather, what has happened in this matter is that the taxpayers learned from an external source, a TV show, that there was a possibility at least that interest accruing during a period that they were not resident in Canada would be exempt from Canadian tax, so that in the 1997 taxation year, for example, when that interest, which had accrued on these bonds during a period when they were not resident, was actually paid as interest to the holders of the bonds, namely the Appellants, in 1997 in that example, they should not have included it as taxable income in their 1997 returns. But they did include it in their income in their 1997 returns. It is a self-assessing system and they determined, at the time they filed those returns, that it was taxable. There was an assessment that followed but that assessment made no change to the manner in which the interest was dealt with as determined by the taxpayers.
[14] When the taxpayers learned that there was a possible position to take that they had overstated their income, they asked for an assessment or readjustment. The fact that there had been an assessment agreeing with the way in which they filed was not in their mind. They could not have had it in their mind to be writing correspondence that objected to the assessment when it was not the assessment that triggered the question.
[15] The fact that they were asking Revenue Canada to make a voluntary adjustment differentiates this case from the case in Witchartz. That was a direct response to an assessment. It was a letter written challenging the assessment.
[16] In this case we have a request for an adjustment. It is not practical to regard adjustment requests as objections to assessments. It is common knowledge that Revenue Canada is not required at law to make an adjustment when taxpayers have filed in accordance with their determination as to their taxable income. Nonetheless, in open years Revenue Canada will often reassess and make adjustments as requested. It is a voluntary procedure on Revenue Canada's part and in this case I think they made every effort to try to accommodate the request provided they agreed that the way in which the return was filed was incorrect.
[17] Both the International Section and the Ruling Section responded by saying, in effect, "We do not think the way in which it was filed was wrong. We think it was right, that is that you had to pay tax on the full amount of the interest in the year that it was received. That is the statute as it reads. And in order to get the exemption that you asked for, the monies would have to have been received, not accrued, while you were non-residents." That was their determination of what the law was. They refused to make the voluntary adjustment that you (the Appellants) asked for.
[18] The question then is can you come to this Court and ask us to see whether or not Revenue Canada's review is appealable or reversible. And the answer is no. The answer is under section 169, there must be an assessment objected to.
[19] There is clear law that you can object to taxes determined on the basis of your own return. That is, you can file a return and object to an assessment that basically confirms your own return. You are still allowed to object even though Revenue did not dispute the return, so the assessment looks on its face like there is no issue. The law would still allow you, within your time limits, to file an objection, but the objection must still be to the assessment.
[20] I take it during the course of the hearing that the taxpayers have been somewhat frustrated that Revenue did not tell them the proper procedure. In all fairness, the procedure on its face was simply asking for an adjustment and when you ask for an adjustment the procedure that Revenue Canada would typically follow is exactly the procedure that they did follow. They would look at the merits of your assertion and determine if on the merits they thought you were right. They would have likely given you the reversal without any filing of an objection. That was the course you (the Appellants) set in motion and that was the basis upon which you got the advice to write here, write there, because it was a request for an adjustment.
[21] That is the importance of why the statute requires that the objection go to the Appeals Division because it is that division, if it gets to the right department in the first place, that will know how it should be handled if you intend to appeal to this Court. I understand that this may not be a complete answer to the Appellants in this case since they were never aware of or directed to the Appeals Division.
[22] Nonetheless, while I find that the March 1999 letter, Exhibit A-1, in respect of both Appellants, is within the time frame for an objection for 1997, I find that that letter was not sufficient to constitute an objection in that it made no reference to an assessment and made no reference to it being an objection (or taking exception) to an assessment as required under section 169. It was an adjustment request. It is not practical to find such requests to be objections in the context of section 169.
[23] Accordingly, I dismiss the appeals as requested pursuant to the motions, on the basis that the requirements for 169 have not been met.
[24] Although not strictly part of the judgment, I can add that, although I have not heard any evidence or argument on the merits of this matter, there is a likelihood that, if the merits of this matter had been considered, Revenue Canada's position would have been sustained. I am making no finding of that because I am not allowed to hear the appeal and I have not heard any evidence or argument on the point. But on the surface of it, I might say that the appeal may have lacked merit in any event.
[25] Those are the findings of this Court.
"J.E. Hershfield"
J.T.C.