Citation: 2003TCC509

Date: 20030807

Docket: 2002-624(IT)G

BETWEEN:

ROLAND PARENT,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

AMENDED REASONS ON RESPONDENT'S MOTION

Mogan J.

[1]      The Respondent has filed a Notice of Motion for an order (i) to strike out the Notice of Appeal pursuant to paragraph 53(c) of the General Procedure Rules; and (ii) to dismiss the appeal pursuant to paragraph 58(3)(a) of the General Procedure Rules. At the commencement of the hearing, counsel for the Respondent withdrew his motion with respect to paragraph 53(c) of the Rules but continued the motion with respect to paragraph 58(3)(a). Technically, I think that this is a motion to quash the appeal under paragraph 58(1)(a) of the Rules or a motion to dismiss under paragraph 58(3)(b) but, because counsel for both parties were in agreement concerning the substance of the Respondent's motion, I will decide the motion on the basis of the arguments submitted by counsel.

[2]      The basic facts can be obtained from the pleadings and from the affidavit of Marcel Dumas, filed in support of the Respondent's motion.

1.        The Minister of National Revenue first assessed tax for the Appellant's 1996 taxation year by Notice of Assessment dated May 12, 1997 showing taxable income of $29,875 and federal tax of $693.84.

2.        On May 18, 2000, the Minister issued a Notice of Reassessment for 1996 showing taxable income of $1,060,243 and federal tax of $321,865.30. This reassessment increased the Appellant's taxable income by approximately $1,030,000. The increase in taxable income was derived primarily from a transaction which the parties identify as the "Villa Toyota" transaction.

3.        The Appellant objected to the reassessment of May 18, 2000 and, on December 14, 2001, the Minister issued a Notice of Confirmation with respect to that reassessment. The Appellant filed a Notice of Appeal in this Court on February 11, 2002 for his 1996 taxation year, responding to the Minister's confirmation. The principal issue in that Notice of Appeal is the Villa Toyota transaction. The Respondent filed a Reply to the Notice of Appeal on April 19, 2002; and the parties have had examinations for discovery.

4.        On May 26, 2003, the Minister issued a document entitled Notice of Reassessment for 1996 showing taxable income of $1,236,140 and federal tax of $376,955.48. This assessment or reassessment increased the Appellant's taxable income by approximately $176,000. The increase in taxable income was derived primarily from amounts which I would describe as alleged appropriations under section 15 of the Income Tax Act. It is the appeal commenced on February 11, 2002 (see above) which the Respondent now seeks to quash.

[3]      The Respondent's motion is based on the proposition that, when the Minister issues to a taxpayer a valid reassessment with respect to a particular taxation year, any prior assessment with respect to that particular taxation year becomes a nullity. The proposition was first stated by Jackett P. (as he then was) in Coleman C. Abrahams [No. 1] v. M.N.R., 66 DTC 5451 at 5452:

Assuming that the second reassessment is valid, it follows, in my view, that the first reassessment is displaced and becomes a nullity. The taxpayer cannot be liable on an original assessment as well as on a re-assessment. It would be different if one assessment for a year were followed by an "additional" assessment for that year. Where, however, the "re-assessment" purports to fix the taxpayer's total tax for the year, and not merely an amount of tax in addition to that which has already been assessed, the previous assessment must automatically become null.

The Respondent argues that the document of May 26, 2003 is a reassessment which has caused the reassessment of May 18, 2000 to become a nullity. The Notice of Appeal filed on February 11, 2002 is appealing from the reassessment of May 18, 2000 (i.e. a nullity). Therefore, the appeal should be quashed.

[4]      The Appellant argues that the document of May 26, 2003 is an "additional" assessment for 1996 as contemplated by Jackett P. in the passage from Abrahams quoted above. As such, the reassessment of May 18, 2000 continues to stand as an independent ground for appeal with respect to the Villa Toyota transaction. And Roland Parent, if he so wishes, may institute a fresh objection and appeal from the assessment of May 26, 2003 with respect to the alleged appropriations under section 15.

[5]      The real dispute between the parties on this motion is whether the assessing action of the Minister of National Revenue on May 26, 2003 is a valid reassessment which would cause any prior assessment for 1996 to become a nullity, or whether the Minister's assessing action on May 26 is an additional assessment which would permit any prior assessment for 1996 to continue as a valid basis for appeal.

[6]      The Appellant's argument in support of an "additional" assessment is based upon a comparison of the two documents each entitled "Notice of Reassessment" dated May 18, 2000 and May 26, 2003, respectively. The May 18 document shows taxable income of $1,060,243, net federal tax of $321,865 and net Ontario tax of $220,344. The May 26 document shows revised taxable income of $1,236,140, net federal tax of $376,955 and net provincial tax of $258,336. Comparing the relevant amounts, the May 26 document increased taxable income, net federal tax and net provincial tax as follows:

	Taxable Income	Federal Tax	Provincial Tax
May 26, 2003	$1,236,140	$376,955	$258,336
May 18, 2000	1,060,243	321,865	220,344
Increase	$175,897	$55,090	$37,992

[7]      In the above table, the increase in taxable income (approximately $175,000) is derived from the alleged appropriations under section 15. Also, the aggregate increase ($93,082) in both federal and provincial tax is approximately 53% of the increase in taxable income, and so the proportion seems to be correct. On the face of the May 26 document (at the right hand side) is a separate column entitled "Statement of Account" which contains the following six entries:

Payments received this year	$0.00
Amount reassessed	950,047.79
Less: Previous assessment	812,778.88
Increase or decrease	137,268.91 (Inc)
Interest adjustment	93,039.98 (Dr)
Revised balance	$230,308.89

[8]      In order to establish that the May 26 document is an "additional" assessment, counsel for the Appellant relies on three computations. First, the "amount reassessed" ($950,047) in the above statement of account is the total of the following three items clearly shown on the face of the document:

Net federal tax	$376,955
Net provincial tax	258,336
Penalties	314,756
Total	$950,047

Second, the amount subtracted ($812,779) in the statement of account is the total of the three comparable items all clearly shown in the May 18 document:

Net federal tax	$321,865
Net provincial tax	220,344
Penalties	270,569
Total	$812,778

And third, when the increase of $137,268 is added to the interest adjustment of $93,039, it produces the revised balance of $230,307 in the statement of account.

[9]      Counsel for the Appellant argues that the "Revised balance" of $230,307 is the "additional" amount assessed on May 26 and that the amount ($812,778) subtracted or "backed out" is the amount assessed in the May 18 document and preserved as a separate amount owing. The Appellant supports this position by reference to the Respondent's Exhibit R-2 in this motion which is Revenue Canada's statement of account to the Appellant for the period May 18, 2000 (first reassessment date) to June 27, 2003 (one month after the May 26 reassessment date).

[10]     Exhibit R-2 begins by showing the tax, interest and penalty (aggregate $1,058,028) assessed for 1996 on May 18, 2000. The next entry on Exhibit R-2 is a credit on July 28, 2000 (probably the date of the Appellant's Notice of Objection) for the precise same amount ($1,058,028) with the notation "amount now under appeal". This entry probably reflects Revenue Canada's policy of not attempting to collect amounts which are under appeal. I make certain assumptions here because there was no explanation of Exhibit R-2 offered to the Court by its author through affidavit or otherwise. In any event, the remaining amounts entered on Exhibit R-2 are all amounts assessed for 2000, 2001 and 2002 less any payments or refunds; plus fresh amounts assessed on May 26, 2003 for 1996, 1997, 1998 and 1999. Significantly, on June 20, 2003 there is a debit of $1,357,185 with the notation "appealed amount reinstated". The "current balance" at June 27, 2003 as shown in Exhibit R-2 appears to be the total of all amounts owing by the Appellant to Revenue Canada whether under appeal or not.

[11]     In my opinion, counsel for the Appellant has made a fundamental error in his failure to distinguish between an assessment and a statement of account. In Pure Spring Company Limited v. M.N.R., [1946] Ex. Cr. 471, President Thorson[1] described an assessment at page 500:

The assessment is different from the notice of assessment; the one is an operation, the other a piece of paper. The nature of the assessment operation was clearly stated by the Chief Justice of Australia, Isaacs, A.C.J., in Federal Commissioner of Taxation v. Clarke ((1927) 40 C.L.R. 246 at 277):

An assessment is only the ascertainment and fixation of liability.

a definition which he had previously elaborated in The King v. Deputy Federal Commissioner of Taxation (S.A.); ex parte Hooper ((1926) 37 C.L.R. 368 at 373):

An "assessment" is not a piece of paper; it is an official act or operation; it is the Commissioner's ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount he sends by post a notification thereof called a notice of assessment" ... But neither the paper sent nor the notification it gives is the "assessment". That is and remains the act of operation of the Commissioner.

It is the opinion as formed, and not the material on which it was based, that is one of the circumstances relevant to the assessment. The assessment, as I see it, is the summation of all the factors representing tax liability, ascertained in a variety of ways, and the fixation of the total after all the necessary computations have been made.

The Court ought not to construe the appeal provided by the Act, which is specifically an appeal from the assessment, as extending to such a different operation as the Minister's discretionary determination under section 6(2), in the absence of a clear indication that Parliament so intended. ...

The above description of an assessment has been cited with favour many times and is still good law. It is a particular assessment which is the subject of an appeal. In this regard, the following provisions of the Income Tax Act are relevant:

151       Every person required by section 150 to file a return of income shall in the return estimate the amount of tax payable.

152(1) The Minister shall, with all due dispatch, examine a taxpayer's return of income for a taxation year, assess the tax for the year, the interest and penalties, if any, payable and determine

(a)         ...

165(1) A taxpayer who objects to an assessment under this Part may serve on the Minister a notice of objection, in writing, ...

169(1) Where a taxpayer has served notice of objection to an assessment under section 165, the taxpayer may appeal to the Tax Court of Canada to have the assessment vacated or varied after either

(a)         the Minister has confirmed the assessment or reassessed, or

(b)         90 days have elapsed after service of the notice of objection and the Minister has not notified the taxpayer that the Minister has vacated or confirmed the assessment or reassessed,

but no appeal under this section may be instituted after the expiration of 90 days from the day notice has been mailed to the taxpayer under section 165 that the Minister has confirmed the assessment or reassessed.

171(1) The Tax Court of Canada may dispose of an appeal by

(a)         dismissing it; or

(b)         allowing it and

(i)          vacating the assessment,

(ii)         varying the assessment, or

(iii)        referring the assessment back to the Minister for reconsideration and reassessment.

248(1) In this Act,

"assessment" includes a reassessment;

It is clear from subsection 152(1) that the Minister may assess tax, interest and penalties. In tax jargon, we often say "he was assessed" or "his return was assessed" but, technically, it is only tax, interest and penalties which can be assessed in the sense that an amount of liability is ascertained. See the above passage from Pure Spring.

[12]     The May 26 document shows revised taxable income of $1,236,140 representing the aggregate of (i) taxable income of $1,060,243 shown on the reassessment of May 18, 2000; plus (ii) the amount of $175,897 derived from alleged appropriations under section 15. The fact that the May 26 document shows the aggregate of those two amounts as "revised taxable income" is a good indication that the Minister on May 26, 2003, was assessing tax for 1996 on the Appellant's aggregate income from all sources. In other words, the May 26 document appears to be a reassessment of tax on the Appellant's total 1996 income. There is, however, a stronger reason for concluding that the May 26 document is a reassessment and not an additional assessment.

[13]     The May 26 document shows net federal tax of $376,955.48 and provincial tax of $258,336.14. For countless years, the income of an individual resident in Canada has been taxed at graduated or progressive rates, meaning that lower income is taxed at a lower rate and higher income is taxed at a higher rate. The graduated or progressive rates of tax are illustrated in subsection 117(2) of the Act as it applied to 1996:

117(2) The tax payable under this Part by an individual on the individual's taxable income or taxable income earned in Canada, as the case may be, (in this subdivision referred to as the "amount taxable") for the 1988 and subsequent taxation years is

(a)         17% of the amount taxable, if the amount taxable does not exceed $27,500;

(b)         $4,675 plus 26% of the amount by which the amount taxable exceeds $27,500, if the amount taxable exceeds $27,500 and does not exceed $55,000;

(c)         $11,825 plus 29% of the amount by which the amount taxable exceeds $55,000.

The Appellant is a resident of Ontario. Under an agreement between the federal government and the Ontario government, the federal government collects an income tax on behalf of Ontario. The Ontario income tax imposed on an individual is approximately 50% of the federal tax, plus an Ontario surtax which is also progressive at different rates. If the Minister wanted to assess tax under Part I of the Act on an additional amount not previously included in computing the income of an individual for a particular taxation year, it would be very awkward for the Minister to make an "additional" assessment because the rate or rates of tax on such additional amount would depend upon the aggregate amount of income (and resulting taxable income) on which tax had previously been assessed.

[14]     I am satisfied from the face of the May 26 document (Exhibit "E" to the affidavit of Marcel Dumas) that the Minister made a reassessment of tax for 1996 on May 26, 2003. The statement of account on the right-hand side of the May 26 document shows how the Appellant's liability to Revenue Canada has changed (i.e. increased) as a result of the reassessment made on May 26, 2003. That statement of account, however, is a consequence of and did not influence the Minister's assessment of tax, interest and penalties on May 26, 2003. I repeat the following statement of Jackett P. in the passage from Abrahams quoted in paragraph 3 above:

... Where, however, the "re-assessment" purports to fix the taxpayer's total tax for the year, and not merely an amount of tax in addition to that which has already been assessed, the previous assessment must automatically become null.

It is obvious on the face of the May 26 document that the Minister has fixed the Appellant's "total tax for the year" and has not merely fixed an amount of tax in addition to that already assessed. This is what I mean by Appellant counsel's failure to distinguish between an assessment and a statement of account.

[15]     Having regard to the progressive rates of tax in section 117, I cannot imagine the Minister choosing to issue an "additional" assessment to an individual under Part I of the Act if the Minister's objective is to assess tax on an "additional amount" not previously included in income. An individual may also have the residue of a "non-capital loss" from an adjoining year which may be deducted under section 111 of the Act in computing taxable income; and the deduction of such loss may offset all or a portion of the additional amount on which the Minister proposes to assess tax. As a practical matter, it would be awkward and imprudent for the Minister to issue an "additional" assessment to any individual for a particular year under Part I of the Act. I can imagine the Minister issuing an additional assessment to an individual for a particular year under Part XIII of the Act with respect to tax which the individual failed to withhold and remit from rents, royalties, etc. paid to a non-resident of Canada. See subsection 215(6) and paragraph 227(10)(b). Tax under Part XIII is at a fixed rate.

[16]     In a written submission after the hearing of the Respondent's motion, counsel for the Appellant stated:

... an "additional" assessment by nature is one which is in addition to an existing assessment. In the case before you, the May 18, 2000 assessment relates solely to the sale of shares and land relating to Villa Toyota. The May 26, 2003 assessment relates solely to shareholder benefits (some $175,897.94 worth) alleged to be undeclared by the taxpayer, Mr. Parent. The May 26, 2003 assessment does not vary the May 18, 2000 assessment in any particular. Rather, it simply "adds" an additional amount to the taxpayer's income due to the unrelated matters having to do with alleged shareholder benefits. In this sense the May 26, 2003 assessment is "additional". ...

It is not accurate to state "the May 18, 2000 assessment relates solely to the sale of shares and land relating to Villa Toyota." The May 18 assessment of tax was based on aggregate taxable income which included an amount derived from the Villa Toyota transaction, perhaps not previously reported or included. Similarly, it is not accurate to state "the May 26, 2003 assessment relates solely to shareholder benefits (some $175,897.94 worth) alleged to be undeclared." The May 26 assessment of tax was based on aggregate taxable income which included an amount derived from alleged shareholder benefits, perhaps not previously reported or included. The Appellant's counsel seems to think that the Minister assesses a particular transaction. I repeat the proposition stated at the end of paragraph 11 above. The Minister does not assess an individual, or a tax return, or a transaction, or even income. Technically, under subsection 152(1), the Minister may assess only tax, interest and penalty.

[17]     When the Minister assessed tax on May 26, 2003, he was assessing tax on the aggregate of all of the Appellant's income for 1996 from all sources including the Villa Toyota transaction and the alleged shareholder benefits. As such, the Minister's assessment on May 26, 2003 for 1996 was a reassessment; and it nullified all prior assessments for 1996.

[18]     The Notice of Appeal as presently drafted is an appeal from the assessment made on May 18, 2000 for 1996. That was a valid assessment when made but the recent assessment of May 26, 2003 for 1996 nullifies all earlier assessments for 1996. Accordingly, the Notice of Appeal as presently drafted is an appeal from a nullity and must be quashed unless it is amended. Left to myself, I would grant the Respondent's motion and quash the appeal. At the conclusion of the hearing, however, counsel were in agreement that, if I should decide to grant the Respondent's motion, I would defer issuing any order so that the Appellant would have an opportunity to file an amended Notice of Appeal.

[19]     The Appellant shall have until September 1, 2003 to file an Amended Notice of Appeal challenging the assessment of May 26, 2003. If the Appellant fails to file such an amended Notice of Appeal by September 1, 2003, the appeal commenced on February 11, 2002 shall be quashed. The Respondent will have its costs of this motion in any event of the cause.

Signed at Ottawa, Canada, this 7th day of August, 2003.

"M.A. Mogan"

CITATION:

2003TCC509

COURT FILE NO.:

2002-624(IT)G

STYLE OF CAUSE:

Roland Parent and Her Majesty the Queen

PLACE OF HEARING:

Ottawa, Ontario

DATE OF HEARING:

July 8, 2003

AMENDED REASONS ON RESPONDENT'S MOTION BY:

The Honourable Justice M.A. Mogan

DATE OF REASONS:

August 7, 2003

APPEARANCES:

Counsel for the Appellant:

Terry D. McEwan and Robin Ritchie

Counsel for the Respondent:

Gatien Fournier

COUNSEL OF RECORD:

For the Appellant:

Name:

Terry D. McEwan

Firm:

Gowling, Lafleur, Henderson, LLP

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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