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Docket: 96-4749(IT)G |
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BETWEEN: |
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NORMAND LASSONDE, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
Motion heard on August 11, 12, 13, 14 and 15 at Montréal, Quebec
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Before: The Honourable Judge Louise Lamarre Proulx |
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Appearances: |
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Counsel for the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Marie-Andrée Legault Danny Leduc |
____________________________________________________________________
JUDGMENT
Upon motion by the Appellant to set aside the assessment made under the Income Tax Act and cancel or waive the related interest for the 1989 taxation year for unreasonable delay and oppression;
The motion to quash the assessment is dismissed. Costs are awarded to the respondent.
Signed at Ottawa, Canada, this 3rd day of October 2003.
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"Louise Lamarre Proulx" |
Lamarre Proulx, J.
Translation certified true
on this 15th day of March 2004.
Gerald Woodard, Translator
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Citation: 2003TCC715 |
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Date: 20031003 |
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Docket: 96-4749(IT)G |
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BETWEEN: |
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NORMAND LASSONDE, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
LamarreProulx, J.
[1] This is a preliminary motion to quash the assessment and cancel or waive the interest for unreasonable delay and oppression, based on sections 1, 2, 7, 8, 11a, 11b, 11d, 12, 15(1), 24(1), 26 and 32(1) of the Canadian Charter of Rights and Freedoms (the "Charter").
[2] The reassessment at issue is dated September 7, 1993, and relates to the 1989 taxation year. It was issued inside the normal assessment period set forth in subsections 152(3.1) and 152(4) of the Income Tax Act (the "Act"); the initial assessment dated to October 24, 1990. The reassessment was due to the Appellant's interest in the Société en recherches expérimentales en télématique enr. (or "SRET"). This is a general partnership for which the Appellant was sponsor.
[3] The Appellant asserts unreasonable delay because it is now 2003 and the Supreme Court of Canada allegedly ruled that such a delay is unreasonable. According to the Appellant, the Askov decision (R. v. Askov, [1990] 2 S.C.R. 1199) is such that if, after three years, in individual has not had a hearing, procedures must be stayed.
[4] The Appellant asserts bad faith and oppression by the Department of National Revenue for various reasons: the Department of National Revenue allegedly initially focused on major partnerships; a manager allegedly promised to allow him to meet with officials at Headquarters in Ottawa; because of that promise, he asked investors to sign the waiver of the limitation period; a series of suspensions of his case over a 10-year period-a list of the suspensions is included at pages 27 to 30 of the motion and the most important of which are examined in these reasons-as well as the late introduction of the notion of a sham. Counsel for the Respondent indicates that a reason in support of the assessment was added to the Reply to the Notice of Appeal, which has nothing to do with the delays in pursuing the case. As she is right in this regard, we will not examine this further.
[5] At the beginning of the hearing, the Appellant indicated that he would probably call Jacques Carle and Réal Turgeon to testify. The Appellant indicated that Mr. Turgeon was the managing partner of SRET at the end of 1989. Jacques Carle was Vice-President of Geyser Informatique Inc. We will see in the description of the facts that this information regarding Mr. Turgeon is surprising.
Appellant's Testimony
[6] The Appellant began his testimony by providing an overview of his training. He is trained in economics. The Appellant is a graduate of the Canadian Securities Institute. He was a journalist for some ten years, Director of economic information with La Presse and Director of stock market information with the publication Les Affaires newspaper. He became interested in informatics in the early 1980s, when the first personal computers appeared on the market. He made considerable use of them in his role as Director of economic information. He acquired knowledge in two specialties, i.e., artificial intelligence and expert systems.
[7] He stated that, from 1984 to 1988, he created research companies. They were limited partnerships in which investors invested in various projects and were entitled to tax credits.
[8] In 1988, the Act was amended, which the witness said made limited partnerships almost useless for scientific research and experimental development ("SR & ED"). The only means remaining was a general partnership. He created one in 1988. There were approximately 350 investors. The amount collected was in the order of 3.5 million dollars. There were no new investments in 1988. The two-year project was continued in 1989 with considerably more funds and the number of members in the partnership increased to 1,014.
[9] However, a general partnership implies the concept of member participation. He asked officials at Revenue Québec if he could obtain guidelines or criteria regarding member participation so that they would not be considered specified members, i.e., what a member must do to not be a specified member. He was allegedly told that there were no criteria. With people from Geyser, he wrote a document entitled "Les mécanismes de participation des associés".
[10] According to the Appellant, Revenue Canada did not give advance rulings.
[11] In December 1988, he signed a marketing contract with Bell Canada. Bell Canada was the contractor and the partnership was the contractee. In December 1988, a first prototype was placed on the Alex network for marketing. Others followed in 1989. In 1989, there were some fifty researchers working at Geyser.
[12] As regards the fact that Revenue Canada initially took an interest in partnerships with the most members, he refered to the April 13, 1995 report entitled "Review of the General Partnerships in Quebec used as SR & ED Tax Shelters" (P-51 or I-32), at page 5:
With the number of partnerships growing, audits were started first on the major ones, including a partnership with over 1,100 members . . .
[13] The second element of bad faith asserted is an event that allegedly took place in 1993, an alleged broken promise. The Appellant allegedly had two meetings with Mr. Boucher and Mr. Beauregard of Revenue Canada on February 11 and 18, 1993. At the first meeting, he was accompanied by Jacques Carle and at the second, Réal Turegeon. He allegedly asked Mr. Boucher to obtain a declaratory judgment from the Superior Court regarding the notion of participation. Mr. Boucher instead allegedly offered to have him meet with the Legislation Division in Ottawa. However, [translation] "for the meeting to take place, there is a condition. You must ask all SRET members to sign a waiver of the limitation period, as we are behind." "Why not send the letter to the members?" "Mr. Lassonde, I do not have the moral authority. If the Department sends the letter, no one will reply, no one will waive." (Page 41 of the transcript)
[14] He refered to Exhibit P-80 to read the notes that he took after these meetings with Mr. Boucher and Mr. Beauregard. He could tell members [TRANSLATION] "You must sign the waiver. I have a promise that I will be able to make representations in Ottawa." However, he was never invited to the meeting. The meeting was never held, while he had obtained a waiver from 1,300 individuals.
[15] Another instance of oppression: Mr. Boucher also allegedly told him: [TRANSLATION] "The research directors will not be assessed as specified members" yet he was assessed as such.
[16] Once he was assessed, Jean-Maurice Gagné wrote the Notice of Objection. That notice is dated November 3, 1993. Mr. Gagné had been Mr. Lassonde's lawyer since 1988.
[17] A suspension: on December 3, 1993, he received a letter from Pierre Dextraze of the Appeals Division informing him that his file was suspended Exhibit P-29. A copy was sent to the Appellant's lawyer:
...
[translation]
Please be advised that:
1 - We have received your Notice of Objection for processing.
2 - As the audit of the Société de Recherches Expérimentales en Télématique Enr. was conducted by the Montréal District Office, we are suspending your file while awaiting a decision in a similar case from the Appeals Division of said Montréal District Office.
3 - We will, of course, abide by the decision rendered by the Appeals Division and you will be advised when it is known.
4 - Although the law permits payment to be withheld until your objection is resolved, interest accumulates on said unpaid taxes.
...
[18] Exhibit P-33 is a letter dated April 5, 1995, from the Deputy Minister at Revenue Canada to the President of the association of taxpayers who participated in research and development projects, indicating that the notices of objection would be put on hold, another suspension. The settlement offer was made on June 30, 1995 (Exhibit P-32).
[19] One obstruction is described at paragraph 169 of the motion, which reads as follows:
[translation]
At the preliminary hearing on February 13, 1997, before the Tax Court of Canada at Montréal, Daniel Verdon, Counsel for the Respondents, delayed the hearing into the Applicant's case while awaiting an amendment to the Act and, by so doing, bumped the McKeon case ahead of that of the Applicant in SRET.
Simon Beauregard's Testimony
[20] Mr. Beauregard is an auditor with the Canada Customs and Revenue Agency (the "CCRA"). He began working on the files in question in April 1992.
[21] Exhibit P-19 includes two documents, a cover letter dated May 22, 1991 to Normand Lassonde at Geyser Informatics Inc. and a copy of the RS & ED project eligibility report dated April 15, 1991 regarding SRET. Although the letter was prepared by Carl Deslonchamps, it was signed by Mr. Beauregard. The witness explained that he was in the same group as Mr. Deslonchamps and that the latter had asked him to give the letter to Mr. Lassonde, who would pick it up at the office that day. The scientific report was signed by the scientific advisor, Georges Husson. The amount indicated was 15 million dollars.
[22] The witness explained that the scientific advisor checked the scientific aspect of the project, and the auditor the accounting aspect. The amount of 15 million dollars indicated in the scientific report is based on the applicants' initial applications. It has no relationship to the eligibility of the deduction. The amount identifies the scope of the expenses to be audited by the auditor.
[23] Exhibit P-97 is a letter dated March 12, 1992, signed by Mr. Lalonde, prepared by Carl Deslonchamps and sent to an SRET investor. The same letter was sent to some thirty investors. The letter states that the Minister of National Revenue (the "Minister") intended to consider him as a specified member and that he had 30 days to report activities in which he had taken part. This led him to believe he was not a specified member.
[24] Mr. Beauregard took over the SRET audit file in late April 1992. On May 10, 1992, he sent a letter to Mr. Lassonde (Exhibit P-114). The letter informed Mr. Lassonde that Revenue Canada would soon begin an audit of SRET.
[25] I quote the second paragraph:
[translation]
To this end, you are asked to make available to us the company's books and records, all supporting documents (invoices, etc.) and all documents listed in the appendix.
[26] In late December 1992, Mr. Beauregard requested the assistance of the scientific advisor, as there were two major expenses related to the SRET file for which he wanted more information. These expenses were for software and electronic equipment. It was thus that Mr. Husson received another mandate. It was not possible for the latter to visit the site. He produced an addendum to the scientific report (Exhibit P-107) on February 1, 1993.
[27] Mr. Beauregard confirmed the meetings with the Appellant, Réal Turgeon, Jacques Carle and Mr. Boucher on February 11 and 18, 1993. For Mr. Beauregard, the subject of the discussions was the tax implications following his letter dated February 4, 1993 (P-75), advising Mr. Lassonde of the proposed assessment.
[28] In order to continue to study the disputed issues at the request of Mr. Lassonde, the witness explained that Revenue Canada asked that the notice of waiver be provided, as the limitation period was approaching. According to his memory, the discussion dealt with submitting the points raised to the main office, nothing more. He does not remember any promise to allow the Appellant to go to Ottawa to defend his position on specified members. The witness stated that if he had not received the waivers, he would have sent the files to the assessment office immediately.
[29] However, on February 26, 1993, Michel Lambert of the Ottawa office asked him to go to Ottawa to explain the file and to bring all documents to date. The meeting took place on March 1. Mr. Boucher and Mr. Beauregard were at the meeting. This emergency meeting in Ottawa was the result of complaints that the Appellant had sent to the Prime Minister and another minister on February 16, 1993 (Exhibit I-14).
[30] The letter from the Minister of National Revenue, Otto Jelinek, in response to Mr. Lassonde's letters was filed as Exhibit P-45. It is dated April 22, 1993.
[31] In response to a question from the Appellant, Mr. Beauregard confirmed that he went to the offices of the Commission des valeurs mobilières du Québec("CVMQ") in 1993 to consult decisions regarding SRET. It was Mr. Lassonde who had advised him of his differences with the Commission.
[32] On May 11, 1993 (Exhibit P-86), Mr. Beauregard sent a letter to the Appellant advising him that SRET members would be reassessed based on the information in the letter.
[33] He finalized the file by sending a letter to all members on June 4, 1993 (Exhibit P-83), advising them of changes to the taxpayers' income tax returns. The reassessments followed. Mr. Beauregard did not take part in any other SRET audit activity.
[34] Of the documents that Mr. Beauregard had brought with him following the subpoena, the Appellant filed one, as Exhibit A-1. This was minutes of the meetings held on February 11 and 18, 1993, prepared by Mr. Beauregard. There is no mention of any promise or, for that matter, the request for waivers.
[35] In cross-examination, Counsel for the Respondent asked Mr. Beauregard questions regarding the documents that he had brought following the subpoena, filed jointly as Exhibit I-1. These documents regard the purchase of software. On September 24, 1992, there was a request for an international audit regarding the acquisition of software in France by Gestion Tecktel Inc. from Challenge S.A. at a cost of $5,300,000. This amount was paid in Tecktel shares.
[36] Revenue Canada received a letter from the attaché for fiscal affairs at the French embassy on September 1, 1993, particularly indicating that [translation] "The invoicing and accounting of Challenge S.A. indicates that it provided no benefit that could be associated with the sale of software and sold no products or electronic or computer material to Gestion Tecktel Inc. or any other company". The letter accompanied an investigation report.
[37] Mr. Beauregard indicated that there was also a claim for the cost of a purchase of electronic equipment from Russia at a cost of $1,728,000. Adding the cost of the software, this equalled approximately 50 % of the expense claimed.
[38] As regards the electronic equipment for which expenses were claimed, the witness explained that there is no agreement with Russia, so the auditor requested information from the special investigations department, a department that can contact Canada Customs to check if parts were received if they cleared customs. There was no trace of such.
[39] Mr. Beauregard stated that Réal Turgeon had not invested in SRET in 1989 and is not included in the list of members.
Jean-Marc Boucher's Testimony
[40] Jean-Marc Boucher is currently a Manager, Large Business Audit, at CCRA. In 1992, he was the manager in charge of audits of scientific research and experimental development businesses. He held that position until June 1998.
[41] M. Boucher had brought very few documents following the request in the subpoena duces tecum. He produced a letter dated March 27, 1992, addressed to Mr. Lassonde and signed by Mr. Boucher. This letter was filed as Exhibit A-2. The letter followed up on the proposed assessments sent on March 12, 1992, mentioned in paragraph 23 of these reasons. It indicated that measures related to the investors were stayed pending examination of SRET representations.
[42] The witness explained the few documents that he had brought by the fact that he was not the auditor in the file. He was the manager. For instance, he does not have the documents that Mr. Beauregard may have had in his possession. The documents that he has regarding the company are mostly interventions by the Appellant and complaints that he received from the Appellant regarding managers. He did not write reports regarding the meetings that were held.
[43] Mr. Boucher stated that his division had taken a position long ago, but that there were still interventions by the Appellant. He suggested presenting the case to Headquarters. The Appellant attached importance to Mr. Boucher's promise to allow him to attend that presentation. Mr. Boucher responded that that was absolutely false. The Appellant may have asked to attend the meeting, he could not formally commit to him being present at the meeting, as Mr. Boucher does not decide such things.
[44] However, during that time on February 16, 1993, Mr. Lassonde sent a complaint to the Minister responsible for Quebec and to the Prime minister regarding the decisions that Mr. Boucher wanted to make. Mr. Lassonde had not inform Mr. Boucher, That complaint was sent to the Rulings Directorate in Ottawa for response. Mr. Boucher received a telephone call from the Directorate on February 27. On March 1, he went to Ottawa to meet with officials at the branch. He may have spoken of the Appellant's wish, but the Directorate must have deemed that it would not be of any use to have the Appellant present.
[45] The witness explained the purpose of the waivers: [translation] "If there is no waiver of the limitation period, assessment will be made as soon as possible, before the years are prescribed. The idea of specified member had long been clear for them and it applied to the members of SRET."
[46] As regards the fact that it was Mr. Lassonde who sent the waiver forms to the various members, the witness stated that that is normal. It is the responsibility of the partnership official to contact members. What happened was that they suggested to the Appellant that the file be submitted to Ottawa and, in return, the delegated member agreed to ask the members to sign waivers. [translation] "Anyone who does not sign the waiver will be assessed immediately."
[47] He stated that it did not help the Department at all. It simply delayed the assessment time, as the Department was trying to issue them as soon as possible. [translation] "It does not help the Department; it helps the Applicant to continue making representations."
[48] In cross-examination, the witness produced a background of the main steps in the SRET audit as Exhibit I-2, and a background of the written interventions by Normand Lassonde as Exhibit I-3. The effect of Mr. Lassonde's interventions was to extend the audit period. The witness stated, with some emotion, that, the interventions included attempts at intimidation, complaints, false statements and threats. Exhibits I-9 to I-29 were filed as evidence of this claim.
[49] In response to a question from Counsel: [translation] "In all the communication that you had with Mr. Lassonde, was there any indication at any time that he might have ceased being the delegated member or that he had dissolved SRET? Never." According to Exhibit P-1, on November 27, 1989, Mr. Lassonde dissolved SRET at the office of the Prothonotary of the Superior Court. He indicated that he was the only person in the business. The same day, SRET was registered by Réal Turgeon, who also indicated he was the only person in the business.
Josée Rodrigue's Testimony
[50] Josée Rodrigue is currently an appeals officer with CCRA. She was the objections officer in the SRET matter. However, she did not make any decisions in the file, as the file was transferred to the main office in Ottawa.
[51] Exhibit P-48 is a letter from Ms. Rodrique to Jean-Maurice Gagné dated April 14, 1994, requesting that he make representations as soon as possible. The Appellant showed her a letter from Mr. Gagné dated October 21, 1994, Exhibit P-50, in response to her letter. She did not remember receiving the letter, because she believes that the file had been transferred.
Carl Deslonchamps' Testimony
[52] Carl Deslonchamps works in the private sector. At the time, he was an auditor with Revenue Canada. He allegedly began working on the SRET file in February 1991. At the time, there were a lot of research partnerships with members were claiming tax credits. The purpose of the audit was to ensure that taxpayers claiming tax credits were entitled to them.
[53] He remembered having visited Mr. Lassonde accompanied by Mr. Husson. The latter was an external consultant specializing in informatics who worked for the Department to provide advice on the scientific eligibility of projects. He believed that Mr. Beauregard probably accompanied him because he was moving to another section.
[54] The Appellant referred the witness to the letter dated May 22, 1991 (Exhibit P-19). That letter presents the scientific report. The report was prepared by Mr. Husson.
[55] The witness stated that he remained on the file until probably March 12, 1992, the date of the proposed assessment of some SRET members (Exhibit P-97). Those proposals were temporarily suspended following a letter signed by Mr. Boucher on March 27, 1992 (Exhibit P-65 or A-2).
[56] He did not remember having conducted even a limited audit of SRET activities. Mr. Husson had access to the scientific documents, made his report and the file was then taken over by Mr. Beauregard. Just because a project is eligible does not mean that the expenses should not be examined. It must be determined which expenses and activities were actually incurred and undertaken for the research project.
Michel Lambert's Testimony
[57] Michel Lambert was the next witness. He is currently a senior rulings officer. His main role is to make advance rulings. He also analyzes files at the request of tax services offices. He may provide opinions, work on interpretation bulletins and provide information to the Minister. This is the Income Tax Rulings Directorate of the Policy and Planning Branch.
[58] He became involved in the file following Mr. Lassonde's complaint as delegated member to the Prime Minister and the Minister responsible for Quebec on February 16, 1993 (Exhibit I-14).
[59] He asked Mr. Boucher to forward or bring him the documents relating to the file. What he remembers is indicating that he wanted to take the time to study all documents and determine if more interviews or documents were needed. The documents provided were sufficient to allow him to prepare a response to be signed by the Minister of Revenue, Mr. Otto Jelinek (Exhibit P-45 or I-15). The last paragraph of the Minister's letter was his opinion based on the documents at the time.
[60] Exhibit I-18 is a letter dated November 30, 1992, from Mr. Lassonde to the Rulings Directorate regarding the interpretation of the expression [translation] "take an active role in the partnership's activities". On May 3, 1993, he received a long explanatory letter prepared by Michel Lambert for the Director of the Manufacturing, Corporate and Trust Industry Division (Exhibit I-19).
[61] In March or April 1995, he took part in the two working groups created by the Deputy Minister of Revenue regarding complaints by taxpayers who had been reassessed.
[62] In cross-examination, in response to a question by Counsel for the Respondent, he answered that he had spent two days going through the archive of advance rulings to verify whether or not a ruling had been requested or granted for SRET. There was none.
[63] He stated that Revenue Canada never had a policy of not issuing advance rulings for investment projects in the research and development field. He also stated that requests for advance rulings are handled on a priority basis.
[64] Exhibit I-30 is a memo to Robert Roy, who was the Assistant Deputy Minister for audits. The memo, dated February 24, 1993, was signed by Denis Lefebvre, the Assistant Deputy Minister, was prepared by Michel Lambert. The letter states, inter alia:
[translation]
We have reviewed our research files and have found no advance rulings in this matter. However, we have identified a request for advance rulings regarding Geyser Informatique Inc., SRET sub-contractor. That request was withdrawn on July 25, 1990, because the decisions that we made were unfavourable.
[65] In this regard, the Appellant presented Exhibit A-7, which included three invoices from the Ernst and Young accounting office regarding the Astrobotix project that began in February 1990 and ended on April 28, 1990. He stated that it was probably this project that was not continued.
Serge Huppé's Testimony
[66] Serge Huppé was the next witness. He is currently Team Leader at the Appeals Branch at Headquarters in Ottawa. In 1992, he was an appeals officer with the Appeals Branch at Headquarters.
[67] He explained the background that led federal officials to propose a settlement to taxpayers who had invested in SR & ED partnerships and who had been reassessed in late 1993. The reassessments were made to disallowed tax deductions.
[68] There were 176 general partnerships that were scientific research tax shelters. These were partnerships with many investors. One partnership had more than 1,100 investors, some 200 and others 500.
[69] Most assessed taxpayers filed a notice of objection and may also have sent letters to their MPs, to the Minister of Revenue and to the Prime Minister.
[70] Taxpayer representatives wanted to meet with people from Headquarters and that is how the latter became particularly involved. The meeting was held in October 1994 in Ottawa.
[71] Following that meeting, the Appeals Branch in Ottawa decided to look at the matter more closely and asked that all appeals divisions at the tax services offices suspend activities related to examination of objections. It asked that regional offices forward all representations that they had received regarding the objections. A study group was also created.
[72] The members of the executive of the taxpayers' association created by these taxpayers and their tax lawyer requested a meeting with the Deputy Minister. That meeting took place in March 1995. Exhibit P-33 is the letter dated April 15, 1995 from Pierre Gravelle to Bernard Dupont, president of the association of taxpayers who participated in the research and development projects.
[73] That letter stated, inter alia:
[translation]
I am aware of the investors' concerns and wish to ensure you that the files of all taxpayers who took part in these research projects are the subject of in-depth examination. The various representations received and all relevant elements will be taken into full consideration.
As I have explained to you, the Department must deal with these files in a fair and equitable manner, based on the facts and the applicable statutory provisions. In this respect, equity legislation that permits interest to be cancelled or waived in certain situations will be fully considered.
Once we have completed our study, your Association and the other investor representatives will be informed of the results. I assure you that your association and all investor representatives will have the opportunity to submit other information, if needed, before a final decision is made.
Until then, as agreed, all notices of objection in this regard will be put on hold. In light of such things as the prescription, the audits for the 1991 and later taxation years will continue normally and the reassessment process will be maintained in order to protect the interests of all parties. Taxpayers who receive a reassessment may simply file a notice of objection.
[74] Following this meeting, Deputy Minister Pierre Gravelle created a working group to study the matter. The working group was made up of assistant deputy ministers from Revenue Canada's technical branches.
[75] The study group produced a report on April 13,1995 (Exhibit I-32 or P-51). An addendum was produced on April 21, 1995 (Exhibit P-31). The matter put before the study group was whether, in addition to being passive members, investors were limited partners. The finding was they were all limited partners. The study group used a sampling of partnerships, including SRET.
[76] On May 12, 1995, the report by the working group was submitted to the Deputy Minister of National Revenue (Exhibit P-103 or I-33). The proposed settlement was presented on June 30, 1995 (Exhibit P-32).
[77] The settlement proposed a business loss for investors in the actual amount of their shares in the year in which their shares were disposed of. This settlement applied to the 1989 to 1993 taxation years for projects that had obtained a tax shelter number.
[78] Thus, for a taxpayer with an investment of $10,000, which was bought back for $5,000, the settlement provided a business loss of $5,000. In addition, for those who had borrowed money to invest, an interest expense was granted.
[79] For investors who were not promoters, interest was cancelled or waived from the date on which the tax return was filed to October 31, 1995. There was no cancellation or waiving of interest for promoters.
[80] According to the witness, the settlement was the same, whether or not partnerships conducted eligible research. Based on the elements in the file, it was determined that these investors were limited investors and that the Act states that a limited partner, whether or not the research is eligible, is not entitled to any investment tax credit for scientific research, nor any tax deduction for scientific research expenses. They are limited partners.
[81] Most taxpayers, i.e., 85 %, accepted the settlement offer. Settlements took place until February 1997, with some later in special cases. In February 1997, the specific study began of files for taxpayers who had not accepted the settlement and who believed that their cases were different (Exhibit P-40).
[82] In early September 1997, 600 notices of appeal were received at the Tax Court of Canada before the assessments were approved by the Minister. They used paragraph 169(1)(b) of the Act, which allows them, to appeal directly to the Tax Court of Canada after 90 days have elapsed after service of the notice of objection.
[83] The witness explained that the letter cited in paragraph 17 of these reasons referred to a test case of the Appeals Division, not the Tax Court of Canada. Following this letter, there was a reassessment and then the objections were taken over by Headquarters in Ottawa.
[84] As regards the proposed settlement, Mr. Gagné received a copy. He met with Revenue Canada agents in July 1995 in Montréal.
[85] Exhibit P-34 is a document prepared in 1995 by Mr. Huppé for the planned meetings with representatives. It was not distributed. The las part deals with a second group of investors who allegedly invested from 1992 to 1994. These partnerships did not have a tax shelter number. The settlement did not apply to them. Revenu Québec audited this group. The main group was made up of 6,300 taxpayers and the second of 1,700.
[86] According to Mr. Huppé, Mr. Gagné did not want to proceed with SRET as a test case in this Court.
[87] Exhibit P-50, a letter from Mr. Gagné to Ms. Rodrigue dated October 21, 1994, was sent to the Ottawa office. A response was sent to him in April 1995.
[88] The Appellant asked: [translation] "When a taxpayer files an income tax return on April 30, what is the normal period for a Notice of Assessment?" Mr. Huppé replied that the service standard is six weeks, that the taxpayer should thus receive a Notice of Assessment in late June or early July, unless there are problems.
[89] There was no other testimony. The testimonies of Jacques Carle and Réal Turgeon, announced by the Appellant at the start of the hearing, did not occur. According to the Appellant, the testimony by Réal Turgeon and Jacques Carle would have been useful in confirming that there had been a promise at the meetings in February 1993, meetings in which they had participated. The Appellant felt that the evidence was provided by the other witnesses and that their testimony was not necessary.
[90] The judgment by the Chief Justice of this court in McKeown (McKeown v. the Queen, 2001 DTC 511) was handed down on March 12, 2001, and there was correction in September 2001. According to Counsel for the Respondent, the Respondent was then awaiting the position of Mr. Gagné. The latter left the case in September 2002 (Exhibit I-40). Once Mr. Gagné withdrew from the case, the Court summoned Mr. Lassonde. The case resumed on October 3, 2002.
The Subpoenas
[91] Michel Beaudry was summoned because he had signed a memorandum to the Rulings Directorate in Ottawa, dated April 16, 1996, requesting an interpretation of the expression "specified member" (Exhibit P-85). Counsel for the Respondent indicates that this letter was requested regarding a promoter in another series of partnerships.
[92] As regards the subpoena to Pierre Gravell, Counsel for the Respondent indicates that he is no longer employed at CCRA. The subpoena was received by fax at CCRA. Mr. Gravelle was never served the subpoena. Counsel also indicated that, one the one hand, he did not receive the subpoena and, on the other, he could not reveal any facts that have not already been provided to the Court. The Court heard the witnesses and received the reports.
[93] As regards the subpoena to Roy Shultis, Counsel indicates that he was not at the office when the subpoenas arrived and is still out of town. He is on vacation until August 18. Mr. Shultis has been a Deputy Assistant Commissioner at the Income Tax Rulings Directorate since 1993 or 1994. He has no personal knowledge of the Appellant's file. Mr. Lambert hascompared the two subpoenas; the requests are quite similar. The documents requested were identical those requested from Mr. Michel Lambert. M. Shultis would not have been able to provide any further information.
[94] As regards the subpoena to Claude Lamarche, Counsel explained that he was not aware of facts specific to the assessment of the Appellant.
[95] As regards the subpoena sent to Alan Neimark, the Commissioner of the Canada Customs and Revenue Agency, the content of the subpoena was similar to Mr. Huppé's, except the first article. Mr. Neimark could not have provided any documents beyond those provided by Mr. Huppé because, when Mr. Gravell, the Deputy Minister of Revenue at the time, left Revenue Canada, he sent all documents related to SR & ED tax shelters to the Appeals Branch.
[96] As regards the subpoena to Pierre Cossette and Daniel Verdon, Counsel for the Respondent indicated that all requests on the subpoena fall under solicitor-client privilege.
[97] Representations were made by a student-at-law with Revenu Québec. The Appellant's motion indicated the Quebec Government as Respondent. She asked that this indication be struck out. It was. She also asked that the subpoenas regarding Diane Jean, Deputy Minister at Revenu Québec, Léonid Cloutier and Hélène Jobin be quashed.
[98] These subpoenas were quashed during the hearing on the grounds that the presence of these witnesses would not be necessary in order to understand the background of the motion. These individuals had no personal knowledge of the Appellant's assessment. Having them testify would have been a waste of the Court's time and an abuse of process. As regards Counsel for the Respondent, there are the grounds of solicitor-client privilege.
[99] As regards the documents produced by the Appellant, the exhibits for which Counsel for the Respondent objects as to the relevance are: Exhibits P-3, a response from Revenu Québec; P-23, the September 2, 1993, notice of reassessment from Revenu Québec; P-39, the settlement offer reminder from Revenu Québec; P-44, the report from the Protecteur du citoyen du Québec; P-45, an opinion from the Minister (Revenue Canada); P-56, the definition of "limited partner" from Revenu Québec; P-72, an excerpt from the Larousse dictionary, P-85, the document regarding another file; P-92; P-93; P-96 (no document); P-104; P-113; P-122 and P-125, all irrelevant documents. I do not see the need to rule on this matter for the purposes of this motion.
Cross-Examination of the Appellant
[100] Counsel for the Appellant referred to Exhibit P-9, a standard contract entitled "Contrat ALEX entre Bell Canadaet le fournisseur de services". Where the supplier's name is to be indicated, we find the name of Geyser Informatics Inc. Counsel asked the Appellant if he had conducted research for Bell, to which he answered in the affimative. The service provider contract was allegedly this research contract. This agreement is dated December 8, 1988.
[101] On August 29, 1989, Bell Canada, through its lawyers, sent a cease and desist letter to Normand Lassonde, President of Geyser Informatics Inc. because he was infringing on Bell Canada trademarks in an unacceptable fashion (Exhibit I-35).
[102] According to that cease and desist letter, the document filed as Exhibit P-5, entitled "L'ère du videotext" and published by Geyser Informatics Inc. for its investors, gave the impression that the brochure was authorized by Bell Canada. The brochure was to be totally revised.
[103] Again according to the cease and desist letter, the Geyser Informatics Inc. publication Alex was to be immediately withdrawn from circulation, as it infringed on the trademark. This brochure was filed as Exhibit I-36.
[104] Another letter, dated October 25, 1989, from Bell Canada's lawyers, was filed as Exhibit I-37. The letter reads states, inter alia:
[translation]
In any event, the fact that you are a service provider in no way authorizes you to use material produced by our client or its trademarks to for public promotion of tax shelters.
As a participant in the ALEX service, close co-operation between you and Bell Canada is required. However, such co-operation certainly cannot interfere with Bell Canada's copyright or use of its trademarks in general. It seems clear to us that a promotional brochure prepared by Bell Canada, explaining the ALEX service, could be used with potential users, but definitely not to promote your personal interests or those of companies with which you may be associated, particularly to draw investors to research and development projects offering tax benefits. The fact that the source of the brochures and trademarks is clearly identified in no way changes the situation. Our Client, Bell Canada, has at no time given you authorization or consented in any way to being associated with the investment programs that you are offering to the public.
We have therefore been instructed by our client to ask that you cease and desist immediately from directly or indirectly associating Bell Canada or suggesting that it is associated with the research and development projects that you are promoting, personally or through other persons, companies, partnerships or corporation on your behalf, and that you cease using our client's material, documents and trademarks for this purpose or any purposes other than the sole promotion of the ALEX service.
[105] The counsel for the Respondent filed another cease and desist letter as Exhibit I-38, this one from the Centre for Research on Information Technologies ("CRIT"):
[translation]
We have recently learned of a document entitled "Alex" that is allegedly distributed by Geyser Informatics Inc. ("Geyser"), which includes an excerpt from a CRIT explanatory booklet and a letter deated May 26, 1989 signed by the President of CRIT, Mr. Pierre Coulombe.
Please be advised hereby that you have not obtained authorization to use the aforementioned documentation. Furthermore, the leaflets entitled "Cas types" refer to the CRIT without authorization from our client.
Our client recognizes that you are a member of CRIT, but this status does not entitle you in any way to use of the name of the Centre for Research on Information Technologies for the purpose of fundraising among potential investors, who may conclude that Geyser and CRIT are partners in such solicitation.
Accordingly, we hereby call upon you to immediately cease all use of CRIT documents or the CRIT name for fundraising purposes.
[106] The Appellant explained that, in both cases, with Bell Canada and the CRIT, the action was undertaken by the Commission des valeurs mobilières du Québec.
[107] Counsel then referred to Exhibit P-1: "On the first page, on June 29, 1998, you registered SRET as a company name, At that time, you indicated that you had no associates. On the third page, you produce a notice of dissolution of SRET dated November 27, 1989. Why did you to that?" The Appellant explained that there was a ruling against him in which the Commission des valeurs mobilières du Québec was a party. The CVMQ had challenged the research mandate. He claimed that it was the prothonotary who told him proceed in that manner. It was Mr. Réal Turgeon, his brother-in-law, who re-registered the partnership on the same day as sole member. Mr. Turgeon became the delegated member.
[108] "In the instrument of dissolution, you state that you are the only person in the business. Where are the 1,103 members? Mr. Beauregard testified that Mr. Turgeon had not invested in SRET, that he is not on the list of investors. How can he be the delegated member? In what role, then, did you make representations to Revenue Canadaduring those years?" She then referred to Exhibit I-14, a letter to Mr. Pierre Blais, the Minister. The letter is signed "Normand Lassonde, Delegated Member". All the letters are signed as "delegated member". On some letters, 1988-1999 is added.
[109] The counsel for the Respondent asked him if he had sent a letter to the 1,103 investors advising them that he was no longer SRET's delegated member, that it was now Mr. Réal Turgeon.
[110] The counsel for the Respondent questioned him regarding the expenses of software purchases in France. He first denied that these expenses were challenged. The company "Gestion Tecktel" claimed an expense of $5,290,000 for the purchase of software from S.A. Challenge, a company owned by the Appellant's brother-in-law, Mr. Bernard Fromageau. Mr. Fromageau owns a travel agency in France. The Appellant stated that, to his knowledge, there were two companies, a computer company associated with France Télécom and a travel agency.
[111] The investigation report by the Direction nationale d'enquêtes fiscales, filed as one of the documents in Exhibit I-1, indicates that S.A. Challenge did not have the expertise ormeans to carry out these operations:
[translation]
Nonetheless, Bernard FROMAGEAU admitted to having, in the summer of 1989, signed an agreement dated August 1, 1988 between his company, SA CHALLENGE and GESTION TECKTEL INC. This agreement set forth the framework for an exchange of telematics software developed and owned by SA CHALLENGE in return for shares in GESTION TECKTEL INC. While admitting that this document obviously included false statements, Bernard FROMAGEAU stated that he had not moved ahead with it and had signed no other document regarding the operation, despite the insistence of his brother-in-law.
[112] The Appellant nonetheless stated that he had purchased software from S.A. Challenge.
[113] The counsel for the Respondent referred to Exhibit I-16, a letter to SRET members dated May 19, 1993, and signed by Mr. Normand Lassonde as delegated member (1998-1999):
...
[translation]
It is my pleasure to announce that the case between S.R.E.T., Société de Recherche en Télématique (1989), and Revenue Canada regarding their threatened assessment based on members' "participation" in S.R.E.T. activities has been resolved.
In a letter sent to me, the Minister of National Revenue, Mr. Otto Jelinek, writes: "... the provisions of the Act that exclude SR & ED expenses from the determination of losses by a member only apply to limited members, which is not the case for Télématique members". As a result, there will be no reassessment of you participation in S.R.E.T.
...
[114] Counsel asked him why he had made such a false statement to members when, in reality, the limited member question had not been resolved and that it did, in fact, concern members' participation in SRET. He explained that he was not a tax expert and that he had confused the terms "limited partner" and "specified member". Counsel then asked how he could then make such a statement.
[115] Exhibit P-82 is a letter sent by Mr. Normand Lassonde, delegated member 1988-1999, to members, asking that they sign a notice of waiver. After reading the first paragraph of the letter, counsel asked: "Do you not think that calling your research project "ALEX" misleads people?"
[116] This first paragraph reads as follows:
[translation]
In 1989, you were a member of SERT (Société de Recherches Expérimentales en Télématique Enr), which, in conjunction with Geyser Informatiques Inc. and Infotique Tyra Inc., conducted a major research project entitled Alex in co-operation with Bell Canada and Minitel.
[117] Counsel then addressed his disputes with the Commission des valeurs mobilières.
[118] She filed a ruling by the Quebec Court of Appeal, La Reine c. Imbeault et Lassonde, as Exhibit I-42. This ruling quashes an acquittal on instruction from the Judge presiding at a jury trial of the Appellant for having conspired with another individual to defraud and having defrauded the public. The Court of Appeal ordered a new trial, which was heard before Guérin J. the appellant was found guilty of defrauding the general public through a partnership, Calypso, from april 24, 1987 to September 1, 1987. This judgment was filed as Exhibit I-43.
[119] The counsel for the Respondent referred the Appellant to Exhibit I-45, a copy of the judgment by Piché J., dated November 9, 1989. In this judgement, she found the Respondent, Normand Lassonde, guilty of contempt of court for having violated the injunction order issued by Yves Mayrand J. on November 25, 1987. The order had forbidden the Defendant from making any type of investiment governed by the Commission des valeurs mobilières. The investments were in Geyser Informatics Inc. This judgment is dated November 9, 1989.
[120] Exhibit I-46 is a motion by Geyser Informatics Inc., Gestion Tecktel Inc, Systèmes Financiers Iceberg Inc. and Société de recherches expérimentales en télématique. It is a judgment dated February 5, 1990 by Paul Martineau J. This judgment confirms the jurisdiction of the Commission des valeurs mobilières du Québec in requesting that funds be frozen.
[121] The judgment from the Quebec Court of Appeal dated December 19, 1994 sets aside the judgment by Piché J. on the grounds that the order by Mayrand J. was not sufficiently clear.
[122] Exhibit I-49 is a judgment by the Court of Quebec, Criminal and Penal Division, with Pierre Verdon J. presiding. The judgment is dated March 30, 1992. The Commission des valeurs mobilières du Québec was the prosecutor. The Appellant was the Defendant, along with Geyser Informatics Inc. the period in question was from October 19 to November 9, 1989. They were found guilty of the 20 offences of which they were accused. [translation] "Essentially, they are accused of having, on twenty occasions and with as many people, of having placed investment contracts within the meaning of section 1 of the Securities Act, without having obtained a prospectus from the Commission des valeurs mobilières. In the case at hand, it was research contracts granted by these people to Geyser Informatics Inc., in volving the payment of amounts of between ten thousand and thirty thousand dollars. "
[123] Exhibit I-50 is the judgment by Trottier J. of the Superior Court, Criminal Division, dated February 1, 1993. The appeal of Verdon J.'s judgment was dismissed.
[124] Exhibit I-53 is the sentencing decision by André Plante J. of the Court of Quebec, dated April 28, 1995.
Analysis and Conclusion
[125] The Appellant's motion is based on the ruling by the Supreme Court of Canada in Askov, supra. That ruling holds that a delay of almost two years following the preliminary hearing is clearly excessive and unreasonable.
[126] I cite what seem to be the most relevant parts of the summary of the reasons written by Corey J.:
. . . s. 11(b) of the Charter, any person charged with an offence has the right to be tried within a reasonable time and this right, like other specific s. 11 guarantees, is primarily concerned with an aspect of fundamental justice guaranteed by s. 7. The primary aim of s. 11(b) is to protect the individual's rights and to protect fundamental justice for the accused. . . .
The court should consider a number of factors in determining whether the delay in bringing the accused to trial has been unreasonable: (1) the length of the delay; (2) the explanation for the delay; (3) waiver; and (4) prejudice to the accused.. . . . Certain actions of the accused, on the other hand, will justify delays. A waiver by the accused [page1201] of his rights will justify delay, but the waiver must be informed, unequivocal and freely given to be valid.
[127] This decision was rendered in the area of criminal law.
[128] The counsel for the Appellant referred to the ruling by the Supreme Court of Canada in Blencoe v. Colombie-Britannique (Human Rights Commission), [2000] 2 S.C.R. 307, which clearly states that the constitutional right to be tried within a reasonable time only applies to criminal law.
[129] I quote Bastarache J., who wrote the reasons for the majority, at page 359:
However, it must be emphasized that this statement was made in the context of s. 11(b) of the Charter which provides that a person charged with an offence has the right "to be tried within a reasonable time". The qualifier to this right is that it applies to individuals who have been "charged with an offence". The s. 11(b) right therefore has no application in civil or administrative proceedings. This Court has often cautioned against the direct application of criminal justice standards in the administrative law area. We should not blur concepts which under our Charter are clearly distinct. The s. 11(b) guarantee of a right to an accused person to be tried within a reasonable time cannot be imported into s. 7. There is no analogous provision to s. 11(b) which applies to administrative proceedings, nor is there a constitutional right outside the criminal context to be "tried" within a reasonable time.
[130] The ruling by the Supreme Court of Canada in Blencoe, supra, was rendered in a context of administrative law. It was a complaint allowed by a human rights commission and filed with a human rights tribunal. The Supreme Court ruled that section 7 of the Charter can extend beyond the sphere of criminal law and apply to a human rights case. However, the Court found that, in this case, section 7 of the Charter was not violated. The Court also indicates that there are remedies available in the administrative law context to deal with state-caused delay in human rights proceedings, such as a stay of proceedings. In this case, it ruled that such a stay of proceedings was not warranted.
[131] I cite two paragraphs from the summary of this ruling, at page 312:
A stay is not the only remedy available for abuse of process in administrative law proceedings and a respondent asking for a stay bears a heavy burden. . . .
The determination of whether a delay is inordinate is not based on the length of the delay alone, but on contextual factors, including the nature of the case and its complexity, the purpose and nature of the proceedings, and whether the respondent contributed to the delay or waived the delay.
[132] In proceedings related to complaints made under administrative law, the determination of whether a delay is inordinate is not based on the length of the delay alone, but on contextual factors, including the nature of the case and its complexity, the purpose and nature of the proceedings, and whether the respondent contributed to the delay or waived the delay.
[133] An assessment under the Act is not a complaint or an accusation. It is simply an act determining a taxpayer's debt under the Act, within a self-assessment system.
[134] In the issue dealt with in this motion, there is a portion that I feel is administrative law and another that is civil procedure. The administrative law portion is that which goes from the income tax return to the assessment. From the moment when an appeal of the assessment is instituted before this Court, which is a court of justice or civil court, it is no longer administrative law, but civil law.
[135] The notion of diligence by the Minister, required in the assessment process under the Act, has already been examined by the courts. The Federal Court of Appeal, in Canada v. Ginsberg, [1996] 3 F.C. 334, ruled that the failure by the Minister to act with all due dispatch in making the initial assessment, as required by subsection 152(1) of the Act, should not result in the vacation of the assessments. This subsection directs the minister, with all due dispatch, to examine a taxpayer's return, assess the tax for the year and any possible interest and penalties.
[136] I cite the relevant portions of this ruling:
. . . Bearing in mind, however, as found by the Tax Court Judge, that the Minister was late in assessing, the only question I must address is the nature of the sanction once there is a failure to exercise a duty under subsection 152(1).
...
I find no escape with the clear terms of subsection 152(3), particularly the words "Liability for the tax under this Part is not affected by . . . the fact that no assessment has been made". (Le fait . . . qu'aucune cotisation n'a été faite n'a pas d'effet sur les responsabilités du contribuable à l'égard de l'impôt prévu par la présente Partie.).
Subsection 152(8) in turn says "An assessment shall . . . be deemed to be valid and binding notwithstanding any . . . defect or omission . . . in any proceeding under this Act relating thereto." (une cotisation est réputée être valide et exécutoire nonobstant tou[t] . . . vice de forme ou omission . . . dans toute procédure s'y rattachant en vertu de la présente loi).
Section 166, in support, states that "An assessment shall not be vacated . . . by reason only of any . . . omission . . . on the part of any person in the observation of any directory provision of this Act". (Une cotisation ne doit pas être annulée . . . uniquement par suite . . . d'omission . . . de la part de qui que ce soit dans l'observation d'une disposition simplement directrice de la présente loi).
[137] The counsel for the Respondent referred to the ruling by Bowie J. of this Court in Antosko v. Canada, [2000] T.C.J. no 466 (Q.L.). In that case, Bowie J. had to rule on a claim similar to that of the Appellant, to the effect that the assessments should be vacated for unreasonable delay.
[138] On November 6, 1996, the Minister issued reassessments for the 1977 and 1980 taxation years pursuant to subsection 164(4.1) of the Act to give effect to the Supreme Court's judgement [1994] 2 S.C.R. 312. That judgement was the culmination of some ten years of litigation regarding the taxpayer's assessments.
[139] To vacate the 1996 assessments, the Appellant relied on the decision by this Court in Ginsberg and on section 7 of the Charter. As regards the decision of this Court in Ginsberg, it was overturned by the Federal Court of Appeal on the grounds cited supra. As regards section 7, the Appellant relied on the decision by the Court of Appeal of British Columbia in Blencoe v. British Columbia (Human Rights Commission), (1998) 160 D.L.R. (4th) 303 (C.A.C.-B.). As we have seen, that decision was overturned by the Supreme Court of Canada. The Judge was not yet aware of that fact.
[140] As regards section 7 of the Charter, I cite paragraph 12 of the Antosko decision:
12 Counsel for the Appellant referred to the judgment of the British Columbia Court of Appeal in Blencoe v. British Columbia (Human Rights Commission). [See Note 5 below] In that case the Court held that section 7 of the Charter entitled the Appellant to the termination of an investigation into a complaint of sexual harassment that had been brought against him. Mr. Mockler argued that the case stands for the proposition that:
[TRADUCTION]
. . . s. 7 protects against a completely open-ended government pursuit of a citizen. Such an open-ended pursuit violates the security of the person
The present case bears no similarity in principle to Blencoe. The Appellant is not the subject of an inquiry of any kind. His complaint on this issue is only that the proceedings at four different levels of appeal from the first reassessments took some 13 years to resolve the substantive issue which gave rise to the reassessments. Those reassessments were not the result of any lengthy factual inquiry; there was only one issue between the parties, and it was a simple matter of interpreting one section of the Act. I do not propose to recount the history of the litigation. It is sufficient to say that there were procedures available to the Appellant by which the delays could have been minimized, had he chosen to invoke them. Similarly, although the Minister was slow to reassess the Appellant after the Supreme Court had delivered judgment, and slow as well to confirm the assessments after they were objected to, at least some of that delay was attributable to an ongoing correspondence between counsel as to the propriety of the reassessments. At any stage the Appellant could have insisted on having his reassessments in order to appeal from them. And after the Notices of Objection were delivered, he had only to wait 90 days before launching his appeals to this Court. Instead, he chose to wait until the assessments were confirmed, more than seven months later. This is far different from the facts in Blencoe, where the investigation of a very serious complaint took on a life of its own, and had a deleterious effect on the life and well-being of Mr. Blencoe and his family. In that case the chambers judge made a specific finding of fact that the stigma associated with the complaint contributed greatly to, among other things, a clinical depression for which the Appellant required medical care
[141] As we have just seen, an assessment cannot be vacated for lack of diligence in processing an assessment. Once proceedings have begun before this Court, it is the responsibility of the Appellant to request that the case be heard.
[142] In any case, as regards the processing of assessments, I am of the opinion that the evidence has shown that there was no lack of diligence on the part of Minister's agents in light of the administrative limitations set forth in the Act.
[143] The Appellant claims that his usual assessment was not issued within the usual time. This is an internal, not legislative procedural deadline. The delay of that deadline by several months was not explained, but is too minimal to examine at length.
[144] Once the initial assessment is issued, the Act sets forth deadlines and conditions in which the Minister may issue reassessments.
[145] Subsection 152(3.1) defines the normal reassessment period. For an individual, this period is three years after the day on which the first assessment was mailed.
[146] Subsection 152(4) requires that the Minister issue a reassessment within the normal reassessment period, unless the taxpayer has filed a waiver within the normal assessment period.
[147] This normal period becomes unlimited if the taxpayer makes a misrepresentation attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information.
[148] The reassessments were issued within the normal reassessment period or the period set forth for waiver.
[149] In the case of the Appellant, he was not required to sign a waiver, as he was reassessed within the normal reassessment period. The member signed a waiver at the suggestion of their delegated member.
[150] The Appellant strongly emphasized that signing of a waiver. He indicated an broken promise to invite him to present his views at Headquarters in Ottawa.
[151] It is interesting, in this regard, to read the letter that he sent to members on March 5, 1993 asking that they sign the waivers (Exhibit P-82). Part of that letter deals with the meeting with Mr. Boucher and no mention is made of the alleged promise. Yet the letter was written shortly after the events.
[152] I quote:
[translation]
Following our presentation, Mr. Boucher made the following proposal to us on February 22, 1993. "I suggest that you request an interpretation of the Act from the 'Legislation' section in Ottawa, on condition that the SRET members waive the limitation period. If you refuse, there will be immediate assessment."
[153] This leads me to address the purpose and usefulness of a waiver. Taxpayers sometimes believe that they are duped in signing a waiver. In Charron v. Canada, [1997] T.C.J. No 303 (Q.L.), the taxpayer's accountant led him to believe that he had made a mistake by signing a waiver. I cite paragraphs 10, 13, 14 and 15:
10 The appellant appeared for himself at the hearing. He repeated that the accountant who made up the Notice of Appeal told him that he should not have signed the waiver and that in signing it he had waived the usual assessment period, which is three years for an individual. The appellant said he signed because he felt he could trust the Minister's officer.
. . .
13 In Cal Investments Ltd. v. The Queen, 90 D.T.C. 6556, Joyal J. of the Federal Court Trial Division explained the purpose and circumstances of such a waiver as follows:
A waiver of the sort at issue in this case, might be interpreted as an accommodation between the Crown and a taxpayer for the better administration of the Income Tax Act and to provide a more efficient determination of any liability thereunder. In the light of the limitations on assessments under s. 152 of the Act, the Crown requests a waiver so that it may continue its assessment or audit work in a normal administrative mode without having to worry about limitations. The taxpayer, on the other hand, knows full well that on an assessment being made, he alone has the burden of proving it wrong. That burden becomes much heavier if the Crown, facing the end of the limitation period, issues what might be termed a premature assessment which, for purposes of abundant caution, would include many sundry items which the taxpayer would have to traverse one by one. The taxpayer in those circumstances would look upon a waiver as being to his own benefit as well as the Crown's and would ordinarily comply with the Crown's request.
In many cases, also, the waiver might be limited to specified issues, i.e., those where assessing or auditing processes have not been completed and which in fact remain the only outstanding items on which the Crown can ultimately decide to assess or reassess. This narrows the field of the assessment and again provides mutual advantages to both the Crown and the taxpayer.
14 In Bailey v. M.N.R., 89 D.T.C. 416, at 419, Judge Rip of this Court said the following on the same point:
A waiver is usually given by a taxpayer to the respondent when there is an unresolved dispute over one or more specific matters and the three year time period within which the respondent may reassess is fast approaching. The execution of a waiver avoids a hasty reassessment by the respondent; it provides the taxpayer with further opportunity to consider adjustments proposed by the respondent and to allow him to make further representations to support his claim.
15 The purpose of a waiver is to continue analysis of a transaction or matter concerning which the basis of the assessment is in question. It is hard to see why the accountant raised doubts in the appellant's mind as to the relevancy of signing the waiver and it should be noted that the accountant is no longer representing the appellant at the hearing. The Minister could have assessed immediately since he was still within the normal assessment period. As Joyal J. said, for the sake of efficiency it was just as well to accept this mutual accommodation rather than make a hasty assessment, which would not be in the interests of the taxpayer or of the Minister as the administrator of the Act. I see no reason in this case for casting any doubt on the validity of the waiver: accordingly, it is valid.
[154] In the case at bar, the evidence shows that the Minister could have made an immediate assessment. He accepted to delay the reassessment to allow for further examination of the file.
[155] We saw in the description of facts that the large number of individuals reassessed and their complaints at the executive level led to a specific examination of the case. That examination led to a settlement offer in 1995. The Appellant and several members decided not to accept the settlement.
[156] The examination and proposed settlement took place after the notices of objection were filed by the investors and prior to confirmation by the Minister. A taxpayer who is not satisfied with an assessment files a notice of objection with the Minister pursuant to section 165 of the Act. During that time, a taxpayer may, pursuant to paragraph 169(1)(b) of the Act, appeal to this Court after 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.
[157] In fact, this is what was done by the 600 members who followed the advice of the Appellant or his counsel to not accept the settlement offer made in April 1995 and to appeal to this Court without waiting for a decision by the Minister. It must be noted, in this regard, that the various pieces of correspondence that allegedly led the members to act thus were not filed in evidence.
[158] It is possible for a taxpayer to ask this Court to enter an appeal for hearing once the Response is filed. In fact, in an appeal litigation, it is the responsibility of the appellant to request the hearing.
[159] The counsel for the Appellant represented several members. The counsel agreed with the counsel for the Respondent to suspend the deadline for filing the Response to the Notice of Appeal for certain appeals. He also agreed with the counsel for the Respondent to select a case for the purposes of the hearing. This decision by the counsel for the members and the Appellant was consistent with the proper administration of justice. There is absolutely nothing in the evidence that could lead me to believe that the counsel did not make this choice freely.
[160] Several witness summons were quashed on grounds of relevance and abuse of process. According to the loose-leaf publication entitled "Witnesses" by authors Mewett and Sankoff, published by Carswell, there are three main reasons for quashing subpoenas, i.e., the summoned individuals do not have personal knowledge of the facts, it is abuse of process or there is violation of the Charter.
[161] I cite passages from shapter 7.7:
a) Grounds for Quashing a Subpoena or Summons
(i) Witness Can Provide No Material Evidence
Neither a subpoena nor a summons is an independently operating judicial instrument. The power of each flows from the notion that the justice system must be able to secure the attendance of witnesses who provide the testimony that is necessary to allow decisions to be made. It follows, thus, that for a subpoena to be valid, it must be served upon a potential witness who has some form of relevant and admissible evidence to offer to the hearing. Where a subpoena is issued to a person who cannot offer any such evidence, it will be quashed.
Several of the cases in which subpoenas have been set aside on the basis that the person subpoenaed cannot give material evidence have involved public officials. In R. v. Baines, the English Court of King's Bench set aside subpoenas to the Prime Minister and Home Secretary. The case concerned an alleged breach of the peace and they both deposed that they did not see the breach and argued that the subpoenas were sought only to harass them. The court held that while the officials did not have any immunity from testifying, the subpoenas were, in the circumstances, an abuse.
Canadian courts have followed R. v. Baines in refusing to grant any immunity to public officials on that ground alone but, at the same time, have been fully aware that they may be targets of harassment whose attendance may be sought for no legitimate purpose.
For this reason, it appears that courts asked to review a subpoena issued to a public official will closely scrutinize - arguably much more closely than would be the case of an ordinary witness - whether the witness truly has evidence to offer. In R. v. Brown, the accused was charged with assault after hitting the Prime Minister of Canada in the face with a cream pie.
A witness may also be immaterial if his or her proposed evidence cannot, as a matter of law, affect the outcome of the case. In Baldwin v. Bauer, counsel for the accused wished to examine two Crown counsel on their decision to reduce charges against the accused, and subpoenas for this purpose were set aside by the High Court of Ontario on the ground that the reduction of the charges was within the discretion of the Crown attorney and any testimony on this question could not be material to the case.
(ii) Subpoena is an Abuse of Process
A subpoena will also be quashed where a court is convinced that its issuance was, in effect, an abuse of process. There is probably no judicial term which is more frequently misused than "abuse of process", and in this context, unfortunately, the jurisprudence suffers from a discernable lack of precision. Still, the general principles are not too difficult to divine. Where a subpoena is issued to support an improper purpose, being one that is not related to securing the witness' evidence, it will usually be quashed.
(iii) Subpoena Would Cause a Charter Violation
...
[162] Abuse of the process of the court is described as follows in Odgers' Principles of Pleading and Practice in Civil Actions in the High Court of Justice, 22nd ed., Stevens & Sons, 1981:
The term "abuse of the process of the court" is similarly descriptive. It connotes that the powers of the court must be used bona fide and properly, and must not be abused. The court will prevent the improper use of its machinery and will not allow it to be used as a means of vexatious and oppressive behaviour in the process of litigation.
[163] It must be noted that the Appellant called no witness who took part with him in managing SRET.
[164] The Appellant invoked as discrimination the fact that the study report mentioned that the audits of SR & ED partnerships began with partnerships with more members. Pursuant to section 220 of the Act, the Minister administers and enforces the Act. By doing what he did with the partnerships in question, the Minister only fulfilled his duty, which is to ensure compliance with the Act.
[165] The Appellant also based his motion on acts of oppression on the part of the Minister's agents. The evidence did not reveal any. Everything that the auditors did was simply part of their normal work. The Appellant tried to block them at every turn. If there were any acts of oppression, they were by the Appellant. For example, I cite the March 17, 1992 letter (Exhibit I-4) criticizing Mr. Deslonchamps' behaviour to his Director, Mr. Jean-Marc Boucher, the January 13, 1993 letter (Exhibit I-11) to Mr. Simon Beauregard calling his request for verification of software and electronic equipment [untimely relentlessness] and harassment, the January 22, 1993 letter (Exhibit I-12) to Mr. Jean-Marie Boucher to complain about Mr. Beauregard and the February 18, 1993 letter to Minister Pierre Blais to complain about Mr. Boucher (Exhibit I-14), to name only a few.
[166] The information given to members was often only half-truth. The Appellant always covered himself with the misleading title of delegated member when, in reality, official documents show him having renounced his share in the partnership on November 27, 1989 (Exhibit P-1).
[167] He indicated at the hearing that Revenue Canada did not give advance rulings on SR & ED projects. This was denied by Mr. Lambert from that directorate, as indicated in paragraph 63 of these reasons.
[168] In light of the various disputes between the Appellant and the Commission des valeurs mobilières du Québec and the Appellant's propensity to use them as excuses, I believe it is appropriate to mention the purpose of the Commission found in section 276 of its incorporating legislation (R.S.Q., c. V-1.1) :
. . .
The Agency's mission is:
10 to promote efficiency in the securities market;
20 to protect investors against unfair, improper or fraudulent practices;
30 to regulate the information that must be disclosed to security holders and to the public in respect of persons engaging in the distribution of securities and in respect of the securities issued by these persons;
40 to define a framework for the activities of the professionals of the securities market and organizations responsible for the operation of a stock market.
[169] Regarding the scope of a tax shelter number, I feel it is appropriate to cite a passage from the letter granting a tax shelter number to SRET (Exhibit P-2), which requires the following:
[translation]
. . .
Any promoter of a tax shelter shall include the following statement on all written notification by the promoter regarding the tax shelter number:
"The registration number assigned to the tax shelter shall be indicated on all income tax returns filed by the purchaser. Assignment of a registration number is only for administrative purposes and in no way confirms the purchaser's entitlement to deductions for losses or other amounts that may be associated with the tax shelter."
[170] Nevertheless, even if the Appellant had not personally contributed to the delay, the decision would have been the same for the aforementioned reasons. There are no grounds in law or fact for quashing the assessments for unreasonable delay at either the assessment stage or the litigation stage.
[171] The motion to quash the assessment is dismissed. Costs are awarded to the respondent.
Signed at Ottawa, Canada, this 3rd day of October 2003.
|
"Louise Lamarre Proulx" |
Lamarre Proulx J.
Translation certified true
on this 8th day of March 2004.
Gerald Woodard, Translator