Tax Court of Canada Judgments

Docket: 2002-3798(IT)G

BETWEEN:

HER MAJESTY THE QUEEN,

Applicant,

and

EDWARD MILLER,

Respondent.

Application heard by telephone conference

on December 6, 2004

at Ottawa, Canada

Before: The Honourable Justice G. Sheridan
Appearances:
Counsel for the Applicant:	John R. Shipley
Counsel for the Respondent Edward Miller:	Nicholas F. Ferguson
Counsel for Maeve Wilson:	Richard Barch, Q.C.

ORDER

          Upon application by the Minister of National Revenue under subsection 174(1) of the Income Tax Act;

          And having heard what was alleged and having read the materials filed by the parties;

          The application is dismissed in accordance with the attached Reasons for Order with costs to Mrs. Maeve Wilson payable forthwith; in respect of the Respondent, costs to follow the cause.

Signed at Ottawa, Canada, this 15th day of February, 2005.

Sheridan, J.

Citation: 2005TCC108

Date: 20050215

Docket: 2002-3798(IT)G

BETWEEN:

HER MAJESTY THE QUEEN,

Applicant,

and

EDWARD MILLER,

Respondent.

REASONS FOR ORDER

Sheridan, J.

[1]      This is an application by the Minister of National Revenue under subsection 174(1) of the Income Tax Act:

(1)         Reference of common questions to Tax Court of Canada. Where the Minister is of the opinion that a question of law, fact or mixed law and fact arising out of one and the same transaction or occurrence or series of transactions or occurrences is common to assessments or proposed assessments in respect of two or more taxpayers, the Minister may apply to the Tax Court of Canada for determination of the question.

[2]      In accordance with subsection 174(2) of the Act, the Minister has set out the question, the names of the taxpayers to be bound by the determination and the facts and reasons upon which he relies and upon which he based or intends to base assessments of tax payable:

A.         NAMES AND ADDRESSES OF THE TAXPAYERS WHO IT IS INTENDED SHALL BE BOUND BY THE DETERMINATION OF THE QUESTION ARE AS FOLLOWS:

1.          Edward Miller, 16 Lakeshore Road, Fort Erie, Ontario

2.          Patricia Maeve Wilson, 165 Tennessee Avenue, Port Colborne, Ontario L3X 2R8

B.         THE ASSESSMENTS OR PROPOSED ASSESSMENTS IN RESPECT OF WHICH THE DETERMINATION IS SOUGHT:

3.          Notice of Reassessment of Edward Miller for his 1998 taxation year dated July 5, 2002.

4.          The proposed reassessment of Patricia Maeve Wilson for her 1995 taxation year.

C.         THE QUESTIONS LAW FACT OR MIXED LAW AND FACT IN RESPECT OF WHICH THE MINISTER OF NATIONAL REVENUE REQUESTS A DETERMINATION:

5.          What was the purchase price paid by Edward Miller to Patricia Maeve Railton, now Wilson (hereinafter referred to as "Wilson") in 1995 for certain land ... [legal land description omitted] ... hereinafter referred to as "the subject land")?

D.         THE FACTS ON WHICH THE MINISTER RELIES AND HAS BASED OR INTENDS TO BASE ASSESSMENTS OF TAX PAYABLE BY EACH OF THE TAXPAYERS NAMED IN THE APPLICATION:

6.          In his 1998 tax return, the Appellant reported a capital loss in respect of the sale of the subject land.

7.          The Appellant calculated his capital loss using $180,000 as the price for which he purchased the subject land.

8.          In 1995, the Appellant purchased the subject land from Wilson.

9.          In her 1995 tax return, Wilson calculated her capital gain on the sale of the subject land using $100,000 as the price for which she sold the land.

10.        The Minister has assessed the Appellant for his 1998 taxation year and Wilson for her 1995 taxation year on the basis that the price paid for the subject land was $100,000.

11.        If this Honourable Court determines that the price paid for the subject land was $100,000, then the Minister would seek to sustain the assessments of both the Appellant and Wilson.

12.        If this Honourable Court determines that the price paid for the subject land was $180,000, then the Minister would propose to vary the assessments of both the Appellant and Wilson. In these circumstances, the Minister would propose to assess the Appellant by computing his adjusted cost base for the subject land by using a purchase price of $180,000. Similarly, the Minister would propose to reassess Wilson by computing her capital gain on the sale of the subject land by using a purchase price of $180,000 for her proceeds of disposition rather than $100,000 as reported.

[3]      The Court has discretion, "as it considers appropriate", to grant the Crown's application under subsection 174(3) of the Act which reads:

(3)         Where Tax Court of Canada may determine question. Where the Tax Court of Canada is satisfied that a determination of the question set out in an application under this section will affect assessments or proposed assessments in respect of two or more taxpayers who have been served with a copy of the application and who are named in an order of the Tax Court of Canada pursuant to this subsection, it may

(a)         if none of the taxpayers so named has appealed from such an assessment, proceed to determine the question in such manner as it considers appropriate; or

(b)         if one or more of the taxpayers so named has or have appealed, make such order joining a party or parties to that or those appeals as it considers appropriate and proceed to determine the question.

[4]      The proposed party, Patricia Maeve Wilson, objects to the Crown's application; the Appellant, (Respondent in this application) Edward Miller, supports it. Before considering whether it is appropriate in these circumstances to grant the application, a short review of the history of Mr. Miller's appeal: in 2002, Mr. Miller appealed the reassessment of his 1998 taxation year in which the Minister maintained the calculation of his tax liability based on a purchase price of $100,000 for the land. In January 2003, the Minister filed his Reply, assuming in paragraph 12(f) that "[Mr. Miller] paid only $100,000 to Mrs. Wilson for the land" leading to the conclusion that, at least as early as that date, the Minister was aware of the land transaction, the identities of the vendor and purchaser and the two different figures for the purchase price appearing in their tax returns. It is also clear that at that point, the Minister accepted Mrs. Wilson's version of the facts. All pre-hearing steps in Mr. Miller's appeal were completed and following a joint application of the parties to fix a time and a place for a hearing, the matter was set down for September 27, 2004 in St. Catharines, Ontario. During the pre-hearing period, the Minister was dealing with Mrs. Wilson on the footing that she would be a Crown witness. On September 9, 2004, however, Crown counsel sought an adjournment of the appeal to permit the Minister to make a section 174 application "to determine the question of fact as to the amount paid by the Appellant to Mrs. Wilson". Upon the consent of the parties, the matter was adjourned to permit Mrs. Wilson's counsel to consult with and receive instructions from his client. This application was heard on December 6, 2004.

[5]      Absent from the Crown's Motion Record is any express reference to Mrs. Wilson's 1995 taxation year being statute-barred from reassessment, unless the Minister can satisfy the requirements of subparagraph 152(4)(a)(i) of the Act:

(4) Assessment and reassessment. The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, except that an assessment, reassessment or additional assessment may be made after the taxpayer's normal reassessment period in respect of the year only if

(a)         the taxpayer or person filing the return

(i)          has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or

...

[6]      Counsel for Mrs. Wilson raised this point in his argument against the granting of the Crown's application. Citing Nesbitt v. R.[1], Crown counsel dismissed such concerns on the ground that the threshold for satisfying subparagraph 152(4)(a)(i) is a low one. I do not read Nesbitt as standing for the proposition that because the Crown believes it will easily clear this statutory hurdle, the Court ought not to trouble itself with a taxpayer's right to place it in the Minister's path. The case law is well settled[2] that it is the Minister who bears the burden of proving on a balance of probabilities that the conditions precedent in subparagraph 152(4)(a)(i) have been satisfied. Doing so requires more of the Minister than merely proving an inaccuracy in the taxpayer's tax return; as explained by Garon, C.J. (as he then was) in Demers v. Canada[3]:

[11]       With respect to the application of subparagraph 152(4)(a)(i) of the Act, Strayer, J.A. of the Federal Court of Appeal wrote as follows in Nesbitt v. R. (1996), 96 D.T.C. 6588, [1996] F.C.J. No. 1470 (Fed. C.A.):

Whether or not there is a misrepresentation through neglect or carelessness in the completion of a return is determinable at the time the return is filed. A misrepresentation has occurred if there is an incorrect statement on the return form, at least one that is material to the purposes of the return and to any future reassessment.

...

[14]       For subparagraph 152(4)(a)(i) of the Act to apply, not only must there be an error or inaccuracy in a taxpayer's tax return or in the documentation provided to the Minister of National Revenue, but the taxpayer must also have failed to show due diligence, as appears from the decision of Strayer, J. in Venne v. R. (1984), 84 D.T.C. 6247, [1984] F.C.J. No. 314 (Fed. T.D.), when he was a judge in the Federal Court, Trial Division. In his conclusion, Strayer J. made the following comments:

I am satisfied that it is sufficient for the Minister, in order to invoke the power under sub-paragraph 152(4)(a)(i) of the Act to show that, with respect to any one or more aspects of his income tax return for a given year, a taxpayer has been negligent. Such negligence is established if it is shown that the taxpayer has not exercised reasonable care. This is surely what the word "misrepresentation that is attributable to neglect" must mean, particularly when combined with other grounds such as "carelessness" or "wilful default" which refer to a higher degree of negligence or to intentional misconduct. Unless these words are superfluous in the section, which I am not able to assume, the term "neglect" involves a lesser standard of deficiency akin to that used in other fields of law such as law of tort. See Jet Metal Products Limited v. The Minister of National Revenue (1979), 79 D.T.C. 624, at 636-37 (T.R.B.).

[8]      Let us review the possible outcomes if the Crown's application were to be granted. Assuming the Court subsequently determined the purchase price to be $100,000, Mr. Miller's appeal would be dismissed and the Minister's reassessment of his 1998 taxation year confirmed. In this circumstance, the Minister proposes to take no further action against Mrs. Wilson[4]. On the other hand, if the Court were to find the purchase price to be $180,000, Mr. Miller's appeal would be allowed and his reassessment referred back to the Minister for reconsideration and reassessment on that basis. As for Mrs. Wilson, as of this application, her 1995 taxation year has never been reassessed. Pending a favourable determination[5], this is the action contemplated by the Minister, notwithstanding that pursuant to section 152, he may reassess after the normal reassessment period[6] only if the taxpayer has made "any representation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act".

[9]      If the Minister were to attempt on his own hook to reassess Mrs. Wilson's statute-barred 1995 taxation year, Mrs. Wilson would be entitled to challenge that reassessment and put the Minister to the proof of his allegations. To join her as a party in these circumstances, where the outcome of the appeal might leave the 1995 statute-barred taxation year vulnerable to reassessment without requiring ministerial compliance with subparagraph 152(4)(a)(i), is to allow the Minister to do indirectly what he cannot do directly. In short, the effect of granting this application would be to deprive Mrs. Wilson of the rights available to her under the Act while at the same time, relieving the Minister of his statutory obligations.

[10]     While I accept the Crown's argument that it would be helpful to the Court to have the benefit of her evidence in the hearing of Mr. Miller's appeal, this can be achieved without adding her as a party: she may be called as a witness, as apparently, the Crown originally intended to do. If Mr. Miller and Mrs. Wilson were on an equal footing vis-à-vis the Minister, perhaps the circumstances would exist for granting the Crown's application. But that is not the case. Having heard counsel for the parties and Mrs. Wilson and read the materials filed, I am not satisfied that, on balance, it is appropriate to join her as a party to Mr. Miller's appeal. The application is dismissed with costs payable forthwith to Mrs. Wilson; in respect of the Respondent, costs to follow the cause.

Signed at Ottawa, Canada, this 15th day of February, 2005.

"G. Sheridan"

Sheridan, J.

CITATION:

2005TCC108

COURT FILE NO.:

2002-3798(IT)G

STYLE OF CAUSE:

Her Majesty the Queen v. Edward Miller

PLACE OF MOTION:

Ottawa, Canada

DATE OF MOTION:

December 6, 2004

REASONS FOR ORDER BY:

The Honourable Justice G. Sheridan

DATE OF ORDER:

February 15, 2005

APPEARANCES:

Counsel for the Applicant:

John R. Shipley

Counsel for the Respondent Edward Miller:	Nicholas F. Ferguson
Counsel for Maeve Wilson:	Richard Barch

COUNSEL OF RECORD:

For the Respondent:

Name:

Nicholas F. Ferguson

Firm:

Chown, Cairns St. Catharines, Ontario

For the Applicant:

John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada

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