Tax Court of Canada Judgments

Court File No. 2006-2950 (IT)G

Citation:  2007TCC326

                                                 TAX COURT OF CANADA

                                                IN RE:   the Income Tax Act

BETWEEN:

                                                RICHARD M. KIERNICKI

                                                                                                                                Appellant

                                                                   - and -

                                              HER MAJESTY THE QUEEN

                                                                                                                            Respondent

      PROCEEDINGS AT MOTION BEFORE MR. JUSTICE LESLIE M. LITTLE

in the Courts Administration Service, Courtroom No. 6B,

                        Federal Judicial Centre, 180 Queen Street West, 6^th Floor,

                                                          Toronto, Ontario

                                          on Friday,  June 1, 2007 at 9:29 a.m.

APPEARANCES:

Mr. Richard M. Kiernicki                                                                  self-represented Appellant

Mr. Ryan Hall                                                                                              for the Respondent

Mr. Charles Camirand

Also Present:

Mr. William O=Brien                                                                                        Court Registrar

Mr. Robert Lee                                                                                                 Court Reporter

                                       A.S.A.P. Reporting Services Inc. 8 2007

200 Elgin Street, Suite 1004              130 King Street West, Suite 1800

Ottawa, Ontario K2P 1L5                  Toronto, Ontario M5X 1E3

(613) 564-2727                                   (416) 861-8720

                                                                      (ii)

                                                                  INDEX

                                                                                                                                      PAGE

Proceedings at Motion                                                                                                        1

Submissions by Mr. Ryan                                                                                                       1

Submissions by Mr. Kiernicki                                                                                                 9

*************

                                  Toronto, Ontario

--- Upon commencing on Friday, June 1, 2007

at 9:29 a.m.

THE REGISTRAR:  This Court is now resumed, the Honourable Justice Little is presiding. Before the Court, Case No. 2006-2950(IT)G, between Richard Kiernicki, appellant and Her Majesty the Queen, respondent. The appellant is appearing on his own behalf and for the respondent, Mr. Ryan Hall and Mr. Charles Camirand.

JUSTICE LITTLE:  Thank you. Good morning, Mr. Kiernicki.

MR. KIERNICKI:  Good morning, sir.

JUSTICE LITTLE:  Good morning, Mr. Hall.

MR. HALL:  Good morning.

JUSTICE LITTLE:  Mr. Camirand.

MR. CAMIRAND:  Good morning.

JUSTICE LITTLE:  Mr. Hall, Mr. Camirand it is your motion; who wants to go first?

MR. HALL:  I will.

JUSTICE LITTLE:  Go ahead, sir.

SUBMISSIONS BY MR. HALL:

MR. HALL:  At the outset, Mr. Justice Little, I would like to point out an error in the written submissions provided to the Court and Mr. Kiernicki. Looking at the overview, it speaks to redemptions occurring in the year 2001.

JUSTICE LITTLE:  Your respondent's written submissions, is that correct?

MR. HALL:  That is correct.

JUSTICE LITTLE:  What page, what tab?

MR. HALL:  Under tab 1.

JUSTICE LITTLE:  Yes.

MR. HALL:  At the overview.

JUSTICE LITTLE:  Yes.

MR. HALL:  It speaks only to redemptions occurring in 2001 when, in fact, there are redemptions occurring in 2001 and 2003. In essence, what happens in 2001 is half of the shares in question are redeemed. The other half of the shares of the corporation held by the appellant were redeemed in 2003.

JUSTICE LITTLE:  Where do you want me to add the new words?  What is your wish?

MR. HALL:  "The appellant redeemed shares in 2001 and 2003."

JUSTICE LITTLE:  Add the words "and 2003"?

MR. HALL:  Correct, thank you.

JUSTICE LITTLE:  The first line. Anything, else sir?

MR. HALL:  Nothing else.

JUSTICE LITTLE:  Can you outline your position and then we will hear from Mr. Kiernicki?

MR. HALL:  My apologies, sorry Mr. Justice Little. One more addition, if I may, in the overview.

JUSTICE LITTLE:  Yes?

MR. HALL:  I am looking down the fourth line, perhaps we should add "2001 and 2003", yet again.

JUSTICE LITTLE:  The fourth line, the last part of that sentence, correct?

MR. HALL:  That is correct. Then looking at the background, the first paragraph, third line, "in income for the 2001 and 2003 taxation year."

JUSTICE LITTLE:  Taxation years?

MR. HALL:  That is correct.

JUSTICE LITTLE:  Yes. Go ahead, sir.

MR. HALL:  Nothing else by way of erratum.

Before filing the respondent's motion to quash the present appeal, the Notice of Appeal was carefully reviewed with a view determining whether it raised any issue over which this Honourable Court has jurisdiction. No such issue was found. Rather, what is sought by the appellant in his Notice of Appeal is an amendment to the Income Tax Act. I would refer the Court to the Notice of Appeal, looking at the third unnumbered page of the Notice of Appeal, under the heading, "Issues to be Decided."  I should note as well, although it is phrased in the plural, the appellant has put forward only one issue. That issue reads:

"The taxpayer would like to have the court consider adding a subsection to 84(3), or the relevant subsection, that takes into consideration when the said deemed dividend is not actually paid out in the same tax year as the disposition occurs; taxes owing should be based upon income actually received by the taxpayer."

Although not explicitly pleaded in the Notice of Appeal, the appellant also appears to seek some sort of equitable relief from this Court. I refer the Court to page 4 of the Notice of Appeal, looking under the heading, "Reasons for Appeal," looking at paragraph 2. In this paragraph, the appellant appears to be asking for some sort of equitable relief based on financial hardship. He writes in the second sentence:

"It is difficult to understand why CCRA would want to reassess a taxpayers returns and adjust them based on strict adherence to a section of the Income Tax Act that would place that taxpayer back into hardship."

Further, the appellant appears to be asking for some sort of equitable relief based on joint liability with the T5 issuers and his tax advisers, looking at paragraph 3 on the same page. Looking at the second sentence, the appellant writes:

"Given that AIC and Berkshire ... "

... the corporations from which the appellant disposed of the shares ...

" ... are well known, have a solid reputation and have tax specialists on hand, they should be held partially accountable for their error in not providing accurate income tax reporting."

JUSTICE LITTLE:  What is your point on that aspect?  In summary, I understand; I saw the reference to that. What do you say about that type of statement?

MR. HALL:  In respect of that type of statement, I am drawing it to the Court's attention to highlight the issues which are being raised by the appellant. This is one of four potential issues upon which the appellant is seeking relief and highlighting that as being an issue in respect of which relief the Court has no jurisdiction to provide.

JUSTICE LITTLE:  Okay. Anything further?

MR. HALL:  There is one other point or issue raised by the appellant, looking at paragraph 8 on that same page. The appellant appears to be seeking some sort of a relief akin to a remission order. He writes in paragraph 8:

“In a letter received from S. Sullivan, Hamilton Tax Office, on June 22^nd, 2006 she states that “there may be an unintended tax consequence which requires further research”.

The appellant goes on to write:

“… and I do believe that in this case that suggestion makes sense”.

Again, it is respectively submitted, Mr. Justice Little, that these issues are issues over which the Court has no jurisdiction. If the appellant wishes to raise an issue today over which the Court does have jurisdiction, an order allowing the appellant to amend the Notice of Appeal and granting an extension to reply to that amended notice of appeal would be necessary, failing which the respondent maintains the position that the Notice of Appeal raises no issue over which this Court has jurisdiction and discloses no reasonable ground of appeal to which the Minister can reply.

JUSTICE LITTLE:  Before you conclude sir, have you discussed this appeal with the taxpayer, with the appellant?

MR. HALL:  We spoke on one occasion, yes, Mr. Justice Little.

JUSTICE LITTLE:  Did you discuss the possibility of amendments to the appeal at that time?

MR. HALL:  No, I had not discussed the possibility of amendments. The purpose of the call was to inform the appellant of the Minister's position and to discuss the motion.

JUSTICE LITTLE:  Anything further?

MR. HALL:  Nothing.

JUSTICE LITTLE:  Thank you, very much. Mr. Kiernicki.

MR. KIERNICKI:  Yes, sir.

JUSTICE LITTLE:  You have heard the comments. I would like to hear your view of your position and briefly, because this is not the official hearing; this is simply a hearing of the Minister's motion. But I want to make sure you are given every opportunity to respond to their motion. What are your comments sir?

SUBMISSIONS BY MR. KIERNICKI:

MR. KIERNICKI:  Thank you, very much. Very briefly going over the package that I was served, with regards to respondent's written submissions, the first thing that I would like to do is make sure that my intention here is really understood. I am not trying to abuse any such systems or justice systems.

I am an individual who has basically tried to deal with everybody up till this point in time to come up with some sort of resolution with regards to my particular case. Very simply, as Mr. Hall previously stated, I received dividends. To that note, your Honour, I filed my income tax returns as I have received those dividends and paid my taxes accordingly. Subsequently, those dividends were the method by which I could use that money to pay the tax liabilities incurred on those particular dividends.

In 2001, in which the Revenue Canada -- the CRA, wants to reassess my return. On paper, that would look like I actually would owe more in taxes than I had earned in that particular year. Although I do not have that as a document in front of me, it would be very easy to prove based on the assessments that I have with regards to the filings. Hence, my comments about being put into financial hardship.

Prior to that, the statement about financial hardship, I had been granted in the past due to interest charges and late-filing charges. Subsequently, my two major resources, if you will, as far as my accountant is concerned.  My accountant has obviously not informed me of what my real options were, nor my employer, who subsequently had at their disposal really a lot of tax people. They were the ones who issued the T5 slips and subsequently, in discussions with my accountant, I was told that I should file as I received the T5 slips from the organization.

JUSTICE LITTLE:  When you say your employer, was that Berkshire?  Were you at one time employed with Berkshire?

MR. KIERNICKI:  Yes, sir, yes, sir, and a shareholder of AIC, which is the parent company of Berkshire. That is how all of this came up.

I am asking really, I think that in the Act and I realize that this Court may not have the ability to change the Act, but it would seem to me that getting here I could have been redirected in another way to avoid wasting this Honourable Court's time.

I am wondering what the Court can do with regards to making a decision on my behalf that would perhaps allow me the time to seek some further work with Parliament, perhaps with regards to looking at the tax act and subsequently the hardship that it would face by rewriting all of the tax years, given that I had claimed the dividend and paid the taxes on that.

JUSTICE LITTLE:  Right. You heard Mr. Hall talk about four different points. As I understood Mr. Hall, he referred to the issues as outlined on page 3 of your appeal.

MR. KIERNICKI:  Yes.

JUSTICE LITTLE:  It said:

"The taxpayer would like to have the court consider adding a subsection to 84(3), or the relevant subsection, that takes into consideration when the said deemed dividend is not actually paid out in the same tax year as the disposition occurs; taxes owing should be based upon income actually received by the taxpayer.”

Mr. Hall points out, and I must say I agree with him, that this Court has the power to review any assessment; we are the Court of original jurisdiction for all assessments under the Income Tax Act. But we do not have the power to amend the Act. The amendment to the Income Tax Act is solely in the hands of Parliament. The Court can make a decision only based upon the words of the Act. I could make a suggestion in a judgment, for example, to say that this seems unfair and that Parliament should give consideration to amending the Act. That is just a piece of paper; they can ignore it if they wish.

Parliament has the supreme authority to amend the Act. I do not have any authority to amend the Act, no authority whatsoever.

I think Mr. Hall is correct in that aspect. That issue of amending the Act or adding a subsection to subsection 84(3) is certainly beyond my power. That is point no. one that Mr. Hall says, and I agree with Mr. Hall. There is no way I have any power to amend the Act; do you understand what I mean?

MR. KIERNICKI:  Yes, sir.

JUSTICE LITTLE:  You have referred somewhere in this material to talking to your MPP. That is a member of the parliament of the Government of Ontario.

MR. KIERNICKI:  Yes.

JUSTICE LITTLE:  Your Member of Parliament is the person you should talk to in terms of any amendment to the Act, either your MP or the Minister of Finance or anyone you can get to. But there is no way this Court has any authority to amend the Act. It is totally in the hands of Parliament and the politicians.

MR. KIERNICKI:  Respectfully, sir, I do understand those conditions.

JUSTICE LITTLE:  Let me say a second point:  Mr. Hall talks about the fact, on page 4 of your Notice of Appeal:

“Individual circumstances need to be reviewed and readdressed when a decision to reassess a taxpayer may place them again into financial hardship.”

This Court does not have the authority to grant an exemption to a person because they are in financial hardship. We only have the authority to interpret the words of the Act. The Minister of National Revenue, as you pointed out in your initial comment, has the authority under the fairness package legislation, so called, to waive penalties and do things of that nature because of financial hardship.

I may feel very great sympathy for a person who suffers from financial hardship, but my authority only goes to interpreting the Act; it does not go to any financial hardship. The Minister does have that authority. Point no. 2, under reason for appeal, talking about basing it on equitable relief, is beyond my power. I may, as I say, have great sympathy and I might do everything in my power to find that the taxpayer is entitled to some relief. But if the words of the section are black and white, I have no authority to ignore those words.

There is a third point that Mr. Hall made. That is in reference to the fact that the AIC and Berkshire are well known -- this is at paragraph 3:

“... have a solid reputation and have tax specialists on hand, they should be held partially accountable for their error in not providing accurate income tax reporting.”

I would say that that comment would be between you, AIC and Berkshire. If you feel that they made a mistake in how they dealt with you and your tax situation, then that is between you and them. I have no authority to give any order against AIC or Berkshire. My only authority goes to interpreting the words of the Income Tax Act; do you understand what I mean?

MR. KIERNICKI:  Yes, I do, sir.

JUSTICE LITTLE:  I do not have any reason to suggest one way or the other but if you felt that you had a valid claim against the fact that the AIC or Berkshire did not advise you properly or did not treat you properly, then that would be a situation where you may retain a lawyer and seek relief from AIC and Berkshire.

I do not know enough about the facts to suggest you have an action against AIC or Berkshire; I am saying that would be between you and them. It is not a situation that can come before this Court.

Finally, Mr. Hall refers to paragraph 8, where you say there may be unintended tax consequences. This is partly perhaps a reference to what is called a remission order. A remission order basically can be described as follows:  If certain things happen and, let's say for example, a Revenue Canada official makes a mistake or gives you improper advice or things of that nature, the Canada Revenue Agency may be prepared to recommend a remission order to waive the tax if they believe that they are at fault.

Then the Cabinet has the authority, under section 22 of the Financial Administration Act, to waive the tax if they feel that there is a mistake or some other problem where the tax should not have been applied. That is beyond my power, too. That is between you and the Cabinet or between you, the Canada Revenue Agency and the Cabinet, the Federal Cabinet. A remission order, I must say, is not used very often. It is used in extreme and unusual circumstances. It is used, I will not say on a regular basis, but it is used periodically where there are real complications that have occurred. It is not the sort of thing that happens very often, as I understand it. It is between you, the Canada Revenue Agency and the Federal Cabinet.

Having said all that, I agree basically with the points that Mr. Hall made. Having said all that, I do not want to close the door on you, if you think there is some way you can amend the Notice of Appeal to raise what you think are valid grounds of appeal.

Have you talked to a lawyer or an accountant to determine whether you have any legal right to stand on?  Have you had a chance to discuss this with anyone?

MR. KIERNICKI:  I am not in that position financially to be able to do so, sir, for the most part. I have tried to acquire as much knowledge as I possibly could with regards to making my appeal. Subsequently I filed a copy with my accountants who responded that they were not tax lawyers and could not really help me in my appeal.

The statements that I make in my appeal I think are more perhaps towards recognition of the facts versus asking for you, sir, to make changes specifically with regards to both those issues. I realize those issues lie with those other individuals or businesses, but I was hoping that this Court would be able to grant me something outside of, okay, "You have got this far, Mr. Kiernicki, but we cannot deal with this issue."

JUSTICE LITTLE:  I would say, Mr. Kiernicki, that I do not want to shut the door on you entirely, if you are able to raise valid grounds for appeal. However, as I see the situation, Mr. Hall has correctly summarized the fact that your Notice of Appeal as presently drafted does not contain proper grounds for appealing the assessment.

It may be that you can amend the Notice of Appeal in such a way as to raise an issue. I am not here to give you legal advice; I am saying, as a Judge, if you were to rephrase the issues, that may give you a chance for your day in Court, if that is what you wish. Right now, the issues are not drafted in such a way that you are challenging the notice of assessment issued against you.

MR. KIERNICKI:  Would the Court be in a position to grant me some time to follow through with that recommendation?

JUSTICE LITTLE:  Yes, I would be prepared to do that; I was going to suggest that Mr. Kiernicki. Would 30 days be sufficient time for you to review the matter, consider what Mr. Hall had said, what I have said and prepare an amended Notice of Appeal?  Would 30 days be sufficient or do you want 60?

MR. KIERNICKI:  Actually, I would prefer a longer period of time. I found out yesterday that my grandmother has cancer and I do not know how long she has to live, right now.

JUSTICE LITTLE:  Would 60 days be sufficient?

MR. KIERNICKI:  Yes, sir, I can respond within a 60-day time frame.

JUSTICE LITTLE:  I would like to hear from Mr. Hall before I conclude this. Let me suggest that I think it is appropriate to give you some time to review what has been said by Mr. Hall and by me. Therefore, my inclination until I hear from Mr. Hall is to adjourn this matter for 60 days to give you an opportunity to amend your Notice of Appeal to deal with the issues raised by Mr. Hall and to drop any reference to the fact that the Court should amend the Income Tax Act, because we cannot do that.

MR. KIERNICKI:  Thank you, very much.

JUSTICE LITTLE:  That is my present thinking. I want to hear from Mr. Hall before I conclude.

MR. KIERNICKI:  Thank you.

JUSTICE LITTLE:  I also should say, Mr. Kiernicki, that in terms of giving you an adjournment, 60 days to deal with it, I will also of course give Mr. Hall a chance to file a reply in the appropriate time. Mr. Kiernicki, thank you. Let me talk to Mr. Hall. Mr. Hall?

MR. KIERNICKI:  Thank you.

MR. HALL:  Thank you, Justice Little.

JUSTICE LITTLE:  You see, I do not want to shut the door entirely, because Mr. Kiernicki in his mind has an objection. You and I do not think it quite meets the guidelines or the structure of this Court in terms of our power to hear appeals dealing with the provision of the Income Tax Act.  I do think that he should be given a chance. He may decide that it is not worth the fuss and bother but, at the same time, I do not want to shut the door entirely at this time. What are your comments?

MR. HALL:  No, the respondent has no concern and considers it perhaps reasonable in the circumstances to allow Mr. Kiernicki 60 days to perhaps review the Notice of Appeal and amend it so that it can be properly before the Court.

In terms of granting the respondent an extension of time to reply to that amended Notice of Appeal, perhaps a further 60 days from the date of filing and serving the Notice of Appeal would be appropriate.

JUSTICE LITTLE:  Okay. Anything else, sir?

MR. HALL:  Perhaps if the Order could speak to dismissing the Notice of Appeal, if no amended notice of appeal is filed within the 60-day period?

JUSTICE LITTLE:  Fine, thank you.

MR. HALL:  Thank you, Mr. Justice Little.

JUSTICE LITTLE:  An Order will be issued, Mr. Kiernicki, Mr. Hall, to the effect that the appellant is given 60 days to amend his Notice of Appeal. The respondent will be given 60 days following the receipt of the amended notice of appeal to issue and serve a reply to the notice of appeal.

Finally, if the appellant does not file an amended notice of appeal within the 60 days, then the Notice of Appeal will be dismissed. Okay, Mr. Kiernicki?

MR. KIERNICKI:  Thank you, very much, your honour.

JUSTICE LITTLE:  Mr. Hall?

MR. HALL:  Thank you.

JUSTICE LITTLE:  Thank you, very much. Mr. Registrar, perhaps we could rise for five minutes.

THE REGISTRAR:  Yes, sir. The Court will take a short adjournment.

--- Whereupon the hearing was concluded at 9:50 a.m. on Friday, June 1, 2007.