Date: 20010214
Docket: T-1761-99
Citation: 2001FCT78
BETWEEN:
Enter Style of Cause just after [Comment] code
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JOHN MITCHELL, ANITA MITCHELL,
LEONARD STEWIN and
J.A. FRASER IMPLEMENT CO. LTD.
Applicants
- and -
ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR ORDER
SIMPSON J.
[1] The applicants seek judicial review of a decision of the Minister of National Revenue (the "Minister") in which, by letter dated August 31, 1999, he refused to reassess their 1984 income tax returns (the "Decision"). The Decision was based on the applicants' failure to file waivers within the three-year limitation period prescribed by ss. 152(4)(a)(ii) of the Income Tax Act, S.C. 1970-71-72, c. 63, as amended (the "Act").
[2] The applicants seek the following relief:
• an order pursuant to ss. 18.1(3) of the Federal Court Act, R.S.C. 1985, c. F-7, declaring the Decision to be invalid;
• an order pursuant to ss. 18.1(3) of the Federal Court Act directing the Minister to reassess the Applicants' 1984 tax returns in accordance with the principles established in the test case of Bellingham v. The Queen, [1996] 1 F.C. 613 (C.A.);
• a declaration that the Applicants filed valid waivers pursuant to ss. 152(4)(a)(ii) of the Act; and
• solicitor and client costs.
The Facts
[3] The applicants are John Mitchell, Anita Mitchell, Leonard Stewin and J.A. Fraser Implement Co. Ltd. ("J.A. Fraser Ltd."), (collectively the "Applicants"). They owned land in Grande Centre, Alberta, which was expropriated in 1981. Land was also expropriated from Brenda Bellingham and Paterson Park Ltd. Although they are not parties to this application, their names are mentioned in the record. The Applicants, together with Brenda Bellingham and Paterson Park Ltd. will be described collectively as the "Owners".
[4] In June of 1984, the Owners were paid for their expropriated land and they also received sums described as "penalty interest". All the Owners included the penalty interest as taxable income on their 1984 income tax returns.
[5] In 1985, Brenda Bellingham retained a tax lawyer, Neil Nichols, to represent her with a view to obtaining a refund of the income tax she had paid on the penalty interest on the basis that the penalty interest was non-taxable. Subsequently, in January of 1986, the Applicants and Paterson Park Ltd. retained Mr. Nichols for the same purpose.
[6] Mr. Nichols' affidavit for this proceeding was sworn on October 29, 1999. It indicated that, from 1973 until 1978, he was a senior tax lawyer for the Department of Justice and then for Revenue Canada. Mr. Nichols acknowledged that he acted for all the Owners and stated that he met with William Wiesener and Bruce Bigelow of Revenue Canada on February 6, 1986, on their behalf (the "Meeting"). Mr. Nichols' affidavit said that, at the Meeting, it was agreed that:
• all the Owners' cases raised identical issues;
• Brenda Bellingham's lawsuit would proceed to court as a test case for the other Owners to determine if the penalty interest was non-taxable income as she alleged (the "Test Case");
• the other Owners' 1984 tax returns would be reassessed if the Test Case were successful; and
• pending the conclusion of the Test Case, the other Owners' Revenue Canada files would be held in abeyance without the need for further steps or documentation.
[7] In cross-examination on his affidavit, at page 20 of the transcript, Mr. Nichols added that, although Revenue Canada agreed to dispense with waivers at the Meeting, it was also agreed that, if Revenue Canada decided to require the Owners to file waivers, it would ask for them.
[8] Mr. Wiesener's affidavit showed that he neither recalled the Meeting nor had any related records[1]. However, he deposed that, in 1986, it was not Revenue Canada's practice to dispense with waivers. Mr. Nichols disagreed with this statement and said that, in his experience, in spite of the wording of Revenue Canada's Information Circular 75-7R3 dated July 9, 1984, waivers were not required in the 1970s or in 1986 for reassessments which were statute-barred in circumstances in which Revenue Canada agreed to be bound by the results of a test case and in which the taxpayers agreed not to appeal the reassessment.
[9] The notices of assessment for the Applicants' 1984 tax returns were mailed on the dates shown below. This meant that, under ss. 152(4) of the Act, waivers were to be filed in the prescribed form in 1988, within three years of each of the following dates:
• J.A. Fraser Ltd. - June 6, 1985
• Anita Mitchell - July 18, 1985
• Leonard Stewin - August 9, 1985
• John Mitchell - September 30, 1985
[10] Mr. Nichols' affidavit indicated that, on February 24, 1986, he sent a letter to Mr. Wiesener confirming the matters discussed at the Meeting and in subsequent conversations. In particular, on the subject of waivers, Mr. Nichols wrote:
We confirm our understanding in respect of these taxpayers that they would be reassessed so as to give them the same treatment as the others in the event that the 'penalty interest' amounts are not taxable. As these matters sometimes drag on, we would appreciated your office providing us with Waiver forms which would be completed and delivered to you as discussed.
[My emphasis]
[11] Fourteen months later, on May 4, 1987, Mr. Nichols wrote to William Blahun, Chief of Appeals of the Edmonton District Taxation Office, on behalf of Brenda Bellingham and the Applicants. At that time, he said:
Please confirm that there is nothing further that we need to do at this time n respect of that agreement. My concern relates to the fact that this is a 1984 transaction and whether or not you will be requiring waivers from the other taxpayers in case the reassessment time becomes statute-barred and the result of the Bellingham appeal on the 'penalty-interest' issue is in favour of the taxpayers.
[My emphasis]
[12] The letters of February 24, 1986 and May 4, 1987 (together the "Letters"), are the documents which the Applicants say, when taken together, constitute their waiver pursuant to ss. 152(4) of the Act. Revenue Canada did not reply in writing to either of the Letters. However, as described below, Revenue Canada did reply by telephone.
[13] On May 22, 1987, Maxine Mateyko, an appeals officer with Revenue Canada in Edmonton, phoned Mr. Nichols. He was unavailable and she spoke to his legal assistant, Vivian Hart, and (according to the notes included in Ms. Mateyko's affidavit of December 9, 1999) told her that Revenue Canada "will probably need the waivers on these files". In context, she clearly meant the Applicants' files. Ms. Hart apparently responded by saying that she would talk to Mr. Nichols and phone Ms. Mateyko again. Ms. Hart did not file an affidavit and the evidence does not show whether Ms. Hart called Ms. Mateyko back as promised.
[14] One week later, on May 28, 1987, Ms. Mateyko phoned Ms. Hart at Mr. Nichols' office and said:
... we will probably need the waiver for Paterson Park right away, we would need a waiver for J.A. Fraser in order to keep it open, we will need waiver from the Mitchells and Stewin.
On the same day, Mr. Nichols filed a waiver in the prescribed form which he signed on behalf of Paterson Park Ltd. In my view, this indicates that he received Ms. Mateyko's message and was aware, as of May 28, 1987, that Revenue Canada wanted waiver forms for the Applicants. This was more than reasonable notice because the deadline for filing the first waiver was June 6, 1988. However, Mr. Nichols never filed the Applicants' waiver forms and indicated in his cross-examination that he had no recollection of receiving Ms. Mateyko's message of May 28, 1987, about the need for waivers for the Applicants.
[15] On June 22, 1987, Ms. Mateyko again called Ms. Hart and advised her that Revenue Canada could not accept Mr. Nichols' signature on the Paterson Park Ltd. waiver form and asked instead for a form signed by a person with corporate signing authority. By letter dated July 22, 1987, Ms. Hart responded and sent Ms. Mateyko a waiver in the prescribed form signed by the president of Paterson Park Ltd.
[16] Several weeks later, on August 18, 1987, when Ms. Mateyko called Mr. Nichols' office and asked for Ms. Hart, she was told that Ms. Hart no longer worked for Mr. Nichols. When Ms. Mateyko asked to speak with him, she was told that he was away on vacation. She then left a message asking that Mr. Nichols call her on his return. However, there was no evidence that he ever responded and no evidence that she ever called him again.
[17] Many years later, on February 24, 1994, Mr. Nichols wrote to Douglas Titosky, the Justice lawyer who was litigating the Test Case for the Crown, and provided Mr. Titosky with his earlier letter of May 4, 1987 to Mr. Blahun, which Mr. Nichols described as being "tantamount to a waiver enabling reassessment in respect of this item". Mr. Nichols again wrote to Mr. Titosky on March 8, 1994. In that letter, he referred to earlier correspondence describing the agreement to reassess the Applicants after the Test Case. He wrote:
As before, we ask that you confirm that Revenue Canada, Taxation will continue to honour this agreement and implement the result uniformly for all of these taxpayers, in the event that the outcome of the appeal is indeed in favour of the taxpayer.
[18] In November of 1995, the Federal Court of Appeal decided the Test Case and held that penalty interest, as part of compensation for an expropriation, was a non-taxable receipt. This meant that the Owners who had paid income tax on the penalty interest anticipated a reassessment and a refund. Accordingly, on January 16, 1996, Mr. Nichols wrote to Mr. Titosky and asked that Revenue Canada reassess the Applicants in accordance with the decision in the Test Case.
[19] However, by letter dated April 12, 1996, Mr. Titosky informed Mr. Nichols that Revenue Canada was taking the position that the agreement to apply the results of the Test Case to the Applicants' case did not apply in the absence of waivers.
[20] On April 29, 1996, Mr. Blahun of Revenue Canada wrote Mr. Nichols and asserted that Revenue Canada had only agreed to reassess the Applicants in accordance with the outcome of the Test Case if the assessments were not statute-barred or if valid waivers were filed. He also said that Revenue Canada had no authority to reassess after three years without a waiver and that its policy regarding waivers was set out in Information Circular 75-7R3
[21] On April 6, 1999, each Applicant filed an application for a refund with the Minister. However, in his Decision, the Minister denied each application by letter dated August 31, 1999.
The Parties' Positions
[22] The Applicants submitted that the evidence showed that both an agreement to reassess the Applicants' 1984 tax returns and an agreement to dispense with waivers, unless notice was given that waivers were required, were in effect and bound the Minister. In the alternative, the Applicants said that I should conclude that waivers were in fact provided because all the available necessary information (except one corporate access number and one social insurance number which were not available) were provided in the Letters.
[23] The Respondent acknowledged that Revenue Canada's intention had been to hold the Applicants' files in abeyance until the Test Case was resolved, and that it had agreed to reassess them if the court found in the Applicants' favour. But Revenue Canada also said that its agreement to reassess must have been conditional on the filing of waivers, because waivers were required by law and by departmental policy, and because it had no practice of dispensing with waivers.
[24] The Respondent acknowledged in submissions that the required waivers did not necessarily have to be in the prescribed form and that a waiver could, in theory, be implied from the Letters. However, the Respondent said that the question of an implied waiver based on the Letters did not arise because Mr. Nichols' evidence showed that he never intended to file waivers for the Applicants because he thought they were not required. The Respondent said that Revenue Canada could not accept the Letters as waivers because, when they were sent, there was no intention that they be so treated.
The Relevant Statutory Provisions and the Waiver Form
[25] Subsection 152(4)(a)(ii) of the Act provides as follows:
The Minister may at any time assess tax, interest or penalties under this Part 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 taxation year, and may
(a) at any time, if the taxpayer or person filing the return
...
(ii) has filed with the Minister a waiver in prescribed form within 3 years from the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year,
...
reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require, except that a reassessment, an additional assessment or assessment may be made under paragraph (b) after 3 years from the day referred to in subparagraph (a)(ii) only to the extent that it may reasonably be regarded as relating to the assessment or reassessment referred to in that paragraph.
[My emphasis]
[26] Subsection 244(16) of the Act defines a prescribed form in the following terms:
Every form purporting to be a form prescribed or authorized by the Minister shall be deemed to be a form prescribed by order of the Minister under this Act unless called in question by the Minister or some person acting for the Minister or Her Majesty.
Attached as Schedule "A" to these reasons is waiver form T2029, which is prescribed by order of the Minister. It is a simple one-page form which requires a taxpayer to indicate his or her name, address, and social insurance or corporation number. It indicates that the taxation year to which the waiver applies should be shown and it provides space for a brief description of the subject matter of the reassessment.
[27] Section 32 of the Interpretation Act, R.S.C. 1985, c. I-21, provides that deviations from a prescribed form are permitted. It reads:
32.Where a form is prescribed, deviations from that form, not affecting the substance or calculated to mislead, do not invalidate the form used.
The Matters Not At Issue
[28] There is no question that Revenue Canada agreed to reassess the Applicants based on the outcome of the Test Case and that the Applicants agreed that the reassessments would not be appealed.
The Issues
Regarding the Meeting
1. Was an agreement reached at the Meeting about whether the Applicants were required to file waivers?
Regarding the Failure to File Waivers
2. Did Revenue Canada ask Mr. Nichols for waivers for the Applicants?
Regarding an Implied Waiver
3. Did the Letters constitute an implied waiver for the Applicants?
THE MEETING OF FEBRUARY 6, 1986
[29] The Applicants alleged that the Meeting produced an agreement that waivers would not be required unless Revenue Canada advised Mr. Nichols that they were needed. However, I have concluded that this version of events does not accord with the evidence. If Mr. Nichols had a clear understanding that waivers would not be required unless he was so advised, he would not have said in his letter of February 24, 1986, which was written further to the Meeting, that "as these matters sometimes drag on we would appreciate your office providing us with Waiver forms which would be completed and delivered to you, as discussed".
[30] As well, he would not have said in his letter of May 4, 1987:
On behalf of each taxpayer we confirm that they will not object to such subsequent reassessment, regardless of whether it is before or after the statute-bar period, so as to allow the "penalty interest" amount to be reassessed as non-taxable. If this does not suffice, perhaps you can let me know your thoughts on whether or not waivers should be provided.
[My emphasis]
[31] These passages suggest that no agreement had been reached at the Meeting about whether waivers would be required.
[32] The Respondent submits, on the other hand, that at the Meeting waivers were required and that the agreement to reassess the Applicants' 1984 tax returns was said to be conditional on the filing of waivers in the prescribed form. But, there was no evidence from the Respondent to support this submission. All Mr. Wiesener could say was that Revenue Canada's practice was not to dispense with the filing of waivers. This evidence was contradicted by Mr. Nichols who said that, in his experience, waivers were dispensed with in test case situations.
[33] I have concluded that no agreement was reached at the Meeting about whether waivers would or would not be required. Since, at the time of the Meeting on February 6, 1986, the first waiver did not need to be filed for over two years, I am satisfied that the focus of the discussion at the Meeting was the agreement to reassess based on the Test Case. In the circumstances, I think it most probable that waivers were mentioned only in passing and no decisions were made about whether they had to be filed.
THE FAILURE TO FILE WAIVERS
[34] Since, in my view, the evidence shows that Mr. Nichols clearly knew that the requirement for waivers was an outstanding issue, he was responsible for determining whether they were actually going to be required. He addressed this matter in his letter of May 4, 1987. I have concluded that Mr. Nichols was advised of Revenue Canada's decision that waivers were required for the Applicants when Ms. Mateyko spoke to Ms. Hart on May 28, 1987. Ms. Mateyko's notes show that she told Ms. Hart on this occasion that waivers "would" and "will" be needed for the Applicants. Further, it is clear that Mr. Nichols actually received this message because he promptly signed and submitted a waiver in the prescribed form for Paterson Park Ltd. in response to Ms. Mateyko's request that it be provided "right away".
[35] Accordingly, regardless of what may have been discussed at the Meeting, there came a time when Mr. Nichols was asked to provide waivers for the Applicants in the prescribed form and he did not do so.
AN IMPLIED WAIVER
[36] The Applicants said that, even if there was no agreement to dispense with waivers, and even if waivers in the prescribed form were not filed, I should treat the Letters as an implied waiver. This submission requires me to consider whether the Letters contain information which would normally be included on a waiver in the prescribed form, and whether the Letters can be treated as a waiver given that they were not written for that purpose.
[37] In dealing with these issues, I will use the term "implied waiver" to describe a document (or documents) which are sent to Revenue Canada to serve as a waiver and which contain all or virtually all the information found on the prescribed form. On the other hand, I will use the term "constructive waiver" to describe a document (or documents) which contain all or virtually all the necessary information found on the prescribed form but which were not intended to serve as a waiver at the time they were sent to Revenue Canada.
[38] In my view, the Letters amount to a constructive rather than an implied waiver. They are not in the prescribed form and they were not meant to serve as a waiver. But, taken together, they do contain virtually all the necessary information which would be found on the prescribed form.
[39] The Respondent admitted that it does not always insist on a waiver in the prescribed form and said that it may also accept, as valid waivers, prescribed forms that have been altered and documents other than the prescribed form if they contain the necessary information and are sent to Revenue Canada to serve as waivers. However, Revenue Canada is not prepared to accept documents as waivers when they are not in the prescribed form and when there was no intent that they serve that function. Essentially, to use my terminology, I was told that the Respondent may accept implied waivers but will not accept constructive waivers.
[40] In my view, this is a reasonable approach. Having told Mr. Nichols that waivers were required, and having not received waivers or documents sent in lieu to serve as implied waivers, I do not think that Revenue Canada was obliged to treat documents as waivers that were sent in before Ms. Mateyko asked for waivers, and which were described as waivers only after the deadlines for submitting waivers had passed.
[41] The requirement for waivers was considered by the Federal Court of Appeal in Canadian Marconi Co. v. Canada, [1992] 1 F.C. 655 (C.A.)[2]. In that case, the dispute concerned the tax treatment of interest earned on short-term securities in the years 1973 to 1986. In 1986, the taxpayer was successful in an appeal to the Supreme Court of Canada. However, the Minister refused to reassess for the years 1977 to 1981 on the basis that he was powerless to deal with those years because the necessary waivers had not been filed.
[42] The Court held that the Minister had no power to reassess statute-barred income tax returns unless, inter alia, a timely waiver was filed. The Court did not consider the form of the waiver but made it clear that a waiver was an absolute condition precedent to a reassessment, even in the context of ongoing litigation.
[43] The Applicants relied on a decision of the Tax Court of Canada in Trynor et al. v. Minister of National Revenue (1988), 88 D.T.C. 1294. In that case, the taxpayers did not indicate that they had decided to use V-day fair market value for certain shares by filing the prescribed form. Instead, they filed a separate document with their returns which clearly showed that they had elected V-day values. The problem arose because the relevant regulation stated that the election "shall" be made by filing the prescribed form.
[44] The Tax Court judge held that "shall" was not used in an imperative, mandatory sense but, rather, in a directory sense given the procedural nature of the provision. The Court found that the taxpayers' intent to use V-day values had been clearly communicated and that the Minister was not surprised, confused or prejudiced by the manner in which he was advised of the election. The Court also noted that to require the taxpayers to use the prescribed form would be to put form over substance.
[45] The decision in Trynor was followed by the Tax Court in Adelman v. Canada (M.N.R.) (unreported, August 21, 1991). However, on appeal to the Federal Court, Trial Division (1993), 66 F.T.R. 140, the decision was reversed on the issue of the meaning of the word "shall". The Court held that the term is presumptively imperative except in situations in which a mandatory interpretation would be irrational or meaningless. The Court concluded that a mandatory requirement to use a prescribed form to elect V-day value was neither irrational nor meaningless. This decision was upheld by the Federal Court of Appeal (1997), 97 D.T.C. 5529.
[46] In this case, the word "shall" does not appear in the legislation which refers to the prescribed form and, as noted above, the Respondent will accept documents which are not in the prescribed form as waivers if they contain the information required by the form and are intended to function as a waiver. This practice, it seems to me, follows the spirit of the Tax Court judge's ruling in Trynor.
[47] However, the Applicants say that, in the spirit of Trynor, the Respondent should go further and accept the Letters as a constructive waiver, because they contain virtually all the information required by the prescribed form and because, in the context of the agreement to reassess based on the outcome of the Test Case, there can be no suggestion that Revenue Canada would be surprised, misled or prejudiced by a constructive waiver.
Conclusion
[48] While I have sympathy for the Applicants, I have concluded, in the circumstances of this case, that the Respondent was entitled to take the position that the Letters do not constitute a waiver. The fact that together they contain virtually all the information required for a waiver does not, in my view, require Revenue Canada to treat them as a waiver. They were sent to Revenue Canada 14 months apart, before Ms. Mateyko asked for waivers, and when they were sent to Revenue Canada they were not intended to function as waivers. To summarize, I have concluded that Revenue Canada is not obliged to accept constructive waivers.
Costs
[49] The matter of costs is dealt with in the accompanying order.
[50] For all these reasons, the application for judicial review will be dismissed.
(Sgd.) "Sandra J. Simpson"
Judge
Vancouver, B.C.
February 14, 2001
NAMES OF COUNSEL AND SOLICITORS OF RECORD
STYLE OF CAUSE: JOHN MITCHELL, ANITA MITCHELL, LEONARD STEWIN and J.A. FRASER IMPLEMENT CO. LTD.
- and -
ATTORNEY GENERAL OF CANADA
DOCKET NO.: T-1761-99
PLACE OF HEARING: Edmonton, Alberta
DATE OF HEARING: November 21, 2000
REASONS FOR ORDER: SIMPSON J.
DATED: February 14, 2001
APPEARANCES:
K.G. Nielsen, Q.C. for Applicants
C.R. McNary, Esq
J.E. Fulcher, Esq. for Respondent
SOLICITORS OF RECORD:
Fraser Milner for Applicants
Edmonton, Alberta
Morris Rosenberg for Respondent
Deputy Attorney General of Canada
Ottawa, Ontario