Date: 20001116
Docket: A-275-00
CORAM: ROTHSTEIN J.A.
SEXTON J.A.
EVANS J.A.
BETWEEN:
JOANNE M. GAUCHER
Appellant
AND
HER MAJESTY THE QUEEN
Respondent
HEARD at Vancouver, British Columbia, on Friday, November 3, 2000
JUDGMENT delivered at Ottawa, Ontario, on Thursday, November 16, 2000
REASONS FOR JUDGMENT BY: ROTHSTEIN J.A.
CONCURRED IN BY: SEXTON J.A.
EVANS J.A.
Date: 20001116
Docket: A-275-00
CORAM: ROTHSTEIN J.A.
SEXTON J.A.
EVANS J.A.
BETWEEN:
JOANNE M. GAUCHER
Appellant
AND
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
ROTHSTEIN J.A.
[1] The issue in this appeal is whether a taxpayer assessed under a derivative assessment pursuant to subsection 160(1) of the Income Tax Act may object to that assessment by challenging the primary assessment on which the derivative assessment is based.
[2] The appellant's former husband was assessed for approximately $350,000 of tax. The assessment was confirmed by the Tax Court of Canada. Shortly before the Tax Court confirmed the assessment, the appellant's former husband transferred a residence to her. A few months later, the former husband declared bankruptcy.
[3] Thereafter, the Minister assessed the appellant under subsection 160(1) of the Income Tax Act. Under subsection 160(1), when a person makes a non-arm's length transfer of property for less than full consideration, both the transferor and transferee are jointly and severally liable to pay the transferor's tax. Subsection 160(1) provides:
| 160. (1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to (a) the person's spouse or a person who has since become the person's spouse, (b) a person who was under 18 years of age, or (c) a person with whom the person was not dealing at arm's length, the following rules apply: (d) the transferee and transferor are jointly and severally liable to pay a part of the transferor's tax under this Part for each taxation year equal to the amount by which the tax for the year is greater than it would have been if it were not for the operation of sections 74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted therefor, and (e) the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of (i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and (ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year, but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act. |
160. (1) Lorsqu'une personne a, depuis le 1er mai 1951, transféré des biens, directement ou indirectement, au moyen d'une fiducie ou de toute autre façon à l'une des personnes suivantes: a) son conjoint ou une personne devenue depuis son conjoint; b) une personne qui était âgée de moins de 18 ans; c) une personne avec laquelle elle avait un lien de dépendance, les règles suivantes s'appliquent: d) le bénéficiaire et l'auteur du transfert sont solidairement responsables du paiement d'une partie de l'impôt de l'auteur du transfert en vertu de la présente partie pour chaque année d'imposition égale à l'excédent de l'impôt pour l'année sur ce que cet impôt aurait été sans l'application des articles 74.1 à 75.1 de la présente loi et de l'article 74 de la Loi de l'impôt sur le revenu, chapitre 148 des Statuts revisés du Canada de 1952, à l'égard de tout revenu tiré des biens ainsi transférés ou des biens y substitués ou à l'égard de tout gain tiré de la disposition de tels biens; e) le bénéficiaire et l'auteur du transfert sont solidairement responsables du paiement en vertu de la présente loi d'un montant égal au moins élevé des montants suivants: (i) l'excédent éventuel de la juste valeur marchande des biens au moment du transfert sur la juste valeur marchande à ce moment de la contrepartie donnée pour le bien, (ii) le total des montants dont chacun représente un montant que l'auteur du transfert doit payer en vertu de la présente loi au cours de l'année d'imposition dans laquelle les biens ont été transférés ou d'une année d'imposition antérieure ou pour une de ces années; aucune disposition du présent paragraphe n'est toutefois réputée limiter la responsabilité de l'auteur du transfert en vertu de quelque autre disposition de la présente loi. |
[4] The appellant now says that the Minister reassessed her former husband after the three year limitation period provided in subsection 152(3.1) had expired and wishes to raise the limitation period as a defence to her assessment under subsection 160(1). The Minister says that she may not raise this defence because, once the former husband's assessment was confirmed by the Tax Court, it cannot be challenged. By assessing after the expiry of the limitation period, the Minister says that the Minister must be presumed to have alleged misrepresentation, that the limitation defence was not raised by the appellant's former husband in his appeal and that the appellant is precluded from now raising it in her appeal.
[5] The learned Tax Court Judge agreed with the Minister. He stated at paragraph 10 of his reasons:
| In the end, I conclude that the Appellant is precluded from claiming the defense that the reassessment of her former husband was statute-barred on the basis that the Tax Court of Canada confirmed the Minister's reassessment and it is not open to the Appellant to interfere with that decision. Given the facts of the case, Margeson J. confirmed the Minister's assessment [of the former husband], not to mention that Haynes conceded at the beginning of trial that part of the amounts in dispute were properly assessed. |
[6] I am of the respectful view that the Tax Court Judge was in error in coming to this conclusion. It is a basic rule of natural justice that, barring a statutory provision to the contrary, a person who is not a party to litigation cannot be bound by a judgment between other parties. The appellant was not a party to the reassessment proceedings between the Minister and her former husband. Those proceedings did not purport to impose any liability on her. While she may have been a witness in those proceedings, she was not a party, and hence could not in those proceedings raise defences to her former husband's assessment.
[7] When the Minister issues a derivative assessment under subsection 160(1), a special statutory provision is invoked entitling the Minister to seek payment from a second person for the tax assessed against the primary tax payer. That second person must have a full right of defence to challenge the assessment made against her, including an attack on the primary assessment on which the second person's assessment is based.
[8] This view has been expressed by Judges of the Tax Court. See, for example, Acton v. The Queen (1994), 95 D.T.C. 107, at 108 per Bowman T.C.C.J.; Ramey v. The Queen (1993), 93 D.T.C. 791, at 792 per Bowman T.C.C.J.; Thorsteinson v. M.N.R. (1980), 80 D.T.C. 1369, at 1372 per Taylor T.C.C.J. While the contrary view was expressed in Schafer (A.) v. Canada, [1998] G.S.T.C. 7-1, at 7-9 (appeal dismissed for delay (August 30, 1999), A-258-98 (F.C.A.)), I am of the respectful opinion that such view is in error. It seems to me that this approach fails to appreciate that what is at issue are two separate assessments between the Minister and two different taxpayers. Once the assessment against the primary taxpayer is finalized, either because the primary taxpayer does not appeal the assessment, or the assessment is confirmed by the Tax Court (or a higher court if further appealed), that assessment is final and binding between the primary taxpayer and the Minister. An assessment issued under subsection 160(1) against a secondary taxpayer cannot affect the assessment between the Minister and the primary taxpayer.
[9] By the same token, since the secondary taxpayer was not a party in the proceedings between the Minister and the primary taxpayer, she is not bound by the assessment against the primary taxpayer. The secondary taxpayer is entitled to raise any defence that the primary taxpayer could have raised against the primary assessment. The result may be that the assessment against the secondary taxpayer is quashed or is found to be for a lesser amount than the assessment against the primary taxpayer. That, of course, will have no effect on the assessment against the primary tax payer against whom the primary assessment was final and binding.
[10] The Minister argued that a person assessed under subsection 160(1) is not a "taxpayer" and is therefore not entitled to challenge the primary taxpayer's assessment. I must admit that the logic of this argument completely escapes me. What is at issue in an assessment under the Income Tax Act is income tax. A person assessed must surely be a taxpayer. In any event, the definition of "taxpayer" in subsection 248(1) of the Act provides:
| "taxpayer" includes any person whether or not liable to pay tax. |
« _contribuables_ » Sont comprises parmi les contribuables toutes les personnes, même si elles ne sont pas tenues de payer l'impôt. |
A person assessed under subsection 160(1) is a taxpayer.
[11] There is no reason why the appellant cannot raise the limitation period as a defence to the assessment made against her under subsection 160(1).
[12] As indicated in paragraph 4, there is some suggestion in the material that there may have been misrepresentation by the primary taxpayer that entitled the Minister to invoke subsection 152(4) and assess after the normal assessment period. Subsection 152(4) provides:
| 152. (4) 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 ... |
152. (4) Le ministre peut établir une cotisation, une nouvelle cotisation ou une cotisation supplémentaire concernant l'impôt pour une année d'imposition, ainsi que les intérêts ou les pénalités, qui sont payables par un contribuable en vertu de la présente partie ou donner avis par écrit qu'aucun impôt n'est payable pour l'année à toute personne qui a produit une déclaration de revenu pour une année d'imposition. Pareille cotisation ne peut être établie après l'expiration de la période normale de nouvelle cotisation applicable au contribuable pour l'année que dans les cas suivants: a) le contribuable ou la personne produisant la déclaration: (i) soit a fait une présentation erronée des faits, par négligence, inattention ou omission volontaire, ou a commis quelque fraude en produisant la déclaration ou en fournissant quelque renseignement sous le régime de la présente loi ... |
It will be open to the parties to address the question of misrepresentation, if it arises, by calling evidence in the Tax Court appeal.
[13] This appeal will be allowed with costs in this Court and in the Tax Court. The decision of the Tax Court will be set aside. In the appeal of her subsection 160(1) assessment, the appellant may raise before the Tax Court any defence that her former husband could have raised in respect of his assessment.
"Marshall Rothstein"
"I agree J.A.
J. Edgar Sexton J.A."
"I agree
John M. Evans J.A."
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-275-00
STYLE OF CAUSE: Joanne M. Gaucher v. Her Majesty the Queen
PLACE OF HEARING: Vancouver, B.C.
DATE OF HEARING: November 3, 2000
REASONS FOR JUDGMENT BY: Rothstein J.A.
| CONCURRED IN BY: Sexton & Evans JJ.A. |
DATED: November 16, 2000
APPEARANCES:
Mr. John C. Drove
Ms. Rachael Fisher FOR THE APPELLANT
Ms. Patricia Babcock FOR THE RESPONDENT
SOLICITORS OF RECORD:
Edwards, Kenny & Bray
Vancouver, B.C. FOR THE APPELLANT
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Ontario FOR THE RESPONDENT