A-16-06
A-17-06
CORAM: LÉTOURNEAU J.A.
EVANS J.A.
MALONE J.A.
A-18-06
BETWEEN:
JAMES TAYLOR
Appellant
and
HER MAJESTY THE QUEEN
Respondent
A-16-06
BETWEEN:
DONALD JORDAN
Appellant
and
HER MAJESTY THE QUEEN
Respondent
A-17-06
BETWEEN:
ISRAEL CHAFETZ
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Heard at Vancouver, British Columbia, on January 15, 2007.
Judgment delivered from the Bench at Vancouver, British Columbia, on January 15, 2007.
REASONS FOR JUDGMENT OF THE COURT BY: EVANS J.A.
Dockets: A-18-06
A-16-06
A-17-06
Citation: 2007 FCA 45
CORAM: LÉTOURNEAU J.A.
EVANS J.A.
MALONE J.A.
A-18-06
BETWEEN:
JAMES TAYLOR
Appellant
and
HER MAJESTY THE QUEEN
Respondent
A-16-06
BETWEEN:
DONALD JORDAN
Appellant
and
HER MAJESTY THE QUEEN
Respondent
A-17-06
BETWEEN:
ISRAEL CHAFETZ
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
(Delivered from the Bench at Vancouver, British Columbia, on January 15, 2007)
[1] This is an appeal from a decision of Justice Miller of the Tax Court of Canada dismissing the appellants’ appeals against the Minister’s reassessment of their tax liability for the taxation years 1992 and 1993. The material facts of the appeals are identical, as are the issues raised. The Judge’s reasons are reported as Chafetz, Jordan and Taylor v. The Queen, 2005 TCC 803.
[2] The Judge rejected the appellants’ argument that the Minister was statute-barred in 2001 from reassessing their claim to deduct from their income for 1992 and 1993 the acquisition cost of seismic data incurred by the Sierra Trinity Limited Joint Venture, in which they had invested as partners in 1992 and 1993. The Minister determined that the cost did not qualify as a Canadian Exploration Expense (“CEE”), as defined by subsection 66.1(6) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (“ITA”).
[3] Justice Miller concluded that, properly construed, the waivers signed by the appellants in 1996 and 1997, for the taxation years 1992 and 1993 respectively, permitted the Minister to reassess the appellants’ claim to deduct the cost of the seismic data as a CEE, beyond the normal three-year reassessment period prescribed by ITA, paragraph 152(4)(b). He held, accordingly, that CEE was a “matter specified” in the waiver and that it followed that the reassessment of the CEE claim could reasonably be regarded as related to it, as required by ITA, subparagraph 152(4.01)(a)(ii).
[4] The waiver for 1993, prepared by an auditor of Canada Revenue Agency, Mr Holmes, stated that the Minister may reassess in respect of
Net income for income tax purposes as affected by the application of Canadian Exploration and Development Expense or Canadian Oil and Gas Property Expense in respect of Sierra Trinity Inc.
[Emphasis added]
[5] Mr Holmes testified that he intended the words “Canadian Exploration and Development Expense” in the waiver to be something of a shorthand reference to both the Canadian Exploration Expense and the Canadian Development Expense (“CDE”), which would permit him to reassess the claimed deduction on both bases. He was unaware that “Canadian Exploration and Development Expense” (“CEDE”) was a defined in term subsection 66(15) of the ITA and refers to certain expenses incurred before May 7, 1974.
[6] The Judge concluded on the basis of the appellants’ testimony that they assumed that the waivers did not cover CEE. This led Mr Taylor to the belief, which he communicated to the other two appellants, his law partners, that he was not waiving CEE. Mr Taylor further testified that he did not know, and had not looked up the definition of CEDE in the ITA, although he believed that it did not include CEE.
[7] On the basis that the appellants and Mr Holmes had different intentions concerning the scope of the waiver, Justice Miller considered how the reference in the waiver to “Canadian Exploration and Development Expense” should be interpreted objectively. This was the correct legal test. The application of the law to the facts of this case is a question of mixed fact and law; absent a more general extricable question of law, the Judge’s decision is reviewable only for palpable or overriding error: Housen v. Nickolaisen, [2002] 2 S.C.R. 235, 2002 SCC 33.
[8] We are not persuaded that the Judge made any error warranting the intervention of this Court. His conclusion that, on the facts of this case, the terms of the waiver, when interpreted objectively and contextually, referred to CEE and CDE was amply supported by the record. The appellants’ accountant had claimed to deduct the cost of the seismic data as a CEE in their income tax returns, which they said they had not checked. In Mr Taylor’s opinion, CEE was their “best argument” for being allowed the claimed deduction. Indeed, the reference line in the letter accompanying the 1996 waiver stated:
Re: Sierrra Joint Venture
(Canadian Exploration Expense (CEE))
The heading of the 1997 waiver was substantially the same.
[9] Moreover, communications between Mr Taylor, the other two appellants, their counsel and Mr Holmes, made it clear that CEE was the basis of the claimed deduction: see, for example, the letters at pp. 174, 180,182, 183, and 184 of the Appeal Book.
[10] Further, CEDE, as defined in the ITA, was obviously irrelevant to the appellants’ claim, since it only applied to transactions concluded before May 1974. In contrast, the appellants claimed their deduction for losses sustained in connection with their investment in Sierra Trinity in 1992 and 1993.
[11] In light of these surrounding facts, it is difficult to see any basis on which the waiver could be interpreted objectively as not covering CEE. The fact that there is a statutory definition of the phrase “Canadian Exploration and Development Expense” when used in section 66 of the ITA, is not determinative of the meaning of those words in other documents, including the waiver.
[12] The fact that the waiver uses upper case letters for the first letter of the words, “Canadian Exploration and Development Expense”, and that “Expense” is in the singular, does not create an ambiguity in the waiver. Reading the Judge’s reasons as a whole, we see no inconsistency between his finding that the appellants were credible witnesses and that, in convincing themselves that the waiver did not cover CEE, they had engaged in wishful thinking and that their intention lacked a strong foundation.
[13] For these reasons, the consolidated appeals will be dismissed with one set of costs payable to the respondent. A copy of these reasons will be inserted in each file.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-18-06; A-16-06; A-17-06
STYLE OF CAUSE: James Taylor, Donald Jordan,
and Israel Chafetz v. HMQ
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: January15, 2007
REASONS FOR JUDGMENT BY: Evans, J.A.
DATED: January 15, 2007
APPEARANCES:
Donald J. Jordan Q.C. FOR THE APPELLANT
Lynn M. Burch FOR THE RESPONDENT
SOLICITORS OF RECORD:
|
Taylor Jordan Chafetz Vancouver, British Columbia
John H. Sims, Q.C. Deputy Attorney General of Canada
|
FOR THE APPELLANT
|