A-119-06
DÉCARY J.A.
NADON J.A.
Docket: A-118-06
Appellant
Docket: A-119-06
BETWEEN:
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Heard at Ottawa, Ontario, on May 23, 2007.
Judgment delivered at Ottawa, Ontario, on June 7, 2007.
REASONS FOR JUDGMENT BY: RICHARD C.J.
CONCURRED IN BY: DÉCARY J.A.
NADON J.A.
Date: 20070607
Dockets: A-118-06
A-119-06
Citation: 2007 FCA 222
CORAM: RICHARD C.J.
DÉCARY J.A.
NADON J.A.
Docket: A-118-06
BETWEEN:
JEANNETTE WALSH
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-119-06
BETWEEN:
THE ESTATE OF DAVID G. WALSH
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
[1] These are appeals by Jeannette Walsh and The Estate of David G. Walsh from the March 14, 2006 Orders of Justice Paris, 2006 TCC 188, allowing the respondent’s motion to amend the Reply to the Notice of Appeal in each of the proceedings before the Tax Court of Canada under the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the “Act”).
[2] The appellants claim that Justice Paris erred in concluding that subsection 152(9) of the Act allows the respondent to include the amendments it seeks in its pleadings.
Background
[3] Mr. David Walsh and Mrs. Jeannette Walsh were reassessed pursuant to subsection 2(1) and sections 5 and 7 of the Act for unreported stock option benefits realized on the exercise of employee stock options to acquire shares in the capital of two Canadian public companies, namely Bre-X Minerals Ltd. and Bresea Resources Ltd. (the “Stock Option Benefits”).
[4] Mrs. Jeannette Walsh was reassessed for the 1996 taxation year and Mr. David Walsh was reassessed for the 1995 and 1996 taxation years.
[5] In their notices of appeal, Mrs. Walsh and the Estate of Mr. Walsh pleaded that the reassessments should be vacated on the basis that they were non-residents of Canada during the years under appeal and were therefore not liable for the tax assessed by the Minister.
[6] In her replies to the notices of appeal, the respondent pleaded that in reassessing and confirming, the Minister assumed that Mr. and Mrs. Walsh received certain benefits qua employees from the acquisition of shares of Bre-X Minerals Ltd. and Bresea Resources Ltd. through the exercise of employee stock options, failed to report the Stock Option Benefits and that they were residents of Canada. The respondent argued that these Stock Option Benefits were includible in income pursuant to sections 5 and 7 and subsection 2(1) of the Act.
[7] By the proposed amendments, the respondent sought to argue that the Stock Option Benefits would be includible in the computation of income of Mr. and Mrs. Walsh pursuant to paragraph 115(1)(a) of the Act, even if they were considered to be non-residents.
[8] On March 14, 2006, Justice Paris allowed the respondent’s motions to amend the replies and held:
1) that the basis of the reassessments was not limited to the alleged residence of the appellants in Canada but included the stock option transactions which gave rise to the income on which the Minister seeks to tax the appellants;
2) that the sought amendments were in accordance with subsection 152(9) of the Act, which allows the Minister to advance an alternative argument in support of a reassessment; and
3) that the sought amendments would not cause any irreparable prejudice.
Legislative History
[9] Subsection 152(4) of the Act was Parliament’s reaction to the Supreme Court of Canada’s decision in Continental Bank of Canada v. Canada, [1998] 2 S.C.R. 358, where it concluded that the Minister is not permitted to advance a new basis for reassessment after the limitation period found in subsection 152(5) has expired.
[10] The right of the Crown to present an alternative argument in support of an assessment is now governed by subsection 152(9) of the Act, which applies to appeals disposed of after June 17, 1999. Subsection 152(9) of the Act states:
|
152(9) The Minister may advance an alternative argument in support of an assessment at any time after the normal reassessment period unless, on an appeal under this Act
(a) there is relevant evidence that the taxpayer is no longer able to adduce without the leave of the court; and
(b) it is not appropriate in the circumstances for the court to order that the evidence be adduced.
|
152(9) Le ministre peut avancer un nouvel argument à l’appui d’une cotisation après l’expiration de la période normale de nouvelle cotisation, sauf si, sur appel interjeté en vertu de la présente loi :
a) d’une part, il existe des éléments de preuve que le contribuable n’est plus en mesure de produire sans l’autorisation du tribunal;
b) d’autre part, il ne convient pas que le tribunal ordonne la production des éléments de preuve dans les circonstances. |
Analysis
[11] In oral argument, counsel for the appellants stated that there were no facts in dispute and that the issue on appeal was whether, in the circumstances of this case, the Minister had the right, in the absence of fraud, to amend the reply after the limitation period for re-assessment had expired. In turn, this involved an analysis of subsection 152(9) of the Act.
[12] Based on his interpretation of subsection 152(9) of the Act, counsel asserted that the amended reply was a new basis for the assessments made by the Minister rather than an alternative argument and accordingly it was not proper and could not be allowed.
[13] Through the reliance on paragraph 115(1)(a) of the Act, which deal with taxable income earned in Canada by non-residents, the Minister is not seeking to increase the amount of the appellants’ income that was not included in an assessment or reassessment made within the normal period. Rather, the Minister is seeking to support exactly the same amount of tax liability flowing from the same Stock Option Benefits as assessed to the appellants, with an additional argument.
[14] As phrased by Justice Rothstein in Anchor Pointe Energy Ltd. v. R. (2003), 308 N.R. 125 (F.C.A.), 2003 FCA 294, at paragraph 40, the Minister is not introducing a new transaction.
[15] In the same decision, Justice Rothstein added at paragraph 38:
Anchor Pointe tries to distinguish between a new basis of assessment and a new argument in support of an assessment. I do not find that semantical argument productive.
[16] Counsel for the respondent does not suggest that subsection 152(9) of the Act gives the Minister an absolute right to plead an alternate ground.
[17] A similar position was taken by counsel for the Crown in Honeywell Ltd. v. R., 2007 FCA 22, where Justice M. Noël noted at paragraph 31:
Despite the urging of the parties, it is not necessary or opportune to attempt to settle the debate surrounding the interpretation of subsection 152(9) or to determine whether as Bowman C.J. puts it, the Minister can “do anything it wants in pleadings” (counsel for the Crown readily conceded that this last statement was overly broad).
[18] The following conditions apply when the Minister seeks to rely on subsection 152(9) of the Act:
1) the Minister cannot include transactions which did not form the basis of the taxpayer’s reassessment;
2) the right of the Minister to present an alternative argument in support of an assessment is subject to paragraphs 152(9)(a) and (b), which speak to the prejudice to the taxpayer; and
3) the Minister cannot use subsection 152(9) to reassess outside the time limitations in subsection 152(4) of the Act, or to collect tax exceeding the amount in the assessment under appeal.
[19] I am satisfied that the proposed amended Reply in each of the proceedings meets those conditions.
Disposition
[20] Accordingly, I would dismiss these appeals with one set of costs for the hearing of these appeals.
Chief Justice
“I agree
Robert Décary J.A.”
“I agree
M. Nadon J.A.”
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-118-06
APPEAL FROM AN ORDER OF THE TAX COURT OF CANADA DATED MARCH 14, 2006, (NO. 2004-4083(IT)G)
STYLE OF CAUSE: Jeannette Walsh v.Her Majesty the Queen
PLACE OF HEARING: Ottawa, Ontario
REASONS FOR JUDGMENT BY: RICHARD C.J.
NADON J.A.
APPEARANCES:
|
Mr. Michael Hunziker
|
FOR THE APPELLANT
|
|
Ms. Elizabeth Chasson |
FOR THE RESPONDENT
|
SOLICITORS OF RECORD:
|
Lenczner Slaght Royce Smith Griffin LLP Toronto, Ontario
|
FOR THE APPELLANT
|
|
Deputy Attorney General of Canada, Ottawa, Ontario |
FOR THE RESPONDENT
|
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-119-06
APPEAL FROM AN ORDER OF THE TAX COURT OF CANADA DATED MARCH 14, 2006, (NO. 2004-4085(IT)G)
STYLE OF CAUSE: The Estate of David G. Walsh v.Her Majesty the Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: May 23, 2007
REASONS FOR JUDGMENT BY: RICHARD C.J.
CONCURRED IN BY: DÉCARY J.A.
NADON J.A.
DATED: JUNE 7, 2007
APPEARANCES:
|
Mr. Alan J. Lenczner, Q.C. Mr. Michael Hunziker |
FOR THE APPELLANT
|
|
Mr. Louis L'Heureux, Ms. Elizabeth Chasson |
FOR THE RESPONDENT
|
SOLICITORS OF RECORD:
|
Lenczner Slaght Royce Smith Griffin LLP Toronto, Ontario |
FOR THE APPELLANT
|
|
Mr. John H, Sim, Q.C., Deputy Attorney General of Canada Ottawa, Ontario |
FOR THE RESPONDENT
|