INCOME TAX
Reassessment
Appeal from decision (2004 FC 932), dismissing application for judicial review of tax official’s decision not to exercise discretion under Income Tax Act (ITA), s. 152(4.2) to permit reassessment for 1993, 1994, 1995 tax years outside normal reassessment period—S. 152(4.2) part of statutory scheme (referred to as “fairness package”) giving officials discretion to grant relief against certain ITA provisions, including deadlines for reassessing returns to reduce tax payable—Federal Court of Appeal to determine whether Judge chose, applied appropriate review standard—Determination of appropriate standard involves pragmatic and functional analysis, taking into account purpose of statutory scheme, scope of any privative clause, relative expertise of tribunal, reviewing Court, nature of question in dispute, with view to determining whether impugned decision reviewable on standard of correctness, reasonableness or patent unreasonableness—Judge applied patent unreasonableness standard, not having been referred to Hillier v. Canada (Attorney General), 2001 FCA 197, in which F.C.A. applied reasonableness standard to tax official’s decision regarding discretionary relief under another part of “fairness package”— No relevant factor suggests review standard more deferential than reasonableness and Federal Court decisions in Sharma v. Canada Customs and Revenue Agency, 2001 FCT 584 and Cheng v. Canada, 2001 FCT 1114 disagreed with—Taxpayer one of many investors in real estate project, claimed investment losses for 1993, 1994, 1995 but, on April 8, 1997 losses disallowed upon reassessment on basis had no reasonable expectation of profit—Failed to object to reassessments within 90 days because mistakenly believed investors’ accounting firm would do so—Evidence established accounting firm had undertaken to so file—Taxpayer contributed $500 to fund to cover accountant’s fees— Accounting firm not filing notice of objection for taxpayer because not having copies of reassessment notices—Taxpayer mistakenly supposed CCRA would have sent copies to accounting firm, as aware he was represented by them—Only in February, 2002 did taxpayer learn objection never filed—Taxpayer’s evidence was that, due to dubious strategy, accounting firm did not apply for taxpayer’s relief under s. 152(4.2) until December 6, 2002—On May 23, 2002, Stewart v. Canada, [2002] 2 S.C.R. 645, dealing fatal blow to “reasonable expectation of profit” theory, basis of impugned reassessments—Had taxpayer objected in time, would have benefited from Stewart but, as it was, only hope for relief was ITA, s. 152(4.2)—In denying relief, official relied on policy in Information Circular 75‑7R3, para. 4(e): reassessment creating refund will be made although objection notice filed out of time provided refund application not based solely upon successful court appeal—Sound policy as CCRA must avoid flood of reassessment applications whenever court decision impacts on taxpayers’ liability—But, on June 10, 2003, accounting firm requested reconsideration of decision as application not based solely on Stewart—There had been misunderstanding of procedural requirements, mistaken belief reassessments properly challenged—Official replied that there were no circumstances beyond accounting firm’s control that prevented filing of objection, CCRA not responsible for errors of taxpayer’s representative—Taxpayer requested further reconsideration, pointing out differential treatment accorded three others similarly situated—Official rejected request in November 4, 2003 letter, there being no error by CCRA, circumstances not beyond taxpayer’s control—Letter wrongly stated fairness provisions unavailable to extend objection notice filing deadline—Appears official concluded relief precluded by fact refund application based solely upon Stewart—That reveals misapprehension of facts—Failed to address differential treatment of taxpayers, a relevant consideration—Denial of relief not reasonable—Appeal allowed—Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 152(4.2) (as enacted by S.C. 1994, c. 7, Sch. II, s. 125).
Lanno v. Canada (Customs and Revenue Agency) (A‑478‑04, 2005 FCA 153, Sharlow J.A., judgment dated 2/5/05, 11 pp.)