A-438-89
Her Majesty the Queen (Appellant)
v .
Canadian Marconi Company (Respondent)
INDEXED AS: CANADIAN MARCONI CO. V. CANADA (CA.)
Court of Appeal, Mahoney, Stone and Desjardins
JJ.A.โOttawa, October 30 and November 14, 1991.
Income tax โ Reassessment โ Appeal from trial judgment
declaring M.N.R. not statute barred from reassessing respon
dent for 1977 to 1981 taxation years notwithstanding limita
tion and waiver provisions of Income Tax Act, s. 152(4) โ
Under s. 152(4)(c) M.N.R. may reassess within 4 years from
day referred to in s. 152(4)(a)(ii) โ S. 152(4)(a)(ii) requiring
filing of waiver within 4 years from day of mailing notice of
assessment โ Dispute as to characterization of investment
income for 1973 to 1976 not resolved until S.C.C. rendering
decision November 6, 1986 โ As waivers not filed, dates of
assessment commencement of four-year period to reassess โ
Notices of objection not filed โ Respondent requesting reas
sessment for 1977 to 1981 in accord with S.C.C. judgment โ
Appeal allowed โ Absent waiver as provided by s.
152(4)(a)(ii), allegation of misrepresentation or fraud implicit
in out-of-time reassessment โ Although definition of "assess-
ment" including reassessment, cannot render "assessment"
and "reassessment" interchangeable in provision clearly dis
tinguishing between them and providing differently in respect
of them โ Under s. 152(4) Minister may assess at any time,
but having assessed, can only reassess within prescribed times
of having notified taxpayer of assessment.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Federal Court Act, R.S.C., 1985, c. F-7, s. 52(b)(iii).
Income Tax Act, S.C. 1970-71-72, c. 63, 125.1(1), ss.
152(4) (as am. by S.C. 1984, c. 1, s. 84; c. 1, s. 59), (6)
(as am. by S.C. 1984, c. 1, s. 84), (8), 248.
CASES JUDICIALLY CONSIDERED
APPLIED:
Minister of National Revenue v. Taylor, Maurice, [1961]
Ex.C.R. 318; [1961] C.T.C. 211; 61 DTC 1139; Sussex
Peerage Case, [1844] 11 CI. and Fin. 85; (1844), 8 E.R.
1034 (H.L.).
DISTINGUISHED:
Davis (WW) v The Queen, [1984] CTC 564; (1984), 84
DTC 6518 (F.C.T.D.); Smerchanski v. Minister of
National Revenue, [1974] 1 F.C. 554; (1974), 45 D.L.R.
(3d) 254; [1974] CTC 241; 74 DTC 6197; 2 N.R. 197
(C.A.); Smerchanski v. Minister of National Revenue,
[1977] 2 S.C.R. 23; [1976] CTC 488; (1976), C.R.N.S.
228; 76 DTC 6247; 9 N.R. 459.
REVERSED:
Canadian Marconi Co. v. Canada, [1990] 1 F.C. 141;
[1989] 2 C.T.C. 128; (1989), 89 DTC 5370 (T.D.).
REFERRED TO:
Canadian Marconi v. R., [1986] 2 S.C.R. 522; (1986), 33
D.L.R. (4th) 481; [1986] 2 C.T.C. 465; 86 DTC 6526; 70
N.R, 174.
COUNSEL:
Ian S. MacGregor and Josรฉe Tremblay for appel
lant.
Wilfrid Lefebvre, Q. C. and Patrice Marceau for
respondent.
SOLICITORS:
Deputy Attorney General of Canada for appel
lant.
Ogilvy Renault, Montrรฉal, for respondent.
The following are the reasons for judgment ren
dered in English by
MAHONEY J.A.: This is an appeal from a reported
decision of the Trial Division' which granted the
respondent a declaration that the Minister of National
Revenue is not statute barred from reassessing the
respondent for the taxation years 1977-1981, notwith
standing the limitation and waiver provisions of sub
section 152(4) of the Income Tax Act [S.C. 1970-71-
72, c. 63 (as am. by S.C. 1984, c. 1, s. 84)]. The sub
section, at the relevant times, read as follows:
1 [1990] 1 F.C. 141 (T.D.).
152....
(4) The Minister may at any time assess tax, interest or pen
alties 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
(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 informa
tion under this Act, or
(ii) has filed with the Minister a waiver in prescribed
form within 4 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, and
(b) within 7 years from the day referred to in subparagraph
(a)(ii), if
(i) an assessment or reassessment of the tax of the tax
payer was required pursuant to subsection (6) or would
have been required if the taxpayer had claimed an amount
by filing the prescribed form referred to in that subsection
on or before the day referred to therein, or
(ii) there is reason, as the consequence of the assessment
or reassessment of another taxpayer's tax pursuant to this
paragraph or subsection (6), to assess or reassess the tax
payer's tax for any relevant taxation year, and
(c) within 4 years from the day referred to in subparagraph
(a)(ii), in any other case,
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 4 years from the day
referred to in subparagraph (a)(ii) only to the extent that it may
be reasonably regarded as relating to the assessment or reas
sessment referred to in that paragraph.
The seven and four-year limitation periods have since
been reduced to six and three 2 but subsection 152(4)
remains otherwise the same. Subparagraph (a)(i) and
paragraph (b) are not immediately in play although
they must, of course, be considered in the context of
the legislative scheme. There is no question of mis
representation or fraud. The extra three years allowed
by paragraph (b) enables the otherwise statute-barred
assessment or reassessment of a return only when an
2 S.C. 1984, c. 45, s. 59(1).
entitlement to a deduction arises in one of the circum
stances enumerated in subsection 152(6) [as am. by
S.C. 1984, c. 1, s. 84], e.g., an increase in or the fix
ing of a loss that may be carried back to the taxation
year of the return to be assessed or reassessed.
The action proceeded entirely on agreed facts. The
original dispute between the Minister and respondent
concerned the characterization of interest on short-
term securities. The Minister characterized it as
income from property and excluded it from the com
putation of the respondent's Canadian manufacturing
and processing profits under subsection 125.1(1) of
the Act. The respondent contended that it was income
from an active business and, therefore, to be taken
into account in that computation. As to its taxation
years 1973 to 1976 inclusive, the respondent objected
to the Minister's reassessments. It was ultimately
successful in an appeal to the Supreme Court of
Canada, 3 which rendered its decision November 6,
1986.
For the taxation years in issue in this appeal, 1977
to 1981 inclusive, the respondent continued to earn
interest on short-term investments, to include it in its
computation of Canadian manufacturing and process
ing profits and to file its income tax returns accord
ingly. Those returns were, respectively, first assessed
January 29, 1980; September 25, 1979; January 24,
1980; December 11, 1980; and March 18, 1982. As
to the taxation years in issue, those are, respectively
"the day referred to in subparagraph (a)(ii)" from
which the four-year limitation period of paragraph
152(4)(c) ran. While the appeal against the 1973 to
1976 reassessments was before the courts, by notices
of reassessment dated July 4, 1983, the Minister reas
sessed the respondent's 1977 to 1981 returns, exclud
ing the investment income from the computation of
Canadian manufacturing and processing profits. The
respondent did not file notices of objection nor did it
file waivers within the four-year limitation period.
That period expired in respect of all taxation years in
issue before the Supreme Court rendered its judg
ment.
3 [1986] 2 S.C.R. 522.
The respondent has asked the Minister to reassess
it for 1977 to 1981 in accord with the Supreme
Court's judgment. The Minister says he is powerless
to do so. There is no question of compelling him to
do so.
The conclusions of the learned Trial Judge begin at
page 159 of the reported decision. He concluded,
first, that the statute is ambiguous and then stated the
alternative interpretations open in the following
terms [at page 1601:
1. In resolving the ambiguity in the text of subsection 152(4),
should one read into it the intention of Parliament to write finis
to the whole assessment scheme if the limitation periods men
tioned therein are not respected? If so, that would be the end of
the matter. -
2. On the other hand, if it should be found that the limitations
imposed are for the benefit of the taxpayer, it would continue
to be the Minister's prerogative to assess at any time, leaving it
to the taxpayer to avail himself of his defences if he so wishes.
It is to be noted that the issue was not stated by the
learned Trial Judge, nor was it put to us, on the basis
that the limitation period may be waived by the tax
payer in advance of the Minister reassessing, other
wise than in the time and manner prescribed by sub-
paragraph 152(4)(a)(ii).
The argument is that, notwithstanding the limita
tion period, the Minister may at any time reassess any
taxpayer in respect of any taxation year; the taxpayer
may then elect to waive the limitation period by not
raising it in defence. That is the way waiver comes
into the process and, if the Minister had the power to
reassess, there could, in my view, be no reason at all
why a taxpayer ought not, by foregoing a private
right to object to a reassessment, waive the limitation
period . 4 Since the Minister may reassess any tax
return at any time, the corollary to the argument is
that, at the whim of the Minister, every taxpayer is
4 Smerchanski v. Minister of National Revenue, [1974]
1 F.C. 554 (C.A.); [1977] 2 S.C.R. 23. This case, relied on by
the learned Trial Judge, was concerned with the waiver of a
(Continued on next page)
liable to be called upon in a timely fashion, first by
notice of objection and, if the Minister does not
relent, by institution of an appeal in the Tax Court, to
assert the benefit of the limitation period and be pre
pared to litigate to whatever level of appeal the Min
ister may, by leave or as of right, elect to pursue the
reassessment.
The respondent argues that the decision of Reed J.,
in Davis (WW) v The Queen, 5 is authority for that
proposition. There, it was said:
The Minister is not required to prove misrepresentation before
he sends out a notice of reassessment which is dated beyond
the 4 year time period provided for in the statute. Misrepresen
tation must be proved only if the matter goes to trial. When a
taxpayer receives a notice of reassessment he has two choices;
he can pay it or he can object. If he agrees with the reassess
ment he will normally take no further steps and pay the amount
claimed; if he disagrees with it he will object and take the mat
ter to trial; at which point in a case such as the present the
Minister has the onus of proving misrepresentation.
It appears that, in that case, the Minister had alleged
misrepresentation in reassessing beyond the four-year
period. In that circumstance, the statement of the law
is unexceptionable, subject to the Minister not chang
ing his mind before the matter gets to trial. Clearly, a
reassessment based on a misrepresentation as con
templated by subparagraph 152(4)(a)(i) may be made
beyond the four-year period and, equally clearly, the
proof of the allegation is to be made at trial.
(Continued from previous page)
right to appeal a reassessment exacted as one of the conditions
under which the Minister had agreed not to prosecute the tax
payer for tax evasion. An admission of fraud or, at least, misre
presentation within the contemplation of subparagraph
152(4)(a)(i) was implicit in the taxpayer's agreement and, it
follows, no limitation period was in play.
5 [1984] CTC 564 (F.C.T.D.), at p. 565.
The seminal decision is that of Cameron J., in Min
ister of National Revenue v. Taylor, Maurice, 6 where
it was said:
... in every appeal, whether to the Tax Appeal Board or to
this Court, regarding a re-assessment made after the statutory
period of limitation has expired and which is based on fraud or
misrepresentation, the burden of proof lies on the Minister to
first establish to the satisfaction of the Court that the tax
payer ... has "made any misrepresentation or committed any
fraud ... " unless the taxpayer in the pleadings ... or at the
hearing of the appeal has admitted such misrepresentation or
fraud. In re-assessing after the lapse of the statutory period for
so doing, the Minister must be taken to have alleged misrepre
sentation or fraud and, if so, he must prove it. [Emphasis
added.]
Absent a waiver as provided by subparagraph
152(4)(a)(ii), an allegation of misrepresentation or
fraud is implicit in an out-of-time reassessment.
Where the Minister alleges, expressly or implic
itly, misrepresentation or fraud, there is nothing
offensive in putting a taxpayer on notice that he must
object to an out-of-time reassessment. It is, with
respect, quite otherwise absent an allegation of fraud
or misrepresentation. An obvious policy considera
tion nourishes the distinction in treatment.
The learned Trial Judge found, in subsection
152(8), a Parliamentary intention that an out-of-time
reassessment be voidable rather than void.
152....
(8) An assessment shall, subject to being varied or vacated
on an objection or appeal under this Part and subject to a reas
sessment, be deemed to be valid and binding notwithstanding
any error, defect or omission therein or in any proceeding
under this Act relating thereto.
He said [at pages 163 - 1641:
[Subsection 152(4)] must be read in the light of its opening
words, namely that the "Minister may at any time assess tax"
and in the light of the deemed validity of any assessment under
subsection 152(8)....
6 [1961] Ex.C.R. 318, at p. 320.
It is true that subsection 248(1) of the Act provides:
248. (1) .. .
"assessment" includes a reassessment.
That definitional section cannot, in my view, prevail
to render the terms assessment and reassessment
entirely interchangeable in a provision that clearly
distinguishes between them and expressly provides
differently in respect of them. In my opinion, subsec
tion 152(4) is such a provision. The Minister may
assess at any time but, having assessed, the Minister
can only reassess within the prescribed times of hav
ing notified the taxpayer of the assessment.?
This is a hard case from the respondent's point of
view but, in my respectful opinion, this appeal is con
cerned with a rather straightforward question of stat
utory interpretation. One need go no further into the
authorities than the Sussex Peerage Case, 8
If the words of the statute are in themselves precise and unam
biguous, then no more can be necessary than to expound those
words in their natural and ordinary sense.
In my opinion, there is no ambiguity in subsection
152(4) as it bears on the question here. It seems to me
that subsection 152(4) is clear and I have been
pointed to nothing in its immediate context or in
other provisions of the Act that would suggest it
should be interpreted otherwise than in its plain
meaning.
I would allow the appeal with costs and, pursuant
to subparagraph 52(b)(iii) of the Federal Court Act
[R.S.C., 1985, c. F-7], declare that on the facts as
agreed the Minister of National Revenue had no
power to reassess the respondent's income tax returns
for its taxation years 1977 to 1981 inclusive on or
after November 6, 1986.
STONE J.A.: I agree.
DESJARDINS J.A.: I agree.
7 Likewise, notwithstanding the opening words of the sub
section, if he does not assess but notifies the taxpayer that no
tax is payable, he cannot assess at any time; he must assess
within the prescribed time.
R [1844] 11 Cl. and Fin. 85, at p. 143; (1844), 8 E.R. 1034
(H.L.), at p. 1057.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.