A-1075-90
Lornport Investments Limited (Appellant)
V.
Her Majesty the Queen (Respondent)
INDEXED AS: LORNPORT INVESTMENTS LTD. V. CANADA (CA.)
Court of Appeal, Heald, Stone and MacGuigan
JJ.A.—Toronto, February 24; Ottawa, March 3, 1992.
Income tax — Reassessment — Second notice of reassess
ment vacated as not made within three years of mailing of
original notice of assessment — On determination of questions
of law, Motions Judge holding first notice of reassessment not
superseded by second, and first reassessment subsisting so that
appellant liable to pay tax on basis of first reassessment —
Appeal dismissed — Issuance of subsequent reassessment not
automatically wholly destroying legal validity of previous
assessment for all purposes — S. 152(8), deeming assessment
valid until vacated, limited to situations where "error, defect
or omission" — Not addressed to situation where assessment
issued out of time — As order vacating second reassessment
merely recognizing not legally issued, not displacing and ren
dering first reassessment nullity — First reassessment sub
sisting.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Federal Court Rules, C.R.C., c. 663, R. 474.
Income Tax Act, S.C. 1970-71-72, e. 63, ss. 152(4)(c),(8),
165, 171, 177.
CASES JUDICIALLY CONSIDERED
APPLIED:
Lambert v. The Queen, [1977] 1 F.C. 199; [1976] CTC
611; (1976), 76 DTC 6373; 14 N.R. 146 (C.A.); Optical
Recording Corp. v. Canada, [1991] 1 F.C. 309; (1990), 90
DTC 6647; 116 N.R. 200 (C.A.).
DISTINGUISHED:
Abrahams, Coleman C. v. Minister of National Revenue
(No. 2), [1967] 1 Ex.C.R. 333; [1966] C.T.C. 690; (1966),
66 DTC 5451.
COUNSEL:
David C. Nathanson, Q.C. for appellant.
Harry Erlichman for respondent.
SOLICITORS:
McDonald & Hayden, Toronto, for appellant.
Deputy Attorney General of Canada for respon
dent.
The following are the reasons for judgment ren
dered in English by
STONE J.A.: This appeal is from an order of the
Trial Division made November 30, 1990, in response
to two questions of law submitted pursuant to Rule
474 of the Federal Court Rules [C.R.C., c. 663] and
set down for determination pursuant to an order made
by the Associate Chief Justice on May 17, 1990. The
appeal was heard together with the appeal in Court
File Number A-1076-90. As each appeal raises iden
tical issues, a copy of the reasons for judgment in
this appeal will be filed in that Court file and will
become reasons for judgment therein.
The questions which were set down for determina
tion are whether:
(1) the reassessment made by way of the first notice
of reassessment was superseded and displaced by the
reassessment made by way of the second notice of
reassessment and ceased to exist from the time of
issuance of the second notice of reassessment for
ward, as the plaintiff (appellant) contends, or
(2) the reassessment made by way of the first notice
of reassessment is currently subsisting notwithstand
ing the issuance thereafter of the second notice of
reassessment, as the defendant (respondent) contends.
The notices of reassessment referred to in these
questions are in respect of the appellant's 1983 taxa
tion year and relate to possible tax liability for that
year in respect of an alleged capital gain realized by
the appellant on the sale of real property. The original
notice of assessment, issued in March 1984, made no
reference to this alleged gain. Increased taxable
income in the form of capital gain was, however,
included in the first notice of reassessment which was
issued on January 30, 1987. By a second notice of
reassessment, dated July 22, 1988, the taxable
income as previously reassessed was increased by the
inclusion of additional capital gain.
The appellant objected to both reassessments and
waived its rights to have them reconsidered. When
the Minister declined to consent to the waivers, the
appellant instituted separate appeal proceedings in
the Trial Division against both reassessments. In due
course, the appellant moved in the Trial Division for
an order allowing the second appeal and vacating the
second reassessment on the ground that it was not
made within three years of the mailing of the original
notice of assessment, as required by paragraph
152(4)(c) of the Income Tax Act [S.C. 1970-71-72,
c. 63]. On April 20, 1989, the motion succeeded
when the Associate Senior Prothonotary made the
following order:
THIS COURT ORDERS that the appeal be allowed, without
costs, and that the reassessment for the 1983 taxation year
against which appeal was instituted by the Statement of Claim
herein be vacated.
The learned Motions Judge answered the first
question in the negative, the second in the affirmative
and dismissed the motion with costs, notwithstanding
that neither party asked for costs and both are agreed
that none should have been allowed. The essential
issue raised by the appeal is whether the Motions
Judge erred in determining in effect that the second
reassessment did not supersede and vitiate the first
reassessment with the result that the appellant could
be rendered liable to pay tax on the basis of the first
reassessment. Counsel for the appellant, in a detailed
and able argument, submitted that according to the
statutory framework (as contained in section 152
which confers the power of assessment and in section
165, subsection 171(1) and section 177 which
together confer the right of a taxpayer to object to
and to appeal against an assessment and for the dis
position of an objection and an appeal), the second
reassessment had legal effect from the date it was
issued and was presumed to be valid until it was
finally set aside by the Court order of April 20, 1989.
The result, according to his argument, is that, not
being an additional reassessment, the second reas-
sessment superseded the first reassessment and ren
dered it null.
The decision of Jackett P. (as he then was) in
Abrahams, Coleman C. v. Minister of National Reve
nue (No. 2), [1967] 1 Ex.C.R. 333 was relied upon by
counsel. It too raised the issue whether a first reas
sessment was rendered a nullity by a second reassess
ment. At pages 336-337, the learned President stated:
Assuming that the second re-assessment is valid, it follows,
in my view, that the first re-assessment is displaced and
becomes a nullity. The taxpayer cannot be liable on an original
assessment as well as on a re-assessment. It would be different
if one assessment for a year were followed by an "additional"
assessment for that year. Where, however, the "re-assessment"
purports to fix the taxpayer's total tax for the year, and not
merely an amount of tax in addition to that which has already
been assessed, the previous assessment must automatically
become null.
I am, therefore, of opinion that, since the second re-assess
ment was made, there is no relief that the Court could grant on
the appeal from the first re-assessment because the assessment
appealed from had ceased to exist. There is no assessment,
therefore, that the Court could vacate, vary or refer back to the
Minister. When the second re-assessment was made, this
appeal should have been discontinued or an application should
have been made to have it quashed. [Footnotes omitted.]
It is clear that the second reassessment under consid
eration in that case was issued within the time limita
tion provided for in the Income Tax Act.
No case was brought to our attention in which the
precise issue here raised has been determined by any
previous decision of this Court. However, in Lambert
v. The Queen, [1977] 1 F.C. 199 (C.A.), Chief Justice
Jackett, after calling attention to what he had stated in
Abrahams, focused (at page 204) on the
... difference between
(a) a liability under the Act to pay tax, and
(b) an "assessment" (including a reassessment or a further
assessment), which is a determination or calculation of the
tax liability.
and added that "a reassessment of tax does not nullify
the liability to pay the tax covered by the previous
[assessment] as long as that tax is included in the
amount reassessed." Again, in Optical Recording
Corp. v. Canada, [1991] 1 F.C. 309 (C.A.), this Court
recognized that a second reassessment did not affect
the requirement that the tax assessed by the first reas
sessment be paid. As Mr. Justice Urie put it, at page
318, in reference to the first reassessment: "Its life is
maintained." These cases thus show that the issuance
of a subsequent reassessment will not have the auto
matic effect of wholly destroying the legal vitality of
a previous reassessment for all purposes.
Counsel for the appellant also contends that despite
the fact that the second reassessment was issued out
of time, its validity was preserved by subsection
152(8) of the Income Tax Act, which reads:
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 argues that the second reassessment had life and
remained alive until it was finally vacated by the
Court order of April 20, 1989. Although, as I have
already indicated, the statutory framework supports
the appellant's submission that the second assessment
stood until it was set aside, in my view subsection
152(8) does not support that contention. It seems to
me that it is not addressed to a situation where an
assessment is issued out of time but rather to a situa
tion where an assessment is issued in time but con
tains an "error, defect or omission" or that such is
contained in any proceeding under the Act relating to
it.
I have come to the conclusion, in the particular cir
cumstances of this case, that the second reassessment,
which was vacated by the court order of April 20,
1989, did not supersede and nullify the first reassess
ment. It seems to me that the court order amounted to
judicial recognition that the second reassessment,
issued as it was beyond the statutory time limit, was
not legally issued. It did not, for that reason, displace
and render the first reassessment a nullity. That reas
sessment continues to subsist, in my opinion.
I would dismiss the appeal, set aside the order of
the Motions Judge and substitute the following there-
for:
The questions posed for determination pursuant to the order of
the Associate Chief Justice dated May 17, 1990, are answered
as follows:-
(1) The reassessment made by way of the First Notice of
Reassessment was not superseded and displaced by the
reassessment made by way of the Second Notice of Reas
sessment and did not cease to exist from the time of issu
ance of the Second Notice of Reassessment forward;
(2) The reassessment by way of the First Notice of Reassess
ment is currently subsisting notwithstanding the issuance
of the Second Notice of Reassessment.
While the issuing of the second notice of reassess
ment by the Minister undoubtedly led to the Rule 474
application and to this appeal, I do not accept that as
a basis for allowing the appellant its costs in any
event. There should be one set of costs in this and the
appeal in Court File Number A-1076-90 and they
should be in the cause.
HEALD J.A.: I agree.
MAcGUIGAN J.A.: I agree.
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.