Vert-Dure Plus 1991 Inc. v. The Queen

Vert-Dure Plus 1991 Inc. v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2007-09-14
Neutral citation
2007 TCC 379
File numbers
2003-4367(GST)I
Judges and Taxing Officers
Pierre Archambault
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2003-4367(GST)I
BETWEEN:
VERT-DURE PLUS (1991) INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
[OFFICIAL ENGLISH TRANSLATION]
Appeal heard November 1, 2 and 3, 2005, and February 13, 2007 at Montréal, Quebec and April 23, 24 and 25, 2007, at Rimouski, Quebec.
Before: The Honourable Justice Pierre Archambault
Appearances
Agents for the Appellant:
Bernard Desrosiers
Bernard Brosseau
Counsel for the Respondent:
Michel Morel
____________________________________________________________________
JUDGMENT
The appeal of the assessment established for the period of October 1 1991, to December 31, 1996, under the Excise Tax Act and dated March 13, 1998 is dismissed, in accordance with the attached Reasons for Judgment.
Signed at Georgeville, Quebec, this 14th day of September 2007.
"Pierre Archambault"
Archambault J.
Translation certified true
on this 2nd day of November 2007
Elizabeth Tan, Translator
Citation: 2007TCC379
Date: 20070914
Docket: 2003-4367(GST)I
BETWEEN:
VERT-DURE PLUS (1991) INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1] Vert‑Dure Plus (1991) inc. (Vert‑Dure) is appealing from an assessment established under the Excise Tax Act (the Act or ETA) by the Ministère du Revenu du Québec (MRQ) as an agent of the Minister of National Revenue (Minister). This assessment dated March 13, 1998, targets the period of October 1, 1991, to December 31, 1996 (relevant period). The MRQ audit led to the following adjustments: goods and services tax (GST) overpaid, $4,277.22; reduction of input tax credits (ITC), $7,106.34; leading to a net tax due of $2,829.12. The Minister required interest of $1,168.41 and imposed a penalty of $1,343.19 under section 280 of the Act.
[2] At first, the appeal by Vert‑Dure was heard at the same time as the appeals by Bernard Desrosiers and the companies Les Gazons du Bas St‑Laurent inc. (Gazons) and Les Pelouses de l’Est inc. (Pelouses) (other appeals). Each of these appeals must be handled separately, but the evidence presented in one of the cases could be used in the others. Unfortunately, the hearing and the management of these appeals became very time-consuming. First, the notice of appeal by Vert‑Dure, undated but produced in court December 2, 2003, was prepared by a lawyer, Louis Sirois. In this notice, Vert‑Dure claims that it had the right to ask for the cancellation of the assessment for the reasons mentioned in the notice of objection. One of these reasons states that Mr. Desrosiers experienced "intense emotional stress" caused by family problems, which would explain that he was unable to provide the relevant documents requested by the MRQ auditor. It also mentions a major fire that occurred in July 1995, which destroyed many documents, and a theft that occurred in September 1996 in the administrative offices, which led to the disappearance of many others. It states that [translation] "Mr. Desrosiers will work…to provide [the auditor] with the required information." Moreover, the MRQ is criticized for not having taken into consideration the [translation] "vocation of the individuals and corporations in question," namely farmers or forestry workers. It claims that the revenue and expenses are attributable to agricultural or forestry activities. Lastly, it make the statement [translation] "since the company was no longer in operation," Vert‑Dure having terminated its activities in 1992.
[3] Then, there was a change of counsel and the response to the Reply to the Notice of Appeal signed by Jean Dury. The following statements are from paragraphs 28, 29 and 30 of this response:
[translation]
28. The only issue in question is based on paragraph 306 (b) of Part IX of the ETA that states an appellant may appeal to the Tax Court of Canada to vacate an assessment if one hundred and eighty days have elapsed after the filing of the notice of objection and the Minister has not notified the person that the Minister has vacated or confirmed the assessment or has reassessed. Whereas the legal deadline is six months, it has now been 88 months and the MRQ has not rendered a decision on the notice of objection filed by the Appellant;
29. The preceding is the core of the dispute and not an assumed confirmation that the Appellant had to pay additional GST ITC in the amount of $2,829.12 when these amounts were never reimbursed. In addition to having paid GST CTI to its suppliers, the Appellant would pay the MRQ twice for the same amount plus penalties and interest;
30. It denies paragraph 13 of the Respondent's reply. The only provision on which the Appellant relied is paragraph 306(b) of Part IX of the Excise tax Act. The entire case is limited to this paragraph.
[Emphasis added.]
However, it challenges the right of the Ministère to vacate GST remittances claimed for periods subsequent to the cancellation date of Vert-Dure's GST registration, because no operations were carried out after the end of 1991 (paragraph 23 of the Response): [translation] "the Appellant has the right to claim that the ITC amount of $4,277.22 should be reimbursed."
[4] Lastly, in his submissions, counsel for Vert‑Dure asks that in addition to vacating the assessment and obtaining an order requiring the Ministère to reimburse CTI in the amount of $4,277.22 to Vert-Dure, the Ministère cease all tax collection measures with financial institutions and any other third party and it be ordered to return to Vert-Dure [translation] "all amounts in compensation the Ministère would have earned from the reimbursement amounts due to [Vert-Dure] by third parties, plus interest."
[5] The appeal hearing for Vert-Dure and other appeals began on November 1, 2005, and lasted three days without much progress: only the appeals of Vert‑Dure and Mr. Desrosiers were addressed, and only partially. Since the amount for Vert-Dure was only $2,829.12, and its accountant did not understand the adjustments the Ministère made to the ITC, or the calculation of interest, the amount of which seemed astronomical, I granted a three-month timeframe for Vert-Dure and the other appellants to obtain the necessary specifications and even to negotiate a settlement, if only partial.
[6] All these expectations were in vain. Nothing was accomplished during the stay. Because Mr. Desrosiers was unavailable during the summer period and the accountant had health complications, the Court could not resume the appeal hearing for Vert-Dure before February 13, 2007, and this resumption in Montreal only lasted one day. A recovery agent from the Ministère presented a statement of account for Vert-Dure, submitted as Exhibit I-3, which included calculations justifying an unpaid balance of $21,631.24 to December 13, 2005. According to the agent's explanations, part of the significant accumulation of interest and penalties comes from a $3,427.06 payment Vert-Dure made by NSF check on November 5, 1991. Additionally, the recovery agent explained that many adjustments made to the assessment were to vacate the GST amounts that the Ministère may been calculated as being required according to Vert-Dure's tax reports, in particular regarding the quarter ending in March 1994 (the above-mentioned $4,277.22), and that in its assessment, the auditor in her assessment waived the taxes payable by Vert-Dure in the circumstances described above. Even though the Court does not have jurisdiction to handle recovery issues or in particular, to order the Ministère to "cease all tax collection measures with financial institutions and any other third party," the statement of account submitted to evidence was produced for the purpose of clarifying Vert-Dure and its advisors. However, the only issues the Court may consider are those raised by the assessment itself, namely the issues regarding the adjustments made to the March 13, 1998, assessment.
[7] Considering the many delays that interrupted the hearing of this an the other appeals, I decided to first finish the hearing of the Vert-Dure appeal (which concluded in Rimouski on April 23, 24 and 25, 2007), in order to be able to render a decision in this case, in the hope that it would encourage more efficiency in the other appeals, the hearings of which cannot be held before November because of Mr. Desrosiers' unavailability.
Factual background
[8] Vert‑Dure operated a lawn-maintenance company in the Sainte-Flavie region in the Lower St. Lawrence during part of the relevant period. It was incorporated under Part IA of the Companies Act on April 18, 1991. As of September 15, 1994, its founder, Mr. Desrosiers, was the only shareholder with more than 100% of the shares, the administrator, president and secretary (Exhibit I-2). Vert‑Dure had been registered for the purposes of the Act since April 18, 1991, when its commercial activities started.
[9] Vert‑Dure produced its GST returns on a quarterly basis. The Ministère's auditor showed that only the computerized statements with the production dates of the GST returns were available, because the GST returns produced by Vert-Dure had been destroyed.[1] According to these statements, the first return was produced July 31, 1991, for the quarter ending June 30, 1991. The statement for the one ending September 30, 1991 was produced November 5, 1991. Then, Vert-Dure stopped regularly filing its GST returns. It was only on November 4, 1994 that the returns were filed for the quarters ending December 31, 1991, and March 31, 1992, respectively. The following return was only filed on December 22, 1995, and that was for the quarter ending March 31, 1994. The last GST return was filed on January 22, 1997; it was to amend prior returns, namely those for the quarters ending December 31, 1991, and March 31, 1992,[2] but also included the initial GST returns for the quarters from September 1992 to December 1996, excluding that ending March 31, 1994, for which a return was filed on December 22, 1995.[3] Contrary to Vert-Dure's claims, it is clear it was negligent, at the very least, regarding filing a return for the period ending December 31, 1991, because it had $457.13 ($577.41 - $120.28) of net GST to remit and it only filed its return on November 4, 1994.
[10] As for Mr. Desrosiers, he denies that Vert-Dure filed GST returns for the quarters later than 1991, because its activities had ceased from January 1992 following seizures of its bank account, equipment and client accounts. In support of this claim, Vert‑Dure produced certain bank statements from the Caisse populaire for 1993 and 1994,[4] which seem to show only deposits by Mr. Desrosiers to reimburse a $30,000 loan he had taken out to [translation] "purchase the Vert-Dure Plus inc. division and the Herbus franchise." The loan was granted by the Caisse populaire Desjardins de Mont‑Joli on July 11, 1991. Attached to a June 27, 1996, letter that the Business Services Advisor wrote to Mr. Desrosiers was a photocopy of banking operations for these two years; the advisor reminded him that on December 6, 1994, they had agreed to [translation] "transfer the balance of loans for $32,357.83 to his personal name." (See Exhibit A-31 in Bernard Desrosier's file, pages 50, 53 and 54). As a result, according to Mr. Desrosiers, he did not have to file a GST report after Vert-Dure ceased its activities.
[11] However, the accounting firm Mallette Maheu produced the financial statements as of November 2, 1994, that indicated a 12-month fiscal year ending December 31, 1992 (whereas the 1991 fiscal year only had eight months) (Exhibit A-3). The income statements for the 1992 fiscal year show gross sales of $100, sales costs of $14,326, operation fees of $45,569, and a net loss of $59,795. Among the operation fees there are bad debts of $3,239. Additionally, the house balance sheet of December 31, 1992, that Mallette Maheu provided to the Ministère on September 6, 1996, shows tax debts of GST payable for $4,213.34 payable and provincial sales tax of $63.88, for a total of $4,277.22.[5] This amount corresponds to the amount indicated in the TST report for the quarter ending March 31, 1994, produced December 22, 1995.[6] Moreover, a closing statement dated January 1, 1993, was prepared internally.
[12] During her testimony, the Ministère's auditor explained that she had begun her audit on May 2, 1997, when she tried to contact Mr. Desrosiers by phone. Since the phone line was not in service, she sent a registered letter on May 20, 1997, which was returned because the addressee had refused it.
[13] On July 2, 1997, Mr. Desrosiers signed an application form to cancel or modify a registration because of the [translation] "closure since December 31, 1991." This form is incomplete because there is no indication in part C, "Request." It seems the form had been completed by that of September 8, 1997, which included, at the section "Request," July 31, 1992, as the date the cancellation or modification of the registration came into effect.[7]
[14] On August 4, 1997, the auditor contacted Guy Tremblay, a representative of Vert-Dure, to arrange a meeting on August 18, 1997. This meeting was postponed to September 15, 1997. In her letter, the auditor had asked that relevant documentation be prepared to allow her to carry out her audit.
[15] Before the September 15 meeting, the auditor was informed that the documents required were not available. However, she insisted on proceeding using what they had. During the meeting, she was given certain accounting books for Mr. Desrosiers' business and for some of his companies, including Pelouses and Gazons. The auditor confirmed that she was never given documentation regarding Vert-Dure despite many requests on her part. The only document provided for Vert-Dure that she could consult was a document sent by Mallette Maheu to another auditor at the Ministère one year earlier, on September 6, 1996, before her own audit. It was a house balance sheet for December 31, 1992, and excerpts from the general ledger, including accounts 255 and 256 showing the GST and QST payable. A few weeks later, on November 1, 1996, the same accounting firm provided another auditor with another excerpt from the general ledger, the account 113 indicating the GST and QST receivable for the fiscal year ending December 31, 1992.
Analysis
[16] During the audit, the auditor gave retroactive effect to the application to cancel the registration, from July 31, 1992. It then cancelled the $4,277.22 declared as GST to remit regarding the quarter ending March 31, 1994. Again, this amount appeared in the report received by the Ministère on December 22, 1995 and the adjustment is to Vert-Dure's advantage. (See Exhibits I-1 and I-7).
[17] The adjustments she made to the ITC can be summarized as follows:
$5,533.74
ITC refused for the period following the "cancellation of the registration"
$1,293.11
ITC refused for lack of supporting documents
$279.49
ITC for insurance premiums (exempt supply) refused
$7,106.34
[18] The $5,533.74 represents the ITC requested for quarters following the dater the cancellation of registration came into effect, namely $4,304.34 for the March 31, 1994, quarter, $78.82 for that of December 31, 1993, $71.88 for that of June 30, 1993, and $1,078.70 for that of December 31, 1992. There is therefore no basis for challenge regarding this adjustment because one must be registered in order to be entitled to ITC (s. 169 ETA[8]).
[19] As for the $1,293.11 adjustment, it targets the quarter ending December 31, 1991, and the ITC were refused by the auditor because Vert-Dure did not provide any supporting documents with the prescribed information, including a valid GST number.[9] Lastly, the auditor refused the ITC of $279.49 requested by Vert-Dure for insurance premiums for the quarter ending June 30, 1992. At the hearing, Mr. Desrosiers and his accountant, Bernard Brosseau, claimed that they never asked for this ITC amount because it is an exempt supply. However, the auditor showed that the amount had actually been requested for the quarter ending June 30, 1992, as Exhibit I‑7 showed and the analysis of account 113 (GST receivable) from Vert-Dure's general ledger (Exhibit I‑5). This is an excerpt from that account:
03-10-92
Banque Nationale (master)
506
J92
5.34
−
1,580.94
04-10-92
Société Des Postes Canada
507bnc
J121
12.25
−
1,593.19
04-20-92
Québec-Téléphone
Bcn
J122
13.14
−
1,606.33
05-10-92
Groupe Presse Bellavance
122916
J152
1.72
−
1,608.05
06-01-92
A S H O Q
4785
J161
−
56.00
1,552.05
06-01-92
Les Assur Kau Deschamplain
Ver0893
J165
179.05
−
1,731.10
06-01-92
Les Assur Kau Deschamplain
71407
J166
46.89
−
1,777.99
06-01-92
Les Assur Kau Deschamplain
71406
J167
53.55
−
1,831.54
[20] The gap between the debit balance of this account at the end of the quarter ending June 30, 1992, at $1,831.54 and that at the end of the preceding quarter, at the end of March 1992, at $1,580.94 is $250.60, the ITC amount on the GST report for the quarter ending June 30, 1992, as shown in Exhibit I-7. Among the ITC for supplies that appear in account 113 are those for insurance. As a result, I find that, contrary to the statements by Mr. Desrosiers and his accountant, the ITC of $279.49 ($179.05 + $46.89 + $53.55) were in fact requested by Vert‑Dure for the insurance benefits and the auditor rightly refused them.
Paragraph 306(b) of the Act
[21] In its supplemental arguments (written notes) submitted to the Court on May 10, 2007,[10] Vert‑Dure again states that [translation] "the sole reason for the appeals by each and every one of the four appellants is the lack of response by the Minister of Revenue of Québec to the notice of objection filed around June 13, 1998[11] to which a response should have been presented within 180 days, paragraph 306(b) of the Act." Vert‑Dure adds, [translation], "for us, it is a question of principle that the minister did not reply within the required deadlines set out at paragraph 306(b) and this goes for the four cases before Archambault J."
[22] The core of the arguments presented by Vert‑Dure to have the assessment vacated is essentially that, following the challenge, the assessment was not amended within the mandatory period and that, when this period expired, it could address the Court to have the assessment vacated. This position must be qualified. This right is a right to appeal to the Court not a right to necessarily have the assessment vacated by the Court.
[23] Section 306 of the Act states:
306. Appeal – A person who has filed a notice of objection to an assessment under this Subdivision may appeal to the Tax Court to have the assessment vacated or a reassessment made after either
(a) the Minister has confirmed the assessment or has reassessed, or
(b) one hundred and eighty days have elapsed after the filing of the notice of objection and the Minister has not notified the person that the Minister has vacated or confirmed the assessment or has reassessed,
but no appeal under this section may be instituted after the expiration of ninety days after the day notice is sent to the person under section 301 that the Minister has confirmed the assessment or has reassessed.
[Emphasis added.]
[24] It is important to first point out that section 306 gives the person who filed a notice of objection the opportunity to have the assessment vacated or to have a reassessment, therefore not necessarily a vacation. Paragraphs 306 (a) and (b) are only conditions for carrying out the right to appeal before the Court. To appeal, in addition to having produced a notice of objection, either the assessment must have been confirmed by the Minister or 180 days must have elapsed after the filing of the notice of opposition.[12] Once these conditions have been met, the Court may decide to grant either a vacation or a reassessment when such a result is justified, otherwise the appeal is simply dismissed, in accordance with the provisions of subsection 309(1) of the Act, which states:
309. (1) The Tax Court may dispose of an appeal from an assessment by
(a) dismissing it; or
(b) allowing it and
(i) vacating the assessment, or
(ii) referring the assessment back to the Minister for reconsideration and reassessment.
[25] Even if Mr. Desrosiers claims the opposite, Vert-Dure's argument is similar to the one he raised when he presented the pre-trial motion to have his own assessment vacated before Angers J. However, this argument was dismissed by the judge in an order rendered December 23, 2003. In Desrosiers v. The Queen, 2003 TCC 859, Angers J. stated at paragraphs 14 and 15:
14 Since Stollar, there have been other decisions dealing with the same issue, including Ginsberg v. Canada, [1996] 3 F.C. 334, in which the Federal Court of Appeal found that a breach of the duty to assess tax with "all due dispatch" does not mean that the assessment will be vacated. The same reasoning applies in this case, even though the provisions of the Act are at issue here. In this case, the Minister had already made an assessment; it is only the Minister's consideration of the objection that must be made with all due dispatch.
15 Another distinction in this case is that the Appellant has the right to appeal to this Court if 180 days have elapsed after the filing of the Notice of Objection and the Minister has not notified the person that the Minister has vacated or confirmed the assessment or has reassessed. Thus, the Appellant is permitted to advance his case and be heard on the merits without waiting until the Minister has considered the Appellant's Notice of Objection. Finally, application of the provisions set out in section 299 of the Act will preclude the assessment under appeal in this case from being vacated.
[26] Vert-Dure claims this order is not valid because the judge misunderstood the reason Mr. Desrosiers requested the assessment be vacated: his request was based on paragraph 306(b), not subsection 301(3),[13] of the Act. Moreover, Vert‑Dure claims that Angers J. relied on decisions it and the other appellants did not recall citing.
[27] First, the judge using decisions they do not recall citing is not decisive. A judge is not required to limit his analysis of the law on decisions the parties presented. Next, it must be clear that paragraph 306(b) of the Act grants the right to address the Court directly in cases where confirmation from the Minister is slow in coming, whereas subsection 301(3) of the Act states the principle underlying paragraph 306(b), the duty of the Minister to act with all due dispatch to review the assessment after reception of the objection and then to vacate or allow it, or make a reassessment.
[28] It is the duty to all due dispatch that forces the Minister to render a decision on the objection in the 180 days following the objection, and when Vert-Dure relies on paragraph 306(b) instead of subsection 301(3) of the Act, it is still claiming that the Minister did not act with due dispatch. Angers J. merely restated this principle. He rightly dismissed it, stating these two provisions and section 299 of the Act,[14] the application to vacate by Mr. Desrosiers and, in my opinion, his reasons apply to the appeal by Vert‑Dure.
[29] It must also be noted that Gauthier J. had the same interpretation in Angell v. Canada (Minister of National Revenue) 2006 FC 1097. This decision addressed subsection 165(3) and paragraph 169(1)(b) of the Income Tax Act (ITA), which are provisions similar to subsection 301(3) and paragraph 306(b) of the Act. Gauthier J. stated:
48 Once taxpayers have been assessed, they have two ways in which to challenge the merits of the assessment. They must first request an administrative review by filing a notice of objection. Ninety (90) days after the notice of objection has been filed, whether or not the administrative review has been completed, taxpayers may request a judicial review of the assessment by filing a notice of appeal with the TCC.
49 In enacting paragraph 169(1)(b) of the Act and section 18.5 of the Federal Courts Act, Parliament gave the TCC exclusive jurisdiction to consider the merits of assessments (Walker v. Canada, [2005] F.C.J. No. 1952 (FCA) (QL); Addison & Leyen, supra, at paragraph 48). Once made, a decision by the Minister with regard to an objection is not subject to judicial review (Webster v. Canada, 2003 FCT 296, [2003] F.C.J. No. 1569 (CA) (QL), at paragraph 20).
50 Although Parliament specifically indicates that the Minister must deal with notices of objection with due dispatch, the Act does not stipulate any specific consequences for failure to do so (Addison & Leyen, supra, at paragraph 41).
51 Although taxpayers may appeal to the TCC on the merits of an assessment, the TCC may not take into account a failure by the Minister to comply with the obligation set out in subsection 165(3) of the Act in considering the merits of the assessment, or a decision by the Minister with regard to an objection (Addison & Leyen, supra, at paragraph 44).
52 Before the Minister makes a decision, the Federal Court has jurisdiction to review the lawfulness of the administrative review process under section 18.1 of the Federal Courts Act. It may issue a writ of mandamus in order to force the Minister to make a decision, or issue a declaration that the Minister has failed to comply with the obligation to exercise due dispatch. In this regard, in Hillier v. Canada, 2001 FCA 197 (CA), the Federal Court of Appeal stated that the Minister may be required to take such a failure into account if a request to waive penalties and interest is made to the Minister under subsection 220(3.1) of the Act (see also Cole v. Canada (Attorney General), [footnote omitted] 2005 FC 1445, [2005] F.C.J. 1764 (QL); and Addison & Leyen, supra, at paragraph 41). In this context, declaratory relief could be useful for the taxpayers.
53 The Federal Court retains jurisdiction to review other reviewable errors or failures to comply with the Minister’s obligation to act fairly (see, for example, Scott Slipp Nissan Ltd. v. Canada (Attorney General), 2004 FC 1096, [2004] F.C.J. No. 1327 (QL)).
54 However, even though the Federal Court has jurisdiction to review the lawfulness of this administrative process, vacating an assessment or a reassessment is not an appropriate remedy for undue delay in dealing with an objection (Bolton v. The Queen, [1996] 200 N.R. 303 (FCA); James v. Canada (Minister of National Revenue-MNR), [2000] F.C.J. No. 2135 (CA) (QL), particularly paragraphs 11 to 21). From these decisions and from Addison & Leyen, supra, it appears that this situation is mainly due to the fact that Parliament has given taxpayers the tools they need to monitor the time periods within which the Minister is obliged to act; these tools include an appeal to the TCC and an application for mandamus.
55 From these decisions, the Court understands that, if taxpayers decide that it is important for them to obtain an administrative decision, they have an opportunity to wait for more than 90 days before appealing to the TCC. However, in that case they must ensure that this delay in exercising their right of appeal does not cause them undue harm. As well, in this regard taxpayers are in a better position than the Minister, since normally they have available all the information they need to determine whether a delay can cause harm. In such cases, since it is taxpayers who manage these remedies, they may apply for mandamus or simply appeal to the TCC under paragraph 169(1)(a) of the Act.
56 Thus, the statutory scheme allows for considerable flexibility. In addition to the remedies noted above, ordinary law also gives taxpayers the option of claiming damages, which may be equal to the amount of their assessment, when the Minister’s conduct constitutes abuse of power (see Obonsawin v. Canada, 2004 TCC 3, [2004] T.C.J. No. 68 (QL)).
…
74 According to the applicants, even though they clearly had the right to appeal under paragraph 169(1)(b) of the Act and the right to apply for mandamus well before 1998, the Court must, in determining the consequences of the Minister’s failure, take into account, not these rights, but rather the fact that, at the time the applicants finally decided to exercise their right of appeal, it was too late because this remedy had become theoretical, and they were never able to contest the merits of their assessments.
75 If the Court were to adopt this reasoning, it would have to conclude that Parliament wanted to ensure that taxpayers who acted with due dispatch when confronted with the same failure by the Minister would necessarily have to debate the merits of their assessment before obtaining vacation of their assessments, while taxpayers who remained passive and did not make use of the tools available to them under the Act [footnote omitted] could obtain vacation of their assessments regardless of their merits and could thus deprive their fellow citizens of their contribution to the tax burden.
76 In the Court’s opinion, it is plain and obvious that such a conclusion is illogical. The Court cannot, on the basis of the facts put forward by the applicants, decline to apply the Federal Court of Appeal case law that is binding upon it.
[Emphasis added.]
[30] It is also important to note what the Federal Court of Appeal wrote in Bolton, per Gauthier J.:
2 The single issue raised is the alleged failure of the Minister to reconsider the Appellant's assessment "with all due dispatch" after receipt of a notice of objection as required by paragraph 165(3)(a) of the Income Tax Act, S.C. 1970-71-72, c. 63 as amended to 1985.
165(3) Duties of Minister -- Upon receipt of a notice of objection under this section, the Minister shall,
(a) with all due dispatch reconsider the assessment and vacate, confirm or vary the assessment or reassess, or
...
and he shall thereupon notify the taxpayer of his action by registered mail.
3 In the case of The Queen v. Ginsberg (Court file A-242-94) decided last week, we held that Parliament did not intend that the Minister's failure to examine a return and assess tax "with all due dispatch", as required by subsection 152(1)1, did not deprive him of the statutory power to issue an assessment. The reasoning in that case applies with even greater force here: Parliament clearly did not intend that the Minister's failure to reconsider an assessment with all due dispatch should have the effect of vacating such assessment. If the Minister does not act, the taxpayer's recourse is to appeal pursuant to s. 169.
[Emphasis added.]
[31] It is clear from the comments by Madame Justice Gauthier in Angell and those by the Federal Court of Appeal in Bolton that having the Court vacate an assessment is not an appropriate remedy when there is failure to reply to a notice of objection within the 180-day deadline.[15] The remedy in such a case is simple: under the Act, taxpayers may address the Court and ask it to decide on the validity of the arguments the taxpayers raise against their assessments, and may do so without waiting for the Minister's reply to their objection. Another recourse is to file a motion for mandamus before the Federal Court of Canada.
Sections 288 and 289 of the Act
[32] Even if Vert‑Dure claimed that the only reason for its appeal was the Minister's failure to reply to its notice of objection within 180 days, it then presented a series of arguments based on the behaviour of the auditor in charge of the case. Its main complaint is that the auditor communicated directly with the Caisse populaire de Mont-Joli and the accounting firm Mallette Maheu for documents or information used to establish its assessment. In doing so, she exceeded her auditing powers.
[33] This position is elaborated upon in Vert-Dure's written notes. First, it states that the auditor's identification card, produced as Exhibit I‑10, states she is:
[translation]
… person authorized to carry out the powers and duties set out at subsections 288(1) and (2) and 291(1)...except for the power of certification set out at subsection 291(1)…
[34] Therefore, according to Vert‑Dure, the auditor's powers were limited to the indications at sections 288 and 289 of the Act. Vert-Dure then states:
[translation]
However, subsections 288(1) and 288(2) do not include the power to enter premises other than the place of a business under tax audit, operated by a person subject to the tax, or to communicate with third parties by phone, fax or other.
Auditor Claire Desjardins admitted in her testimony that she communicated by phone with the Caisse populaire de Mont‑Joli and the accounting firm Mallette Maheu, and in the "Appellant's submissions," at Exhibit A-1, pages 95 to 103, we filed fax communications with various suppliers.
All the information provided by a third party can therefore not be used by the auditor in the preparation of the notice of assessment and the effects of the auditor's actions could lead to the vacation of the assessments. (See our written arguments in the factum submitted to you on the application of sections 288 and 289 ETA).
We submit that the auditor exceeded the power conferred on her under section 288 of the ETA. In our opinion, it is reasonable to find that the auditor should have used the additional remedies set out in the ETA, namely the letters of requirement Parliament included in section 289 of the ETA.
Thus, the Ministry's conduct is a flagrant and unacceptable violation of the Appellant's rights discrediting the administration of justice, a gross miscarriage of justice.
[Emphasis added.]
[35] At the hearing, Vert‑Dure again stated that if the auditor had wanted the information or documents in the possession of a third party, she should have sent a notice in accordance with section 289 of the Act. By neglecting to send this notice, she exceeded her auditing powers when she communicated with the Caisse populaire de Mont‑Joli to ask for Mr. Desrosiers' statements of account. Mr. Desrosiers also claimed that this phone call to the Caisse populaire damaged his reputation.
[36] First, Vert-Dure seems to have misunderstood the interpretation of sections 288 and 289 of the Act. These two provisions address different situations. Section 288 states the scope of the Minister's auditing powers in terms of the GST. This section states:
288.(1) Inspections – An authorized person may, at all reasonable times, for any purpose related to the administration or enforcement of this Part, inspect, audit or examine the documents, property or processes of a person that may be relevant in determining the obligations of that or any other person under this Part or the amount of any rebate or refund to which that or any other person is entitled and, for those purposes, the authorized person may
(a) subject to subsection (2), enter any premises or place where any business or commercial activity is carried on, any property is kept, anything is done in connection with any business or commercial activity or any documents are or should be kept; and
(b) require the owner or manager of the property, business or commercial activity and any other person on the premises or in the place to give to the authorized person all reasonable assistance and to answer all proper questions relating to the administration or enforcement of this Part and, for that purpose, require the owner or manager to attend at the premises or place with the authorized person.
(2) Where any premises or place referred to in paragraph (1)(a) is a dwelling-house, an authorized person may not enter that dwelling-house without the consent of the occupant, except under the authority of a warrant issued under subsection (3).
…
[37] For our purposes, only subsection 288(1) of the Act is relevant because it is not a case of entering a residential house. This provision specifies that during an audit, an authorized person, either an auditor for the Minister (Ms. Desjardins), may inspect a person's documents (those of the Caisse populaire) to determine the tax liability of that person (the Caisse) or another person (Vert‑Dure). This authorized person (Ms. Desjardins) may also enter a place where a business (that of the Caisse), or commercial activity (that of the Caisse) is carried on, or property is kept (for example, the money Vert-Dure deposited at the Caisse), anything is done in connection with a[16] business (that of the Caisse or Vert-Dure) or a[17] commercial activity (that of the Caisse or Vert-Dure) or any[18] documents are or should be (for example, a copy of the document confirming the loan by the Caisse to Vert-Dure). This authorized person (Ms. Desjardins) may also require the owner or manager of the property, business or commercial activity (for example, the director of the Caisse) and any other person on the premises (for example, the head of loans) to provide reasonable assistance and answer all questions relating to the application or execution of Part IX of the Act (for example, provide her with a copy of bank statements). In my opinion, the request for assistance can be made either over the phone or by letter. This is exactly what Ms. Desjardins did when she contacted the Caisse populaire de Mont‑Joli for the bank statements for Vert-Dure. This subsection does not, in any way, require that prior notice must be sent in order to do so, contrary to section 289 of the Act, which states:
289. (1) Requirement to present documents or information – Despite any other provision of this Part, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Part, including the collection of any amount payable or remittable under this Part by any person, by notice served personally or by registered or certified mail, require that any person provide the Minister, within such reasonable time as is stipulated in the notice, with:
(a) any information or additional information, including a return under this Part; or
(b) any document.
(2) The Minister shall not impose on any person (in this section referred to as a “third party”) a requirement under subsection (1) to provide information or any document relating to one or more unnamed persons unless the Minister first obtains the authorization of a judge under subsection (3).
(3) On ex parte application by the Minister, a judge may, subject to such conditions as the judge considers appropriate, authorize the Minister to impose on a third party a requirement under subsection (1)...
[Emphasis added.]
[38] These provisions apply despite the other provisions of "this Part" (namely Part IX regarding GST). It is therefore a power added to those described elsewhere, in particular at subsection 288(1) of the Act. Subsection 289(1) aims to clarify situations where the taxpayer or the third party fail to comply with the Minister's request to provide documents or information. Vert‑Dure seems to have confused sections 288 and 289 in terms of their use and the conditions for each.
[39] In other words, section 288 of the Act confers on the Minister, acting through an authorized representative, the general power to address a third party to obtain documents or information in their possession, whereas section 289 of the Act is a tool at the Minister's availability when a third party or the taxpayers themselves, in possession of documents or information that could be useful for the audit in question, do no comply with requests for information (see, among others, Lapointe v. Canada, 2003 CFPI 102). It is a type of official compliance letter from the Minister to provide information, otherwise there could be penalties (section 326 ETA). In addition, Ms. Desjardin