Topol v. Canada (Minister of National Revenue)

Topol v. Canada (Minister of National Revenue)
Court (s) Database
Federal Court Decisions
Date
2003-05-27
Neutral citation
2003 FCT 658
File numbers
T-801-02
Decision Content
Date: 20030527
Docket: T-801-02
Citation: 2003 FCT 658
BETWEEN:
ROBERT TOPOL,
Applicant,
- and -
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR ORDER
LAYDEN-STEVENSON J.
[1] This matter invites an interpretation of subsection 164(1.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) as amended (the Act). The applicant, Robert Topol (Topol), seeks judicial review with respect to the decision of the Minister of National Revenue (the Minister) as determined by the ministerial delegates within the Canada Customs and Revenue Agency (CCRA). Specifically, the application relates to Topol's requests pursuant to subsection 164(1.1) of the Act and the Minister's refusal to:
(a) "repay" or "refund" to Topol certain monies in respect of a taxation year now under appeal;
(b) "remove" a writ of seizure and sale obtained by the Minister pursuant to a certificate registered under section 223 of the Act, in part, with respect to a taxation year that is now under appeal.
The applicant seeks to have the above noted decisions quashed or set aside and requests an order directing the Minister to repay all amounts taken from or received from Topol in respect of the taxation year under appeal. Additionally, he seeks an order invalidating, quashing or setting aside the certificate obtained by the Minister under section 223 of the Act and the writ of seizure and sale obtained pursuant to that certificate as well as an order prohibiting the Minister from proceeding with collection of amounts not due and owing to Topol, and costs. The applicant refers, in his submissions, to his "appeals". For purposes of clarity, those references pertain to appeals arising from his notices of objection rather than appeals to the Tax Court of Canada.
FACTS
[2] Topol, a senior executive of a theatre company, has a history of high T4 earnings. Against his earnings, he claimed business losses from various computer software tax shelters. His assessed tax liability is in the approximate amount of $1.9 million. This liability is comprised of assessed amounts that are undisputed and assessed amounts that are now in dispute. The taxation years relevant to this application are 1996, 1998 and 1999. The writ of seizure and sale that issued on February 14, 2001, is in relation to arrears, not then in dispute, for the 1996, 1998 and 1999 taxation years, and substantially in relation to taxes owing for 1996. The amount allegedly paid by Topol to CCRA, which he seeks to have repaid to him, is with respect to the 1998 taxation year. In an effort to provide clarity, coherence and context to a convoluted tax history, I will detail the factual circumstances for each of the specific taxation years in question.
The 1996 Taxation Year
[3] The Minister, on July 23, 1998, reassessed Topol for the 1996 tax year and disallowed his claimed deductions with respect to computer tax shelters (the deductions). The reassessment increased Topol's tax liability for the1998 tax year by $320,863.47. Topol filed a notice of objection with respect to the reassessment and disputed the Minister's disallowance of the deductions. On May 20, 1999, the Minister again reassessed Topol for the 1996 taxation year. This reassessment resulted in a small undisputed increase ($3,281.87) in the tax liability with respect to 1996. The May 20th reassessment did not reverse the disallowance of the deductions that led to the increase in taxes owed, but it did renew the requirement for Topol to file a notice of objection. Topol did not file a notice of objection. On September 17, 2001, there was a third reassessment for 1996 that produced a slight decrease in the previous assessment. Topol filed a notice of objection with respect to the September 17th assessment on September 24, 2001.
The 1998 Taxation Year
[4] On June 7, 1999, Topol's 1998 tax return was assessed as filed. His tax liability was assessed at $72,313.30. Since his at-source deductions stood at $74,867, Topol received a refund of $2,554. On September 15, 1999, the Minister reassessed Topol and disallowed a non-capital loss carry forward claimed for 1998. The tax liability for 1998 was reassessed at $101,137.84. Topol did not file a notice of objection. A further reassessment dated July 27, 2001, followed after Topol filed further information on July 12, 2001. The July 27th reassessment permitted a deduction for loss carry backs. As a result, the previous reassessed amount of $101,137.84 decreased by $31,782.78 and the reassessed tax liability stood at $69,355.06. The notice of reassessment showed a credit of $32,587.71 (the amount of the decreased assessment plus the arrears interest adjustment). The "Explanation of Changes" on the reassessment notice states, "We have used your refund of $32,587.71 to reduce your previous balance outstanding". A third notice of reassessment, on September 17, 2001, did not result in further changes to the 1998 tax liability. Topol filed a notice of objection dated September 24, 2001, disputing the Minister's disallowance of the deductions for the 1998 taxation year.
The 1999 Taxation Year
[5] The information regarding the 1999 taxation year is scant, but it appears that Topol has outstanding liability with respect to assessed amounts in relation to 1999. No notice of objection seems to have been filed regarding either an assessment or a notice of reassessment.
[6] The objections of September 24, 2001, have been held in abeyance at the administrative level. There are apparently a "series of accounts" (those of other taxpayers that involve the same tax shelter) and there are "test cases going forward to resolve common issues". The Minister regards any findings arising from a test case to be of precedential value, but not legally binding with respect to Topol. Topol has not exercised his right to appeal directly to the Tax Court of Canada pursuant to section 169 of the Act.
The Writ of Seizure and Sale
[7] While the above noted events were unfolding, the Minister, through CCRA, sought certificates pursuant to section 223 of the Act with respect to Topol's tax debt for the 1996, 1998 and 1999 taxation years. The certificate was filed in the Federal Court on February 14, 2001, in the amount of $448,167. A writ of seizure and sale was issued and was registered in the municipality of York and the city of Toronto on the same day. At the time the certificate was obtained, notices of objection had not been filed in relation to the May 20, 1999 reassessment for 1996, the September 15, 1999 reassessment for 1998 nor with respect to the 1999 taxation year. For purposes of clarity, although a notice of objection had been filed in relation to the July 23, 1998 notice of reassessment regarding the 1996 taxation year, when no notice of objection was filed regarding the May 20, 1999 reassessment for 1996, the amount owing became legally collectible on August 20, 1999. As stated earlier, notices of objection dated September 24, 2001, were filed regarding both the 1996 and 1998 taxation years after the Minister issued notices of reassessment dated September 17, 2001, in relation to those taxation years. The end result, for purposes of this application, is that the amount of tax allegedly owing for the 1996 and 1998 taxation years is currently in dispute and has been in dispute since September 24, 2001.
The Requests
[8] Topol referred to the July 27, 2001 reassessment regarding the 1998 taxation year (wherein his application for a deduction based on loss carry backs was allowed) and noted the $32,587.71 "refund". Relying on subsection 164(1.1) of the Act, he requested that the Minister refund the tax in dispute for the 1998 taxation year. He additionally referred to the writ of seizure and sale and noted that it relates substantially to the 1996 tax liability now in dispute. Again relying on subsection 164(1.1), he requested that CCRA release the security held by the Minister (the writ of seizure and sale). Both requests were denied.
THE STATUTORY PROVISIONS
[9] Subsection 164(1.1) is reproduced here. Other provisions in the Act referred to throughout these reasons are attached as Schedule "A".
164.(1.1) Subject to subsection 164(1.2), where a taxpayer
(a) has under section 165 served a notice of objection to an assessment and the Minister has not within 120 days after the day of service confirmed or varied the assessment or made a reassessment in respect thereof, or
(b) has appealed from an assessment to the Tax Court of Canada,
and has applied in writing to the Minister for a payment or surrender of security, the Minister shall, where no authorization has been granted under subsection 225.2(2) in respect of the amount assessed, with all due dispatch repay all amounts paid on account of that amount or surrender security accepted therefor to the extent that
(c) the lesser of
(i) the total of the amounts so paid and the value of the security, and
(ii) the amount so assessed
exceeds
(d) the total of
(i) the amount, if any, so assessed that is not in controversy, and
(ii) where the taxpayer is a large corporation (within the meaning assigned by subsection 225.1(8)), 1/2 of the amount so assessed that is in controversy.
164.(1.1) Sous réserve du paragraphe (1.2), lorsqu'un contribuable demande au ministre, par écrit, un remboursement ou la remise d'une garantie, alors qu'il a:
a) soit signifié, conformément à l'article 165, un avis d'opposition à une cotisation, si le ministre, dans les 120 jours suivant la date de signification, n'a pas confirmé ou modifié la cotisation ni établi une nouvelle cotisation à cet égard;
b) soit appelé d'une cotisation devant la Cour canadienne de l'impôt,
le ministre, si aucune autorisation n'a été accordée en application du paragraphe 225.2(2) à l'égard du montant de la cotisation, avec diligence, rembourse les sommes versées sur ce montant ou remet la garantie acceptée pour ce montant, jusqu'à concurrence de l'excédent du montant visé à l'alinéa c) sur le montant visé à l'alinéa d):
c) le moins élevé des montants suivants:
(i) le total des sommes ainsi versées et de la valeur de la garantie,
(ii) le montant de cette cotisation;
d) le total des montants suivants:
(i) la partie du montant de cette cotisation qui n'est pas en litige,
(ii) si le contribuable est une grande société, au sens du paragraphe 225.1(8), la moitié de la partie du montant de cette cotisation qui est en litige.
ISSUES
[10] The issues to be determined are:
(a) the jurisdiction of the court with respect to the application;
(b) the standard of review applicable to the Minister's decision;
(c) whether the Minister erred in refusing to surrender the "security";
(d) whether the Minister erred in refusing to refund or repay all amounts taken and/or received from the applicant with respect to the 1998 taxation year.
ANALYSIS
Jurisdiction of the Court
[11] The crux of the applicant's submission in this respect is that this court has jurisdiction by process of elimination. Under specified circumstances, subsection 164(1.1) of the Act provides authority to the Minister, upon application by the taxpayer, to repay amounts paid and to surrender security accepted. The applicant argues that, to the extent that the Minister makes a decision pursuant to the subsection, it is an administrative decision. No appeal of the Minister's decision is provided for in the Act. A challenge to a subsection 164(1.1) decision does not come within the areas of jurisdiction enumerated in section 12 of the Tax Court of Canada Act, R.S.C. 1985, c. T-2, nor does it fall within the jurisdiction of the Federal Court of Appeal pursuant to section 28 of the Federal Court Act, R.S.C. 1985, c. F-7. The respondent does not argue contra.
[12] I agree with the applicant that the Trial Division of the Federal Court has jurisdiction pursuant to section 18.1 of the Federal Court Act and that the appropriate and indeed the only avenue available to the applicant to challenge the Minister's denial of the applicant's requests under subsection 164(1.1) of the Act is by way of judicial review. I note that my colleague O'Keefe J. arrived at a similar conclusion in Nautica Motors Inc. v. Canada (Minister of National Revenue) (2002), 218 F.T.R. 296, a case involving an application for judicial review in relation to HST returns where the substance of the application was not in relation to the assessments, per se.
Standard of Review
[13] The applicant submits that the applicable standard of review is correctness because in interpreting subsection 164(1.1) of the Act, the Minister is asking himself a jurisdictional question that does not require his expertise to answer and for which there is no privative clause. The Minister in considering his application, argues Topol, had to determine whether he (Topol) had paid an amount and whether he (the Minister) had accepted security. This, Topol contends, is a legal question. The respondent made no submissions regarding the standard of review.
[14] The factors to be applied in the functional and pragmatic analysis to determine the appropriate standard of review are the existence of a privative clause, the expertise of the decision-maker, the purpose of the legislation and the particular provision in question, and the nature of the problem: Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982.
[15] Applying the pragmatic and functional approach in this case, the four factors lead to a standard of reasonableness. There is no privative clause but, in and of itself, this does not imply a high standard of scrutiny. Regarding the level of expertise, the Minister is charged with the responsibility of administering the Act. The Act is intricate and complex. It stands to reason that the Minister and his delegates will possess specialized knowledge, skill, familiarity and experience regarding the legislation as a whole and also regarding the interrelationship of its numerous provisions. In relation to this particular provision, the Minister must determine whether, in a specific factual situation, an individual falls within the purview of the provision. If an applicant comes within subsection 164(1.1), then unless a jeopardy order exists (ss. 225.2(2)), the Minister is obliged to grant an applicant's request with all due dispatch. It is open to the Minister, however, if he has reasonable grounds to believe that adherence to the subsection would jeopardize collection, to seek a jeopardy order pursuant to subsection 164(1.2) of the Act. This factor militates in favour of deference.
[16] The purpose of the legislative scheme as a whole is to regulate the collection of tax to provide revenue for the government. The Minister is charged with the administration and enforcement of the Act. The purpose of the particular provision, as revealed (prior to enactment) in the Throne Speech (House of Commons Debates (5 November, 1984), Vol.III, Tab B (6)) and the Ways and Means notes of January 30, 1985 (Notice of Ways and Means Motion to Amend the Income Tax Act and Technical Notes - p. 1, Vol. III, Tab B (7)), is to ensure that a taxpayer does not have to pay taxes in dispute before an impartial hearing has been concluded. The particular provision in issue and others of similar vein were enacted with the intention of providing restrictions on collection proceedings and repayment of taxes in controversy as well as providing safeguards against abuse. Each individual application submitted to the Minister will turn on its own facts and cannot, in this sense, be regarded as polycentric. The Minister must determine whether subsection 164(1.1) applies. If it does, he is directed to proceed with all due dispatch. Overall, this factor yields an ambivalent result.
[17] The fourth and final factor is the nature of the problem. As stated above, it is for the Minister to determine whether an applicant falls within the ambit of subsection 164(1.1) of the Act. This calls for determination of questions that are of mixed fact and law but are more fact-intensive. Nonetheless, some statutory interpretation is involved since it must be decided whether the facts satisfy the prerequisites of the subsection such that the applicant comes within it. In short, the problem involves interpretation of the provision in question as well as interpretation of the criteria contained within it. This factor, therefore, requires some, but not a high degree of deference.
[18] Balancing the factors, I conclude that, for the discrete issue in the circumstances that are before me, the standard of review is reasonableness. This is in contrast to related provisions where the standard has been held to be that of patent unreasonableness (See for example subsections 220(3.1) and (3.5) of the Act commonly referred to as fairness provisions). However, the discretionary component afforded to the Minister in those provisions, or some of them, is much broader than what exists in the provision that is before me.
Whether the Minister erred in refusing to surrender the security
[19] After the Minister issued the second reassessment for the 1996 taxation year on July 23, 1998, Topol did not file a notice of objection. When he was assessed under the Act in relation to the 1998 and 1999 taxation years, he did not file notices of objection. On February 14, 2001, the Minister filed a certificate in the Federal Court for the amount of the total undisputed amounts for the 1996, 1998 and 1999 taxation years, obtained a writ of seizure and sale and registered it. Topol's further submissions on July 12, 2001, resulted in further reassessments dated September 17, 2001, and Topol filed notices of objection dated September 24, 2001 with respect to the 1996 and 1998 taxation years. Then, through counsel, he requested pursuant to subsection 164(1.1) that the Minister surrender the writ with all due dispatch on the basis that it related to amounts under objection with respect to the "1994 through 1996" taxation years. The Minister refused the request by correspondence dated February 25, 2002. The relevant portions of the correspondence are reproduced here. Emphasis is in the original.
As I indicated to you during our telephone conversation on January 29, 2002 regarding this matter, at the time that Mr. Topol's tax debt was certified and the writ originally obtained, no timely objection to the underlying assessment had been filed with the Minister by Mr. Topol. Thus the Minister's collection actions were not prohibited by section 225.1 of the ITA and were lawful.
As I understand it, an objection may have been subsequently filed by Mr. Topol with respect to a subsequent re-assessment issued by the Minister. Accordingly, based on the Optical and Lambert decisions of the Federal Court and the provisions of sections 225.1 and 164(1.1) of the ITA, our position is that any "lawful" collection actions taken in this matter remain lawful and cannot somehow be tainted as unlawful.
Furthermore, as I indicated to you, the CCRA had assured Mr. Topol that they did not intend to enforce any collection actions under the writ, pending the outcome of this Objection, excepting any possible jeopardy situations as provided for under the ITA. I also conveyed this message to Mr. Topol's tax representative in October of 2001. Furthermore, I understand that the CCRA was willing to consider the issue of providing a postponement agreement to any lender if necessary, thus affording Mr. Topol the opportunity to apply for additional financing if desired.
Accordingly, it is our position that subsection 164(1.1) does not afford your client the relief you request . . .
[20] The postponement agreement referred to in the correspondence did not materialize apparently due to Topol's failure to provide details to CCRA concerning the refinancing. A subsequent request for postponement, on July 3, 2002, was similarly stalemated when financial information requested by CCRA was not forthcoming.
[21] The applicant argues that subsection 164(1.1) requires the Minister to surrender security accepted in lieu of payment on account of an amount that is: (i) assessed by the Minister and (ii) the subject of a notice of objection or an appeal to the Tax Court. Referring to the purpose of the provision (that no taxpayer has to pay taxes in dispute before an impartial hearing has been concluded) Topol states that the Act does not expressly set out how the Minister comes into possession of the security he accepts. The Act does not restrict subsection 164(1.1) to security that has been voluntarily given to the Minister. Absent jeopardy, argues Topol, there is no reason for a taxpayer to volunteer security to CCRA to secure an amount "in dispute". This is so because section 225.1 of the Act prevents the Minister from taking any steps to collect an amount of disputed tax and because the delivery of security does not stop interest from accruing on the amount of outstanding tax. Accordingly, he contends that, from a practical perspective, the only occasions on which the Minister will have an amount of disputed taxes "secured" are where the security was given prior to January 1985 or where the Minister has received the fruits of collection proceedings before the subject taxes were "in dispute". Any interpretation of subsection 164(1.1) that requires that the security be rendered voluntarily is unduly narrow and inconsistent with the purpose of the provision.
[22] Moreover, submits Topol, the position that the writ was lawfully obtained is inconsistent with the purpose of the provision. Referring again to section 225.1, he maintains that the Minister is precluded from taking steps to collect the taxes in dispute for the duration of the dispute, i.e., from assessment through to objection and appeal to the Tax Court. Topol argues that there is, however, a gap in section 225.1 because it does not address the situation where a taxpayer begins the objection or appeal process outside of the time limits specifically prescribed within the section. To give effect to their purpose, the provisions must be interpreted liberally to protect taxpayers when the objection or appeal procedure is commenced beyond the prescribed times. Topol contends that to conclude otherwise means that a taxpayer, unable to adhere to the prescribed time limitation for reasons beyond his or her control and subject to a garnishment issued by the Minister, who is subsequently granted leave to file a notice of objection, will not be able to have the garnished funds returned to him. That taxpayer will have paid the taxes in dispute before an impartial hearing has been concluded. Since he was permitted to file a notice of objection to the 1996 and 1998 tax years on September 24, 2001, more than 90 days after the relevant notices of assessment, if the writ is not lifted, Topol contends that he will have, in effect, paid the taxes in dispute before an impartial hearing has been concluded. Such a result is inconsistent with the purpose of both section 225.1 and subsection 164(1.1) of the Act and should not be permitted in the absence of express wording to that effect in the Act.
[23] The scheme of the Act is such that subject to reassessment, an assessment is, by virtue of subsection 152(8), deemed to be valid and binding unless varied or vacated on appeal. Under section 158, where the Minister mails a notice of assessment of any amount payable by a taxpayer, the amount remaining unpaid is payable forthwith. A taxpayer may file an objection to an assessment within 90 days after the day of mailing the notice of assessment. If the assessment is confirmed, the taxpayer may appeal further to the Tax Court. If the objection is not dealt with within 90 days, a taxpayer may choose to appeal directly to the Tax Court rather than wait for a ruling on the objection (subsection 169(1)). An amount payable under the Act is a debt due to Her Majesty and recoverable as such in the Federal Court or in any other court of competent jurisdiction or in any other manner provided in the Act (section 222). The Minister, notwithstanding that an unpaid amount is payable forthwith, cannot initiate any collection proceedings regarding the debt until 90 days after the date of mailing of the notice of assessment (section 225.1). The collection restrictions protect the taxpayer, pending an objection or appeal, unless there is a danger that collection will be jeopardized in which case the Minister must obtain judicial authorization to collect the amount (section 225.2 and subsection 164(1.2)). If the taxpayer does not file a notice of objection within 90 days and the amount remains unpaid, the Minister may proceed to collect the debt by any of the collection mechanisms provided in subsection 225.1(1), paragraphs (a) to (g) and may register a certificate under subsection 223(3) in the Federal Court. A writ of execution may be issued for a debt certified under section 223 of the Act. Writs of execution issued from the Federal Court, pursuant to section 56 of the Federal Court Act, may be executed in the same manner as writs of process issued out of the superior court of the province in which any judgment or order is to be executed.
[24] There is no question that, here, the Minister was entitled to obtain the certificate and the writ and Topol does not suggest otherwise. The respondent relied on Lambert v. Canada, [1976] C.T.C. 611 (F.C.A.), The Attorney General of Canada v. Louis-Albert Raymond (1980), D.T.C. 6383 (F.C.A.) and Optical Recording Corp. v. Canada, [1991] 1 F.C. 309 (F.C.A.) as authorities for the proposition that any collection proceedings undertaken pursuant to a previous unpaid assessment are not invalidated when a reassessment is issued. While those decisions relate to the Act prior to the enactment of the collection restrictions in section 225.1, I am satisfied that the principle advanced by the respondent is not affected or undermined by the introduction of the section. I do not, however, understand Topol's argument as suggesting otherwise. He does not challenge the validity or the lawfulness of the writ. Rather, he seeks to "undo" what has been lawfully done and says that subsection 164(1.1) provides the mechanism to accomplish this feat.
[25] I am not persuaded that Topol can succeed. Subsections 164(1.1), 220(4.1) and section 225.1 of the Act provide a scheme relating to amounts in controversy that have been put into dispute by the taxpayer's filing of a notice of objection or appeal. Section 225.1 provides that taxpayers need not pay amounts in controversy and it prohibits the Minister from collecting amounts in controversy, where the amounts are subject to objection or appeal, although interest continues to accrue with respect to those amounts by virtue of section 161. To stop the accrual of interest, a taxpayer may provide security to the Minister pursuant to subsection 220(4.1) or the taxpayer may voluntarily pay the amount in controversy, pending the outcome of the objection or appeal. Subsection 164(1.1) provides a mechanism whereby any amounts, paid with respect to the amount in controversy, or any security, accepted by the Minister with respect to the amount in controversy, are returned to the taxpayer. In my view, there are three conditions precedent contained in the wording of subsection 164(1.1).
[26] The first is that the taxpayer must have either filed a notice of objection that the Minister, after 120 days, has not confirmed, varied or issued a reassessment in respect thereof, or the taxpayer must have appealed to the Tax Court of Canada. The second condition is that the taxpayer must have paid amounts on account of the amounts in dispute and/or the Minister must have accepted security for the amounts in dispute. The third condition is that the taxpayer must have made written application to the Minister for payment of the amounts or surrender of the security. Where the conditions precedent have been met, the Minister will then determine the amount of the repayment or the amount of the security to be surrendered in accordance with the provisions of paragraphs 164 (1.1)(c) and (d).
[27] The applicant has satisfied the third condition precedent because he has made application to the Minister. The first condition precedent is problematic because although Topol has filed notices of objection in relation to the 1996 and 1998 taxation years, he has not done so for the 1999 taxation year. The writ of seizure and sale, while substantially in relation to the 1996 tax year, also includes 1998 and 1999. It is the second condition precedent, however, that presents the greatest difficulty. In Her Majesty the Queen v. Province of Alberta Treasury Branches, [1996] 1 S.C.R. 963, the Supreme Court of Canada stated that, "Basically, a security is something which is given to ensure the repayment of a loan". Black's Law Dictionary, 7th ed., defines "security" as, "1. Collateral given or pledged to guarantee the fulfilment of an obligation; esp., the assurance that a creditor will be repaid (usu. with interest) any money or credit extended to a debtor".
[28] A writ of seizure and sale, as I understand it, is an enforcement procedure. It is an order to a sheriff to enforce a judgment or order of the court. The writ in issue is the Minister's writ, not that of the taxpayer, although its effect is to afford some type of security to the Minister in the broad sense. In my view, the "security" referred to in subsection 164(1.1) is security provided by the taxpayer to the Minister. The specific wording of the provision refers to "security accepted". Of necessity, to be accepted, it must have been offered or provided. A writ of seizure and sale, sought and obtained by the Minister, cannot be regarded as security provided by the taxpayer. Subsection 220(4.1) provides reinforcement for this conclusion. That provision states:
220.(4.1) Where a taxpayer has objected to or appealed from an assessment under this Act, the Minister shall, while the objection or appeal is outstanding, accept adequate security furnished by or on behalf of the taxpayer for payment of the amount in controversy except to the extent that the Minister may collect the amount because of subsection 225.1(7). (emphasis added)
220.(4.1) Lorsqu'un contribuable fait opposition ou interjette appel au sujet d'une cotisation établie en vertu de la présente loi, le ministre doit accepter toute garantie valable fournie par le contribuable, ou en son nom, alors que l'opposition ou l'appel est pendant, pour le paiement de la somme en litige, sauf dans la mesure où le ministre peut recouvrer la somme par application du paragraphe 225.1(7). (mon soulignement)
[29] I note Topol's hypothetical argument that a taxpayer, who for reasons beyond his or her control fails to file a notice of objection within the prescribed time limits and who is subsequently granted leave to file a notice of objection, may be prejudiced and lose the benefit of subsection 164(1.1) if the meaning I have ascribed to "security" is adopted. My observations in this respect are twofold. First, there is nothing in the record to indicate that Topol was unable to file his notices of objection in a timely manner because of reasons beyond his control. In this sense, it may be said that he is the author of his own misfortune. Second, if indeed there exists a gap in the legislation, it is for Parliament, not the court, to remedy. Neither the statute nor the provision support the meaning of the word "security" advanced by Topol. Thus, I conclude that the Minister's decision was not only reasonable, it was correct. This does not and should not be taken to mean, however, that the Minister is at liberty to execute on the writ while the objections with respect to the 1996 and 1998 taxation years remain alive.
Whether the Minister erred in refusing to refund or repay all amounts taken and/or received from the applicant with respect to the 1998 taxation year
[30] The request for a refund relates exclusively to the 1998 taxation year. The notice of assessment with respect to 1998 indicates income of $986,914., T4 at-source income tax deductions of $74,867.35 and a claim for losses of $635,008., which was reduced to $582,655. Topol received a refund of $2,554.05. A reassessment dated September 15, 1999 disallowed a non-capital loss carry forward with the result that the tax owing was $29,797.49. Topol did not file a notice of objection and as of June, 2001, the tax arrears for 1998 stood at $35,354.46. A second reassessment dated July 27, 2001, reduced the tax otherwise payable from the first reassessment to a balance owing in the amount of $3,090.63. Topol filed a notice of objection dated September 24, 2001 with respect to the 1998 taxation year. On February 6, 2002, through counsel, he requested pursuant to subsection 164(1.1) that the Minister repay the amounts paid by him with respect to the amounts under objection. The Minister refused the request by correspondence dated February 14, 2002. The relevant portions of that correspondence are set out below.
A review of the account shows that on September 15, 1999 a reassessment was issued for the taxation years of 1998 with a debt of $29,797.49. At the time this amount was not under dispute and continued to accrue interest. At June 21, 2001, the amount outstanding for 1998 was $35,354.36. On July 27, 2001 a reassessment for taxation year 1998 was generated with a credit adjustment of $32,587.71. This was used to partially offset the original balance of $35,354.36 (effective date June 21, 2002). The adjustment to that taxation year of 1998 left the client with a balance owing still of $3,090.63. On October 1, 2001 the taxation year of 1998 was submitted for an appeal.
According to the spreadsheet provided by your firm the original debt of $29,797.49, from the reassessment done on September 15, 1999, was placed into the disputed column which thereby looked as though a credit existed upon final calculation of balance on July 27, 2001. If the amount had been placed in the undisputed column as it was not under appeal at that time, the final calculation on July 27, 2001 would in fact have shown that a debt still existed for taxation year 1998 in the amount of $3,090.63.
[31] The applicant's submissions include those relating to the purpose of the legislation. Since that argument has been summarized earlier in these reasons, in relation to the writ of seizure and sale, it need not be repeated here. He then refers to the July 27, 2001 reassessment, points to the word "refund" used to characterize the $32,587.71 decrease in tax liability and says that he is entitled to a repayment. The basis of the argument is the purpose of the legislation combined with the fact that he did "pay on account" for the 1998 taxation year because income was deducted at source. Relying on the definition of "pay" from the Oxford English Dictionary, the applicant submits that he paid his taxes for 1998 because the source deductions were money "given" to the Minister for "a debt incurred".
[32] I have earlier delineated the conditions precedent required to trigger subsection 164(1.1). The second of those conditions, in relation to this issue, requires that the taxpayer has paid "amounts on account" of the amounts in dispute. Lest it be forgotten, the purpose of the provision is to put a taxpayer who has paid tax in dispute in the same position as one who has not paid tax in dispute. In my view, Topol's request does not fall within the ambit of subsection 164(1.1).
[33] When the Minister reassessed Topol on September 15, 1999, for the 1998 taxation year, the reassessment had nothing to do with his T4 earnings and the at-source deductions. It related to the Minister's disallowance of a non-capital loss carry forward. Topol did not file a notice of objection and therefore that amount became payable. By June, 2001, the tax arrears had increased to $35,354.36. Topol did not pay. When the Minister reassessed on July 27, 2001, and allowed a reduction in taxable income of $32,587.71 because of an additional loss carry back submitted by Topol for the 2000 taxation year for application to the 1998 year, the Minister reduced the 1998 liability from the unpaid amount of $35,678.34 to $3,090.63. Topol did not pay the $3,090.63.
[34] Subsection 164(1.1) requires that the Minister has received a payment with respect to the disputed amount. The calculation of the repayment under paragraphs 164(1.1)(c) and (d) is the difference between the amount paid with respect to the amount assessed and the amount paid with respect to the amount assessed that is not in controversy. The word "refund" on the July 27, 2001 reassessment notice is not technically correct, but nothing turns on the terminology because it is evident that the amount refers to the difference between the previous reassessed amount and the July 27, 2001 reassessed amount. The difference arose as a result of recalculation of the assessed amount because of an allowable loss. The assessed amount remaining unpaid was adjusted downward. The reduced assessed amount has not been paid. A non-capital loss carried back from a subsequent taxation year and used by a taxpayer in another taxation year, is not "an amount paid on account" of the amount in dispute as contemplated by subsection 164(1.1).
[35] The payment made (the at-source deductions) was not made with respect to a disputed amount or an amount in controversy. Topol's notices of objection regarding the 1998 taxation year relate to the September 15, 1999 reassessment and the July 27, 2001 reassessment. They do not relate to the June 7, 1998 notice of assessment. The Minister has not received a payment with respect to the amount in dispute for the 1998 taxation year. There is no requirement for the Minister to repay to the taxpayer what was never paid to the Minister. The applicant cannot avail himself of the benefit of the provision in issue. I conclude that the Minister's decision to refuse Topol's request was not only reasonable, it was correct.
[36] For the reasons given, the application for judicial review is dismissed and an order will so provide. The respondent did not seek costs and none are awarded.
____________________________________
Judge
Ottawa, Ontario
May 27, 2003
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-801-02
STYLE OF CAUSE: ROBERT TOPOL
Applicant
- and -
MINISTER OF NATIONAL
REVENUE
Respondent
PLACE OF HEARING: TORONTO, ONTARIO
DATE OF HEARING: APRIL 28, 2003
REASONS FOR ORDER BY: LAYDEN-STEVENSON J.
DATED: MAY 27, 2003
APPEARANCES: Barry S. Wortzman, Q.C.
Sean Lawler
FOR THE APPLICANT
Wendy J. Linden
FOR THE RESPONDENT
SOLICITORS OF RECORD: Shibley Righton LLP
Toronto, Ontario
FOR THE APPLICANT
Morris Rosenberg
Deputy Attorney General
of Canada
FOR THE RESPONDENT
SCHEDULE "A"
to the
Reasons for Order dated May 27, 2003
rendered by the Hon. Madam Justice Carolyn Layden-Stevenson
in
ROBERT TOPOL
v.
THE MINISTER OF NATIONAL REVENUE
T-801-02
Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.)
152.(8) An assessment shall, subject to being varied or vacated on an objection or appeal under this Part and subject to a reassessment, be deemed to be valid and binding notwithstanding any error, defect or omission in the assessment or in any proceeding under this Act relating thereto.
Loi de l'impôt sur le revenu,
L.R.C. 1985, c. 1 (5e Suppl.)
152.(8) Sous réserve des modifications qui peuvent y être apportées ou de son annulation lors d'une opposition ou d'un appel fait en vertu de la présente partie et sous réserve d'une nouvelle cotisation, une cotisation est réputée être valide et exécutoire malgré toute erreur, tout vice de forme ou toute omission dans cette cotisation ou dans toute procédure s'y rattachan