Simone v. The Queen

Simone v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2005-04-01
Neutral citation
2005 TCC 231
File numbers
2002-3092(IT)G
Judges and Taxing Officers
Pierre Archambault
Subjects
Income Tax Act
Decision Content
Docket: 2002-3092(IT)G
BETWEEN:
ANNA SIMONE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeals heard on January 13, 2005, at Toronto, Ontario
Before: The Honourable Justice Pierre Archambault
Appearances:
Counsel for the Appellant:
Natasha Miklaucic
Counsel for the Respondent:
Eleanor H. Thorn
____________________________________________________________________
JUDGMENT
The appeals from the assessments made pursuant to section 160 of the Income Tax Act, the notices of which bear numbers 21579 and 21580 and are dated September 28, 2001, are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the collection of the amount owing by Mr. Simone with respect to the relevant period was not statute-barred. However, Mr. Simone's tax debt for which Mrs. Simone is jointly and severally liable must be calculated on the basis that the penalty assessed pursuant to subsection 163(1) for the 1979 taxation year is not applicable, that the penalty for the 1980 taxation year is reduced to $2,728.32, and that the penalty for the 1981 taxation year is reduced to $1,345.21, all in accordance with the attached Reasons for Judgment. The whole without costs.
Signed at Ottawa, Canada, this 1st day of April, 2005.
"Pierre Archambault"
Archambault, J.
Citation: 2005TCC231
Date: 20050401
Docket: 2002-3092(IT)G
BETWEEN:
ANNA SIMONE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Archambault, J.
[1] Mrs. Anna Simone is appealing against two assessments dated September 28, 2001, issued by the Minister of National Revenue (Minister) pursuant to section 160[1] of the Income Tax Act (Act). The Minister is holding Mrs. Simone jointly and severally liable for her husband's taxes with respect to the 1979 to the 1990 taxation years (relevant period). The assessments result from the transfer by Mr. Simone to Mrs. Simone, on or about October 6, 1993, of two properties, one situated in Toronto (Commercial Property) and the other in Woodbridge (Residential Property). As of the date of the assessments, the amount of Mr. Simone's tax liability-including penalties and interest-in issue under the Act in respect of the relevant period is $322,303 (tax debt). It is admitted that the fair market value of the two properties transferred to Mrs. Simone is at least equal to the amounts assessed under section 160. There is no longer any issue with respect to the fair market value of the consideration given by Mrs. Simone.
[2] The only remaining issues relate to the tax debt. Mrs. Simone's reasons for contesting the assessments are the following:
(a) at the time of the section 160 assessments, Mr. Simone was not liable to pay the tax debt by reason of the limitation period prescribed in section 32 of the Crown Liability and Proceedings Act, R.S.C. 1985, c. C-50, as amended (CLPA);
(b) alternatively, should the tax debt not be statute-barred in whole or in part,
(i) the amount of taxes for the 1979, 1980 and 1981 taxation years should be reduced to take into account exclusions from Mr. Simone's income of $21,000 for 1979, $43,026 for 1980 and $10,400 for 1981; these amounts represent sums of money which Mr. Simone claims he inherited from his father and that he deposited in his business bank account;
(ii) in addition, some of the late filing penalties assessed by the Minister should be cancelled or reduced for those three years.
With respect to the 1979 taxation year, the issue is whether Mr. Simone wilfully attempted to evade payment of the tax payable by him under the Act by failing to file a return of income as and when required. Mrs. Simone claims that Mr. Simone had no such intent. Therefore the late filing penalty assessed pursuant to subsection 163(1) of the Act should be cancelled. The maximum amount that could be assessed under subsection 162(1) of the Act as a late-filing penalty would be $500.
Counsel for the Minister has acknowledged that the late filing penalty should be reduced for the 1980 and 1981 taxation years to the following amounts:
1980
$2,728.32
1981
$1,345.21
The Facts[2]
[3] Mr. and Mrs. Simone married in Canada in 1972, after emigrating to Canada from Italy, and remain married to this day. Soon after their marriage, they purchased a house in Toronto. This house was sold in 1987[3] for approximately $255,000, and the proceeds of the sale were used as part of the down payment for the acquisition by the Simones of the Residential Property, which has remained their family home to this day. Mrs. Simone became its sole owner on October 6, 1993.
[4] When he first arrived in Canada, Mr. Simone worked as an auto body technician. In 1973, he started to carry on his own automotive repair business. Beginning in 1982, this business was carried on at the Commercial Property belonging to Mr. Simone.[4] Around 1984 or 1985, it seems, this business was incorporated under the name of Mr. Collision Ltd.[5]
[5] In 1979 and 1980, Mr. Simone was working full time in his business and had one employee. He testified that he was hospitalized in 1981 for two or three months because of complications from pneumonia, and he did not work for five months. According to data from the Master Spreadsheets, the gross business income earned by Mr. Simone in 1980 was $212,850, in 1981, $191,466 and in 1982, $224,111. No similar information is available with respect to the 1979 taxation year. For the same period, the net business income amounts were the following: $64,410 for 1980, $42,224 for 1981 and $53,759 for 1982.[6] The figure for 1979 is unclear, but it appears to have been around $49,834.[7]
[6] In his testimony, Mr. Simone, with the help of Mrs. Simone's lawyer, attempted to estimate the income that would have been earned by him during those four taxation years. He indicated that the average hourly rate charged to his clients for his services and those of his employee was $25. On the basis of 50 weeks of services at 40 hours per week, this would represent $100,000 of labour costs billed to his customers.[8] He estimated that the parts he sold during a typical year would have represented $1,000 per week ($50,000 for 50 weeks), so his gross annual business income would have amounted to approximately $150,000. Given his estimated annual costs of $130,000,[9] net income would have been $20,000.[10]
[7] Although Mr. Simone stated in response to his wife's lawyer that he had no other source of income, it should be mentioned that the Master Spreadsheets show that he was in receipt of family allowance, at least from 1980 to 1986, and income from property in 1983 ($5,651), in 1984 ($2,214) and in 1985 (dividends of $3,030, interest of $1,680 and rent of $6,300).
[8] Mr. Simone explained that he had a bookkeeper who would come every week and do the accounting work required for his business. He would ask the bookkeeper to also prepare his tax returns. He stated that he filed his tax return every year. He did not understand why the tax returns for the 1979 to 1982 taxation years were not filed on time by the bookkeeper. However, he remembered that his bookkeeper had told him not to send money with his tax return, starting with the 1980 taxation year. Mr. Simone did not remember if there was any balance of taxes owing for each particular taxation year. He also stated that he did not know how to write and read English. However, he was able to read some documents that were showed to him during his testimony.
[9] Mr. Simone testified that he received substantial sums of money from his father's estate in 1979 ($21,000), in 1980 ($43,026) and in 1981 ($10,400). According to him, these sums of money were deposited in his business bank account, and he did not inform his bookkeeper about the nature of these deposits.
[10] To support the Minister's assessments of Mr. Simone issued during the relevant period, the respondent filed as Exhibit R-1 a book of documents which contains at Tab 16 numerous computerized spreadsheets-the Master Spreadsheets-for the 1980 to 1986 taxation years. Also included at Tab 16 are reconstituted notices of assessment or reassessment for the 1985 to 1995 taxation years. These notices not only indicate the amount assessed for a particular taxation year, but also show the balance of the amount owing in respect of the previous taxation years and the new balance resulting from the assessment for the particular taxation year. At Tab 17 are copies of "automatic pull printouts" (Pull Printouts) for the calendar years 1979 to 2000. These printouts set out the accounting operations performed by the Minister with respect to Mr. Simone's account. The printouts include dates of assessment, assessed amounts, dates of payment, the payments and the amount of interest as of a particular date, etc.
[11] The above-mentioned documents reveal the following information:
Taxation
Year
Assessment/
Reassessment
Date
Net Federal
Tax
Previous
Balance
New
Balance Owing
1979[11]
assessment
10/8/82
10,423
1980[12]
assessment
28/12/83
16,049
1981[13]
assessment
28/12/83
7,913
1982[14]
assessment
9/9/83
10,625
1983
assessment
3/7/84
1,611
1984
assessment
31/5/85
668
1985
assessment
13/5/86
62
89,494[15]
89,325
1986
assessment
24/7/87
443
96,508
97,223
1987
assessment
27/6/88
569
105,547
106,387
1988
assessment
13/9/89
4,302
116,799
118,922
1989
assessment
5/7/90
4,754
134,132
134,189
1990
assessment
26/6/91
13,907
155,444[16]
155,019
reassessment
20/12/91
20,119
164,003
167,544
1991
assessment
29/6/92
12,158
177,047[17]
173,275
1992
assessment
27/5/93
1,643
188,009
188,009
1993
assessment
12/5/94
6,216
201,695
206,219
1994
assessment
15/6/95
3,940
221,064
221,064
1995
assessment
9/5/96
4,910
244,916[18]
244,891
[12] The address on all the notices of assessment for the 1985 to 1995 taxation years is that of the Simones' Residential Property. When asked whether he had received these notices, Mr. Simone indicated he was positive that he had not received them. The only document that he was prepared to admit having received was a demand for payment dated May 28, 2004, which likewise bore the Residential Property address (Tab 31). Mrs. Simone also indicated during her testimony that she did not remember receiving these tax assessments. While she was living with her mother, Mrs. Simone's daughter would normally hand over to her any correspondence received. Mrs. Simone too stated that she could not read English. She only remembered having received a letter from the Minister after her husband had seen a lawyer.
[13] An analysis of the Pull Printouts shows that Mr. Simone paid part of his arrears of taxes by making twelve monthly payments of $1,000 starting on March 18, 1983. On November 16, 1983, a $10,000 payment was made and another of $5,000 on December 23, 1983. Only two $1,000 payments were made in 1984, one on January 10 and the other on February 10. I find in the Pull Printouts no similar payments made thereafter.
[14] On March 22, 1988, the Minister registered with the Federal Court of Canada (Trial Division) a certificate showing a sum of $87,316 owing under the Act and the Canada Pension Plan for the 1979 to 1986 taxation years (1979-1986 period). An amended certificate was registered on October 16, 1990, with a slightly different spelling of Mr. Simone's first name. Pursuant to this certificate, the Minister obtained the issuing of two writs of fieri facias (writs for the seizure of goods, chattels, lands and tenements) in satisfaction of Mr. Simone's outstanding tax debt of $87,316. One writ, dated October 16, 1990, was issued to the sheriff of the Municipality of Metropolitan Toronto with respect to property located in Toronto. The other, dated November 16, 1990, was issued to the sheriff of the Regional Municipality of York with respect to property located in that municipality. The sheriff of the Municipality of Metropolitan Toronto advised the Minister that a rent seizure notice had been served on the tenant of the Commercial Property on June 25, 1991 (Tab 20). On September 29, 1991, the firm of Barry A. Edson & Associates wrote to this same sheriff advising him that their client, Mr. Collision Ltd., that is, Mr. Simone's corporation, had not been able to pay rent as a result of financial difficulties. So Mr. Simone was aware that large amounts of money were owing to the government with respect to taxes.
[15] In addition, Mr. Simone had retained a Mr. Rocca to deal with the Minister's auditor. Mr. Rocca wrote to the Minister on September 29, 1988 (Exhibit R-2) providing an income and expense statement for Mr. Simone for the 1979 to 1981 taxation years. The expense information relates only to personal expenses for Mr. Simone's family. The income information concerns profit from business. It also indicates other sources of funds which might have been used by Mr. Simone to cover his cost of living. As regards income, the statement provides the following information:
1979
Income:
Proceeds from Insurance claim
7800.00
Profit From Business
12039.00
Money Transfer[r]ed From Italy
21000.00
Total
40839.00
1980
Income:
Profit From Business
19780.00
Money Transfer[r]ed From Italy
43026.00
Total
62806.00
1981
Income:
Profit From Business
517.00
Money Transfer[r]ed From Italy
10400.00
Total
10917.00
There is no other documentary evidence that would explain how the profits from business were determined by Mr. Rocca. In particular, no financial statements were attached to his letter to the Minister.
[16] One other piece of evidence showing that Mr. Simone was aware of the tax debt problem is a power of attorney dated January 27, 1993, given by Mr. Simone to the law firm Baker, Ranieri. According to Mr. Simone, when this law firm informed him of the failure of their efforts in negotiating a satisfactory arrangement with the Minister, he was advised that he should wait for a change in the legislation. No one from the law firm testified to corroborate this surprising statement.
[17] Although he was entitled to a refund for each of the 1985, 1990, 1991, 1995 and 1997 taxation years, Mr. Simone indicated that he did not take any steps to ascertain why he had not received these refunds. He explained that he did not have the financial resources to hire a lawyer. However, when asked if he had contacted his tax preparer, he indicated that he had not!
[18] A summary of all the steps taken by the Minister to collect the outstanding amounts owing by Mr. Simone appears in the following table:
Date
Collection
Procedure
Amount of Outstanding Debt
Notes
March 1983 to
Feb. 1984
Partial payments by Mr. Simone
$29,000 in total (see Tab 17)
May 13, 1986
Set-off
(s. 164(2) & s. 224.1)
89,325*
$169 tax refund for 1985
(Tab 16 p. 1 and Tab 17 p. 7)
March 22, 1988
Certificate (s. 223(3))[19]
87,316**
For the 1979-1986 period (Tab 1)
Oct. 16, 1990
Amended certificate
(s. 223(3))
87,316**
For the 1979-1986 period (Tab 1)
Writ of fieri facias
(Toronto)
87,316**
For the 1979-1986 period (Tab 2)
Nov. 16, 1990
Writ of fieri facias
(York)
87,316**
For the 1979-1986 period (Tab 3)
June 25, 1991
Rent Seizure Notice
N/A
Served on Mr. Collision Ltd. (Tab 20)
June 26, 1991
Set-off
(s. 164(2) & s. 224.1)
155,019*
$425 tax refund for 1990 (Tab 16, Tab 17, p. 10)
June 29, 1992
Set-off
(s. 164(2) & s.224.1)
173,275*
$3,771 tax refund for 1991 (Tab 16, Tab 17, p. 14)
Oct. 28, 1992
Requirement to pay
(s. 224)[20]
178,175***
To Mr. Collision Ltd. (Tab 22)
To Sun Life of Canada (Tab 23)
To Barry A. Edson & Associates (Tab 24)
Jan. 12, 1993
Requirement to pay
(s. 224)
181,275***
To Barry A. Edson & Associates (Tab 25)
May 9, 1996
Set-off
(s. 164(2) & s. 224.1)
244,891*
$24.88 tax refund for 1995
(Tab 16, Tab 17, p. 24A)
Aug. 6, 1998
Demand for payment
293,594
To Mr. Simone: "we may have to take appropriate legal action without further notice" (Tab 27)
April 2, 1998
Set-off
(s. 164(2) & s. 224.1)
N/A
$1,895 tax refund for 1997 (Tab 17, p. 27)
Jan. 5, 1999
Motion for leave to issue writ of seizure and sale
N/A
In respect of certificate of March 22, 1988 (Tabs 9 and 10)
Feb. 3, 1999
Order granting leave to issue writ of seizure and sale (Rule 434(1) of Federal Court Rules, 1998)[21]
N/A
In respect of certificate of March 22, 1988
(Tabs 9 and 10)
March 31, 1999
Writs of seizure and sale (Toronto) (York)
87,316**
In respect of certificate of March 22, 1988 (Tabs 11 and 12)
Oct. 2, 2000
Demand for payment
356,428
To Mr. Simone: "other-wise we may have to instruct the Sheriff to seize and sell some of your assets to pay off this debt" (Tab 28)
Nov. 1, 2000
Requirement to pay
(s. 224)
358,961***
To Sun Life of Canada
(Tab 29)
To Mr. Collision Ltd.
(Tab 30)
Sept. 28, 2001
Assessments of Mrs. Simone (s. 160)
319,998***
71,531 ***
(Tab 13)
(Tab 14)
May 28, 2004
Demand for payment
474,977
"we may have to take appropriate legal action, such as . . ."
(Tab 31)
Aug. 20, 2004
Demand for payment
481,832 *
"to inform you that we have recorded on the Property Register of Ontario, $87,316.11 of the above tax debt"
(Tab 32)
* This amount represents Mr. Simone's liability under the Act and the Income Tax Act (Ontario).
** This amount represents Mr. Simone's liability under the Act and the Canada Pension Plan.
*** Includes taxes, penalties and interest under the Act, the Canada Pension Plan and the Income Tax Act (Ontario).
Analysis
Taxes and Penalties
[19] Not much of a debate took place with respect to the amount of taxes and penalties assessed by the Minister. The only taxation years in respect of which that issue was raised are the 1979 to 1981 taxation years. Regarding the amount of the tax liability, I have not been convinced by the evidence introduced by Mrs. Simone that her husband's taxes for the 1979, 1980 and 1981 taxation years were different from those assessed by the Minister. More than an approximate estimate of gross revenues and expenditures is required in order to establish the amount of business income that was earned in each of these taxation years, especially since the tax debtor himself does not know if this estimate is accurate. No books or records, nor even any financial statements of the business, were filed to support Mr. and Mrs. Simone's position. There was not sufficient evidence introduced to show whether the bookkeeper had in fact mistakenly included in business income the sums of money received by Mr. Simone from his father's estate. Mr. Rocca's letter and the enclosed statement of income and expenses seem to indicate that Mr. Rocca was only attempting to disclose the different sources of funds used to cover Mr. Simone's cost of living, as if he was attempting to fend off a net worth assessment. Even the totals of funds from all sources do not match the net income amounts assessed by the Minister, which, in all likelihood, correspond with the amounts shown in Mr. Simone's own returns. The most obvious example is the figures for the 1982 taxation year: $53,759 as per the Minister's records and $10,917 as per Mr. Rocca's income statement. There is no statement in Mr. Rocca's document that the money inherited by Mr. Simone was included in gross business income by mistake. We are thus left with pure speculation and mere approximations.
[20] With respect to the penalties assessed for the 1980 and 1981 taxation years, counsel for the Minister acknowledged that they should be reduced to $2,728.32 and $1,345.21 respectively. With respect to the 1979 taxation year, the only issue remaining is whether Mr. Simone was properly assessed the penalty under subsection 163(1)[22] of the Act. In order for this subsection to apply, the respondent must establish that the taxpayer has attempted to evade taxes by not filing his tax return as and when required by the Act. On the basis of the testimony of Mr. Simone that he had limited knowledge of the English language, that he relied on his bookkeeper, to whom, he said, he provided all the proper books and records, and that he instructed the bookkeeper to file his tax returns every year, I am prepared to conclude that the late filing penalty under subsection 163(1) of the Act should be cancelled for the 1979 taxation year. I am satisfied that Mr. Simone did not have the necessary intent to evade taxes by not filing his tax returns when they were due.
Periods of Limitation
[21] There remains, then, the issue of the limitation periods. Basically, Mrs. Simone's position is that when the Minister issued his assessments under section 160 of the Act in September 2001, Mr. Simone no longer owed his tax debt at that time, and that this was the result of the application of section 32 of the CLPA, which provides as follows:
32. Except as otherwise provided in this Act or in any other Act of Parliament, the laws relating to prescription and the limitation of actions in force in a province between subject and subject apply to any proceedings by or against the Crown in respect of any cause of action arising in that province, and proceedings by or against the Crown in respect of a cause of action arising otherwise than in a province shall be taken within six years after the cause of action arose.
[Emphasis added.]
[22] Counsel for Mrs. Simone submits that the collection proceedings undertaken by the Minister-in particular, the statement of the outstanding balance appearing on each notice of assessment (at least those for the 1985 to 1995 taxation years), the requirements to pay, the set-offs of the tax refunds and the demands for payment-were not sufficient to renew the limitation period for the collection of the tax debt. In counsel's view, either some kind of court decision, such as a bankruptcy or receivership order, or an acknowledgement from the taxpayer was necessary. She also stated that the Federal Court's order granting leave to renew the writ of fieri facias was of no effect because it was issued in 1999, more than six years after the registration of the amended certificate of the Minister on October 16, 1990. Therefore, the Minister was barred from collecting the amount owing with respect to the 1979-1986 period.
[23] Mrs. Simone's counsel relies on the decision of the Supreme Court of Canada in The Queen v. Markevich et al., 2003 DTC 5185, in which it was concluded that section 32 of the CLPA[23] was applicable to amounts owing, and to the collection proceedings taken, under the Act . It should be stressed from the outset that the facts in Markevich are substantially different from those in these particular appeals. In Markevich, as in these appeals, a large tax and interest liability was assessed by the Minister. However, the assessments covered the 1980 to 1985 taxation years, and, contrary to what occurred in the present appeals, the Minister made no effort to collect the debt from 1987 to 1998.[24] The annual statements issued by the Minister during that period did not reflect the outstanding balance for 1980 to 1985 (see page 5186). It was only on January 15, 1998, approximately 12 years later, that the Minister sent a statement of account indicating a balance of $770,583.42, which included the amount owing as of June 17, 1986, and accrued interest.
[24] Let us now review the principles laid down by the Supreme Court of Canada in Markevich, and also by other courts, on this issue. First, section 32 of the CLPA was applicable to the statutory collection proceedings under the Act. Second, because tax debts created under the Act arose pursuant to federal legislation, the cause of action for these debts arose "otherwise than in a province" and was not therefore subject to provincial legislation dealing with periods of limitation. The collection proceedings under the Act were thus subject to a limitation period of six years after the cause of action arose, as prescribed by section 32 of the CLPA. Mr. Justice Major, who wrote the reasons for the majority of the Court, stated that the three rationales for the application of this limitation period were "directly applicable to the Minister's collection of tax debts" (paragraph 20). They are the certainty, evidentiary and diligence rationales, described as follows by Mr. Justice Major:
[19] . . . The certainty rationale recognizes that, with the passage of time, an individual "should be secure in his reasonable expectation that he will not be held to account for ancient obligations": M. (K.), supra, at para.29. The evidentiary rationale recognizes the desire to preclude claims where the evidence used to support that claim has grown stale. The diligence rationale encourages claimants "to act diligently and not 'sleep on their rights'": M.(K.), supra , at para.30.
[Emphasis added.]
[25] After having concluded that these rationales were applicable, Mr. Justice Major emphasized the following two:
[20] Each of the rationales submitted as applicable to there being no limitation periods affecting collection are in fact just the opposite and are directly applicable to the Minister's collection of tax debts. If the Minister makes no effort to collect a tax debt for an extended period, at a certain point a taxpayer may reasonably come to expect that he or she will not be called to account for the liability, and may conduct his or her affairs in reliance on that expectation. As well, a limitation period encourages the Minister to act diligently in pursuing the collection of tax debts. In light of the significant effect that collection of tax debts has upon the financial security of Canadian citizens, it is contrary to the public interest for the department to sleep on its rights in enforcing collection. It is evident that the rationales which justify the existence of limitation periods apply to the collection of tax debts.
[Emphasis added.]
[26] Mr. Justice Major put aside the concerns of the respondent's counsel, who had argued that the application of the "laws of prescription to tax collection would unfairly alleviate the tax burden of individuals who experience fluctuations in income at the expense of those who enjoy a steady stream of income":
[18] . . . Thisapparent problem can be averted, however, by the Minister's reasonably diligent exercise of debt collection. If a taxpayer does not have the ability to satisfy a tax debt prior to the expiration of the limitation period, the Minister can choose from a variety of means to extend the limitation period. In Ross v. Canada [2002 DTC 6884] , [2002] 2 C.T.C. 222, the Federal Court, Trial Division, held that the registration of a certificate with the Federal Court in accordance with s.223(3) of the ITA gives rise to a renewal of the limitation period. See also MacKinnon v. Canada [2002 DTC 7219] , [2002] 4 C.T.C. 48 (T.D.), where the court found that the taxpayer's acknowledgement of indebtedness by way of a hypothecation agreement with the Minister, and his partial payment of the tax debt, each served to renew the limitation period. There is no need to exhaustively set out the ways in which the Minister can extend the limitation period, other than to note that there are numerous avenues open to the Minister by which renewals may be effected. There is no credible basis to support the submission that the laws of prescription will undermine the equitable collection of taxes when minimum diligence would have the opposite effect.
[Emphasis added.]
[27] Mr. Justice Major concluded as follows at paragraph 41 of his reasons:
I conclude that the collection proceedings under the ITA are subject to prescription six years after the cause of action arose. As noted above, the cause of action in this case comprised the respondent's tax debt and the expiry of the 90-day delay period after the mailing of the Notice of Assessment dated June17, 1986. As a result, the cause of action arose on September16, 1986. The Minister undertook no action in the six years after that date to effect a renewal of the limitation period. Consequently, as of September 16, 1992, s.32 of the CLPA barred the Minister from collecting the respondent's 1986 federal tax debt. Limitation periods have traditionally been understood to bar a creditor's remedy but not his or her right to the underlying debt. In my view, this is a distinction without a difference. For all intents and purposes, the respondent's federal tax debt is extinguished.
[Emphasis added.]
[28] It is also important to take into account the nature of the collection proceedings to which recourse could have been had during the limitation period. First, Mr. Justice Major described at paragraph 8 of his reasons some of the collection proceedings available to the Minister in collecting tax debts:
[8] . . . The various collection mechanisms enumerated in the ITA provide the Minister with an extensive range of remedies to recover debts. The Minister may certify an unpaid tax amount (s.223(2)) and register the certificate in the Federal Court (s.223(3)), at which point the certificate is deemed to be a judgment of that court. The Federal Court can then issue a certificate, notification, or writ evidencing the s.223(2) certificate, which can be used by the Minister to create a charge, lien, priority, or other interest on property in any province (ss.223(5) to 223(8)). Under the garnishment provision of s.224(1), the Minister may require a third party who is indebted to the taxpayer to make payments directly to the Minister. The Minister may also order the seizure and sale of the taxpayer's goods and chattels under s.225(1). . . .
[Emphasis added.]
[29] At paragraph 25, Mr. Justice Major recognized that these statutory collection proceedings resembled various court proceedings. He wrote as follows:
[25] The statutory collection procedures closely resemble various proceedings in court. The registration of a certificate in Federal Court is deemed by s.223(3) to be a judgment of that court. As Rothstein, J.A. notes at para.35:
A requirement to pay under section 224 (as am. by S.C. 1994, c.21, s.101) is analogous to a garnishing order issued by a court. ... Seizure and sale of chattels under subsection 225(1) is a provision closely parallel to a writ of execution issued by a court.
By granting the power to effect the collection of tax debts in this manner, Parliament has provided the Minister with an efficient and expeditious alternative to bringing a court action. However, the court and non-court collection procedures are identical in purpose. Both are mechanisms by which the Minister is able to enforce the collection of tax debts and thereby carry into effect the legal rights of the Crown. It is evident that both kinds of procedures are appropriately characterized as legal proceedings.
[Emphasis added.]
[30] In Ross v. The Queen, 2002 DTC 6884, [2002] 2 C.T.C. 222, referred to by Mr. Justice Major in Markevich above, the taxpayer took a position similar to that taken by Mrs. Simone's counsel in this case. It was argued in Ross that the filing of the certificate did not protect the Minister's position, as the "Minister should have commenced proceedings in the Court in respect of the tax debt" (paragraph 20).
[31] In support of her conclusion that this argument was ill-founded and that the Minister was not barred from collecting the taxpayer's debt-the collection proceeding in issue was a requirement to pay-Justice Dawson offered the following reason:
[31] First, the effect of Markevich is that the limitation period provided in section 32 of the CLPA is applicable to both statutory collection procedures and court collection procedures, and that after the expiry of the relevant limitation period the cause of action is extinguished. This requires the Minister to take remedial steps to collect a tax debt within the limitation period. Markevich does not require the Minister to obtain a judgment of the Court to preserve her rights, nor does Markevich require the Minister to exhaust all collection efforts within the limitation period. Markevich recognizes the similarity between statutory and court collection procedures, and applies limitation laws irrespective of the remedial steps taken to collect a tax debt.
[Emphasis added.]
[32] In Gibson v. R., 2004 CarswellNat 1658, [2004] 4 C.T.C. 38, another case cited by Mrs. Simone's counsel, the issue was whether the taxpayer's request for a carry-back of losses amounted to acknowledgement of a debt. In coming to the conclusion that it did not, Justice Mosley cited Ross, supra, as follows:
15 In Ross v. Canada, [2002] F.C.J. No. 517 (Fed. T.D.), aff'd [2002] F.C.J. No. 1396 (Fed. C.A.), Justice Dawson found that the Minister's action of registering a certificate with the Federal Court, pursuant to s. 223 of the ITA, whereby CCRA obtained a writ of seizure and sale, demonstrated that it had taken a step to collect the debt. Therefore, since the Minister had begun its collection proceeding against the taxpayer within the prescribed time limit set out in s. 32 of the CLPA, it was not necessary that the collection procedures be completed within the limitation period.
[Emphasis added.]
[33] In paragraph 17, Justice Mosley stated what was required in order for the CCRA to benefit from the extension of prescription under section 32 of the CLPA:
. . . In order to benefit from the extension of such prescription, the CCRA must demonstrate, with some positive step on its part, that it is following through with collection action within the limitation period. Only in this manner is the due diligence rationale with respect to limitation periods respected. Absent express acknowledgment by the taxpayer, or some sort of concrete step initiated by the CCRA in the collection process, the limitation period will not be renewed.
[34] Let us now apply these principles developed by the courts to the facts of this case. In my view, Mrs. Simone's position is ill-founded. First, contrary to what took place in the Markevich case, the Minister did not remain passive in his collection proceedings against Mr. Simone. The Minister informed Mr. Simone, in each yearly notice of assessment[25], of the outstanding amount owing by him not only for the particular taxation year, but also for the prior years. In addition, the Minister set off the tax refunds for the 1985, 1990, 1991, 1995 and 1997 taxation years against Mr. Simone's debt. The Minister registered a certificate with respect to the tax debt for the 1979-1986 period and had the Federal Court of Canada issue writs of fieri facias in October and November 1990. Pursuant to the writ of fieri facias issued in October 1990, a rent seizure notice was sent in June 1991 to Mr. Simone's tenant. The Minister also issued requirements to pay, which are similar to garnishment proceedings, in October 1992, January 1993 and November 2000.
[35] It should be stressed that most of these collection proceedings taken by the Minister constitute statutory collection proceedings. The certificate was registered pursuant to subsection 223(3) of the Act. The set-off by the Minister of the tax refunds owing to Mr. Simone was done in accordance with subsection 164(2) and section 224.1 of the Act. As for the requirements to pay, they constitute a third party garnishment effected pursuant to section 224 of the Act.
[36] In my view, each of these statutory collection proceedings has the effect of renewing the limitation period prescribed by section 32 of the CLPA. As Justice Dawson stated in Ross, supra, at paragraph 36, this interpretation is consistent with the rationales for limitation legislation because these proceedings "bring[. . .] about certainty and diligence".[26] Mr. Justice Major clearly indicated that statutory collection procedures constitute legal proceedings and, in the present case, they certainly have the effect of showing that the Minister had not given up on collecting the tax debt. Therefore, Mr. Simone cannot reasonably expect that he will "not be called to account for the liability". In these circumstances, Mr. Simone cannot be considered to have had any reason to believe that he could "conduct his . . . affairs in reliance on that expectation", to use the words of Mr. Justice Major in Markevich, paragraph 20. Equally, it cannot be said here that the Minister slept on his rights to enforce collection.
• 1979-1986 Period
[37] To determine whether or not the debt with respect to any of the yearly assessed amounts has been extinguished during a period starting 90 days after the date of the oldest notice of assessment and ending on September 28, 2001-which is the relevant time, being the date of the section 160 assessments of Mrs. Simone-a more detailed analysis is required. Given that the certificate was only registered with respect to the tax debt for the 1979-1986 period, it is useful to deal with this period as being distinct from the 1987 to 1990 taxation years (1987-1990 period). With respect to the first period, the oldest assessment is the one for the 1979 taxation year and is dated August 10, 1982. Given that the cause of action could only arise 90 days after this date, it is clear that the certificate registered by the Minister on March 22, 1988, was sufficient to renew the limitation period for a further six-year period, that is, until March 1994.
[38] The next collection proceeding which can be considered to have renewed the limitation period for the 1979-1986 period is the requirement to pay $181,275 dated January 12, 1993.[27] So the limitation period was thereby extended to January 12, 1999. Given that the Minister undertook a collection proceeding by way of set-off on May 9, 1996, the limitation period was on that date further extended to May 2002. Therefore, the tax debt for the 1979-1986 period was not statute-barred and was still owing on September 28, 2001, when the Minister issued the section 160 assessments against Mrs. Simone.
• 1987-1990 Period
[39] With respect to the 1987-1990 period, the oldest assessment is the one regarding the 1987 taxation year, which is dated June 27, 1988. If we add the 90-day period following the assessment, the limitation period started in September 1988 and would have ended at the latest in September 1994. This limitation period was renewed for another six years, to January 12, 1999, when a requirement to pay $181,275 was made to Barry A. Edson & Associates on January 12, 1993, pursuant to section 224 of the Act. As indicated by the representative of the Minister, a copy of such a requirement to pay is also sent to the tax debtor-in the present case, Mr. Simone. The next collection proceeding which is relevant for the computation of the limitation period is the set-off that took place on May 9, 1996. This set-off clearly indicated to Mr. Simone that the Minister was still taking steps to collect the tax debt not only for the 1979-1986 period but also for the 1987-1990 period. After that set-off, the tax debt amounted to $244,891. Therefore, the limitation period for the tax debt with respect to the 1987-1990 period was renewed for another six years to May 2002, with the result that the tax debt for the 1987-1990 period was still outstanding on September 28, 2001, when Mrs. Simone was assessed.
[40] In conclusion, the respondent has succeeded in establishing that, subject to the adjustments mentioned above, the tax debt was still outstanding when the section 160 assessments were issued by the Minister.
[41] For all these reasons, Mrs. Simone's appeals against the section 160 assessments are referred back to the Minister for reconsideration and reassessment on the basis that the collection of the amount owing by Mr. Simone with respect to the relevant period was not statute-barred. However, Mr. Simone's tax debt for which Mrs. Simone is jointly and severally liable must be calculated on the basis that the penalty assessed pur