Addison & Leyen Ltd. v. Canada

Addison & Leyen Ltd. v. Canada
Court (s) Database
Federal Court of Appeal Decisions
Date
2006-03-15
Neutral citation
2006 FCA 107
File numbers
A-149-05
Notes
Reported Decision
Decision Content
Date: 20060315
Docket: A-149-05
Citation: 2006 FCA 107
CORAM: ROTHSTEIN J.A.
SHARLOW J.A.
MALONE J.A.
BETWEEN:
ADDISON & LEYEN LTD., CONCREST CORPORATION LTD.,
JOHN JOSEPH DIETRICH, JEANNETTE MARIE DIETRICH,
ROFAMCO INVESTMENTS LTD.,
WILFRED DANIEL ROACH AND HELEN ANN ROACH
Appellants
and
HER MAJESTY THE QUEEN IN RIGHT OF CANADA AND
THE CANADA CUSTOMS AND REVENUE AGENCY
Respondents
Heard at Vancouver, British Columbia, on January 18, 2006.
Judgment delivered at Ottawa, Ontario, on March 15, 2006.
REASONS FOR JUDGMENT BY: SHARLOW J.A.
CONCURRED IN BY: MALONE J.A.
DISSENTING REASONS BY: ROTHSTEIN J.A.
Date: 20060315
Docket: A-149-05
Citation: 2006 FCA 107
CORAM: ROTHSTEIN J.A.
SHARLOW J.A.
MALONE J.A.
BETWEEN:
ADDISON & LEYEN LTD., CONCREST CORPORATION LTD.,
JOHN JOSEPH DIETRICH, JEANNETTE MARIE DIETRICH,
ROFAMCO INVESTMENTS LTD.,
WILFRED DANIEL ROACH AND HELEN ANN ROACH
Appellants
and
HER MAJESTY THE QUEEN IN RIGHT OF CANADA AND
THE CANADA CUSTOMS AND REVENUE AGENCY
Respondents
REASONS FOR JUDGMENT
SHARLOW J.A.
[1] This is an appeal of a Federal Court judgment (2005 FC 411) allowing the motion of the respondents (collectively, the "Crown") to strike out an application for judicial review of certain decisions made by one or more officials of the Canada Revenue Agency as delegates of the Minister of National Revenue. The application relates to a number of assessments made under section 160 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). Section 160 is a tax collection tool. Its purpose is to prevent tax debtors from moving their assets to friendly hands outside the reach of the tax collector. Section 160 is generally recognized to be a harsh provision (see paragraph [65] below).
[2] The section 160 assessments that are the subject of this case impose on each of the appellants a legal obligation to pay part or all of the tax liability of a corporate tax debtor arising from transactions that occurred in 1989. The Minister assessed the appellants in 2001. The appellants allege that in the particular circumstances of this case, the decision to assess them under section 160 is an improper exercise of discretion that has caused them undue hardship, in that the twelve year delay has made it difficult or impossible for the appellants to avail themselves of their legal right to be indemnified by the tax debtor.
[3] The Crown contends that this application for judicial review should be struck out without a hearing because the remedy sought by the appellants is not within the jurisdiction of the Federal Court. That argument is based on section 18.5 of the Federal Courts Act, R.S.C. 1985, c. F-7, which limits the jurisdiction of the Federal Court to consider an application for judicial review of an administrative decision if and to the extent that the decision may be appealed under an Act of Parliament.
[4] These reasons are presented under the following headings:
Paragraph
A. The test for striking an application 5
B. Facts 6
(1) The state of affairs in October of 1988 7 - 10
(2) Payments made by York between October of 1988 and October of 1989 11 - 13
(3) The sale of York to Senergy 14 - 19
(4) Payments made by Addison in 1989 20 - 21
(5) Communications with tax officials in 1990, 1991 and 1992 22
(6) The reassessment of York in 1992 23 - 24
(7) Events in 1989 and 1999 25 - 28
(8) The section 160 assessments 29 - 35
C. The statutory scheme 36
(1) The statutory scheme for the assessment of a primary tax liability 37 - 39
(2) Challenging the correctness of an assessment 40 - 44
(3) Judicial review of tax collection action 45 - 48
(4) Judicial review of the decision to use section 160? 49 - 51
(i) The elements of section 160 52 - 54
(ii) The history of section 160 55 - 56
(iii) Section 160 and dividends 57 - 60
(iv) The application of section 160 to other corporate payments 61 - 62
(v) Section 160 as a collection tool 63 - 64
D. Discussion 65 - 71
E. Does the Federal Court have the jurisdiction to quash a tax assessment? 72 - 74
F. Adequate alternative remedy 75 - 79
G. The timing of the application for judicial review 80
H. Conclusion 81
A. The test for striking an application
[5] An application initiating a summary proceeding will not be struck out without a hearing unless it is so clearly improper as to be bereft of any possibility of success: David Bull Laboratories (Canada) Inc. v. Pharmacia Inc. (C.A.), [1995] 1 F.C. 588. The reason for setting the bar so high is that it is generally more efficient for the Court to deal with a preliminary argument at the hearing of the application, rather than on a motion. If a motion to strike is considered and fails, the interlocutory proceedings will have been a waste of time. In this case, the judge granted the motion to strike because he concluded that the David Bull test was met. The issue in this appeal is whether that decision is wrong in principle.
B. Facts
[6] In the case of a motion to strike a statement of claim, the facts alleged in the statement of claim must be presumed to be true: Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959 at 979. By analogy, in a motion to strike an application, the facts asserted by the applicant must be presumed to be true. The factual allegations in this case are summarized below.
(1) The state of affairs in October of 1988
[7] The corporation that is at the heart of the dispute in this case, the primary tax debtor, was once named York Beverages (1968) Ltd. Its name was changed at some point after the events described below, but I will continue to refer to it as "York".
[8] York was incorporated in Saskatchewan and at some point continued into Alberta. Its normal fiscal year end was September 30. Prior to October of 1988, York carried on a soft drink bottling business in Regina. On or about October 1, 1988, York sold the assets of the bottling business for approximately $10 million cash and $3 million of assumed indebtedness. York retained accounts receivable of approximately $1.8 million. The record does not disclose the value of those accounts receivable.
[9] At the time of the asset sale, the ownership of York was as follows:
(1) 6 voting shares of York were owned by Wilfred Roach, 6 voting shares were owned by Janet Dietrich, and 5988 non-voting shares were owned by an Alberta corporation named Addison & Leyen Ltd. ("Addison"). The record does not disclose whether Addison had assets other than its shares of York.
(2) Of the 1000 outstanding common shares of Addison, 50% were owned by Mr. Roach (400 shares) and his wife Helen Roach (100 shares), and 50% were owned by Ms. Dietrich (100 shares) and her husband John Dietrich (400 shares).
(3) Mr. Roach and his siblings were the shareholders of an Alberta corporation named Rofamco Investments Ltd. ("Rofamco").
(4) Mr. Dietrich and his siblings were shareholders of an Alberta corporation called Concrest Corporation Ltd. ("Concrest").
(5) Rofamco and Concrest were partners in a partnership named Vanir Corporation Partnership ("Vanir"). The record does not disclose whether Vanir had assets, or whether Rofamco or Concrest had assets other than their interests in Vanir.
[10] The record does not disclose whether the Roach family is related to the Dietrich family.
(2) Payments made by York between October of 1988 and October of 1989
[11] After the asset sale, it was intended that York would eventually cease to carry on any business. Between the completion of the asset sale and September of 1989, steps were taken to collect the accounts receivable of York, to discharge its remaining liabilities, and to pay retiring allowances, directors' fees and management fees.
[12] Between December 31, 1988 and September 28, 1989, York made payments totalling approximately $13.5 million, as follows:
(1) York paid directors' fees and retiring allowances totalling approximately $290,000 to Mr. Roach, Ms. Roach, Mr. Dietrich, and Ms. Dietrich, and management fees of approximately $1.6 million to Vanir. The record does not disclose what services were provided for those payments. Nor does the record contain anything from which it could be inferred that there were no services, or that the services were not worth the amounts paid.
(2) York paid Addison approximately $315,000 in consideration of Addison assuming certain of York's debt obligations. The record discloses no particulars of those debt obligations.
(3) York lent approximately $5 million to Addison. The record does not disclose the purpose or terms of that loan. The record discloses nothing from which it could be inferred that the loan was improper in any way, nor does the record indicate whether the loan was repaid, or when it was repaid.
(4) York paid dividends totalling approximately $6.2 million. Most of that amount was paid to Addison. Mr. Roach and Ms. Dietrich each received dividends from York of approximately $4,000.
[13] It appears that after all of the payments referred to above, York had no assets except enough cash to pay the estimated income tax liability arising from its last year of operation and from the sale of its operating assets in October of 1988. In September of 1989, York's potential tax liability was estimated to be approximately $2.8 million. That would have become an actual liability on York's fiscal year end, September 30, 1989, but for certain events that occurred between September 26 and September 28, 1989.
(3) The sale of York to Senergy
[14] At some point (it is not clear when), the shareholders of York agreed to sell their shares of York to a corporation then named 388777 Alberta Ltd., later Senergy Inc. ("Senergy"). The total purchase price was $1,115,000, most of which went to Addison as the holder of the 5,988 non-voting shares. Mr. Roach and Ms. Dietrich each received a nominal amount for their 6 voting shares. The sale was completed on September 28, 1989.
[15] Why would the shares of York be worth over $1 million at a time when it had assets of over $2 million and a potential tax liability of a like amount? The answer, as it turns out, is that Senergy had a plan for using York's available cash to purchase seismic data for which it would claim a deduction. It was hoped that, as a result of that deduction, York would have no tax liability for 1989. The shareholders of York were aware that Senergy was planning a transaction that would have that tax result, but they were not aware of the details. It is not clear from the record precisely what they knew.
[16] Mr. Roach, Ms. Roach, Mr. Dietrich and Ms. Dietrich resigned as directors of York and were replaced with a representative of Senergy on September 26, 1989, two days before the completion of the sale of the York shares to Senergy. The record does not disclose a reason for that timing, but I think it is fair to infer that it was intended to facilitate the completion of the seismic data purchase before the closing of the sale of the York shares to Senergy.
[17] Why were the transactions completed in that order? It seems likely that all parties would have been aware that the sale of the York shares on September 28, 1989 would trigger a deemed fiscal year end for York on that date because of the change of control of York (subsection 249(4) of the Income Tax Act). To fully utilize the deduction resulting from the purchase of the seismic data against the income inclusions resulting from the sale of York's business in October of 1988, the seismic data would have to be purchased before the deemed fiscal year end on September 28, 1989.
[18] Mr. Roach, Ms. Roach, Mr. Dietrich and Ms. Dietrich were aware of the potential tax liability of York for its fiscal year ending September 28, 1989, arising from the sale of York's business assets. The agreement of purchase and sale of the York shares contained a covenant by Senergy that York's tax returns would be filed and its income tax liabilities would be paid. The selling shareholders of York also obtained a legal opinion stating, among other things, that as of September 28, 1989 it was "reasonable to conclude" that York would be able to pay its income tax liability for the fiscal year ending on that date. That legal opinion is said to be based on the lawyers' review of "the Transactions", a term I understand to mean the seismic data purchase. The legal opinion does not mention section 160 of the Income Tax Act.
[19] There is no term of the contract of purchase and sale of the York shares that gave the sellers the right to monitor Senergy's compliance with the covenant to ensure that York's taxes were paid. Nor did the sellers have a contractual right to compel Senergy to inform them in the event of any reassessment or proposed reassessment of York. The sellers obtained no security to back up the obligation of Senergy to ensure that the taxes were paid. The record contains nothing to explain whether the sellers requested any contractual protection apart from Senergy's covenant, or if they did request it, why it was not provided and why they proceeded without it.
(4) Payments made by Addison in 1989
[20] During October of 1989, Addison paid dividends totalling approximately $1.8 million pro rata to Mr. Roach (40%), Ms. Roach (10%), Mr. Dietrich (40%) and Ms. Dietrich (10%). In October of 1989, Mr. Roach and Ms. Roach transferred their shares of Addison to Rofamco, and Mr. Dietrich and Ms. Dietrich transferred their shares of Addison to Concrest, so that Rofamco and Concrest each became a 50% shareholder of Addison. After the share transfer, Addison paid dividends totalling $4.8 million, shared equally between Rofamco and Concrest. The record discloses no basis for concluding that any of the dividends paid by Addison were connected to the dividends or loans that Addison received from York.
[21] During 1989, Addison paid directors' fees of approximately $4,000 to each of Mr. Roach, Ms. Roach, Mr. Dietrich and Ms. Dietrich, and made loan repayments of approximately $950,000 to Concrest, and approximately $1.2 million to Rofamco. Again, the record contains no information about the share transfers, the fees or the loans. The record discloses no basis for concluding that any of the payments made by Addison were connected to any of the payments Addison had received from York.
(5) Communications with tax officials in 1990, 1991 and 1992
[22] In the fall of 1990, Mr. Kirker, the accountant for the appellants and their companies, received from the tax authorities a request to file York's tax return. He forwarded the request to a representative of Senergy, and heard no more. In 1991 and 1992, the tax authorities sought from Mr. Kirker certain information relating to the sale of York's bottling business, and the payment of dividends. Mr. Kirker provided the information. To his knowledge, the only change resulting from those dealings was a change in the computation of certain capital dividends paid by York.
(6) The reassessment of York in 1992
[23] It appears that the tax authorities examined the seismic data transaction, and concluded that York was entitled to deduct only $1,696,500, because the seismic data was overvalued. York was reassessed on December 29, 1992 for a total of approximately $3.2 million, including taxes totalling approximately $2 million, interest of approximately $1 million, and a penalty (the nature of the penalty is not clear - it may be a late filing penalty).
[24] A notice of objection was filed for York on March 5, 1993. As of the hearing of this matter in the Federal Court on March 29, 2005, the Minister had not dealt with that objection. Apparently it has not been dealt with to this day. The record discloses no reason for the delay in dealing with York's notice of objection. Nor does the record disclose any reason for the failure of York to pursue an appeal in the Tax Court of Canada, as it was entitled to do when the Minister failed to deal with its objection within 90 days (see paragraph [40] below). It will be recalled that since 1989, York had been under the control of Senergy.
(7) Events in 1989 and 1999
[25] Neither the appellants nor Mr. Kirker were aware of the reassessment of York when it was made in 1992, or for some years thereafter. Mr. Kirker says that he heard nothing more about York until late 1998 or early 1999, when the tax authorities requested information from some of the appellants. He assembled the documents required to respond to the requests. Mr. Kirker and the appellants say that they were aware of no other activity of the tax officials until receiving the section 160 assessments in February of 2001.
[26] The appellants made various requests for information under the Access to Information Act, R.S.C. 1985, c. A-1, and the Privacy Act, R.S.C. 1985, c. P-21. It is not clear from the record when those requests were submitted, but it appears that a response was received in December of 2001.
[27] I summarize as follows the appellants' interpretation of documents the appellants received as a result of their access and privacy requests. The tax authorities did nothing between 1992 and 1997 to deal with York's notice of objection or to investigate whether York had the resources to pay the assessed tax. In August of 1997, the tax authorities noticed that there had been no "danger of loss" analysis in relation to York. An examination in September of 1997 disclosed that the assets shown on York's balance sheet consisted of the seismic data, with a book value of approximately $6 million. By about mid-1998, the tax officials had concluded that the tax debt would not be collectible from York. That led to the requests for information referred to above, which were answered in early 1999. It was on the basis of that information that the tax officials decided to trace the payments made by York in 1989. The tax officials did not communicate with any of the appellants before issuing the section 160 assessments two years later, in February of 2001, and deliberately concealed relevant information from them.
[28] The allegation of deliberate concealment is based on a note in the tax file, dated February 15, 2001. It reads, "Appeals had agreed to hold confirmation Notice [apparently the confirmation of the December 29, 1992 assessment of York] until jeopardy issue had been resolved so as not to tip our hand to tax debtor." The appellants believe that they are the "tax debtor" referred to in this note.
(8) The section 160 assessments
[29] By February of 2001, the total tax liability of York was approximately $6.7 million, representing the $3.2 million assessed on December 29, 1992, plus accrued interest. In February of 2001, the Minister assessed each of the appellants under section 160 of the Income Tax Act for some or all of that liability.
[30] There are 21 notices of assessment in all. Each assessment is based on the Minister's understanding that the appellants received direct or indirect payments from York during or after York's fiscal year ending September 28, 1989. For each appellant, the total amount assessed under section 160 represents the lesser of the total liability of York as of the date of the section 160 assessments, and the total payments received by the person assessed. The assessed amounts, and the transfers of property upon which they are based, are summarized in the following table:
Appellant assessed
Amount assessed
Transfers of property
Addison & Leyen Ltd.
$6,664,634
Dividends from York
Loan from York
(The amount assessed is York's total liability in February of 2001.)
Concrest Corporation Ltd.
4,327,468
Management fees from York (through Vanir)
Loan repayment from Addison
Dividends from Addison
Rofamco Investments Ltd.
4,611,528
Management fees from York (through Vanir)
Loan repayment from Addison
Dividend from Addison
John Joseph Dietrich
714,263
Directors fees from York
Retiring allowance from York
Dividend from Addison
Directors fees from Addison
Jeannette Marie Dietrich
228,849
Dividends from York
Directors fees from York
Retiring allowance from York
Dividend from Addison
Directors fees from Addison
Wilfred Daniel Roach
741,626
Dividends from York
Directors fees from York
Retiring allowance from York
Directors fees from Addison
Loan repayment from Addison
Dividend from Addison
Helen Ann Roach
224,584
Directors fees from York
Retiring allowance from York
Directors fees from Addison
Dividend from Addison
TOTAL
$17,512,952
[31] The total of all of the assessments is far in excess of York's total liability. That is because, if the assessments are correct, each of the assessed parties is jointly and severally liable for York's entire tax debt, to the extent of the total payments they received.
[32] The appellants filed timely notices of objection to each of the section 160 assessments. The Minister has not dealt with them. The record discloses no reason for the delay in dealing with the appellants' notices of objection. Nor does the record disclose any reason for the failure of the appellants to pursue an appeal in the Tax Court of Canada, as it was entitled to do when the Minister failed to deal with their objections within 90 days.
[33] The record does not disclose whether York's advisers, in 1988 and 1989, had given any consideration to the potential application of section 160 of the Income Tax Act to any of the dividends or other payments made by York or Addison during those years. However, many of the payments made by York in 1989 would not normally have been expected to be vulnerable to a section 160 assessment (for example, the payment of directors fees, management fees and retiring allowances, and the making and repaying of loans: see paragraph [62] below). Indeed, some of the material in the record indicates that the tax officials have acknowledged that some of the reassessments may relate to payments that should not have been subject to section 160.
[34] As far as can be determined from the record, York's assets at the end of September of 1989 consisted of seismic data with a book value of approximately 6 million, which the Minister had concluded was worth approximately $1.7 million. The record does not indicate whether York ever raised additional capital, or whether it carried on a business after September of 1989.
[35] The appellants allege that by the time they were assessed under section 160, they had no chance of being indemnified by York for any amounts they might be obliged to pay in relation to those assessments. They also allege that if the Minister had acted sooner, their chances of recovery would or might have been better. As indicated above, for the purpose of the issues raised in this appeal, it must be assumed that those allegations are true.
C. The statutory scheme
[36] In the discussion that follows, I use the phrase "primary tax liability" to refer to the tax payable by a person under the Income Tax Act in relation to that person's own income. That is to be distinguished from what I will call the "vicarious tax liability" that arises from the application of section 160 of the Income Tax Act which, in certain circumstances, makes a person jointly and severally liable to pay the primary tax liability of another person.
(1) The statutory scheme for the assessment of a primary tax liability
[37] Sections 150 to 152 of the Income Tax Act describe the process by which the Minister, acting through the Canada Revenue Agency, determines a person's primary tax liability. That determination is referred to as an "assessment" (or a "reassessment" - for the purposes of this appeal, the two words are synonymous). The legal effect of an assessment is stated in subsection 152(8) of the Income Tax Act, which reads as follows:
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.
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 rattachant en vertu de la présente loi.
[38] In theory, it is always possible to determine a person's primary tax liability with certainty. That is because a person's primary tax liability for a particular year is determined by applying a fixed statutory formula to the amount of the person's taxable income for that year, and the amount of a person's taxable income is a function of the events that occurred before the end of that year.
[39] In practice, the facts that determine a person's primary tax liability may be difficult to determine because of the complexity of the computation, uncertainties and disputes about elements of the computation, and certain choices or elections that are open to taxpayer at various stages in the computation. The task of the Minister, despite those complexities, is to assess the primary tax liability of each person in accordance with the Income Tax Act. The Minister has no discretion to decline to assess a person's primary tax liability, or to assess a person's primary tax liability otherwise than in accordance with the Income Tax Act: Galway v. Minister of National Revenue, [1974] 1 F.C. 600 (F.C.A.).
(2) Challenging the correctness of an assessment
[40] The correctness of an assessment is challenged by filing a notice of objection with the Minister. That must be done within a stipulated time after the notice of assessment is sent (section 165 of the Income Tax Act, subject to extension as set out in sections 166.1 and 166.2). The Minister is required to deal with an objection with "all due dispatch" by either confirming the objection or reassessing (subsection 165(3) of the Income Tax Act). A notice of objection may result in a decision by the Minister to reduce the amount of tax assessed, in which case the Minister may reassess, or it may result in a decision that the objection is not well founded, in which case the Minister will confirm the assessment (subsection 165(3) of the Income Tax Act). If the Minister fails to confirm a disputed assessment or to reassess within 90 days of the filing of a notice of objection, the taxpayer may appeal the assessment to the Tax Court of Canada (paragraph 169(1)(b) of the Income Tax Act).
[41] The Income Tax Act stipulates no consequence for the failure of the Minister to deal with a notice of objection "with all due dispatch". However, the Federal Court may require the Minister to take undue delay into account if a request is made under section 220(3.1) of the Income Tax Act for a waiver of interest: Hillier v. Canada, 2001 FCA 197.
[42] A taxpayer who is not satisfied with the Minister's disposition of a notice of objection has the right to appeal the assessment to the Tax Court of Canada, subject to certain time limits (section 169 of the Income Tax Act; an extension of time may be permitted under section 167). The Tax Court may dispose of an income tax appeal by dismissing the appeal or allowing it. If the appeal is allowed, the Tax Court may vacate or vary the assessment, or refer it back to the Minister for reconsideration and reassessment (section 171 of the Income Tax Act). The decision of the Tax Court of Canada may be appealed to the Federal Court of Canada pursuant to section 27 of the Federal Courts Act.
[43] In an income tax appeal, the Tax Court is required to determine whether, in relation to the issues stated in the notice of appeal and the Minister's reply, the assessment under appeal is correct in law and in fact. Because the primary tax liability of a person for a particular year is a function of the relevant events that occurred in that year, unreasonable delay or other improper conduct on the part of a tax official in the assessment or objection process cannot be relevant to the correct determination of that liability: see, for example, Bolton v. Canada (1996), 200 N.R. 303, [1996] 3 C.T.C. 3, 96 D.T.C. 6413 (F.C.A.), Ginsberg v. Canada (C.A.), [1996] 3 F.C. 334 (application for leave to appeal dismissed, S.C.C. File No. 25520). That principle finds expression in section 166 of the Income Tax Act, which limits the jurisdiction of the Tax Court. Section 166 reads as follows (my emphasis):
166. An assessment shall not be vacated or varied on appeal by reason only of any irregularity, informality, omission or error on the part of any person in the observation of any directory provision of this Act.
166. Une cotisation ne peut être annulée ni modifiée lors d'un appel uniquement par suite d'irrégularité, de vice de forme, d'omission ou d'erreur de la part de qui que ce soit dans l'observation d'une disposition simplement directrice de la présente loi.
[44] It follows that the Tax Court has no role in the oversight of the conduct of tax officials, except to the extent that the Canadian Charter of Rights and Freedoms may limit the admissibility of evidence in proceedings in the Tax Court: see Main Rehabilitation Co. Ltd. v. Canada, 2004 FCA 403 (leave to appeal dismissed, S.C.C. File No. 30739), Canada v. O'Neill Motors Ltd. (C.A.), [1998] 4 F.C. 180.
(3) Judicial review of tax collection action
[45] A person's primary tax liability is a debt upon which interest accrues as long as the debt remains unpaid (sections 161 and 222 of the Income Tax Act). A tax debt is subject to a number of collection tools available to the Minister (although in the absence of special circumstances, the Minister cannot use most of those collection tools while the correctness of the assessment is subject to an unresolved objection or Tax Court appeal; see section 225.1 of the Income Tax Act). Most of the tax collection tools available to the Minister are found in Part XV of the Income Tax Act (sections 220 to 244).
[46] It is well established that the Minister or a delegate of the Minister employing any of the tax collection provisions of the Income Tax Act is a "federal board, commission or other tribunal" ( « office fédéral » ) as defined in section 2 of the Federal Courts Act); see Markevich v. Canada (T.D.), [1999] 3 F.C. 28 (reversed on another point by this Court, [2001] 3 F.C. 449, confirmed [2003] 1 S.C.R. 94.) It follows that a challenge to the legality or propriety of a collection action taken under Part XV may be the subject of an application for judicial review in the Federal Court, pursuant to sections 18 and 18.1 of the Federal Courts Act.
[47] Section 18.5 of the Federal Courts Act limits the Federal Court's judicial review jurisdiction. It reads as follows:
18.5 Despite sections 18 and 18.1, if an Act of Parliament expressly provides for an appeal to [...] the Tax Court of Canada [...] from a decision or an order of a federal board, commission or other tribunal made by or in the course of proceedings before that board, commission or tribunal, that decision or order is not, to the extent that it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with, except in accordance with that Act.
18.5 Par dérogation aux articles 18 et 18.1, lorsqu'une loi fédérale prévoit expressément qu'il peut être interjeté appel, [...] la Cour canadienne de l'impôt [...] d'une décision ou d'une ordonnance d'un office fédéral, rendue à tout stade des procédures, cette décision ou cette ordonnance ne peut, dans la mesure où elle est susceptible d'un tel appel, faire l'objet de contrôle, de restriction, de prohibition, d'évocation, d'annulation ni d'aucune autre intervention, sauf en conformité avec cette loi.
[48] An application for judicial review of the decision of the Minister to assess or confirm a person's primary tax liability will not be considered by the Federal Court because the assessment of that liability may be appealed to the Tax Court, and because a person's primary tax liability cannot be affected by any discretionary act of the Minister: see, for example, Minister of National Revenue v. Parsons, [1984] 2 F.C. 331 (F.C.A.), Webster v. Canada (2003 FCA 388, leave to appeal dismissed, S.C.C. Bulletin, 2004, p. 625, S.C.C. File No. 30095), and Walker v. Canada, 2005 FCA 393.
(4) Judicial review of the decision to use section 160?
[49] This case raises for the first time the question of whether section 18.5 of the Federal Courts Act precludes the Federal Court from considering an application for judicial review based on an allegation of an improper exercise of the Minister's discretion to assess a person's vicarious tax liability under section 160 of the Income Tax Act. If there is no relevant distinction between the assessment of a person's primary tax liability and the assessment of a person's vicarious tax liability under section 160, then the Federal Court was correct to grant the Crown's motion to dismiss and this appeal must fail.
[50] Section 160 reads in relevant part as follows:
160. (1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to
160. (1) Lorsqu'une personne a, depuis le 1er mai 1951, transféré des biens, directement ou indirectement, au moyen d'une fiducie ou de toute autre façon à l'une des personnes suivantes:
(a) the person's spouse or common-law partner or a person who has since become the person's spouse or common- law partner,
a) son époux ou conjoint de fait ou une personne devenue depuis son époux ou conjoint de fait;
(b) a person who was under 18 years of age, or
b) une personne qui était âgée de moins de 18 ans;
(c) a person with whom the person was not dealing at arm's length,
c) une personne avec laquelle elle avait un lien de dépendance,
the following rules apply:
les règles suivantes s'appliquent:
[...]
[...]
(e) the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of
e) le bénéficiaire et l'auteur du transfert sont solidairement responsables du paiement en vertu de la présente loi d'un montant égal au moins élevé des montants suivants:
(i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and
(i) l'excédent éventuel de la juste valeur marchande des biens au moment du transfert sur la juste valeur marchande à ce moment de la contrepartie donnée pour le bien,
(ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year,
(ii) le total des montants dont chacun représente un montant que l'auteur du transfert doit payer en vertu de la présente loi au cours de l'année d'imposition dans laquelle les biens ont été transférés ou d'une année d'imposition antérieure ou pour une de ces années;
but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act.
aucune disposition du présent paragraphe n'est toutefois réputée limiter la responsabilité de l'auteur du transfert en vertu de quelque autre disposition de la présente loi.
[51] Other parts of section 160 ensure that a payment made to discharge a liability that is the subject of a section 160 assessment operates to reduce the section160 liability. This avoids the possibility that a tax debt will be overpaid, with no one being entitled to claim a refund of the overpayment. For the purposes of this case, it is unnecessary to discuss the payment provisions.
(i) The elements of section 160
[52] As mentioned above, the liability of a person under section 160 of the Income Tax Act is a kind of vicarious liability. Broadly speaking, section 160 permits the tax debt of one person (the tax debtor) to be imposed on a second person if three conditions are met: (1) the second person does not deal at arm's length with the tax debtor (or is under eighteen years of age, or is the tax debtor's spouse), (2) the tax debtor has transferred property to the second person for less than fair market value consideration, and (3) the tax debtor has an unpaid primary tax liability for the year in which the transfer occurred, or a prior year. If these conditions are met, the tax debtor and the second person (the transferee of the property) are jointly and severally liable to pay the tax debt, to the extent of the fair market value of the transferred property (after deducting the value of any consideration given for the transferred property).
[53] Section 160 applies to "direct" transfers and "indirect" transfers. A direct transfer is a transaction by which one person transfers property to another. An indirect transfer would include a transaction by which one person transfers property to another through the hands of a third person. For example, if A gives B a gift of $100 in cash, then A has made a direct transfer of $100 to B. If A gives B $100 in cash on the condition or with the expectation that B will give C $100 in cash, and B gives C $100 in cash, then A has made an indirect transfer of $100 to C.
[54] Section 160 may be applied to a series of transfers, resulting in what is sometimes referred to as "cascading" section 160 assessments. For example, suppose that A, who owes tax of $100, makes an unconditional gift of $100 to B, who is his spouse. Then suppose that B makes an unconditional gift of $100 to C, her sister. Section 160 would permit the Minister to assess B for the $100 primary tax liability of A, so that A and B would be jointly and severally liable for the $100 primary tax liability of A. Section 160 would also permit the Minister to assess C for the $100 vicarious liability of B. The net effect would be that A, B and C would be jointly and severally liable for the same $100 primary tax liability of A. There will have been no indirect transfers, but two direct transfers, one from A to B, and the other from B to C. However, the risk to C of being assessed under section 160 is the same as if there had been an indirect transfer of $100 from A to C.
(ii) The history of section 160
[55] Section 160 was first enacted in 1951. At that time, it applied only to transfers of property from a tax debtor to the tax debtor's spouse or to a person under eighteen years of age. The typical transaction caught by that version of section 160 was a transfer by a tax debtor of title to the family home or other family assets.
[56] Section160 was amended in1981 by S.C. 1980-81-82-83, c. 140, s. 107, to broaden its scope. After 1981, section 160 could be applied to any transfer of property to any person with whom the tax debtor did not deal at arm's length (except to the extent the transferee paid fair market value consideration). One implication of the 1981 amendment to section 160 was that, for the first time, the tax debt of a corporation could be collected through the application of section 160. It would have been anticipated that in the typical case, the range of potential transferees of corporate property would be limited to the controlling shareholders of a closely held corporation, and their family members. In 1989, this amendment was still relatively new.
(iii) Section 160 and dividends
[57] One of the questions raised but not answered by the 1981 amendment to section 160 was whether the payment of a dividend could be a "transfer of property" within the meaning of section 160. It is possible to imagine a corporation, especially a closely held one, using the payment of a dividend to divest itself of assets in order to avoid paying a tax liability, but in most cases the payment of a div