Court File and Parties

COURT FILE NO.: CV-15-00523742 DATE: 20160610 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

AUBREY DAN FAMILY TRUST Appellant – and – THE MINISTER OF FINANCE Respondent

Counsel: Jacques Bernier and Mark Tonkovich, for the Appellant, Moving Party Andrea Jackett and Elizabeth Chasson, for the Respondent, Responding Party

HEARD: April 22, 2016

LEDERMAN J.

Nature of Motion

[1] This summary judgment motion arises in the context of Aubrey Dan Family Trust’s (“ADFT”) appeal from an Ontario income tax reassessment (“Reassessment”). The Reassessment was issued on February 22, 2012 under the Income Tax Act R.S.O. 1990, c.I. 2 (“Ontario Act”) in respect of the 2007 taxation year. The Reassessment resulted in a $1,516,169.59 net increase to ADFT’s total provincial/territorial income tax payable. It also imposed $383,652.68 of interest in respect of ADFT’s (deemed) failure to pay the net provincial tax increase between 2007 and the date the Minister communicated the Reassessment to ADFT.

[2] ADFT brings this motion for summary judgment to allow ADFT’s income tax appeal for the 2007 taxation year and vacating the Reassessment issued under the Ontario Act for the 2007 taxation year.

[3] ADFT’s appeal raises two main issues: (1) whether the respondent, the Minister of Finance, failed to make the 2007 Reassessment within the applicable statutory limitation period; and (2), if the Reassessment was made in time, whether ADFT was a resident of Alberta or Ontario for income tax purposes. The first issue is the subject of this summary judgment motion focusing on the validity of the Reassessment and in particular whether the Reassessment was issued outside the limitation period, and if so, whether the limitation period was properly waived.

Background

[4] ADFT’s T3 Trust Income Tax Return for the taxation year ended December 31, 2007 was filed with the Canada Revenue Agency (the “CRA”) on February 27, 2008. ADFT filed its return as a resident of the province of Alberta.

[5] ADFT was assessed as a resident of Alberta, as filed, for the 2007 taxation year and a Notice of Assessment dated July 30, 2008 was issued and sent to ADFT.

[6] The CRA is responsible for the administration and enforcement of Ontario’s income tax. This responsibility includes auditing and assessing provincial income tax liability. Provincial tax assessments and federal tax assessments are addressed concurrently in notices of assessment and reassessment.

[7] Mangalika Fernando, an auditor with the CRA, began an audit of ADFT’s 2007, 2008 and 2009 taxation years in 2010. The only issue being considered was whether ADFT was resident for tax purposes in Ontario or Alberta during these years. There were no audit issues for federal income tax purposes.

[8] At various points during the audit process, Ms. Fernando spoke to David Busheikin, Judah Busheikin, and Aubrey Dan, ADFT’s trustees; Raj Jain of Toby & Jain Chartered Accountants, the accountants for ADFT; and Jack Halpern of Halpern Stockhamer, Barristers and Solicitors, ADFT’s counsel. At all times, ADFT’s representatives and the trustees of ADFT were aware that the only issue that Ms. Fernando was auditing and considering making adjustments to was the provincial residency of ADFT.

[9] On July 6, 2011, Ms. Fernando wrote to Jack Halpern and explained that the CRA proposed to reassess ADFT on the basis that it was resident for tax purposes in Ontario and not in Alberta. Ms. Fernando advised Mr. Halpern that as the 2007 return would be statute-barred on July 30, 2011, she would hold the reassessment in abeyance for fifteen days to allow further representations to be made on the issue of residence. Ms. Fernando further advised that if Mr. Halpern wished to have additional time to make further representations, it would be necessary for a T2029 – Waiver in Respect to the Normal Reassessment Period to be completed. Copies of the letter were also sent to the three trustees of ADFT.

[10] In response to her letter of July 6, 2011, Ms. Fernando received on July 19, 2011 a faxed copy of a T2029 – Waiver in Respect of the Normal Reassessment Period signed by Judah Busheikin, one of the three trustees of ADFT. On July 20, 2011 Ms. Fernando received faxed copies of waivers signed by the other two trustees of ADFT, David Busheikin and Aubrey Dan.

[11] Ms. Fernando accepted these waivers as a waiver of the time period to reassess ADFT as a resident of Ontario for the 2007 taxation year. She concluded that as the waivers were signed, that ADFT’s counsel was seeking additional time in order to make further representations on the issue of provincial residency. Ms. Fernando advised Mr. Halpern in a voice mail message that she was granting an extension of time to August 5, 2011 to make further representations on behalf of ADFT.

[12] Ms. Fernando ultimately concluded that ADFT was resident for tax purposes in the province of Ontario during the 2007, 2008 and 2009 taxation years. She proceeded to assess ADFT as a resident of Ontario pursuant to the Ontario Act. As ADFT had already been initially assessed for federal and Alberta income tax, the CRA’s system automatically generated a Notice of Reassessment. A Notice of Reassessment dated February 22, 2012 in respect of the taxation year ended December 31, 2007 was sent to the accountant for ADFT.

[13] ADFT filed a Notice of Appeal in respect of its 2007 taxation year on or about March 11, 2015.

Did the Limitation Period Expire?

[14] Federally, the sending of notice of an original assessment or an original notification that no taxes are payable by a taxpayer triggers the running of the normal reassessment period for a particular taxation year. This same rule applies for purposes of several Canadian tax statutes, including the Ontario Act (Ontario Act, s. 10(1) 2) which adopts certain provisions of the federal Income Tax Act, R.S.C. 1985 c. 1 (5th Supp.) (the “Federal Act”)). The normal reassessment period is three years after the earlier of the day of sending of a notice of an original assessment or an original notification that no tax is payable (Federal Act, s. 152(3.1)).

[15] ADFT submits that its normal reassessment period in respect of the 2007 taxation year, expired three years after the sending of the original notice. That notice is dated July 30, 2008 and was sent to ADFT on or about that date. It communicated the assessment of ADFT’s total provincial or territorial tax payable of $1,393,818.75. At that time, the CRA had determined that the whole of that amount was Alberta income tax payable, with zero dollars income tax payable to each of the other provinces and territories under the CRA’s administration. Thus, ADFT submits that the 2007 normal reassessment period for provincial or territorial income tax expired on or about July 30, 2011; and CRA’s communication of its Reassessment notice dated February 22, 2012 was beyond the limitation period and therefore statute barred.

[16] The respondent’s position is that the evidence is clear that the notice of assessment dated July 30, 2008, imposed only Federal income tax and Alberta income tax, as filed by ADFT. No Ontario income tax was assessed at that time. Accordingly, the respondent asserts that the Reassessment was in fact an initial assessment of Ontario provincial tax. Therefore, it submits that the Reassessment would not be statute barred as the statutory limitation period would have commenced only with the sending of the Reassessment notice dated February 22, 2012.

[17] The respondent’s position has a number of problems including:

(a) The auditor was taking the position that ADFT’s 2007 taxation year would become statute barred after July 30, 2011 and that is why she had requested that ADFT file the T2029 waiver form. Had the proposed reassessment truly have been an initial assessment of Ontario income tax, the July 30, 2011 date would be irrelevant and the auditor would not have needed the waiver form.

(b) The respondent’s position also runs counter to public policy. If the original notice does not constitute notification of no tax payable in all provincial or territorial jurisdictions, then a taxpayer receiving such a notice, could be assessed for income taxes in any other province or territory indefinitely. This could happen many years beyond a taxpayer’s record keeping period or beyond the expiry of the normal reassessment period for the province or territory that first assessed the taxpayer.

(c) The respondent’s interpretation would lead to an inconsistency. Its interpretation depends on the original notice to ADFT constituting notice of CRA’s determination as to ADFT’s Federal and Alberta income tax liability, but not its Ontario tax liability. It also depends on the Reassessment Notice reflecting both an initial Ontario income tax assessment and a reassessment of zero dollars of Alberta income tax. That would arise because, if the Reassessment did not adjust both ADFT’s Ontario and its Alberta income tax liability, then the resulting net provincial/territorial tax would include both the Ontario income tax liability and the previously assessed Alberta income tax. Thus, there is no basis for reading the Reassessment Notice as reflecting CRA’s determination that ADFT has no Alberta tax payable while refusing to accept the same interpretation of the original Notice in respect of Ontario tax payable. Accordingly, the original Notice of Assessment reflected CRA’s decision on ADFT’s provincial tax liability in all provinces and territories.

[18] I find that the original notice did trigger the running of the normal reassessment period under the Ontario Act, which period expired on July 30, 2011.

Was There a Valid Waiver Pursuant to the Ontario Act for Purposes of Waiving the Normal Reassessment Period?

[19] Subsection 152(4)(a)(ii) of the Ontario Act permits the Minister to reassess a taxpayer after the normal reassessment period where the taxpayer:

“has filed with the Minister a waiver in prescribed form within the normal reassessment period for the taxpayer in respect of the year.” (emphasis added)

[20] The Ontario Act defines “prescribed” as:

“in the case of a form or the information to be given on a form, means prescribed by order of the Provincial Minister, and, in any other case, means prescribed by regulation.” (Ontario Act, Section 1(1)).

[21] The Federal Act, on the other hand, defines “prescribed” as:

“in the case of a form, the information to be given on a form or the manner of filing a form, authorized by the Minister.” (Federal Act, Section 248(1))

[22] Neither the word “order” in the Ontario Act nor the word “authorized” in the Federal Act is defined.

[23] ADFT takes the position that there is no “order of the Provincial Minister” which prescribes the form of waiver to be used. It submits that there can be no prescribed waiver for Ontario Act purposes in the absence of a clear ministerial order prescribing the form or contents to be included for purposes of waiving the normal reassessment period. ADFT argues that the failure to issue such an order leaves a glaring gap in the reassessment regime and thus there can never be waiver of the limitation period.

[24] However, Subsection 48(15) of the Ontario Act provides that:

Every form purporting to be a form prescribed or authorized by the Provincial Minister shall be deemed to be a form prescribed by order of the Provincial Minister under this Act unless called into question by the Provincial Minister or by some person acting for the Provincial Minister or Her Majesty. (emphasis added).

[25] Similarly, subsection 244(16) of the Federal Act provides that:

Every form purporting to be a form prescribed or authorized by the Minister shall be deemed to be a form authorized under this Act by the Minister unless called into question by the Minister or by a person acting for the Minister or Her Majesty.

[26] Subsection 1(1) of the Ontario Act defines “Provincial Minister” as meaning the Minister of Finance except where a collection agreement has been entered into with the Federal government in which case “Provincial Minister” means the “Minister”. The “Minister”, which is also defined in subsection 1(1), means the Minister of National Revenue of Canada.

[27] Under such a collection agreement, the CRA acts as agent and delegate of the respondent Minister for purposes of administering and enforcing the Ontario Act. There is no dispute that there exists a long standing collection agreement between the Federal and Provincial governments and that the Minister of National Revenue has the power to assess and reassess both Federal and Provincial income tax.

[28] Subsection 1(5) of the Ontario Act provides that provisions of that Act shall be applied and interpreted in a manner consistent with similar provisions of the Federal Act. The Province intended to fully adopt the Federal regime of assessments, reassessments and waivers if there is a collection agreement in place.

[29] ADFT submits that subsection 48(15) of the Ontario Act has no bearing on this case for at least three reasons:

(i) There is no form that “purports” to be duly prescribed for purposes of waiving the normal reassessment period under the Ontario Act, as is required for subsection 48(15)’s application.

(ii) Properly interpreted, subsection 48(15) is merely an evidentiary tool; it does not fill the jurisdiction gap in the Ontario Act’s reassessment regime.

(iii) Alternatively, any purported prescription has clearly been “called into question” by the Crown in this case, thereby negating any effect of subsection 48(15).

Every Form Purporting To Be a Form Prescribed . . .

[30] A trio of British Columbia Court of Appeal cases, namely R. v. Point, 1957 Carswell BC 92, R. v. Watson, 2006 BCCA 233 and R. v. Smith, 2007 BCCA 499, have relied on the predecessor of s. 244 (16) of the Federal Act to reject the taxpayer’s argument that there was no evidence that the form in question that was demanded (Form T-1) was in prescribed form.

[31] AFDT criticizes the lack of detailed analysis in those cases and the fact that the BC Courts did not refer to the operative opening phrase i.e. “Every form purporting to be a form prescribed or authorized by the Minister …” ADFT submits that that phrase confirms that the form itself must purport to be prescribed for the deeming provision to apply.

[32] The word “purporting” means “signify, imply, profess to be … appear ostensibly to be” (The New Shorter Oxford Dictionary, 1993). On its face, the T2029 Waiver Form bears the insignia of the CRA and the Government of Canada and refers to the Federal Department of Finance and is regularly used by the CRA. In this way, it implies or purports to be a prescribed form.

[33] ADFT relies on Murphy v. Minister of National Revenue, 2009 FC 1226 which considered the purpose and effect of another federal deeming provision (s. 244(13) of the Federal Act) for the proposition that it must be narrowly read and applied. That case, however, dealt with the issuance of a Requirements for Information form which purported to be properly executed but had actually been issued by a CRA officer who lacked the authority to issue such documents. In that case, it was held that the deeming provision could not grant jurisdiction where the CRA acted outside the explicit authority granted by statute. The form in question in this case is of a different nature. By contrast, the waiver here was optionally provided and signed by the taxpayer, ADFT, with full informed consent as to the narrow purpose for which it was to be used. It did not require delegated statutory authority by the Minister in order to be signed.

[34] Subsection 48(15) of the Ontario Act is a deeming provision and avoids the necessity of formal proof of the order of the Minister. The prescription imposed by the Minister is sufficiently evidenced by the aforesaid indicia on the form. Explicit wording on the form that it purports to be a form prescribed under the Ontario Act is not required for subsection 48(15) to apply.

Called Into Question

[35] ADFT submits that, in any event, the respondent has called into question whether Waiver Form T2029 has been prescribed for purposes of waiving the Ontario Act’s normal reassessment period. In the course of this proceeding, officers of the respondent and CRA advised that no order or other documentation exists prescribing the T2029 form for purposes of waiving the normal reassessment period under the Ontario Act, and counsel for the respondent stated in their factum (para 31) that “no form has been prescribed pursuant to the Ontario Act for the purpose of waiving the normal reassessment period.”

[36] This is not a calling into question of the validity or the official character of the T2029 form itself. Further, it is subsection 48(15) which deems it to be prescribed, whether or not it has been actually prescribed by order of the Provincial Minister.

Summary

[37] The Ontario Act fully adopts the federal regime in respect of waivers, including the prescribed T2029 form, and any doubt is resolved by the interpretative provisions in section 1 and by subsection 48(15) of the Ontario Act.

[38] Waiver form T2029 is a form utilized for federal purposes and purports to be the form prescribed or authorized by the Minister of National Revenue.

[39] Accordingly, the waiver form that was used in the instant case is deemed to be a form “prescribed by order of the Provincial Minister” under the Ontario Act. It has not been called into question by the Provincial Minister or anyone acting on his behalf. Therefore, the waiver form signed by ADFT is valid for the purposes of waiving the statutory limitation period in question.

Conclusion

[40] ADFT’s motion for summary judgment is therefore dismissed.

[41] If the parties cannot otherwise agree as to costs of the motion, they may make written submissions; the respondent within 15 days; ADFT within 15 days thereafter; and reply, if any, by the respondent within a further 7 days.

Lederman J.

Released: June 10, 2016

Reasons for Judgment

COURT FILE NO.: CV-15-00523742 DATE: 20160610 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

AUBREY DAN FAMILY TRUST Appellant – and – THE MINISTER OF FINANCE Respondent

Lederman J.

Released: June 10, 2016