Court File and Parties

COURT FILE NO.: CV-21-00000638-0000 DATE: 2021-12-06 SUPERIOR COURT OF JUSTICE – ONTARIO

IN THE MATTER OF THE Estate of Mark Orourke Greaves, Deceased

RE: JUANO JO CRICHTON, KENNETH JOHN McGILL and ROBERT GARY SISKIND, Estate Trustees of the Estate of Mark Orourke Greaves, Applicants

AND

HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO AS REPRESENTED BY THE MINISTRY OF FINANCE, Respondent

BEFORE: Justice S. Nicholson

COUNSEL: D. Williams, for the Applicants D. Irvine, for the Respondent

HEARD: October 6, 2021

REASONS ON MOTION

NICHOLSON J.:

[1] This Application arises out of the untimely death of Mark Orourke Greaves on November 7, 2020.

[2] His Estate Trustees have applied to the Superior Court of Justice seeking "the opinion, advice or direction of the Court in relation to the administration of the Estate". Specifically, the Estate Trustees seek a determination of whether life insurance proceeds on polices of insurance, payable to private corporations, the shares of which were owned by the deceased, are included in the value of the shares for the purpose of calculating estate administration taxes.

[3] The Respondent, Her Majesty the Queen in Right of Ontario as represented by the Ministry of Finance (the "Minister") brings the within motion to dismiss the Application pursuant to ss. 29.1 (5) and 29.1 (6) of the Retail Sales Tax Act, R.S.O. 1990, c. R. 31, ("RSTA"). The RSTA mechanism for objections and appeals is incorporated by reference pursuant to ss. 4.6 (2) of the Estate Administration Tax Act, 1998, S.O. 1998, c. 34, Sched. ("EATA").

[4] In a nutshell, the Minister argues that parties are prohibited from bringing court applications in respect of estate tax matters except in limited circumstances that do not exist in this case.

Background Facts:

[5] As noted, Mr. Greaves died on November 7, 2020. In his last will and testament dated December 16, 2008, he named the three Applicants as his Estate Trustees.

[6] Prior to his death, Mr. Greaves was the sole shareholder of three private corporations that owned and were the sole beneficiaries of life insurance policies insuring Mr. Greaves' life. Upon Mr. Greaves' death, the proceeds of those policies were payable to the three corporations. The shares of those corporations form part of Mr. Greaves' estate. The Estate is now the sole shareholder of the corporations.

[7] The Trustees have applied for and been granted a Certificate of Appointment of Estate Trustee with a Will. They have declared the value of the estate, which included the value of the shares of the corporations. Estate administration tax was paid based on an estimated value of the estate. The Estate Trustees did not include the insurance proceeds payable to the corporations in determining the value of the shares of the corporations. The Estate Trustees did file an undertaking with the Court confirming that they would file a sworn statement of the actual value of the estate once it was determined and would pay any additional estate administration tax owing within 6 months thereafter.

[8] The Minister has offered to provide the Estate Trustees with an advanced tax ruling. An advanced tax ruling is a process whereby a taxpayer provides the Minister with a set of facts and requests the Minister to provide a written opinion with regards to the tax consequences of the proposed transaction. The Estate Trustees declined the Minister's invitation for an advanced tax ruling and have continued with this Application.

The Legislative Framework:

[9] The EATA is the legislation that governs the taxation of a deceased person's estate. The EATA contains specific provisions with respect to assessments of tax, and objections and appeals from assessments. Section 4.6 of the EATA reads as follows:

4.6 (1) An estate representative may object to or appeal from an assessment or a reassessment made in respect of an estate under this Act.

(2) Sections 24 to 30 of the Retail Sales Tax Act apply, with necessary modifications, with respect to objections and appeals under this section.

[10] Thus, the EATA utilizes the procedures set out in the RSTA with respect to objections and appeals, by incorporating sections 24 to 30 of the RSTA by reference.

[11] Sections 24 to 30 of the RSTA provide a complete code for the objections and appeal procedure. Section 24 sets out the procedure for objections while sections 25 to 29 relate to appeals. Section 29.1 reads as follows:

29.1(1) If the following conditions are satisfied, a person may make an application under subrule 14.05 (2) of the Rules of Civil Procedure to a judge of the Superior Court of Justice:

1. The application is to determine one or more issues of law that depend solely on the interpretation of,

i. this Act or the regulations, or

ii. this Act or the regulations and another Ontario statute or regulation.

2. The Minister has indicated in writing that the Minister is satisfied that it is in the public interest for the applicant to make the application.

3. The Minister and the applicant have executed a statement of agreed facts on which they both intend to rely and the applicant files the statement as part of the applicant's application record.

4. No facts remain in dispute between the Minister and the applicant that either of them believes may be relevant to the determination of any issue of law that is a subject of the application.

(5) No person other than the Minister may bring an application under subrule 14.05(3) of the Rules of Civil Procedure on or after the day this section comes into force, in respect of any matter arising under this Act.

(6) On the motion of the Minister, the court shall dismiss a proceeding commenced by an application under rule 14.05 of the Rules of Civil Procedure relating to a matter under this Act or the regulations if any condition in subsection (1) has not been satisfied or the application is prohibited under subsection (5).

[12] Rule 14.05 (3) of the Rules of Civil Procedure enumerates the types of proceedings that may be brought by way of application. This includes 14.05 (3)(a), which provides as follows:

14.05(3) A proceeding may be brought by application where these rules authorize the commencement of a proceeding by application or where the relief claimed is,

(a) The opinion, advice or direction of the court on a question affecting the rights of a person in respect of the administration of the estate of a deceased person or the execution of a trust.

Position of the Parties:

[13] The Minister argues that the legislature has made it clear that applications such as the one brought by the Applicants are not permitted and that a taxpayer is obligated to follow the mechanism set out in the EATA. The Minister contends that the provisions of the EATA place the onus on an estate to self-assess whether tax is owing and if so, how much. In the Minister's view taxpayers ought not to involve the court in that exercise prior to filing the material with the Minister. The proper mechanism is for an estate to file an estate information return, receive an issued estate certificate and have the Minister assess the tax payable by the estate. The role of the court is limited to a right of appeal from an assessment.

[14] The Applicants concedes that s. 29.1 of the RSTA prohibits applications under subrule 14.05(3) by any person other than the Minister. However, they take the position that s.4.6(2) of the EATA only makes sections 24 to 30 of the RSTA applicable with respect to objections and appeals under s. 4.6 (1). The Applicants argue that they have not objected to, nor appealed from, an assessment or a reassessment thus the prohibition against bringing a rule 14.05 (3) application under s. 29.1 of the RSTA does not apply. In their submission, rule 14.05 (3)(a) provides a longstanding right of a party to request the opinion, advice or direction of the Court, which right cannot be taken away without clear legislative intention to do so.

Analysis:

[15] In its factum and oral submissions the Minister has set out the genesis of s. 29.1 of the RSTA.

[16] Starting in approximately 2005 Procter & Gamble Inc. ("P&G") and the Minister had a dispute over whether or not retail sales tax was payable on the cost of wooden pallets leased by P&G for packaging shipments to its large-store customers. P&G had paid the tax. It subsequently claimed that it had done so in error and sought a refund of approximately $2.2 million. It filed objections under the RSTA and when the Ministry confirmed the assessments, P&G then filed appeals under the RSTA.

[17] In addition to those appeals, in 2006 P&G brought an application under rule 14.05 (3)(d) seeking a declaration that retail sales tax was not payable. In Procter & Gamble v. The Minister of Finance for Ontario, 2006 CanLII 29664 (ONSC) the application judge determined that P&G was exempt from paying retail sales tax on the pallets.

[18] The Minister appealed the decision (Procter & Gamble Inc. v. Ontario (Finance), 2007 ONCA 784). The appeal was dismissed. The Ministry filed and then abandoned an application for leave to appeal to the Supreme Court of Canada.

[19] The Ministry subsequently amended the legislation, retroactively, to include the prohibition on subrule 14.05(3) applications found in s. 29.1 of the RSTA and amended the definition of "returnable container". The Ministry then brought a rule 21 motion to have P&G's four outstanding tax appeals determined based on the amendment.

[20] The motion judge, in Procter & Gamble Inc. v. The Minister of Finance, 2009 CanLII 9475 (ONSC), noted that the retroactive amendment was made with the P&G case specifically in mind and accordingly, found in favour of the Ministry.

[21] P&G appealed (Procter & Gamble Inc. v. Ontario (Minister of Finance), 2010 ONCA 149). The Court of Appeal dismissed the appeal. Juriansz J.A., writing for the Court, noted that P&G "candidly explained" that it resorted to a rule 14 application while its objections and appeals were pending under the RSTA because the legislated process was too slow. P&G had submitted that a rule 14 application allowed a taxpayer to obtain a declaration that can be filed in its statutory assessment appeals, thus speeding up the determination of the issues and shortening the time to obtain a refund of disputed tax. In P&G's view, once a declaration under rule 14 was obtained, the Superior Court of Justice hearing an appeal under the RSTA would be compelled to grant judgment in accordance with it.

[22] Juriansz J.A. did not accept that a rule 14 declaration would conclusively determine the result of the appeals. He noted that within the large administrative scheme for the collection of retail sales tax, the determination of an individual assessment may have significant policy and revenue generating implications for the system as a whole. Accordingly, the process permitted the Minister time to consider the issues raised by the individual taxpayer's assessment and to formulate a response (at para.31).

[23] Juriansz J.A. stated as follows at paras. 54 and 56:

[54] No doubt P&G had hoped, by departing the tax arena and obtaining a declaration interpreting the RSTA, that it could use the declaration to its advantage in its assessment appeals. The law, however, can change, as Dickson J. pointed out in Gustavson Drilling (1964) Ltd. v. M.N.R., 1975 CanLII 4 (SCC), [1977] 1 S.C.R. 271, [1975] S.C.J. No. 116, at pp. 282-83 S.C.R.:

No one has a vested right to continuance of the law as it stood in the past; in tax law it is imperative that legislation conform to changing social needs and governmental policy. A taxpayer may plan his financial affairs in reliance on the tax laws remaining the same; he takes the risk that the legislation may be changed.

The mere right existing in the members of the community or any class of them at the date of the repeal of a statute to take advantage of the repealed statute is not a right accrued...[page336]

[56] While these outcomes may appear unfair or unjust, it is the legislature's prerogative to determine tax policy, not this court's. Given the clear intent of the legislature to retroactively amend the RSTA, this court must give it effect.

[24] Similarly, in the subject case, the Minister takes the position that the Applicants are attempting to depart the tax arena and obtain a favourable declaration that they can rely upon should an assessment under the EATA occur.

[25] Both parties referred to the Court of Appeal decision of Danso-Coffey v. Ontario, (2010) 99 O.R. (3d) 401, 2010 ONCA 171. That case also involved an assessment under the RSTA, this time involving a bankrupt corporation. The RSTA made the directors of a bankrupt corporation jointly and severally liable with the corporation to pay tax. Ms. Danso-Coffey was the target of the Minister's attempt to collect unremitted retail sales tax on the basis that she was a director. She sought a declaration from the court through a rule 14.05(3) application that she was never a director and was accordingly not liable under s. 43 of the RSTA. The Minister argued that all disputes respecting an assessment under the RSTA had to be resolved through the process established therein, not by applications in the court. The Minister relied upon s. 29.1.

[26] Weiler J.A. recognized that the court may be able to exercise its inherent jurisdiction to make a declaration if there is a functional gap in the legislation. However, he noted as follows at paras. 33-35:

[33] Superior Courts must be cautious in exercising their jurisdiction in order to preserve the efficacy of the system of tax assessments. They should respect the structure set up by the legislature and not develop a new form of incidental litigation: see, by analogy, Canada v. Addison, at paras. 8 and 11, cited below:

We need not engage in a lengthy theoretical discussion on whether s. 18.5 can be used to review the exercise of ministerial discretion. It is not disputed that the Minister belongs to the class of persons and entities that fall within the Federal Court's jurisdiction under s. 18.5. Judicial review is available, provided the matter is not otherwise appealable. It is also available to control abuses of power, including abusive delay. Fact-specific remedies may be crafted to address the wrongs or problems raised by a particular case. ....

Reviewing courts should be very cautious in authorizing judicial review in such circumstances. The integrity and efficacy of the system of tax assessments and appeals should be preserved. Parliament has set up a complex structure to deal with a multitude of tax-related claims and this structure relies on an independent and specialized court, the Tax Court of Canada. Judicial review should not be used to develop a new form of incidental litigation designed to circumvent the system of tax appeals established by Parliament and the jurisdiction of the Tax Court. Judicial review should remain a remedy of last resort in this context.

[34] Whether or not the RSTA is a complete code in the strict sense of that term, the application here was a direct challenge to the validity of an assessment and the provisions of the RSTA govern such challenges.

[35] Where the legislature has specified precisely what conditions must be satisfied to achieve a particular result, it is reasonable to assume that the legislature intended that taxpayers would rely on such provisions to achieve the result they prescribe. Even absent words clear enough to oust the court's jurisdiction, I would infer that the legislature intended disputes concerning the validity of an assessment of tax to be resolved within the RSTA. Thus, the application judge erred in declaring that Ms. Danso-Coffey was not liable for retail sales tax.

[27] Of note, Weiler J.A. did uphold the application judge's finding that Ms. Danso-Coffey was not a director, as the RSTA was not relevant to that request for a declaration. If a matter is not tax-related it falls outside the RSTA regime and s. 29.1 does not have any application.

[28] In his concurring reasons, Juriansz, J.A., with whom Epstein J.A. concurred, stated at para. 56 "[I]n my view, s. 29.1 of the RSTA applied to Ms. Danso-Coffey's application, a question that Weiler J.A. found it unnecessary to decide".

[29] Section 29.1 of the RSTA was also examined in Compucare v. Ontario (Attorney-General), 2015 ONSC 1987. In that case, the applicants had brought a rule 14.05 (3) application in respect of an RSTA dispute. MacLeod-Belliveau J. noted that the collection and assessment of tax is clearly a matter that arises under the Act. In her view, it was clear and obvious that the application fell squarely within this prohibition and could not proceed.

[30] Relying on Danso-Coffey, the Applicants argue that there is a "functional gap" in the subject circumstances that permit a court to rely upon its inherent jurisdiction to grant declaratory relief. The functional gap described in Danso-Coffey was that the RSTA did not contemplate the defence raised by the applicant, i.e. that she was not, in fact, a director. The motions judge had stated "[A]t the time of this assessment, the RSTA was not, in my opinion, a sufficiently comprehensive or exclusive scheme as to oust this court's jurisdiction to grant declaratory relief."

[31] The "functional gap" in the within case arises, in the Applicant's submission, because there is no procedure established under the RSTA and EATA for dealing with matters prior to an objection or appeal. As pointed out by the Applicants, in the above cited cases the assessment process was under way. In the subject case, they argue that there have been no assessments, no objection and no appeal and thus, s. 29.1 of the RSTA is not engaged. In the Applicant's view, the court has the inherent jurisdiction to step into this lacuna. Admittedly, this argument has some attractiveness to it on the plain meaning of the words in the EATA.

[32] However, I cannot accede to that argument. The modern principle of statutory interpretation requires the court to look not only to the plain meaning of a particular provision but to the surrounding context in which the words of that provision are found (see, for example, Rooney v. ArcelorMittal S.A., 133 O.R. (3d) 287 (Ont.C.A), 2016 ONCA 630). As set out in Rizzo & Rizzo Shoes Ltd. (Re), (1998), 1998 CanLII 837 (S.C.C.), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament (the so-called "modern approach to statutory interpretation").

[33] As the cases provided have made clear, the determination of tax policy is not the purview of the courts. The purpose of the mechanism set out by the EATA and RSTA is to minimize the court's involvement in estate administration tax matters, placing those decisions into the hands of the Ministry who is best positioned to make policy decisions with respect to tax law. As noted in Danso-Coffey, the legislature intended disputes concerning the validity of an assessment of tax to be resolved within the RSTA. That is not to say that there is no role for the court, but only that the court becomes involved at the appeal stage of the procedure. The court should not be asked, in my opinion, to make advance tax rulings.

[34] Examining the EATA as a whole, I note that the tax on an estate is payable by the estate of a deceased person immediately upon the issuance of an estate certificate. Although there is provision for an estimate of the tax payable to be made, with an undertaking to pay any shortfall, the scheme of the EATA does not contemplate a period of time during which an estate trustee can apply to the court for, in effect, an advance tax ruling. Once the tax is payable, in my view, the estate should be considered to be into the objection and appeal process for the purpose of the procedure set out in the RSTA.

[35] Section 4.1 of the EATA, for example, obligates an estate representative applying for an estate certificate to provide the Minister certain information about the deceased person as prescribed in O. Reg 310/14. That information permits the Minister to begin the assessment process.

[36] If it were otherwise, there would be no incentive for an estate to file an objection, as an estate could simply always apply to court under rule 14.05(3) first. This interpretation entirely guts the mechanism established in the legislation for the purpose of placing these tax policy decisions in the hands of the appropriate decision maker.

[37] I agree with the submission of the Minister that on its face the application is seeking a declaration as to whether estate administration tax is payable in respect of the value of the shares of the corporations, a matter that falls squarely within the parameters of the EATA. It does not matter what the Applicants' purpose(s) is(are) in seeking the declaration and I impute no nefarious purpose to the Applicants. However, I cannot accept that the Applicants are not anticipating wishing to make an objection, followed by a possible appeal, following the Minister's assessment.

[38] I do not accept that because no assessment has been undertaken that this somehow opens the door to such an application. I agree with the Minister's submission that it cannot simply be a matter of timing. The prohibition under s. 29.1 of the RSTA is clear—it is in respect of "any matter arising under this Act", and that prohibition is subject only to a very prescribed set of circumstances, all of which must be present. Most noticeably, is the requirement for the cooperation of the Minister.

[39] This determination does not preclude the Applicants from accessing the court in the event they ultimately disagree with the Minister's assessment. An appeal route leads to the court. It does, however, eliminate the risk of inconsistent findings between the court and the Minister, respects the expertise of the tax policy makers and appropriately preserves scant judicial resources that would be otherwise consumed if there were a parallel mechanism available to obtain advance tax rulings.

[40] I note that the merits of the application are not before me. I offer no opinion upon the issues to be decided and nothing I have said should be construed otherwise. I also note that, should I be wrong in my analysis and an application such as this is permissible, courts will often decline to exercise its jurisdiction over tax matters in any event (see, for example, Mandel v. 1909975 Ontario Inc., 2021 ONCA 844). I make this observation only in passing, as it would be for the judge hearing the within application to determine whether he or she would simply decline jurisdiction.

Disposition:

[41] For the foregoing reasons, the Minister's motion is granted and the application is dismissed.

[42] I was advised by the parties that they agreed in advance with respect to costs. Costs shall be payable in accordance with that agreement.

"Justice S. Nicholson"

Justice Spencer Nicholson

Date: December 6, 2021