Date: 20060321
Dockets: A-222-04
A-582-04
Citation: 2006 FCA 119
CORAM: NADON J.A.
SHARLOW J.A.
PELLETIER J.A.
Docket: A-222-04
BETWEEN:
BRYON MOREY ARMSTRONG
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-582-05
AND BETWEEN:
BRYON MOREY ARMSTRONG
Appellant
and
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT
SHARLOW J.A.
[1] These reasons relate to two appeals. The first appeal is from a judgment of the Tax Court of Canada dated May 26, 2004, allowing the motion of the respondent (the Crown) to quash notices of appeal filed by Mr. Armstrong for 1991 and 1993 (2004 TCC 348). The second appeal is from a judgment of the Federal Court dated October 1, 2004, dismissing Mr. Armstrong's application for order requiring the Minister to make a determination of loss under subsection 152(1.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th supp.), for the 1993 taxation year (2004 FC 1353). Both proceedings resulted from Mr. Armstrong's failure to realize, until 1997, that he had a basis for claiming a certain rental loss in 1993.
Facts
[2] On December 5, 1994, Mr. Armstrong was reassessed for 1991, 1992 and 1993. Mr. Armstrong filed notices of objection on December 16, 1994. The reassessments were confirmed on December 20, 1995. Mr. Armstrong appealed all three reassessments to the Tax Court of Canada under the provision for informal proceedings. The 1991 and 1992 appeals were held in abeyance while the 1993 appeal was heard. On February 24, 1996, the appeal for 1993 was dismissed: Armstrong v. Canada, [1997] 2 C.T.C. 2615 (T.C.C.). Mr. Armstrong applied to this Court for judicial review of that decision.
[3] While Mr. Armstrong's application to this Court was outstanding, and while his appeals for 1991 and 1992 were still pending in the Tax Court, Mr. Armstrong began to prepare his tax returns for 1994, 1995 and 1996. He had given some material to his accountant. Among the material was information about certain rental losses that Mr. Armstrong wished to claim. The accountant concluded that some of Mr. Armstrong's information related to expenses that should have been claimed in 1993 and not, as Mr. Armstrong thought, in 1994. Accordingly, at some point late in 1997, Mr. Armstrong submitted an amended return for 1993 that included the previously unclaimed rental loss. As it appeared to Mr. Armstrong that the new 1993 loss would result in a non-capital loss for 1993, he requested that the loss be carried back to 1991. However, Mr. Armstrong did not attempt to have his new 1993 loss claim, or his request for the loss carry back, made part of any of the court proceedings then pending.
[4] On September 28, 1999, while Mr. Armstrong's requests for reassessments were before the Minister, Mr. Armstrong's application for judicial review of the Tax Court judgment for 1993 was dismissed: Armstrong v. Canada, [2000] 1 C.T.C. 1, 99 D.T.C. 5725 (F.C.A.).
[5] After further negotiation, Mr. Armstrong's appeals for 1991 and 1992 were the subject of consent judgments dated February 20, 2002. Those consent judgments led to reassessments dated April 9, 2002. The reassessments reduced but did not eliminate Mr. Armstrong's taxable income for 1991 and 1992. The reassessment for 1991 did not give effect to Mr. Armstrong's request to apply the 1993 non-capital loss reflected in his amended 1993 return.
[6] On April 9, 2002, Mr. Armstrong filed a notice of objection for 1991 and 1993 to protest the Minister's failure to recognize the losses claimed in his amended 1993 return. The Minister took the position that the notice of objection was invalid. On December 21, 2002, Mr. Armstrong filed a notice of appeal in the Tax Court for 1991 and 1993. The Minister filed a motion for an order quashing the notice of appeal. The order granting that motion is the subject of the first appeal.
[7] On December 11, 2003, Mr. Armstrong filed a notice of application for judicial review to seek an order compelling the Minister to determine his 1993 rental loss pursuant to subsection 152(1.1) of the Income Tax Act. The order of the Federal Court dismissing that application is the subject of the second appeal.
The legal effect of the amended 1993 return
[8] An amended return for a taxation year that has already been the subject of a notice of assessment does not trigger the Minister's obligation to assess with all due dispatch (subsection 152(1) of the Income Tax Act), nor does it start anew any of the statutory limitation periods that commence when an income tax return for a particular year is filed and then assessed. An amended income tax return is simply a request that the Minister reassess for that year.
[9] In this case, Mr. Armstrong's amended 1993 return represents two requests, one for a 1993 reassessment to recognize the new loss, and the other for a 1991 reassessment to apply the resulting 1993 non-capital loss to that year.
The Minister's legal authority to reassess
[10] It is necessary at the outset to understand the scope of the Minister's legal authority to accede to Mr. Armstrong's requests to reassess for 1991 and 1993.
[11] The normal reassessment period for an individual taxpayer is three years from the date of the initial assessment (subsection 152(3.1) of the Income Tax Act). That is extended to six years for a reassessment to give effect to a loss carry-back (subparagraph 152(4)(b)(i) and subsection 152(6) of the Income Tax Act). In late 1997, when Mr. Armstrong filed his amended 1993 return, the normal reassessment period for 1993 had expired, and the extended reassessment period for a loss carry-back to 1991 had also expired. Therefore, the Minister had limited statutory authority to reassess Mr. Armstrong for those years.
[12] Based on the record of this case, it appears there were three possibilities: (1) to include the new loss claim in the pending court proceedings, (2) to await the outcome of the court proceedings and commence a new appeal pursuant to subsection 169(2) of the Income Tax Act, and (3) to ask the Minister for discretionary relief under subsection 152(4) of the Income Tax Act, which is part of the "fairness package" enacted in 1994.
[13] I will discuss each of three possibilities below, but first I will discuss Mr. Armstrong's argument that the Minister should have been required to make a loss determination under subsection 152(1.1) of the Income Tax Act. That is the subject of the second appeal (from the Federal Court).
Loss determination under subsection 152(1.1)
[14] The remedy that Mr. Armstrong sought from the Federal Court, and was denied, was an order compelling the Minister to make a loss determination under subsection 152(1.1) of the Income Tax Act. Subsection 152(1.1) reads as follows:
| 152 (1.1) Where the Minister ascertains the amount of a taxpayer's non-capital loss, net capital loss, restricted farm loss, farm loss or limited partnership loss for a taxation year and the taxpayer has not reported that amount as such a loss in the taxpayer's return of income for that year, the Minister shall, at the request of the taxpayer, determine, with all due dispatch, the amount of the loss and shall send a notice of determination to the person by whom the return was filed.
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152 (1.1) Lorsque le ministre établit le montant de la perte autre qu'une perte en capital, de la perte en capital nette, de la perte agricole restreinte, de la perte agricole ou de la perte comme commanditaire subie par un contribuable pour une année d'imposition et que le contribuable n'a pas déclaré ce montant comme perte dans sa déclaration de revenu pour cette année, le ministre doit, à la demande du contribuable et avec diligence, déterminer le montant de cette perte et envoyer un avis de détermination à la personne qui a produit la déclaration.
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[15] It has been noted on several occasions that this provision was enacted to fill a gap in the statutory scheme relating to objections and appeals: Aallcann Wood Suppliers Inc. v. Canada, [1994] 2 C.T.C. 2079, 94 D.T.C. 1475 (T.C.C.), Inco Ltd. v. Canada, 2004 TCC 373 (affirmed 2005 FCA 44, leave to appeal dismissed, Supreme Court of Canada file number 30989).
[16] Prior to the enactment of subsection 152(1.1), a taxpayer could not obtain a binding resolution to a dispute with the Minister about the quantum of a loss until the dispute became a dispute about the amount of tax payable. For example, if a taxpayer files an income tax return for a particular year and reports a non-capital loss of $5,000 for that particular year, but the Minister determines that the non-capital loss is $3,000, the taxpayer would have no tax payable for the year in either case. Prior to the enactment of subsection 152(1.1), the only way to resolve that dispute would have been to object or appeal the assessment for the taxation year in which the taxpayer sought to apply the non-capital loss. Subsection 152(1.1) permits the Minister's determination of a non-capital loss to be the subject of an objection or appeal for the year in which it arises, even if the resolution of the dispute will not affect the tax payable for that year.
[17] Subsection 152(1.1) has a relatively limited scope, which is reflected in its language. In my view, it does not require the Minister to determine whether or not Mr. Armstrong incurred the 1993 rental loss that he claimed for the first time in his amended 1993 return, or the non-capital loss that Mr. Armstrong says would result for 1993 if his rental loss were allowed. As I read the words of subsection 152(1.1), they do not cover the circumstances of this case, because no 1993 non-capital loss was reported on Mr. Armstrong's 1993 return. It appears only in the amended return which, as explained above, does not function as a return, but only as a request for a reassessment.
[18] For that reason, I conclude that the decision of the Federal Court not to order the Minister to make a loss determination was correct, because the statutory conditions for that remedy were not met.
[19] I would note, however, that this is not a case in which the Federal Court lacked the jurisdiction to entertain Mr. Armstrong's application for judicial review. If a taxpayer requests a loss determination, the taxpayer may apply to the Federal Court for judicial review if the Minister refuses or fails to make a determination. However, such an application cannot succeed if, as in this case, the statutory conditions for a loss determination are not met.
[20] I turn now to a discussion of the three possible bases upon which Mr. Armstrong's request for recognition of his 1993 rental loss could have been considered.
Could the 1993 rental loss have been considered in the pending court proceedings?
[21] Mr. Armstrong's application to this Court for judicial review of the Tax Court judgment dismissing his 1993 appeal was still outstanding when he filed his amended 1993 return. He could have moved to submit new evidence relating his newly discovered 1993 rental loss. It seems to me unlikely that Mr. Armstrong's motion would have been granted without the consent of the Minister, but there is no evidence that he sought the Minister's consent. In any event the motion was not made.
[22] Mr. Armstrong's appeal to the Tax Court for 1991 was still outstanding when he filed his amended 1993 return. He could have attempted to amend his Tax Court pleadings for that year to include the claim for the loss carry back. He did not make that attempt.
[23] I am compelled to conclude that the theoretical possibility of having the new 1993 rental loss considered by this Court, or having the loss carry back request for 1991 considered by the Tax Court, was foreclosed by Mr. Armstrong's own inaction.
Subsection 169(2) of the Income Tax Act
[24] A reassessment that is made to give effect to a judgment, even a consent judgment, may be appealed under subsection 169(2) of the Income Tax Act (following a valid objection under subsection 165(1.1) of the Income Tax Act). The two provisions are similar and are intended to work together. That is, if subsection 165(1.1) permits an objection to be made to a particular assessment, an appeal of that assessment is also possible under subsection 169(2). The converse is also true. That is, an assessment that cannot be the subject of a notice of objection under subsection 165(1.1) cannot be appealed under subsection 169(2). It is convenient in this case to deal only with subsection 169(2), but the analysis would be the same for subsection 165(1.1).
[25] Subsection 169(2) reads in relevant part as follows:
| (2) Notwithstanding subsection 169(1), where at any time the Minister assesses tax, interest, penalties or other amounts payable under this Part by, or makes a determination in respect of, a taxpayer
(a) [...] in accordance with an order of a court vacating, varying or restoring the assessment or referring the assessment back to the Minister for reconsideration and reassessment,
[...]
the taxpayer may appeal to the Tax Court of Canada within the time limit specified in subsection 169(1), but only to the extent that the reasons for the appeal can reasonably be regarded
[...]
(e) in any other case, as relating to any matter that gave rise to the assessment or determination
and that was not conclusively determined by the Court [...].
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(2) Malgré le paragraphe (1), dans le cas où, à un moment donné, le ministre établit une cotisation concernant l'impôt, les intérêts, les pénalités ou d'autres montants payables par un contribuable en vertu de la présente partie ou détermine un montant à l'égard d'un contribuable:
a) [...] en conformité avec l'ordonnance d'un tribunal qui annule, modifie ou rétablit la cotisation ou la renvoie au ministre pour nouvel examen et nouvelle cotisation;
[...]
le contribuable peut interjeter appel auprès de la Cour canadienne de l'impôt dans le délai précisé au paragraphe (1) seulement dans la mesure où il est raisonnable de considérer que les motifs d'appel sont liés à l'une des questions suivantes que la Cour n'a pas tranchée définitivement:
[...]
e) dans les autres cas, une question qui a donné lieu à la cotisation ou au montant déterminé.
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[26] In this case, the last assessment for 1993 was dated December 5, 1994. Mr. Armstrong appealed that assessment. That appeal finally failed in 1999 when this Court dismissed his application for judicial review. There was no further assessment for 1993. Without a reassessment following the conclusion of an appeal, subsection 169(2) can have no application. Therefore, subsection 169(2) could never have applied to permit a new appeal for 1993.
[27] For 1991, the only assessment that could have given rise to a right of appeal under subsection 169(2) was the reassessment of April 9, 2002, giving effect to the consent judgment of the Tax Court dated February 20, 2002. That consent judgment did not recognize the loss carry-back that had been requested by Mr. Armstrong in late 1997, because that issue was not before the Tax Court.
[28] The right of appeal in subsection 169(2) does not displace or diminish the doctrine of res judicata. It was established in Canada v. Chevron Canada Resources Ltd. (C.A.), [1999] 1 F.C. 349, that the doctrine of res judicata applies to income tax appeals, notwithstanding the limited right to appeal an assessment following the conclusion of such an appeal. The Tax Court judge was correct to say that Mr. Armstrong should have raised the issue of the 1993 rental losses before the conclusion of his Tax Court appeals for 1991 and 1993. The doctrine of res judicata justified quashing the appeals for both years.
Subsection 152(4.1) of the Income Tax Act
[29] Subsection 152(4.2) of the Income Tax Act gives the Minister an unfettered discretion to reassess an individual after the expiration of the normal reassessment period for a year, if the individual requests the reassessment to reduce the tax payable or permit a claim for a tax refund for that year.
[30] Counsel for the Minister conceded in this Court that Mr. Armstrong made such a request for 1991 and 1993 in his letter of August 23, 2002 (Appeal Book in A-222-04). The Minister declined to deal with that request until after all litigation was concluded. As I understand the position of counsel for the Minister, it is intended that Mr. Armstrong's request will be dealt with after the disposition of these appeals. I see no reason in law or in principle why the Minister could not have considered Mr. Armstrong's request for reassessment before now. But in any event, as counsel for the Minister has acknowledged that Mr. Armstrong's request remains outstanding and will be considered, it is not necessary for me to comment further on this point.
Conclusion
[31] As Mr. Armstrong's appeal to the Tax Court for 1991 and 1993 was correctly quashed, and his application for judicial review was correctly dismissed, I would dismiss both appeals with costs.
"K. Sharlow"
"I agree
M. Nadon J.A."
"I agree
J.D. Denis Pelletier J.A."
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