Taylor v. MNR, 90 DTC 1917, [1990] 2 CTC 2466 (TCC)

Sobier, T.CJ.:—This appeal was heard at Toronto on August 28, 1990. At the outset, counsel for the appellant and the respondent agreed that the facts in this appeal are not in dispute.

Briefly stated from the notice of appeal, on February 29, 1984, the appellant purchased for $694,000 a note issued by Concord Scientific Corporation ("Concord") in the principal amount of $388,640. As a result of such purchase, Mr. Taylor became entitled to a scientific research tax credit which reduced the cost of the note to him to $347,000. The note was repaid by Concord on February 29, 1984 for $388,640. The gain of $41,640 was included by the appellant in his income for tax purposes for 1984 as a capital gain. At the time of filing the original return of income for 1984, the appellant did not file an election pursuant to subsection 39(4) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

On February 2, 1988, the appellant filed an amended tax return for 1984 which included an election pursuant to subsection 39(4) of the Act.

The notification of confirmation sent to the appellant was based on the reason that "an election was not filed in a prescribed form in accordance with subsection 39(4) of the Act".

Issue

The issue in this appeal is whether the appellant complied with the provisions of subsection 39(4) of the Act.

It is the appellant's submission that filing the election with an amended tax return for the 1984 taxation year complied with the requirements of subsection 39(4) of the Act in that the election was filed “in his return of income . . . for that year".

The appellant submitted that there is no provision in the Act or rule of law which precludes a taxpayer from filing an amended return of income for a year. The appellant referred to subsections 152(6) and 49(4) of the Act as authority for this proposition.

Counsel for the respondent argued that these provisions are different in that they permit the filing of an amended return in cases where the taxpayer is entitled to elect treatment of his income on a retroactive basis because it is the happening of events which have occurred after the filing of the original return that permits him to file an amended return.

While any taxpayer may file an amended return, is the Minister required to deal with that return by way of reassessment?

Reference was made by counsel for the appellant to Canada v. Miller, J., [1990] 2 C.T.C. 4; 90 D.T.C. 6355 (F.C.T.D.). This case deals with forward averaging in the manner I referred to above. In Miller, the Court found that "common sense dictates that when the amounts appearing in the taxpayer's income tax return are changed by Revenue Canada because of an assessment, the corresponding amounts on the forward averaging election form must also be changed." [Emphasis added.] Therefore, there must be a reassessment by the Minister.

Here nothing was done by Revenue Canada which affected the taxpayer's return or how the taxes were to be calculated.

In the decision of Taylor, T.C.J., in the original instance of Miller, J. v. M.N.R., [1985] 1 C.T.C. 2390; 85 D.T.C. 318 at 2391 (D.T.C. 319), His Honour stated: "I am not aware of jurisprudence which would mandate the acceptance of any such amended return by the Minister—no matter what may be general practice”. The Federal Court-Trial Division took no exception to this statement and I accept it.

Counsel for the respondent referred to Hadler Turkey Farms Inc. v. The Queen, [1986] 1 C.T.C. 81; 86 D.T.C. 6013. This was an appeal heard by the Associate Chief Justice of the Federal Court-Trial Division from the judgment of the Tax Review Board. His Lordship dealt with the effect of reassessment. At pages 81-82 (D.T.C. 6014), His Lordship states:

The first question to be dealt with is whether the reassessment by the Minister creates an on-going process and thereby keeps the matter open in such a way as to give the taxpayer all options that were available at the time of filing the initial returns. Not surprisingly, this point has been dealt with before and I consider myself bound by the unequivocal language of the Supreme Court of Canada in Montreal Trust Co. (Lodestar Drilling Co. Ltd.) v. M.N.R., [1962] C.T.C. 418; 62 D.T.C. 1242. In that portion of his dissenting reasons concurred in by the majority of the Court, Judson J. states:

When the Minister re-assessed in April 1955, he had before him only the original return and the first amended return. He was under no compulsion to act on the second amended return filed after the notice of re-assessment. Both the Income Tax Appeal Board and the Exchequer Court have so held. The mere fact that a re-assessment in 1955 does not open the matter of taxability at large and compel the Minister to re-assess in accordance with an amended return made out of time . . . Under this legislation, if the taxpayer wishes to carry back business losses, he must file his amended return within the statutory time limit. Otherwise the Minister cannot be compelled to accept the amended return.

[Emphasis added.]

Accordingly, I must conclude that the reassessments by the Minister in 1977 do not open the entire question of taxability for the plaintiff's 1973, 1974 and 1975 taxation years. It is, therefore, not open to the plaintiff to file new or amended returns on the basis of the reassessments.

There may be a distinction here between Lodestar and this appeal since the filing of the amended return in Lodestar was stated to be made "out of time". However in Hadler Turkey Farms, the amended return was not filed "out of time”.

The appellant's position is that the filing of the amended return by the appellant was not made out of time since there is no time limit. I consider this irrelevant.

Continuing with the reasons for judgment in Hadler Turkey Farms dealing with the time in which an election may be made, at page 83 (D.T.C. 6015), His Lordship states:

150. (1) A return of the income for each taxation year in the case of a corporation and for each taxation year for which a tax is payable in the case of an individual shall, without notice or demand therefor, be filed with the Minister in prescribed form and containing prescribed information.

Once a return is filed, it is the Minister’s responsibility to examine it, and to assess the tax for the year, any interest or penalties that may be payable and any refund to which the taxpayer is entitled (section 152). Here, the plaintiff filed returns for the 1973, 1974 and 1975 taxation years in which it calculated income and taxable income using the accrual method of accounting. In my view, it is consistent with the specific language of section 28 and with the general scheme of the Act to interpret section 28 as giving to this taxpayer the open-ended option to switch from the accrual method to the cash method. The timing of the exercise of the option remains in the hands of the taxpayer without the necessity of the Minister's

approval. I would however consider it redundant were the section to specify a particular time at which the election can be made since, obviously, it can only be made with the filing of the return. It also seems to me to be entirely consistent with the intent of the section and the intent of the Act that once a taxpayer files his return on the accrual basis, the cash option no longer exists for that taxation year.

[Emphasis added.]

Once the taxpayer has filed his return, it is his return for the year. In answer to the argument that the taxpayer may file an amended return at any time, the Minister argued that there is nothing in subsection 39(4) which requires the Minister to accept and deal with such an amended return. I agree with this proposition.

In dealing further with the question of the proper time for filing the election under subsection 39(4), I refer to Financial Collection Agencies (Quebec) Ltd. v. M.N.R., [1990] 1 C.T.C. 2178; 90 D.T.C. 1040 a decision of Rip, T.C.J. The present appeal is similar in some respects to Financial Collection Agencies but in the latter case, the taxpayer attempted to file an election under subsection 39(4) unaccompanied by an amended tax return whereas in the present case the appellant has chosen to file an amended tax return and the election together. I cannot concur with the argument of the appellant that the mere filing of an amended tax return with the election distinguishes the Financial Collection Agencies decision from the case at hand.

In both cases the election was not filed with the original return.

I now refer to the decision of Rip, T.C.J. at page 2187 (D.T.C. 1047):

The appellant's position is that it filed a valid election, notwithstanding that it did not elect in prescribed form in its return of income and that the election in prescribed form was filed some 17 months after the return of income for 1985 was filed.

Appellant's counsel submitted that "a taxpayer can file a return of income at any time he desires notwithstanding section 150 and any election required to be included in the return of income can similarly be filed at such late date and would be a valid election”.

At pages 2189-90 (D.T.C. 1049), Judge Rip stated as follows:

Counsel also argued that an election is additional information to be added to a tax return and by filing the election late the appellant was simply amending its return. Thus the election ought to be accepted by the respondent as a valid election. There is, as far as I am aware, only one provision in the Act which permits a taxpayer to amend an income tax return for the year which has been filed. Subsection 152(6) sets out the circumstances when returns may be amended. The addition of a form of election is not one of these circumstances.

The appellant, a corporation, was required to file its 1985 tax return within six months from the end of its fiscal year (paragraph 150(1)(a)). The appellant filed its return for 1985 on time. The appellant's income tax return for 1985 contained all the information which the appellant intended to provide to the respondent when the return was filed. The return, when filed, contained all the information required by the respondent in order to assess. The form of election pursuant to subsection 39(4) came sometime later, after the appellant had been assessed in a manner not to its liking. Without ruling whether a subsection 39(4) form of election may be validly filed in a corporate taxpayer's return of income for a year when the return is filed late, I find that on the facts the appellant did not file a form of election on time since the form of election was not “in” the return.

In this case, the appellant, an individual, was required to file his 1984 tax return by April 30, 1985 which he did. This was the time for filing the election. I concur with the reasons of Rip, T.C.J. as stated in the last sentence above.

Further on page 2190 (D.T.C. 1049), Judge Rip states:

The appellant’s submissions ignore what is stated in subsection 39(4). Subsection 39(4) is clear and unambiguous in both of our official languages: the election is to be made in prescribed form in the return of income. The provision is explicit and certain. While the manner of electing under subsection 26(7) of the Act and section 4700 of the Regulations to the Act may be directory rather than mandatory, the requirement in subsection 39(4) is mandatory. When Parliament writes a law, the law must have meaning. It is the function of a Canadian court to interpret the law and give the words to be interpreted in the law their normal, accepted, every day meaning. A court should not look for ambiguity in a statute where none exists. Similarly, it is not the function of a court to add words to statutes nor is it its function to alter the intent of Parliament.

I concur with these reasons and also find that there is no ambiguity in the statute and accordingly there is no ambiguity to resolve in favour of the taxpayer.

For the above reasons the appeal is dismissed.

Appeal dismissed.