A-550-86
Her Majesty the Queen and the Minister of Na
tional Revenue (Appellants) (Respondents)
v.
Optical Recording Laboratories Inc. (formerly
carrying on business as Optical Recording Corpo
ration, formerly carrying on business as Informa
tion Tunnel Research Inc.) (Respondent) (Appli-
cant)
INDEXED AS: OPTICAL RECORDING CORP. V. CANADA (CA.)
Court of Appeal, Urie, Stone and Décary JJ.A.—
Toronto, October 17; Ottawa, October 26, 1990.
Federal Court jurisdiction — Trial Division — Income tax
— On originating motion under Federal Court Act, s. 18,
Motions Judge quashing assessment, requirements to pay and
s. 223 certificate and prohibiting further collection proceedings
— Outside jurisdiction — Proceedings arising out of assess
ment deemed valid under Income Tax Act, s. 152(8) — As Act
expressly providing for appeal from assessments, Federal
Court Act, s. 29 precluding applications under ss. 28 and 18.
Income tax — Reassessment — Order quashing assessment,
requirements to pay and s. 223 certificate — Minister issuing
second notice of assessment for Part VIII tax liability adding
nothing except statutorily prescribed interest — Although
second assessment constituting reassessment rendering first
assessment void, appeal from order of certiorari not moot to
extent relating to collection proceedings which were not
invalidated.
Income tax — Management of taxes — Motions Judge
holding Minister's policy of not insisting on payment under
Income Tax Act, s. 195(2) illegal — Misconstruing Minister's
role in collection of monies owing — Having power to accept
security, arrange for payments in manner best ensuring whole
indebtedness ultimately paid.
This was an appeal from orders of certiorari quashing an
assessment, requirements to pay and Income Tax Act, section
223 certificate, and prohibition preventing the Minister from
continuing with collection proceedings against the respondent.
The respondent had designated $21.5 million pursuant to sub
section 194(4) as the amount received upon the issuance of
shares and debt obligations to finance scientific research and
development. It did not pay 50% of the designated amount by
the date required by subsection 195(2). The Minister issued a
notice of assessment of the Part VIII tax payable as a result of
filing the designations, and a letter advising the respondent that
although corporations are technically liable to pay the tax by
the end of the month following the transaction, since the taxes
could be reduced under a special credit program, Revenue
Canada was prepared to modify its usual collection action
where it was satisfied that the corporation would eliminate its
tax liability by the end of the year or provide security. Neither
of those conditions was satisfied. Subsequently, the Minister
issued requirements to pay to two financial institutions and
registered a certificate in the Federal Court. The Motions
Judge held that he had jurisdiction to adjudicate the originat
ing motion brought under Federal Court Act, section 18
because issues of fundamental illegality, unfair treatment and
estoppel were raised. He granted orders of certiorari and
prohibition, holding that the policy of not insisting on payment
under Income Tax Act, subsection 195(2), but allowing volun
tary arrangements, was illegal. The Minister subsequently
issued a notice of assessment for 1986 Part VIII tax liability of
$10.75 million plus interest. The issues were: (1) whether the
second assessment was a reassessment, invalidating the first
assessment and the collection proceedings and rendering these
proceedings moot; (2) whether the Motions Judge had jurisdic
tion to entertain the originating motion; and (3) whether the
Minister's collection policy was illegal.
Held, the appeal should be allowed.
(1) The second assessment was a reassessment since it added
nothing to the tax assessed but only set forth the statutorily
prescribed interest. While it rendered void the first assessment,
collection proceedings undertaken pursuant to the unpaid
assessment were not invalidated. Accordingly, to the extent that
this appeal arose from orders for certiorari relating to monies
held by financial institutions and prohibition arising out of the
section 223 certificate, it was not moot.
(2) The Motions Judge lacked jurisdiction to entertain the
originating motion. The proceedings arose out of an assessment
which was deemed valid by Income Tax Act subsection 152(8),
subject only to a reassessment, or to being varied or vacated by
a successful objection (subsections 165(1) and (2)) or appeal to
the Tax Court (section 169) or to the Trial Division (subsection
172(2)). Since the Income Tax Act expressly provides for an
appeal from assessments made by the Minister, section 29 of
the Federal Court Act precludes applications in respect of such
assessments brought under section 28 and applications brought
under section 18 to challenge the assessments and the collection
proceedings or actions taken in respect of those deemed valid
assessments.
(3) The Motions Judge misconstrued the role of the Minister
in the collection of monies owing to the Crown. He is required
to "administer and enforce [the] Act". He has the power under
subsection 220(4) to accept security for payment of any debt
under the Act. Such power is given to ensure that payment of
the indebtedness is ultimately secure. Although such security is
usually monetary in nature, it is not statutorily required to be
so. The Minister is empowered to manage his department not
only from an administrative, but also from a "management of
taxes" point of view. This means that as a creditor he has the
right to arrange payment for a tax indebtedness in such manner
that best ensures payment of the whole. Arrangements to that
end are in the best interests of everyone concerned and are to
be encouraged.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Federal Court Act, R.S.C., 1985, c. F-7, ss. 18, 28, 29.
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 152(8),
165(1),(2), 169 (as am. by S.C. 1980-81-82-83, c. 158,
s. 58; 1984, c. 45, s. 70), 172(2) (as am. by S.C.
1980-81-82-83, c. 158, s. 58), 194(4) (as re-enacted by
S.C. 1984, c. 1, s. 95), 195(2)(as re-enacted idem),
220(1),(4) (as am. by S.C. 1984, c. 45, s. 88), 223 (as
am. by S.C. 1985, c. 45, s. 114), 224 (as am. by S.C.
1980-81-82-83, c. 140, s. 121).
CASES JUDICIALLY CONSIDERED
FOLLOWED:
Lambert v. The Queen, [1977] 1 F.C. 199; [1976] CTC
611; (1976), 76 DTC 6373; 14 N.R. 146 (C.A.).
APPLIED:
Abrahams, Coleman C. v. Minister of National Revenue
(No. 2), [1967] 1 Ex.C.R. 333; [1966] C.T.C. 690;
(1966), 66 DTC 5451; Minister of National Revenue v.
Parsons, [1984] 2 F.C. 331; [1984] CTC 352; (1984), 84
DTC 6345 (C.A.); Inland Revenue Comrs v National
Federation of Self-Employed and Small Businesses Ltd,
[1981] 2 All E.R. 93 (H.L.).
REVERSED:
Optical Recording Corp. v. Canada, [1987] 1 F.C. 339;
[1986] 2 C.T.C. 325; (1986), 86 DTC 6465; 6 F.T.R. 294
(T.D.).
REFERRED TO:
Borowski v. Canada (Attorney General), [1989] 1 S.C.R.
342; (1989), 57 D.L.R. (4th) 231; [1989] 3 W.W.R. 97;
75 Sask. R. 82; 47 C.C.C. (3d) 1; 33 C.P.C. (2d) 105; 38
C.R.R. 232; 92 N.R. 110.
COUNSEL:
Roger Taylor for appellants (respondents).
Glen A. Smith and R. A. Mansell for
respondent (applicant).
SOLICITORS:
Deputy Attorney General of Canada for
appellants (respondents).
McCarthy Tétrault, Toronto, for respondent
(applicant).
The following are the reasons for judgment
rendered in English by
URIE J.A.: This appeal is from orders of certio-
rari and prohibition granted by the Trial Division
on September 4, 1986 [[1987] 1 F.C. 339]. The
relevant facts which are not in dispute, are these.
THE FACTS
The respondent was incorporated under the
name of Information Tunnel Research Inc. on
August 17, 1984. Its name was subsequently
changed to Optical Recording Corporation and
later changed again to that shown in the style of
cause, namely, Optical Recording Laboratories
Inc. Counsel for the respondent at the opening of
the appeal advised the Court that the respondent
had made an assignment in bankruptcy and filed a
letter from the Trustee apparently authorizing him
to appear on his behalf. Counsel for the appellant
did not object so that we agreed to hear him.
An agreement was entered into on March 25,
1985 by the respondent with Digital Recording
Corporation ("Digital") whereby Digital sold and
Optical bought a development system at a price of
$21,500,000. On the same day, the respondent
designated amounts totalling $21.5 million pursu
ant to subsection 194(4)' of Part VIII of the
Income Tax Act [S.C. 1970-71-72, c. 63, as
re-enacted by S.C. 1984, c. 1, s. 95] ("the Act").
That sum was the amount received by it upon its
issuance of shares and debt obligations. The desig
nations filed by the respondent with the Minister
of National Revenue ("the Minister") on the same
date were not accompanied by an amount payable
to the Receiver General of Canada in the sum
of 50% of the amount designated, namely,
$10,750,000, nor was such an amount paid on or
before April 30, 1985, as required by subsection
195(2) [as re-enacted idem] 2 of the Act.
On June 3, 1985, the Minister sent to the
respondent a notice of assessment "in respect of
Part VIII assessment levied under subsection
195(2) of the Income Tax Act" requesting pay
ment of the unpaid sum of $10,750,000. Attached
to the notice of assessment was an advice to the
taxpayer reading as follows:
The attached notice of assessment reflects Part VIII tax pay
able on account, as a result of filing of designation(s) in respect
' 194....
(4) Every taxable Canadian corporation may, by filing a
prescribed form with the Minister at any time on or before the
last day of the month immediately following a month in which
it issued a share or debt obligation or granted a right under a
scientific research financing contract (other than a share or
debt obligation issued or a right granted before October 1983,
or a share in respect of which the corporation has, on or before
that day, designated an amount under subsection 192(4)) desig
nate, for the purposes of this Part and Part I, an amount in
respect of that share, debt obligation or right not exceeding the
amount by which
(a) the amount of the consideration for which it was issued
or granted, as the case may be,
exceeds
(b) in the case of a share, the amount of any assistance
(other than an amount included in computing the scientific
research tax credit of a taxpayer in respect of that share)
provided, or to be provided by a government, municipality or
any other public authority in respect of, or for the acquisition
of, that share.
2 195. ...
(2) Where, in a particular month in a taxation year, a
corporation issues a share or debt obligation, or grants a right,
in respect of which it designates an amount under section 194,
the corporation shall, on or before the last day of the month
following the particular month, pay to the Receiver General on
account of its tax payable under this Part for the year an
amount equal to 50% of the aggregate of all amounts so
designated.
of the issuing of shares, or debt obligations or the granting of
certain rights to finance scientific research and development.
Corporations that have issued scientific research or share-pur
chase tax credit securities are technically liable to pay the
related Part VIII tax by the end of the month following the
transaction. However, under the terms of this special credit
program, the tax liabilities may be reduced or extinguished
through the use of qualifying expenditures or tax credits. Since
these Part VIII tax liabilities may be reduced, Revenue
Canada, Taxation is prepared to modify or withhold its usual
collection action with respect to these assessments where the
corporation is able to satisfy Revenue Canada that its liability
will be eliminated by the end of the year, or provide acceptable
security.
An officer from Revenue Canada, Taxation will be contacting
you to discuss the method in which the liability will be satisfied.
Also attached is 'a copy of a recent press release which outlines
Revenue Canada, Taxation's position in this matter. [Emphasis
added.]
No notice of objection was ever served on the
Minister with respect to the notice of assessment.
Nor did the Minister ever advise the respondent
that he was satisfied that the respondent's Part
VIII liability would be extinguished by the end of
its 1986 taxation year nor has it done so since.
Moreover, despite the request of representatives of
the Minister for collateral security made at a
meeting with a representative of the respondent
held on October 10, 1985, no such security has
ever been provided.
On March 18, 1986, requirements to pay issued
pursuant to section 224 [as am. by S.C. 1980-81-
82-83, c. 140, s. 121] 3 of the Act were issued by
the Minister to the Royal Bank of Canada and to'
Canada Permanent Trust Company in respect of
monies of the respondent held in these institutions.
3 224. (1) Where the Minister has knowledge or suspects that
a person is or will be, within 90 days, liable to make a payment
to another person who is liable to make a payment under this
Act (in this section referred to as the "tax debtor"), he may, by
registered letter or by a letter served personally, require that
person to pay forthwith, where the moneys are immediately
payable, and, in any other case, as and when the moneys
become payable, the moneys otherwise payable to the tax
debtor in whole or in part to the Receiver General on account
of the tax debtor's liability under this Act.
On April 1, 1986, the Minister registered a
certificate in the Federal Court of Canada pursu
ant to section 223 [as am. by S.C. 1985, c. 45, s.
114] 4 of the Act in respect of the respondent's
indebtedness of $10,750,000.
On June 18, 1986, an originating notice of
motion was filed in the Trial Division on behalf of
the respondent seeking writs of certiorari or for an
order for relief in the nature thereof to quash the
Minister's decision to
(a) issue the Notice of Assessment dated June 3,
1985
(b) issue the Requirements to Pay dated March
18, 1986, and
(c) issue a Certificate pursuant to section 223 of
the Act.
It sought, as well, a writ of prohibition or relief
in the nature thereof, prohibiting the Minister
from continuing his collection proceedings against
the respondent "until lawful to do so." A request
for a declaration was abandoned at the hearing of
the motion in the Trial Division.
On September 4, 1986 Muldoon J. in the Trial
Division quashed the assessment, the two require
ments to pay, and the section 223 certificate and
prohibited the Minister from continuing with the
collection proceedings or actions against the
respondent "until it is lawful ... to do so" [at page
362].
It is from this order that this appeal has been
brought. Toward the end of his reasons for disposi
tion of the motion, the learned Motions Judge
made the following comment [at page 362]:
It is far too late now for the applicant to make timely
compliance with subsection 195(2) of the Income Tax Act from
which it was counselled and induced by the Minister. The
reasonable course now would be to perform a real assessment of
tax, including Part VIII tax, if any, upon the applicant's now
filed income tax return, in order to determine whether or not
the applicant actually did eliminate its liability for those Part
VIII taxes.
4 223. (1) An amount payable under this Act that has not
been paid or such part of an amount payable under this Act as
has not been paid may be certified by the Minister.
Presumably as a result of this comment, on
January 17, 1989 the Minister issued a notice of
assessment in respect of the respondent's Part VIII
tax liability for its 1986 taxation year. That notice
assessed Part VIII tax in the sum of $10,750,000
together with interest of $4,277,925. The respond
ent filed a notice of objection to this assessment on
March 13, 1989. Apparently the objection was not
upheld so that the respondent appealed the second
assessment to the Trial Division by filing its state
ment of claim on June 29, 1989.
MOOTNESS
In his memorandum of fact and law, counsel for
the respondent argued for the first time that the
second assessment is a reassessment in respect of
the respondent's Part VIII tax liability for its 1986
tax year. The effect, thereof, counsel submitted,
was to render the first assessment and the collec
tion proceedings instituted with respect thereto, a
nullity. At the opening of the appeal the Court
called upon respondent's counsel to argue the
mootness issue as a preliminary objection. After
hearing his argument, as well as that of counsel for
the appellant, judgment was reserved on the issue
and the Court proceeded to hear argument of
counsel on the merits of the appeal, upon which
judgment was also reserved.
I propose, therefore, to deal with the mootness
issue first. In support of his contention that the
second assessment invalidated the first, counsel for
the respondent relied on the decision of Jackett P.
(as he then was) in the Exchequer Court of
Canada in Abrahams, Coleman C. v. Minister of
National Revenue (No. 2). 5
In that case, a reassessment had been issued
which became the subject of an appeal to the
Exchequer Court. Shortly thereafter the Minister
issued a further reassessment which became the
subject of a separate appeal. At pages 336-337 of
the judgment, Jackett P. had this to say:
Assuming that the second re-assessment is valid, it follows, in
my view, that the first re-assessment is displaced and becomes a
nullity. The taxpayer cannot be liable on an original assessment
5 [1967] 1 Ex.C.R. 333.
as well as on a re-assessment. It would be different if one
assessment for a year were followed by an "additional" assess
ment for that year. Where, however, the "re-assessment" pur
ports to fix the taxpayer's total tax for the year, and not merely
an amount of tax in addition to that which has already been
assessed, the previous assessment must automatically become
null.
I am, therefore, of opinion that, since the second re-assess
ment was made, there is no relief that the Court could grant on
the appeal from the first re-assessment because the assessment
appealed from had ceased to exist. There is no assessment,
therefore, that the Court could vacate, vary or refer back to the
Minister. When the second re-assessment was made, this
appeal should have been discontinued or an application should
have been made to have it quashed.
The Abrahams judgment was considered in this
Court in the 1976 appeal of Lambert v. The
Queen, 6 where Jackett C.J. speaking for the Court
said:
With that much of the statute in mind, reference must be
made to a line of jurisprudence in the Exchequer and Federal
Courts—not because it is pertinent but because it has given rise
to some confusion—that has held that where there has been a
reassessment for a taxation year as opposed to a further
assessment—i.e., a re-determination of the total amount pay
able for the year as opposed to a determination of an additional
amount payable for the year—the reassessment displaces the
previous assessment so as to nullify from that time forward the
previous assessment and, consequently, any appeal from that
previous assessment. (See, for example Abrahams v. M.N.R.
(No. 2) [[1967] 1 Ex.C.R. 333].)
The learned Trial Judge appears to have rejected these conten
tions on the ground that the new assessments were not reassess
ments but were further assessments.
On examining the new assessments, we are inclined to the
view that they are not further assessments but are reassess
ments. This question did not, however, have to be decided
because, in our view, which ever they are, they do not, in
themselves, affect the validity of the section 223 certificate or
operate automatically to confer on the appellant a right to have
the section 223 certificate nullified.
As appears from our review of the provisions of the Act,
there is a difference between
(a) a liability under the Act to pay tax, and
(b) an "assessment" (including a reassessment for a further
assessment), which is a determination or calculation of the
tax liability.
It follows that a reassessment of tax does not nullify the
liability to pay the tax covered by the previous tax [sic] as long
6 [1977] 1 F.C. 199 (C.A.), at pp. 203-204.
as that tax is included in the amount reassessed. As there can
be no basis for the appellant's contention on this motion unless
the "amount payable" on which the certificate was based had
ceased to be "payable" and as the material before us does not
show that it had ceased to be payable, in our view, the appeal
had to be dismissed. Indeed, the appeal was argued, as we
understood the argument, on the assumption that the amounts
on which the certificate was based were carried forward into
the new assessments. [Emphasis added.]
Two things appear clear from the above two
cases. First, if the second assessment is a reassess
ment, as it appears to be since it adds nothing to
the tax assessed and only sets forth the statutorily
prescribed accrued interest payable thereon, it ren
ders void the assessment dated June 3, 1985.
Secondly, while I confess some difficulty in
understanding why the collection proceedings
undertaken pursuant to that unpaid assessment,
are not also rendered void, the Lambert decision
seems to so hold and is binding on us, i.e., the void
assessment does not affect the requirement to pay.
Its life is maintained. That being so, to the extent
that the present appeal arises from the orders for
certiorari relating to monies, if any, held by the
Royal Bank of Canada and the Canada Permanent
Trust Company and to the order of prohibition
arising out of the section 223 certificate, it is not
moot. The appeal must on those issues, be heard
on its merits. It is thus unnecessary, at least with
respect thereto, to discuss the principles applicable
in determining whether an appeal has been ren
dered moot as those principles are set forth in the
Borowski [Borowski v. Canada (Attorney Gener
al), [1989] 1 S.C.R. 342] case. It is necessary,
however, to first determine the jurisdiction of the
Trial Division to entertain the originating motion
brought before it pursuant to section 18 of the
Federal Court Act [R.S.C., 1985, c. F-7].
JURISDICTION UNDER SECTION 18
Very simply, it had been the respondent's posi
tion on the hearing of the originating motion that,
relying on the advice given on the attachment to
the notice of assessment dated June 3, 1985, as
quoted earlier herein, the respondent's President
and major shareholder, Mr. Adamson, expecting
that his company's tax liability would be eliminat
ed before the tax year end, it would not be
required to do anything in response to the notice of
assessment. No notice of objection was served on
the Minister. Indeed, Mr. Adamson was not aware
that such an appeal procedure existed until after
the time limit for filing it had passed. I should
reiterate that at no time did the respondent satisfy
the Minister that its tax liability, if any existed in
law, (a question which could not properly be decid
ed in this appeal), would be extinguished before
the end of the 1986 tax year nor did it provide
satisfactory or any security for any such liability.
The Minister's equally simple position was that
at the time the respondent filed the designations
under subsection 194(4) of the Act, supra, the
respondent knew or ought to have known that its
Part VIII tax liability could be as much as 50% of
the total amount designated. As a result, by virtue
of subsection 195(2) of the Act, supra, it was
liable to make a payment in respect thereto or, in
accordance with the policy of the Minister as
explained in the advice attached to the notice of
assessment, provide security for the amount due on
account of tax or satisfy the Minister that its tax
liability would be extinguished before the end of
the 1986 tax year.
The learned Trial Judge began his resolution of
those competing positions by considering the juris
diction of the Court to adjudicate on the respond
ent's originating motion, an issue which had
apparently been raised during argument. At pages
350 to 351, inclusive, of the case, he made the
following finding:
At first blush that question might seem to be already con
cluded. The Appeal Division in its unanimous decision in
Minister of National Revenue v. Parsons, [1984] 2 F.C. 331;
84 DTC 6345, (reversing the Trial Division judgment [1984] 1
F.C. 804; (1983), 83 DTC 5329) held [at pages 332-333 F.C.;
6346 DTC]:
We are all of opinion that the appeal must succeed on the
narrow ground that the only way in which the assessments
made against the respondents could be challenged was that
provided for in sections 169 and following of the Income Tax
Act. This, in our view, clearly results from section 29 of the
Federal Court Act.
The learned Judge of first instance held that, in this case,
section 29 did not deprive the Trial Division of the jurisdic-
tion to grant the application made by the respondents under
section 18 of the Federal Court Act because, in his view, the
appeal provided for in the Income Tax Act was restricted to
questions of "quantum and liability" while the respondents'
application raised the more fundamental question of the
Minister's legal authority to make the assessments. We
cannot agree with that distinction. The right of appeal given
by the Income Tax Act is not subject to any such limitations.
In our view, the Income Tax Act expressly provides for an
appeal as such to the Federal Court from assessments made
by the Minister; it follows, according to section 29 of the
Federal Court Act, that those assessments may not be
reviewed, restrained or set aside by the Court in the exercise
of its jurisdiction under sections 18 and 28 of the Federal
Court Act. [Emphasis added.)
Since the release of the Parsons judgment, there have been
apparently conflicting decisions of the Trial Division in WTC
Western Technologies Corporation v. M.N.R. (1985), 86 DTC
6027 (F.C.T.D.), and in Bechthold Resources Ltd. v. Canada
(M.N.R.), [1986] 3 F.C. 116; 86 DTC 6065 (T.D.).
The case at bar raises issues about the paragraph attached to
the purported notice of assessment (Exhibit "D", above recited)
and the respondent Minister's policy of collections (Exhibit
"A" to Mr. Adamson's affidavit), which are quite beyond the
scope of the appeal provisions of the Income Tax act upon
which the Appeal Division relied in order to invoke section 29
of the Federal Court Act in derogation of the Trial Division's
jurisdiction in the Parsons case.
The issues to be determined here are much broader than, and
different from, matters of extension of time to appeal, the
validity of a notice of assessment and appeal therefrom. The
issues here raise questions of fundamental administrative ille
gality, unfair treatment and estoppel which engage the superin
tending jurisdiction of a superior court, such that even if this
Court's disposition of them be ultimately adjudged to be wrong,
the Court's decision to entertain them should be seen to be
correct. The case at bar is therefore quite distinct from the
Parsons case. It will be seen, as well, to be distinguishable from
the WTC Western and Bechthold Resources decisions. For
these reasons, which are more fully developed hereinafter, the
Court accepts and exercises jurisdiction in, upon and over the
subject of this motion.
I am of the opinion that the Motions Judge
erred in finding that he had jurisdiction to enter
tain the originating motion brought by the
respondent pursuant to section 18 of the Act. The
proceedings which it instituted arose out of an
assessment issued by the Minister. That assess
ment is deemed by subsection 152(8) to be valid,
subject only to a reassessment, or to it being varied
or vacated by a successful objection thereto (sub-
sections 165(1) and 165(2)) or by a successful
appeal of the assessment brought to the Tax Court
pursuant to section 169 [as am: by S.C. 1980-81-
82-83, c. 158, s. 58; 1984, c. 45, s. 70] of the Act
or to the Trial Division of this Court pursuant to
subsection 172(2) [as am. by S.C. 1980-81-82-83,
c. 158, s. 58]. As held in the Parsons [Minister of
National Revenue v. Parsons, [1984] 2 F.C. 331
(C.A.)] case, since the Act expressly provides for
an appeal from assessments made by the Minister,
it follows that section 29 of the Federal Court Act
precludes not only applications under section 28 of
the Act in respect of such assessments but also
applications brought pursuant to section 18, as was
done in the case, to challenge not only the assess
ments per se but the collection proceedings or
actions taken in respect of those deemed valid
assessments.
Accordingly, it matters not whether the assess
ment made on June 3, 1985 is at this stage moot or
not. By virtue of section 29 of the Federal Court
Act the Trial Division lacked jurisdiction to grant
the relief sought in the section 18 application since
the Income Tax Act provides the appropriate
procedure for appealing the assessment. In those
proceedings all issues relating to the assessment,
including its validity and mootness, may be raised.
This appeal, therefore, in my view, must be
allowed.
LEGALITY OF MINISTER'S COLLECTION POLICY
While not strictly necessary for the foregoing
determination of this appeal, it would be unwise, I
believe, to fail to comment on what was said by the
Motions Judge in the following passages in par
ticular from his reasons for disposition of the
motion: 7
In oral argument, counsel for the respondents indicated that
the way the SRTC system works, if the Minister started
insisting on payment pursuant to subsection 195(2) the working
of the scheme would be affected. He noted that the respondent
Minister tries to facilitate the working of the scheme, but not to
At pp. 352-355.
jeopardize the security of tax revenues; and he asserted that if
the Minister is strict, the legislative provisions will not work.
So, the Minister provides, extra-legally, for voluntary arrange
ments, of which there is no parliamentary approval.
On page 8 of the respondent's points of argument there is
this passage:
Form T2113 [already mentioned] indicates that payment of
Part VIII tax and penalty is to accompany the filing.
It does indicate that, but at the filing, no tax is necessarily
assessed or due. Subsection 195(2) exacts payment merely "on
account of its tax payable under this Part". The passage
continues:
Strictly speaking a form, without the payment of Part VIII
tax accompanying it, cannot be said to be validly filed. But
the Minister does not take that strict an approach, he accepts
such forms as validly filed. Nor does he insist on payments
mandated by subsection 195(2) if the corporation could show
that the liability for Part VIII tax would be satisfied.
In terms only of the Minister's indulgent approach to the law,
the applicant has always maintained that it would lawfully
succeed in eliminating its Part VIII tax liability, and it exhibits
a copy of its return for its taxation year ending February 28,
1986 (at p. 00110 of the motion record) to verify its conten
tions. The Minister has not yet assessed the Part VIII tax in
this regard.
Since, as the respondent's counsel conceded, the Minister's
invitation to disregard the legislative command to pay 50%
within the stated time is "extra-legal", it is obviously wholly
beyond the contemplation of the Income Tax Act, and is
obviously not engaged by the objection and other appeal provi
sions therein enacted by Parliament. As well, the Minister
receives no lawful or any authority to thwart subsection 195(2)
by means of the provisions of subsections 153(1) [as am. by
S.C. 1980-81-82-83, c. 48, s. 86; c. 109, s. 19; c. 140, s. 104;
1985, c. 45, s. 85] or (1.1) of that Act [as am. by S.C.
1980-81-82-83, c. 48, s. 86], nor yet by any means provided in
section 17 of the Financial Administration Act, R.S.C. 1970, c.
F-10.
One is left with the conclusion that the Minister's "extra-
legal" policy is quite illegal. It runs directly against subsection
195(2) of the Income Tax Act. That Act, moreover, makes no
procedural provision for contesting by litigation such an illegal
irregularity.
The policy of which the Motions Judge is criti
cal is that which is referred to in the advice given
in the attachment to the 1985 notice of assessment
to which earlier reference has been made. It is the
procedure suggested in that notice which he terms
"extra-legal" and thus "illegal".
With great respect, it is my view that the
learned Judge in so viewing the Minister's actions
misconstrued the role of the Minister in the collec
tion of monies due the Crown. Subsection 220(1)
requires the Minister to "administer and enforce
[the] Act and control and supervise all persons
employed to carry out or enforce [the] Act ..."
Subsection 220(4) [as am. by S.C. 1984, c. 45, s.
88] states that:
220... .
(4) The Minister may, if he considers it advisable in a
particular case, accept security for payment of any amount that
is or may become payable under this Act.
The power which he is so given is to ensure that
payment of the indebtedness by the debtor is ulti
mately secure. Normally the security provided
would be monetary in nature. But the Minister's
power is not limited to the statutory power to take
security of that nature. He is empowered by virtue
of his office, to manage his department, not exclu
sively from an administrative point of view but
also from the point of view of what has in England
been described as "management of taxes" which I
take it means that as a creditor he has the right to
arrange payment for a tax indebtedness in such a
manner that best ensures that the whole will ulti
mately be paid. For example, if insistence on pay
ment in full when due might jeopardize the solven
cy of the taxpayer, with consequent loss of
potential for payment in full, and if the taxpayer
can continue in business by giving him time to pay,
in his discretion the Minister might arrange for
payment in instalments with such security, if any,
as he deems necessary. Effectively, such a course
protects the Revenue and, as well, the taxpayer's
solvency and continued ability to pay taxes. It
applies too to the taxpayer satisfying the Minister
in Part VIII tax situations that the taxpayer will
eliminate its liability by year end. Such a course of
conduct ought to be encouraged, not discouraged.
Lord Roskill put the proposition neatly in the
following passage from his speech in the House of
Lords in Inland Revenue Comrs v National Fed
eration of Self-Employed and Small Businesses
Ltd 8 (admittedly in a different fact context) when
he said:
No question of any dispensing power is involved. The Revenue
were in no way arrogating to themselves a right or inviting
assumption of an arrogation to themselves of a right not to
comply with their statutory obligations under the statutes to
which I have referred. On the contrary, their wholecase was
that they had made a sensible arrangement in the overall
performance of their statutory duties in connection with taxes
management, an arrangement made in the best interests of
everyone directly involved and, indeed, of persons indirectly
involved, such as other taxpayers, for the agreement reached
would be likely to lead ultimately to a greater collection of
revenue than if the agreement had not been reached or 'amnes-
ty' granted. [Emphasis added.]
Such a management discretion in making suit
able collections arrangements undoubtedly exists
under our Act and is not, as the Motions Judge
found, illegal.
Accordingly, I would allow the appeal with costs
both here and below, I would set aside the judg
ment of the Trial Division and quash each of the
orders of certiorari and the order of prohibition
granted therein.
STONE J.A.: I agree.
DÉCARY J.A.: I agree.
8 [1981] 2 All ER 93 (H.L.), at p. 119.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.