Federal Court Decisions

     T-321-95

BETWEEN:

     ALBERT D. FRIEDBERG

     Plaintiff

AND:

     HER MAJESTY THE QUEEN

     Defendant

     REASONS FOR JUDGMENT

JOYAL, J.:

     This is an application by the defendant Crown for summary judgment against the plaintiff pursuant to Rule 432 of the Federal Court Rules. I have concluded that the application should be granted and that the plaintiff's action against the Crown should be dismissed.

     The issue arises from an inadvertent error in a Notice of Re-assessment ("Notice"), dated March 3, 1989, which was issued by the defendant to the plaintiff in respect of the taxation year 1987. The Notice specified the amount assessed for federal tax and for provincial tax. The Notice also specified an amount of arrears interest, for a total assessment of some $1.3 million. Further on in the Notice, however, where the form contains a "Balance Unpaid" box and a "Refund" box, the total amount of $1.3 million was shown in the "Refund" box.

     The form also includes an explanation of changes indicating an increase in assessment for the year, an interest adjustment, and at the bottom of the form, the item entitled "Result of this Assessment", the amount of $1.3 million is marked "CR". Also included on the form, opposite these items, is the following:

Your balance payable includes arrears interest which is calculated from the due date of your balance to the date of this notice.

Interest shown includes a recovery for refund interest previously given on a refund which is now considered as unwarranted. This amount may be deducted in computing your taxable income for the current year.

Your return has been adjusted to correct your claim for "non-capital losses of other years" to the maximum allowable of $2,479,578.00. Minimum tax has been applied and your minimum tax carry-over to 1988 is $789,186.16.

     The action taken by the plaintiff is to recover the amount of $1.3 million paid by him, plus accrued interest, his claim being that he was misled by the misinformation in the Notice and it was not until about April 1994 that the Crown through its Minister demanded payment.

     In particular, the plaintiff refers to a number of interventions between the parties, to numerous adjustments to his tax liability from time to time, to notices of objection filed and notices of confirmation received. There is also reference to a Notice of Appeal to the Tax Court of Canada, filed in May 1990, with respect to the taxation year 1987, which raised issues relating only to the recapture of capital cost allowance. Other documents include on-going statements of tax accounts payable with bookkeeping credits for those assessed tax items against which notices of objection or notices of appeal had been filed and had remained outstanding.

     A quick read of some 53 exhibits filed by the plaintiff and an additional 23 filed by the defendant is evidence of a continuing relationship over tax liabilities, assessments and re-assessments, covering a dozen taxation years. The figures throughout were pretty high and the participation of tax auditors is evident throughout. In 1990, for example, issues were still being debated over tax formulae set in 1982. It is also evident that the plaintiff is an entrepreneur of many parts as well as a welcome benefactor of the Royal Ontario Museum. The tax connotations of these endeavours were the subject of judicial review before the Trial and Appeal divisions of this Court as well as the Supreme Court (See 89 D.T.C. 5115; 92 D.T.C. 6031; (1993) 4 S.C.R. 285).

     In any event, the general picture that may be drawn from all of the documents is that over a period of many years, very few issues of tax liability were readily resolved. Assessments and re-assessments were habitually followed by challenges. Communications between the plaintiff and the defendant were usually through expert tax auditors retained by the plaintiff. No doubt, some of the business activities in which the plaintiff was involved were subject to some fairly controversial tax liabilities, understandably so, since amounts in play were at all times pretty substantial.

     I must return now to the error in the Notice dated March 3, 1989. In that document, the figure of $1.3 million is shown as a credit. An accounting summary dated December 29, 1989, specifically exempts this particular amount from calculations because of an appeal having been filed. So too other accounting summaries, which note that debit items in any of the relevant assessments are excluded from the calculations by reason of a challenge having been filed against them.

     On February 16, 1990, the defendant filed with the plaintiff an accounting summary showing a debit amount of $1,473,000 in taxes, an amount then under appeal.

     Collection action was not undertaken until 1994. It is noted, however, that under the "fairness policy", no action could be taken by the defendant while the whole amount was under appeal. The appeal remained outstanding until June 22, 1992, when it was abandoned. As of that date, the outstanding balance owing for the tax year 1987 became collectible.

     On June 7, 1994, the plaintiff's auditors stated that they were not aware of this outstanding amount. As far as they were concerned, the one and only Notice of Reassessment for the 1987 year "erroneously showed a 'Refund' and a credit instead of a 'Balance owing' and debit. The defendant was asked, on grounds of fairness, to reverse the interest charges which had accumulated. The Fairness Committee refused the request and on July 22, 1994, the plaintiff was so advised.

     It could very well be that the plaintiff or his auditors were not aware of the amount outstanding and that they did believe that the one and only reference to it was in the 1987 Notice of Reassessment. On February 16, 1990, a detailed accounting statement was provided to the plaintiff and this statement also indicated a $1.3 million tax liability for 1987. Further, a Notice of Assessment for the year 1988 dated December 29, 1989, clearly indicates an unpaid amount of $1.47 million (interest added), against which a Notice of Objection had been filed. Admittedly, that particular tax liability was not specifically defined or underlined in some of the communications from the Crown to the plaintiff. The reason given, of course, is that department policy is to exempt any liability as assessed if the assessment has been challenged by way of a notice of objection or an appeal to the Tax Court of Canada. Of particular concern, however, is that the notice of objection was in respect of the plaintiff's wish to apply prior years non-capital losses to reduce taxable income to a negative amount. The Crown's position, of course, was that for alternative minimum tax purposes, prior-years non-capital losses could only reduce taxable income to nil. Similarly, the plaintiff stated in his Notice of Appeal to the Tax Court on May 18, 1990, that the 1987 Reassessment reduced the application of non-capital losses and in addition calculated minimum tax. The issues raised, however, appear to be related only to matters of capital gain from a limited partnership and the recapture of capital cost allowance. What might have in fact been argued before the Tax Court on that appeal will, of course, never been know, the plaintiff having abandoned the appeal on June 22, 1992.

     It seems to me that there is no real or substantive issue in respect of the plaintiff's claim. Some elements of the claim might raise an eyebrow or two, but on the whole, I should find that communications between the parties were not between antagonists who were strangers to each other, but rather between sophisticated people who had been jousting on a fairly regular basis. In other terms, that jousting gives every appearance of having taken place on an even playing field.

     I need not traverse at length any considerations as to the validity of the 1987 Reassessment. Recent decisions in this respect seems to have re-emphasized the protection given under sections 152 and 166 of the Income Tax Act (the "Act"), to assessments which are incomplete, defective, incorrect, or which contain any error, defect or omission. I would cite the Federal Court of Appeal decision in Optical Recording Corp. v. R., (1987) 1 C.T.C. 417, as well as the Trial Division decisions in R. v. Riendeau, (199) 1 C.T.C. 141 and in R. v. Leung, (1993) 2 C.T.C. 284.

     This means that a taxpayer cannot get much mileage from challenging the validity of an assessment. Nevertheless, no firm rule can be established on that. There are no absolutes. In the matter before me, are there grounds to establish that the plaintiff was misled, or that he was induced to act contrary to his interests, or that he failed to avail himself, until too late, of any of the remedial provisions available to him under the Act?

     My considered answer to this, as may be readily gleaned from my references to the numerous documents exchanged between the parties, is no. There is no doubt that the amount indicated in the Notice of Reassessment was correct. The error in putting the amount in the wrong box, as far as any reasonable person is concerned, is readily identifiable.

     I might add that under the Act, the relationship between taxpayer and collector is basically non-adversarial. Tax returns are on a voluntary disclosure basis, and only later in the game can a state of confrontation develop. In the circumstances, I do not believe it is open to a taxpayer to feign ignorance or stand mute when an assessment is imposed on him.

     Finally, in the case at bar, throughout the period between the Notice of Reassessment on March 3, 1989, and the claim for payment after the Tax Court appeal had been abandoned, there were ample reminders to the plaintiff of the original liability.

     The plaintiff in this action has also pleaded for an alternative form of relief, namely the waiver of interest on the unpaid tax, an amount which remained unpaid for several years. I see no grounds for such generous treatment. The delays in collection procedures were not caused by the defendant Crown, but by the freeze policy which applies whenever assessments are challenged. I should refer in this respect to the letter of June 7, 1994, from the plaintiff's auditors to the defendant, stating that "we were not aware of the taxes owing". Perhaps the writer of that letter had not been aware, but in any event, this is sliding into sophistry. My considered view is that the taxpayer knew, or at least should have known.

     There remains the issue of some delays in 1993-1994 in pushing the collection issue. The defendant's Fairness Committee found no grounds to recommend any waiver of interest. On the basis of my finding that the plaintiff was or should have been aware of this liability, I see no reason to intervene.

     I should therefore allow the defendant Crown's application for summary judgment against the plaintiff. Costs to the Crown, if demanded.

    

     _________________________

     J U D G E

O T T A W A, Ontario

July 4, 1997.