Tax Court of Canada Judgments

Date: 19980622

Docket: 96-507-GST-G

BETWEEN:

WILLOW POND SERVICES LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Hamlyn, J.T.C.C.

[1] A Statement of Agreed Facts was filed. It reads:

STATEMENT OF AGREED FACTS

1. The Appellant is, among other things, a property management company which provides property management services for its own properties as well as for other owners of multi-unit buildings;

2. as part of the arrangement with the owners of the buildings, the Appellant paid the salaries of the superintendents resident in the buildings and also the salaries of other employees (the “salaries”);

3. for the period January 1, 1991 to August 31, 1991, the Appellant, in calculating the amount of goods and services tax (“GST”) exigible on the fees it charged for its services to the owners, did not treat the salaries as a taxable supply for purposes of the Excise Tax Act, R.S.C. 1985, c. E. 15, as amended (the “Act”) and, accordingly, did not collect or remit GST in respect of the salaries;

4. for the purposes of this appeal only, the Appellant accepts that for the period January 1, 1991 to August 31, 1991, the salaries are a taxable supply;

5. in the winter and spring of 1992, the Department of National Revenue (“Revenue Canada”) attended at the offices of the Appellant to review a number of issues, including whether the salaries were a taxable supply. At the request of Revenue Canada, the Appellant supplied documents and information to Revenue Canada on the issue of the salaries, which documents and information to Revenue Canada on the issue of the salaries, which documents and information pertained to the period January 1, 1991 to August 31, 1991 (Tab 1);

6. based on these requests, it was assumed by the Appellant that Revenue Canada was interested in the period January 1, 1991 to August 31, 1991;

7. following its review, Revenue Canada issued a notice of assessment against the Appellant dated April 15, 1992 (the “notice”) (Tab 2);

8. the notice stated that the assessment pertained to the period August 1, 1991 to August 31, 1991;

9. the notice stated that the amount owing was $29,955.55 of which $17,105.10 related to GST exigible on salaries of $244,358.53 paid during the period January 1, 1991 to August 31, 1991;

10. the salaries paid by the Appellant from January 1, 1991 to August 31, 1991 were $244,358.53, and it is not disputed by the Appellant that the amount of GST exigible on those salaries is $17,105.10. However, the salaries actually paid by the Appellant from August 1, 1991 to August 31, 1991 were approximately 1/8 of $244,358.53;

11. as required by the Act, on receipt of the notice, the Appellant paid the amount owing of $29,955.55 in full;

12. subsequent to the issuing of the notice and at the request of the Appellant, Revenue Canada provided to the Appellant its working papers on the issue of the salaries, which working papers included the notation “Willow Pond Services Inc. - 01/01/91 to 08/31/91 (Tab 3);

13. in June 1992 the Appellant objected to the assessment on the issue of the salaries (Tab 4) and in November 1995 the assessment was confirmed (Tab 5);

14. in August 1997, the Appellant first raised the fact that the notice stated the assessment pertained to the period August 1, 1991 to August 31, 1991;

15. in respect of GST exigible for the period January 1, 1991 to August 31, 1991, the only notice received by the Appellant was that dated April 15, 1992, which on its face stated that it pertained to the period August 1, 1991 to August 31, 1991; and

16. the Appellant acknowledged on its examination for discovery that the only prejudice it suffered as a result of the discrepancy between the amount of the assessment ($17,105.10) and the stated period of assessment (August 1, 1991 to August 31, 1991) is that it has had to pay the full $17,105.10 in GST on the salaries.

ISSUE

[2] The issue is whether the Minister of National Revenue’s (the “Minister”) assessment of the Appellant for the period January 1, 1991 to July 31, 1991 is valid notwithstanding the fact that the Notice of Assessment issued for that period states that the assessment pertained to the period August 1, 1991 to August 31, 1991.

THE APPELLANT’S POSITION

[3] The Notice of Assessment dated April 15, 1992, which stated that it pertained to the period August 1, 1991 to August 31, 1991, was the only Notice of Assessment received by the Appellant in respect of the entire period from January 1, 1991 to August 31, 1991.

[4] As for the period January 1, 1991 to July 31, 1991, it is submitted that pursuant to section 298 of the Excise Tax Act (the “Act”) the Minister is statute-barred from reassessing the Appellant for Goods and Services Tax (“GST”) exigible on salaries paid during that period. Paragraph 298(1)(c) limits the period during which a person may be assessed under section 296 of the Act to “four years after the tax became payable.” In the present case that period of time has passed.

[5] Consequently, the Appellant has overpaid the GST exigible on the salaries for the period August 1, 1991 to August 31, 1991, and the Minister should be directed to reassess the Appellant for that period.

THE MINISTER’S POSITION

[6] The Notice of Assessment dated April 15, 1992 was expressed in terms that clearly made the Appellant aware of the assessment raised by the Minister in that it set out the amount of tax owing.

[7] Error is a matter of degree. The error complained on the face of the Notice of Assessment dated April 15, 1992 is not an error that can be described as a ‘substantial or fundamental error’ such that it cannot be saved by the curative provisions of the Act.

[8] The language of subsection 299(4) of the Act is clear: “An assessment shall, ... be deemed to be valid and binding notwithstanding any ... error, defect or omission ... in any proceeding under this Part ...”. These words must be given some weight. To accept the Appellant’s argument that simply because the Notice of Assessment refers to only the last month of the eight month period assessed is to ask this Court to apply an overly formalistic approach to a Notice of Assessment.

ANALYSIS

[9] With respect to the Appellant’s submission that, pursuant to paragraph 298(1)(c) of the Act, the Minister is statute-barred from reassessing the Appellant for GST exigible on salaries paid during the period January 1, 1991 to July 31, 1991, the implicit assumption in this argument is that owing to the error made in respect of the period for which tax was payable the Minister is bound to reassess the taxpayer. Of course, the Minister may not reassess the taxpayer now because the limitation period under the Act has expired. Therefore, what the Appellant is really asking the Court to find is that the Minister is obligated to reassess the taxpayer.

[10] In the Appellant’s submission, the Minister is obligated to reassess the taxpayer because he has made an error in the Notice of Assessment. He relies upon the decision of Cullen J. in The Queen v. Riendeau.[1] In that case Cullen J. held that liability for tax is not affected by an incorrect or incomplete assessment, so that the fact that a reassessment had been based on a repealed section of the Act was not fatal. In obiter, he also made the following comments at page 6079:

Error will be a matter of degree. Sections 152(3), 152(8) and 166 combined clearly indicate that this error by the Minister of National Revenue is far from fatal. The cases only limit these sections where there is substantial and fundamental error; in such cases, the court will not allow the Minister to hide behind the provisions.[2]

[11] The question to be answered is whether the error contained in the Notice of Assessment, namely the failure of the Minister to correctly state the period for which tax was owing by the Appellant, constitutes a ‘substantial and fundamental error’ which would render the assessment a nullity.

[12] I conclude the assessment remains valid in spite of the error. It is well established that an assessment may be valid although the reason assigned by the Minister for making it was erroneous. The fact that an error was made in the Notice of Assessment does not affect the validity of the assessment: M.N.R. v. Minden.[3] Other cases have confirmed this proposition. It is clear that errors such as the failure to state the applicable section of the Act,[4] citing a section of the Act that had been repealed,[5] changing the reasons for which an assessment is based,[6] or failure to clearly delineate the tax liability under different taxing statutes[7] will not be fatal to an assessment.

[13] Furthermore, the error of the Minister is not an error in the assessment, but merely an error in the Notice of Assessment. An appeal against an assessment of tax by the Minister is an appeal against the amount of the assessment: Vineland Quarries and Crushed Stone Ltd. (supra). Here, the Minister has correctly assessed the taxpayer; that is, he has ascertained liability for GST under the Act, and fixed a total in accordance with the provisions of the Act. However, he has incorrectly stated the time period for which tax is due in the Notice of Assessment. It is trite law that the Notice of Assessment is merely a piece of paper which advises a taxpayer of an assessment. In an appeal of an assessment of tax to the Tax Court of Canada, the Court is concerned with the correctness of an assessment of tax under the Act not with the decision of the Minister as articulated in the Notice of Assessment: Nicholson Ltd. v. M.N.R.[8]

[14] Finally, I would observe that the Appellant has always been aware of the quantum of tax owing, and has suffered no prejudice as a result of the error of the Minister, other than having to pay a greater amount of tax if unsuccessful in this appeal. Paragraphs 5, 8 and 12 of the Statement of Agreed Facts make it clear that the Minister, in performing the operation of assessing the Appellant, relied upon the correct period of time during which tax liability arose. In preparing the Notice of Assessment, an error was made in stating that period of time. If the Minister had, in the operation of assessing tax, relied upon incorrect dates, I may well have found that this constituted a fundamental and substantial error such that the assessment was invalid. This was not the situation in the case at bar.

[15] On the basis of all of the foregoing, I conclude that the error incorrectly stating the time period in which the liability to pay tax arose is not fatal to the assessment.

[16] The appeal is dismissed with costs.

Signed at Ottawa, Canada, this 22nd day of June 1998.

“D. Hamlyn”

J.T.C.C.

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