Tax Court of Canada Judgments

Docket: 2003-3985(IT)I

BETWEEN:

MARIO BOURQUE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent. [OFFICIAL ENGLISH TRANSLATION]

Motion heard on March 1, 2004, at Québec, Quebec

Before: The Honourable Justice Pierre Archambault
Appearances:
Counsel for the Appellant:	Patrick Poulin
Counsel for the Respondent:	Anne Poirier

ORDER

          Given the motion by Counsel for the Respondent to dismiss the appeals for want of interest;

          Given the filed affidavit of Alain Solliec;

          The Respondent's motion is allowed, and the appeals of Mr. Bourque with respect to Ms. Brunelle's tax assessments are dismissed, in accordance with the attached Reasons for Order.

Signed at Ottawa, Canada, this 14^th day of June 2004.

"Pierre Archambault"

Archambault J.

Translation certified true

on this 11^th day of November 2004.

Shulamit Day, Translator

Citation: 2004TCC404

Date: 20040614

Docket: 2003-3985(IT)I

BETWEEN:

MARIO BOURQUE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

[OFFICIAL ENGLISH TRANSLATION]

REASONS FOR ORDER

Archambault J.

[1]      The Respondent presented a motion to dismiss Mr. Bourque's appeals for want of interest since they address the assessments of his former spouse for the 1996, 1997 and 2000 taxation years. In order to better understand how this legal mess began, it is useful to list the facts outlined in Mr. Bourque's Notice of Appeal:

[TRANSLATION]

B.         THE FACTS

1.          On March 3, 1993, a judgment was delivered confirming the divorce of the Appellant and his former spouse, in matter #200-12-048091-921.

2.          In this judgment, the Honourable Justice Goodwin set the support to be paid by the Appellant on a net taxable basis, in order to comply with the support judgment, dated September 3, 1992.

3.          In 1994, after a more difficult financial period, the Appellant asked that the support amount be lowered.

4.          The Appellant's request was granted in a judgment by the Honourable Justice Goodwin, dated February 24, 1994.

5.          However, in his judgment decreasing the amount of support to be paid, the Honourable Justice Goodwin did not mention whether this support was to be calculated on a net taxable basis.

6.          According to the legislation in effect when the judgments were delivered, child support payments were tax deductible; in other words, the Payor could deduct the amounts paid to recipients, and they had to include them in their income.

7.          Thus, in compliance with the law in effect at the time, the Appellant deducted the amounts of support paid to his former spouse for his children's benefit from his income for the 1993 to 1999 taxation years.

8.          However, the taxpayer's former spouse did not include these amounts in her income.

9.          The Canada Customs and Revenue Agency (hereinafter referred to as "CCRA") assessed the Appellant's former spouse for the 1998 and 1999 taxation years, given that she had not included the amount of support received over these two years in her tax returns.

10.        The Appellant's former spouse therefore claimed the Appellant's assessment amounts.

11.        Based on the two judgments that set and modified the support, Justice Walters sentenced the Appellant to pay these amounts to CCRA, in a judgment dated May 4, 2001.

12.        The Appellant complied with this judgment and paid the CCRA the amounts assessed against his former spouse.

13.        On May 13, 2003, notices of reassessment were issued to the Appellant's former spouse for the 1996, 1997 and 2000 taxation years.

14.        The reasons for these reassessments are the same as those for the Notices of Assessment for the 1998 and 1999 taxation years.

15.        The Appellant's former spouse did not challenge these Notices of Reassessment, despite the fact that they had no basis in law.

16.        In fact, the Notices of Assessment for the 1996 and 1997 taxation years are statute barred.

17.        Also, since 1997, the Appellant's former spouse has not been required to include the amounts of support received in the calculation of her income, since support was no longer taxable, and all the more so because the Appellant did not deduct the amounts paid to her in the 2000 taxation year.

18.        In compliance with the judgments setting the support, the taxpayer's former spouse did indeed receive support net of taxes in 2000, since she was not required to include this amount in her income.

19.        However, despite the fact that the Appellant met his tax obligations, he is the ultimate tax debtor for the amounts assessed in the name of his former spouse under An Act to facilitate the payment of support, which is administered by the Ministère du Revenu du Québec (hereinafter referred to as "MRQ").

20.        In fact, on May 22, 2003, the MRQ sent the Appellant a request for payment of the amounts claimed against his spouse in the Notices of Assessment mentioned above and bearing the numbers 6476079, 6476080 and 6476081.

21.        The Appellant challenged his responsibility for these amounts of money by filing a Notice of Assessment with the MRQ, dated June 22, 2003.

22.        However, the MRQ dismissed the Appellant's request.

23.        The Appellant, as the ultimate tax debtor for his former spouse's tax debt, challenged the Notices of Assessment mentioned above by submitting to the CCRA the Notices of Objection, dated July 17, 2003, for the three assessments mentioned above.

24.        On August 26, 2003, the CCRA sent a letter to the Appellant mentioning that his objections for 1996, 1997 and 2000 could not be processed since the one-year period for objections to the assessments had expired.

25.        The CCRA processed the Appellant's notices of objection, dated July 17, 2003, as Notices of Objection to the Appellant's initial assessments that were dated March 27, 1997, March 26, 1998, and June 14, 2001.

26.        On August 29, 2003, the Appellant sent a letter to CCRA repeating that he objected to the assessments issued against his former spouse, for which he is the ultimate tax debtor, and not to the assessments issued in his own name. He asked the CCRA for a response to these first objections.

27.        On September 4, 2003, the CCRA replied to the Appellant, telling him that the letter dated August 26, 2003, constituted their reply to the Notice of Objection.

28.        However, the CCRA refused to make a decision on the reasons brought forward in the Appellant's Notice of Objection.

29.        It was only during telephone conversations between the Appellant and one of the CCRA representatives that the Appellant discovered that CCRA was refusing to process the Appellant's Notices of Objection because the Appellant had not demonstrated the necessary interest in challenging the Notices of Assessment issued in the name of his former spouse.

30.        However, as was demonstrated during the hearing, the CCRA incorrectly interpreted subsection 165(1) of the Income Tax Act (hereinafter referred to as the "ITA").

31.        In fact, a taxpayer has the right to object to a Notice of Assessment when the taxpayer is the ultimate tax debtor for a tax debt.

32.        Since he was the ultimate debtor for his former spouse's tax debt for the Notices of Assessment mentioned above, since he had met his own tax obligations for 1996, 1997 and 2000, and had substantive grounds to challenge these Notices of Assessment, we believe that the Appellant is still entitled to oppose these Notices of Assessment and to ask that they be vacated.

33.        This appeal is correct in fact and in law.

FOR THESE REASONS, MAY IT PLEASE THE COURT:

TO GRANT this appeal;

TO CANCEL the Notices of Assessment bearing the numbers 6476079, 6476080 and 6476081, dated May 13, 2003;

ALTERNATIVELY;

TO ORDER the Respondent to allow the Appellant to amend his tax return for the 2000 taxation year in order to avoid double taxation;

THE WHOLE, with costs.

WE REQUEST that the informal procedure outlined in sections 18.1 to 18.28 of the Tax Court of Canada Actgovern this appeal.

[2]      In her motion, Counsel for the Respondent reasoned that the assessments under the Income Tax Act (the Act) by the Minister of National Revenue (Minister or Agency) were made against an individual other than the Appellant, that the Appellant was not mandated to represent this individual, Ginette Brunelle, and that, as a result, he did not have the necessary interest to appeal these assessments.

[3]      In support of his challenge to the motion, Counsel for Mr. Bourque produced documents, including a decision made on May 4, 2001, by Justice Walters of the Superior Court of Quebec. First of all, we note in this decision that Justice Walters ordered Mr. Bourque to pay the amount of $3,073.24, which Ms. Brunelle owed to the Agency for the 1998 and 1999 taxation years. Furthermore, without mentioning the dates or taxation years, Justice Walters ordered Mr. Bourque to repay Ms. Brunelle any amounts she could have to pay the Agency for arrears related to the net support of $480 that he was responsible for paying monthly (see page 19 of Justice Walters' decision). However, it is interesting to note that Justice Walters evokes, in the summary of his reasons, the possibility that Ms. Brunelle may be responsible for paying taxes for the 2000 taxation year. There is no mention of the years 1996 and 1997. Here is how Justice Walters expresses this, at page 7:

[TRANSLATION]

We should not lose track of the fact that the CANADA CUSTOMS AND REVENUE AGENCY could add an assessment for 2000 if the Respondent included support in her tax return. It is highly likely that the Ministère du Revenu du Québec will also require the Respondent to pay tax on the support she received.

(See also page 8 of his reasons.)

As a result, it is likely that the order mentioned above was addressing taxes for 2000.

[4]      Finally, Justice Walters modified the support Mr. Bourque was required to pay to Ms. Brunelle beginning on March 22, 2001. He ordered Mr. Bourque to pay annual non-taxable and indexed support of $5,831.75, or $485.97 per month. An additional amount of non-taxable and indexed support of $50 per month for another of the Bourque/Brunelle children was ordered.

[5]      It should also be mentioned that Justice Walters gave a version of the facts that differed in several respects from that provided in Mr. Bourque's Notice of Appeal. Specifically, on page 6 it indicated that Mr. Bourque had not asked for a decrease in his support in 1993, contrary to what is alleged in paragraph 7 of Mr. Bourque's Notice of Appeal. In addition, Justice Walters interprets the decision by Justice Goodwin, dated February 25, 1994, differently from Mr. Bourque. Justice Goodwin did not lower the support,[1] but instead modified the requirement of the support: [TRANSLATION] "There was no decrease in support, but simply the payment of a part thereof." (page 5 of Justice Walters' reasons). He therefore rejected Mr. Bourque's position that he [TRANSLATION] "is no longer required to meet the obligation imposed on him to pay net support, since, according to him, the judgment did not renew this obligation." (page 4 of Justice Walters' decision)

[6]      According to the information provided by Counsel for Mr. Bourque, he allegedly paid the support arrears for the 1998 and 1999 taxation years by paying the taxes owed by Ms. Brunelle for these two taxation years. However, he refused to pay the $5,994.06 in support arrears, which consisted of taxes owed by Ms. Brunelle for the 1996, 1997 and 2000 taxation years, payment which the Ministère du Revenu du Québec (MRQ) had requested of him on May 22, 2003. In fact, Mr. Bourque challenged this request on June 2, 2003, by sending the MRQ a notice of objection under section 61 of An Act to facilitate the payment of support (R.S.Q. c. P-2.2) (FPS Act). As reasons for this objection, Mr. Bourque indicated that the debts to the federal tax collectors for the 1996, 1997 and 2000 taxation years were not support arrears and said [TRANSLATION] "[that] instead, this is an amended return presented by Ms. Ginette Brunelle for each of the taxation years"! Furthermore, Mr. Bourque alleged that [TRANSLATION] "Ms. Ginette Brunelle simply took it upon herself to change or amend her federal tax returns for the years involved out of pure vengeance. . . ."

[7]      On June 12, 2003, the MRQ made its decision and rejected Mr. Bourque's Notice of Objection, determining that there had been no error in establishing the amount requested. He was therefore informed of his right to judicial remedy at the Superior Court under section 63 of the FPS Act. In addition, the MRQ told him: [TRANSLATION] "if you do not agree with the conclusions of Justice Hubert Walters, we suggest you address the court in order to have the judgments modified. The Minister will then follow up on any new order given in your file." However, Mr. Bourque did not apply to the Superior Court for any judicial remedy.

[8]      He instead decided, on July 16, 2003, to file a Notice of Objection to the Agency's tax assessments against Ms. Brunelle. Since Ms. Brunelle's name did not appear on the objection form - only the numbers for her Notices of Assessment were indicated - it is not surprising that the Agency handled Mr. Bourque's Notice of Objection as a notice of objection to his own assessments. In light of Mr. Bourque's insistence that he was properly challenging Ms. Brunelle's assessments (and not his own), and since the Notice of Appeal of these assessments had been submitted before this Court, the Respondent was compelled to produce his motion to dismiss the appeal for want of interest.

[9]      The decision of Justice Walters reveals other interesting facts. First of all, on page 2, the fact that the [TRANSLATION] "divorce judgement ratified an agreement on corollary relief in which the support was set as follows:

Set the support to be paid by the Respondent to the Plaintiff, for the benefit of their three minor children, at $480, net of taxes, in advance on the 1^st of each month, at the Plaintiff's home;

In the event that the Plaintiff is taxed for amounts received from the Respondent as support, the Respondent is ordered to pay to the Plaintiff, upon request, an amount equivalent to the sum required to provide the Plaintiff, after deduction in accordance with the combined marginal rate applicable to the Plaintiff's income, the payments outlined above, net of taxes.[2]

[10]     Furthermore, when this agreement was signed, Mr. Bourque was a [TRANSLATION] "technician working for the Ministère du Revenu Québec" (Justice Walters' reasons, page 6) and [TRANSLATION] "and the parties [were] advised by experienced lawyers" (page 3 of Justice Walters' reasons). This sheds a completely different light on the fact that Mr. Bourque did not ask for a decrease in support in 1993, and the fact that Ms. Brunelle had not included it in her income. Moreover, Justice Walters indicates that Mr. Bourque had deducted it in 1994 without telling Ms. Brunelle, who did not include it in her own income for that year, nor did she do so for subsequent years. Justice Walters thus describes, at page 6 of his reasons, the circumstances under which the reassessments were made against Ms. Brunelle for 1998 and 1999:

[TRANSLATION]

The Plaintiff received a first notice of assessment for 1998, and then another for 1999 will be added. Once the first surprise had passed, she went to Customs where she learned that the Respondent had declared the support he had been paying her in his returns. Her attempts to have the Notices of Assessments vacated were unsuccessful, so as of February 10, 2001 (R-1) she owed Revenue Canada $3,073.24, which included a repayment of child support, given the changes that had occurred in her income; interest was added.

Since the parties had not taken the support into account in their respective 1993 tax returns, the Plaintiff assumed that this would be the case in the future. In doing so she was somewhat naive and unwise, since it would have been preferable for her to find out from the Respondent whether he would continue not declaring the support,[3] but it turns out that there was no communication between the parties, which does not make things any easier, and in any case, the Plaintiff could imagine that she was protected by the judgments that granted her net support, while at the same time trusting the Respondent, whom she believed in good faith.

With respect to the Respondent, a technician working for the Ministère du Revenu Québec, he was not unfamiliar with the consequences of his decision to include the support in his tax returns after 1994; his failure to notify the Plaintiff, and sending only the 1994 judgment to the Minister, merit only disapproval.

Analysis

[11]     In support of his challenge to the Respondent's motion, the solicitor for Mr. Bourque advanced several reasons. He first asserted that under subsection 165(1) of the Act, "A taxpayer who objects to an assessment under this Part may serve on the Minister a notice of objection, in writing. . . ." The solicitor emphasized that Parliament dealt with objections to "an" assessment and not "his" assessment. In his opinion, this text therefore provides remedy for a third party who is the ultimate tax debtor for the taxes due, in this case, by Ms. Brunelle. Obviously, once the Minister has made a decision on the objection, the taxpayer has the right to submit an appeal to the Court. According to the solicitor, it would be contrary to the principles of natural justice, and specifically to the fundamental principle of audi alteram partem, if an individual such as Mr. Bourque was refused the right to appeal the Minister's decision with respect to his objection. Counsel specifically cites the decision of Frenette J. of the Superior Court of Quebec in Québec (Sous-ministre du Revenu) c. Guay, 1993 CarswellQue 514, at paragraphs 27 to 29. He also cites several other decisions made by federal courts, specifically those of the Federal Court of Appeal in Gaucher v. Canada, [2000] F.C.J. No. 1869 (Q.L.), 2000 DTC 6678 and two decisions of this Court, one by Associate Chief Justice Bowman in Elias v. Canada, [2002] T.C.J. No. 8 (Q.L.), 2002 DTC 1293, and the other by McArthur J. in Bâtiment Fafard International Inc. v. The Queen, 99 DTC 504.

[12]     In Gaucher and Elias, the courts decided that a taxpayer who had been subject to an assessment under section 160 (Gaucher) or section 227.1 (Elias) of the Act could challenge the existence of a third party's tax debt, and specifically the tax debt of the author of a transfer in the case of an assessment under section 160, or the company for which the taxpayer was a director in the case of an assessment under section 227.1 of the Act. In Bâtiment Fafard, the court decided that a director had the right to be a substitute for the Appellant in the appeal of a company that had gone bankrupt, an appeal that the trustee refused to pursue.

[13]     In my opinion, the position Mr. Bourque is defending is completely without merit. First, this is not a matter in which the principle of audi alteram partem is invoked, since Ms. Brunelle's assessment does not affect Mr. Bourque. He is not a party to the assessment! Mr. Bourque has no legal interest in contesting a tax assessment against his former spouse. Only she can appeal assessments against her. The fact that Mr. Bourque is responsible for paying the taxes due by Ms. Brunelle under the agreement reached by them during their divorce, an agreement which stipulated that Mr. Bourque was required to pay Ms. Brunelle an amount of support net of taxes, does not give him the right to challenge his former spouse's tax assessments. If Ms. Brunelle believes that taxes were due, Mr. Bourque cannot interfere.

[14]     Mr. Bourque's obligation to pay the support, the amount of which depends in part upon the taxes Ms. Brunelle must pay, does not derive from the Act or any other tax law. It arises from a decision of the Superior Court that had ratified an agreement between the parties themselves! If Mr. Bourque was not satisfied with the decision of Justice Walters, he could have appealed before the Court of Appeal of Quebec. If Mr. Bourque was not satisfied with the decision with respect to his Notice of Objection, he could have appealed to the Superior Court under the FPS Act. If Mr. Bourque believed that Ms. Brunelle had acted maliciously ("out of pure vengeance") and infringed upon his rights by not contesting the Minister's assessments for 1996, 1997 and 2000, he could also have applied to the Superior Court. In my opinion, that is the appropriate forum in which Mr. Bourque could have made his objection.[4] However, Mr. Bourque has still done nothing of the sort. If he has not been heard, it is because he did not ask the proper court to hear him.

[15]     Moreover, it is far from certain that Mr. Bourque is correct when he asserts that the tax amounts were not owed by Ms. Brunelle. I am not required to decide that issue, since it has not been the subject of debate, and evidence was not presented. Mr. Bourque did not even appear before me, and he has not testified to contest the motion.[5]

[16]     In any case, even if Ms. Brunelle had not had to pay these taxes, my decision would not change. In my opinion, the Guay decision, supra, invoked by counsel for Mr. Bourque is of no use to him. Unlike Mr. Bourque (with respect to Ms. Brunelle's assessment), Mr. Guay was not a third party; he was challenging his own taxes. Mr. Guay was asking for withdrawal of a judgment by the MRQ by virtue of the submission of a certificate attesting that Mr. Guay owed taxes to MRQ, in accordance with Section 13 of the Ministry of Revenue Act. In this case, it is odd that there was no mention of Mr. Guay submitting a Notice of Objection to the MRQ to challenge his tax assessments, since, at paragraph 5 of the decision, it is indicated that such assessments had been made and that an exchange of correspondence had occurred between MRQ and Mr. Guay's accountant. Justice Frenette's summary of facts does not indicate what occurred in this respect. Was the Notice of Objection produced in accordance with the normal procedure, and was Mr. Guay notified of the MRQ's decision with respect to these Notices of Objection? The summary of facts, I repeat, is silent on this issue. If Mr. Guay had been informed of the assessment at the appropriate time, and he did not make use of this right to object, I am at a loss to understand how it can be claimed that there was a violation of the audi alteram partem rule of natural justice in such circumstances!

[17]     With respect to Gaucher and Elias, they are not of any assistance to Mr. Bourque either, since, in these decisions, the taxpayers were personally involved in the assessments of the Minister under sections 160 or 227.1 of the Act, and they were challenging these assessments. Here we have assessments that involve not Mr. Bourque, but rather Ms. Brunelle. In my opinion, the preferred approach was taken by Strayer J., when he was a Justice at the Federal Court Trial Division, in Nova Ban-Corp Ltd. v. Tottrup [1990] 1 F.C. 288, at 294 and 295, 89 DTC 5489, at page 5491:

Nor does the Income Tax Act [S.C. 1970-71-72, c. 63] authorize any one but the taxpayer to challenge a tax assessment. The plain words of the Act do not so provide. By sections 165, 169 . . . and formerly 172 (authorizing appeals to the Federal Court) it is the "taxpayer" who is authorized to file an objection to an assessment or to bring an appeal. In the present case it is obvious that Nova Ban-Corp Limited is not the taxpayer in question. I can find no authorization in the Income Tax Act for the creditor Nova Ban being able to appeal the assessment of Container Port by suing in the name of the latter. . . . Apart from the absence of any express authority for such a proceeding, I agree respectfully with my colleague Walsh J. in Hart v. Canada (M.N.R.) [See Note 2 below] where he held that a creditor of a taxpayer had no standing to challenge the assessment and the enforcement action taken pursuant to it. I believe that the House of Lords decision in Inland Revenue Comrs v. National Federation of Self-Employed and Small Businesses Ltd. quoted by him, provides a clear rationale for denying any implication that a person other than the taxpayer can challenge his assessment. The House of Lords there emphasized the confidentiality of taxation information which militates against third parties coming in to attack an assessment. In Canada that confidentiality is required, in circumstances such as the present, by subsection 241(2) of the Income Tax Act which states that no official shall be required in connection with any legal proceedings to testify as to information obtained on behalf of the Minister for the purposes of the Act. This would clearly provide a major obstacle to any third party challenging an assessment in court and it cannot be implied that such a challenge is authorized.

[18]     The only decision, in my opinion, that seems to favour Mr. Bourque's hypothesis is the one given in Bâtiment Fafard International Inc. It is important to mention that, in this case, a director wanted to continue with the appeal made by a company that had subsequently gone bankrupt. The Justice permitted Mr. Fafard to challenge the tax assessment against the company for failing to remit source deductions because, in his opinion (at paragraph 25):

. . . if I denied Mr. Fafard the right to continue the pending proceedings, the result would be unfair. The appellant would not be represented, since the trustee is refusing to act. What would then become of the adversary process, one of the pillars of our entire legal system? Injustice would be the result: the appellant could not appear before the Court since there would be no one who could represent it. . . . Moreover, authorizing Mr. Fafard to do so is the most effective way to dispense justice expeditiously.

[19]     However, this approach clearly goes against the decision made by Strayer J. in Nova Ban-Corp. Ltd. Furthermore, it should be noted that this is a decision made before the decision of the Federal Court of Appeal in Gaucher and that of this Court in Elias, which clearly recognize the right of a director to challenge, in the case of an assessment under section 227.1 of the Act, even the amount of tax debt (resulting from the failure to remit source deductions) of the company for which he was a director. The unfairness described by the Justice in Bâtiment Fafard International Inc. could be avoided using the principles adopted in Elias and Gaucher. As a result, I am far from certain that this Justice would have used the same approach if he had had the benefit of these decisions before rendering his own.

[20]     I will conclude these reasons by repeating the suggestion that was made to Mr. Bourque by the MRQ: if Mr. Bourque is not satisfied with the decision made by the Superior Court, or he believes it was given too great a scope, he must apply to the Superior Court. Before this Court, Mr. Bourque will have the opportunity to establish whether Ms. Brunelle really has a tax debt and if her behaviour infringes upon his rights.

[21]     For all these reasons, the Respondent's motion is allowed and Mr. Bourque's appeals of the tax assessments involving Ms. Brunelle are dismissed.[6]

Signed at Ottawa, Canada, this 14^th day of June 2004.

"Pierre Archambault"

Archambault J.

Translation certified true

on this 11^th day of November 2004.

Shulamit Day, Translator

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