T-3982-76
Sam Pupatello, Vince Pupatello and Pupatello
Bros. Limited (Plaintiffs)
v.
Minister of National Revenue (Defendant)
Trial Division, Walsh J.—Toronto, October 3;
Ottawa, October 11, 1977.
Income tax — Notice of reassessment — Third party
demands issued and monies collected — Whether or not taxes
due following receipt of notice of reassessment, and whether or
not collection provisions available — Income Tax Act, R.S.C.
1952, c. 148, as amended by S.C. 1970-71-72, c. 63, ss.
152(1),(2),(3),(4), 158, 222, 224, 248(1) — The Income Tax Act
(Ontario), R.S.O. 1970, c. 217, s. 17.
In 1976, plaintiffs received notices of reassessment for the
years 1967-71. Although plaintiffs received a number of remit
tance forms from defendant, plaintiffs' solicitors advised
defendant that no taxes were owing as a result of the mailing of
the notices of reassessment and filed formal notices of objec
tion. The plaintiff corporation and the Bank of Montreal later
received a demand on third parties—a garnishment device. This
action seeks a declaratory judgment interpreting the collection
proceedings which can be adopted by the Minister of National
Revenue to enforce payment of taxes due following a notice of
reassessment to which objection has been made: more particu
larly, that monies are not due on receipt of notice of reassess
ment, that defendant repay monies received with interest, and
that an injunction issue restraining defendant's using any
procedure in the Act with respect to monies claimed in the
notices of reassessment.
Held, the application is dismissed. It is clear from the
definition of assessment in section 248(1) that, although it is
well established that an assessment is not the same thing as a
notice of assessment, and that a reassessment does not always
replace an original assessment, section 158(1), requiring the
taxpayer to make payment within a specified time, is applicable
to the notice of reassessment. It would be absurd to conclude
that there is no provision setting a time limit for payment of the
amount claimed in the notice of reassessment whether or not a
notice of objection has been made or an appeal filed. A
taxpayer could avoid payment by filing no notice of objection
or not appealing, and ignoring all notices demanding payment,
at least until the defendant recovered the levy in court.
Although amounts due can be recovered in any court of com
petent jurisdiction pursuant to section 222, they also can be
recovered in any other manner provided by the Act. To suggest
that the Queen should have to sue to collect taxes following a
reassessment is preposterous, especially when the defence pre
sumably would be that the taxes claimed by reassessment are
not due. The same issue would be litigated as a result of a
notice of litigation.
R. v. Lambert [ 1974] 1 F.C. 693, affirmed [ 1977] 1 F.C.
199, applied. Pure Spring Co. Ltd. v. M.N.R. [1946]
Ex.C.R. 471, considered. Scott v. M.N.R. [1961] Ex.C.R.
120, considered. Cyrus J. Moulton Ltd. v. The Queen
[1976] 1 F.C. 437, distinguished. Abrahams v. M.N.R.
[1967] 1 Ex.C.R. 314, referred to. Walkem v. M.N.R.
[1971] C.T.C. 513, referred to. R. v. Williams [1975]
C.T.C. 392, referred to.
INCOME tax appeal.
COUNSEL:
R. Stikeman for plaintiffs.
N. A. Helfield for defendant.
SOLICITORS:
Robertson, Lane, Perrett, Toronto, for plain
tiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
WALSH J.: This action which seeks a declarato-
ry judgment from the Court interpreting the col
lection proceedings which can be adopted by the
Minister of National Revenue to enforce payment
of taxes allegedly due following a notice of reas
sessment when the said reassessment has been
objected to came to trial on the basis of an agreed
statement of facts with neither party calling any
witnesses. The agreed statement of facts sets out
inter alia that the two individual plaintiffs are sole
shareholders of the plaintiff corporation which
carries on the business of commercial and industri
al building and repair in the Windsor area in
Ontario. All plaintiffs received notices of assess
ment for the taxation years 1967 through 1971
and paid tax pursuant to the assessments made at
that time. On January 16, 1976, plaintiffs Sam
and Vince Pupatello received notices of reassess
ment and on January 20, 1976, the plaintiff corpo
ration also received a notice of reassessment. An
examination of these discloses that this appears to
have arisen from undeclared profits on sales of real
estate in each of the years in question and that a
penalty was also levied in each year under the
provisions of section 163(2) of the Income Tax
Act, R.S.C. 1952, c. 148, as well as a similar
penalty under section 17 of the Ontario The
Income Tax Act, R.S.O. 1970, c. 217, based on
wilful omissions in the returns. In any event no
issue was raised arising from the application of
sections 152(4) and (5) of the Act as a result of
the reassessments having been made more than
four years after the original assessments if in fact
this was the case, which the record does not
disclose.
Following the sending of the notices of reassess
ment the agreed statement of facts discloses that
plaintiffs were sent remittance forms in February,
March, May, June and July and in reply to the
earlier of these forms the solicitors for plaintiffs
sent letters advising defendant they did not consid
er any taxes owing as a result of the mailing of the
notices of reassessment. On April 19, 1976, formal
notices of objection to the reassessments were
filed. On September 16, 1976, the plaintiff corpo
ration received a demand on third parties from
defendant requiring it to pay each month 50% of
all monies for which it was about to become liable
to each of the other plaintiffs. On September 28,
1976, the Bank of Montreal received a demand on
third parties requiring it to pay to the Receiver
General of Canada $3,150 from all amounts due
or about to become owing to the plaintiff corpora
tion. As a result of these notices, on October 4,
1976, plaintiffs paid to the Receiver General of
Canada $32,904.40 on account of Sam Pupatello
and $26,451.87 on account of Vince Pupatello,
being all the monies plus interest claimed in the
notices of reassessment addressed to them, and on
October 4, 1976, the Bank of Montreal remitted
$3,150 to the Receiver General of Canada on
behalf of the plaintiff corporation pursuant to the
demand.
Plaintiffs in their amended statement of claim
contend that the section of the Act that enables
the defendant to issue such a demand has as a
fundamental precondition that a person first be
liable to make payment under the Act before the
garnishment may commence, that these demands
were sent to collect money set out in the notices of
reassessment, and that a person is not liable to
make the payment following the mailing of a
notice of reassessment, but only following the
mailing of a notice of assessment. It is further
submitted that there is a fundamental difference
between a notice of assessment and a notice of
reassessment and that the Act provides no collec
tion procedures or liability for payment following
the mailing of a notice of reassessment. They
therefore ask for a declaration that no monies were
payable to the Receiver General of Canada, by
plaintiffs as a result of the mailing of the notices of
reassessment, that defendant be ordered to repay
to plaintiffs all said monies totalling $62,506.27
plus interest, and that an injunction issue restrain
ing defendant from exercising any and all of the
collection provisions of the Income Tax Act
against plaintiffs with respect to the monies
claimed in the said notices of reassessment.
Defendant in its statement of defence invokes
sections 152(1),(2),(3) and (4), 158(1), 248(1),
222 and 224 of the Income Tax Act which sections
read as follows:
152. (1) The Minister shall, with all due despatch, examine
each return of income and assess the tax for the taxation year
and the interest and penalties, if any, payable.
(2) After examination of a return, the Minister shall send a
notice of assessment to the person by whom the return was
filed.
(3) Liability for the tax under this Part is not affected by an
incorrect or incomplete assessment or by the fact that no
assessment has been made.
(4) The Minister may at any time assess tax, interest or
penalties under this Part or notify in writing any person by
whom a return of income for a taxation year has been filed that
no tax is payable for the taxation year, and may
(a) at any time, if the taxpayer or person filing the return
(i) has made any misrepresentation that is attributable to
neglect, carelessness or wilful default or has committed
any fraud in filing the return or in supplying any informa
tion under this Act, or
(ii) has filed with the Minister a waiver in prescribed form
within 4 years from the day of mailing of a notice of an
original assessment or of a notification that no tax is
payable for a taxation year, and
(b) within 4 years from the day referred to in subparagraph
(a)(ii), in any other case,
reassess or make additional assessments, or assess tax, interest
or penalties under this Part, as the circumstances require.
158. (1) The taxpayer shall, within 30 days from the day of
mailing of the notice of assessment, pay to the Receiver Gener
al of Canada any part of the assessed tax, interest and penalties
then remaining unpaid, whether or not an objection to or
appeal from the assessment is outstanding.
248. (1) In this Act,
"assessment" includes a reassessment;
222. All taxes, interest, penalties, costs and other amounts
payable under this Act are debts due to Her Majesty and
recoverable as such in the Federal Court of Canada or any
other court of competent jurisdiction or in any other manner
provided by this Act.
224. (1) When the Minister has knowledge or suspects that
a person is or is about to become indebted or liable to make any
payment to a person liable to make a payment under this Act,
he may, by registered letter or by a letter served personally,
require him to pay the moneys otherwise payable to that person
in whole or in part to the Receiver General of Canada on
account of the liability under this Act.
(2) The receipt of the Minister for moneys paid as required
under this section is a good and sufficient discharge of the
original liability to the extent of the payment.
(3) Where the Minister has, under this section, required an
employer to pay to the Receiver General of Canada on account
of an employee's liability under this Act moneys otherwise
payable by the employer to the employee as remuneration, the
requirement is applicable to all future payments by the employ
er to the employee in respect of remuneration until the liability
under this Act is satisfied and operates to require payments to
the Receiver General out of each payment of remuneration of
such amount as may be stipulated by the Minister in the
registered letter.
(4) Every person who has discharged any liability to a
person liable to make a payment under this Act without
complying with a requirement under this section is liable to pay
to Her Majesty an amount equal to the liability discharged or
the amount which he was required under this section to pay to
the Receiver General of Canada, whichever is the lesser.
An issue which might well have been raised but
was not is whether the Minister of National Reve
nue is properly named as defendant rather than
Her Majesty the Queen. In the case of Mastino
Developments Limited v. The Queen' dealing with
a proposed appeal by the Minister of National
Revenue from a decision of the Tax Review Board
directions were sought in the Court as to the
proper party in proceedings instituted in appeals
from assessments by the Minister of National
Revenue and appeals from decisions of the Tax
Review Board. Associate Chief Justice Noël found
that they should be brought by or against Her
Majesty the Queen as the case might be. In
another similar case of Weintraub v. The Queen 2
he made a similar finding in a case dealing with
plaintiffs appeal from an income tax assessment.
The present proceedings do not deal with appeals
from the assessments but seek a declaratory judg
ment as to the collection procedure adopted by the
Minister following a reassessment. However, in the
Weintraub case Associate Chief Justice Noël
stated at pages 612-613 in reference to one of the
arguments raised by the Attorney General for
having the Minister of National Revenue named
as the defendant rather than Her Majesty the
Queen:
The provisions of the Income Tax Act, according to the
Attorney General, draw a distinction between the duty to
assess, which is imposed upon the Minister of National Reve
nue, and the taxes payable which by section 222 of the Act, are
payable to Her Majesty the Queen with the consequence that
Her Majesty is not an interested party when the Court is
exercising its jurisdiction to review by way of a trial assess
ments made by the Minister.
At page 615 he refers to a statement he made in
the Mastino case to the effect that there is "... an
indication of a trend in Canada towards eliminat
ing nominated parties and towards leaving Her
Majesty as the party where she is the person whose
legal rights or obligations are involved ..." . It
would appear in the present case that where the
merits of the appeal are not involved but merely
the collection procedures adopted by the Minister
following notices of reassessment and where plain
tiffs seek to collect back moneys already paid to
' [1972] 1 F.C. 532.
2 [1972] 1 F.C. 611.
the Receiver General of Canada, Her Majesty the
Queen is very directly involved and should have
been named as a defendant rather than the Minis
ter of National Revenue. In any event it can be
stated that plaintiffs can have no right to seek an
injunction against the defendant in the present
proceedings.
Plaintiffs' contentions are based on the wording
of section 158(1) (supra) which requires payment
within 30 days from the day of the mailing of the
"notice of assessment" and goes on to state that
this applies whether or not an objection to or an
appeal from the assessment is outstanding. Plain
tiffs argue that this section does not use the word
"reassessment" and, since taxation statutes must
be interpreted strictly, the requirement of payment
within 30 days notwithstanding a notice of objec
tion only applies to the original notice of assess
ment and not to the notice of reassessment. Refer
ence was made to the judgment of former
President Thorson in the case of Pure Spring
Company Limited v. M.N.R. 3 in which at page
500 he makes a distinction between the assessment
and the notice of assessment stating:
The assessment is different from the notice of assessment; the
one is an operation, the other a piece of paper.
Reference was also made to the judgment of Thur-
low J., as he then was, in the case of Scott v.
M.N.R. 4 in which the question raised was whether
reassessment was made within the four-year delay,
the notice of same having been mailed (although
improperly as it was found) to the solicitor who
had formerly acted for the taxpayer rather than to
the taxpayer himself exactly four years after the
mailing of the notice of the original assessment. It
was subsequently remailed to the appellant at an
address where it reached him beyond the four-year
delay. In rendering judgment Mr. Justice Thurlow
referred to the Pure Spring case. He then quoted
Thorson P. at page 131:
3 [1946] Ex.C.R. 471.
4 [1961] Ex.C.R. 120.
It is the opinion as formed, and not the material on which it
was based, that is one of the circumstances relevant to the
assessment. The assessment, as I see it, is the summation of all
the factors representing tax liability, ascertained in a variety of
ways, and the fixation of the total after all the necessary
computations have been made.
and continued as follows at pages 131-132:
See also Provincial Paper Ltd. v. M.N.R. ([1955] Ex. C.R. 33.)
But it does not, in my opinion, follow from the foregoing that
the giving of a notice of assessment is not itself part of the
fixation operation or procedure which is compendiously
referred to in the statute as an "assessment", or if the giving of
notice is not strictly part of the assessment itself that the
assessment itself is complete until the notice has been effective
ly given.
This judgment was however also referred to by
counsel for defendant who cited a passage at page
134:
It was not disputed that s. 46(2), 5 which requires the Minister
to send "a notice of assessment to the taxpayer", applies as well
to a re-assessment as to an original assessment.
From the procedural point of view therefore he
makes no distinction.
There are certainly some differences, however,
between a notice of assessment and a notice of
reassessment and this issue has been considered in
a number of cases, a distinction having been made
between a notice of reassessment which replaces
the original notice of assessment rendering the
latter void, and a notice of reassessment which
merely adds additional sums to the original assess
ment. In the present case the original assessments
were paid and the notice of reassessment adds
additional amounts including penalties and is in
effect a new assessment. The cases which discuss
these questions, to which I refer, are Abrahams v.
M.N.R. 6 a judgment of Jackett P. as he then was
which has subsequently been followed in many
cases including that of Walkem v. M.N.R. 7 , The
Queen v. Lamberts and the appeal from that judg
ment which sustained it although expressing doubt
as to the Trial Court finding that the new assess
5 (Now section 152(2).)
6 [1967] 1 Ex.C.R. 314.
[1971] C.T.C. 513.
8 [1974] 1 F.C. 693.
ments were not reassessments but were further
assessments. 9 This latter case [Lambert v. The
Queen] concerned the taxpayer's attempt to have a
section 223 certificate nullified as the result of the
reassessment. At page 204 of the appeal decision
the learned Chief Justice states:
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 or 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 assessment as
long 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 ceasedito 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.
I think it is clear from the definition of assess
ment in section 248(1) of the Act (supra) that
although it is well established that an assessment is
not the same thing as a notice of assessment, and
that a reassessment does not always replace an
original assessment, the requirement of section
158 (1) that the taxpayer shall make payment
within 30 days of the mailing of the notice of
assessment must also be applicable to the notice of
reassessment. Certainly even plaintiffs do not con
tend that the requirement of section 152(2) that
the Minister shall send a notice of assessment to
the person by whom the return was filed does not
similarly apply to the sending of a notice of reas
sessment, and it would be absurd to conclude that
the Act makes no provision setting a time limit
within which the amount claimed by a notice of
reassessment must be paid whether or not a notice
of objection has been made or an appeal filed. If
such were the case a taxpayer could avoid making
payment of the amount demanded in the notice of
reassessment indefinitely by simply filing no notice
of objection or not appealing and merely ignoring
9 [1977] 1 F.C. 199.
all notices demanding payment, as plaintiffs did in
this case, until the third party notices were sent.
Plaintiffs suggested that this danger is not a real
one since by section 222 of the Act Her Majesty
can recover the amounts due in the Federal Court
or any other court of competent jurisdiction. This
section goes on to state "or in any other manner
provided by this Act", however, and it would be
preposterous to suggest that Her Majesty should
have to sue to collect taxes following a reassess
ment, in which proceedings the defence would
presumably be that the taxes claimed by the reas
sessment are not due, when, as a result of the
notice of objection the same issue of tax liability
will be litigated elsewhere in the normal manner.
Plaintiffs also argue that by section 223 of the
Act Her Majesty has protection by registering a
certificate in the Court. This would then normally
be followed up by proceedings in garnishment of
the taxpayer's assets. In sending the third party
notices which have the effect of a garnishment
pursuant to section 224 of the Act the Minister
acted as he is entitled to do, this being one of the
alternative collection procedures available.
Plaintiffs further argue that the Minister's
insistence on payment within 30 days following the
reassessment and the subsequent garnishment pro
ceedings to enforce this, imposed hardship on
plaintiffs, the plaintiff corporation having to incur
a debt and borrow money to make the payment,
and this despite the fact that the reassessment had
been objected to and would in due course be
appealed. This argument, based on the incon
venience caused the plaintiffs as taxpayers cannot
of course be sustained. The same would apply to
the enforcement of the initial assessment within 30
days for which the Act provides in express term,
and no significant difference can be found between
being required to pay sums due under an initial
assessment which may be under appeal and being
required to pay additional sums due by a reassess
ment which may also be under appeal.
Plaintiffs also relied on the case of Cyrus J.
Moulton Ltd. v. The Queen 1 ° in the Federal Court
of Appeal, in which Thurlow J. [as he then was]
stated at pages 441-442:
With respect, the de facto existence of the indebtedness of
Micucci to the Crown for monies payable under the statute at
the time of the giving of a notice under subsection 224(2)
appears to me to be, on the wording of the section, a fundamen
tal fact upon which any liability of the appellant under section
224 depends and I know of no reason or author
ity for the proposition that the defendant is not entitled to put
the existence of such a fact in issue.
The issue raised however was whether summary
judgment could be rendered on the Crown's
application for judgment against the garnishee
appellant pursuant to Federal Court Rule 341
without waiting for the determination of any other
question between the parties. The garnishee had
contended that any payments which it had made
following the garnishment to the taxpayer were in
trust as a result of the existence of a mechanics'
lien in favour of the taxpayer's workmen. The facts
were evidently substantially different from the
present case, as the plaintiff company did not
dispute that it had., sums payable to plaintiffs nor
did the Bank dispute that it had sums payable to
plaintiff company, the issue being whether the
three plaintiffs are liable for the taxes claimed in
the notice of reassessment, which is not in my view
an issue which is to be raised or decided in pro
ceedings arising out of third party notices sent by
virtue of section 224 of the Act.
One final case of interest is that of The Queen v.
Williams" in which it had been argued that the
registration of a certificate under section 223 of
the Act followed by the garnishment of the tax
payer's lands was contrary to the Canadian Bill of
Rights. In this case Kerr J. in finding that this
argument could not be sustained referred to a
decision of Addy J. in the case of Lambert v. The
Queen 12 in which he stated at page 550:
10 [1976] 1 F.C. 437.
" [1975] C.T.C. 392.
12 [1975] F.C. 548.
The plaintiff argues that section 223 of the Income Tax Act
is ultra vires because it violates the principle of audi alteram
partem or, alternatively, that it is null, void and of no effect as
being contrary to section 2(e) of the Canadian Bill of Rights on
the grounds that it purports to give to the Minister of National
Revenue, without the taxpayer being heard or notified, the
right to issue a certificate which purports to establish the
amount owed by the taxpayer and of subsequently registering
the certificate in the Federal Court, following which the said
certificate is purported to have the same force and effect as a
judgment ....
[and at page 555:]
In the case of the Income Tax Act should the assets of a
taxpayer be seized and should it be established at a later date
that there was in fact no liability for taxes, then obviously he
would be entitled to restitution. The principle of audi alteram
partem applies to the question of final determination of liability
which is a completely different question from the temporary
deprivation of assets or even from the permanent loss of assets,
providing there exists a right of restitution of the assets or of
compensation for their loss.
The public policy behind the power in many taxing statutes
to declare an amount payable before final liability for the
amount has been determined and to take effective steps of
securing such payment by means of seizure of assets and of sale
of same if necessary, is of course founded on the principle that
the tax collector must be furnished some means of preventing
tax avoidance by dissipation of assets or by the taxpayer
removing them from the jurisdiction. Where the fundamental
right of the taxpayer to have his liability for taxes ultimately
determined on the merits is preserved, such as in the Income
Tax Act, the powers given the Minister of National Revenue by
section 223 to ensure speedy and effective tax collection do not
infringe the principle of audi alteram partem or the Canadian
Bill of Rights. The section must, of course, be read with the
other provisions of the Act to which I have referred.
For all the above reasons plaintiffs' action is
dismissed with costs.
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.