Judgments

A‑149‑05

2006 FCA 107

Addison & Leyen Ltd., Concrest Corporation Ltd., John Joseph Dietrich, Jeannette Marie Dietrich, Rofamco Investments Ltd., Wilfred Daniel Roach and Helen Ann Roach (Appellants)

v.

Her Majesty the Queen in Right of Canada and the Canada Customs and Revenue Agency (Respondents)

Indexed as: Addison & Leyen Ltd. v. Canada (F.C.A.)

Federal Court of Appeal, Rothstein, Sharlow and Malone JJ.A.—Vancouver, January 18; Ottawa, March 15, 2006.

Income Tax — Assessment — Vicarious liability under Income Tax Act, s. 160 — Appeal from Federal Court judgment allowing motion to strike out application for judicial review of s. 160 assessments made in 2001, imposing on each appellant legal obligation to pay part, all of tax liability of corporate tax debtor arising from transactions occurring in 1989 — Appellants filing notices of objection to each of s. 160 assessments but not yet dealt with — Liability of person under Act, s. 160 kind of vicarious liability — Primary tax liability, vicarious tax liability distinguished — Conditions to be met under s. 160 — No statutory time limit for assessment under s. 160 — Minister having discretion to apply s. 160 or not — Federal Court having jurisdiction to quash tax assessment — Application for judicial review should be returned to Federal Court — Appeal allowed.

Federal Court Jurisdiction — Minister of National Revenue assessing appellants under Income Tax Act, s. 160 — Crown contending application for judicial review should be struck out as remedy sought not within Federal Court’s jurisdiction — Federal Courts Act, s. 18.5 limiting Federal Court’s judicial review jurisdiction — Whether s. 18.5 precludes Federal Court from considering application for judicial review based on allegation of improper exercise of Minister’s discretion to assess vicarious tax liability under Income Tax Act, s. 160 — S. 18.5 sufficiently explicit in case of assessments under Income Tax Act, s. 152 — But not sufficiently explicit to preclude Federal Court from considering application for judicial review of Minister’s discretion to assess under s. 160 — Federal Court having jurisdiction to quash tax assessment.

This was an appeal from a Federal Court judgment allowing the respondents’ motion to strike out an application for judicial review of assessments made under Income Tax Act, section 160 in 2001. Section 160 permits the tax debt of one person (the tax debtor) to be imposed on a second person if three conditions are met: (1) the second person does not deal at arm’s length with the tax debtor (or is under 18 years of age, or is the tax debtor’s spouse); (2) the tax debtor has transferred property to the second person for less than fair market value consideration; and (3) the tax debtor has an unpaid primary tax liability for the year in which the transfer occurred, or a prior year. If these conditions are met, the tax debtor and the second person are jointly and severally liable to pay the tax debt, to the extent of the fair market value of the transferred property. Section 160 is a tax collection tool and its purpose is to prevent tax debtors from moving their assets outside the reach of the tax collector.

The corporation at the heart of the dispute, the primary tax debtor, was York Beverages (1968) Ltd. (York). The appellants were shareholders of York who received payments in the nature of dividends, fees and allowances prior to the company ceasing to carry on business in September 1989. After those payments York had no assets except enough cash to pay the estimated tax liability from it’s last year of operation, approximately $2.8 million. But the company was reassessed in 1992 for $3.2 million. By February of 2001, the total tax liability of York, including interest and penalty, was approximately $6.7 million; the Minister assessed each of the appellants under section 160 of the Income Tax Act for some or all of that liability. Each of the 21 notices of assessment was based on the Minister’s understanding that the appellants received direct or indirect payments from York during or after York’s fiscal year ending September 28, 1989. These assessments imposed on each of the appellants a legal obligation to pay part or all of the tax liability of a corporate tax debtor arising from transactions that occurred in 1989. The appellants alleged that the decision to assess them under section 160 was an improper exercise of discretion that has caused them undue hardship, in that the 12‑year delay made it difficult or impossible for them to avail themselves of their legal right to be indemnified by the tax debtor. The respondents contended that this application for judicial review should be struck out because the remedy sought by the appellants is not within the jurisdiction of the Federal Court. That argument was based on section 18.5 of the Federal Courts Act which limits the jurisdiction of the Federal Court to consider an application for judicial review of an administrative decision to the extent that the decision may be appealed under an Act of Parliament.

Held (Rothstein J.A. dissenting), the appeal should be allowed.

Per Sharlow J.A. (Malone J.A. concurring): This case raised for the first time the question of whether section 18.5 of the Federal Courts Act precludes the Federal Court from considering an application for judicial review based on an allegation of an improper exercise of the Minister’s discretion to assess a person’s vicarious tax liability under section 160 of the Income Tax Act. “Primary tax liability” refers to the tax payable by a person under the Income Tax Act in relation to that person’s own income, and must be distinguished from the “vicarious tax liability” that arises from the application of section 160 which, in certain circumstances, makes a person jointly and severally liable to pay the primary tax liability of another person. Section 160 is generally considered to be a harsh collection remedy for a number of reasons, including the absence of a statutory time limit for an assessment under section 160; the fact that the minister may exercise the discretion to assess under section 160 without first employing or exhausting other collection remedies against the tax debtor; an assessment under section 160 may be made without alleging or proving an intent to avoid the payment of tax, and there is no due diligence defence; a person’s primary tax liability for a taxation year comes into existence at the end of the year, but section 160 may apply to a transfer of property that occurs at any time within that year; and the Income Tax Act provides no procedure by which a recipient of property can seek a binding early determination of a potential section 160 liability. The distinguishing characteristic of section 160 is that the Minister has the discretion to apply it or not. It means, for example, that a person who has received a dividend from a family corporation is immediately at risk of being held vicariously liable for the primary tax liability of the corporation arising in or prior to the year of the dividend. It was open to Parliament to enact a law that places a person at risk of forever being assessed under section 160 of the Income Tax Act in relation to a specific transaction, subject to the unfettered discretion of the Minister to assess or not to assess. However, it requires clear and explicit statutory language to deprive such a person of recourse to the minimal protection afforded by the right to seek judicial review of the exercise of the Minister’s discretion. Section 18.5 of the Federal Courts Act has been held to be sufficiently explicit in the case of assessments under section 152 of the Income Tax Act. However, section 18.5 is not sufficiently explicit with respect to assessments under section 160 of the Income Tax Act, given the scope of the Minister’s discretion with respect to the use of section 160, the fact that section 160 is primarily a collection tool rather than an assessment tool, and the limits on the jurisdiction of the Tax Court to supervise the acts of tax officials in the context of an appeal of a section 160 assessment. Section 18.5 of the Federal Courts Act does not preclude the Federal Court from considering an application for judicial review of the Minister’s discretion to assess under section 160.

The Tax Court may vacate an assessment in an income tax appeal, if the assessment is found not to be correct in law or in fact. If the Federal Court has jurisdiction to consider the application for judicial review in this case, there is no law or legal principle that would preclude it from granting an analogous remedy, if it is found that the Minister’s discretion has been improperly exercised. The right to appeal a section 160 assessment to the Tax Court of Canada is not an adequate remedy for the improprieties alleged by the appellants in the exercise of the Minister’s discretion to assess under section 160. As such allegations, even if proved, cannot affect the correctness of the section 160 assessments, the Tax Court of Canada has no jurisdiction to consider those allegations or to grant a remedy for them. Similarly, the right to seek discretionary relief from the Minister in the form of a waiver of interest was not an adequate alternative remedy in this case. Given the state of the case law, it could not concluded that if the appellants were barred from seeking judicial review, an action for damages would be an adequate alternative remedy. Nor did the appellants establish that the section 160 assessments should be quashed. The appellants’ application for judicial review should be returned to the Federal Court for a hearing.

Per Rothstein J.A. (dissenting): Delay by the Minister in issuing an assessment under section 160 is not reviewable by the Federal Court on judicial review. Subsection 160(2) of the Income Tax Act provides that “The Minister may at any time assess a taxpayer in respect of any amount payable because of this section”. The words “at any time” mean that there is no applicable limitation period. The Minister may assess at any time and therefore, when the assessment is issued, it cannot be judicially reviewed. The Income Tax Act contains limitation periods and due diligence and other defences when Parliament considers that to be appropriate. It did not do so in subsection 160(2). Cases in which the Court intervened because the unreasonable delay amounted to unfairness did not involve a statutory provision to the contrary. In subsection 160(2), there is a statutory provision to the contrary. Where the words of a statute may be construed either to result in a perpetual obligation or not, the interpretation that rejects the perpetual obligation would normally reflect the most likely intent of Parliament. However, where such alternative construction cannot be placed on the words used by Parliament, the Court is bound by the text of the words used. That is the case with the words “at any time”. Having regard to the application of subsection 160(1) in specific and limited circumstances, Parliament clearly intended that the Minister be able to recover amounts transferred in these limited circumstances for the purposes of satisfying the tax liability of the primary taxpayer transferor, and that there be no applicable limitation period and no other condition on when the Minister might assess. The harsh result of the section 160 assessments in this case suggests that section 160 is arguably overbroad. The overbreadth of section 160 is a matter for Parliament or, to the extent it is open to him, the discretion of the Minister in respect of interest and penalties. It is not a matter for the courts and specifically, not a matter for the Federal Court on judicial review.

statutes and regulations judicially

considered

Access to Information Act, R.S.C., 1985, c. A‑1.

Canadian Bill of Rights, R.S.C., 1985, Appendix III, s. 1.

Canadian Charter of Rights and Freedoms, being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44], s. 7.

Federal Courts Act, R.S.C., 1985, c. F‑7, ss. 1 (as am. by S.C. 2000, c. 8, s. 14), 2(1) “federal board, commission or other tribunal” (as am. idem, s. 15), 18 (as am. by S.C. 1990, c. 8, s. 4; 2002, c. 8, s. 26), 18.1 (as enacted by S.C. 1990, c. 8, s. 5; 2002, c. 8, s. 27), 18.5 (as enacted by S.C. 1990, c. 8, s. 5; 2000, c. 8, s. 28), 27 (as am. idem, s. 34).

Income Tax Act, S.C. 1948, c. 52, s. 49A (as enacted by S.C. 1951, c. 51, s. 17).

Income Tax Act, S.C. 1970‑71‑72, c. 63, s. 160 (as am. by S.C. 1980‑81‑82‑83, c. 140, s. 107).

Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 116, 150, 151, 152 (as am. by S.C. 1998, c. 19, s. 181; 1999, c. 22, s. 63.1), 159(2) (as am. by S.C. 1998, c. 19, s. 185), 160 (as am. idem, s. 186; 2000, c. 12, Sch. 2, s. 1), 161(as am. by S.C. 1994, c. 7, Sch. VIII, s. 96; 1997, c. 25, s. 50), 165 (as am. by S.C. 1994, c. 7, Sch. VIII, s. 98), 166, 166.1 (as enacted idem, Sch. II, s. 139), 166.2 (as enacted idem), 167 (as am. idem), 169(1)(b) (as am. idem, s. 140), 171, 220‑244, 220(3.1) (as enacted idem, s. 181; Sch. VIII, s. 127), 222, 225.1 (as am. idem, Sch. II, s. 184), 227.1(2) (as am. idem, Sch. V, s. 90), (3), 249(4).

Privacy Act, R.S.C., 1985, c. P ‑21.

cases judicially considered

considered:

Webster v. Canada, [2004] 1 C.T.C. 168; (2003), 312 N.R. 236; 2003 FCA 388; leave to appeal to S.C.C. refused, [2004] 1 S.C.R. xv; Burton (Her Majesty’s Collector of Taxes) v. Mellham Limited, [2006] UKHL 6; Markevich v. Canada, [2003] 1 S.C.R. 94; (2003), 223 D.L.R. (4th) 17; 239 F.T.R. 159; 2003 DTC 5185; 300 N..R 321; 2003 SCC 9; Reg. v. Inland Revenue Comrs., Ex parte Preston, [1985] A.C. 835 (H.L.); Blencoe v. British Columbia (Human Rights Commission), [2000] 2 S.C.R. 307; (2000), 190 D.L.R. (4th) 513; [2000] 10 W.W.R. 567; 23 Admin. L.R. (3d) 175; 81 B.C.L.R. (3d) 1; 3 C.C.E.L. (3d) 165; 260 N.R. 1; 2000 SCC 44.

referred to:

David Bull Laboratories (Canada) Inc. v. Pharmacia Inc., [1995] 1 F.C. 588; (1994), 58 C.P.R. (3d) 209; 176 N.R. 48 (C.A.); Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959; (1990), 74 D.L.R. (4th) 321; [1990] 6 W.W.R. 385; 49 B.C.L.R. (2d) 273; 4 C.C.L.T. (2d) 1; 43 C.P.C. (2d) 105; 117 N.R. 321; Galway v. Minister of National Revenue, [1974] 1 F.C. 600; [1974] C.T.C. 454; (1974), 74 DTC 6355; 2 N.R. 317 (C.A.); Hillier v. Canada (Attorney General), [2001] 3 C.T.C. 157; 2001 DTC 5399; 273 N.R. 245; 2001 FCA 197; Bolton v. Canada, [1996] 3 C.T.C. 3; (1996), 96 DTC 6413; 200 N.R. 303 (F.C.A.); Ginsberg v. Canada, [1996] 3 F.C. 334; (1996), 96 DTC 6372; 198 N.R. 148 (C.A.); leave to appeal to S.C.C. refused, [1997] 1 S.C.R. viii; Main Rehabilitation Co. Ltd. v. Canada (2004), 247 D.L.R. (4th) 597; [2005] 1 C.T.C. 212; 2004 DTC 6762; 329 N.R. 248; 2004 FCA 403; leave to appeal to S.C.C. refused, [2005] 1 S.C.R. xii; Canada v. O’Neill Motors Ltd., [1998] 4 F.C. 180; (1998), 162 D.L.R. (4th) 24; 55 C.R.R. (2d) 122; [1998] 3 C.T.C. 385; 98 DTC 6424; 228 N.R. 349 (C.A.); Markevich v. Canada, [1999] 3 F.C. 28; (1999), 172 D.L.R. (4th) 164; [1999] 2 C.T.C. 104; 99 DTC 5136; 162 F.T.R. 209 (T.D.); revd [2001] 3 F.C. 449; (2001), 199 D.L.R. (4th) 255; [2001] 3 C.T.C. 39; 2001 DTC DTC 5305; 270 N.R. 275 (C.A.); affd [2003] 1 S.C.R. 94; Minister of National Revenue v. Parsons, [1984] 2 F.C. 331; [1984] CTC 352; (1984), 84 DTC 6345 (C.A.); Walker v. Canada, [2006] 1 C.T.C. 130; 2005 DTC 5719; (2005), 344 N.R. 169; 2005 FCA 393; Mullins v. Canada, [1991] 2 C.T.C. 2503; (1991), 91 DTC 173 (T.C.C.); Fournier v. Canada, [1991] 1 C.T.C. 2699; (1991), 91 DTC 746 (T.C.C.); Groupe d’investissement Savoie, Lavoie, Inc. v. Canada, [1992] 1 C.T.C. 2355; (1992), 92 DTC 1531 (T.C.C.); Algoa Trust v. Canada, [1993] 1 C.T.C. 2294; (1993), 93 DTC 405 (T.C.C.); Davis v. Canada, [1994] 2 C.T.C. 2033; (1994), 94 DTC 1934 (T.C.C.); McClurg v. Canada, [1990] 3 S.C.R. 1020; (1990), 76 D.L.R. (4th) 217; [1991] 2 W.W.R. 244; 50 B.L.R. 161; [1991] 1 C.T.C. 169; 91 DTC 5001; 119 N.R. 101; Gaucher v. Canada, [2001] 1 C.T.C. 125; 2000 DTC 6678; (2000), 264 N.R. 369 (F.C.A.); Obonsawin v. Canada, [2004] G.S.T.C. 16; 2004 TCC 3; appeal discontinued, [2006] G.S.T.C. 3; 2006 GTC 1113; 2006 FCA 5; Canada v. Grenier, [2006] 2 F.C.R. 287; (2005), 262 D.L.R. (4th) 337; 344 N.R. 102; 2005 FCA 348; Slaight Communications Inc. v. Davidson, [1989] 1 S.C.R. 1038; (1989), 59 D.L.R. (4th) 416; 26 C.C.E.L. 85; 89 CLLC 14,031; 93 N.R. 183.

authors cited

Thivierge, Manon. “Emerging Income Tax Issues: Substance over Form Revisited, Section 160 of the Income Tax Act, and Series of Transactions” in Report of Proceedings of the Forty‑Fifth Tax Conference, 1993 Conference Report. Toronto: Canadian Tax Foundation, 1994.

APPEAL from a Federal Court judgment ([2005] 2 C.T.C. 201; 2005 DCT 5212; 2005 FC 411) allowing the respondents’ motion to strike out an application for judicial review of decisions made by officials of the Canada Customs and Revenue Agency as delegates of the Minister of National Revenue. Appeal allowed.

appearances:

Roderick A. McLennan, Q.C. and Curtis R. Stewart for appellants.

William L. Softley and Marta E. Burns for respondents.

solicitors of record:

McLennan Ross LLP, Calgary, and Bennett Jones LLP, Calgary, for appellants.

Deputy Attorney General of Canada for respondents.

The following are the reasons for judgment rendered in English by

[1]Sharlow J.A.: This is an appeal of a Federal Court judgment ([2005] 2 C.T.C. 201) allowing the motion of the respondents (collectively, the Crown) to strike out an application for judicial review of certain decisions made by one or more officials of the Canada Customs and Revenue Agency as delegates of the Minister of National Revenue. The application relates to a number of assessments made under section 160 of the Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1. Section 160 is a tax collection tool. Its purpose is to prevent tax debtors from moving their assets to friendly hands outside the reach of the tax collector. Section 160 is generally recognized to be a harsh provision (see paragraph 65 below).

[2]The section 160 assessments that are the subject of this case impose on each of the appellants a legal obligation to pay part or all of the tax liability of a corporate tax debtor arising from transactions that occurred in 1989. The Minister assessed the appellants in 2001. The appellants allege that in the particular circumstances of this case, the decision to assess them under section 160 is an improper exercise of discretion that has caused them undue hardship, in that the 12-year delay has made it difficult or impossible for the appellants to avail themselves of their legal right to be indemnified by the tax debtor.

[3]The Crown contends that this application for judicial review should be struck out without a hearing because the remedy sought by the appellants is not within the jurisdiction of the Federal Court. That argument is based on section 18.5 [as enacted by S.C. 1990, c. 8, s. 5; 2002, c. 8, s. 28] of the Federal Courts Act, R.S.C., 1985, c. F‑7 [s. 1 (as am. idem, s. 14)], which limits the jurisdiction of the Federal Court to consider an application for judicial review of an administrative decision if and to the extent that the decision may be appealed under an Act of Parliament.

[4][Editor’s note: The table of contents has been omitted for reasons of brevity.]

A. The test for striking an application

[5]An application initiating a summary proceeding will not be struck out without a hearing unless it is so clearly improper as to be bereft of any possibility of success: David Bull Laboratories (Canada) Inc. v. Pharmacia Inc., [1995] 1 F.C. 588 (C.A.). The reason for setting the bar so high is that it is generally more efficient for the Court to deal with a preliminary argument at the hearing of the application, rather than on a motion. If a motion to strike is considered and fails, the interlocutory proceedings will have been a waste of time. In this case, the Judge granted the motion to strike because he concluded that the David Bull test was met. The issue in this appeal is whether that decision is wrong in principle.

B. Facts

[6]In the case of a motion to strike a statement of claim, the facts alleged in the statement of claim must be presumed to be true: Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, at page 979. By analogy, in a motion to strike an application, the facts asserted by the applicant must be presumed to be true. The factual allegations in this case are summarized below.

(1) The state of affairs in October of 1988

[7]The corporation that is at the heart of the dispute in this case, the primary tax debtor, was once named York Beverages (1968) Ltd. Its name was changed at some point after the events described below, but I will continue to refer to it as “York.”

[8]York was incorporated in Saskatchewan and at some point continued into Alberta. Its normal fiscal year-end was September 30. Prior to October of 1988, York carried on a soft drink bottling business in Regina. On or about October 1, 1988, York sold the assets of the bottling business for approximately $10 million cash and $3 million of assumed indebtedness. York retained accounts receivable of approximately $1.8 million. The record does not disclose the value of those accounts receivable.

[9]At the time of the asset sale, the ownership of York was as follows:

(1) Six voting shares of York were owned by Wilfred Roach, six voting shares were owned by Jeannette Marie Dietrich, and 5988 non‑voting shares were owned by an Alberta corporation named Addison & Leyen Ltd. (Addison). The record does not disclose whether Addison had assets other than its shares of York.

(2) Of the 1000 outstanding common shares of Addison, 50% were owned by Mr. Roach (400 shares) and his wife Helen Roach (100 shares), and 50% were owned by Ms. Dietrich (100 shares) and her husband John Dietrich (400 shares).

(3) Mr. Roach and his siblings were the shareholders of an Alberta corporation named Rofamco Investments Ltd. (Rofamco).

(4) Mr. Dietrich and his siblings were shareholders of an Alberta corporation called Concrest Corporation Ltd. (Concrest).

(5) Rofamco and Concrest were partners in a partnership named Vanir Corporation Partnership (Vanir). The record does not disclose whether Vanir had assets, or whether Rofamco or Concrest had assets other than their interests in Vanir.

[10]The record does not disclose whether the Roach family is related to the Dietrich family.

(2) Payments made by York between October of 1988 and October of 1989

[11]After the asset sale, it was intended that York would eventually cease to carry on any business. Between the completion of the asset sale and September of 1989, steps were taken to collect the accounts receivable of York, to discharge its remaining liabilities, and to pay retiring allowances, directors’ fees and management fees.

[12]Between December 31, 1988 and September 28, 1989, York made payments totalling approximately $13.5 million, as follows:

(1) York paid directors’ fees and retiring allowances totalling approximately $290,000 to Mr. Roach, Ms. Roach, Mr. Dietrich, and Ms. Dietrich, and management fees of approximately $1.6 million to Vanir. The record does not disclose what services were provided for those payments. Nor does the record contain anything from which it could be inferred that there were no services, or that the services were not worth the amounts paid.

(2) York paid Addison approximately $315,000 in consideration of Addison assuming certain of York’s debt obligations. The record discloses no particulars of those debt obligations.

(3) York lent approximately $5 million to Addison. The record does not disclose the purpose or terms of that loan. The record discloses nothing from which it could be inferred that the loan was improper in any way, nor does the record indicate whether the loan was repaid, or when it was repaid.

(4) York paid dividends totalling approximately $6.2 million. Most of that amount was paid to Addison. Mr. Roach and Ms. Dietrich each received dividends from York of approximately $4,000.

[13]It appears that after all of the payments referred to above, York had no assets except enough cash to pay the estimated income tax liability arising from its last year of operation and from the sale of its operating assets in October of 1988. In September of 1989, York’s potential tax liability was estimated to be approximately $2.8 million. That would have become an actual liability on York’s fiscal year-end, September 30, 1989, but for certain events that occurred between September 26 and September 28, 1989.

(3) The sale of York to Senergy

[14]At some point (it is not clear when), the shareholders of York agreed to sell their shares of York to a corporation then named 388777 Alberta Ltd., later Senergy Inc. (Senergy). The total purchase price was $1,115,000, most of which went to Addison as the holder of the 5,988 non‑voting shares. Mr. Roach and Ms. Dietrich each received a nominal amount for their six voting shares. The sale was completed on September 28, 1989.

[15]Why would the shares of York be worth over $1 million at a time when it had assets of over $2 million and a potential tax liability of a like amount? The answer, as it turns out, is that Senergy had a plan for using York’s available cash to purchase seismic data for which it would claim a deduction. It was hoped that, as a result of that deduction, York would have no tax liability for 1989. The shareholders of York were aware that Senergy was planning a transaction that would have that tax result, but they were not aware of the details. It is not clear from the record precisely what they knew.

[16]Mr. Roach, Ms. Roach, Mr. Dietrich and Ms. Dietrich resigned as directors of York and were replaced with a representative of Senergy on September 26, 1989, two days before the completion of the sale of the York shares to Senergy. The record does not disclose a reason for that timing, but I think it is fair to infer that it was intended to facilitate the completion of the seismic data purchase before the closing of the sale of the York shares to Senergy.

[17]Why were the transactions completed in that order? It seems likely that all parties would have been aware that the sale of the York shares on September 28, 1989 would trigger a deemed fiscal year-end for York on that date because of the change of control of York (subsection 249(4) of the Income Tax Act). To fully utilize the deduction resulting from the purchase of the seismic data against the income inclusions resulting from the sale of York’s business in October of 1988, the seismic data would have to be purchased before the deemed fiscal year end on September 28, 1989.

[18]Mr. Roach, Ms. Roach, Mr. Dietrich and Ms. Dietrich were aware of the potential tax liability of York for its fiscal year ending September 28, 1989, arising from the sale of York’s business assets. The agreement of purchase and sale of the York shares contained a covenant by Senergy that York’s tax returns would be filed and its income tax liabilities would be paid. The selling shareholders of York also obtained a legal opinion stating, among other things, that as of September 28, 1989 it was “reasonable to conclude” that York would be able to pay its income tax liability for the fiscal year ending on that date. That legal opinion is said to be based on the lawyers’ review of “the transactions”, a term I understand to mean the seismic data purchase. The legal opinion does not mention section 160 of the Income Tax Act.

[19]There is no term of the contract of purchase and sale of the York shares that gave the sellers the right to monitor Senergy’s compliance with the covenant to ensure that York’s taxes were paid. Nor did the sellers have a contractual right to compel Senergy to inform them in the event of any reassessment or proposed reassessment of York. The sellers obtained no security to back up the obligation of Senergy to ensure that the taxes were paid. The record contains nothing to explain whether the sellers requested any contractual protection apart from Senergy’s covenant, or if they did request it, why it was not provided and why they proceeded without it.

(4) Payments made by Addison in 1989

[20]During October of 1989, Addison paid dividends totalling approximately $1.8 million pro rata to Mr. Roach (40%), Ms. Roach (10%), Mr. Dietrich (40%) and Ms. Dietrich (10%). In October of 1989, Mr. Roach and Ms. Roach transferred their shares of Addison to Rofamco, and Mr. Dietrich and Ms. Dietrich transferred their shares of Addison to Concrest, so that Rofamco and Concrest each became a 50% shareholder of Addison. After the share transfer, Addison paid dividends totalling $4.8 million, shared equally between Rofamco and Concrest. The record discloses no basis for concluding that any of the dividends paid by Addison were connected to the dividends or loans that Addison received from York.

[21]During 1989, Addison paid directors’ fees of approximately $4,000 to each of Mr. Roach, Ms. Roach, Mr. Dietrich and Ms. Dietrich, and made loan repayments of approximately $950,000 to Concrest, and approximately $1.2 million to Rofamco. Again, the record contains no information about the share transfers, the fees or the loans. The record discloses no basis for concluding that any of the payments made by Addison were connected to any of the payments Addison had received from York.

(5) Communications with tax officials in 1990, 1991 and 1992

[22]In the fall of 1990, Mr. Kirker, the accountant for the appellants and their companies, received from the tax authorities a request to file York’s tax return. He forwarded the request to a representative of Senergy, and heard no more. In 1991 and 1992, the tax authorities sought from Mr. Kirker certain information relating to the sale of York’s bottling business, and the payment of dividends. Mr. Kirker provided the information. To his knowledge, the only change resulting from those dealings was a change in the computation of certain capital dividends paid by York.

(6) The reassessment of York in 1992

[23]It appears that the tax authorities examined the seismic data transaction, and concluded that York was entitled to deduct only $1,696,500, because the seismic data was overvalued. York was reassessed on December 29, 1992 for a total of approximately $3.2 million, including taxes totalling approximately $2 million, interest of approximately $1 million, and a penalty (the nature of the penalty is not clear—it may be a late filing penalty).

[24]A notice of objection was filed for York on March 5, 1993. As of the hearing of this matter in the Federal Court on March 29, 2005, the Minister had not dealt with that objection. Apparently it has not been dealt with to this day. The record discloses no reason for the delay in dealing with York’s notice of objection. Nor does the record disclose any reason for the failure of York to pursue an appeal in the Tax Court of Canada, as it was entitled to do when the Minister failed to deal with its objection within 90 days (see paragraph 40 below). It will be recalled that since 1989, York had been under the control of Senergy.

(7) Events in 1989 and 1999

[25]Neither the appellants nor Mr. Kirker were aware of the reassessment of York when it was made in 1992, or for some years thereafter. Mr. Kirker says that he heard nothing more about York until late 1998 or early 1999, when the tax authorities requested information from some of the appellants. He assembled the documents required to respond to the requests. Mr. Kirker and the appellants say that they were aware of no other activity of the tax officials until receiving the section 160 assessments in February of 2001.

[26]The appellants made various requests for information under the Access to Information Act, R.S.C., 1985, c. A‑1, and the Privacy Act, R.S.C., 1985, c. P‑21. It is not clear from the record when those requests were submitted, but it appears that a response was received in December of 2001.

[27]I summarize as follows the appellants’ interpretation of documents the appellants received as a result of their access and privacy requests. The tax authorities did nothing between 1992 and 1997 to deal with York’s notice of objection or to investigate whether York had the resources to pay the assessed tax. In August of 1997, the tax authorities noticed that there had been no “danger of loss” analysis in relation to York. An examination in September of 1997, disclosed that the assets shown on York’s balance sheet consisted of the seismic data, with a book value of approximately $6 million. By about mid‑1998, the tax officials had concluded that the tax debt would not be collectible from York. That led to the requests for information referred to above, which were answered in early 1999. It was on the basis of that information that the tax officials decided to trace the payments made by York in 1989. The tax officials did not communicate with any of the appellants before issuing the section 160 assessments two years later, in February of 2001, and deliberately concealed relevant information from them.

[28]The allegation of deliberate concealment is based on a note in the tax file, dated February 15, 2001. It reads, “Appeals had agreed to hold confirmation Notice [apparently the confirmation of the December 29, 1992 assessment of York] until jeopardy issue had been resolved so as not to tip our hand to tax debtor.” The appellants believe that they are the “tax debtor” referred to in this note.

(8) The section 160 assessments

[29]By February of 2001, the total tax liability of York was approximately $6.7 million, representing the $3.2 million assessed on December 29, 1992, plus accrued interest. In February of 2001, the Minister assessed each of the appellants under section 160 of the Income Tax Act for some or all of that liability.

[30]There are 21 notices of assessment in all. Each assessment is based on the Minister’s understanding that the appellants received direct or indirect payments from York during or after York’s fiscal year ending September 28, 1989. For each appellant, the total amount assessed under section 160 represents the lesser of the total liability of York as of the date of the section 160 assessments, and the total payments received by the person assessed. The assessed amounts, and the transfers of property upon which they are based, are summarized in the following table:

Appellant assessed                    Amount           Transfers of property

                                  assessed

Addison & Leyen                    $6,664,634          Dividends from York

Ltd.                                               Loan from York

(The amount assessed is York’s total liability in February of 2001.)

Concrest                4,327,468 Management fees from

Corporation Ltd.                        York (through Vanir)

Loan repayment from Addison

Dividends from Addison

Rofamco                      4,611,528        Management fees from

Investments Ltd.                        York  (through Vanir)

Loan repayment from Addison

Dividend from Addison

John Joseph             714,263 Directors’ fees from

Dietrich                                        York

Retiring allowance from York

Dividend from Addison

Directors’ fees from Addison

Jeannette Marie       228,849                          Dividends from York

Dietrich                                        Directors’ fees from York

Retiring allowance from York

Dividend from Addison

Directors’ fees from Addison

Wilfred Daniel         741,626                          Dividends from York

Roach                                          Directors’ fees from York

Retiring allowance from York

Directors’ fees from Addison

Loan repayment from Addison

Dividend from Addison

Helen Ann Roach     224,584                        Directors’ fees from York

Retiring allowance from York

Directors’ fees from Addison

Dividend from Addison

TOTAL       $17,512,952

[31]The total of all of the assessments is far in excess of York’s total liability. That is because, if the assessments are correct, each of the assessed parties is jointly and severally liable for York’s entire tax debt, to the extent of the total payments they received.

[32]The appellants filed timely notices of objection to each of the section 160 assessments. The Minister has not dealt with them. The record discloses no reason for the delay in dealing with the appellants’ notices of objection. Nor does the record disclose any reason for the failure of the appellants to pursue an appeal in the Tax Court of Canada, as it was entitled to do when the Minister failed to deal with their objections within 90 days.

[33]The record does not disclose whether York’s advisers, in 1988 and 1989, had given any consideration to the potential application of section 160 of the Income Tax Act to any of the dividends or other payments made by York or Addison during those years. However, many of the payments made by York in 1989 would not normally have been expected to be vulnerable to a section 160 assessment (for example, the payment of directors fees, management fees and retiring allowances, and the making and repaying of loans: see paragraph 62 below). Indeed, some of the material in the record indicates that the tax officials have acknowledged that some of the reassessments may relate to payments that should not have been subject to section 160.

[34]As far as can be determined from the record, York’s assets at the end of September of 1989 consisted of seismic data with a book value of approximately $6 million, which the Minister had concluded was worth approximately $1.7 million. The record does not indicate whether York ever raised additional capital, or whether it carried on a business after September of 1989.

[35]The appellants allege that by the time they were assessed under section 160, they had no chance of being indemnified by York for any amounts they might be obliged to pay in relation to those assessments. They also allege that if the Minister had acted sooner, their chances of recovery would or might have been better. As indicated above, for the purpose of the issues raised in this appeal, it must be assumed that those allegations are true.

C. The statutory scheme

[36]In the discussion that follows, I use the phrase “primary tax liability” to refer to the tax payable by a person under the Income Tax Act in relation to that person’s own income. That is to be distinguished from what I will call the “vicarious tax liability” that arises from the application of section 160 of the Income Tax Act which, in certain circumstances, makes a person jointly and severally liable to pay the primary tax liability of another person.

(1) The statutory scheme for the assessment of a primary tax liability

[37]Sections 150-152 of the Income Tax Act describe the process by which the Minister, acting through the Canada Revenue Agency, determines a person’s primary tax liability. That determination is referred to as an “assessment” (or a “reassessment”—for the purposes of this appeal, the two words are synonymous). The legal effect of an assessment is stated in subsection 152(8) of the Income Tax Act, which reads as follows:

152. . . .

(8) An assessment shall, subject to being varied or vacated on an objection or appeal under this Part and subject to a reassessment, be deemed to be valid and binding notwithstanding any error, defect or omission in the assessment or in any proceeding under this Act relating thereto.

[38]In theory, it is always possible to determine a person’s primary tax liability with certainty. That is because a person’s primary tax liability for a particular year is determined by applying a fixed statutory formula to the amount of the person’s taxable income for that year, and the amount of a person’s taxable income is a function of the events that occurred before the end of that year.

[39]In practice, the facts that determine a person’s primary tax liability may be difficult to determine because of the complexity of the computation, uncertainties and disputes about elements of the computation, and certain choices or elections that are open to a taxpayer at various stages in the computation. The task of the Minister, despite those complexities, is to assess the primary tax liability of each person in accordance with the Income Tax Act. The Minister has no discretion to decline to assess a person’s primary tax liability, or to assess a person’s primary tax liability otherwise than in accordance with the Income Tax Act: Galway v. Minister of National Revenue, [1974] 1 F.C. 600 (C.A.).

(2) Challenging the correctness of an assessment

[40]The correctness of an assessment is challenged by filing a notice of objection with the Minister. That must be done within a stipulated time after the notice of assessment is sent (section 165 of the Income Tax Act, subject to extension as set out in sections 166.1 [as enacted by S.C. 1994, c. 7, Sch. II, s. 139] and 166.2 [as enacted idem]). The Minister is required to deal with an objection with “all due dispatch” by either confirming the objection or reassessing (subsection 165(3) [as am. idem, Sch. VIII, s. 98] of the Income Tax Act). A notice of objection may result in a decision by the Minister to reduce the amount of tax assessed, in which case the Minister may reassess, or it may result in a decision that the objection is not well founded, in which case the Minister will confirm the assessment (subsection 165(3) of the Income Tax Act). If the Minister fails to confirm a disputed assessment or to reassess within 90 days of the filing of a notice of objection, the taxpayer may appeal the assessment to the Tax Court of Canada (paragraph 169(1)(b) [as am. idem, Sch. II, s. 140] of the Income Tax Act).

[41]The Income Tax Act stipulates no consequence for the failure of the Minister to deal with a notice of objection “with all due dispatch”. However, the Federal Court may require the Minister to take undue delay into account if a request is made under subsection 220(3.1) [as enacted, idem, s. 181; Sch. VIII, s. 127] of the Income Tax Act for a waiver of interest: Hillier v. Canada (Attorney General), [2001] 3 C.T.C. 157 (F.C.A.).

[42]A taxpayer who is not satisfied with the Minister’s disposition of a notice of objection has the right to appeal the assessment to the Tax Court of Canada, subject to certain time limits (section 169 of the Income Tax Act; an extension of time may be permitted under section 167 [as am. idem, Sch. II, s. 139]). The Tax Court may dispose of an income tax appeal by dismissing the appeal or allowing it. If the appeal is allowed, the Tax Court may vacate or vary the assessment, or refer it back to the Minister for reconsideration and reassessment (section 171 of the Income Tax Act). The decision of the Tax Court of Canada may be appealed to the Federal Court of Canada pursuant to section 27 [as am. by S.C. 2002, c. 8, s. 34] of the Federal Courts Act.

[43]In an income tax appeal, the Tax Court is required to determine whether, in relation to the issues stated in the notice of appeal and the Minister’s reply, the assessment under appeal is correct in law and in fact. Because the primary tax liability of a person for a particular year is a function of the relevant events that occurred in that year, unreasonable delay or other improper conduct on the part of a tax official in the assessment or objection process cannot be relevant to the correct determination of that liability: see, for example, Bolton v. Canada, [1996] 3 C.T.C. 3 (F.C.A.); Ginsberg v. Canada, [1996] 3 F.C. 334 (C.A.) (application for leave to appeal dismissed, _[1997] 1 S.C.R. viii). That principle finds expression in section 166 of the Income Tax Act, which limits the jurisdiction of the Tax Court. Section 166 reads as follows (my emphasis):

166. An assessment shall not be vacated or varied on appeal by reason only of any irregularity, informality, omission or error on the part of any person in the observation of any directory provision of this Act.

[44]It follows that the Tax Court has no role in the oversight of the conduct of tax officials, except to the extent that the Canadian Charter of Rights and Freedoms [being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44] Charter] may limit the admissibility of evidence in proceedings in the Tax Court: see Main Rehabilitation Co. Ltd. v. Canada, 2004 FCA 403 (leave to appeal dismissed, [2005] 1 S.C.R. xii; Canada v. O’Neill Motors Ltd., [1998] 4 F.C. 180 (C.A.).

(3) Judicial review of tax collection action

[45]A person’s primary tax liability is a debt upon which interest accrues as long as the debt remains unpaid (sections 161 [as am. by S.C. 1994, c. 7, Sch. VIII, s. 96; 1997, c. 25, s. 50] and 222 of the Income Tax Act). A tax debt is subject to a number of collection tools available to the Minister (although in the absence of special circumstances, the Minister cannot use most of those collection tools while the correctness of the assessment is subject to an unresolved objection or Tax Court appeal; see section 225.1 [as am. by S.C. 1994, c. 7, Sch. II, s. 184] of the Income Tax Act). Most of the tax collection tools available to the Minister are found in Part XV of the Income Tax Act (sections 220-244).

[46]It is well established that the Minister or a delegate of the Minister employing any of the tax collection provisions of the Income Tax Act is a “federal board, commission or other tribunal” (office fédéral) as defined in subsection 2(1) [as am. by S.C. 2002, c. 8, s. 15] of the Federal Courts Act; see Markevich v. Canada, [1999] 3 F.C. 28 (T.D.) (reversed on another point by this Court, [2001] 3 F.C. 449 (C.A.), affd [2003] 1 S.C.R. 94.) It follows that a challenge to the legality or propriety of a collection action taken under Part XV may be the subject of an application for judicial review in the Federal Court, pursuant to sections 18 [as am. by S.C. 1990, c. 8, s. 4; 2002, c. 8, s. 26] and 18.1 [as enacted by S.C. 1990, c. 8, s. 5; 2002, c. 8, s. 28] of the Federal Courts Act.

[47]Section 18.5 of the Federal Courts Act limits the Federal Court’s judicial review jurisdiction. It reads as follows:

18.5 Despite sections 18 and 18.1, if an Act of Parliament expressly provides for an appeal to . . . the Tax Court of Canada . . . from a decision or an order of a federal board, commission or other tribunal made by or in the course of proceedings before that board, commission or tribunal, that decision or order is not, to the extent that it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with, except in accordance with that Act.

[48]An application for judicial review of the decision of the Minister to assess or confirm a person’s primary tax liability will not be considered by the Federal Court because the assessment of that liability may be appealed to the Tax Court of Canada, and because a person’s primary tax liability cannot be affected by any discretionary act of the Minister: see, for example, Minister of National Revenue v. Parsons, [1984] 2 F.C. 331 (C.A.); Webster v. Canada, [2004] 1 C.T.C. 168 (F.C.A.); (leave to appeal dismissed, [2004] 1 S.C.R. xv) and Walker v. Canada, [2006] 1 C.T.C. 130 (F.C.A.).

(4) Judicial review of the decision to use section 160?

[49]This case raises for the first time the question of whether section 18.5 of the Federal Courts Act precludes the Federal Court from considering an application for judicial review based on an allegation of an improper exercise of the Minister’s discretion to assess a person’s vicarious tax liability under section 160 of the Income Tax Act. If there is no relevant distinction between the assessment of a person’s primary tax liability and the assessment of a person’s vicarious tax liability under section 160, then the Federal Court was correct to grant the Crown’s motion to dismiss and this appeal must fail.

[50]Section 160 [s. 160(1) (as am. by S.C. 2000, c. 12, Sch. 2, s. 1)] reads in relevant part as follows:

160. (1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to

(a) the person’s spouse or common‑law partner or a person who has since become the person’s spouse or common‑ law partner,

(b) a person who was under 18 years of age, or

(c) a person with whom the person was not dealing at arm’s length,

the following rules apply:

. . .

(e) the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of

(i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and

(ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year,

but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act.

[51]Other parts of section 160 ensure that a payment made to discharge a liability that is the subject of a section 160 assessment operates to reduce the section 160 liability. This avoids the possibility that a tax debt will be overpaid, with no one being entitled to claim a refund of the overpayment. For the purposes of this case, it is unnecessary to discuss the payment provisions.

(i) The elements of section 160

[52]As mentioned above, the liability of a person under section 160 of the Income Tax Act is a kind of vicarious liability. Broadly speaking, section 160 permits the tax debt of one person (the tax debtor) to be imposed on a second person if three conditions are met: (1) the second person does not deal at arm’s length with the tax debtor (or is under 18 years of age, or is the tax debtor’s spouse); (2) the tax debtor has transferred property to the second person for less than fair market value consideration; and (3) the tax debtor has an unpaid primary tax liability for the year in which the transfer occurred, or a prior year. If these conditions are met, the tax debtor and the second person (the transferee of the property) are jointly and severally liable to pay the tax debt, to the extent of the fair market value of the transferred property (after deducting the value of any consideration given for the transferred property).

[53]Section 160 applies to “direct” transfers and “indirect” transfers. A direct transfer is a transaction by which one person transfers property to another. An indirect transfer would include a transaction by which one person transfers property to another through the hands of a third person. For example, if A gives B a gift of $100 in cash, then A has made a direct transfer of $100 to B. If A gives B $100 in cash on the condition or with the expectation that B will give C $100 in cash, and B gives C $100 in cash, then A has made an indirect transfer of $100 to C.

[54]Section 160 may be applied to a series of transfers, resulting in what is sometimes referred to as “cascading” section 160 assessments. For example, suppose that A, who owes tax of $100, makes an unconditional gift of $100 to B, who is his spouse. Then suppose that B makes an unconditional gift of $100 to C, her sister. Section 160 would permit the Minister to assess B for the $100 primary tax liability of A, so that A and B would be jointly and severally liable for the $100 primary tax liability of A. Section 160 would also permit the Minister to assess C for the $100 vicarious liability of B. The net effect would be that A, B and C would be jointly and severally liable for the same $100 primary tax liability of A. There will have been no indirect transfers, but two direct transfers, one from A to B, and the other from B to C. However, the risk to C of being assessed under section 160 is the same as if there had been an indirect transfer of $100 from A to C.

(ii) The history of section 160

[55]Section 160 [then section 49A] was first enacted in 1951 [S.C. 1951, c. 51, s. 17]. At that time, it applied only to transfers of property from a tax debtor to the tax debtor’s spouse or to a person under 19 years of age. The typical transaction caught by that version of section 160 was a transfer by a tax debtor of title to the family home or other family assets.

[56]Section 160 was amended in 1981 by S.C. 1980‑81‑82‑83, c. 140, section 107, to broaden its scope. After 1981, section 160 could be applied to any transfer of property to any person with whom the tax debtor did not deal at arm’s length (except to the extent the transferee paid fair market value consideration). One implication of the 1981 amendment to section 160 was that, for the first time, the tax debt of a corporation could be collected through the application of section 160. It would have been anticipated that in the typical case, the range of potential transferees of corporate property would be limited to the controlling shareholders of a closely held corporation, and their family members. In 1989, this amendment was still relatively new.

(iii) Section 160 and dividends

[57]One of the questions raised but not answered by the 1981 amendment to section 160 was whether the payment of a dividend could be a “transfer of property” within the meaning of section 160. It is possible to imagine a corporation, especially a closely held one, using the payment of a dividend to divest itself of assets in order to avoid paying a tax liability, but in most cases the payment of a dividend is an ordinary commercial transaction. A dividend is also taxable income to the recipient (except for certain corporate recipients). Some have argued that it is incongruous to attach a 100% tax burden to a dividend, especially one that is already taxable as income, merely because the paying corporation is a tax debtor with which the dividend recipient does not deal at arm’s length.

[58]It was not until 1991 that the Tax Court of Canada decided for the first time that a dividend may be subject to section 160: Mullins v. Canada, [1991] 2 C.T.C. 2503 (T.C.C.), followed within a few months by Fournier v. Canada, [1991] 1 C.T.C. 2699 (T.C.C.); Groupe d’investissement Savoie, Lavoie, Inc. v. Canada, [1992] 1 C.T.C. 2355 (T.C.C.); Algoa Trust v. Canada, [1993] 1 C.T.C. 2294 (T.C.C.). The Tax Court of Canada has also determined that section 160 does not apply to a dividend paid as compensation for services: Davis v. Canada, [1994] 2 C.T.C. 2033 (T.C.C.); see also McClurg v. Canada, [1990] 3 S.C.R. 1020.

[59]In 1993, the question of applying section 160 to dividends was discussed as an “emerging issue” at the annual conference of the Canadian Tax Foundation (see the comments of Manon Thivierge, reported in “Emerging Income Tax Issues: Substance over Form Revisited, Section 160 of the Income Tax Act, and Series of Transactions” in Report of Proceedings of the Forty‑Fifth Tax Conference, 1993 Conference Report (Toronto: Canadian Tax Foundation, 1994), at pages 4:1-4:15). That discussion was apparently prompted by the Algoa Trust case.

[60]On February 4, 1998, an appeal of the Algoa Trust decision was dismissed in an unreported oral judgment of this Court (A‑201‑93). To my knowledge, there is no subsequent decision of this Court that casts any doubt on the correctness of that decision. Thus, the 1993 decision of the Tax Court of Canada in Algoa Trust is the leading authority for the proposition that section 160 may apply to a dividend.

(iv) The application of section 160 to other corporate payments

[61]There are many transactions, other than the payment of a dividend, by which a corporation may transfer property to a controlling shareholder or another person with which it does not deal at arm’s length. However, section 160 would not apply to any such transfer unless the corporation failed to receive fair market value consideration for the transferred property.

[62]For example, a corporation may pay a shareholder for services rendered. Section 160 could not be applied to such a payment unless the value of services obtained by the corporation is less than the amount paid. A corporation may lend money to a shareholder. Section 160 could not be applied to such a loan unless the value of the covenant to repay is less than the amount of the loan. A corporation may repay a loan from a shareholder. It is difficult to imagine how section 160 could possibly apply to such a payment.

(v) Section 160 as a collection tool

[63]Section 160 of the Income Tax Act is not part of the scheme for determining the primary tax liability of anyone. Its function is to facilitate the collection of one person’s primary tax liability from another person who is, in law, liable to pay it. However, the mechanism by which the Minister applies section 160 of the Income Tax Act is a notice of assessment sent to the recipient of the tax debtor’s property. A section 160 assessment is, in law, an assessment like any other assessment in the sense that it crystallizes the liability of the person assessed.

[64]Those who are assessed under section 160 have the same right to object and appeal as those who are assessed for their own primary tax liability. An objection or appeal of a section 160 assessment may raise any issue relating to the correctness of the assessment (for example, whether property was transferred for less than fair market value consideration, and whether the tax debtor and the transferee of its property deal with each other at arm’s length), and may also raise any issue relating to the correctness of the underlying assessment (that is, the assessment of the primary tax liability of the tax debtor): Gaucher v. Canada, [2001] 1 C.T.C. 125 (F.C.A.). However, given the limitation imposed by section 166 (see paragraph 43 above), it is not open to the Tax Court to consider whether the Minister’s decision to invoke section 160 is questionable on the basis of any of the traditional principles of administrative law.

D. Discussion

[65]I have mentioned that section 160 of the Income Tax Act is generally considered to be a harsh collection remedy. Some of the reasons for that may be summarized as follows:

(1) There is no statutory time limit for an assessment under section 160. There is no statutory time limit for an assessment under section 152 either (i.e., the initial assessment of a person’s primary tax liability). However, most income tax disputes arise from a reassessment and in most cases there are statutory time limits for reassessments. The normal reassessment period is either three years or four years, depending upon the status of the taxpayer (subsection 152(3.1) [as am. by S.C. 1998, c. 19, s. 181; 1999, c. 22, s. 63.1] of the Income Tax Act), but it may be extended by a further three years in certain situations (paragraph 152(4)(b) [as am. by S.C. 1998, c. 19, s. 181] of the Income Tax Act). There is no time limit for a reassessment if the taxpayer waives the time limit (and does not revoke the waiver), or if the taxpayer in filing a return or supplying information has committed a fraud or has made a misrepresentation attributable to neglect, carelessness or wilful default (paragraph 152(4)(a) [as am. idem]).

(2) Even if the statutory conditions for the application of section 160 are met, the Minister has the discretion to assess or decline to assess under section 160. By contrast, the Minister has no discretion to assess or decline to assess under section 152.

(3) The Minister has the discretion to assess under section 160 without first employing or exhausting other collection remedies against the tax debtor (compare subsection 227.1(2) [as am. by S.C. 1994, c. 7, Sch. V, s. 90] of the Income Tax Act).

(4) The Minister has the discretion to assess any number of persons under section 160 for the same tax debt (in each case, up to the value of the property they have received from the tax debtor, net of any consideration paid).

(5) If there are a number of persons potentially liable under section 160, the Minister may choose among them. For example, if a tax debtor has a $1,000 tax debt and gives each of his three children a gift of $500, each of the children may be held jointly and severally liable for $500. Each of the children will, in formal terms, have a tax debt of $500, for a total of $1,500 that will remain outstanding until the $1,000 tax debt is paid. Or, the Minister may choose to assess only two of the three children for $500 each, leaving the third one free of any tax debt. In either case, any rights of contribution and indemnity between the children and the tax debtor would have to be resolved under the general law.

(6) The Minister may assess under section 160 without alleging or proving an intent to avoid the payment of tax, and there is no due diligence defence (compare subsection 227.1(3) of the Income Tax Act, which permits a due diligence defence in the case of corporate directors held liable for the corporation’s failure to remit source deductions withheld from wages paid to employees).

(7) A person assessed under section 160 cannot avoid liability by proving that he does not, or cannot know or control the tax debtor’s affairs.

(8) As the facts of this case demonstrate, it is possible for section 160 to apply even if the events that give rise to the primary tax liability occur after the transfer of the property that triggers the application of section 160. That is because a person’s primary tax liability for a taxation year comes into existence at the end of the year, but section 160 may apply to a transfer of property that occurs at any time within that year.

(9) The Income Tax Act provides no procedure by which a recipient of property can seek a binding early determination of a potential section 160 liability (compare, for example, the “clearance certificate” procedure that may be used to protect those who distribute the assets of a trust or estate, or those who might otherwise be held liable for a failure to withhold tax from certain amounts paid to a non‑resident: subsection 159(2) [as am. by S.C. 1998, c. 19, s. 185] and section 116 of the Income Tax Act, respectively).

[66]As this list demonstrates, the distinguishing characteristic of section 160 of the Income Tax Act is that, given a situation in which section 160 could be applied, the Minister has the discretion to apply it or not to apply it.

[67]In practical terms, what does it mean that section 160 is a collection remedy that the Minister has the discretion to use, or not to use? It means, for example, that a person who has received a dividend from a family corporation is immediately at risk of being held vicariously liable for the primary tax liability of the corporation arising in or prior to the year of the dividend. Because there is no statutory time limit for the exercise of the Minister’s discretion, no statutory mechanism by which a person at risk of a section 160 assessment can determine his or her own liability, no statutory mechanism by which a person can compel the Minister to decide whether to assess under section 160 or to make a binding determination that no section 160 assessment will be made, the risk of being assessed under section 160 exists in perpetuity.

[68]Contrast that with the relative certainty of the statutory scheme for the assessment of each taxpayer’s primary tax liability. Taxpayers have a legal obligation to file a return each year, and to estimate their own primary tax liability for that year, the presumption being that they have the knowledge or means of knowledge of their own tax affairs. The Minister has no discretion in the matter of assessing taxpayers for their primary tax liability. The Minister must assess that liability in accordance with the provisions of the Income Tax Act. Taxpayers might complain of delay or bad management on the part of tax officials in relation to such assessments, or even bad conduct, but no such act on the part of a tax official can reduce the amount of a person’s primary tax liability. And the taxpayer’s right of recourse to the Tax Court ensures that there is always some means of establishing the taxpayer’s correct liability in the case of a dispute.

[69]I will admit to considerable discomfort with the notion of a statutory obligation that may exist in perpetuity, subject only to the discretion of the Minister. This situation has an echo in a recent decision of the House of Lords, Burton (Her Majesty’s Collector of Taxes) v. Mellham Limited, [2006] UKHL 6, in which Lord Walker of Gestingthorpe makes this observation [at paragraph 19]:

. . . a perpetual liability to pay interest, subject only to a discretionary (and possibly dubious) official power of remission would be so disproportionate a penalty as to raise real doubt whether Parliament can have intended the system to work like that.

The issue in that case was one of statutory construction. The particular question was the meaning of the word “payment” as used in an income tax statute to refer to an event that would end the period for which interest accrues on a tax debt. The taxpayer had a tax liability payable on a certain date, and was entitled to a tax refund as of a later date. The interpretation proposed by the taxpayer would have relieved it of an obligation to pay interest after its entitlement to the refund, on the basis that the refund would or should have been set off against the tax liability. The tax authorities argued that “payment” could not include “set‑off”. However, the interpretation proposed by the tax authorities would have led to the conclusion that the tax debt would bear interest in perpetuity. The House of Lords rejected that interpretation.

[70]It is open to Parliament to enact a law that places a person at risk forever of being assessed under section 160 of the Income Tax Act in relation to a specific transaction, subject to the unfettered discretion of the Minister to assess or not to assess. It is open to Parliament to provide no statutory mechanism by which that person may take the initiative to obtain a binding determination that there is or is not a section 160 liability.

[71]However, in my view, it requires clear and explicit statutory language to deprive such a person of recourse to the minimal protection afforded by the right to seek judicial review of the exercise of the Minister’s discretion. Is section 18.5 of the of the Federal Courts Act sufficiently explicit? It has been held to be sufficiently explicit in the case of assessments under section 152 of the Income Tax Act, even those provisions that permit an assessment or a reassessment to be made at any time (as in the case of fraud by the taxpayer). However, in my view, section 18.5 is not sufficiently explicit with respect to assessments under section 160 of the Income Tax Act, given the scope of the Minister’s discretion with respect to the use of section 160, the fact that section 160 is primarily a collection tool rather than an assessment tool (although it uses an assessment mechanism), and the limits on the jurisdiction of the Tax Court to supervise the acts of tax officials in the context of an appeal of a section 160 assessment. I would not interpret section 18.5 of the Federal Courts Act to preclude the Federal Court from considering an application for judicial review of the Minister’s discretion to assess under section 160.

E. Does the Federal Court have the jurisdiction to quash a tax assessment?

[72]The appellants have sought, as a remedy, an order quashing the assessments or setting them aside. The Crown says that remedy can be granted only by the Tax Court. I do not agree.

[73]The Tax Court may vacate an assessment in an income tax appeal, if the assessment is found not to be correct in law or in fact, and the Tax Court has exclusive jurisdiction to hear income tax appeals. However, if my interpretation of section 18.5 of the Federal Courts Act is correct and the Federal Court has the jurisdiction to consider the application for judicial review in this case, there is no law or legal principle that would preclude the Federal Court from granting an analogous remedy, if it is found that the Minister’s discretion has been improperly exercised.

[74]It goes without saying that such an extreme remedy would not be granted lightly, and only in the most egregious of circumstances. Even if some impropriety is found with respect to the exercise of the Minister’s discretion, it would be open to the Federal Court to grant a lesser remedy, or no remedy. It would be incumbent on the Federal Court, in considering an application for such a remedy, to give due weight to the will of Parliament to impose vicarious liability in the circumstances specified in section 160, and the will of Parliament to give the Minister a discretionary power unlimited by any statutory time constraints. It seems to me that delay by itself normally would not be a sufficient basis for any remedy, but if the delay is unjustified, and is demonstrated to have caused loss that could not have been foreseen or mitigated by due diligence on the part of the person assessed, some remedy might be warranted.

F. Adequate alternative remedy

[75]The Crown has argued that even if the Federal Court has the jurisdiction to consider the appellants’ application for judicial review, it should decline to do so because the appellants have adequate alternative remedies, namely, the right of appeal to the Tax Court of Canada, the right to ask the Minister for a discretionary waiver of interest, and the right to sue for damages. Given the particular allegations made in this case, I am unable to accept the Crown’s argument.

[76]In my view, the right to appeal a section 160 assessment to the Tax Court of Canada is not an adequate remedy for the improprieties alleged by the appellants in the exercise of the Minister’s discretion to assess under section 160. As such allegations, even if proved, cannot affect the correctness of the section 160 assessments, the Tax Court of Canada has no jurisdiction to consider those allegations or to grant a remedy for them.

[77]Similarly, the right to seek discretionary relief from the Minister in the form of a waiver of interest is not an adequate alternative remedy in this case. The appellants allege that undue delay has resulted in unfair prejudice to them in relation to the principal amount of their vicarious tax liability, as well as the accrued interest.

[78]There is authority for the proposition that a taxpayer may pursue a claim for damages in the Federal Court or the superior court of a province based on an allegations of impropriety by the Minister in relation to the administration of the tax law (see Obonsawin v. Canada, [2004] G.S.T.C. 16 (T.C.C.), appeal discontinued, [2006] G.S.T.C. 3 (F.C.A.). However, this Court has said that a challenge to an administrative decision ought to be made in the first instance by way of judicial review, rather than by way of an action for damages: Canada v. Grenier, [2006] 2 F.C.R. 287 (F.C.A.). Given the state of the jurisprudence, it is not possible to conclude that if the appellants are barred from seeking judicial review in this case, an action for damages would be an adequate alternative remedy (assuming they are able to prove their allegations).

[79]I emphasize that I have not concluded that the appellants have established that the section 160 assessments should be quashed. I cannot reach any conclusion on the merits of their application for judicial relief, or on the appropriateness of any particular remedy, because the facts are not yet fully known. The only effect of my conclusion is that the appellants’ application for judicial review should be returned to the Federal Court for a hearing.

G. The timing of the application for judicial review

[80]The appellants’ application for judicial review was filed in the Federal Court on January 20, 2005, almost four years after the section 160 assessments were made. Subsection 18.1(2) of the Federal Courts Act provides that an application for judicial review in respect of a decision must be made within 30 days after the communication of the decision to the applicant, unless the time is extended by the Federal Court. Although the record does not indicate that the Federal Court has extended the time, the Crown did not argue in this Court or in the Federal Court that the application was out of time. For the purposes of this appeal, I have assumed that the timing of the application is not an issue.

H. Conclusion

[81]I would allow this appeal, set aside the order of the Federal Court dated March 29, 2005, and dismiss the Crown’s motion to strike the application. As the appellants have not asked for costs, none should be awarded.

Malone J.A.: I agree.

* * *

The following are the reasons for judgment rendered in English by

[82]Rothstein J.A. (dissenting): I have read the reasons of my learned colleague Sharlow J.A. but I find myself unable to agree with her that the appeal should be allowed.

[83]I do agree with the facts set out in her reasons. I also agree that tax experts have criticized section 160 as being a harsh collection remedy for the reasons she summarized. Finally, I agree that if the Federal Court did have jurisdiction to entertain judicial review in this case, there are no adequate alternative remedies.

[84]However, I am unable to agree with her fundamental premise that delay by the Minister in issuing a notice of assessment under section 160 may be the subject of judicial review in the Federal Court.

[85]The majority finds that the words “to the extent that it may be so appealed” in section 18.5 of the Federal Courts Act open the door to judicial review by the Federal Court of the Minister’s decision to issue a section 160 assessment. In my opinion, even if that is correct generally, delay by the Minister in issuing an assessment under section 160 is not reviewable by the Federal Court on judicial review.

[86]Subsection 160(2) [as am. by S.C. 1998, c. 19, s. 186]  provides that “The Minister may at any time assess a taxpayer in respect of any amount payable because of this section [emphasis added]”. The words “at any time” mean that there is no applicable limitation period. In Markevich v. Canada, [2003] 1 S.C.R. 94, Major J. found that where Parliament has used the term “at any time”, no limitation period is intended. At paragraph 16, Major J. referred expressly to subsection 160(2):

Numerous provisions in the ITA expressly stipulate that the Minister may make an assessment “at any time”: see ss. 152(4), 152(4.2), 159(3), 160(2), 160.1(3), 160.2(3), 160.3(2), 160.4(3) and 227(10.1). Parliament has demonstrated a clear willingness to address the issue of limitation periods in the ITA where it sees fit to do so. As Rothstein J.A. noted at para. 22, “Parliament has put its mind to the limitation question in the Income Tax Act and when it intends there to be no limitation period, it has so stated.”

[87]Had the words “at any time” not been used in subsection 160(2), it might be open to argue that delay by the Minister in issuing a notice of assessment under section 160 should be subject to judicial review by the Federal Court on fairness or other grounds. However, in my respectful view, the words “at any time” mean what they say: that the Minister may assess at any time and therefore, when the assessment is issued cannot be judicially reviewed.

[88]Parliament has said that the Minister may assess at any time. There is no other applicable condition. The effect of the decision of the majority is to read into subsection 160(2) a condition that the Minister may assess at any time unless for example, his delay is too lengthy or the taxpayer exercised due diligence or there is prejudice to the taxpayer. The Income Tax Act contains limitation periods and due diligence and other defences when Parliament considers that to be appropriate. It did not do so in subsection 160(2). The Court must take the statute as it finds it. It is not permissible to read into a statutory provision a condition that places a limitation on what Parliament has expressly provided in the words it has used.

[89]I acknowledge that there are authorities to the effect that unreasonable delay may amount to unfairness and will enable the Court to intervene to provide a remedy (see Reg. v. Inland Revenue Comrs., Ex parte Preston, [1985] A.C. 835, at page 851, per Scarmon L.J. and Blencoe v. British Columbia (Human Rights Commission), [2000] 2 S.C.R. 307, at paragraph 151, per LeBel J. cited by the appellants). However, these were cases in which application of common-law principles was open to the Court because there was no statutory provision to the contrary. In subsection 160(2), there is a statutory provision to the contrary. I do not think those cases support the conclusion reached by the majority in this case.

[90]Like the majority, I too am discomforted that a statutory obligation may, in theory, exist in perpetuity, even if that is not a practical likelihood. Where the words of a statute may be construed either to result in a perpetual obligation or not, the interpretation that rejects the perpetual obligation would normally reflect the most likely intent of Parliament (see Burton (Her Majesty’s Collector of Taxes) v. Mellham Limited, [2006] UKHL 6, per Lord Walker of Gestingthorpe). However, where such alternative construction cannot be placed on the words used by Parliament, the Court is bound by the text of the words Parliament used. That is the case with the words “at any time”.

[91]Subsection 160(1) applies in specific circumstances:

1. transfers of property to a spouse or common-law partner;

2. transfers of property to a person under 18 years of age; and

3. transfers of property to a person with whom the transferor was not dealing at arm’s length.

The provision only affects a transfer of property for less than fair market value consideration.

[92]While in the sense identified by the majority, subsection 160(1) may be considered a harsh collection remedy, it is also narrowly targeted. It only affects transfers of property to persons in specified relationships or capacities and only when the transfer is for less than fair market value. Having regard to the application of subsection 160(1) in specific and limited circumstances, Parliament’s intent is not obscure. Parliament intended that the Minister be able to recover amounts transferred in these limited circumstances for the purpose of satisfying the tax liability of the primary taxpayer transferor. The circumstances of such transactions makes it clear that Parliament intended that there be no applicable limitation period and no other condition on when the Minister might assess.

[93]Reading in limitations as to when the Minister may assess under subsection 160(2) will open the door to the argument that similar limitations should be read in to other provisions of the Act in which the term “at any time” is found. For example, subsection 152(4) [as am. by S.C. 1998, c. 19, s. 181] provides that the Minister may at any time make an assessment if a taxpayer has made a misrepresentation or has committed a fraud. Subsection 152(4) provides in part:

152. . . .

(4) The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, interest or penalties, . . . if

(a) the taxpayer . . .

(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 information under this Act.

[94]The opening words of subsection 152(4) are the same as the opening words of subsection 160(2). Despite the distinction set out by Sharlow J.A. between assessments under sections 152 and 160, if limitations apply in the case of subsection 160(2), I think it would be hard to argue that limitations should not apply to subsection 152(4). If they do, a taxpayer who has engaged in a wilful misrepresentation or fraud could argue a delay defence in the same manner as the appellants do in this case. I do not think it was Parliament’s intention to permit taxpayers who have engaged in such action to raise delay in the Minister’s assessing procedures as a defence to an assessment under subsection 152(4).

[95]In their factum, but not in oral argument, the appellants referred to section 7 of the Canadian Charter of Rights and Freedoms and section 1 of the Canadian Bill of Rights, R.S.C., 1985, Appendix III [Bill of Rights]. They did not suggest that section 160 is unconstitutional and should be struck down or read down. They simply said that the existence of the Charter and, it appears, the Bill of Rights requires that an unlimited statutory power or authority must be read with an implied qualification of fairness as to its use.

[96]The appellants did not provide a substantive analysis of why otherwise plain language of a statutory provision should be subject to implied qualifications. I infer that what they intend is that a broad discretionary power cannot be exercised in a manner that contravenes the Charter or the Bill of Rights (see Slaight Communications Inc. v. Davidson, [1989] 1 S.C.R. 1038, at page 1079, per Lamer J. (as he then was) dissenting in part).

[97]The difficulty with this argument is that subsection 160(2) expressly confers on the Minister the power to assess at any time. Whatever Charter or Bill of Rights limitations there might be on the Minister’s discretion to assess under subsection 160(2), the limitations cannot affect when the Minister chooses to make the assessments because the statutory provision, which they do not challenge, expressly confers a power on the Minister to assess at any time.

[98]Therefore, the Charter and the Bill of Rights do not support the appellants’ position.

[99]For these reasons, where the issue is delay in the making of an assessment under section 160, I think the reasoning in Webster v. Canada, [2004] 1 C.T.C. 168 (F.C.A.) as to the effect of section 18.5 of the Federal Court Act [now Federal Courts Act] is indistinguishable from this case. At paragraph 19 of Webster, Sharlow J.A. stated:

Pursuant to subsection 169(1) of the Income Tax Act, the decision of an appeals officer under subsection 165(3) of the Income Tax Act to confirm an assessment may be appealed to the Tax Court of Canada. It follows, according to subsection 18.5(1) of the Federal Court Act, that the decision to confirm cannot be the subject of an application for judicial review in the Federal Court.

[100]Section 18.5 precludes judicial review in the Federal Court where there is an appeal to another court. The appellants’ remedy in this case is an appeal to the Tax Court of Canada. There they may challenge the assessment against the primary taxpayer York, as well as the assessments against themselves. The sole question is whether the assessed amounts are correct in law.

[101]I have not reached my conclusion unmindful of the hardship the section 160 assessments appear to impose on the appellants. It appears that they quite properly stripped out of York in 1989 the cash generated from the sale of York’s assets. The difficulty arises because of the sale of their shares in York to 388777 Alberta Limited. They received $1,115,000 for the shares.

[102]Now the section 160 assessments purport to impose on them York’s income tax liability of $1,978,665.97, York’s penalty of $229,527.82 and accrued interest on York’s tax and penalty indebtedness of $4,456,440.80 to February 12, 2001. Since that date, additional interest will have accrued. On the basis of the facts set out in the notice of application for judicial review and in the supporting affidavits, the harsh result of the section 160 assessments in this case suggests that section 160 is arguably overbroad. The overbreadth of section 160 is a matter for Parliament or perhaps, to the extent it is open to him, the discretion of the Minister in respect of interest and penalties. It is not a matter for the courts and specifically, not a matter for the Federal Court on judicial review.

[103]I would have dismissed the appeal with costs.