T-1667-76
William A. Gibbon (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Walsh J.—Toronto, May 13;
Ottawa, June 3, 1977.
Income tax — Income calculation — Deductions — Volun
tary "alimony" payments — Payments not made pursuant to
agreement or order of appropriate court — Deduction allowed
— Reassessment — Plaintiff induced to continue with volun
tary payments rather than having a tax saving by opening an
R.R.S.P. for himself — Whether plaintiff's tax liability
should be affected by incorrect assessments — Income Tax
Act, S.C. 1970-71-72, c. 63, ss. 60(6),(c), 152(3),(8).
Plaintiff, separated from his wife, paid a sum for the support
of his dependant sons, voluntarily and not pursuant to a court
order or separation agreement. The Department refunded to
him an overpayment of tax because he had not claimed these
payments as deductions. Later, the Department reassessed his
tax liability when it became evident that these payments were
not allowable deductions. The plaintiff claims he could have
made a comparable tax saving by purchasing a registered
retirement savings plan for himself and that the Department's
error induced him to continue his voluntary support payments
instead. Because the Department's mistake induced him to
forego an acceptable tax-saving measure, the plaintiff argues
that he should not be liable for the reassessed tax liability.
Held, the appeal is dismissed. The only issue before the
Court is whether the reassessment for the 1972 and 1973
taxation years are correct or not and there is not the slightest
doubt that they are in accord with the law. If, but for the
previous errors, plaintiff might have acted otherwise and
claimed certain other deductions which he is now not able to
claim, thereby reducing his tax liability for the years in ques
tion, this is regrettable but cannot affect the validity of the
reassessment before the Court on the basis that he allegedly
was induced into a course of conduct causing him a financial
loss as the result of the earlier erroneous assessments.
Howell v. Falmouth Boat Construction Co. Ld. [1951]
A.C. 837 and Robertson v. Minister of Pensions [1948] 2
All E.R. 767, distinguished. M.N.R. v. Inland Industries
Ltd. [1974] S.C.R. 514; Woon v. M.N.R. [1950] Ex.C.R.
327; Stickel v. M.N.R. [1972] F.C. 672 and Cam Gard
Supply Ltd. v. M.N.R. [1974] 2 F.C. 236, followed.
INCOME tax appeal.
COUNSEL:
William A. Gibbon for plaintiff.
Ian S. MacGregor for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
WALSH J.: This income tax appeal was heard on
the basis of an agreed statement of facts, the only
witness testifying being plaintiff himself who had
practised law in Winnipeg prior to 1965, but is
now a school teacher in Toronto since 1967, and
who represented himself at the trial. He and his
wife had separated in 1963. There were three
children of the marriage, only the two sons, whose
ages were given in 1972 as 19 and 15 respectively
being in any way dependent in the 1972-73 taxa
tion years. Plaintiff made voluntary alimony pay
ments to his wife in 1972 and 1973 as he had been
doing since their separation in 1963 but not pursu
ant to any decree, order or judgment of a com
petent tribunal nor to any written separation
agreement. Plaintiff in his tax returns for the years
in question did not claim these payments as deduc
tions and he admits that he was not entitled to do
so pursuant to sections 60(b) and (c) of the Income
Tax Act which read respectively as follows:
60. There may be deducted in computing a taxpayer's
income for a taxation year such of the following amounts as are
applicable:
(b) an amount paid by the taxpayer in the year, pursuant to
a decree, order or judgment of a competent tribunal or
pursuant to a written agreement, as alimony or other allow
ance payable on a periodic basis for the maintenance of the
recipient thereof, children of the marriage, or both the
recipient and children of the marriage, if he was living apart
from, and was separated pursuant to a divorce, judicial
separation or written separation agreement from, his spouse
or former spouse to whom he was required to make the
payment at the time the payment was made and throughout
the remainder of the year;
(c) an amount paid by the taxpayer in the year, pursuant to
an order of a competent tribunal, as an allowance payable on
a periodic basis for the maintenance of the recipient thereof,
children of the marriage, or both the recipient and children
of the marriage, if he was living apart from his spouse to
whom he was required to make the payment at the time the
payment was made and throughout the remainder of the
year;
By a letter dated May 18, 1973, the Minister
requested additional information from plaintiff
with respect to the custody and control of the
dependent children, their income for 1972, their
address, and full particulars of any alimony or
separation payments made during the year includ
ing the name and address of the recipient's spouse,
which information was furnished by plaintiff.
Actually he made voluntary weekly payments of
$40 a week during the 1972 taxation year for a
total of $2,080 and by notice of assessment dated
August 31, 1973, plaintiff was allowed these pay
ments as a deduction from his taxable income for
that year with the result that he was found to have
an overpayment of $450.10 and the refund cheque
was in due course sent to him for this amount.
Accordingly, on his 1973 income tax return he
deducted the sum of $2,340 which he paid his wife
as alimony in that year, since he had voluntarily
increased the payment to $45 a week. By notice of
assessment dated May 22, 1974, his return was
assessed as declared and he was declared to have
an overpayment of $561.80.
It was not until June 19, 1975, that the Depart
ment wrote him stating that his 1972 and 1973
returns were under review, asking him to forward
a copy of the separation agreement and copies of
cancelled cheques covering the payments during
the two years. Aside from the fact that there was
no separation agreement the payments had always
been made in cash. As the result of receiving this
letter plaintiff soon thereafter attended at the
office of the Department of National Revenue in
Toronto and informed them that there never had
been any written separation agreement or decree,
order or judgment of a competent tribunal. As a
result on August 8, 1975, reassessments were
issued disallowing as a deduction the amounts of
$2,080 and $2,340 previously allowed to him for
the 1972 and 1973 taxation years respectively.
This was clearly in accordance with the law and
the earlier assessments were clearly made in error
and not as a result of any misrepresentations made
by plaintiff.
Plaintiff contends that his wife had sufficient
means to support herself and as the sons got older
he was contemplating stopping the voluntary
alimony payments and commencing to establish a
registered retirement savings plan fund for himself
which he could not afford to do as long as he was
making the payments to his wife. When he
received the tax refund for the 1972 taxation year
following the assessment of August 31, 1973, he
used this to commence such a fund making a $500
payment into it in February 1974 applicable to the
1973 taxation year. According to his evidence
when he found that he could deduct the alimony
payments which he was making to his wife he
continued to make them, but if this had not been
the case he would have stopped them commencing
in 1974 and put the amounts which he was paying
his wife into a registered retirement savings plan
for himself. When he found that the tax advan
tages for him were about the same, however, on
the assumption that the payments he was making
to his wife were allowable as deductions, he decid
ed to continue making them. One would think
that, even though his wife may have sufficient
independent income without the alimony payments
now that the children are older, the decision
whether or not to continue them would be based on
other factors than the tax advantages of same, and
similarly that the decision whether or not to buy a
registered retirement savings plan for himself
should not be solely motivated by the tax advan
tages of such a plan. In any event plaintiff insists
that he had the alternative of either continuing
alimony payments to his wife and deducting them
from his taxable income, which in view of the
erroneous assessments he had received he believed
to be acceptable, or in the alternative of stopping
these payments and using the amounts to establish
a registered retirement savings plan for himself,
payments into which would also be deductible. In
either event he would benefit by a deduction from
his taxable income for the years in question,
although in the case of the registered retirement
savings plan contribution he would eventually pay
tax on the benefits received when he commenced
drawing the pension which he purchased with the
fund. It is of some significance that his next
contribution to the fund other than deposits of
interest was the sum of $1,600 paid in on February
13, 1976, presumably attributable to the 1975
taxation year. This was subsequent to the reassess
ment notices of August 8, 1975, disallowing the
deductions of the alimony payments made to his
wife in 1972 and 1973. He claims that, had he not
been misled by the erroneous assessments, he
would have stopped the alimony payments sooner
than he did and thus have had registered retire
ment savings plan contributions to claim as deduc
tions in 1973 and subsequent taxation years. How
ever, he had no indication that the payments to his
wife could be deducted, and in fact had not
attempted to deduct them until the first erroneous
assessment of August 31, 1973, for the 1972 taxa
tion year followed by the refund cheque. Certainly
therefore he cannot claim that he would have
conducted his affairs any differently prior to that
date. Therefore this argument is worthless with
respect to the 1972 taxation year in any event, and
with respect to the 1973 taxation year it is signifi
cant that he paid alimony of $2,340 to his wife in
that year and there is nothing in the evidence to
establish that he would have stopped these pay
ments precisely on August 31, 1973, and was only
induced to continue them as a result of the assess
ment notice indicating that he could deduct these
alimony payments. In fact he commenced an
R.R.S.P. plan for himself early in 1974, using the
tax refund cheque for the first payment. It would
appear, therefore, that, even accepting his argu
ment, the only year for which he might have
suffered prejudice would be the year 1974, for
which no registered retirement savings plan contri
butions were made, but that taxation year is not an
issue in the present proceedings. The payment in
February 1976 of $1,600 attributable to the 1975
taxation year permitted deduction to that extent
from taxable income for that year. Quite aside
from the facts however which, as indicated, dis
close that plaintiff suffered much less financial
prejudice tax wise than he claims as the result of
the course of conduct into which he contends he
was induced by the erroneous assessments allowing
the alimony payments as deduction, it is clearly
not an acceptable argument in law to argue hypo
thetically what he might have done to reduce his
tax liability had he known that another means of
reducing it was not open to him.
Plaintiff relies on the case of Robertson v. Min
ister of Pensions' in which Denning J. (as he then
was) had to consider the question of estoppel
against the Crown. The claim was one for a war
disability pension and the claimant was advised by
' [1948] 2 All E.R. 767.
the War Office that his disability had been accept
ed as attributable to military service. Accordingly
he sought no further medical opinion at the time
and X-ray plates of his injuries which were still
available were destroyed. Subsequently the Pen
sions Appeal Tribunal decided that the disability
was not attributable to military service. The ques
tion was whether the earlier letter was binding.
The judgment states at page 770:
The next question is whether the assurance is binding on the
Crown. The Crown cannot escape by saying that estoppels do
not bind the Crown, for that doctrine has long been exploded.
'Later on the same page he states:
In my opinion, if a government department in its dealings
with a subject takes it on itself to assume authority on a matter
with which he is concerned, he is entitled to rely on it having
the authority which it assumes. He does not know, and cannot
be expected to know, the limits of its authority.
This statement has since been criticized however in
the House of Lords in the case of Howell v.
Falmouth Boat Construction Co. 1.4. 2 in a judg
ment by Lord Normand at page 849. He refers to
an almost identical statement by Lord Justice
Denning (as he had become) in the Lower Court
judgment in that case stating:
As I understand this statement, the respondents were, in the
opinion of the learned Lord Justice, entitled to say that the
Crown was barred by representations made by Mr. Thompson
and acted on by them from alleging against them a breach of
the statutory Order, and further that the respondents were
equally entitled to say in a question with the appellant that
there had been no breach. But it is certain that neither a
minister nor any subordinate officer of the Crown can by any
conduct or representation bar the Crown from enforcing a
statutory prohibition or entitle the subject to maintain that
there has been no breach of it.
This judgment therefore makes a clear distinction
between an erroneous decision on questions of fact
which has nevertheless induced the beneficiary of
the decision to act on it, and a failure to apply the
law, and in the latter case no decision by a servant
or officer of the Crown can bind it. The Canadian
courts have consistently so held. In the case of
2 [19511 A.C. 837.
M.N.R. v. Inland Industries Limited' dealing with
the frequently litigated sections of the Act respect
ing the deductibility of past service contributions
to a pension plan duly accepted by the Department
of National Revenue for registration but with
respect to which deductions are later refused,
Pigeon J. in rendering the judgment of the Court
said at page 523:
However, it seems clear to me that the Minister cannot be
bound by an approval given when the conditions prescribed by
the law were not met.
In the case of Woon v. M.N.R. 4 one of the grounds
of appeal was that the Commissioner had given a
ruling that if the appellant followed a certain
procedure tax would be imposed under a particular
section of the Income War Tax Act. That proce
dure was followed but the Minister assessed the
appellant to a much greater tax under another
section of the Act which was applicable. It was
argued that the Minister was precluded from
alleging that the particular section under which
the assessment was made was applicable because
of the prior ruling of the Commissioner. Mr. Jus
tice Cameron after a detailed and analytical
review of the leading authorities held that the
Commissioner had no power to bind the Minister
by a ruling limiting tax action other than in
accordance with the tax statutes; that the assess
ment must be made pursuant to the terms of the
statute and that it was not open to the appellant to
set up an estoppel to prevent the operation of the
statute.
Both these cases were referred to in the case of
Stickel v. M.N.R. 5 in which Cattanach J. stated at
page 685:
In short, estoppel is subject to the one general rule that it
cannot override the law of the land.
See also the judgment of Thurlow J. (as he then
was) in Cam Gard Supply Ltd. v. M.N.R. 6 at page
240 where he refers to the point having been well
covered by the Inland Industries case stating:
3 [1974] S.C.R. 514.
4 [1950] Ex.C.R. 327.
5 [1972] F.C. 672.
6 [1974] 2 F.C. 236.
Where a statutory requirement for the deduction has not been
met, the deduction for that reason must be disallowed and it
does not matter that the approval of the payment, which is
another of the essential conditions of deductibility, had been
given.
Against this weight of jurisprudence plaintiff
attempted to argue that he was not suggesting that
estoppel should be invoked to interfere with the
application of the provisions of the Income Tax
Act to him but was relying on the wording of
section 152(3) of the Act which reads as follows:
152. (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.
His argument is that the words "liability for the
tax" are very broad and that while he may have
been liable for the additional tax resulting from
the non-deductibility of the alimony payments
made to his wife, and he had in fact always
believed that this was the case until the erroneous
assessment of 1972 cast doubt of this in his mind
causing him to make the claim in 1973 which was
later accepted by a second erroneous assessment,
he nevertheless should not be liable for the addi
tional tax claimed because establishment of regis
tered retirement savings plans and the deductibili-
ty to certain limits of the amounts paid into same
are part of the Act, so that he had at the time the
alternative of making payments into such a plan
with the result that he would not have been liable
to the additional tax now imposed. His contention
is therefore that since he would not have been
liable for the additional tax now claimed had he
established such a plan which he cannot now do
retroactively for the years in question, his liability
should not be affected by the incorrect assess
ments.
I cannot accept this argument. The new assess
ments were undoubtedly properly made. Section
152(8) of the Act 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 notwith
standing any error, defect or omission therein or in any pro
ceeding under this Act relating thereto.
This clearly foresees the possibility of a reassess
ment to correct an earlier error. Subsection (4) of
section 152 permits a reassessment within 4 years
from the day of mailing of the original notice of
assessment and there is no dispute that this was
done in the present case. The only issue before the
Court is whether the reassessments for the 1972
and 1973 taxation years are correct or not and
there is not the slightest doubt that they are in
accord with the law. If, but for the previous errors,
plaintiff might have acted otherwise and claimed
certain other deductions which he is now not able
to claim, thereby reducing his tax liability for the
years in question, this is regrettable but cannot
affect the validity of the reassessment. Plaintiffs
only action would be against the Crown in tort if
he could establish that he had suffered damages as
a result of negligence by servants of the Crown,
and I am not suggesting that such an action is
available to him, but am merely holding that he
certainly cannot dispute the validity of the reas
sessments before the Court on the basis that he
allegedly was induced into a course of conduct
causing him a financial loss as the result of the
earlier erroneous assessments.
Plaintiffs action is therefore dismissed, but
under the circumstances of this case, without 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.