T-2937-85
Bechthold Resources Limited (Applicant)
v.
Minister of National Revenue (Respondent)
INDEXED AS: BECHTHOLD RESOURCES LTD. V. CANADA
(M.N.R.)
Trial Division, Addy J.-Vancouver, January 13
and 16, 1986.
Federal Court Jurisdiction - Trial Division - Certiorari
sought to quash income tax assessment, and garnishment
based thereon, on ground Minister of National Revenue lacked
authority to make assessment before end of taxpayer's fiscal
year - Assessment can be challenged only by regular appeal
- Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, ss. 18,
28, 29 - Income Tax Act, S.C. 1970-71-72, c. 63, ss.
152(3),(4) (as am. by S.C. 1984, c. 1, s. 84; c. 45, s. 59), (7),
194(1),(2),(3),(4) (as re-enacted by S.C. 1984, c. 1, s. 95),
195(2),(3),(4),(8) (as re-enacted idem), 222, 224 (as am. by S.C.
1980-81-82-83, c. 48, s. 103; c. 140, s. 121).
Income tax - Scientific research tax credits - Assessment
made before end of taxpayer's fiscal year - When liability to
pay tax arising - Statutory provision tax payable before last
day of month following issuance by corporation of debt obli
gation - Statutory tax liability existing regardless of assess
ment - Notice of assessment valid - Date as of which
interest accruing on amount in default - Income Tax Act,
S.C. 1970-71-72, c. 63, ss. 152(3),(4) (as am. by S.C. 1984, c.
1, s. 84; c. 45, s. 59), (7), 194(1),(2),(3),(4) (as re-enacted by
S.C. 1984, c. 1, s. 95), 195(2),(3),(4),(8) (as re-enacted idem),
222, 224 (as am. by S.C. 1980-81-82-83, c. 48, s. 103; c. 140,
s. 121).
The applicant is a corporation which carries on scientific
research and development in Canada. In January 1985, pursu
ant to subsection 194(4) of the Act (which relates to scientific
research tax credits), it designated amounts totalling thirty
million dollars, being the consideration received on issuance of
securities. The Part VIII tax payable at 50% of the total
amount designated was therefore fifteen million dollars. In
March 1985, an assessment was issued indicating that amount
as Part VIII tax unpaid and due and requesting payment. Two
requirements to pay, claiming the said amount plus interest
from the date the payment had become due and payable, were
addressed to the Canada Trust Company which had been
constituted the trustee of an escrow account. The third require
ment to pay, dated December 15, 1985, purported to attach the
sum of $16,225,479, representing the principal and total
accumulated interest to that date.
The fiscal year of the company ended on January 22, 1986,
and its ordinary tax return was not due to be filed until July 22,
1986.
The applicant argues that since its fiscal year had not ended
at the time the assessment was made, the respondent had no
authority to issue an assessment for taxes due. It therefore
seeks certiorari to quash both the assessment and the subse
quent garnishment.
The fundamental issue is whether, in view of section 29 of
the Federal Court Act, certiorari is available or whether the
applicant should have proceeded by way of appeal.
Held, the application should be dismissed.
In the Parsons case, based on the premise that the Minister
had no legal authority to make the assessments therein, the
Court held that pursuant to section 29 of the Federal Court
Act, the assessments could not be reviewed, restrained or set
aside by the Court under either section 18 or 28 of the Act. A
regular appeal was held to be the only way to attack the
assessment. That is the applicable law herein. In W. T.C. West
ern, a case in all points similar to that at bar and on which the
applicant relies, Collier J. erroneously distinguished the Par
sons case and held that certiorari was available.
However, since they were extensively argued on the merits, it
might be useful to deal with the issues of the validity of the
assessment and garnishment.
The applicant argues that no taxes can be determined as due
and payable and no assessment made until a tax return has
been filed after the end of its fiscal year. However, the obliga
tion to pay a 50% tax before the last day of the month following
the issuance, by a qualified corporation, of a share or debt
obligation is clearly stated in subsection 195(2) of the Income
Tax Act. And the interest charged in case of late payment,
provided for in subsection 195(3), pertains not only to the tax
ultimately calculated at the end of the fiscal year, but to the
amounts of tax payable pursuant to subsection 195(2).
Furthermore, it has long been established that liability to pay
tax is created by statute and exists regardless of any assess
ment. The respondent was therefore fully entitled, as of Febru-
ary 28, 1985, to take whatever legal steps were available to
ensure payment, including garnishment.
As for the Notice of Assessment itself, it is clearly valid
pursuant to section 152, which allows the Minister to assess at
any time and is made applicable, mutatis mutandis, to Part
VIII by subsection 195(8). And by its designation of thirty
million dollars, the applicant admitted liability in respect there
of and the Minister might well have been entitled to assess the
applicant as he did following receipt of the designation.
CASES JUDICIALLY CONSIDERED
FOLLOWED:
Minister of National Revenue v. Parsons, [1984] 2 F.C.
331; 84 DTC 6345 (C.A.), reversing [1984] 1 F.C. 804;
83 DTC 5329 (T.D.).
NOT FOLLOWED:
W.T.C. Western Technologies Corp. v. M.N.R., [1986] 1
C.T.C. 110; 86 DTC 6027 (T.D.).
APPLIED:
R. v. Simard-Beaudry Inc., [1971] F.C. 396; 71 DTC
5511 (T.D.); Lambert v. The Queen, [1977] 1 F.C. 199;
76 DTC 6373 (C.A.); R. v. Cyrus J. Moulton Ltd.,
[1977] 1 F.C. 341; 76 DTC 6239 (T.D.); Abrahams,
Coleman C. v. Minister of National Revenue (No. 2),
[1967] 1 Ex.C.R. 333; 66 DTC 5451.
COUNSEL:
Kenneth J. Anderson and William J. Baillie
for applicant.
J. A. Van Iperen, Q.C. for respondent.
SOLICITORS:
Anderson, Baillie & Company, Vancouver,
for applicant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for order ren
dered in English by
ADDY J.: The present application is for certio-
rari relief pursuant to section 18 of the Federal
Court Act [R.S.C. 1970 (2nd Supp.), c. 10] to
quash an assessment of the applicant for income
tax purposes made by Notice of Assessment dated
March 26, 1985 and also to quash a subsequent
decision by the respondent to effect a garnishment
by means of a "Requirement to Pay" pursuant to
section 224 of the Income Tax Act [R.S.C. 1952,
c. 148 (as am. by S.C. 1970-71-72, c. 63, s. 1;
1980-81-82-83, c. 48, s. 103; c. 140, s. 121)],
addressed to the Canada Trust Company.
The facts, which are undisputed, are as follows.
The applicant was, at all relevant times, and is
presently carrying on the business of scientific
research and development in Canada. On January
17, 1985 pursuant to subsection 194(4) of the
Income Tax Act [as re-enacted by S.C. 1984, c. 1,
s. 95] regarding scientific research tax credits, it
designated amounts totalling thirty million dollars,
being the consideration received by it on the issu
ance of certain of its securities on that date. The
designation was made on Revenue Canada Form
21113 and showed fifteen million dollars as Part
VIII tax payable at 50 % of the total amount
designated. The Canada Trust Company was con
stituted the trustee of an escrow account held
pursuant to an agreement of the same date. An
assessment of the applicant was subsequently
issued by the respondent on March 26, 1985
indicating a corresponding amount of fifteen mil
lion dollars as Part VIII tax being unpaid and due
and requesting payment of same. No payment was
made and on July 16, 1985, a requirement to pay
was addressed to the Canada Trust Company
claiming an amount of $15,592,602, which repre
sented the $15,000,000 plus, presumably, the
accumulated interest thereon from the date when
the payment was claimed by the respondent to
have been due and payable. A further requirement
to pay was delivered in September and a third one
on December 15, 1985 purporting to attach the
sum of $16,225,479, representing the principal and
total accumulated interest to that date.
The fiscal year of the company will only end on
January 22, 1986. The Notice of Assessment
issued in March was therefore given two months
after the commencement of the current fiscal year.
The ordinary tax returns would not be due to be
filed in respect of the company's current year until
July 22, 1986.
Since, at the time the assessment was made, the
fiscal year of the applicant had not ended it was
argued that the respondent had no authority nor
jurisdiction to issue an assessment for taxes due
and that, as a result, the assessment was a com
plete nullity and the requirement to pay addressed
to the trust company which was based on the
assessment was also a nullity and subject to being
quashed.
The fundamental question of whether certiorari
is available in the present case pursuant to section
18 of the Federal Court Act depends on the inter
pretation of section 29 of the Act which reads as
follows:
29. Notwithstanding sections 18 and 28, where provision is
expressly made by an Act of the Parliament of Canada for an
appeal as such to the Court, to the Supreme Court, to the
Governor in Council or to the Treasury Board from a decision
or order of a federal board, commission or other tribunal made
by or in the course of proceedings before that board, commis
sion 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 to
the extent and in the manner provided for in that Act. (Empha-
sis added.)
The applicant relies on a recent decision of the
Trial Division of this Court dated December 18,
1985, namely, W. T.C. Western Technologies
Corp. v. M.N.R., [ 1986] 1 C.T.C. 110; 86 DTC
6027, where it was held that certiorari was avail
able to the applicant, and the assessment and
requirement to pay were quashed.
Counsel for both parties agreed that no logical
distinction on the facts could be drawn between
the W. T.C. Western case and the case at bar. The
issue, however, has not been finally determined as
the case is presently being appealed. I am also
informed that at least four relevant cases on which
the respondent presently relies were not brought to
the attention of the judge at the hearing.
My colleague, Mr. Justice Collier, in the W. T.C.
Western case stated at page 3 of his reasons [pages
111-112 C.T.C.; 6028 DTC]:
I make this comment. The notice of assessment is purported
ly based on subsection 195(2). That subsection does not impose
a tax, or a tax liability. It merely imposes a duty on the
taxpayer to make interim payments of "amounts" on account
of tax payable.
The applicant's position is that while there may be an
ultimate liability to pay tax of $12,437,500, or less, the Minis
ter cannot assess the taxes owing until the return, earlier
referred to, is filed: Applying subsection 152(1), the Minister is
required to examine a return and then assess the tax for the
year.
The applicant says the Minister here, in his decision to assess
before the end of the taxpayer's fiscal period, and before any
return was required to be filed, was made without statutory
authority; the Minister therefore exceeded his jurisdiction;
certiorari is the appropriate remedy.
I agree with that contention.
He then went on to distinguish the decision of
the Federal Court of Appeal in Minister of Na
tional Revenue v. Parsons, [1984] 2 F.C. 331; 84
DTC 6345, which reversed a decision of the Hon
ourable Mr. Justice Cattanach reported in [1984]
1 F.C. 804; 83 DTC 5329, on the grounds that a
question of jurisdiction was not involved in the
Parsons case but rather the simple question of
whether the assessment was a proper one at law.
With all due respect, I am not at all satisfied
that the distinction can be drawn. Mr. Justice
Cattanach in the Parsons case stated at page 811
F.C.; 5331 of the above mentioned DTC report:
The basic contention advanced by counsel on behalf of the
applicants is that the assessments called into question are not
authorized by law and as such are illegal and void. (Emphasis
added.)
and further at pages 814 and 815 F.C.; 5332 and
5333 DTC:
An error in law which goes to jurisdiction is alleged in which
even certiorari is the appropriate remedy and, in my view, that
remedy is available despite the appeal process provided against
quantum and liability therefor which is the purpose of the
assessment process. That is an appeal provided from a matter
far different from the lack of authority in law to make the
assessment.
For that reason section 29 of the Federal Court Act, in my
view, does not constitute a bar to the certiorari and injunctive
proceedings taken by the applicants. (Emphasis added.)
Mr. Justice Pratte, in delivering judgment on
behalf of the Court of Appeal in the Parsons case,
when it reversed the above mentioned decision of
the Trial Division stated [at pages 332-333 F.C.;
6346 DTC]:
The learned Judge of first instance held that, in this case,
section 29 did not deprive the Trial Division of the jurisdiction
to grant the applicant made by the respondents under section
18 of the Federal Court Act because, in his view, the appeal
provided for in the Income Tax Act was restricted to questions
of "quantum and liability" while the respondents' application
raised the more fundamental question of the Minister's legal
authority to make the assessments. We cannot agree with that
distinction. The right of appeal given by the Income Tax Act is
not subject to any such limitations.
In our view, the Income Tax Act expressly provides for an
appeal as such to the Federal Court from assessments made by
the Minister; it follows, according to section 29 of the Federal
Court Act, that those assessments may not be reviewed,
restrained or set aside by the Court in the exercise of its
jurisdiction under sections 18 and 28 of the Federal Court Act.
(Emphasis added.)
It seems to me that where there is no legal
authority to perform either an administrative or
judicial act, then there is no jurisdiction to do so.
A lack of authority to make an assessment neces
sarily involves a lack of jurisdiction to do so. Yet
the Court of Appeal, based on the premise that the
Minister had no legal authority to make assess
ment held that, because of section 29 of the Feder
al Court Act, the assessments in the Parsons case
could not be reviewed, restrained or set aside by
the Court under either section 18 or 28 of the Act.
Based on the law as stated by the Court of
Appeal in the Parsons case, I would therefore be
prepared to find that the assessment made by the
Minister of National Revenue can only be
reviewed and set aside by way of a regular appeal,
either to this Court or to the Tax Court following
confirmation of the assessment after the filing of a
Notice of Objection or, with the consent of the
Minister, directly to this Court by way of appeal
without the formality of a Notice of Objection.
However, since the validity of the assessment
and of the garnishment by means of a notice
entitled "Requirement to Pay" issued to the
Canada Trust was extensively argued by both
parties on the merits, some useful purpose might
well be served by dealing with the arguments
raised.
Counsel for the applicant submits that, until a
tax return has been filed in a regular manner after
the end of the fiscal year of the applicant, that is,
sometime before July 22, 1986, no taxes can be
determined as due and payable and any assessment
for same is premature and without jurisdiction. He
argues further that there is nothing in Part VIII of
the Act which requires interest to be paid other
than on tax payable and determined at the end of
the fiscal period.
For reasons which will be apparent later, I shall
leave aside for the moment the question of the
validity of the assessment to deal with the question
of the liability to pay tax and the validity of the
requirement to pay.
Part VIII is obviously a special part of the Act,
passed with the very laudable object of providing
for a refundable tax on corporations in respect of
scientific research tax credits. Subsection 194(1)
[as re-enacted by S.C. 1984, c. 1, s. 95] provides
for tax at 50 % of all designated amounts. It reads:
194. (1) Every corporation shall pay a tax under this Part for
a taxation year equal to 50% of the aggregate of all amounts
each of which is an amount designated under subsection (4) in
respect of a share or debt obligation issued by it in the year or a
right granted by it in the year.
Subsection 194(2) [as re-enacted idem] defines
the nature of a refund provided for in the section
and, in my view, can only relate to a refund of tax
paid. Subsection 194(3) [as re-enacted idem]
defines the expression "refundable Part VIII tax
on hand". Subsection 194(4) deals with the desig
nated amounts mentioned in subsection 194(1). It
reads as follows:
194....
(4) Every taxable Canadian corporation may, by filing a
prescribed form with the Minister at any time on or before the
last day of the month immediately following a month in which
it issued a share or debt obligation or granted a right under a
scientific research financing contract (other than a share or
debt obligation issued or a right granted before October 1983,
or a share in respect of which the corporation has, on or before
that day, designated an amount under subsection 192(4)),
designate, for the purposes of this Part and Part I, an amount
in respect of that share, debt obligation or right not exceeding
the amount by which
(a) the amount of the consideration for which it was issued
or granted, as the case may be,
exceeds
(b) in the case of a share, the amount of any assistance
(other than an amount included in computing the scientific
research tax credit of a taxpayer in respect of that share)
provided, or to be provided by a government, municipality or
any other public authority in respect of, or for the acquisition
of, that share.
Subsection 195(2) [as re-enacted idem] obliges
any qualified corporation issuing any share or debt
obligation to pay before the last day of the follow
ing month an amount equal to 50% of the desig
nated amounts. That subsection reads:
195....
(2) Where, in a particular month in a taxation year, a
corporation issues a share or debt obligation, or grants a right,
in respect of which it designates an amount under section 194,
the corporation shall, on or before the last day of the month
following the particular month, pay to the Receiver General on
account of its tax payable under this Part for the year an
amount equal to 50% of the aggregate of all amounts so
designated.
The words "shall ... pay" obviously create a strict
obligation to pay. An amount "on account of its
tax" must mean a part of the tax. In other words it
must relate to a payment on account of the total
tax ultimately determined to be payable. Subsec
tion 195(3) [as re-enacted idem] provides for pay
ment of interest. It stipulates:
195... .
(3) Where a corporation is liable to pay tax under this Part
and has failed to pay all or any part or instalment thereof on or
before the day on or before which it was required to pay the
tax, it shall, on payment of the amount in default, pay interest
thereon at the prescribed rate for the period beginning on the
day following the day on or before which it was required to
make the payment and ending on the day of payment. (Empha-
sis added.)
The interest mentioned in the above subsection,
in my view, pertains not only to the tax ultimately
calculated at the end of the fiscal year but to the
amounts of tax payable pursuant to subsection
195(2). In other words, 195(2) and 195(3) must be
read together. This becomes clear in reading the
following subsection 195(4) [as re-enacted idem]:
195....
(4) For the purposes of computing interest payable by a
corporation under subsection (3) for any month or months in
the 14 month period ending 2 months after the end of a
taxation year in which period the corporation has designated an
amount under section 194 in respect of a share or debt obliga
tion issued, or right granted, by it in a particular month in the
year, the corporation shall be deemed to have been liable to
pay, on or before the last day of the month immediately
following the particular month, a part or an instalment of tax
for the year equal to that proportion of the amount, if any, by
which its tax payable under this Part for the year exceeds its
Part VIII refund for the year that ....
Liability to pay tax or to pay any amount on
account of tax does not depend on any Notice of
Assessment. It has long been firmly established
that liability is created by statute and exists
regardless of whether there has been an assessment
by the Minister. The leading and oft quoted deci-
sion on that issue is that of former Associate Chief
Justice Noël in the case of R. v. Simard-Beaudry
Inc., [1971] F.C. 396; 71 DTC 5511 (T.D.),
wherein he states at page 403 F.C.; 5515 DTC:
As to his second argument, namely that the debt arising from
re-assessment of the taxpayer dates only from the time that the
taxpayer is assessed, and that it did not, accordingly, exist at
the time the agreement was made, it seems to me that the
answer to this is that the general scheme of the Income Tax
Act indicates that the taxpayer's debt is created by his taxable
income, not by an assessment or re-assessment. In fact, the
taxpayer's liability results from the Act and not from the
assessment. In principle, the debt comes into existence the
moment the income is earned, and even if the assessment is
made one or more years after the taxable income is earned, the
debt is supposed to originate at that point.
The principle was upheld by our Court of
Appeal in Lambert v. The Queen, [1977] 1 F.C.
199; 76 DTC 6373. It was also stated, at least
incidentally, by Collier J. in the case of R. v.
Cyrus J. Moulton Ltd., [1977] 1 F.C. 341; 76
DTC 6239 (T.D.) wherein he stated at page 352
F.C.; 6244 DTC:
A judgment against a defaulting taxpayer can be entered in
the Federal Court before assessment, appeal and hearing.
(Emphasis added.)
The same reasoning must be taken to have
governed the earlier Exchequer Court decision of
Jackett P., as he then was, in the case of
Abrahams, Coleman C. v. Minister of National
Revenue (No. 2), [1967] 1 Ex.C.R. 333; 66 DTC
5451.
Finally, subsection 152(3), which is incorpo
rated into Part VIII by subsection 195(8) [as
re-enacted idem], states that liability is not affect
ed by the fact that no assessment has been made.
Since an indebtedness of fifteen million dollars
arose on January 17, 1985 when the designation
was signed and delivered by the applicant and
since payment of that sum was required to be
made pursuant to subsection 195(2) on February
28, 1985, the respondent was fully entitled, follow
ing that last mentioned date, to take whatever
legal steps were available to ensure payment. Sec
tion 222 of the Act provides as follows:
222. All taxes, interest, penalties, costs and other amounts
payable under this Act are debts due to Her Majesty and
recoverable as such in the Federal Court of Canada or any
other court of competent jurisdiction or in any other manner
provided by this Act.
It is to be noted that not only taxes but "other
amounts payable under the Act are debts due her
Majesty". It therefore is not really important
whether the fifteen million dollars is to be con
sidered as taxes or not, although I would find that
it was. Authority for garnishment is found in
subsection 224(1):
224. (1) Where the Minister has knowledge or suspects that
person is or will be, within 90 days, liable to make a payment to
another person who is liable to make payment under this Act
(in this section referred to as the "tax debtor"), he may, by
registered letter or by a letter served personally, require that
person to pay forthwith, where the moneys are immediately
payable, and, in any other case, as and when the moneys
become payable, the moneys otherwise payable to the tax
debtor in whole or in part to the Receiver General on account
of the tax debtor's liability under this Act.
The amount is clearly recoverable under that
subsection since the applicant was a person liable
to make a payment of fifteen million dollars under
the Act and since the liability includes interest, I
would find that the three requirements to pay
addressed to the trust company were authorized by
law.
Turning now to the Notice of Assessment itself,
subsection 195(8) provides:
195... .
(8) Sections 151, 152, 158, 159 and 162 to 167 and Division
J of Part I are applicable to this Part, with such modifications
as the circumstances require.
Subsections (4) [as am. by S.C. 1984, c. 1, s. 84;
c. 45, s. 59] and (7) of section 152 allow the
Minister to assess at any time. It is true that such
an assessment is to be made normally after an
income tax return has been filed or should have
been filed. However, subsection (7) does mention
"information supplied by taxpayer" and subsection
195(8) does specifically provide that section 152 is
to be applied to Part VIII with such modifications
as the circumstances require. By its designation of
thirty million dollars, showing fifteen million dol
lars as tax payable under Part VIII, the applicant
admitted liability for that amount and the Minis
ter might well have been entitled to assess the
applicant as he did following receipt of the
designation.
As indicated in the style of cause, the applicant
originally intended to rely on certain sections of
the Constitution Act, 1982 [Schedule B, Canada
Act 1982, 1982, c. 11 (U.K.)]. At the opening of
the hearing before me, however, he indicated that
the provisions of that Act would neither be invoked
nor argued.
The application is dismissed with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.