Tossell v. Canada

Tossell v. Canada Court (s) Database Federal Court of Appeal Decisions Date 2005-07-27 Neutral citation 2005 FCA 263 File numbers A-527-03 Decision Content Date: 20050727 Docket: A-527-03 Citation: 2005 FCA 263 CORAM: DESJARDINS J.A. ROTHSTEIN J.A. SHARLOW J.A. BETWEEN: PATRICIA TOSSELL Appellant and HER MAJESTY THE QUEEN Respondent and LARRY PETERSON Respondent Heard at Toronto, Ontario, on May 10, 2005. Reasons for judgment delivered at Ottawa, Ontario, on June 17, 2005. Judgment and supplementary reasons delivered at Ottawa on July 27, 2005 REASONS FOR JUDGMENT BY: SHARLOW J.A. CONCURRED IN BY: DESJARDINS J.A. ROTHSTEIN J.A. Date: 20050727 Docket: A-527-03 Citation: 2005 FCA 263 CORAM: DESJARDINS J.A. ROTHSTEIN J.A. SHARLOW J.A. BETWEEN: PATRICIA TOSSELL Appellant and HER MAJESTY THE QUEEN Respondent and LARRY PETERSON Respondent SUPPLEMENTARY REASONS FOR JUDGMENT SHARLOW J.A. [1] A question has arisen as to whether this Court has the jurisdiction to reverse a judgment of the Tax Court of Canada for which no notice of appeal has been filed in this Court. I have concluded, for the reasons that follow, that in the highly unusual circumstances of this case, the answer is yes. [2] In 1995 and 1996, the respondent Mr. Larry Peterson paid the appellant Ms. Patricia Tossell child support totalling $24,000, in periodic payments of $2,000 per month. He did the same in 1996. He also paid her a lump sum of $36,000 in 1996 pursuant to the settlement of litigation in the Ontario court. [3] Mr. Peterson claimed deductions for all of these payments under paragraph 60(b) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), but Ms. Tossell did not include those payments in her income under paragraph 56(1)(b). Paragraphs 56(1)(b) and 60(b) mirror each other, so that if Ms. Tossell was correct, Mr. Peterson could not be correct, and vice versa. [4] The Minister, apparently being uncertain as to the correct tax treatment of the payments, reassessed Ms. Tossell on the basis that they were all taxable, but disallowed all of the deductions claimed by Mr. Peterson. The Minister must have known from the outset that one set of reassessments was necessarily incorrect. However, it is not uncommon for the Minister to issue mutually inconsistent reassessments in order to protect the fisc in the case of a dispute about the tax consequences of a particular transaction. (See, for example, Continental Bank of Canada v. Canada, [1998] 2 S.C.R. 358.) That is done because a taxpayer has the right to challenge the correctness of any reassessment in the Tax Court of Canada, while the Minister has no such right. (The taxpayer or the Minister may appeal from the Tax Court to this Court.) [5] Ms. Tossell and Mr. Peterson objected separately to their respective reassessments, and then appealed to the Tax Court of Canada pursuant to subsection 169(1) of the Income Tax Act, which reads as follows: 169. (1) Where a taxpayer has served notice of objection to an assessment under section 165, the taxpayer may appeal to the Tax Court of Canada to have the assessment vacated or varied after either 169. (1) Lorsqu'un contribuable a signifié un avis d'opposition à une cotisation, prévu à l'article 165, il peut interjeter appel auprès de la Cour canadienne de l'impôt pour faire annuler ou modifier la cotisation: (a) the Minister has confirmed the assessment or reassessed, or a) après que le ministre a ratifié la cotisation ou procédé à une nouvelle cotisation; (b) 90 days have elapsed after service of the notice of objection and the Minister has not notified the taxpayer that the Minister has vacated or confirmed the assessment or reassessed, b) après l'expiration des 90 jours qui suivent la signification de l'avis d'opposition sans que le ministre ait notifié au contribuable le fait qu'il a annulé ou ratifié la cotisation ou procédé à une nouvelle cotisation; but no appeal under this section may be instituted after the expiration of 90 days from the day notice has been mailed to the taxpayer under section 165 that the Minister has confirmed the assessment or reassessed. toutefois, nul appel prévu au présent article ne peut être interjeté après l'expiration des 90 jours qui suivent la date où avis a été expédié par la poste au contribuable, en vertu de l'article 165, portant que le ministre a ratifié la cotisation ou procédé à une nouvelle cotisation. [6] Ms. Tossell's appeals were commenced under the informal procedure of the Tax Court of Canada. Mr. Peterson's appeal was commenced under the general procedure. [7] Ms. Tossell's appeals were scheduled for hearing first. However, because of the common issues, the Minister made an application for the determination of a question under subsection 174(1) of the Income Tax Act, and at the same time applied to join the appeals under paragraph 174(3)(b). Those provisions read as follows: 174. (1) Where the Minister is of the opinion that a question of law, fact or mixed law and fact arising out of one and the same transaction or occurrence or series of transactions or occurrences is common to assessments or proposed assessments in respect of two or more taxpayers, the Minister may apply to the Tax Court of Canada for a determination of the question. 174. (1) Lorsque le ministre est d'avis qu'une même opération ou un même événement ou qu'une même série d'opérations ou d'événements a donné naissance à une question de droit, de fait ou de droit et de fait qui se rapporte à des cotisations, réelles ou projetées, relatives à plusieurs contribuables, il peut demander à la Cour canadienne de l'impôt de se prononcer sur la question. [...] [...] 174. (3) Where the Tax Court of Canada is satisfied that a determination of the question set out in an application under this section will affect assessments or proposed assessments in respect of two or more taxpayers who have been served with a copy of the application and who are named in an order of the Tax Court of Canada pursuant to this subsection, it may [...] 174. (3) Lorsque la Cour canadienne de l'impôt est convaincue que la décision rendue concernant la question exposée dans une demande présentée en vertu du présent article influera sur des cotisations ou des cotisations éventuelles intéressant plusieurs contribuables à qui une copie de la demande a été signifiée et qui sont nommés dans une ordonnance de la Cour canadienne de l'impôt conformément au présent paragraphe, elle peut : [...] (b) if one or more of the taxpayers so named has or have appealed, make such order joining a party or parties to that or those appeals as it considers appropriate and proceed to determine the question. b) si un ou plusieurs des contribuables ainsi nommés se sont pourvus en appel, rendre une ordonnance groupant dans cet ou ces appels les parties appelantes comme elle le juge à propos et entreprendre de statuer sur la question. [8] The questions the Minister proposed to put to the Tax Court would require a determination as to whether paragraph 56(1)(b) and paragraph 60(b) of the Income Tax Act applied to the child support payments referred to above. The Minister's applications were heard on March 13, 2002, and granted by an order of the Tax Court dated March 26, 2002. [9] When the Minister's section 174 application was made, the only issues in Ms. Tossell's appeal related to the child support payments. Mr. Peterson's appeal raised additional issues, some relating to the 1997 taxation year, which were not in issue in Ms. Tossell's case. In March of 2002, when the Minister's section 174 application was heard, it was contemplated that after the child support payment issues were determined, Mr. Peterson's appeal would continue with respect to his additional issues. [10] However, by the time the matter came to a hearing in the Tax Court in September of 2003, Mr. Peterson's additional issues had been settled. Therefore, the only issues in the Tax Court related to the correct tax treatment of the child support payments. The Judge was required only to answer the questions posed by the Minister under subsection 174(1) in respect of the periodic child support payments totalling $24,000 in each of 1995 and 1996, and the lump sum payment of $36,000 in 1996. [11] The Judge concluded that paragraphs 56(1)(b ) and 60(b) of the Income Tax Act applied to all of the payments. He answered the questions accordingly in his reasons, which are reported as Peterson v. Canada, 2003 D.T.C. 1347, [2004] 1 C.T.C. 2858, 48 R.F.L. (5th) 333 (T.C.C.). [12] The Judge could have issued a formal order or a judgment setting out his answers to the section 174 questions, leaving the final disposition of the appeals of Ms. Tossell and Mr. Peterson to await further developments, such as a motion for judgment. If he had done that, his section 174 determinations could have been appealed to this Court by the Minister, Ms. Tossell, or Mr. Peterson under subsection 174(4.1) of the Income Tax Act. Subsection 174(4.1) of the Income Tax Act reads as follows: 174. (4.1) Where a question set out in an application under this section is determined by the Tax Court of Canada, the Minister or any of the taxpayers who have been served with a copy of the application and who are named in an order of the Court pursuant to subsection 174(3) may, in accordance with the provisions of this Act, the Tax Court of Canada Act or the Federal Courts Act, as they relate to appeals from decisions of the Tax Court of Canada, appeal from the determination. 174. (4.1) Lorsque la Cour canadienne de l'impôt statue sur une question exposée dans une demande dont elle a été saisie en vertu du présent article, le ministre ou l'un des contribuables à qui une copie de la demande a été signifiée et qui est nommé, conformément au paragraphe (3), dans une ordonnance de la cour peut, conformément aux dispositions de la présente loi, de la Loi sur la Cour canadienne de l'impôt ou de la Loi sur les Cours fédérales applicables aux appels de décisions de la Cour canadienne de l'impôt, interjeter appel de la décision. [13] However, the Judge noted that his section 174 determinations answered all of the issues then outstanding in the appeals of Ms. Tossell and Mr. Peterson. So, rather than simply issuing an order or judgment setting out those determinations, the Judge explained his section 174 determinations in his reasons for judgment, and at the same time issued a judgment dismissing the appeals of Ms. Tossell, and a separate judgment allowing the appeal of Mr. Peterson. No party has challenged the correctness of the procedure adopted by the Judge. [14] The record does not explain why there were separate judgments for Ms. Tossell and Mr. Peterson instead of one judgment naming both of them. I assume it is a matter of convenience that the practice in the Tax Court requires a separate form of judgment for each appellant. I am aware of no substantive reason why both judgments could not have been included in a single document. [15] The Tax Court judgment relating to Ms. Tossell required no action on the part of the Minister, because the reassessments including all of the child support payments in her income were held to be correct. The Tax Court judgment relating to Mr. Peterson required the Minister to reassess Mr. Peterson for 1995 and 1996 to allow him deductions for all of the child support payments in issue. [16] Ms. Tossell filed a notice of appeal in this Court to challenge the Tax Court judgment that dismissed her appeals for 1995 and 1996. There were several grounds of appeal, including an assertion that the Judge's answers to the section 174 questions were incorrect. [17] The Minister did not appeal the Tax Court judgment that allowed Mr. Peterson's appeal. Rather, the Minister attempted in this Court to have Ms. Tossell's appeal quashed on the basis that she had appealed only the judgment dismissing her appeal from the reassessments, without first appealing the Judge's determination of the section 174 questions. The Minister's argument, as I understand it, is that the Judge's section 174 determinations could not be challenged in an appeal against a reassessment, but only in a separate appeal under subsection 174(4.1). That argument was based on subsection 174(4) of the Income Tax Act, which reads as follows: 174. (4) Subject to subsection 174(4.1), where a question set out in an application under this section is determined by the Tax Court of Canada, the determination thereof is final and conclusive for the purposes of any assessments of tax payable by the taxpayers named by it pursuant to subsection 174(3). 174. (4) Sous réserve du paragraphe (4.1), lorsque la Cour canadienne de l'impôt statue sur une question exposée dans une demande dont elle a été saisie en vertu du présent article, la décision rendue est finale et sans appel pour l'établissement de toute cotisation concernant l'impôt payable par les contribuables nommés dans la décision, en vertu du paragraphe (3). [18] The Minister's motion to quash Ms. Tossell's appeal was dismissed by a Motions Judge of this Court, for reasons that are explained at paragraph 9 of his reasons (Peterson v. Canada, 2004 FCA 30, [2004] 2 C.T.C. 223, 2004 D.T.C. 6074): [9] I am mystified by the suggestion that the appeal [of Ms. Tossell] does not appeal the section 174 determination. The appeal is stated to be from a Tax Court judgment of October 8, 2003 bearing the docket numbers of Tossell's dismissed appeals. It is clear from the content of, and reasons for, that judgment, that it includes a section 174 determination and I have little doubt that counsel for the Respondent [the Minister] understands to what it refers. Tossell is also of the view, as I understand it, that there were other issues in her appeals which should not have been disposed of in what was supposed to be a proceeding confined to the four questions. She says there was further evidence she wished to submit on these other issues. From the record I believe this aspect of her appeal should proceed as well. [19] In my view, the Motions Judge was correct to dismiss the Minister's motion to quash Ms. Tossell's appeal. Where a section 174 determination and the disposition of an income tax appeal are embodied in a single Tax Court judgment, the taxpayer's right under subsection 174(4.1) to appeal the section 174 determination exists with the right under subsection 169(1) to appeal the disposition of the income tax appeal. The Motions Judge recognized that Ms. Tossell exercised both rights in a timely fashion in the same notice of appeal. [20] The situation might be different if the Judge had made a section 174 determination without issuing a judgment in respect of a particular income tax appeal. In that case, if the section 174 determination had not been appealed to this Court under subsection 174(4.1) by any of the taxpayers named in respect of the section 174 determination, or by the Minister, all of those parties would be precluded from later attempting to raise the same issues in any income tax appeal to which the section 174 determination relates. Such a bar to future challenges could be justified either by subsection 174(4) (quoted above), or the doctrine of res judicata. [21] In this case, the Minister's notice of motion also sought, in the alternative, an order adding Mr. Peterson as a party to Ms. Tossell's appeal, as had been done in Stern v. Canada, [1984] C.T.C. 647, 85 D.T.C. 5002 (F.C.T.D.). The Motions Judge allowed that alternative motion. He explains why in paragraph 10 of his reasons: [10] I believe that the appeal should be allowed to proceed but subject to ensuring that all interested parties are represented. If the appellant were to succeed in establishing, for example, that the payments were not taxable in her hands this would mean that in principle they were taxable in her ex-husband's hands, but presumably that could not bind Peterson unless he is a party. The Respondent would therefore be prejudiced by what would be only a partial appeal of the decision based on the joint Tax Court Reasons of October 8, 2003. [22] Thus, the reason for adding Mr. Peterson as a party to Ms. Tossell's appeal was to bind him to the result of her appeal of the section 174 determinations, to which he had been a party in the Tax Court. [23] Both the Minister and Mr. Peterson participated in the appeal. Ms. Tossell argued that the section 174 determinations were incorrect, and the Minister and Mr. Peterson argued that they were correct. The result was a decision by this Court that the section 174 determinations were partly correct and partly incorrect. This Court held that paragraph 56(1)(b) and paragraph 60(b) of the Income Tax Act applied to the periodic payments totalling $24,000 made in each of 1995 and 1996, but not to the $36,000 lump sum payment made in 1996. The reasons for that decision were issued on June 17, 2005 (Peterson v. Canada, 2005 FCA 223). [24] Issuance of the formal judgment was deferred to give the Minister and Mr. Peterson an opportunity to make submissions on whether an order should be made affecting Mr. Peterson. Those submissions have now been received and considered. [25] The jurisdiction of this Court in appeals from judgments of the Tax Court of Canada is found, for general procedure matters, in subsection 27(1.1) of the Federal Courts Act, and for informal procedure matters in subsection 27(1.2). (Informal procedure matters are referred to in the Federal Courts Act as those "in respect of which section 18, 18.29, 18.3 or 18.3001 of the Tax Court of Canada Act apply".) The relevant portions of section 27 read as follows (my emphasis): 27. (1.1) An appeal lies to the Federal Court of Appeal from 27. (1.1) Sauf s'il s'agit d'une décision portant sur un appel visé aux articles 18, 18.29, 18.3 ou 18.3001 de la Loi sur la Cour canadienne de l'impôt, il peut être interjeté appel, devant la Cour d'appel fédérale, des décisions suivantes de la Cour canadienne de l'impôt : (a) a final judgment of the Tax Court of Canada, other than one in respect of which section 18, 18.29, 18.3 or 18.3001 of the Tax Court of Canada Act applies; a) jugement définitif; (b) a judgment of the Tax Court of Canada, other than one in respect of which section 18, 18.29, 18.3 or 18.3001 of the Tax Court of Canada Act applies, on a question of law determined before trial; or b) jugement sur une question de droit rendu avant l'instruction; (c) an interlocutory judgment or order of the Tax Court of Canada, other than one in respect of which section 18, 18.29, 18.3 or 18.3001 of the Tax Court of Canada Act applies. c) jugement ou ordonnance interlocutoire. (1.2) An appeal lies to the Federal Court of Appeal from a final judgment of the Tax Court of Canada in respect of which section 18, 18.29, 18.3 or 18.3001 of the Tax Court of Canada Act applies. (1.2) Il peut être interjeté appel, devant la Cour d'appel fédérale, d'un jugement définitif de la Cour canadienne de l'impôt portant sur un appel visé aux articles 18, 18.29, 18.3 ou 18.3001 de la Loi sur la Cour canadienne de l'impôt. [...] [...] (2) An appeal under this section shall be brought by filing a notice of appeal in the Registry of the Federal Court of Appeal (2) L'appel interjeté dans le cadre du présent article est formé par le dépôt d'un avis au greffe de la Cour d'appel fédérale, dans le délai imparti à compter du prononcé du jugement en cause ou dans le délai supplémentaire qu'un juge de la Cour d'appel fédérale peut, soit avant soit après l'expiration de celui-ci, accorder. Le délai imparti est de : (a) in the case of an interlocutory judgment, within 10 days after the pronouncement of the judgment or within any further time that a judge of the Federal Court of Appeal may fix or allow before or after the end of those 10 days; and a) dix jours, dans le cas d'un jugement interlocutoire; (b) in any other case, within 30 days, not including any days in July and August, after the pronouncement of the judgment or determination appealed from or within any further time that a judge of the Federal Court of Appeal may fix or allow before or after the end of those 30 days. b) trente jours, compte non tenu de juillet et août, dans le cas des autres jugements. (3) All parties directly affected by an appeal under this section shall be served without delay with a true copy of the notice of appeal, and evidence of the service shall be filed in the Registry of the Federal Court of Appeal. (3) L'appel est signifié sans délai à toutes les parties directement concernées par une copie certifiée conforme de l'avis. La preuve de la signification doit être déposée au greffe de la Cour d'appel fédérale. (4) For the purposes of this section, a final judgment includes a judgment that determines a substantive right except as to any question to be determined by a referee pursuant to the judgment. (4) Pour l'application du présent article, est assimilé au jugement définitif le jugement qui statue au fond sur un droit, à l'exception des questions renvoyées à l'arbitrage par le jugement. [26] As I read section 27 of the Federal Courts Act, it gives this Court the jurisdiction to entertain an appeal from any judgment or any determination of the Tax Court, if a notice of appeal has first been filed in respect of that judgment or that determination. [27] The only Tax Court judgment now before this Court is the judgment that formally dismissed the appeals of Ms. Tossell from her reassessments for 1995 and 1996. However, as explained above, the Motions Judge held that Ms. Tossell's appeal included both an appeal under subsection 169(1) of the Income Tax Act, and an appeal under subsection 174(4.1) of the Income Tax Act. The simultaneous exercise of both rights of appeal were possible because Ms. Tossell's Tax Court judgment embodied both the section 174 determinations and the disposition of her appeals from the 1995 and 1996 reassessments. It follows, in my view, that this Court has the jurisdiction under section 27 of the Federal Courts Act to entertain an appeal of the section 174 determinations, as well as an appeal of the disposition of Ms. Tossell's appeal of her 1995 and 1996 reassessments. [28] Mr. Peterson's Tax Court judgment, like that of Ms. Tossell's, embodied both the section 174 determinations and the disposition of Mr. Peterson's appeal from the 1995 and 1996 reassessments. Mr. Peterson was added as a party to Ms. Tossell's appeal in order to bind him to this Court's conclusions with respect to the section 174 determinations. It seems to me that the jurisdiction of this Court in respect of the section 174 determinations must be the same for Mr. Peterson as for Ms. Tossell, even though in a formal sense it is grounded only in the notice of appeal filed by Ms. Tossell, because that notice of appeal was, among other things, the exercise of the statutory right to appeal the section 174 determinations. [29] Does it follow that this Court has the jurisdiction to deal with the substantive result of the section 174 determinations as they affect Mr. Peterson, even though the Minister could have appealed Mr. Peterson's Tax Court judgment under section 27 of the Federal Court Act, but did not do so? In my view, the answer is yes. I reach that conclusion for the following reasons. The Court has before it a properly constituted appeal of the section 174 determinations involving Ms. Tossell and Mr. Peterson. Both of them were parties to the Tax Court proceedings. Both of them are parties to this appeal. The section 174 determinations are embodied in Ms. Tossell's Tax Court judgment and also in Mr. Peterson's Tax Court judgment. Those two Tax Court judgments were issued concurrently after a joint appeal in the Tax Court and pursuant to a single set of reasons for judgment. The fact that there are two Tax Court judgments rather than one is a matter of Tax Court practice only. In these circumstances, it seems to me unnecessarily artificial to separate from the appeal in this Court only those aspects of Mr. Peterson's Tax Court judgment that are dispositive of his substantive rights. [30] I would add that the procedural and jurisdictional issues that have arisen in this case might have been avoided if the Minister had simply appealed the Tax Court judgment relating to Mr. Peterson, and then applied in the usual way to join that appeal to that of Ms. Tossell. [31] The judgment of this Court should dismiss Ms. Tossell's appeal for 1995 (Tax Court File 98-2469(IT)I), allow in part Ms. Tossell's appeal for 1996 (Tax Court File 2000-3286(IT)I), reverse in part the Tax Court judgment in respect of Mr. Peterson's appeal for 1996 (Tax Court File 2000-2170(IT)G), and refer this matter to the Minister for reassessment of Ms. Tossell and Mr. Peterson on the basis that the $36,000 payment that Mr. Peterson paid Ms. Tossell in 1996 is not taxable to Ms. Tossell and is not deductible by Mr. Peterson. Given the mixed result, I would make no order as to costs. (s) "K. Sharlow J.A. "I concur. Alice Desjardins J.A." "I agree. Marshall Rothstein J.A." FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET: A-527-03 STYLE OF CAUSE: PATRICIA TOSSELL and HER MAJESTY THE QUEEN and LARRY PETERSON SUPPLEMENTARY REASONS FOLLOWING WRITTEN SUBMISSIONS BY ALL PARTIES PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: May 10, 2005 SUPPLEMENTARY REASONS FOR JUDGMENT BY : SHARLOW J.A. CONCURRED IN BY: DESJARDINS JA ROTHSTEIN JA DATED: July 27, 2005 WRITTEN REPRESENTATIONS BY: Patricia Tossell On her own behalf Peter M. Kremer, Q.C. Justine Malone For the Respondent, Her Majesty the Queen Larry Peterson Wallace DuCharme For the Respondent, Larry Peterson SOLICITORS OF RECORD: Patricia Tossell Sault Ste. Marie, ON On her own behalf John H. Sims, Q.C. For the Respondent, Her Majesty the Queen Deputy Attorney General of Canada Ottawa, ON Wallace Klein Partners in Law For the Respondent, Larry Peterson Barristers & Solicitors North Bay, ON