Ford v. R. – FCA: The Minister’s failure to assess “with all due dispatch” is not a ground for vacating an assessment

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Ford v. Canada (November 7, 2014 – 2014 FCA 257) was a decision on appeals by a husband and wife from a decision of the Tax Court that dismissed their appeals in connection with what are generically known as “art flips”.

[2] Ian Ford and Norma Ford participated in an art donation program operated by Canadian Art Advisory Services. They purchased pieces of art for a particular price and then donated the art to a charity. For each donation they received a receipt for an amount that exceeded the amount that they paid for the art.

[3] Ian Ford was reassessed in 2002 in relation to his 1999 taxation year and Ian Ford and Norma Ford were each reassessed in 2003 in relation to their 2000 and 2001 taxation years. They were reassessed on the basis that the fair market value of the art that was donated to the charity or charities (and hence the amount of the gift) was the amount that they paid for the art, not the higher amount as stated on the receipt (or receipts) that they had received from such charity or charities. They were also assessed gross negligence penalties under subsection 163(2) of the Act.

[4] They filed notices of objection and, in 2012, they were further reassessed to remove the penalties that had previously been assessed and to reduce their income by the taxable capital gains that they had reported in their tax returns in relation to the donation of the art to the charity or charities. They then filed notices of appeal to the Tax Court of Canada.

[5] The issues raised by Ian Ford and Norma Ford can be consolidated and summarized as:

(a) a procedural fairness issue in relation to the scheduling and conduct of their hearing before the Tax Court of Canada; and

(b) a statutory interpretation issue related to the requirement in subsection 165 (3) of the Act that the Minister reconsider the assessment with all due dispatch following the receipt of a notice of objection.

[6] There are two parts to their statutory interpretation argument. They submit that the Minister lost the right to reassess them in 2012 because of the long period of time between the date that they served their notices of objection in 2002 – 2003 and the date that the Minister reassessed them in 2012. They also argue that, as a result of this significant delay, they are unable to bring forward evidence to support their valuation of the art, and therefore their appeals should be allowed.

On the first ground the appellants claimed to have been prejudiced by being included in a large group of taxpayer appeals heard by the Tax Court. The Court of Appeal rejected this on the basis that most of the other taxpayers settled their appeals after the Tax Court ruled it could not grant interest relief:

[9] Following the ruling by the Tax Court Judge that the Tax Court of Canada could not waive any interest owing under the Act, most of the appellants signed consents to judgment and did not continue with the hearing. The only persons who were scheduled to have their appeals heard before the Tax Court of Canada and who then continued with their appeals were Albert Milne, Marion Milne, Ian Ford and Norma Ford. Therefore, when the Tax Court Judge began to hear evidence, Ian Ford and Norma Ford represented one-half of the appellants. They were no longer part of a large group of appellants and, therefore, any concerns that they may have had about having to participate with a large group of people, would have been diminished.

[11] In any event, it does not seem to me that there is any basis in this case upon which to conclude that Ian Ford and Norma Ford were prejudiced by scheduling their appeals to be heard with the appeals of the other individuals or by the conduct of the hearing.

On the second ground the Court of Appeal first opined that the appellants could not simply attempt to vacate the 2012 reassessments since those reassessments had, in fact, reduced their tax liability and the Tax Court did not have jurisdiction to increase their tax liability. They could only succeed if the original reassessments could be vacated. The jurisprudence did not permit setting aside those earlier reassessments on the basis of the Minister’s alleged failure to act with due dispatch:

[20] Therefore, this Court in Bolton held that a reassessment that had been previously issued could not be vacated solely because the Minister failed to reconsider the reassessment with all due dispatch, as required by subsection 165(3) of the Act, as the taxpayer has the right to appeal to the Tax Court of Canada if the Minister does not act in response to the notice of objection within 90 days of the taxpayer having served the notice of objection.

The court rejected the argument that the Bolton decision had been reversed by a subsequent decision of the Court of Appeal:

[23] In Ereiser, Sharlow J.A., writing on behalf of the Court, stated that:

21 Mr. Ereiser is seeking from the Tax Court of Canada an order vacating the reassessments under appeal. That is the appropriate remedy in an income tax appeal for an assessment (including a reassessment) that is found not to be valid, or that is found not to be correct. I use the term valid to describe an assessment made in compliance with the procedural provisions of the Income Tax Act, and correct to describe an assessment in which the amount of tax assessed is based on the applicable provisions of the Income Tax Act, correctly interpreted and applied to the relevant facts.

22 The procedural provisions of the Income Tax Act include those relating to statutory limitation periods. Generally, those provisions deprive the Minister of the legal authority to assess tax after the expiry of a certain period of time – the period defined in the Income Tax Act as the “normal reassessment period” – unless a statutory exception applies.

[24] In these paragraphs Sharlow J.A. describes a valid assessment as “an assessment made in compliance with the procedural requirements of the” Act. As she noted, these procedural requirements include those related to statutory limitation periods, which are defined as the normal reassessment period. The normal reassessment period is defined in subsection 152(3.1) of the Act. She was not referring to subsection 165(3) of the Act, which does not use the expression “normal reassessment period”. In this case, Ian Ford and Norma Ford will only be successful if the reassessments issued in 2002 and 2003 are vacated. However, these reassessments were issued within the normal reassessment period. Therefore, they would be validly issued assessments / reassessments as contemplated by Sharlow J.A. This case does not support the position of Ian Ford and Norma Ford that the principle as set out in Bolton should not be applied in this case.

Finally the court rejected the argument that the delay between the filing of their notices of objection and the Minister’s reassessments in 2012 prejudiced their ability to present evidence in the Tax Court:

[29] In this case, Ian Ford and Norma Ford would also have known in 2002 when Ian Ford was reassessed, that the Canada Revenue Agency did not agree with the valuation of the art that was used in filing Ian Ford’s 1999 income tax return. They filed their notices of objection in 2002 and 2003 and therefore have had several years to collect their evidence in relation to the fair market value of the donated art. Norma Ford’s statement that the evidence on valuation was thin and difficult to obtain does not assist her case as this would mean that she would have little or no evidence to present to the Tax Court in support of their position that the fair market value of the donated art was the amount that was claimed as the charitable donation in their tax returns.

Accordingly the appeals were dismissed with one set of costs.