http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/111261/index.do
Remtilla v. The Queen (August 12, 2015 – 2015 TCC 200, V. Miller J.).
Précis: The taxpayer (a tax accountant) and his wife traded securities through a brokerage account. In 2005, 2006 and 2007 they treated their gains and losses as being on capital account. In 2008 they had large losses (roughly $500,000 each). In filing their 2008 returns they claimed their losses as business losses. They also filed T1 Adjustment Requests to have their 2005, 2006 and 2007 gains and losses treated as being from business. They entered into a settlement with CRA in 2012 under the terms of which they were given business loss treatment in 2008. However after the settlement was reached they objected to the reassessment of their gains in 2006 and 2007 as being on income account. They argued that those taxation years were statute barred by that point.
The Court held that the T1 Adjustment Requests operated as waivers entitling CRA to reassess outside the normal reassessment period.
Decision: The facts of this decision were not complex:
[1] The Appellants bought and sold stock options through a joint account with Canaccord Capital (referred to as the “Canaccord Investments” or the “Canaccord Account”). The original dispute between the Appellants and the Minister of National Revenue (the “Minister”) dealt with the characterization of income and losses from that account for the 2008 year. When the Appellants filed their tax returns for 2005, 2006 and 2007, they characterized their gains and losses from the Canaccord Investments as being on account of capital. However, in their 2008 returns, the Appellants characterized a significant loss from the same activity as a business loss. The Appellants said that for consistency, they had filed T1 adjustment requests with the Canada Revenue Agency (“CRA”) for both Appellants for 2005, 2006 and 2007 (the “T1 Adjustment Requests”) along with their 2008 returns on April 30, 2009. They had requested that the capital gains and losses reported for 2005, 2006, and 2007 be treated as business income and losses. The CRA had no record of receiving the T1 Adjustment Requests in 2009, and the Appellants sent unsigned copies of the T1 Adjustment Requests to the CRA as attachments to a letter in 2012 in the course of the appeal process for their 2008, 2009 and 2010 taxation years.
[2] After negotiations, it was accepted that the Appellants had filed the T1 Adjustment Requests in 2009 and the parties entered into settlement agreements whereby they settled all outstanding objections which the Appellants had with the CRA. The Minister reassessed the Appellants according to the settlement agreements.
[3] The Appellants now say that the Minister has reassessed their 2006 and 2007 taxation years beyond the normal reassessment period.
Mr. Remtilla was a very experienced tax accountant:
[7] Mr. Remtilla is a certified general accountant (CGA). He moved to Canada in 1975; started an accounting practice in Vancouver in 1978; and, completed his CGA qualification in 1979. He is an experienced accountant and describes himself on his professional website as a “premier tax specialist, particularly in the area of SR and ED.” On his website he lists the many awards he received in his studies for his CGA. His practice mainly involves filing income tax returns for individuals and corporations. If his clients are audited by the CRA, he represents them up to the objection stage of the dispute.
The case law was clear that a waiver did not have to take any specific form so long as it contained all the necessary information:
[29] Subparagraph 152(4)(a)(ii) provides:
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 any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, except that an assessment, reassessment or additional assessment may be made after the taxpayer’s normal reassessment period in respect of the year only if
(a) the taxpayer or person filing the return
…
(ii) has filed with the Minister a waiver in prescribed form within the normal reassessment period for the taxpayer in respect of the year;
[30] In this appeal, the Minister was not entitled to reassess the Appellants’ 2006 and 2007 taxation years without a valid waiver being filed with the Minister prior to the expiry of the normal reassessment period: Canadian Marconi Co v Canada, [1991] 2 CTC 352 (FCA).
[31] Traditionally, a waiver is submitted by way of a T2029 form. However, a waiver may be presented in another document, so long as it contains the prescribed information and is intended to act as a waiver. Section 32 of the Interpretation Act, RSC 1985, c I-21 states that “where a form is prescribed, deviations from that form, not affecting the substance or calculated to mislead, do not invalidate the form used.”
[32] In Mitchell v Canada (Attorney General), 2002 FCA 407, the Federal Court of Appeal found that a letter written by the taxpayers’ counsel to the CRA (then Revenue Canada) prior to the end of the normal reassessment period constituted a waiver. At paragraph 40, Justice Sexton wrote:
It seems to me that Revenue Canada is obliged to treat any document as a waiver, providing it contains the necessary information. Revenue Canada does not have an option as to whether or not to accept a waiver. A waiver is a privilege which a taxpayer has, and, if sent, Revenue Canada cannot disregard it.
The Court found Mr. Remtilla’s evidence that he and his wife did not intend to waive the limitation period on their 2006 and 2007 taxation years unconvincing:
[46] Mr. Remtilla’s motives are suspect. If he truly did not intend that the T1 Adjustment Requests were to be acted upon in 2012, I question why he has appealed only the reassessments for the 2006 and 2007 taxation years and not the reassessment for the 2005 taxation year. Is it because the reassessments for 2006 and 2007 included gains and unreported income in his income? Whereas, the 2005 reassessment was to his benefit, it changed a capital loss to a business loss.
[47] Mr. Remtilla had legal counsel during the settlement negotiations, and he himself is an experienced tax accountant. If he did not want the 2006 and 2007 tax years reassessed on the grounds they were statute-barred, he had ample opportunity to raise this issue during the settlement negotiations in 2012. The fact that he waited until the agreement had been finalized and he had obtained favourable treatment for the 2005, 2008 and 2009 tax years smacks of a post-hoc attempt to get around an unfavourable provision in an otherwise binding settlement agreement.
[48] Based on the evidence, a reasonable person observing Mr. Remtilla’s interactions with the CRA in 2009 and in 2012 would infer that he always intended the T1 Adjustment Requests to be acted upon, even after the 2006 and 2007 years became statute-barred.
[49] In my opinion, the Appellants did intend the T1 Adjustment Requests to operate as waivers to permit the reassessment of their 2006 and 2007 years. After using them to achieve a more favourable tax treatment for other years, the Appellants are not now permitted to repudiate their agreement and claim that the years were statute-barred.
As a result the appeals were dismissed with costs.