INCOME TAX |
Reassessment |
Wannan v. Canada
A-37-03
2003 FCA 423, Sharlow J.A.
12/11/03
16 pp.
Appeal from amended judgment of Tax Court (Wannan v. Canada, [2003] 2 C.T.C. 2303 (T.C.C.)), allowing in part appeal against assessment made pursuant to Income Tax Act (ITA), s. 160--S. 160 one of many provisions creating vicarious or secondary liability for tax debts where property transferred not at arm's length--Such provisions permit Minister to collect tax debt from someone other than tax debtor, provided certain statutory conditions met--First issue dealing with interaction of Bankruptcy and Insolvency Act (BIA), and s. 160--Appellant arguing Dr. Wannan's (appellant's spouse who contributed to appellant's RRSP) bankruptcy precluded Crown from assessing appellant under s. 160--Appellant conceded that to succeed on this point, Court must be prepared to reverse Heavyside v. Canada (1996), 43 C.B.R. (3d) 128 (F.C.A.)--Heavyside authority for three propositions: liability under s. 160 arising upon transfer of property in circumstances meeting statutory conditions; s. 160 liability survives bankruptcy of principal tax debtor; s. 160 liability survives bankruptcy of principal tax debtor-- Appellant's liability under s. 160 (assuming liability survives appeal) arose before 1996--As principles in Heavyside correct, appellant unaffected by Dr. Wannan's bankruptcy in January of 1996, but his discharge from bankruptcy in October of 1996, or by fact appellant not assessed until February 8, 1999--Nothing in BIA indicating intention to provide relief to third parties responsible for debt of bankrupt--BIA expressly permits unsecured creditor of bankrupt to pursue alternative remedies against other parties--Person assessed under ITA, s. 160 has rights of objection and appeal, and well established such objection or appeal may include challenge to validity or correctness of assessment of tax liability of primary tax debtor--No evidence any basis for such challenge in this case--Nor any evidence bankruptcy of Dr. Wannan would have created any problem for appellant in launching such challenge, if she had grounds to do so--As to second issue, appellant arguing bankruptcy dividend should have been applied first to oldest of Dr. Wannan's tax debts: Devaynes v. Noble; (Clayton's Case) (1816), 1 Mer. 572, 35 E.R. 781-- Clayton's Case "first in, first out rule"--Appellant raised question whether first in, first out principle applying to Dr. Wannan's tax liability--No case law in which Crown compelled to apply tax payment to particular debt if payment not directed to debt, and no agreement between payor and Crown as to how payment to be applied--When Crown assessed appellant under s. 160 after receiving bankruptcy dividend, Dr. Wannan's tax account changed, in effect, so that bankruptcy dividend applied against newest of Dr. Wannan's tax liabilities--Appellant arguing Crown should be bound by normal first in, first out practice-- Argument rests on single fact: Crown normally maintains single running account for each tax debtor--Practice of Crown in keeping track of tax debt as running account seems to be insubstantial basis for extending first in, first out rule to all tax debts--For that reason, no reason to preclude Crown from applying bankruptcy dividend as it did, to newest of Dr. Wannan's tax liabilities--Appeal dismissed--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 160 (as am. by S.C. 1998, c. 19, s. 186; 2000, c. 12, s. 142)--Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, ss. 1 (as am. by S.C. 1992, c. 27, s. 2), 178 (as am. by R.S.C., 1985 (2nd Supp.), c. 3, s. 28; S.C. 1992, c. 27, s. 64; 1997, c. 12, s. 105; 1998, c. 21, s. 103, 2000, c. 12, s. 18; 2001, c. 4, s. 32), 179.