Section 166 - Irregularities

In 2003, various T1 adjustment requests were made with CRA by the accountant (“Newton”) for deceased taxpayer (“Anna”), her brothers (now engaged in a bitter dispute) and the family companies to reflect increased management fees and employment income allocated to her by the family companies for the 1998, 2001 and 2002 taxation years. The evidence suggested that her “interests were being glossed over” (para. 18). The estate alleged that Anna lacked mental capacity to make these filings and that they were unauthorized, and applied for an extension of time to file notices of objection for those and other taxation years to vacate certain reassessments on the basis of mental incapacity, unauthorized filings and/or misrepresentation. Notices of objections or applications for an extension of time to file a notice of objection were not served on the Minister until 2015 at the earliest.

Bocock J stated (at paras 10, 14, 15):

… Non est factum is available where a person is not capable of both reading and sufficiently understanding a document. …

… The medical evidence … commences from the diagnosis date [of metastatic cancer in 2002].

… With the exception of Mr. Newton, each witness indicated that Anna was in a confused and depressed state from her diagnosis date until the time of her death. … [S]he could not read English at all and spoke very little of it. … Even if Anna had received the services of an interpreter, in her depressed and sickened state, on balance, she likely would not have understood. Importantly, there is no evidence this occurred.

Bocock J found (at para. 21):

… [T]he Court is prepared to find, on balance, that Anna from and after her diagnosis date, lacked mental capacity to execute or did not execute and file the 2003 filings… . Therefore, the notices of reassessments responsive to the 2003 filings … were void. … [T]he reassessments were consequential to invalid or unlawful filings and issued by the Minister under innocent mistake of fact. Accordingly, no objection was required to the void reassessments. …

Bocock J went on (at para. 24) to issue an order “vacating the operative (re)assessments for the 1998, 2001 and 2002 taxation years, which in turn were responsive to the void 2003 filings” - and to find (at para. 22) that the reassessments for “the 1999 and 2000 taxation years … pre-date the period of probable incapacity (i.e. the diagnosis date) and lack or inability to give authority for filing” and, thus, were valid as they had been received by Anna at her address and the time to grant an extension to object had passed..

After rejecting taxpayer submissions that a reassessment was invalid because it had been made before any audit of the items in question had really commenced and the reassessment had simply denied all the expenditures in full, D'Auray J went on to state respecting the “curative” effect of ss. 166 and 152(8) (at paras. 189-190):

… [I]n light of the Ginsberg decision, I am of the view that the remedial provision in section 166 …has the effect of deeming an assessment valid, despite the failure of the Minister to comply with the requirements of subsection 152(1).

With respect to the remedy in subsection 152(8)… in the Golini decision [2013 TCC 293], Miller J, in a situation similar to that in this case, …stated…

… There is no law… to the effect that a protective assessment is invalid if issued for the sole purpose of leaving the door open to conduct or continue an audit. I can find no precedent that this is a procedural unfairness that overrides … section 152(8)

The failure of the Minister to provide written notice before allocating business limits, as required by s. 125(4), was a substantial and fundamental error and, therefore, was not cured by s. 166.