T-3616-82
Guaranty Properties Limited and Forest Glenn
(Dixie) Limited (Plaintiffs)
v.
The Queen (Defendant)
INDEXED AS: GUARANTY PROPERTIES LTD. V. CANADA
Trial Division, Rouleau J.—Toronto, October 21,
1986; Ottawa, February 11, 1987.
Income tax — Reassessment — Corporations — Amalga
mation — Reassessment in respect of predecessor corporation
to be issued to corporation resulting from amalgamation —
Reassessment mistakenly issued to predecessor corporation —
Expiry of limitation period — Minister having received
sufficient notice of status change — Act's curative provisions
not assisting Minister — Reassessment invalid — Income Tax
Act, S.C. 1970-71-72, c. 63, ss. 87(1) (as am. by S.C. 1974-
75-76, c. 26, s. 51(1); 1979, c. 5, s. 28(1)), (2)(a),(j.1) (as added
by S.C. 1979, c. 5, s. 28(2)), (1) (as am. by S.C. 1984, c. 45,
s. 27(2)), (w) (as am. by S.C. 1977-78, c. 1, s. 42(3)), (2.1) (as
added idem, s. 42(6)), 152(1) (as am. by S.C. 1978-79, c. 5, s.
5(1)), (2),(3),(8), 166 — Business Corporations Act, R.S.O.
1980, c. 54, s. 188(4)(a).
In May, 1978, a corporation known as Dixie and several
other companies amalgamated to form Forest Glenn (Dixie)
Limited (Forest Glenn). The latter corporation, in turn, in
November, 1980, amalgamated with other companies to form
Guaranty Properties Limited (Guaranty Properties). In a
notice of reassessment dated June 23, 1981, the Minister of
National Revenue reassessed Forest Glenn with respect to tax
payable for Dixie's 1976 taxation year. This is an application
for the determination of the validity of that reassessment.
Held, the reassessment is invalid.
The question of whether Forest Glenn ceased to exist upon
amalgamation for the purposes of the Income Tax Act, a point
argued at length by both parties, is not determinative of the
issue at hand. The key factor is that section 87 of the Act
provides that all of a predecessor corporation's liabilities
immediately before the amalgamation become liabilities of the
new corporation. Accordingly, the liability for the reassessment
of Dixie's 1976 taxation year was assumed by Forest Glenn at
the time of the amalgamation in May 1978, and by Guaranty
Properties at the time of the second amalgamation in Novem-
ber 1980. Therefore, the only party who could be reassessed for
Dixie's 1976 taxation year after November 1980, was Guaranty
Properties.
The fact that the Ontario Ministry of Consumer and Com
mercial Relations sent Revenue Canada a weekly record of
changes in the status of corporations in the Province and that
Revenue Canada did receive a copy of the Articles of Amalga
mation pertaining to the 1980 amalgamation was sufficient
notice to the Minister, especially when considered in conjunc
tion with numerous indications of the amalgamation in the tax
returns of Forest Glenn and Guaranty Properties. The plaintiffs
were not under any additional obligation to advise the defen
dant of the amalgamation.
It is clear, also, that it was the policy of Revenue Canada, in
conformity with the applicable interpretation bulletin, to direct
a notice of reassessment of a predecessor corporation to the new
corporation following amalgamation. Otherwise, it would mean
that Revenue Canada would be free to pick and choose which
corporation it is going to reassess after an amalgamation has
occurred.
Equity alone would prevent the use of the curative provisions
of subsections 152(3) and (8) and section 166 of the Act to
allow the amendment of a reassessment after the expiry of the
limitation period.
CASES JUDICIALLY CONSIDERED
REFERRED TO:
R. v. Black & Decker Manufacturing Co. Ltd., [1975] 1
S.C.R. 411; Hare! v. Dep. M. Rev. of Quebec, [1978] 1
S.C.R. 851; Nowegijick v. The Queen, [1983] 1 S.C.R.
29; 83 DTC 5041.
COUNSEL:
John P. G. Bell and James Rossiter for
plaintiffs.
Michael D. Templeton for defendant.
SOLICITORS:
Shibley, Righton & McCutcheon, Toronto,
for plaintiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
ROULEAU J.: This is an application for the
determination of the validity of the reassessment
issued by the Minister of National Revenue to the
plaintiff Forest Glenn (Dixie) Limited on June 21,
1981 for the income of a corporation known as
"Dixie" for its 1976 taxation year. The application
is made pursuant to the Federal Court Rules
[C.R.C., c. 663] and pursuant to the order of the
Senior Prothonotary of the Court dated August
15, 1986, wherein the procedure for the conduct of
this application is set out as follows:
It is ordered that the procedure to govern the course of this
matter shall be as follows:
1. that this Court make a preliminary determination as to the
validity of the reassessment attached to and marked as
Exhibit I;
2. that in support of the said determination the parties will
file an Agreed Statement of Facts in the form set out in
Exhibit II;
3. that in support of the said determination the parties may
call viva voce evidence relating to the preliminary
determination;
4. that after the said Agreed Statement of Facts has been
submitted to the Court and after any viva voce evidence
has been given the parties will argue the preliminary
determination.
The parties have filed an agreed statement of
facts pursuant to the above order and it is repro
duced herein in its entirety:
1. The facts contained in this Agreed Statement of Facts are
summarized in a diagram which is annexed under Tab 4.
2. Forest Glenn (Dixie) Limited ("Dixie") was a corporation
incorporated on November 7, 1963.
3. The Minister of National Revenue (the "Minister") assessed
tax payable for Dixie's 1976 taxation year, the subject taxation
year of the within application and sent a Notice of Assessment
dated August 22, 1977.
4. On May 31, 1978 Dixie and several other companies amal
gamated pursuant to the laws of the Province of Alberta (the
"May 31, 1978 Amalgamation") to form Forest Glenn (Dixie)
Limited ("Forest Glenn").
5. On May 14, 1979, Forest Glenn filed an Income Tax Return
for the twelve month period commencing December 1, 1977
and ending on its year end November 30, 1978. At the Minis
ter's request in July 1980, Forest Glenn on September 12, 1980
filed a separate Return of Income for the six month period
following the May 31, 1978 Amalgamation and the original
Return (with adjustments to income) was treated as being
applicable to the six month period prior to the May 31, 1978
Amalgamation. The original Return of Dixie and the separate
Return of Forest Glenn are annexed under Tabs 5 and 6,
respectively.
6. On November 28, 1980 Forest Glenn, Traders Developments
Limited, Les Développements Val-Forest Ltée and Guaranty
Properties Limited amalgamated (the "November 28, 1980
Amalgamation") pursuant to the laws of the Province of
Ontario to form Guaranty Properties Limited ("Guaranty
Properties"). The Ontario Ministry of Consumer and Commer
cial Relations ("the Ontario Ministry") usually sends articles
of amalgamation filed with the Ontario Ministry to the Corpo
rate Taxroll Section of the Department of National Revenue
which section received a copy of the Articles of Amalgamation
in respect of the November 28, 1980 Amalgamation on Novem-
ber 28, 1980. A copy of the said Articles is annexed under
Tab 7.
7. The rules set out in section 87 of the Income Tax Act were
applicable to the May 31, 1978 Amalgamation and the Novem-
ber 28, 1980 Amalgamation.
8. On May 28, 1981, Forest Glenn filed with the Minister an
Income Tax Return for its year ending November 28, 1980, the
date of the November 28, 1980 Amalgamation. Copies of its
annual financial statements, which referred to the November
28, 1980 Amalgamation, were not included with the Income
Tax Return but were received by the Minister from Forest
Glenn on July 2, 1981. A copy of the Return and the financial
statements are annexed under Tab 8.
9. On May 28, 1981 Forest Glenn filed with the Minister an
amended Income Tax Return for the 12 months ending Novem-
ber 30, 1978. On May 30, 1981 Forest Glenn filed with the
Minister an amended Income Tax Return for the 12 months
ending November 30, 1979. Copies of these amended returns
are annexed under Tabs 9 and 10, respectively.
10. The Minister reassessed tax payable for Dixie's 1976
taxation year and sent a Notice of Reassessment dated June 23,
1981 to Forest Glenn (the "Reassessment"). This Reassess
ment, the validity of which the Plaintiff disputes, is the subject
matter of the within application. A copy of the reassessment is
annexed under Tab 2.
11. On June 30, 1981, Guaranty Properties filed with the
Minister an Income Tax Return for its first taxation year
ending December 31, 1980. The initial Notice of Assessment
relating thereto was sent June 21, 1982. A copy of the Return
is annexed under Tab 11.
12. The Minister assigned to Dixie the account number
30805360, to Forest Glenn the account number 79584850 and
to Guaranty Properties the account number 79467007 for the
purposes of processing tax returns.
13. On August 28, 1981 a Notice of Objection was filed by
Forest Glenn in respect of the Reassessment. A copy of the said
Notice of Objection is annexed under Tab 12.
14. On August 21, 1981 the four-year limitation period within
which the Minister could reassess tax payable for the 1976
taxation year of Dixie expired.
15. The field auditor who was attached to the Basic File
Section of the Department of National Revenue and who was
dealing with the Minister's files in respect of the 1976 Tax
Return of Dixie did not receive notice of the November 28,
1980 Amalgamation either from the Corporate Taxroll Section
or from any representative of the Plaintiff prior to the expira
tion of the limitation period for reassessing.
16. On February 25, 1982, the Minister confirmed the Reas
sessment by issuing a Notice of Confirmation to Forest Glenn
for the 1976 taxation year of Dixie. A copy of the said Notice
of Confirmation is annexed under Tab 13.
DIAGRAM OF AGREED FACTS
(from Agreed Statement of Facts)
Dixie 1 0 Group 2nd Group
of Other of Other
Companies Companies
I
I 1976 Dixie Taxation Year
I
I
I
Aug. 22/77 Minister sends Notice
i of Assessment to Dixie for tax
\ \ f payable for Dixie's 1976 Taxation
re Year
Forest
Glenn May 31/78 Amalgamation
May 14/79 Forest Glenn files
Return for 1978 year ending
November 30/78
L ) Sept. 12/80 Forest Glenn files
• ` i amended Return as requested by
• ` i� Minister in July, 1980
Ne
Guaranty Nov. 28/80 Amalgamation and
Properties Minister receives copy of Articles of
Amalgamation from Ontario
Ministry
May 28/81 Forest Glenn files its
Tax Return for year ended Nov.
28/80, and amended Return for
1978
May 30/81 Forest Glenn files
amended Return for 1979
June 23/81, Minister sends Notice
of Reassessment to Forest Glenn for
tax payable for Dixie's 1976
Taxation Year
June 30/81 Guaranty Properties
files its first Tax Return for year
ended Dec. 31/80
July 2/81 Minister receives
Financial Statements for Forest
Glenn's year ended Nov. 28/80
Aug. 28/81 Forest Glenn files
Notice of Objection to June 23/81
Reassessment
Aug. 22/81 time to reassess tax for
Dixie's 1976 Taxation Year expires
In making a determination of this matter it is
the following facts which must be kept in mind.
First, on May 31, 1978 a corporation known as
Dixie and several other companies amalgamated
pursuant to the laws of the Province of Alberta to
form Forest Glenn (Dixie) Limited. Thereafter, on
November 28, 1980 Forest Glenn amalgamated
with a number of other companies pursuant to the
laws of the Province of Ontario to form Guaranty
Properties Limited. The Minister of National
Revenue reassessed tax payable for Dixie's 1976
taxation year and sent a notice of reassessment
dated June 23, 1981 to Forest Glenn, which had
by that time amalgamated to form Guaranty Prop
erties. The issue in this case is the validity of that
reassessment.
The plaintiffs' position is that by reassessing
Forest Glenn for the income of Dixie after the
November 28, 1980 amalgamation, the Minister
reassessed a corporation that for the purposes of
the Income Tax Act [R.S.C. 1952, c. 148 (as am.
by S.C. 1970-71-72, c. 63, s. 1)] had ceased to
exist. Therefore, maintain the plaintiffs, the Minis
ter's reassessment is a nullity, void ab initio.
In support of their argument, the plaintiffs rely
on paragraph 87(2)(a) of the Income Tax Act:
87. (2) ....
(a) for the purposes of this Act, the corporate entity formed
as a result of the amalgamation shall be deemed to be a new
corporation the first taxation year of which shall be deemed
to have commenced at the time of the amalgamation, and a
taxation year of a predecessor corporation that would other
wise have ended after the amalgamation shall be deemed to
have ended immediately before the amalgamation;
It is the plaintiffs' position that by deeming the
resulting corporation formed on amalgamation as
a new corporation, the Income Tax Act also deems
that the predecessor corporations which amal
gamated to form the new corporation have ceased
to exist. A reading of section 87 of the Act as a
whole makes it clear that paragraph (2)(a) estab
lishes as a general rule for all purposes under the
Act, that the resulting corporation is a new corpo
ration and all predecessor corporations have
ceased to exist.
The plaintiffs maintain that section 87 contains
a number of other deeming provisions which are
expressed to revive the predecessor corporations
for specific purposes only as set out in those provi
sions. Therefore, unless the contrary is specifically
provided for in section 87, the predecessor corpora
tion, for tax purposes, ceases to exist. As an exam
ple, the plaintiffs rely on paragraph 87(2)(1) [as
am. by S.C. 1984, c. 45, s. 27(2)] which provides
that:
87. (2) ...
(1) for the purposes of section 37 and Part VIII, the new
corporation shall be deemed to be the same corporation as,
and a continuation of, each predecessor corporation;
The plaintiffs submit that the proper and only
corporate entity that the Minister could have and
should have reassessed after the November 28,
1980 amalgamation in order to affix liability for
Dixie's 1976 taxation year was Guaranty Proper
ties Limited. However, the Minister failed to issue
a timely reassessment against Guaranty Properties
and it was not, according to the plaintiffs, open to
the Minister to reassess Forest Glenn in its stead.
The defendant, on the other hand, argues that
the reassessment is valid and bases its position on
three grounds.
First, Forest Glenn did not cease to exist upon
the amalgamation of November 28, 1980; second,
if Forest Glenn did cease to exist upon amalgama
tion, a notice of reassessment sent in that corpora
tion's name still meets the requirements of the
Income Tax Act; and, third, if the notice of reas
sessment issued by the Minister in the name of
Forest Glenn is in error or defective, it is not
invalid by reason of the curative provisions of the
Act, as determined by subsections 152(3) and
152(8) and section 166.
With respect to its first argument, the defendant
contends that corporate law is clear, that upon an
amalgamation in Ontario, the predecessor compa
nies continue to have a legal existence and do not
cease to exist. Paragraph 188(4)(a) of the Ontario
Business Corporations Act [R.S.O. 1980, c. 54] is
applicable to this amalgamation and it states:
188.—(4) The certificate endorsed in accordance with sub
section (3) constitutes the certificate of amalgamation of the
amalgamating corporations and upon the date set out therein,
(a) the amalgamation becomes effective and the amalgamat
ing corporations are amalgamated and continue as one
corporation under the terms and conditions set out in the
amalgamation agreement;
The defendant relies on the Supreme Court of
Canada decision in R. v. Black & Decker Manu
facturing Co. Ltd., [1975] 1 S.C.R. 411 in which a
similar provision was considered by the Court and
it held at pages 417 and 420:
The companies "are amalgamated and are continued as one
company" which is the very antithesis of the notion that the
amalgamating companies are extinguished or that they contin
ue in a truncated state ....
The juridical nature of an amalgamation need not be deter
mined by juridical criteria alone, to the exclusion of consider
ation of the purposes of amalgamation. Provision is made under
the Canada Corporations Act and under the Acts of the various
provinces whereby two or more companies incorporated under
the governing Act may amalgamate and form one corporation.
The purpose is economic: to build, to consolidate, perhaps to
diversify, existing businesses; so that through union there will
be enhanced strength. It is a joining of forces and resources in
order to perform better in the economic field. If that be so, it
would surely be paradoxical if that process were to involve
death by suicide or the mysterious disappearance of those who
sought security, strength and, above all, survival in that union.
Also, one must recall that the amalgamating companies physi
cally continue to exist in the sense that offices, warehouses,
factories, corporate records and correspondence and documents
are still there, and business goes on. In a physical sense an
amalgamating business or company does not disappear
although it may become part of a greater enterprise.
It is the defendant's interpretation that para
graph 87(2)(a) of the Income Tax Act deems the
entity formed after amalgamation to be a new
corporation, but it does not expressly deem that
the predecessor corporations cease to exist. There
fore, since the Act is silent on whether the prede
cessor corporations continue to exist, the normal
corporate law will apply.
Counsel for the defendant argues against the
position of the plaintiffs who have stated that, for
the general purposes of the Act, the predecessor
corporation must be considered to have ceased to
exist because certain specific provisions of the Act
[i.e. 87(2)(j.1), [as added by S.C. 1979, c. 5, s.
28(2)], 87(2.1) [as added by S.C. 1977-78, c. 1, s.
42(6)]] deem the amalgamated corporation to be
the continuation of each predecessor corporation.
In the alternative he argues that because of these
subsections the conclusion does not follow that
without them the predecessor corporations would
be considered to cease to exist upon amalgamation.
In fact, because of these provisions, Parliament is
attempting to achieve a specific purpose, i.e. the
amalgamated corporation must be considered the
same corporation as each predecessor corporation.
Further, the defendant argues that, prior to
1977, an amalgamated corporation could not bring
forward and deduct in the computing of its income
any of the losses of the predecessor corporation;
that paragraph 87(2)(w) of the Act specifically
provided that the amalgamated corporation could
not deduct the losses of a predecessor corporation;
that if the plaintiffs were correct in their assertion
that paragraph 87(2)(a), in addition to deeming
the amalgamated corporation to be a new corpora
tion also deems that the predecessor corporations
ceased to exist, there would be no need for para
graph 87(2)(w). If the amalgamated corporation is
a new corporation and the predecessor corporation
has ceased to exist, the new corporation would
have no carry over rights and paragraph 87(2)(w)
would be redundant.
The defendant also points out that when para
graph 87(2)(w) was amended in 1977 [S.C. 1977-
78, c. 1, s. 42(3)] removing the prohibition against
deducting non capital losses and net capital losses
of the predecessor corporations, subsection 87(2.1)
was added. It provided that for the purposes of
deducting non capital and net capital losses, the
amalgamating company is deemed to be the same
corporation as and a continuation of each of the
predecessor corporations.
This history of the legislation, submits the
defendant, emphasizes that there is no provision in
the Income Tax Act which deems predecessor
corporations to no longer exist upon amalgama
tion. As Parliament intended to prohibit the
deduction of the predecessor corporation's losses, it
specifically stated so in paragraph 87(2)(w). The
addition of this provision to the legislation was
necessary because the corporate law of many prov
inces provided that predecessor corporations con
tinued to exist and the amalgamated company
would be entitled to deduct the losses since it was a
continuation of the predecessor companies. When
Parliament decided to make the losses deductible,
subsection 87(2.1) was added which deemed the
amalgamating corporation to be the same corpora
tion as, and a continuation of each corporation, in
order to ensure that all amalgamated corporations
would be entitled to deduct the previous losses,
even if they were incorporated in a province or
jurisdiction where predecessor corporations cease
to exist upon amalgamation.
The defendant further states that even if the
predecessor corporations are considered to have no
existence after the amalgamation, the notice of
reassessment remains valid as it meets all the
requirements of the Income Tax Act. Subsections
152(1) [as am. by S.C. 1978-79, c. 5, s. 5(1)] and
(2) of the Act provides as follows:
152. (1) The Minister shall, with all due dispatch, examine
a taxpayer's return of income for a taxation year, assess the tax
for the year, the interest and penalties, if any, payable and
determine ....
(2) After examination of a return, the Minister shall send a
notice of assessment to the person by whom the return was
filed.
In this case, it is submitted that the Minister did
all that was required of him by the Act in making
the reassessment. The Minister examined the 1976
corporate tax return for Dixie; he reassessed the
tax payable with respect to the income earned by
Dixie for the 1976 taxation year; he then forward
ed a notice of reassessment to Forest Glenn in
accordance with subsection 152(2) of the Act.
Accordingly, whether or not Forest Glenn ceased
to exist on November 28, 1980, the date of the
amalgamation, the Minister fulfilled the duties
imposed upon him under the Income Tax Act and
the reassessment is therefore valid. The notice
identified the amount of tax assessed, the year to
which the assessment related and the corporation
which earned the income subject to taxation. The
defendant maintains that the liability for the tax
assessed was created in 1976, when the income was
earned, prior to the amalgamation and during a
time when there was no dispute concerning the
existence of the plaintiff Forest Glenn.
The defendant's third argument is that even if
the notice of reassessment is defective because it
does not refer to the plaintiff Guaranty Properties
Limited, the defect does not render the reassess
ment invalid by virtue of subsections 152(3) and
(8) and section 166 of the Act. Those sections
provide as follows:
152....
(3) Liability for the tax under this Part is not affected by an
incorrect or incomplete assessment or by the fact that no
assessment has been made.
(8) An assessment shall, subject to being varied or vacated
on an objection or appeal under this Part and subject to a
reassessment, be deemed to be valid and binding notwithstand
ing any error, defect or omission therein or in any proceeding
under this Act relating thereto.
166. An assessment shall not be vacated or varied on appeal
by reason only of any irregularity, informality, omission or
error on the part of any person in the observation of any
directory provision of this Act.
The defendant submits that these provisions in
the Income Tax Act indicate a direction on the
part of Parliament that a notice of reassessment is
not to be defeated by reason of a defect in the
notice or in the assessment process. Rather that
liability for tax is to be determined on its substan
tive merits. Since there is no error of a substantive
nature, the reassessment is valid. The purpose of
the above provisions of the Income Tax Act,
according to the defendant, is to prevent a defect
in an assessment from rendering it invalid, unless
the defect is such that it misleads or causes preju
dice to the taxpayer.
It is finally submitted that any defect in the
notice of assessment has been waived by the plain
tiffs by their actions. Once the plaintiffs received
the notice of reassessment, there is no evidence
that they returned it to the Department of Nation
al Revenue as being mailed to the wrong party.
Rather, they responded to the reassessment by
filing a notice of objection in the name of Forest
Glenn but did not raise the objection that the
name appearing on the notice of reassessment was
incorrect.
The purpose of section 87 of the Income Tax
Act is to provide the applicable rules where two or
more Canadian corporations are amalgamated.
From an income tax aspect, the complete code on
amalgamations is to be found in section 87 of the
Act. The general scheme of the section is to treat
the amalgamated corporation as a continuation of
the predecessor corporations standing in their
place with respect to assets, liabilities, surpluses
and other tax oriented accounts. However, the
amalgamated corporation is, for most purposes of
the Act, a new corporation, although in certain
limited cases the amalgamated corporation is
deemed to be the continuation of a predecessor
corporation.
Subsection 87(1) [as am. by S.C. 1974-75-76,
c. 26, s. 51(1); 1979, c. 5, s. 28(1)] defines an
amalgamation for the purposes of the Income Tax
Act. It is essentially a corporate transaction and
each of the provincial companies acts and the
federal corporation legislation provide for statu
tory amalgamations. Although the definition of
amalgamation for income tax purposes would
cover most statutory amalgamations, it should be
remembered that this definition is independent of
the federal and provincial corporate statutes. Sub
section 87(1) defines amalgamations as follows:
87. (1) In this section, an amalgamation means a merger of
two or more corporations each of which was, immediately
before the merger, a taxable Canadian corporation (each of
which corporations is referred to in this section as a "predeces-
sor corporation") to form one corporate entity (in this section
referred to as the "new corporation") in such manner that
(a) all of the property (except amounts receivable from any
predecessor corporation or shares of the capital stock of any
predecessor corporation) of the predecessor corporations
immediately before the merger becomes property of the new
corporation by virtue of the merger,
(b) all of the liabilities (except amounts payable to any
predecessor corporation) of the predecessor corporations
immediately before the merger become liabilities of the new
corporation by virtue of the merger, and
(c) all of the shareholders (except any predecessor corpora
tion) of the predecessor corporations immediately before the
merger receive shares of the capital stock of the new corpora
tion by virtue of the merger,
otherwise than as a result of the acquisition of property of one
corporation by another corporation, pursuant to the purchase of
such property by the other corporation or as a result of the
distribution of such property to the other corporation upon the
winding-up of the corporation. [Emphasis added.]
Counsel for both parties have made submissions
that the Court make a finding that Forest Glenn
either ceased to exists or did not cease to exist at
the time of the second amalgamation on Novem-
ber 28, 1980. I have carefully considered the argu
ments and submissions of both parties and I am of
the opinion that the question of whether predeces
sor corporations cease to exist upon amalgamation
for the purposes of the Income Tax Act is not
determinative of the issue at hand.
The key factor here is the treatment afforded by
the Income Tax Act to the liabilities of predeces
sor corporations. The subsection 87(1) definition
of amalgamation as quoted above, and in particu
lar paragraph (b), requires that all of a predeces
sor corporation's liabilities immediately before the
amalgamation become liabilities of the new corpo
ration. In other words, whether or not the prede
cessor corporation continues to exist, it is plain and
obvious that it no longer continues to have liabili
ties attached to it, at least for income tax purposes.
In order for a transaction to qualify as an amalga
mation under subsection 87(1) therefore, the
amalgamated corporation must assume all liabili
ties of the predecessor corporation.
Accordingly, prior to the amalgamation on
November 28, 1980 there is no question that it was
Forest Glenn who was liable for the reassessment
of Dixie's 1976 taxation year. Forest Glenn had
assumed that liability at the time of the first
amalgamation on May 31, 1978. Thereafter, Dixie
had no liabilities for income tax purposes. Similar
ly, at the time of the second amalgamation on
November 28, 1980 Guaranty Properties assumed
all of Forest Glenn's liabilities, including the reas
sessment for Dixie's 1976 taxation year. It matters
not whether Forest Glenn ceased to exist as a legal
entity or whether it didn't. The point is that the
amalgamation, which fell within the definition of
amalgamation in subsection 87(1) of the Act,
meant that pursuant to paragraph 87(1)(b) all of
the liabilities of the predecessor corporation,
Forest Glenn, immediately before the merger
became liabilities of the new corporation, Guaran-
ty Properties, by virtue of the merger. Therefore,
after November 28, 1980 liability could no longer
be affixed to Forest Glenn for the reassessment of
Dixie's 1976 taxation year. That is, in my opinion,
the legislative scheme contained within the Income
Tax Act as it pertains to amalgamations.
Accordingly, I agree with the plaintiffs that the
only party who could be reassessed for Dixie's
1976 taxation year after November 28, 1980 was
Guaranty Properties. Before considering the
defendant's second and third arguments relating to
the curative provisions of the Income Tax Act,
however, there are two other matters which must
be dealt with. The first concerns the question of
notice given to the Minister of the amalgamation
of November 28, 1980 and the second relates to
the interpretation bulletin pertaining to amalga
mations.
During the course of the hearing before me the
defendant argued that prior to July of 1981 the
plaintiffs made no effort to advise the Minister of
National Revenue of the amalgamation. It urged
upon the Court that regard must be had of what
efforts the taxpayer made to give the Minister
notice. I do not agree with any of the defendant's
submissions on this point. The evidence clearly
established that the Ontario Ministry of Consumer
and Commercial Relations sends to Revenue
Canada, on a weekly basis (and did so at the time
of the second amalgamation), a record of all the
changes in the status of corporations in Ontario,
including changes in jurisdiction, address changes,
changes in directors, as well as the first page of the
Articles of Amalgamation when such a merger has
occurred.
The evidence also established that Revenue
Canada did receive a copy of the Articles of
Amalgamation pertaining to the amalgamation of
November 28, 1980. However, prior to issuing the
notice of reassessment for Dixie's 1976 taxation
year to Forest Glenn, that information was not at
any time given to the auditor who was responsible
for issuing the notice of reassessment for Dixie's
1976 taxation year. The information was within
the Department somewhere but evidently not
where it was supposed to be. Clearly there was a
lack of coordination of information which resulted
in the notice of reassessment in question being
issued to the wrong party. It would be highly
improper for the Court to hold either of the plain
tiffs responsible for such an error on the part of
the defendant. The defendant seems to imply that
there was some further obligation on the plaintiffs
in this case to provide the Minister with notice of
amalgamation of November 28, 1980. However, I
am not persuaded that such an obligation exists
and the defendant has failed to provide me with
anything to support such a contention.
Further, there were indications that other very
definitive documents were provided for National
Revenue after the November 28, 1980 amalgama
tion had occurred. For example, on May 28, 1981
an income tax return was filed on behalf of Forest
Glenn for the taxation year ending on the date of
the amalgamation. This documentation submitted
with the return clearly stated that the return was
being filed for the taxation year from December
1979 to November 28, 1980, two days short of a
year and was referred to by the plaintiffs as a stub
year. While that information may not lead directly
to the conclusion that an amalgamation occurred
on November 28, 1980, it would alert anyone
examining the tax return that something out of the
ordinary had occurred. Further, the financial
statement filed by Forest Glenn and received by
Revenue Canada on July 12, 1981 contains numer
ous references to the amalgamation. Finally, the
first tax return filed by Guaranty Properties, the
new corporation, was for a very short period, from
November 28, 1980, the date of the amalgamation
to December 31, 1980, the corporation's year end.
I agree with the plaintiffs that with all this infor
mation available and in the hands of Revenue
Canada before the time to reassess Dixie's 1976
taxation expired it had ample opportunity to
examine in its entirety the existence or non-exist
ence of the various corporate bodies. There was an
obvious indication that something had occurred
and officials at Revenue Canada should have
apprised themselves of the events.
I am satisfied that the plaintiffs were not under
any additional obligation to advise the defendant
of the amalgamation and that, in any event, all the
information concerning the amalgamation was in
the defendant's possession. Though not directed to
the specific official, namely the auditor in charge
of receiving the material and issuing the notice of
reassessment in question, there is no obligation on
the part of the plaintiffs under the Income Tax
Act or its policy to provide or direct additional
notices or information.
As for the interpretation bulletin dealing with
amalgamations, it is clearly stated that where an
assessment or reassessment of a predecessor corpo
ration is to be made after amalgamation, the
assessment will be issued to the new corporation.
Counsel for the defendant maintains that that does
not mean that a reassessment issued to a predeces
sor corporation is invalid and argues that interpre
tation bulletins are only to be used for assistance in
interpreting the Income Tax Act when the Minis
ter has taken a position contrary to an established
administrative policy set out in the bulletin. See
Hare! v. Dep. M. Rev. of Quebec, [1978] 1 S.C.R.
851 and Nowegijick v. The Queen, [1983] 1
S.C.R. 29; 83 DTC 5041.
In my opinion there is overwhelming evidence
that the policy of Revenue Canada was to direct a
notice of reassessment of a predecessor corporation
to the new corporation following amalgamation.
There is the testimony of Mr. Delavigne, the audi
tor from National Revenue dealing with the file.
He swore that had he been aware of the November
28, 1980 amalgamation he would not have reas
sessed Forest Glenn for Dixie's 1976 taxation year
but rather would have issued the reassessment
notice to Guaranty Properties. In cross-examina
tion Mr. Delavigne made it quite clear that offi
cials of the Department have been told not to
reassess predecessor corporations where there has
been an amalgamation and in fact they are to
reassess in accordance with the interpretation
bulletin.
The plaintiffs introduced as evidence three
notices of reassessment issued to Guaranty Proper
ties subsequent to the notice of reassessment of
June 23, 1981 which is the subject of dispute in
this case. Two of those reassessments were in
respect of Dixie's 1977 and 1978 taxation years.
These notices were all issued on May 31, 1982
after Revenue Canada officials discovered their
error and became aware of the amalgamation of
November 28, 1980.
Accordingly, I am satisfied that it was the policy
of Revenue Canada to reassess the new corpora
tion which resulted from amalgamation rather
than predecessor corporations. It is my opinion
that this is the only course of action which Reve
nue Canada can follow. It cannot pick and choose
which corporation it is going to reassess after an
amalgamation has occurred. Were this Court to
decide that the reassessment of Forest Glenn for
Dixie's 1976 taxation year is valid, a precedent
would be set which would allow Revenue Canada
in the circumstances of amalgamations to reassess
any corporation of its choice, either the predeces
sor or the new one. I do not believe that that is the
purpose of the legislation nor is it the intention of
Parliament and this is certainly confirmed by a
careful reading of subsection 87(1), by evidence as
well as the information bulletin.
The curative provisions of the Income Tax Act
will not assist the defendant in this case. It is clear
from the facts that a number of errors have pla
gued the defendant throughout this matter. The
auditor who should have been made aware of the
amalgamation was not advised and, by the time
this was discovered and matters rectified, the time
limit prescribed by statute for reassessing Dixie's
1976 taxation year had expired. Equity alone
would prevent the use of curative provisions such
as those contained within the Income Tax Act to
correct a substantive error of this nature. I am of
the opinion that the legislation does not contem
plate the amendment of a reassessment after the
expiry of a limitation period.
For the above reasons, I find the reassessment of
Forest Glenn with respect to the income of Dixie's
1976 taxation year to be invalid. Costs to the
plaintiffs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.