Date: 19980811
Docket: 96-4142-IT-G
BETWEEN:
GENE DORIS ARMSTRONG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Teskey, J.T.C.C.
[1] The Appellant appeals an assessment issued pursuant to subsection 159(3) of the Income Tax Act (the "Act") for $88,880.59 in respect of distribution of the said amount from the estate of the late Herman Brock Armstrong, (the "deceased"), without first obtaining a clearance certificate from the Minister of National Revenue (the "Minister") pursuant to subsection 159(2).
ISSUE
[2] The issue before me is whether the Appellant can challenge the deceased's assessment of income tax.
FACTS
[3] The parties agreed as to certain facts, which are as follows:
a) That Brock Armstrong was a director of Rogers and Associates Management Limited ("Rogers") from January 23, 1978 to March 31, 1985;
j) Brock Armstrong passed away on July 14, 1992;
k) The Appellant, Mrs. Gene Doris Armstrong, was the responsible representative administering, controlling or otherwise dealing with the estate of Brock Armstrong;
l) The Appellant distributed property of the estate of Brock Armstrong to one or more persons and the Appellant had control over this property in her capacity as responsible representative;
m) The Appellant did not obtain a certificate under subsection 159(2) of the Income Tax Act;
n) The value of the property distributed was $88,880.59.
[4] The deceased was first assessed for $345,979.87 pursuant to subsection 227.1(1) of the Act, notice of which is dated February 27, 1987. The deceased objected to this assessment and the Minister reassessed the deceased by decreasing the original assessment by $10,811.57, notice of which is dated October 12, 1988. At that time, the total liability including interest was $391,715.97. The deceased took no steps to either object to this reassessment or to appeal the same at any time. The time period for either procedure has long since expired.
[5] Rogers was assessed for unremitted source deductions, penalties and interest in July and August of 1984 and September 1985.
[6] On September 30, 1985, solicitor Malcom D. Lennie ("Lennie"), on behalf of Rogers, agreed to remit to Revenue Canada the net proceeds from the sale of all assets of Rogers comprising of office furniture and a small parcel of land (the "lot").
[7] The assessed value of the Lot for municipal tax purposes in 1985 was $3,900.
[8] On March 10, 1986, Lennie advised Revenue Canada that as soon as snow was cleared from the lot, it would be listed for sale with a Realtor, with the expectation that the sale would be negotiated to generate approximately a gross amount of $12,000.
[9] On July 23, 1986, Lennie forwarded to Revenue Canada a cheque for $20,000 to be applied to Rogers' indebtedness and confirmed that the lot was listed for sale and no offers were received. Presumably, the $20,000 represents the net value of the sale of the office furniture.
[10] On October 8, 1985, Revenue Canada filed a Writ of Fieri Facias with the Sheriff's Office in Edmonton.
[11] On February 17, 1987, Revenue Canada advised the Sheriff's Office that it did not believe there were any assets in existence upon which a recovery could be affected. Revenue Canada also advised that the only asset that it was aware of was the lot. It requested the Sheriff to attend at Lennie's office and attempt a seizure of any existing assets and when completed, issue a certificate of nulla bona.
[12] The next day, a bailiff attended as instructed and confirmed there were no assets to seize.
[13] On February 25, 1987, a Deputy Sheriff signed an affidavit to the effect that to the best of her knowledge and belief, there were no goods belonging to Rogers which could be seized or realized on, under under the execution.
[14] On January 17, 1991, Lennie, on behalf of the deceased and three other clients, offered on behalf of all four clients that they would pay Revenue Canada $250 a month on the indebtedness.
[15] The deceased in his lifetime made 17 monthly payments to Revenue Canada in the amount of $250 on the first of each month, commencing in March of 1991 to July of 1992.
[16] A further payment of $250 was made on August 1, 1992, some 16 days after his death, presumably by way of a post-dated cheque held by Revenue Canada and cashed before it and the Bank were aware of the deceased's death.
[17] The Surrogate Court of the Judicial District of Edmonton issued Letters Probate on May 3, 1993 granting the administration of the property of the deceased to his widow, the Appellant herein, she having been sworn to well and feathfully administer the Estate by paying the just debts of the deceased.
[18] Title to the lot is still in Rogers' name with the Writ of Execution filed against it. In 1995, the Municipality registered a Tax Recovery Notice, but I am advised that no steps have been taken on the Notice. Revenue Canada, in 1995, believed the lot had a gross value of $9,000.
ANALYSIS
[18] Subsection 159(2) requires an executor, before distributing assets of a deceased to any beneficiary thereof, to apply for and obtain a clearance certficate from the Minister. This subsection reads:
(2) Certificate before distribution
Every person (other than a trustee in bankruptcy) who is an assignee, liquidator, receiver, receiver-manager, administrator, executor or any other like person (in this section referred to as the “responsible representative”) administering, winding up, controlling or otherwise dealing with a property, business or estate of another person shall, before distributing to one or more persons any property over which the responsible representative has control in the capacity of the responsible representative, obtain a certificate from the Minister, by applying therefor in prescribed form, certifying that all amounts
(a) for which any taxpayer is liable under this Act in respect of the taxation year in which the distribution is made, or any preceding taxation year, and
(b) for the payment of which the responsible representative is or can reasonably be expected to become liable in that capacity
have been paid or that security for the payment thereof has been accepted by the Minister.
[19] Subsection 159(3) is the provision that makes an executor personally liable for an amount distributed to a beneficiary prior to or without obtaining the clearance required by subsection 159(2). Subsection 159(3) reads:
(3) Personal liability
Where a responsible representative distributes to one or more persons property over which the responsible representative has control in that capacity without obtaining a certificate under subsection (2) in respect of the amounts referred to in that subsection, the responsible representative is personally liable for the payment of those amounts to the extent of the value of the property distributed and the Minister may assess the responsible representative therefor in the same manner and with the same effect as an assessment made under section 152.
[20] I am satisfied that after the appeal period to dispute the reassessment of tax had expired, notice of which is dated October 12, 1988, there were no remedies available to the deceased in his lifetime or by his Estate. The Federal Court of Appeal dealt with this very issue in The Minister of National Revenue and the Executors of the Estate of the late Hugh John Flemming, reported as 84 DTC 6345. The headnote succinctly summarized the decision therein. It reads:
The Court found that the only way in which the taxpayers could challenge the assessment was pursuant to the appeal provisions found in the Income Tax Act. No distinction in this respect could be made between questions of "quantum and liability" and questions of "legal authority".
[21] The Appellant herein argues that because her assessment rests on the assessment of tax against her husband, she can dispute the validity of the assessment against him. I think not. Since she, as executrix of the estate, could not challenge the assessment, how can she now challenge the assessment because she acted contrary to subsection 159(2). Her liability for her husband's debt arises as a result of her actions as executrix of the estate for not complying with subsection 159(2). All she had to do was follow the provisions found in subsection 159(2) of the Act and there would have been no liability against her. Her position in law cannot be any higher after a failure to follow subsection 159(2) than prior thereto.
[22] The Will makes it abundantly clear that she was the sole beneficiary of the estate. Thus, the complained distribution was from the estate to herself personally.
[23] The Appellant did not give any evidence at the trial nor was any attempt made to justify her actions. Although, the issue is not before me, it appears that the Respondent herein could have sued the Appellant personally for her husband's debt in the Alberta Court of the Queen's Bench and recover the same amount therein, on the basis that she failed, as executrix, to pay the debts of the estate as she swore to do and which was her legal obligation. The first obligation of an executor or executrix is to pay the funeral expenses, then the just debts, then distribute the property. The provisions of subsections 159(2) and (3) simply makes it easier for Revenue Canada to collect what is owing to it if an executor or executrix does not pay a debt to Revenue Canada prior to distribution. There is no evidence before me that the Appellant, as executrix, ever advertised for creditors or if she had knowledge of the debt to Revenue Canada.
[25] The appeal is dismissed, with costs to the Respondent.
Signed at Ottawa, Canada, this 11th day of August, 1998.
"Gordon Teskey"
J.T.C.C.