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Dockets: UT02105 & UT02106
Order UT02-05

IN THE MATTER of appeals filed by Aliant Telecom Inc. against decisions of the Provincial Tax Commissioner, dated April 8, 2002 and April 24, 2002.

BEFORE THE COMMISSION

on Thursday, the 14th day of November, 2002.

Ginger Breedon, Chair
Maurice Rodgerson, Vice-Chair
James Carragher, Commissioner

Order

Contents

Reasons for Order

1.    Introduction

2.    Issue

3.    Discussion & Findings

4.    Disposition

Order

Reasons for Order

1.  Introduction

[1]        These are consolidated appeals filed by Aliant Telecom Inc. ("Aliant" or "Appellant") pursuant to Section 10 of the Revenue Administration Act R.S.P.E.I. 1988, Cap. R-13.2, against decisions of the Provincial Tax Commissioner ("Tax Commissioner" or "Respondent"), dated April 8, 2002 and April 24, 2002. The appeals relate to taxes assessed pursuant to Notice of Assessment No. 3687, dated December 21, 2001, and Notice of Assessment No. 3793, dated March 28, 2002 issued by the Department of Provincial Treasury.

[2]      Notice of Assessment No. 3687 covers the assessment period from January 1, 1997 to December 31, 1997 and involves tax of $449,687.53 on purchases and related interest of $388,648.48 for a total of $888,327.01. Notice of Assessment No. 3973 covers the assessment period January 1, 1998 to December 31, 1998 and involves tax of $255,280.28 on purchases and related interest of $168,753.68 for a total of $424,033.96.

[3]      The appeals were heard in Charlottetown on July 16, 2002. Post-hearing briefs were filed on August 15, 2002 and reply briefs were filed in mid-September.

[4}    The contributions of counsel and the witnesses in this proceeding are acknowledged.

2.    Issue

[5]      Section 38 of the Revenue Tax Act Regulations reads as follows:

38.  In making an assessment pursuant to the Act, the [Provincial Tax] Commissioner shall not consider a period prior to the four fiscal years immediately preceding the date of assessment unless there is a reasonable appearance to him of wilful default or fraud.

[6]      The words four fiscal years immediately preceding the date of assessment are at issue in these appeals. Aliant contends that these words and the regulation as a whole should be read and applied in the following way:

The date of the assessment for Assessment #3687 is December 21, 2001. Thus, four fiscal years immediately preceding the date of assessment commenced on December 21, 1997 and ended December 20, 2001. The period covered by this assessment is January 1, 1997 to December 31, 1997. The period of January 1, 1997 to December 20, 1997 is prior to the four fiscal years immediately preceding the date of assessment and therefore no assessment should have been raised for purchases made prior to December 21, 1997.

The date of assessment for Assessment #3793 is March 28, 2002. Thus, four fiscal years immediately preceding the date of assessment commenced on March 28, 1998 and ended on March 27, 2002. The period covered by this assessment is January 1, 1998 to December 31, 1998. The period January 1, 1998 to March 27, 1998 is prior to the four fiscal years immediately preceding the date of assessment and therefore no assessment should have been raised for purchases made prior to March 28, 1998.

(Appellant's Post Hearing Brief, p. 8)

[7]      The Tax Commissioner takes the position that the word fiscal is to be read as the fiscal year of the Appellant. According to Counsel for the Respondent:

The [Tax] Commissioner issued Notice of Assessment #3687 on December 21, 2001. It is the Commissioner's position that because Aliant's fiscal year of January 1, 2001 to December 31, 2001 was not ended at the time the Notice of Assessment was issued, that the fiscal year 'immediately preceding the Notice of Assessment' was the fiscal year January 1, 2000 to December 31, 2000. Therefore, the 'four fiscal years immediately preceding' Notice of Assessment #3687 were January 1, 2000 to December 31, 2000, January 1, 1999 to December 31, 1999, January 1, 1998 to December 31, 1998, and January 1, 1997 to December 31, 1997.

It is the Commissioner's position that the period January 1, 1997 to December 31, 1997 was properly the subject of an assessment for the Notice of Assessment issued December 21, 2001, under the provisions of section 38 of the Revenue Tax Act Regulations.

With regard to Notice of Assessment #3793, it is the Commissioner's position that the fiscal year immediately preceding the Notice of Assessment was January 1, 2001 to December 31, 2001. Therefore the four fiscal years immediately preceding Notice of Assessment #3793 were January 1, 2001 to December 31, 2001, January 1, 2000 to December 31, 2000, January 1, 1999 to December 31, 1999, and January 1, 1998 to December 31, 1998.

It is the Commissioner's position that the full period of January 1, 1998 to December 31, 1998 was properly the subject of an assessment for the Notice of Assessment issued March 28, 2002, under the provisions of section 38 of the Revenue Tax Act Regulations.

(Respondent's Post Hearing Brief, pp. 16-17)

[8]      In Commission Order UT02-1, dated January 16, 2002, (https://irac.pe.ca/Orders/salestax/2002/ut02-01.htm) the Commission had occasion to consider Section 38 of the Regulations. In that case, the appellant sought, among other things, to have a notice of assessment set aside in regard to the transfer of assets from a partnership to a corporation owned by one of the partners. After deciding that the transfer was not exempt under Section 20 of the Revenue Tax Act Regulations, the Commission had to deal with the issue of whether the assessment had been issued within the limitation period in Section 38. The following is the relevant portion of that decision:

(43)    We turn our attention, then, to the issue of whether the transfer falls within the four-year limitation period set out in Section 38 of the Revenue Tax Act Regulations. For ease of reference, Section 38 is repeated below:

38.  In making an assessment pursuant to the Act, the Commissioner shall not consider a period prior to the four fiscal years immediately preceding the date of assessment unless there is a reasonable appearance to him of willful default or fraud.

(44)    There is no suggestion here of willful default or fraud. The issue therefore centers on the question of what constitutes four fiscal years immediately preceding the date of assessment.

(45)    The date of assessment is August 31, 2000. The Tax Commissioner contends that the transfer was recorded on September 1, 1995. MR&S contends that the transfer occurred on August 31, 1995 pursuant to the terms of a purchase agreement. It is acknowledged by both parties that the fiscal year-end of the Appellant is August 31.

(46)    Based on the evidence before us, the relevant fiscal years of the Appellant would appear to be as follows: 

Fiscal Year

Number of Fiscal Years

Sep 1, 1999 – Aug 31, 2000

-

Sep 1, 1998 – Aug 31, 1999

1

Sep 1, 1997 – Aug 31, 1998

2

Sep 1, 1996 – Aug 31, 1997

3

Sep 1, 1995 – Aug 31, 1996

4

 

(47)    Section 38 of the Revenue Tax Act Regulations allows for an assessment to be made for the four fiscal years immediately preceding the assessment date. The words fiscal years are, in our view, to be read as the fiscal years of the firm being assessed. Provided, then, that the assessment date is sometime within the fiscal period September 1, 1999 to August 31, 2000,  the allowable assessment period would, in our view, begin on September 1, 1995.

(48)    As noted above, the assessment date at issue in this case is August 31, 2000. Since the date falls within the fiscal year of MR&S ending August 31, 2000, the Tax Commissioner cannot, in our view, consider any period prior to September 1, 1995.

[9] This decision was based on a conclusion that the phrase the four fiscal years refers to the fiscal year of the taxpayer. The Commission believed that the only two persons fiscal years could logically refer to are the taxpayer and the Government of Prince Edward Island. Section 38 establishes a limitation period in regard to the issuance of Notices of Assessment against taxpayers. The Commission therefore concluded that fiscal year must be that of the taxpayer and not the Government, as the fiscal year of the Government would have no relevance to an issue involving a taxpayer.

[10] The Respondent's Notices of Assessment at issue in these appeals are consistent with the Commission's findings in Order UT02-1.  As a result of these appeals, the Commission is called upon to again consider Section 38 of the Revenue Tax Act Regulations.

3.    Discussion & Findings

[11]     The issue before the Commission is one of statutory interpretation. As indicated above, this is the second time the Commission has been called upon to interpret Section 38.

[12]    The Appellant contends that the words of the taxpayer must be added to the words fiscal years to give the Regulation the meaning applied by the Respondent. According to Mr. Keefe:

In none of the leading cases on statutory interpretation do judges suggest that it is appropriate to add words to a legislative provision to determine the meaning of the provision. In this case, addition of words is the only way that the Commissioner's interpretation can be upheld. Each of the Commissioner's witnesses needed to add the words 'of the taxpayer' to the provision to give it the meaning promoted by the Commissioner. With respect, it is not for this Commission or a court to add words to the Regulation, that is the absolute and sole authority and responsibility of the Legislative Assembly and the Lieutenant Governor-in-Council (sic).

(Appellant's Post Hearing Brief, p.18)

[13]     According to the Appellant, the words of a statute are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament[1] The Appellant submits that there are five principles to be applied in interpreting a taxation statute and that these are set out in Quebec (Communante Urbaine) v. Corp. Notre Dame de Bonsecours (Corp.), [1994] 3 S.C.R. 3 (S.C.C).

[14]     The Appellant further submits that the Commission must interpret Section 38 of the Revenue Tax Act Regulations by identifying the purpose of the provision in light of the context of the Act, its objective and the Legislature's intent. According to Aliant, the legislative scheme and context of the Revenue Tax Act is to impose a transactionally-based tax on the consumption of goods and certain services.

[15]     The Appellant argues that the fiscal year of the taxpayer has no particular relevance to the Revenue Tax Act as sales tax is transactionally based. According to the Appellant, the term fiscal year is not defined in the Act and, as a result, the term must be placed in context before any true meaning can be assigned to it. 

[16]     The Appellant further submits that a fiscal year can run for any twelve-month period.  In its view, the only plain meaning that can be ascribed to the term fiscal year is that it is a twelve-month period, the end date of which immediately precedes the date of the assessment and the start of which is 365 days to prior to that date.  According to the Appellant, this is the only conclusion that results in equal treatment to consumers, as consumers who are individuals do not have fiscal years in the same sense as businesses.

[17]     Finally, and in the alternative, the Appellant submits that if, after the application of the ordinary rules of interpretation, there is some reasonable doubt, the doubt must be resolved in favor of the taxpayer.

[18]     The Respondent submits that the words fiscal years set out in Section 38 mean the fiscal years of the taxpayer. In its view, the omission of a definition of fiscal year from the Statute is not fatal. According to the Respondent, the words are capable of interpretation in their grammatical and ordinary sense. The proper interpretation to be applied to the words fiscal years is, in the Respondent's view, any yearly period established as an accounting period for business purposes.

[19]    The Respondent argues that, in interpreting legislation, there is a presumption that the Legislature avoids using superfluous or meaningless words.  In the Respondent's view, the presumption is that every word appearing in a statutory provision makes sense and is there for specific reason. Had the Legislature intended to limit the Tax Commissioner to assessing within four years prior to the date of issuance of the Notice of Assessment, the Respondent suggests that it would merely have put the word years in the Regulations.  Since the word fiscal was added, it must have been intended to have some meaning.

[20]    In response to the Appellant's submission that the fiscal year of a taxpayer is irrelevant because revenue tax is transaction based, the Respondent had this to say:

Aliant has indicated through its evidence . . . that revenue tax is a consumption tax, and the fiscal year of a taxpayer is not relevant because the tax is transaction based, and, unlike income tax, is not calculated based on a specific time period.

It is the Commissioner's position that while this may be correct, it is not relevant to the issue at hand. The issue at hand relates to the interpretation of section 38 of the Revenue Tax Act Regulations, and this section does not deal with the actual calculation of the tax. This section only deals with the limitation placed on the time period in which transactions may be assessed by the Commissioner. The fact that the Legislature referred to 'fiscal year' in constructing section 38 . . . makes the fiscal year relevant in making an assessment under the Revenue Tax Act.

(Respondent's Post Hearing Brief, pp. 13)

[21]    Having fully considered the evidence and the submissions of counsel, and bearing in mind the scheme, object and context of the Revenue Tax Act and Regulations, the Commission is of the opinion that the words contained in Section 38 of the Revenue Tax Act Regulations, when read in their grammatical and ordinary sense, support the decisions of the Tax Commissioner at issue in these appeals.

[22]    In our view, the overall purpose of the Revenue Tax Act is to raise revenue by way of a tax on the consumption of goods and certain services.  The purpose of Section 38 of the Revenue Tax Act Regulations is to create a limitation period beyond which the Tax Commissioner may not assess revenue tax. While we accept the view of counsel for Aliant that the Revenue Tax Act is transactionally based, we reject the concept that the words fiscal year should not have application to the limitation period set out in Section 38 of the Regulations.

[23]    The Commission is of the opinion that the issue of the establishment of a limitation period for assessment of tax must involve the calculation of a specific time period. Although fiscal year is not defined in either the Revenue Tax Act or the Interpretation Act, we understand that, in interpreting legislation, we should attempt to resolve a legislative provision using the ordinary rules of interpretation unless there is reasonable doubt. Where reasonable doubt exists, there must be a residual presumption in favour of the taxpayer.

[24]    As the word year is defined in the Interpretation Act, we believe that the inclusion of the adjective fiscal by the Legislature must have been intended for some purpose. The only purpose that is apparent is the creation of a year that is, in some manner, different from the calendar year defined in the Interpretation Act. Considerable expert evidence was heard on the meaning of the term fiscal year. Our conclusion—after having heard and considered this evidence—is that a fiscal year is merely a one-year time period created by a business for the reporting of its financial results. In this case, the fiscal year selected by Aliant is the same as the calendar year—January 1 to December 31. 

[25]    Section 38 of the Revenue Tax Act Regulations deals with the limitation period that confines the actions of the Tax Commissioner in making an assessment. In this context, it does not, in our view, appear unreasonable to conclude that the fiscal years referred to in Section 38 must be the fiscal year of the taxpayer being audited and against whom the assessment would be made.  For these reasons, we find that there is no reasonable doubt in determining that the words fiscal years in Section 38, when read in their grammatical and ordinary sense, must apply to the fiscal year of the taxpayer being assessed.

[26]    The Appellant's expert witness, Terry Soloman, noted that Section 38 applies to consumers and not just businesses. He then stated:

If, in this instance, the consumer was an individual who does not carry on business and, therefore, does not prepare accounts, the individual would not have a fiscal year.

[Prefiled evidence, Terry Soloman, p. 3]

[27]    The Appellant, in its closing argument, restates this argument as follows:
Even with the words 'of the taxpayer' inserted immediately following the term 'fiscal years' in Section 38, a reasonable doubt as the meaning of a 'fiscal year' remains. This is because a business may have more than one fiscal year and because not all consumers/taxpayers have a fiscal year.

[Appellant's Post Hearing Brief, paragraph 59]

[28]    Based on the evidence before us, the Commission finds that Aliant is a business corporation and has one identifiable fiscal year - January 1 to December 31.  It is possible Section 38 has a deficiency if it is applied to a consumer who is not in business and has no clearly identifiable fiscal year. In such a case involving an individual taxpayer, the Commission would have to hear and consider submissions on this suggested deficiency. In this case, the Appellant is a corporation with a clearly identifiable fiscal year.

[29]    Finally, there is the issue of reading in or adding words to the Statute. As indicated previously, the Appellant submits that the Tax Commissioner's interpretation can be upheld only if the words of the taxpayer are added to Section 38. In its reply brief, the Respondent submits:

For the Commission to 'read in' to a provision, it would have to be adding something new to the provision. It is the Commissioner's submission that the Commission would not be reading in anything new to section 38 of the Revenue Tax Act Regulations, but would be offering an interpretation of the meaning of the phrase 'fiscal years' within the context of the existing provision . . .

Further, it is the Commissioner's submission that 'fiscal years' does not need to contain the words 'of the person being assessed' , as the phrase  'fiscal years' and its context connotes this interpretation . . .

[Respondent's Reply Brief, paragraphs 7-8]

[30]    We accept this argument, as it appears to the Commission that this is not a case of reading in words or the failure of the Legislature to have a proper plan of administration of the Act. We believe we are interpreting or construing what the Legislation, as written, means.

[31]    For all of these reasons, and bearing in mind the scheme, object and context of the Revenue Tax Act and Revenue Tax Act Regulations, the decisions of the Tax Commissioner on appeal are affirmed. The appeals are therefore dismissed.

4.  Disposition

[32]    An order affirming the decisions of the Tax Commissioner and dismissing the within appeals will therefore be issued.

[1] See Stubert Investments Ltd. v. The Queen [1984], 10 D.L.R. (4th) (S.C.C.), at p.32

Order

UPON the appeals by Aliant Telecom Inc. against decisions of the Provincial Tax Commissioner, dated April 8, 2002 and April 24, 2002;

AND UPON hearing the evidence adduced as well as what was alleged by counsel at a hearing conducted in Charlottetown on July 16, 2002;

NOW THEREFORE, for the reasons given in the annexed Reasons for Order;

IT IS ORDERED THAT

1.    the decisions of the Provincial Tax Commissioner, dated April 8, 2002 and April 24, 2002, are affirmed; and

2.    the appeals are dismissed.

DATED at Charlottetown, Prince Edward Island, this 14th day of November, 2002.

BY THE COMMISSION:

Ginger Breedon, Chair

Maurice Rodgerson, Vice-Chair

James Carragher, Commissioner

NOTICE

Section 12 of the Island Regulatory and Appeals Commission Act reads as follows:

12. The Commission may, in its absolute discretion, review, rescind or vary any order or decision made by it or rehear any application before deciding it.

Parties to this proceeding seeking a review of the Commission's decision or order in this matter may do so by filing with the Commission, at the earliest date, a written Request for Review, which clearly states the reasons for the review and the nature of the relief sought.

Sections 13.(1) and 13(2) of the Act provide as follows:

13.(1) An appeal lies from a decision or order of the Commission to the Appeal Division of the Supreme Court upon a question of law or jurisdiction.

(2) The appeal shall be made by filing a notice of appeal in the Supreme Court within twenty days after the decision or order appealed from and the Civil Procedure Rules respecting appeals apply with the necessary changes.