Date: 20101224
Docket: T-952-09
Citation: 2010 FC 1333
Ottawa, Ontario, December 24,
2010
PRESENT: The Honourable Mr. Justice Near
BETWEEN:
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BRADLEY A. YACHIMEC
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Applicant
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and
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THE MINISTER OF NATIONAL
REVENUE
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Respondent
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REASONS FOR JUDGMENT AND
JUDGMENT
[1]
This
is an application for judicial review of a May 13, 2009 decision of the
Minister of National Revenue (the Minister), rendered by his delegate Caroll
Sukich of the Canada Revenue Agency (CRA). In the decision, the Minister
refused to exercise his discretion under subsection 220(3.1) of
the Income Tax Act, R.S.C. 1985, c.1 (the Act) to grant the Applicant
taxpayer relief.
[2]
The
Applicant requests that the matter be referred back to the Minister for
redetermination by a delegate not previously involved in the review of the
Applicant’s request. Furthermore the Applicant asks the Court to order that
all material be reviewed; the review be conducted on the basis that the failure
to remit tax is due to a circumstance beyond the Applicant’s control, namely a
psychiatric disorder; that the compliance history to be considered is the
compliance history for the period prior to the development of the psychiatric
disorder.
[3]
Based
on the reasons below, this application is allowed.
I. Background
A. Factual
Background
[4]
The
Applicant, Mr. Bradley Yachimec, suffered a severe brain injury as a result of
a motor vehicle accident in 1985. He was 24 at the time of the accident, and
has been unable to work since. He receives a disability pension and some rental
income. Prior to the accident the Applicant worked at one of his family’s car
dealerships as a sales manager.
[5]
The
Applicant alleges that although he is able to live independently, his brain
injury has left him severely disabled; he has reduced cognitive function and
memory, is clinically paranoid and, in some respects, delusional. The
Applicant claims that he suffers from an unshakeable delusion that the
government has no legal right to impose income tax, and for that reason he has
refused to pay tax.
[6]
Medical
evidence submitted on the Applicant’s behalf shows that subsequent to the
accident, the Applicant developed psychiatric problems. When discharged from
the hospital in 1985, the Applicant was diagnosed as being in a “profound
post-traumatic confusional state with global impairment of all higher mental
functions” due to an “acute closed head injury.”
[7]
By
1989 a neurophysiologist report noted the development of psychological problems
due to the Applicant’s awareness of his own cognitive impairments due to the
injury. The assessor noted that the Applicant was anxious, depressed and
dissatisfied with himself and his level of functioning. Psychiatric treatment
was recommended. The assessor was of the opinion that the Applicant was
probably totally and permanently disabled.
[8]
A
1996 neuropsychological assessment noted that the Applicant spent most of his
time dwelling upon his disability and his sense of injustice at the hands of
others, including his family members and lawyers. The assessor noted that the
Applicant’s thinking was subject to mental confusion, “contributing to
disturbed and unconventional thought processes, of a decided cynical and
paranoid flavour” and later in the report the assessor concluded that “an
acquired personality disturbance is likely.”
[9]
By
this time, the CRA had already become aware that the Applicant had
psychological problems. The “Chronological Order of Events” that was before
the decision-maker notes that as early as 1993 the CRA received a letter from
the Applicant stating:
I really appreciate your notices of the
illegal money source for the Canadian Government. Your best bet would be to get
me into a Court of Law, before I personally send a Statement of Claim against
Revenue Canada Taxation and get you into Court.
[10]
In
the following years, the Applicant maintained his position that income tax was
unconstitutional and made this clear in his interactions with the CRA. The CRA
noted in January 1996 that the Applicant “seems to have mental problem”
and during a visit to their office in October 1996 the notes record that the
Applicant went on in circles and gave a package to CRA employees containing
letters to the Prime Minister and Ralph Klein, among others, claiming that all
the departments were illegal and not constitutional.
[11]
The
Applicant paid his taxes up until 1991. However, consistent with the behaviour
noted by the CRA, from 1992 onwards the Applicant showed complete disregard for
tax obligations. The years in issue in the present application are 1995-2007.
[12]
The
Applicant retained his present legal counsel for assistance with certain legal
issues. Over the course of dealing with the Applicant, counsel became aware
that the Applicant had not been filing tax returns. The Applicant refused to
pay tax until he was given an opportunity to make representations in court to a
judge on the constitutionality of the CRA’s claim. He was given this
opportunity via an application made in 2007. The Applicant’s claims were dismissed.
[13]
On
the Applicant’s behalf, the Applicant’s counsel filed a first level request to
the Minister of National Revenue for relief under subsection 220(3.1) of the Act
with respect to waiver of interest and penalties for the Applicant’s 1995 to
2007 taxation years on March 7, 2008.
[14]
The
Applicant sought to have the interest and penalties cancelled or waived on the
basis of extraordinary circumstance, namely the delusions and mental disability
that arose as a result of his brain injury.
[15]
Attached
to the first request was a letter from Dr. Sanderman, the Applicant’s
psychiatrist. When the Applicant first met with his present counsel, there
were concerns regarding his competence to give instructions and he was sent to
see Dr. Sanderman in that regard. Dr. Sanderman continued to treat the
Applicant and observed:
Mr. Yachimec’s delusions
revolved around the federal government and the issue of taxation. Subsequently,
I do not feel that he understands his obligation to pay tax but rather feels he
is being slighted and put upon duly by the federal government.
[16]
On
August 27, 2008 the Applicant’s first level request for relief was denied on
the basis that, notwithstanding the Applicant’s submission of Dr. Sanderman’s
opinion, no medical information was submitted to substantiate his reasons for
not complying with his tax obligations.
[17]
The
Applicant made a second level request for relief under subsection 220(3.1) by
letter dated September 9, 2008, and thereafter provided further medical
documentation in support of the request including a second medical opinion by
Dr. Sanderman dated September 30, 2008 and the 1989 and 1996 neuropsychological
assessments.
[18]
On
December 2, 2008, the Applicant’s second level request was denied. A delegate
of the Minister, different from the first delegate, determined that relief was
not warranted based on the submitted medical documentation and the Applicant’s
compliance history. The delegate acknowledged that the Applicant was disabled,
but based on the fact that he was never declared a dependent adult found that
he remained responsible for his tax obligations.
[19]
After
the issuance of the December 2, 2008 second level decision of the Minister, the
Applicant provided additional medical documentation in support of his request.
As a result, an application was made to the Federal Court for judicial review
of that decision, and by consent the application was granted. The Applicant’s
request for waiver of interest and penalties was referred back to the Minister
for reconsideration by a delegate not previously involved in the review of the
Applicant’s request with a direction that all material be reviewed.
B. Impugned
Decision
[20]
The
Applicant’s request for relief was denied by a delegate of the Minister on
May 13, 2009. The delegate found that the Applicant was competent,
as previously stated, and therefore responsible for his tax obligations.
[21]
This
is the decision under review.
II. Issues
[22]
The
only issue raised in this application is whether the Minister, in exercising
his discretion pursuant to subsection 220(3.1) of the Act:
(a) based his decision on an erroneous
finding of fact that he made in a perverse or capricious manner or without
regard for the material before him, or
(b) failed
to observe a principle of procedural fairness.
A. Statutory
Scheme and Guidelines
[23]
Subsection
220(3.1) of the Act provides:
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Waiver
of penalty or interest
(3.1)
The Minister may, on or before the day that is ten calendar years after the
end of a taxation year of a taxpayer (or in the case of a partnership, a fiscal
period of the partnership) or on application by the taxpayer or partnership
on or before that day, waive or cancel all or any portion of any penalty or
interest otherwise payable under this Act by the taxpayer or partnership in
respect of that taxation year or fiscal period, and notwithstanding
subsections 152(4) to (5), any assessment of the interest and penalties
payable by the taxpayer or partnership shall be made that is necessary to
take into account the cancellation of the penalty or interest.
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Renonciation
aux pénalités et aux intérêts
(3.1)
Le ministre peut, au plus tard le jour qui suit de dix années civiles la fin
de l’année d’imposition d’un contribuable ou de l’exercice d’une société de
personnes ou sur demande du contribuable ou de la société de personnes faite
au plus tard ce jour-là, renoncer à tout ou partie d’un montant de pénalité
ou d’intérêts payable par ailleurs par le contribuable ou la société de
personnes en application de la présente loi pour cette année d’imposition ou
cet exercice, ou l’annuler en tout ou en partie. Malgré les paragraphes
152(4) à (5), le ministre établit les cotisations voulues concernant les
intérêts et pénalités payables par le contribuable ou la société de personnes
pour tenir compte de pareille annulation.
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[24]
The
Minister’s exercise of discretion under subsection 220(3.1) is subject to
review by the Federal Court pursuant to section 18.1 of the Federal Courts
Act.
[25]
The
guidelines for exercising this discretionary power are set out in Information
Circular 1C07-1, entitled “Taxpayer Relief Provisions” (the Guidelines).
[26]
The
circumstances where relief from penalty and interest may be warranted include, inter alia,
situations of extraordinary circumstances.
[27]
The
Guidelines describe extraordinary circumstances as follows:
Extraordinary Circumstances
25. Penalties and interest may be waived
or cancelled in whole or in part where they result from circumstances beyond a
taxpayer’s control. Extraordinary circumstances that may have prevented a
taxpayer from making a payment when due, filing a return on time, or otherwise
complying with an obligation under the Act include, but are not limited to, the
following examples:
(a) natural or man-made
disasters such as, flood or fire;
(b) civil disturbances or disruptions in
services, such as a postal strike;
(c) a serious illness or
accident; or
(d) serious emotional or mental distress,
such as death in the immediate family.
[28]
The
Guidelines are not exhaustive and are not meant to restrict the spirit or
intent of the legislation. They also list the factors that the CRA will
consider when determining whether penalties and interest will be waived or
cancelled (para. 33):
(a) whether or not the
taxpayer has a history of compliance with tax obligations;
(b) whether or not the taxpayer has
knowingly allowed a balance to exist on which arrears interest has accrued;
(c) whether or not the taxpayer has
exercised a reasonable amount of care and has not been negligent or careless in
conducting their affairs under the self-assessment system; and
(d) whether or not the taxpayer has acted
quickly to remedy any delay or omission.
III. Standard
of Review
[29]
Both
parties agree that the appropriate standard of review of a discretionary
decision of the Minister under subsection 220(3.1) is reasonableness. This is
supported by recent jurisprudence of the Federal Court of Appeal: Slau Ltd.
v. Canada (Revenue
Agency),
2009 FCA 270, 3 Admin L.R. (5th) 251 at para. 27 and Telfer v. Canada (Revenue
Agency),
2009 FCA 23, [2009] 4 C.T.C. 123 at para. 25.
[30]
As
set out in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1
S.C.R. 190; and Khosa v. Canada (Minister of
Citizenship and Immigration), 2009 SCC 12; [2009] 1 S.C.R. 339
reasonableness requires consideration of the existence of justification, transparency,
and intelligibility in the decision-making process. It is also concerned with
whether the decision falls within a range of acceptable outcomes that are
defensible in respect of the facts and law.
[31]
Questions
of procedural fairness are reviewed on a standard of correctness
IV. Argument
and Analysis
A. The
Minister’s Decision was Unreasonable and Based on a Clear Misapprehension of the
Facts
[32]
The
forgiveness of interest and penalties provision under subsection 220(3.1) is
intended to allow Revenue Canada to administer the tax system more fairly by
granting the Minister latitude in dealing with taxpayers who, due to
circumstances beyond their control, are unable to meet deadlines or comply with
the rules under the Act. (Kaiser v. Canada (Minister of National Revenue -
M.N.R.), 93 F.T.R. 66, [1995] 2 C.T.C. 329 at para. 8). This provision is
part of the so-called “fairness package” and aims to allow for the application
of common sense in such situations.
[33]
The
power to grant relief is a discretionary, and cannot be claimed as of right.
However, this power must nonetheless be exercised in good faith, in accordance
with the principles of natural justice, in reliance on relevant factors without
regard to irrelevant or extraneous ones (Lalonde v. Canada (Revenue Agency),
2010 FC 531, 2010 D.T.C. 5082 at para. 32)
[34]
The
Court can also intervene where the decision is based on a misapprehension of
the facts (Johnston v. Canada, 2003 FCT 713, [2003] 4 C.T.C. 32 at para.
23).
[35]
The
Applicant reads the Decision as denying the Applicant relief based on
insufficient medical evidence, the Applicant’s compliance history and a finding
that the Applicant is competent. The Applicant submits that the Decision shows
a misapprehension of the relevant facts and constitutes a misapplication of the
guidelines.
[36]
The
Applicant argues that, based on the medical documentation submitted, he has
established on a balance of probabilities that his failure to pay taxes arises
from extraordinary circumstances beyond his control; namely a psychiatric
disability resulting in delusions. The Applicant relies on caselaw
establishing that under the Guidelines the primary factor to be considered by
the Minister in a request for fairness relief is whether the circumstances were
beyond the taxpayer’s control (3500772 Canada Inc. v. Canada (Minister of
National Revenue - M.N.R.), 328 F.T.R. 188, [2008] 4 C.T.C. 1 (F.C.) at
para. 39).
[37]
Furthermore,
the Applicant argues that the compliance history that ought to be considered in
making the decision is the compliance history relating to the period in which
compliance was within the control of the taxpayer, not the period during which
the taxpayer experienced extraordinary circumstances. In the case of the
Applicant, this would be the period pre-dating the development of his
psychiatric problems, namely the period prior to 1992. Up until that time the
evidence shows that the Applicant was compliant.
[38]
Lastly,
the Applicant disputes that the previous finding of competence is relevant to
the Applicant’s condition during the time period in question, the years
1995-2007. Apparently this finding refers to a failed court application in
1991 brought by the Applicant’s father and brother to be appointed as his
trustees. The Applicant points to the fact that the application was dismissed
without written reasons and that it pre-dated the development of the
Applicant’s delusions regarding the legality of income tax. The Applicant
submits that it is a misapprehension of the facts to conclude that the
Applicant was found to be competent by any court during the time period in
question.
[39]
The
Respondent submits that the Applicant requested the relief of waiver of
interest and penalties with respect to outstanding tax payable on the basis
that he suffered delusions that taxation was illegal due to a brain injury
suffered in 1985. It is the Respondent’s position that the Minister was never
presented with the information that the delusions only began sometime in the
1990’s and not in 1985 at the time of the accident. The Applicant argues that
this assertion appears for the first time in the Applicant’s written
submissions in this application and as such it is irrelevant to the Court’s
review of the Decision. Further, a consideration of the Applicant’s compliance
from 1985 onwards was proper, relevant and necessary given the Applicant’s own
submissions.
[40]
The
Respondent asserts that the Applicant only asks this Court to reweigh the facts
so as to arrive at the conclusion advocated by the Applicant. The Respondent
points out that the weighting of the factors goes to the heart of the exercise
of discretion and the Court is not able to disturb the weighting by the
Minister solely on the basis that the Court would have done it differently.
[41]
I
have carefully considered the Respondent’s submission that the Applicant is
arguing for the first time on judicial review that his delusions began sometime
in the 1990’s and not in 1985.
[42]
Certainly
the present case is complicated – by the Applicant’s condition, which as
attested to by Dr. Sanderman, is hard for the federal government to understand,
by the Applicant’s long dealings with the CRA, which Applicant’s counsel
described in the initial request as lengthy and complex, and even by the route
the Applicant’s request has taken to end up here, at its second judicial
review.
[43]
That
the Applicant developed the delusions which prevented him from paying taxes
some time after his accident, but all the same due to the brain injury he
sustained in the accident, is consistent with all of the evidence that was
before the Minister. The September 30, 2008 letter from Dr. Sanderman stated:
By definition one cannot talk
a person out of a delusional belief and here lies the problem… I do feel
strongly that his current complex legal situation in regards to his dealings
with the Federal Government over his taxes are a result of his severe head
trauma and the subsequent cognitive disruption and thought disorder.
[Emphasis added]
[44]
Although
the Applicant’s written submissions for this application make the chronology of
the Applicant’s psychiatric evolution much clearer, this information is
available in the record used by the delegate. A better descriptor for this
“new argument” might be, and indeed I find that it properly is, a
misapprehension of the facts.
[45]
The
Respondent submits that it was for the Applicant to satisfy the Minister that
not only did he suffer an injury, but that the injury was the cause of his
failure to file tax returns and pay tax. The Respondent relies on Formosi
v. Canada (Revenue Agency), 2010 FC 326
wherein a delinquent taxpayer failed to convince the Court that there was any
connection between several deaths and illnesses of immediate family members and
his inability to pay his taxes. This case has no relation to the present
matter in which there is ample documentary evidence to support that the
Applicant suffered an injury and that this was the cause of his failure to pay
tax. That these events, the brain injury and the onset of delusion, are not
temporally simultaneous does not negate their existence.
[46]
Further,
although notes in the record indicate that the Applicant’s father and brother
unsuccessfully tried to have him declared a dependent adult in the 1990’s, the
record also indicates that the father and brother successfully convinced the
Applicant to sign a consent form to have his taxes actioned by an accountant.
Returns are presently being sent in on time since 2007, but are not signed by
the Applicant. This seems inconsistent with the conclusion reached by the
reviewer in the first instance:
Discussed account with
Director. It was felt that as the courts have determined that the taxpayer is
not a dependent adult and should be responsible for his taxes. Taxpayer has
not taken steps to start taking care of the debt at this time.
[47]
The
review of fairness decisions require the Court to engage in a “somewhat probing
examination” to determine whether the reasons for a decision, when taken as a
whole, support the decision (334156 Alberta Ltd. v. Canada (Minister of
National Revenue - M.N.R.), 2006 FC 1133, 300 F.T.R. 74 at para. 7). In
the present case, it is certainly open to the Minister to determine that the
Applicant does not warrant taxpayer relief. However, the reasons, as they
stand demonstrate a misapprehension of the Applicant’s circumstances that is
out of sync with the spirit and intent of the fairness provisions of the Act.
B. Procedural
Fairness
[48]
Following
the first judicial review, the Court ordered that the decision be referred back
for reconsideration by a delegate not previously involved. The Applicant
submits that this instruction was intended to allow an individual unfettered by
previous experience with the matter to bring a fresh and unbiased approach to
the review of the request. The Applicant contends that, despite this
instruction, the delegate preparing the Decision was heavily influenced by the
prior decision, and approached the matter on the basis that the prior decision
would only be varied if the additional matter to be considered was
determinative. The Applicant bases this claim on the fact that of the eight
paragraphs in the Decision, six of them are identical, word for word, with the
prior decision.
[49]
The
Respondent argues that the decision was the result of a review of all
information and documentation relating to the Applicant’s request for relief,
including the earlier decisions of the Minister’s delegates. In the
Respondent’s view this does not breach any rules of procedural fairness. Each
delegate, the Respondent argues, came to his or her own determination.
[50]
Having
reviewed the record, it is clear that the delegate engaged in her own
analysis. I cannot come to the conclusion that the delegate’s discretion was
fettered in any way.
V. Conclusion
[51]
In
consideration of the above conclusions, this application for judicial review is
allowed and the matter referred back to the Minister for redetermination by a
delegate not previously involved in the review of the Applicant’s request.
[52]
The
Applicant is entitled to his costs.
JUDGMENT
THIS COURT’S JUDGMENT
is that
this application for judicial review is allowed and
costs are awarded to the Applicant.
“ D.
G. Near ”
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