Date: 20050505
Dockets: A-391-04
A-392-04
A-393-04
A-394-04
Citation: 2005 FCA 166
CORAM: LINDEN J.A.
SEXTON J.A.
EVANS J.A.
BETWEEN:
A-391-04
GEORGE VITELLARO
Appellant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
A-392-04
BEATTE VITELLARO
Appellant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
A-393-04
AN-DELL ELECTRIC LIMITED
Appellant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
A-394-04
THE NAIL CENTRE AND ESTHETICS SALON
Appellant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
Heard at Toronto, Ontario, on May 5, 2005.
Judgment delivered from the Bench at Toronto, Ontario, on May 5, 2005.
REASONS FOR JUDGMENT OF THE COURT BY: EVANS J.A.
Date: 20050505
Dockets: A-391-04
A-392-04
A-393-04
A-394-04
Citation: 2005 FCA 166
CORAM: LINDEN J.A.
SEXTON J.A.
EVANS J.A.
BETWEEN:
A-391-04
GEORGE VITELLARO
Appellant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
A-392-04
BEATTE VITELLARO
Appellant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
A-393-04
AN-DELL ELECTRIC LIMITED
Appellant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
A-394-04
THE NAIL CENTRE AND ESTHETICS SALON
Appellant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Toronto, Ontario, on May 5, 2005)
EVANS J.A.
[1] These are the appeals of George and Beatte Vittallaro, and their companies, An-Dell Electric Limited and The Nail Centre and Esthetics Salon, from a decision of Justice von Finckenstein of the Federal Court. The appeals were heard together, and these reasons apply to all four. A copy of the reasons will be placed in each file.
[2] The Judge had dismissed applications for judicial review made by the appellants to set aside a refusal by the Canada Customs and Revenue Agency ("CCRA") to waive the interest and penalties owed by the appellants in respect of their income tax and GST liability.
[3] The Minister has a broad discretion to waive interest and penalties.
Income Tax Act, R.S.C. 1985, chap. 1 (5th Supp.)
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220(3.1) The Minister may at any time waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by a taxpayer or partnership and, notwithstanding subsections 152(4) to 152(5), such assessment of the interest and penalties payable by the taxpayer or partnership shall be made as is necessary to take into account the cancellation of the penalty or interest.
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220(3.1) Le ministre peut, à tout moment, renoncer à tout ou partie de quelque pénalité ou intérêt payable par ailleurs par un contribuable ou une société de personnes en application de la présente loi, 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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Excise Tax Act, R.S.C. 1985, c. E-13
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281.1 (1) The Minister may waive or cancel interest payable by a person under section 280.
(2) The Minister may waive or cancel penalties payable by a person under section 280.
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281.1 (1) Le ministre peut annuler les intérêts payables par une personne en application de l'article 280, ou y renoncer.
(2) Le ministre peut annuler la pénalité payable par une personne en application de l'article 280, ou y renoncer.
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[4] In order to facilitate the administration of these sections, which are part of the "fairness" provisions in the legislation, the Minister has issued guidelines setting out a non-exhaustive list of factors that will be considered in the exercise of the statutory discretion, including whether it would cause undue financial hardship to require the taxpayer to pay, and the taxpayer's compliance record.
[5] The standard of review applicable to the Minister's exercise of discretion is unreasonableness simpliciter: Lanno v. Canada Customs and Revenue Agency, 2005 FCA 153 at paras. 3-7. Although Lanno dealt with other discretionary provisions of the "fairness package" in the Income Tax Act, it is equally apposite here.
[6] The reasons given by the Minister for refusing to waive are contained in the report and recommendations of a CCRA official. In our view, they do not withstand the somewhat probing examination to which administrative decisions are to be subjected in order to determine whether they are unreasonable.
[7] The appellants based their request for a waiver on the undue financial hardship that they would suffer if they had to pay the interest and penalties. Consequently, an essential element of the fairness determination involved a calculation of the taxpayers' indebtedness to the CCRA and the assets available to them for discharging these debts. The reasons given for recommending that their request for a waiver be refused disclose serious errors in these calculations.
[8] First, in calculating the appellants' indebtedness, the CCRA official considered only the amount of the interest and penalties, which amounted to $248,566.07, but not the amount of tax owing, which was $424,835.85. Since no reasonable determination of hardship can be made without considering a taxpayer's total indebtedness to the CCRA, the Minister erred, in our view, by failing to take into account the amount owed by the appellants in taxes.
[9] Second, the CCRA official based her calculation of the equity that An-Dell Electric had in a property that it had acquired in 1989, a peak year in the real estate market, on the purchase price of $535,000, and ignored the fact that the market sharply declined soon thereafter. In our opinion, the official ought to have realized that, in these circumstances, the purchase price was not reliable proof of the current value of the property and, hence, of the amount for which it could be sold or mortgaged.
[10] For these reasons, the appeals will be allowed, the decision of the Federal Court set aside, the applications for judicial review granted, and the matters remitted to the Minister for redetermination on the bases that the supplemental affidavit of Mr. Vitellaro, dated March 15, 2004, and the amount of the appellants' tax indebtedness to the CCRA are taken into consideration.
"John M. Evans"
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-391-04
STYLE OF CAUSE: GEORGE VITELLARO v. CANADA CUSTOMS and REVENUE AGENCY
DOCKET: A-392-04
STYLE OF CAUSE: BEATTE VITELLARO v. CANADA CUSTOMS and REVENUE AGENCY
DOCKET: A-393-04
STYLE OF CAUSE: AN-DELL ELECTRIC LIMITED v. CANADA CUSTOMS and REVENUE AGENCY
DOCKET: A-394-04
STYLE OF CAUSE: THE NAIL CENTRE AND ESTHETICS SALON v. CANADA CUSTOMS and REVENUE AGENCY
PLACE OF HEARING: TORONTO, ON
DATE OF HEARING: MAY 5, 2005
REASONS FOR JUDGMENT
OF THE COURT: LINDEN, SEXTON AND EVANS JJ.A.
DELIVERED FROM THE
BENCH BY: EVANS J.A.
APPEARANCES:
Mr. George Vitellaro FOR THE APPELLANT (A-391-04 & A-392-04)
Mr. Christopher Jaglowitz FOR THE APPELLANT (A-393-04 & A-394-04)
Ms. Andrea Jackett FOR THE RESPONDENT
(A-391-04, A-392-04, A-393-04 & A-394-04)
SOLICITORS OF RECORD:
George Vitellaro
Mississauga, ON FOR THE APPELLANT (A-391-04 & A-392-04)
Gardiner, Miller, Arnold LLP
Toronto, ON FOR THE APPELLANT (A-393-04 & A-394-04)
John H. Sims, Q.C.
Deputy Attorney General of Canada FOR THE RESPONDENT
(A-391-04, A-392-04, A-393-04 & A-394-04)
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