Citation: 2006 FC 91
Ottawa, Ontario, this 27th day of January, 2006
PRESENT: THE HONOURABLE MR. JUSTICE JOHN A. O'KEEFE
JAMES WILLIAM ALLAN BREMER
- and -
THE ATTORNEY GENERAL OF CANADA
REASONS FOR ORDER AND ORDER
 This is an application by James William Allan Bremer (the "applicant") for judicial review of a decision of the Canada Customs and Revenue Agency ("CCRA" or the "respondent") which refused to grant the applicant relief from interest and penalty charges for the late filing of the applicant's income tax return for the 2002 tax year.
 The applicant seeks:
1. An order that the penalty for late filing be reduced from 10% to 5% of the balance owing at the time his tax return was due; and
2. An order that the interest charged by CCRA be adjusted to reflect the actual amount owed by the applicant.
 The applicant expected that he would receive a refund for the 2002 tax year as a result of tax deductions for charitable donations and tuition transfers from his three dependent children. However, he discovered in May 2003 that he owed income taxes because an insufficient amount of tax had been withheld from a payment he received under a severance agreement. To remedy this situation, the applicant made a special payment of $13,400 on May 14, 2003 to the Receiver General of Canada. He calculated that this amount was greater than the balance he owed, and that he would receive a refund of approximately $900.
 The applicant filed his return for the 2002 tax year on October 14, 2003, five months after the filing deadline of April 30, 2003. The CCRA assessed the applicant penalties and interest in respect of the late filing and late payment.
 The penalty amounted to 5% of the balance owing at the filing deadline, plus an additional 1% of the balance owing at the filing deadline for each month that the applicant was late in filing his return. In its original notice of assessment dated December 1, 2003, the CCRA calculated that the applicant had a balance of $15,436.27 owing at the filing deadline. Thus, the CCRA assessed a penalty of $1,543.63 (10% of the balance owed).
 The applicant noticed that CCRA had incorrectly calculated the taxes in the original notice of assessment. He notified CCRA of this error.
 On January 26, 2004, the CCRA issued a final notice of assessment, which corrected the error so that the balance of tax owed at the filing deadline was reduced to $12,440.57. The penalty and interest charges were accordingly reduced to reflect this adjustment. After taking into account that the applicant had already paid $13,400 on May 14, 2003, the balance owed by the applicant was $338.51. This was paid by the applicant.
 The applicant requested a fairness review of the penalty and interest charges. The charges were upheld by the CCRA by letter dated June 25, 2004, and again by the CCRA by letter dated March 24, 2005.
Reasons for the CCRA's Decision to Uphold the Assessment
 The CCRA found that the 10% late-filing penalty and the interest charges were properly applied, as the applicant had filed his return five months late. The CCRA then considered whether it was appropriate in the circumstances to exercise its discretion to cancel or reduce the penalty and interest charges under the "fairness legislation" of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the "Act"). The CCRA stated that the most important consideration for this determination is whether or not the penalty and interest charges arose because of extraordinary circumstances beyond the control of the taxpayer, which actually prevented him from meeting his income tax obligations as and when required. CCRA found that the applicant's explanation for his late filing-namely, that he had to wait to obtain tuition forms from his children-was not an adequate reason for filing beyond the due date. The CCRA noted that the applicant could have filed his 2002 return on time, and later, when tuition transfer forms were properly signed, requested a reassessment. The CCRA also noted that the applicant had a history of non-compliance with tax obligations, as he had filed late returns for the 1992 to 1995, 2001 and 2002 tax years. The CCRA concluded that there were no extraordinary circumstances that would have prevented the applicant from filing his return on time, and refused to grant relief from the penalty and interest charges.
 This is the judicial review of the CCRA's refusal to reduce the penalty and interest charges.
 The issues originally in this appeal were:
1. Did the CCRA err in not exercising its discretion to grant the applicant relief from the penalty for late filing?
2. Did the CCRA err in not making an adjustment to the interest assessed?
 The applicant did not dispute the basic 5% penalty for late filing. However, he disputed the additional 5% penalty, calculated as 1% of the balance owed at the filing deadline for each full month that the return is late. The applicant submitted that it is unfair that he had to pay this additional penalty, in light of the fact that he made a payment of $13,400 on May 14, 2003 which reduced the amount he owed to nil. He estimated that had he filed his return at the end of May 2003, the government would have owed him a refund of $344.77 after he paid the 5% basic penalty plus interest charges. The applicant submitted that the CCRA ignored the timing of his $13,400 payment and that the extra penalty of 5% was unreasonable.
 The applicant also disputed the interest charges. The applicant submitted that the interest charges amounted to $13.15 for late payment plus $40.73 for non-payment of the balance of $3,777.52 that was assessed in the original notice of assessment dated December 1, 2003. The applicant accepted that he had to pay the $13.15 for late payment, but submitted that he should not have to pay the other $40.73 in interest charges because they were due to a calculation error by CCRA which was subsequently corrected in the final notice of assessment.
 The respondent submitted that the appropriate standard of review is reasonableness (see Lanno v. Canada(Customs and Revenue Agency), 2005 FCA 153) and that the decision of the CCRA was reasonable. The respondent pointed out that the applicant had not claimed financial hardship in his request for relief.
 The respondent also submitted that the interest charge of $40.73 was accurately calculated as the applicant did not make a payment until May 14, 2003, approximately two weeks after the April 30th deadline.
Relevant Statutory Provisions
 The relevant provisions of the Act are as follows:
150.(1) Subject to subsection (1.1), a return of income that is in prescribed form and that contains prescribed information shall be filed with the Minister, without notice or demand for the return, for each taxation year of a taxpayer,
. . .
(d) in the case of any other person, on or before
(i) the following April 30 by that person or, if the person is unable for any reason to file the return, by the person's guardian, committee or other legal representative (in this paragraph referred to as the person's "guardian"),
. . .
161.(1) Where at any time after a taxpayer's balance-due day for a taxation year
(a) the total of the taxpayer's taxes payable under this Part and Parts I.3, VI and VI.1 for the year
(b) the total of all amounts each of which is an amount paid at or before that time on account of the taxpayer's tax payable and applied as at that time by the Minister against the taxpayer's liability for an amount payable under this Part or Part I.3, VI or VI.1 for the year,
the taxpayer shall pay to the Receiver General interest at the prescribed rate on the excess, computed for the period during which that excess is outstanding.
. . .
162.(1) Every person who fails to file a return of income for a taxation year as and when required by subsection 150(1) is liable to a penalty equal to the total of
(a) an amount equal to 5% of the person's tax payable under this Part for the year that was unpaid when the return was required to be filed, and
(b) the product obtained when 1% of the person's tax payable under this Part for the year that was unpaid when the return was required to be filed is multiplied by the number of complete months, not exceeding 12, from the date on which the return was required to be filed to the date on which the return was filed.
. . .
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.
150. (1) Sous réserve du paragraphe (1.1), une déclaration de revenu sur le formulaire prescrit et contenant les renseignements prescrits doit être présentée au ministre, sans avis ni mise en demeure, pour chaque année d'imposition d'un contribuable:
. . .
d) dans le cas d'une autre personne:
(i) au plus tard le 30 avril de l'année suivante, par cette personne ou, si celle-ci ne peut, pour quelque raison, produire la déclaration, par son tuteur, curateur ou autre représentant légal,
. . .
161. (1) Dans le cas où le total visé à l'alinéa a) excède le total visé à l'alinéa b) à un moment postérieur à la date d'exigibilité du solde qui est applicable à un contribuable pour une année d'imposition, le contribuable est tenu de verser au receveur général des intérêts sur l'excédent, calculés au taux prescrit pour la période au cours de laquelle cet excédent est impayé:
a) le total des impôts payables par le contribuable pour l'année en vertu de la présente partie et des parties I.3, VI et VI.1;
b) le total des montants représentant chacun un montant payé au plus tard à ce moment au titre de l'impôt payable par le contribuable et imputé par le ministre, à compter de ce moment, sur le montant dont le contribuable est redevable pour l'année en vertu de la présente partie ou des parties I.3, VI ou VI.1.
. . .
162. (1) Toute personne qui ne produit pas de déclaration de revenu pour une année d'imposition selon les modalités et dans le délai prévus au paragraphe 150(1) est passible d'une pénalité égale au total des montants suivants:
a) 5 % de l'impôt payable pour l'année en vertu de la présente partie qui était impayé à la date où, au plus tard, la déclaration devait être produite;
b) le produit de 1 % de cet impôt impayé par le nombre de mois entiers, jusqu'à concurrence de 12, compris dans la période commençant à la date où, au plus tard, la déclaration devait être produite et se terminant le jour où la déclaration est effectivement produite.
. . .
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.
Analysis and Decision
Standard of Review
 The Federal Court of Appeal discussed the standard of review to be applied to discretionary decisions of the Minister dealing with the fairness legislation under the Act in Lanno v. Canada (Customs and Revenue Agency), 2005 FCA 153 at paragraphs 6 and 7:
The reasons in Hillier do not include the "pragmatic and functional analysis" described in Pushpanathan v. Canada(Minister of Employment and Immigration),  1 S.C.R. 982. That analysis, in the context of discretionary decisions under the "fairness package", would require consideration of the following factors:
(1) The fairness package was enacted because Parliament recognized the need for relief from certain provisions of the Income Tax Act that can result in undue hardship because of the complexity of the tax laws and the procedural issues entailed in challenging tax assessments. The granting of relief is discretionary, and cannot be claimed as of right. This factor would point to a standard of review that is more deferential than correctness.
(2) The decision under review cannot be appealed, but it is subject to judicial review by the Federal Court, and it is not protected by a privative clause. That would point to a reasonableness standard.
(3) The decision under review combines fact finding with a consideration of the policy of tax administration, and sometimes questions of law. The expertise of the decision maker is undoubtedly higher than that of the courts in relation to matters of the policy of tax administration. However, the expertise of the decision maker is not higher than that of the courts in relation to questions of law or findings of fact. That would point to a reasonableness standard.
In my view, there is no relevant factor that points to a standard of review that is more deferential than reasonableness. Therefore, I must respectfully disagree with the decisions of the Federal Court in Sharma and Cheng and conclude that the standard of review in this case, as in Hillier, is reasonableness. As the Judge did not apply that standard to the decision under review, it is necessary for this Court to do so.
 In my view, after considering the factors of the pragmatic and functional approach, the same standard of review would apply to the decision under review in this case
 The presence or absence of a privative clause or statutory right of appeal
There is no statutory right of appeal and no privative clause in the legislation. The decision is, however, subject to judicial review. These factors would indicate a standard of review of reasonableness.
 The expertise of the decision-maker
The respondent certainly has considerable expertise in taxation matters. However, I am of the view that the Court is in as good a position as the respondent to make a determination with respect to the application of the fairness provisions and a determination of the relevant facts to justify the application of the fairness provisions. This factor again points to a standard of review of reasonableness.
 The purpose of the legislation or the provision in particular
The fairness provisions were enacted to grant relief to the taxpayer from interest and penalties. The relief is discretionary. This would indicate a more deferential standard of review than correctness.
 The nature of the problem
In the present case, the decision-maker had to apply the facts to the law. Hence, the decision-maker was dealing with a question of mixed fact and law and as such, more deference is called for. This factor indicates a standard of review of reasonableness.
 Given the above factors, I am of the view that a standard of reasonableness simpliciter should apply.
 Issue 1
Did the CCRA err in not exercising its discretion to grant the applicant relief from the penalty for late filing?
The late-filing penalty provision, section 162 of the Act, calculates the penalty as a percentage of the balance owing as of the filing deadline. This provision serves to deter taxpayers from filing their returns past the due date.
 After discovering that he owed taxes, the applicant made a payment of $13,400 in May 2003 which eliminated the balance owing. Unfortunately, he did not file his tax return until October 2003, and so he was assessed a 5% basic penalty for missing the deadline, as well as a 5% additional penalty for the five months that he was late in filing. This resulted in a late penalty charge of $1,244.06, which is 10% of $12,440.57, the balance he owed on April 30, 2003. I am satisfied that this is a correct application of the legislation.
 The applicant is asking to have the latter 5% penalty cancelled because it is unfair in the circumstances. Under the fairness provisions (in particular, subsection 220(3.1) of the Act), the Minister of National Revenue has the discretion to waive or reduce penalty or interest charges. The CCRA refused to grant relief under the fairness provisions, finding that there were no extraordinary circumstances that would have prevented the applicant from filing his return on time. The latter penalty was correct in law, however, the fairness provisions still apply.
 In its letter to the applicant dated March 24, 2005, the only mention made by the CCRA of the payment of $13,400 by the applicant was the following:
Although you made a payment on your tax debt on May 14, 2003, there was still an amount outstanding until you filed your return on October 14, 2003.
 As the applicant pointed out, there was no amount outstanding for taxes. The only amount outstanding when he filed his return on October 14, 2003 arose from the 1% per month penalty charge that applied for each month of late filing. In my opinion, the CCRA made a reviewable error with respect to this fact. I cannot tell what the decision with respect to the application of the fairness legislation would have been had this error not been made. Accordingly, the decision is not reasonable and must be set aside.
 The application for judicial review is therefore granted and the matter is referred to a different decision-maker for redetermination.
 IT IS ORDERED that the application for judicial review is granted and the matter is referred to a different decision-maker for redetermination.
"John A. O'Keefe"
January 27, 2006
NAME OF COUNSEL AND SOLICITORS OF RECORD
STYLE OF CAUSE: JAMES WILLIAM ALLAN BREMER
- and -
THE ATTORNEY GENERAL OF CANADA
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: November 22, 2005
REASONS FOR ORDER AND ORDER OF: O'KEEFE J.
DATED: January 27, 2006
No One Appearing
FOR THE APPLICANT
FOR THE RESPONDENT
SOLICITORS OF RECORD:
North York, Ontario
FOR THE APPLICANT
John H. Sims, Q.C.
Deputy Attorney General of Canada
FOR THE RESPONDENT