Bozzer v. Canada, 2010 DTC 5025 [at 6612], 2010 FC 139, rev'd 2011 DTC 5106 [at 5922], 2011 FCA 186

 

 

Date: 20100211

Docket: T-826-08

Citation: 2010 FC 139

Ottawa, Ontario, February 11, 2010

PRESENT:     The Honourable Mr. Justice Shore

 

 

BETWEEN:

RONNIE LOUIS BOZZER

Applicant

and

 

HER MAJESTY THE QUEEN IN RIGHT OF CANADA

(as represented by the Minister of National Revenue in

his capacity as Minister responsible for the Income Tax Act)

 

and

 

CANADA REVENUE AGENCY

 

and

 

THE ATTORNEY GENERAL OF CANADA

Respondents

 

REASONS FOR JUDGMENT AND JUDGMENT

 

I.  Overview

[1]               The Court, in its statutory interpretation role, recognizes that certain phrases used in legislation may appear ambiguous when read in isolation.

The definition of an individual, by itself, although ambiguous when read in isolation, becomes clear when its usage throughout a statutory scheme is examined in its full context.

Just as a tree in a forest, examined in isolation, loses its significance to the whole, when not understood for its part in that whole, the term, “taxation year” in the Income Tax Act, R.S.C. 1985, c. 1 (5^th Supp.), as amended by S.C. 2008, c. 28 (ITA) requires a context in which to be understood. 

The Applicant argues that subsection 220(3.1) of the ITA is ambiguous and therefore, it should use the residual presumption in favour of the taxpayer to construe it in favour of the taxpayer. While the residual presumption is a tool at the Court’s disposal, the Court takes note of the ruling in Québec (Communauté urbaine) v. Corporation Notre-Dame de Bon-Secours, [1994] 3 S.C.R. 3, 50 A.C.W.S. (3d) 541 where the Supreme Court held that the residual presumption is exceptional and should only be used when a court must choose between two valid interpretations. The Supreme Court also cited the case of Symes v. Canada, [1993] 4 S.C.R. 695, 44 A.C.W.S. (3d) 824 and held that “[o]nly a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer” (Notre-Dame de Bon Secours at p. 20).

The Court notes that “taxation year” is a term that is widely-used throughout the ITA; therefore, the Court considers that any analysis of the meaning of this phrase must examine its use throughout the legislative scheme.

 

 

 

 

II.  Introduction

[2]               This is an application for judicial review of orders, decisions or recommendations made on or about April 29, 2008 by the Canada Revenue Agency (CRA) to reject the Applicant’s request for a waiver of interest under subsection 220(3.1) of the ITA.

 

III.  Background

[3]               On September 8, 2006, the Applicant, Mr. Ronnie Louis Bozzer, made a request to the Minister of National Revenue to have the interest in respect of a tax debt that arose in 1989-1990 waived in accordance with the discretion granted in subsection 220(3.1) of the ITA.

 

IV.  Decision under Review

[4]               The Minister denied the Applicant’s request on the ground that the 2005 amendment to subsection 220(3.1) of the ITA limits the Minister’s discretion to a ten year period after the relevant year of assessment. Accordingly, the Minister found the Applicant’s interest was payable in respect of a year that was outside of the limitation period and the Minister lacked the authority to consider the Applicant’s request.

 

V.  Issues

[5]               The Applicant’s submissions can be reduced to three issues:

1)      Did the Minister erroneously interpret subsection 220(3.1) of the ITA?

2)      Is subsection 220(3.1) of the ITA ambiguous in respect of the limitation period applicable to the Minister’s discretion to waive interest?

3)      Does the Minister’s current interpretation of subsection 220(3.1) of the ITA lead to arbitrary, unfair and unjust results for tax debts which arose prior to March 4, 2004?

 

[6]               The Respondent submits there are two issues:

1)      Did the Minister erroneously interpret subsection 220(3.1) of the ITA?

2)      Does the Minister’s decision contravene subsection 18.1(4) of the Federal Courts Act, R.S.C., 1985, c. F-7?

 

VI.  Relevant Legislative Provisions

[7]               Subsection 220(3.1) of the ITA reads:

 

 

[8]               Subsection 45(4) of the Interpretation Act, R.S.C. 1985, c. I-21 states:

 

 

VII.  Summary of Parties’ Positions

Applicant’s Position

 

[9]               The Applicant submits the Minister’s interpretation of subsection 220(3.1) of the ITA, that a taxpayer has until ten years after the year of assessment to make a fairness request, relies on the case of Montgomery v. Canada (Minister of National Revenue – M.N.R.) (1994), 77 F.T.R. 223, 47 A.C.W.S. (3d) 1335, affirmed (1995), 89 F.T.R. 137, 521 A.C.W.S. (3d) 388 which should be viewed as obsolete for two reasons; first, the 2005 ITA amendments altered the statutory regime from the one that was interpreted in Montgomery and submits that decisions which interpret repealed statutory provisions should not be relied upon. Second, subsection 45(4) of the Interpretation Act submits that legislative provisions that have been repealed should be treated as if they never existed, as is the case with subsection 127(5) of the Income Tax Act, S.C. 1993, c. 24.

 

[10]           The Applicant submits the Minister has the discretion to waive any interest irrespective of the date of the original tax debt which gave rise to the interest. The Applicant submits the section refers to any taxation year in which interest accrues without regard to the year in which the tax debt initially arose. The Applicant argues this section permits a year-by-year waiver for a 10 year period. Specifically, the Applicant submits “Section 248(11) of the ITA provides for interest to accrue on an annual and compounding basis, taxation year after taxation year, irrespective of when the tax debt itself arose” (Applicant’s Supplementary Memorandum of Law at para. 6).

 

[11]           The Applicant submits that under subsection 248(11) of the ITA, interest accrues and compounds on a daily basis, irrespective of the date of the original tax debt.

 

[12]           The Applicant submits that in order to support the Minister’s interpretation of subsection 220(3.1) of the ITA, the following words must be inserted into the section:

The Minister may, on or before the day that is ten years after the end of a taxation year in which an assessment giving rise to the interest of penalty arose, waive or cancel … any portion of any interest … in respect of that taxation year.

 

(Applicant’s Memorandum of Fact and Law at para. 61).

 

[13]           The Applicant cites the Supreme Court of Canada in the case of Friesen v. Canada, [1995] 3 S.C.R. 103, 57 A.C.W.S. (3d) 667 for the proposition that a court should only adopt an interpretation of a statute that inserts words into a section if there is no other acceptable interpretation (Applicant’s Memorandum of Fact and Law at para. 61).

 

[14]           The Applicant submits the 2005 amendment created ambiguity in the waiver provision which did not exist at the time of Montgomery, above. The Applicant cites the Practitioners ITA, Sherman edition (Thomson, Carswell – 33^rd edition) at page 1333 where Mr. David M. Sherman wrote that it is unclear whether “in respect of” refers to the year for which tax is payable, or the year during which the interest accrued. Mr. Sherman favours the latter interpretation.

 

[15]           The Applicant cites the case of Inland Revenue Commissioners v. Ross and Coulter (1948), 1 All E.R. 616 (H.L.) at page 625 for the proposition that courts must prefer the meaning more favourable to the taxpayer if a revenue statute is capable of two reasonable meanings.

 

Respondent’s Position

[16]           The Respondent submits Parliament has given the Minister discretion when making decisions under the fairness legislation and the only reason for the Court to interfere with the Minister’s decision is if it contravened subsection 18.1(4) of the Federal Courts Act.

 

[17]           The Respondent cites Montgomery, above, for the ruling that “taxation year” in subsection 220(3.1) of the ITA refers to the year for which a return was filed, not the year during which the interest accrued.

 

[18]           The Respondent cites the case of Telfer v. Canada (Revenue Agency), 2008 FC 218, 164 A.C.W.S. (3d) 1079 where the Federal Court held the limitation in subsection 220(3.1) of the ITA restricts the Minister’s discretion to “the ten calendar years after the end of the relevant taxation year”.

 

[19]           The Respondent submits the amendment instituting the ten year limitation period came into effect after December 31, 2004 and the Fairness Request was made on December 6, 2005, leaving the Minister with no authority to waive interest for the 1989 and 1990 taxation years.

 

[20]           The Respondent cites the Department of Finance Technical Notes, which state that administrative problems can arise in verifying claims made for taxation years going as far back as 1985 and that adjustments will only be granted for taxation years that end in any of the preceding ten years for applicants made after 2004.

 

Applicant’s Supplementary Position

[21]           The Applicant submits that subsection 220(3.1) of the ITA is ambiguous with regard to the limitation period and the Court should therefore favour the taxpayer’s interpretation in accordance with the case of Notre-Dame de Bon-Secours, above.

 

[22]           The Applicant submits the Minister has adopted an improper limitation period in paragraph 12 of Information Circular 07-1, (May 31, 2007) by permitting the 10 year limitation period to run from the calendar year “in which the taxpayer’s request” for relief is filed. The Applicant submits this treats taxpayers differently depending on whether the application for relief was filed with the CRA before the end of the 10 year limitation period or not.

 

[23]           The Applicant submits that the reference to “that taxation year” in subsection 220(3.1) of the ITA cannot refer back to the taxation year of the original assessment, as that concept does not appear in subsection 220(3.1) of the ITA.

 

[24]           The Applicant notes the case of Telfer was overturned by the Federal Court of Appeal in the case of Telfer v. Canada (Revenue Agency), 2009 FCA 23, 386 N.R. 212 on the question of unreasonableness. The Applicant admits the Telfer trial decision made a statement supporting the Respondent’s interpretation, but submits there is no indication as to whether the issue of interpretation was properly canvassed by the Federal Court, or that the opinions of leading tax academics were put before the court; therefore, the Applicant submits it is open for this Court to not follow the Telfer decision.

 

VIII.  Standard of Review

[25]           The Applicant submits the case of Tedford v. Canada (Attorney General), 2006 FC 1334, 302 F.T.R. 293 determined the standard of review for cases of this type is reasonableness simpliciter.

 

[26]           The Respondent cites the case of Lanno v. Canada (Customs and Revenue Agency), 2005 FCA 153, 139 A.C.W.S. (3d) 191 for the proposition that the standard of review to be applied to the Minister’s decisions is the old reasonableness simpliciter. The Respondent submits a high level of deference should be shown to the decision-maker in cases such as this. The Respondent concludes that this Court ought to apply the current standard of reasonableness to this decision as it was by the Supreme Court of Canada in Dunsmuir v. New Brunswick, [2008] SCC 9, [2008] 1 S.C.R. 190 (Respondent’s Memorandum of Fact and Law at para. 36).

 

IX.  Analysis

[27]           The central issue before this Court is the definition of “taxation year” in subsection 220(3.1) of the ITA. Does the use of this term refer only to one particular year of assessment, or is it merely a time frame during which interest accrues on an outstanding tax debt? Does it mean ten years after the taxation year in which the original tax debt arose, or does it mean ten years after a taxation year in which interest accrued on a tax debt?

 

[28]           In 1991, Parliament introduced into the ITA a number of sections giving the Minister the discretion to waive or cancel interest or penalties. Initially, subsection 220(3.1) of the ITA contained no limitation on the Minister’s discretion; however, as was examined in Montgomery, above, subsection 127(5) of the ITA limited this discretion to penalties and interest that arose as a consequence of assessments made during the 1985 and subsequent taxation years.

 

[29]           In the case of Montgomery, the Federal Court of Appeal interpreted “taxation years” in the now-repealed subsection 127(5) of the ITA to mean the year of assessment. At the time of Montgomery subsection 220(3.1) of the ITA did not contain the term “taxation year.” The 2005 amendment repealed subsection 127(5) of the ITA and placed the “taxation year” time limit into subsection 220(3.1) of the ITA. The question now is whether the language used in subsection 220(3.1) of the ITA changes the interpretation of “taxation year” that was expounded in Montgomery.

 

Rules of Statutory Interpretation

[30]           In the case of Notre-Dame de Bon-Secours, above, the Supreme Court of Canada held that tax statutes are subject to the ordinary rules of statutory interpretation (Notre-Dame de Bon-Secours at p. 17).

 

The Presumption of Consistent Expression

[31]           It is noted that “taxation year” is a term that is used throughout the ITA. In Sullivan and Driedger on the Construction of Statutes, 4^th ed (Buttersworth; Markham, 2002) at page 162, the authors write “[i]t is presumed that the legislature uses language carefully and consistently so that within a statute or other legislative instrument the same words have the same meaning and different words have different meanings. Another way of understanding this presumption is to say that the legislature is presumed to avoid stylistic variation. Once a particular way of expressing a meaning has been adopted, it is used each time that meaning is intended.”

 

[32]           The presumption of consistent expression was aptly stated by the Supreme Court of Canada in the case of Thomson v. Canada (Deputy Minister of Agriculture), [1992] 1 S.C.R. 385, 89 D.L.R. (4^th) 218 where it was held that “[u]nless the contrary is clearly indicated by the context, a word should be given the same interpretation or meaning whenever it appears in an Act” (Thomson, at p. 243).

 

[33]           Sullivan and Driedger state the presumption not only applies to single words, but that “[t]he presumption [of consistent expression] is also strong where the repeated words are unusual or distinctive or contribute to a noticeable pattern” (Sullivan and Driedger at p. 166).

 

[34]           This approach was used by the Federal Court of Appeal in Montgomery, above, at paragraph 7. The court held that “taxation year” is defined in subsection 249(1) of the ITA and that definition “cannot be divorced from the Act as a whole but must be read with reference to the income tax consequences under the Act for taxpayers in the defined period; otherwise, the definition would make little sense”.

 

            Residual Presumption in Favour of the Taxpayer

[35]           The Applicant argues that subsection 220(3.1) of the ITA is ambiguous and therefore, it should use the residual presumption in favour of the taxpayer to construe it in favour of the taxpayer. While the residual presumption is a tool at the Court’s disposal, the Court takes note of the ruling in Notre-Dame de Bons-Secours, above, where the Supreme Court held that the residual presumption is exceptional and should only be used when a court must choose between two valid interpretations. The Supreme Court also cited the case of Symes, above, and held that “[o]nly a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer” (Notre-Dame de Bon Secours at p. 20).

 

Interpretation of subsection 220(3.1) of the ITA

[36]           The Court notes that “taxation year” is a term that is widely-used throughout the ITA; therefore, the Court considers that any analysis of the meaning of this phrase must examine its use throughout the legislative scheme.

 

[37]           “Taxation year” is defined in subsection 249(1) of the ITA as follows:

 

[38]           The Court notes that this definition could support the case of either party, as it merely defines a time frame as a “taxation year.” It is only through a reading of the other uses of this term that its definition becomes clear.

 

 

Use of “taxation year” in the context of the imposition of interest for unpaid tax debts

 

[39]           A taxpayer is liable to pay interest on unpaid tax debts pursuant to the operation of subsection 161(1) of the ITA, which states:

 

 

[40]           The Court notes that the term “taxation year” is used in this subsection to refer to an individual year of assessment; therefore, a taxpayer who owes more taxes than he or she has paid for two consecutive taxation years will owe interest in respect of each year of delinquency.

 

[41]           The interest imposed by subsection 161(1) of the ITA is compounded pursuant to subsection 248(11) of the ITA, which states:

 

[42]           It is noted that Parliament chose to use the same term, “taxation year”, in subsection 161(1) of the ITA, which imposes interest if a taxpayer owes additional taxes from a “taxation year”, and subsection 220(3.1) of the ITA, but not in subsection 248(11) of the ITA, which dictates that interest on an outstanding balance is compounded daily and can be paid back at any time.

 

Other uses of “taxation year”

[43]           In addition to the above provisions, which are specific to the issue at bar, there are other uses of the term “taxation year” which the Court finds instructive. For example, section 3 states that a taxpayer’s income must be calculated for each “taxation year”:

 

[44]           Subsection 150(1) of the ITA requires taxpayers to file tax returns for each “taxation year”:

 

 

[45]           It is also significant that subsection 220(3.1) of the ITA refers to “taxation year” and then parenthetically states, “(or in the case of a partnership, a fiscal period of the partnership)”. Subsection 96(1) of the ITA sheds light on the purpose behind this inclusion. Paragraph 96(1)(b) of the ITA states:

 

[46]           Paragraph 96(1)(b) of the ITA shows that a “taxation year” can differ depending on the type of taxpayer being assessed. Paragraph 96(1)(b) of the ITA deems the taxation year of a partnership to be its fiscal period, meaning the partnership is to file a tax return for its fiscal period. The reference in subsection 220(3.1) of the ITA to the fiscal period of a partnership is an indication that Parliament intended subsection 220(3.1) of the ITA to refer to the period of assessment, otherwise, Parliament would not have included this reference to the particular period of assessment of partnerships.

 

[47]           It follows from the fact that income must be computed for a “taxation year” and a tax return must be filed for each “taxation year” and that different types of taxpayers file their returns based on different “taxation years” that there is special significance to the use of the term “taxation year” in subsection 220(3.1) of the ITA.

 

Other judicial pronouncements on the term “taxation year”

[48]           The term “taxation year” was interpreted by Justice Yvon Pinard in Montgomery (FC), above, at paragraph 11, when he ruled “a ‘taxation year’ refers to a year, fiscal or calendar, for which tax is computed. Tax returns cover this period. In using the term ‘the 1985 and subsequent taxation years’ … Parliament must be referring to periods of time for which tax returns are submitted”.

 

[49]           More recently, the Federal Court interpreted the amended subsection 220(3.1) of the ITA in the case of Telfer (FC), above, at paragraph 25. In that case, the court rejected the applicant’s argument that an application for interest relief should be assessed based on the date the objection was filed, not ten years after the date of assessment giving rise to the interest. The court held that “the limitation in subsection 220(3.1) is expressly laid out to restrict the Minister’s discretion on the waiver or cancellation of interest and penalties to the ten calendar years after the end of the relevant taxation year” (Telfer (FC), above, at para. 26).

 

[50]           The ruling in Telfer (FC), above, was partially overturned in Telfer (FCA), above, but the ruling of the Federal Court of Appeal did not overturn the Federal Court’s statements regarding subsection 220(3.1) of the ITA. The judgment of Justice John Maxwell Evans states the appellant did not allege “that the Minister committed an error of law by misinterpreting subsection 220(3.1)”, but instead that the appeal was based on the argument that the Minister’s decision lacked the requisite degree of “justification, transparency and intelligibility” required to be upheld when examined under the standard of reasonableness (Telfer (FCA), above, at para. 28. In respect of the meaning of “taxation year”, an analogy is drawn to the recent Federal Court of Appeal decision, penned by Justice Marc Noël, in Nicholls v. Canada (Revenue Agency) and M.N.R.), 2010 FCA 30, in respect of paras. 5, 6 and 7).

 

X.  Conclusion

[51]           Subsequent to the very well prepared materials and arguments of the parties, it is the Court’s conclusion that Justice Yvon Pinard’s definition in Montgomery, above, (which was affirmed by the Federal Court of Appeal) continues to be the correct interpretation of the phrase “taxation year” in the context of the taxpayer relief provisions. The Court is also in agreement with the ruling in Telfer, above, that the time limit in subsection 220 (3.1) of the ITA is for the ten calendar years after the relevant taxation year, namely, the year of assessment.

 

[52]           It is the Court’s conclusion that the Applicant’s construction of subsection 220(3.1) of the ITA would reduce the term “taxation year” to a simple demarcation of time; however, a reading of the ITA as a whole shows that it is a phrase with a specific and meaningful definition.

 

[53]           For all the above reasons, the application for judicial review is dismissed.

 

JUDGMENT

THIS COURT ORDERS that

1)                  the application for judicial review be dismissed;

2)                  there be no costs as it is a matter of general importance.

 

“Michel M.J. Shore”

FEDERAL COURT

 

SOLICITORS OF RECORD

 

 

DOCKET:                                          T-826-08

                                                           

 

STYLE OF CAUSE:                          RONNIE LOUIS BOZZER v.

HER MAJESTY THE QUEEN IN RIGHT OF CANADA (as represented by the Minister of National Revenue in his capacity as Minister responsible for the Income Tax Act)

and

CANADA REVENUE AGENCY

and

THE ATTORNEY GENERAL OF CANADA

 

PLACE OF HEARING:                    Vancouver, British Columbia

 

DATE OF HEARING:                      February 2, 2010

 

REASONS FOR JUDGMENT

AND JUDGMENT:                          SHORE J.

 

DATED:                                             February 11, 2010

 

 

APPEARANCES:

 

Mr. Ronnie Louis Bozzer	FOR THE APPLICANT
Ms. Karen A. Truscott	FOR THE RESPONDENTS

 

SOLICITORS OF RECORD:

 

RONNIE LOUIS BOZZER Vancouver, B.C.	FOR THE APPLICANT
JOHN H. SIMS, Q.C. Deputy Attorney General of Canada	FOR THE RESPONDENTS