Citation: 2006 FC 640
Ottawa, Ontario, May 25, 2006
PRESENT: The Honourable Mr. Justice Barnes
ATTORNEY GENERAL FOR CANADA
REASONS FOR JUDGMENT AND JUDGMENT
 This is an application by Lawrence Lund for judicial review in connection with a decision made by the Canada Revenue Agency (CRA) denying a request for relief from interest on tax arrears for the 1996, 2001 and 2002 taxation years;
 The decision in question was made pursuant to the so-called "fairness" provisions of the Income Tax Act, R.S.C. 1952, c. 148 and, specifically, section 220(3.1). Although this provision gives the Minister broad discretion to waive a tax penalty or interest, the CRA has created a set of guidelines (IC-92-2: Guidelines for the Cancellation and Waiver of Interest and Penalties) which indicate much narrower grounds for the exercise of the discretion. Those guidelines offer the following as the type of extraordinary circumstances for which relief can be given:
5. Penalties and interest may be waived or cancelled in whole or in part where they result in circumstances beyond a taxpayer's or employer's control. For example, one of the following extraordinary circumstances may have prevented a taxpayer, a taxpayer's agent, the executor of an estate, or an employer from making a payment when due, or otherwise complying with the Income Tax Act:
(a) natural or human-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.
6. Cancelling or waiving interest or penalties may also be appropriate if the interest or penalty arose primarily because of actions of the Department, such as:
(a) processing delays which result in the taxpayer not
being informed, within a reasonable time, that an amount was owing;
(b) material available to the public contained errors
which led taxpayers to file returns or make payments based
on incorrect information;
(c) a taxpayer or employer receives incorrect advice such
as in the case where the Department wrongly advises a
taxpayer that no instalment payments will be required for the current year;
(d) errors in processing; or
(e) delays in providing information such as the case
where the taxpayer could not make the appropriate
instalment or arrears payments because the necessary
information was not available.
5. Il sera convenable d'annuler la totalité ou une partie des intérêts ou des pénalités, ou de renoncer à ceux-ci, si ces intérêts ou ces pénalités découlent de situations indépendantes de la volonté du contribuable ou de l'employeur. Voici des exemples de situations extraordinaires qui pourraient empêcher un contribuable, un agent d'un contribuable, l'exécuteur d'une succession ou un employeur de faire un paiement dans les délais exigés ou de se conformer à d'autres exigences de la Loi de l'impôt sur le revenu :
a) une calamité naturelle ou une catastrophe provoquée par l'homme comme une inondation ou un incendie;
b) des troubles civils ou l'interruption de services comme une grève des postes;
c) une maladie grave ou un accident grave;
d) des troubles émotifs sérieux ou une souffrance morale grave comme un décès dans la famille immédiate.
6. L'annulation des intérêts ou des pénalités ou la renonciation à ceux-ci peuvent également être justifiées si ces intérêts ou pénalités découlent principalement d'actions attribuables au Ministère comme dans les cas suivants :
a) des retards de traitement, ce qui a eu pour effet que le contribuable n'a pas été informé, dans un délai raisonnable, de l'existence d'une somme en souffrance;
b) des erreurs dans la documentation mise à la disposition du public, ce qui a amené des contribuables à soumettre des déclarations ou à faire des paiements en se fondant sur des renseignements erronés;
c) une réponse erronée qu'un contribuable ou un employeur a reçue concernant une demande de renseignements comme dans le cas où le Ministère a informé par erreur un contribuable qu'aucun acompte provisionnel n'est nécessaire pour l'année en cours;
d) des erreurs de traitement;
e) des renseignements fournis en retard comme dans le cas où un contribuable n'a pu faire les paiements voulus d'acomptes provisionnels ou d'arriérés parce qu'il n'avait pas les renseignements nécessaires.
 Mr. Lund made two requests for fairness relief, and both were denied. I do not intend to belabour the circumstances which led to Mr. Lund's financial difficulties, or his history of dealings with CRA. The parties are well aware of those circumstances. Suffice it to say that Mr. Lund has made a diligent effort over the years to appropriately deal with a difficult business crisis involving the forced take-over of a resort property at Calvert Island, British Columbia. Throughout that time, Mr. Lund experienced difficulties in keeping up with his personal tax obligations and seems, for a time, to have given priority to the tax obligations of his resort business. Ultimately, Mr. Lund was successful in substantially eliminating his tax arrears for the years in question, but he is still left with a significant amount of interest arrears.
 The affidavit filed by Mr. Lund in support of this application details a history of errors made by the CRA in the assessments of his personal taxes, along with its attempts to collect both tax arrears and money that was ultimately proven not to be owed. Mr. Lund also deposed that it was necessary to engage his accountant on several occasions to deal with these assessment errors. CRA has not challenged Mr. Lund's evidence on these points, but dismisses the significance of this history.
 It is the treatment of the second of Mr. Lund's fairness requests that is the focus of this application. That decision was documented in a letter dated January 4, 2005 from the Director of the Northern British Columbia and YukonTax Services Office, Don Salmons. Mr. Salmons' decision was based upon the recommendation of Henry Wilkinson who carried out the formal assessment of Mr. Lund's request for relief.
 It is clear from the Record that Mr. Wilkinson had before him the materials generated by CRA in connection with the first fairness request and he appears to have drawn upon that earlier report, in part, in writing his own report. The conclusion reached by Mr. Wilkinson is set out in a file memo dated December 16, 2004:
The debtor has had access to funds from his company 512553 BC Ltd during the entire time of the review and there is no indication of financial hardship in this situation.
RECOMMENDATION: The taxpayer's definition of extraordinary circumstances resulted from regular collection action of a complex account. This included bailiff action on two separate occasions and prosecution for failure to file GST returns. As far as financial hardship is concerned the debtor has not demonstrated that financial hardship existed.
DECISION: Deny, as there were no extraordinary circumstances and no financial hardship.
 It is common ground that the standard of review on an application such as this - at least with respect to the exercise of the relief discretion - is reasonableness: see Lanno v. Canada(Customs and Revenue Agency)  F.C.J. 714, 2005 FCA 153 (C.A.).
 The Record discloses a degree of sloppiness and imprecision in CRA's approach to Mr. Lund's fairness requests. Although the first of those assessments is not the subject of this application for judicial review, there are some obvious points of connection between the earlier review and the recommendation to deny relief made later by Mr. Wilkinson. One reoccurring error that is found in both fairness decisions, and in the affidavit of Don Salmons filed in this proceeding, concerns the name of the Company for which Mr. Lund sold his shares in 1996. The name of that company was AWG Northern Industries Inc., but CRA repeatedly refers to it as Standard Auto Glass. While this is a mistake that was inconsequential to the assessment process, the fact that it is repeated time and again by different officials indicates that they paid scant attention to the primary documents which supported that transaction, and relied heavily on earlier histories in drawing later conclusions.
 The first fairness decision and the notes to support it also contain at least one serious factual error. That decision contains the misleading statement that Mr. Lund was taking money from his numbered company and was not paying his tax debt. If CRA had checked its own records or carefully examined Mr. Lund's submissions, it would have determined that this allegation was incorrect and that Mr. Lund was paying down his tax obligations from this source to the extent of at least fifty-five thousand dollars ($55,000.00).
 It is also unfortunate that the officer who made the first fairness decision had been directly involved in what appears to have been a very aggressive collection program directed at Mr. Lund. It is not surprising, therefore, that Mr. Lund has serious reservations about the impartiality of that assessment. While this type of functional overlap may not constitute bias, it certainly runs that risk and would not engender confidence in the fairness of this program to someone like Mr. Lund.
 The focus of this application for judicial review concerns the second fairness decision, and not the first. Mr. Lund contends that CRA misunderstood the nature of the transaction for the sale of his company's shares and somehow believed that he had access to seven hundred thousand dollars ($700,000.00) from that transaction. I do not believe that Mr. Lund's view on this is borne out by the fairness decisions or by the file notes. It seems fairly clear that CRA was aware that Mr. Lund's numbered company was receiving monthly payments of five thousand twenty-one dollars and forty-eight cents ($5,021.48) from this transaction, albeit that the notes supporting the fairness decision suffer from some ambiguity in that regard.
 The notes supporting the second fairness decision also set out certain conclusions about Mr. Lund's access to cash between 1998 and 2004. There is an obvious incongruity between the cash totals noted by CRA and Mr. Lund's own descriptions of his financial circumstances during those same years. It appears that the CRA's analysis was based on a bare review of financial statements for Mr. Lund's numbered company with little, if any, attempt made to understand the true extent of Mr. Lund's available cash flow or the disposition of the funds he did receive. While it may not be legally incumbent upon CRA to make inquiries of the taxpayer about such missing details, it runs the risk, in a complex case such as this, that a failure to do so will lead to serious and reviewable factual errors.
 The approach taken here suggests that CRA's assessment of Mr. Lund's financial situation was somewhat cursory, if not perfunctory. Whether a more thorough review would have led to a different outcome is not for me to decide, but I do not accept that the denial of relief to Mr. Lund was inevitable had the Company financial statements been thoroughly assessed against Mr. Lund's explanations.
 The most troubling aspect of CRA's treatment of Mr. Lund's second fairness request concerns its treatment of its own assessment and collection behaviour.
 Mr. Lund contended in his request for fairness relief that some of his problems arose out of serious errors made by CRA with respect to its tax arrears calculations. While those errors were eventually corrected, he says that they nevertheless created significant problems and expenses for him at the time.
 Under section 5(e) of the fairness guidelines, it is incumbent upon CRA to consider its own processing errors or other mistakes which may have contributed to a taxpayer's difficulties. Those considerations fall within the so-called "extraordinary circumstances" factors set out in the guidelines.
 Given the multitude and gravity of CRA errors, as alleged by Mr. Lund, it was incumbent upon Mr. Wilkinson to seriously reflect upon this issue in making his recommendation to deny relief. It is particularly important that, when CRA considers its own conduct in a fairness review, it does so with scrupulous objectivity and thoroughness. In this case, however, it failed to fulfill that obligation. Mr. Wilkinson refers to Mr. Lund's complaints in the following passage from his report:
...He includes the following as reasoning for fairness:
· A constant onslaught of collections proceedings beginning in 1993.
· Many inaccurate reassessments and errors on the part of CRA, which cost massive accounting bills. Including but not limited to incorrectly assessed GST to the Hakai account in 1996, reassessment of his personal income taxes increasing his income tax from $65,000 to $135,000 with demands to pay for that amount issued.
 Despite Mr. Lund's detailed written submissions, there is no attempt made in Mr. Wilkinson's report to determine the accuracy or financial significance of the assessment errors alleged by Mr. Lund. Mr. Wilkinson's conclusion on this issue is contained within two sentences:
...The taxpayer's definition of extraordinary circumstances resulted from regular collection action of a complex account. This included bailiff action on two separate occasions and prosecution for failure to file GST returns.
The obvious inference to be drawn from the above remark is that Mr. Wilkinson was prepared to gloss-over CRA's behaviour by describing it as regular collection action of a complex account, and to excuse that behaviour by pointing to Mr. Lund's perceived failings.
 When Mr. Salmons was asked on discovery by Mr. Lund about assessment errors made by CRA, he did acknowledge mistakes but essentially dismissed them as irrelevant.
 If Mr. Lund's history of his dealings with CRA in connection with these assessments errors is correct, I do not believe that those actions could be reasonably described as regular collection action on a complex account. This is not a matter for me to decide but it is incumbent upon CRA to treat such complaints about its own conduct seriously and thoroughly. To dismiss such matters as "regular collection action", without a thorough review of the taxpayer's specific complaints, is unreasonable and unacceptable.
 A review of Mr. Salmons' discovery answers indicates that he did very little independent review of the evidence and relied heavily on what he was told by Mr. Wilkinson and by his other staff members. That Mr. Salmons could independently determine that the acknowledged CRA errors were irrelevant is difficult to believe. I accept instead that Mr. Wilkinson's treatment of this issue was the basis upon which it was resolved against Mr. Lund. In my view that error constitutes a sufficient basis to send this matter back for a redetermination on the merits. That conclusion is reinforced by the other problems identified above and, in particular, CRA's rather cursory treatment of the financial information it had at hand.
 I will direct that Mr. Lund's fairness request be reassessed by CRA. That reassessment shall be carried out by a person or persons previously uninvolved with the tax affairs of Mr. Lund, his wife, or their related businesses. Ideally, it should be carried out by a person or persons not connected with the Respondent's Prince George office but I will not make that a condition of my order.
 I also order costs payable to the Applicant in the amount of one thousand dollars ($1,000.00) inclusive of disbursements.
THIS COURT ADJUDGES that this application is allowed with the matter to be remitted to a different decision-maker for redetermination on the merits.
THIS COURT FURTHER ADJUDGES that the Applicant shall have his costs payable by the Respondent in the amount of one thousand dollars ($1,000.00) inclusive of disbursements.
"R. L. Barnes"