Citation: 2009 TCC 168
Date: 20090324
Docket: 2007-3936(IT)G, 2007-3938(IT)G
2007-3939(IT)G, 2008-207(IT)G
BETWEEN:
REEMA McGONAGLE, RANDY PARIHAR,
RABINDER PARIHAR and AAREMIC TRAVEL CORP.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Miller J.
[1]
The Respondent brings a
motion to quash the purported appeals for the 1996, 1997 and 1998 taxation
years of Reema McGonagle, Rabinder Parihar and Aaremic Travel Corp., and
the purported appeals for the 1997 and 1998 taxation years of Randy Parihar on
the basis that by signing waivers, waiving the right to appeal, the Appellants
are now precluded, by the operation of subsection 169(2.2) of the Income Tax
Act from appealing. The Appellants argue that they (specifically Mr.
Randy Parihar, who influenced his wife and daughter) were coerced by the Canada
Revenue Agency (“CRA”) into signing the waivers and that I should, therefore,
find the waivers are invalid.
[2]
The operative sections
of the Income Tax Act read as follows:
165(1.2) Notwithstanding subsections (1) and
(1.1), no objection may be made by a taxpayer to an assessment made under
subsection 118.1(11), 152(4.2), 169(3) or 220(3.1) nor, for greater certainty,
in respect of an issue for which the right of objection has been waived in
writing by the taxpayer.
…
169(2.2) Notwithstanding subsections (1) and (2),
for greater certainty a taxpayer may not appeal to the Tax Court of Canada
to have an assessment under this Part vacated or varied in respect of an issue
for which the right of objection or appeal has been waived in writing by the
taxpayer.
[3]
To be clear at the
outset, this is not a matter of the reassessments not reflecting the proposals
set forth in the waivers (the Appellants acknowledge the reassessments do
reflect the waivers), but a question of the waivers not reflecting the
Appellants’ understanding of the settlement agreement they believe they had
reached with CRA. Unfortunately, the Appellants did not appear to appreciate
the dollar impact on the settlement contained in the waivers until receiving
the subsequent reassessments.
Facts
[4]
This matter has a
lengthy history relating to the Appellants’ 1996, 1997 and 1998 taxation years.
It has clearly been a frustrating experience for the taxpayers, with auditors
coming and going, lengthy delays and what can best be described as a frosty
relationship between Mr. Parihar and the latest auditor, Mr. Dennis Han, who
took over conduct of the file at CRA in late 2005.
[5]
It is clear from Mr.
Han’s detailed notes and his oral evidence, corroborated by Mr. Parihar’s affidavit
and oral evidence, that there was considerable communication throughout 1996
between Mr. Han and Mr. Parihar. Mr. Parihar claimed that he would be asked for
materials that he believed he had already provided to the CRA. His frustration
caused him to involve Mr. Han’s team leader, Ms. Izumi, who also testified
at the hearing of the motion. She appreciated that a good deal of the
delay was the responsibility of CRA, and in September 2006, she authorized a
waiver of interest for a 26‑month period. The question of interest
is a major area of disagreement between Mr. Parihar and Ms. Izumi and Mr. Han.
Mr. Parihar maintains that in his meetings and communications with both
Ms. Izumi and Mr. Han, they agreed to waive all interest. Both Mr. Han and
Ms. Izumi testified that they never agreed to such, but only ever agreed
to waive interest for the 26-month period I have mentioned. The documentation
with respect to interest, confirming the Government’s position, is the Fairness
Cancellation Request Form signed September 27, 2006 by Ms. Izumi. The
documentation confirming Mr. Parihar’s understanding is a faxed letter of
October 6, 2006 from Mr. Parihar to Mr. Han in which Mr. Parihar states that he
had been assured all interest and penalties accrued on the files would be
waived.
[6]
Although for purposes
of this motion, I need not reach a decision on the issue of waiver of interest,
on balance, I find that there was never any agreement for waiving all interest.
If I had found otherwise, what recourse would have been available to the
Appellants? It is not through this Court, which deals with assessments of tax
and penalties. If the Appellants feel the Court has reneged on an agreement
to waive interest, recourse may lie with the Federal Court.
[7]
Throughout 2006, Mr.
Han requested information from Mr. Parihar, who cooperated, though
believed he was being asked for documents already provided. Starting in late
April 2006, Mr. Han indicated to Mr. Parihar that enough time had been provided
to him and that Mr. Han was going to close the file. Mr. Han made mention
of this in his notes on several occasions from April to September. Mr. Parihar
testified that he took those comments as threats. In fact, Mr. Han did not
close the file notwithstanding his comments.
[8]
On October 6, 2006, Mr.
Parihar faxed Mr. Han asking for a further meeting to explain the numbers
previously provided by CRA. A meeting was scheduled for October 19th.
Mr. Parihar attended that meeting with his accountant, Mr. Yasin. Both Mr. Han
and Ms. Izumi from CRA were present. Mr. Han presented a proposal in the form
of a waiver that:
(i) reduced subsection
15(1) benefits for the individual Appellants, Reema McGonagle and Rabinder
Parihar;
(ii) reduced subsection 246(1)
benefits for Randy Parihar;
(iii) reduced commissions
and allowed costs of sales deductions and various other deductions for Aaremic;
and
(iv) adjusted gross negligence
penalties accordingly.
[9]
Mr. Parihar’s
accountant, Mr. Yasin, testified that he did not read the proposal at the
meeting. He presumed he reviewed it later, but was uncertain as to any advice
he may have provided to Mr. Parihar, prior to a second meeting a week later on
October 26th, with the same four participants. Clearly, some
negotiation took place at that second meeting as all gross negligence penalties
were dropped for the individual Appellants and a significant change was made to
Aaremic’s cost of sales deductions.
[10]
Ms. Izumi testified
that once it was clear there was an agreement, she left the second meeting on
October 26, 2006. Mr. Parihar testified that he made notes indicating the
taxable amount for the individuals was so much per year, totalling $162,000, on
which he estimated tax would be approximately $65,000. Mr. Han prepared new
waivers. Mr. Parihar picked up the new waivers later that day. Mr. Yasin,
who was present at both meetings, testified he was not called by Mr. Parihar
for advice on the proposal. I found Mr. Yasin’s testimony questionable. It
simply makes no sense that a professional advisor who attends two settlement
negotiations with his client does not follow up with his client.
[11]
The November 6, 2006 waiver Mr. Parihar, his
wife and daughter and Aaremic were asked to sign stated in part:
I waive my right of objection or appeal in respect of all issues if CRA
re-assesses as follows: …
I am familiar with subsections 165(1.2) and 169(2.2) of the Income
Tax Act and understand that I will be precluded from filing an Objection or
an Appeal with respect to that issue.
[12]
Mr. Parihar
acknowledged that he understood what this meant. The issues referred to in both
Ms. McGonagle’s and Ms. Parihar’s waivers related to shareholder benefits and
gross negligence penalties. In Mr. Parihar’s waiver, the issues related to
subsection 246(1) and gross negligence penalties. With respect to Aaremic
Travel Corp., the issues related to commissions, cost of sales deductions, auto
expense deductions, advertising and promotion deductions, hotel and
accommodation deductions and gross negligence penalties.
[13]
Mr. Parihar indicated
that he had a call the next day from Mr. Han asking if he had signed the
waivers. He said he felt pressured. Mr. Han’s detailed notes of all calls made
throughout 2006 make no mention of any such call. He denied ever threatening
Mr. Parihar.
[14]
Mr. Parihar did not
sign the waivers until November 6th. He had his wife and daughter
sign at the same time and returned all waivers to Mr. Han on November 8th.
Reassessments were issued by CRA to the Appellants in December 2006. I am
satisfied the reassessments accurately reflect the proposals set out in the
waivers.
[15]
When Mr. Parihar
received the reassessments in December 2006, the tax and interest owing were
significantly greater than what he believed he had agreed to. Notices of
Objection were filed for all Appellants, and on June 27, 2007, the Minister
confirmed the reassessments. The Appellants appealed. They framed the issue as
follows:
d) …
Whether the Appellant can appeal on an issue for which the right of
objection or appeal appears to have been waived through a waiver signed by the
Appellant on November 6, 2006 (the “LOA”) for failing to represent the true
intention between the parties.
[16]
In the appeals, the
Appellants seek to quash the Respondent’s Notices of Confirmation. I am not
entirely sure what they mean by this, or indeed if this Court can “quash a
Notice of Confirmation”. It is evident the Appellants want to have the waivers
invalidated, but I question what that practically accomplishes for the
Appellants, as their appeals goes no further. They do not present any
substantive issues that go to the assessments of tax. If they did proceed with
the appeals as framed and were successful in “quashing the Notices of
Confirmation” (whatever that procedure really means and on the basis the
Tax Court of Canada could even do such a thing – unlikely), where would they be
left? Would the reassessments which the Notices of Confirmation confirm still
be in play? If not, would the first assessments be reinstituted? The Appellants
do not appear to be appealing the reassessments, but simply appealing the
validity of the waivers. With respect, the Appellants’ appeals should have
been against the reassessments, accepting that their first hurdle would be
overcoming the waivers they signed. By its motion, the Respondent has put
the matter clearly before the Court.
Issue
[17]
The issue in this
motion is whether the waivers signed by the Appellants are effective to
preclude them from appealing the issues contained therein.
Analysis
[18]
The Appellants argue
that the behaviour of the auditor, Mr. Han, constitutes coercion or undue
influence, invalidating the waivers. The behaviour complained of consists of
the following:
- several statements by Mr. Han to Mr.
Parihar throughout 2006 that he will close the file;
- not allowing sufficient time to Mr.
Parihar to have his accountant, Mr. Yasin, advise him of the ramifications
of the settlement contained in the waivers, including asking for the waiver the
day after providing it to Mr. Parihar.
I will deal with each of these actions.
[19]
First, it is clear from
comments of the Supreme Court of Canada in Smerchanski v. Minister of
National Revenue,
that waiver agreements are voidable on the ground of undue influence. In that
case, it was held that the threat of prosecution did not render the settlement
based on a waiver voidable. Subsequent cases have provided some guidance as to
what constitutes undue influence vis-à-vis the signing of a waiver.
[20]
In the case of Nguyen
v. R.,
Justice Dussault stated that informing a taxpayer that he was liable to civil
penalties as a result of an audit does not constitute an extraordinary threat
or intimidation. There was no evidence before Justice Dussault to suggest the
taxpayer did not freely consent nor that he was unduly pressured.
[21]
In the case of Anthony
v. R.,
Justice Webb indicated that the only evidence of any pressure from CRA was that
the auditor wanted to close the file. This did not constitute undue influence.
[22]
Turning then to the
facts before me, was the auditor’s behaviour such as to unduly influence the
Appellants to sign the waivers? First, I will review Mr. Han’s repeated
comments to Mr. Parihar that he would close the file. Mr. Han took over the
file in late 2005 and started a steady stream of communication with Mr. Parihar,
seeking information and attempting to move the matter along. He confirmed
that Mr. Parihar too seemed anxious to resolve the matter. Mr. Han first
advised Mr. Parihar in late April 2006 that he wanted to close the file,
but later agreed to a meeting in late May to continue discussions. More
information was requested by Mr. Han. On July 20th, Mr. Han
suggested to Mr. Parihar that he would close the file if discussions with the
accountant, Mr. Yasin, were not productive. On July 26th, Mr.
Parihar asked for another meeting and Mr. Han advised he intended to wrap the
file up in a couple of weeks. A proposal was discussed in late August which was
unacceptable to Mr. Parihar, though he wanted to discuss it with Mr. Yasin. On
September 11th, Mr. Han advised Mr. Parihar that if he did not agree
with the proposal he would close the file based on available information. The
parties then met on October 19th and October 26th to
negotiate a settlement.
[23]
While I appreciate
these matters have gone on for some time, to Mr. Parihar’s obvious
frustration, I do not find that Mr. Han’s repeated suggestions of closing the
file have such a cumulative effect to constitute undue influence. The parties
were negotiating. That can be a painful process. However, Mr. Han did
not close the file in April, May, June, July, August or September. And, indeed,
he had two meetings with Mr. Parihar and his advisor on October 19th
and October 26th to go over very specific proposals. The timing of
Mr. Han’s suggestions to close the file, the fact that he did not close
the files, and the fact there were two final negotiation sessions a week apart
are not circumstances that in my mind constitute threats of such a pressure as
to have unduly influenced Mr. Parihar to sign waivers on November 6th.
[24]
Next, I turn to the
Appellants’ allegation that Mr. Han did not allow Mr. Parihar sufficient
time to consider the settlement proposal contained in the waiver. This
allegation simply does not accord with the facts. Mr. Parihar had known since
August 30th the type of proposal Mr. Han was putting forward.
Mr. Parihar had his professional advisor with him on October 19th
when meeting with both Mr. Han and Ms. Izumi to go over the details of the
proposal. He then had a week to review the proposal before meeting a second
time with Mr. Han and Ms. Izumi, again with his advisor. It is clear that the CRA
made further concessions at that meeting as the individuals’ waivers presented
at the October 19th meeting were amended on October 26th
to delete all gross negligence penalties. In the letter accompanying the
waivers, which Mr. Parihar picked up later in the day on October 26th,
Mr. Han does ask that they be returned as soon as possible. This is not undue
pressure, especially given Mr. Han’s and Ms. Izumi’s testimony that, in their
view, an acceptable agreement had been reached at the October 26th
meeting.
[25]
Mr. Parihar testified
that Mr. Han phoned him on October 27th asking when the waivers will
be signed. There is no record in Mr. Han’s detailed notes of such a call.
Even if such a call was made, it did not cause Mr. Parihar to return the
waivers immediately, as he and his family did not sign them until November 6th
‑ 10 days after having received them. These circumstances do not
suggest to me any undue pressure.
[26]
I have no doubt Mr.
Parihar’s experience with the CRA on these tax matters has been a frustrating
and painful one, given lengthy delays and a personality conflict with an
auditor anxious to close the file. Yet, Mr. Parihar signed the waivers, knowing
fully the effect of doing so. The settlement provisions of the waivers were
detailed at two meetings in consultation with Mr. Parihar’s professional
advisor. He had almost three weeks from October 19th before signing
the waivers, sufficient time to conduct a detailed review. Only when he
received the reassessments did the bottom line catch his attention, as there
was significant interest and tax beyond his $65,000 estimate. I have not been
convinced that the CRA, through either Mr. Han or Ms. Izumi, ever agreed to
a reassessment that would only result in that amount of tax. I conclude
the waivers are valid, and the Appellants cannot appeal the issues set out in
the waivers. In their pleadings, the Appellants did not identify any other
issues, other than those itemized in the waivers; neither did they raise any
further issues at the hearing of the motion. As previously mentioned, the
appeals themselves only deal with the validity of the waivers. The motion is
granted. The Appellants cannot appeal the reassessments in respect of issues
for which they waived their right of appeal. The Respondent is entitled to one
set of costs.
Signed at Ottawa, Canada, this 24th day of March, 2009.
“Campbell J. Miller”
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