Bateman v. The Queen, 2006 TCC 635 (Informal Procedure)

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Appeal heard on October 16, 2006 at Toronto, Ontario

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JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 2003 taxation year is allowed, without costs, and the assessment for late filing penalties under subsection 162(1) is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with and for the reasons set out in the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 21st day of November 2006.

Hershfield J.

REASONS FOR JUDGMENT

Hershfield J.

[1]      The Appellant, an eligible e-filer, appeals a late filing penalty assessed in respect of her 2003 taxation year. Her return for the year was transmitted electronically on April 29, 2004, one day prior to the filing deadline, by the Appellant's accountant (a registered e-filer) using appropriate software. The Minister of National Revenue (the "Minister") admits to the transmission of the return on that date but denies that it was "filed" on that date thereby taking the position that the return was late filed when re-filed on May 26, 2004.

[2]      Having taken the position that the return was late filed, the Minister assessed penalties under subsection 162(1) of the Income Tax Act (the "Act") in the amount of $1,922.00.

[3]      The Minister relies on subsection 150.1(3) of the Act. Under that provision an e-filed return is deemed to be filed on the day the Minister acknowledges acceptance of it.

(3) Deemed date of filing. For the purposes of section 150, where a return of income of a taxpayer for a taxation year is filed by way of electronic filing, it shall be deemed to be a return of income filed with the Minister in prescribed form on the day the Minister acknowledges acceptance of it.

[4]      It is not in dispute that following the transmission of the subject return the Minister's computer transmitted a message back to the registered e-filer's computer. That message was headed "NON-ACCEPTED RECORDS" and identified the Appellant's return as a non-accepted return and as well identified an error code. Canada Revenue Agency ("CRA") publications set out error codes. The error code in this case indicated that the surname did not match other CRA records.

[5]      Further, it is not in dispute that on May 26, 2004, the subject return was re-filed electronically. This time the Minister's computer sent out a transmission under the heading "ACCEPTED RETURNS" and identified the Appellant's return. The re-filed return was the same as the return e-filed on April 29, 2004 except for a surname entry relating to a change in the Appellant's marital status.

[6]      The Respondent admits that according to the administrative practise in place at the time, the subject return would not have been regarded as late filed if re-filed by May 6, 2004. The Respondent further acknowledges that if the original return in hard copy form had been dropped in the mail or at a taxation office on April 29, no late filing penalty could be assessed as the return would then have been timely filed even if the error that caused the computer's non-acceptance of the first e-filing appeared on the face of the hard copy return.

[7]      The Appellant made an application under the fairness provisions and was denied relief of the penalties. The Appellant's accountant appeared before me at the hearing and sought relief.

[8]      While the Respondent's counsel viewed the appeal as seeking a fairness review over which this Court has no jurisdiction, I see the relief sought as being broader than that. Indeed, the Notice of Appeal is clearly not a request for a fairness review. It is an appeal of the imposition of the penalty on the basis that it does not or should not apply. I am free to consider arguments and make findings as to the correctness of the imposition of the penalties. This Court has such jurisdiction in limited circumstances such as where the taxpayer has acted with sufficient due diligence.[1]

[9]      In the case at bar the Minister realizes that e-filing cannot work unless a certain number of days of grace are allowed between the filer being notified of a non-acceptance and a correction being made. I have reviewed the material provided to me by Respondent's counsel and see no reference to the administrative practise admitted to at the hearing and in the Reply. That is to say, the arbitrary 6-day grace period does not appear to be a published practise - it could have been 14 days or 30 days. No number of days is statutorily provided for. Subsection 150.1(1) provides that the Minister can prescribe the manner of e-filing in writing - but no such prescribed practise seems to have existed in respect of grace periods.

[10]     A letter in the Respondent's Book of Documents notes that the accountant was a new e-filer and that he was not aware of the non-acceptance status of the subject return until May 26 when he immediately re-filed, electronically, the subject return. It is not in dispute that until then he honestly believed that the original e-filing had been filed on a timely basis.

[11]     The Appellant's position was that the computer transmission received from the CRA on April 29 should be seen as acceptance of the return. Like a postmark or delivery receipt constitutes evidence of a filing date, so should an acknowledgement of an electronic transmission being received. It is hard to accept this argument given that in the case of hard copy filings there is no initial acceptance review of a return while in electronic filings there is a computerized review that the legislation tends to confirm is a checkpoint that must be passed through before a filing occurs. However, the Minister has acknowledged that days of grace are necessary and the failure to publish same is to impose a silent, potentially moving, due diligence standard.

[12]     As noted, this Court has jurisdiction to consider questions of due diligence in relation to the imposition of penalties. Exercising that jurisdiction, I am allowing the appeal. Unlike the Minister's rigid pigeonhole approach to determine the application of fairness relief, this Court looks at the facts and circumstances of each case. Decisions under the informal procedure are not binding precedents. Accordingly, this case need not be seen as anything more than my having concluded on the facts and circumstances of this case that the Appellant through her accountant acted with sufficient due diligence to warrant vacating the penalties assessed. The Appellant having acted immediately on learning of the error and within a relatively short period of the filing deadline, favours a finding in the circumstances of this case, which include an unpublished grace period, of reasonable due diligence. Had I any evidence of the publication of the 6-day grace period allowed by the CRA for re-filing non-accepted returns, the outcome of this appeal may have been different.

[13]     Accordingly, I find that the Appellant through her agent acted with due diligence in respect of the timely filing of the subject return and on that basis the appeal of the assessment for late filing penalties is allowed without costs.

Signed at Ottawa, Canada, this 21st day of November 2006.

Hershfield J.