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Citation: 2003TCC475
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Date: 20030731
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Docket: 2002-4463(GST)I
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BETWEEN:
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JACQUES PATRY,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
Tardif, J.
[1] This is an appeal resulting from a notice of assessment of the goods and services tax ("GST") dated September 14, 2001, for the period from April 1, 1997, to December 31, 2000.
[2] The point for determination is essentially whether the assessment at the origin of this appeal is correct.
[3] The appellant admitted at the outset that the assessment at the origin of the appeal was made in accordance with the provisions of the Excise Tax Act (the "Act").
[4] He essentially disputes the respondent's right to assess because of the circumstances and facts, which he described as specific to his case. In other words, the appellant contends that the calculations made were beyond reproach and were consistent with available information.
[5] First, he claims that he was not assessable because his total rental income was less than the established limit of $30,000; second, he contends that he followed the tax auditor's instructions to the letter, which, in his view, sheltered him from any potential assessment.
[6] During the period at issue in the assessment, the appellant, a lawyer by profession, was practicing law in the traditional sense in a building that belonged to him. The building in question had offices that he leased to other professionals. Since the rental income alone totalled less than $30,000 annually, the appellant contended that the income in question was not assessable, even though it was income included in his income from his professional practice.
[7] Although the appellant argued that the rental income was not assessable, he claimed input tax credits ("ITCs") in respect of the expenses relating to that income, thus causing ambiguity that he did not see fit to explain or justify.
[8] He also stated that he had undergone a number of income audits by the Canada Customs and Revenue Agency and by Quebec's Ministère du Revenu.
[9] In one of those audits, the date of which he did not prove, certain auditors offered him advice on how to account for his income and expenses. The appellant said that he had applied the recommendations made and fully complied with the advice offered, from which he concludes that he cannot be assessed since he obeyed and complied with the tax auditors' instructions.
[10] He submits that, based on the theory of legitimate expectations, this constitutes a fin de non-recevoir. In the appellant's view, the various instructions with which he complied sheltered him from any potential assessment.
[11] No evidence was adduced concerning the advice, recommendations or suggestions that certain auditors might have provided to improve his accounting, which had been characterized as partially deficient. Furthermore, even if the appellant had brought that evidence, I do not believe such recommendations or suggestions established any future right for the appellant.
[12] Over the years, the appellant has had to submit to various audits with respect to the operations that generated his reported income. According to the appellant, those audits generally turned out in his favour.
[13] The appellant's accounting probably not what it should have been ideally, it was normal and customary for the auditors to make a certain number of suggestions or recommendations.
[14] This was mere advice; the appellant could simply have disregarded it without consequence. The appellant chose to abide by it and to put the recommendations into practice. He would like to be rewarded for doing so, adding that this is the basis of the theory of reasonable expectations to which he refers.
[15] The role and mission of the tax auditors are to audit and analyze a case to determine whether the person who is the subject of the audit correctly discharged the obligations arising from the Act and its Regulations. They have neither the right nor the authority to grant any future immunity.
[16] In support of his claims, the appellant frequently referred to the theory of legitimate expectations, citing Claudine Roy's book on the subject, Les Éditions Yvon Blais Inc., 1993, and an article she wrote that was published in the Revue du Barreau entitled, "L'expectative légitime après l'arrêt Mont-Sinaï" ["Legitimate Expectation after the Mount Sinai Decision"] (Revue du Barreau, fall 2001, volume 61, p. 537).
[17] The appellant argued that under the said theory, his appeal should be allowed. He did not explain how or why but essentially asserted and repeated that he had complied with the instructions of the auditors-those responsible not for his GST case but for his tax file regarding his professional legal activities.
[18] The theory of legitimate expectation is a subject both complex and difficult to apply, as may be seen from the introductory remarks to Claudine Roy's article in the Revue du Barreau:
[TRANSLATION]
ADMINISTRATIVE LAW, Christine ROY
Legitimate Expectation after the Mount SinaiDecision
For some years now, doctrine and case law have differed on the protection that the legitimate expectations created in citizens by public authorities is to be afforded: should that protection be procedural or substantive?
The issue is in fact more complex: the public administration may either promise citizens that they will be heard or promise them a specific result (that a permit will be issued, for example). In both cases, breaking the promise may give rise to procedural protection, that is to say, a right to obtain specifically the expected result.
The current dance involving the theory of legitimate expectation, promissory estoppel, abuse of power, unreasonable decision and exhaustion of the exercise of discretion clearly illustrates the definite malaise in public law, which has not yet managed to resolve satisfactorily the conflict between a citizen to whom a promise has been made, or who expects specific conduct on the part of the administration based on its past behaviour, and the necessary flexibility in the exercise of the public administration's discretion.
...
[19] To enjoy one of the benefits of the doctrine of legitimate expectation, it is essential to establish clearly that there was a promise or a previous practice that could reasonably give rise to certain realistic expectations.
[20] In the instant case, the appellant made no such proof; essentially, he limited himself to giving his own interpretation of facts that, on their face, in no way established that a promise had been made. The appellant would like the Court to conclude that the recommendations and suggestions made in the context of a tax audit are a guarantee protecting him from any assessment as a result of his having put the said recommendations into practice.
[21] First, it is important to recall that the recommendations were made by tax auditors, whose work had nothing to do with the Excise Tax Act as it relates to the goods and services tax. Moreover, even if the recommendations had been made by GST auditors, they would have had no effect on the appellant's future obligations.
[22] We are evolving in a society where citizens must self-assess in accordance with the Act and its Regulations provided for by the legislature. Every citizen may be audited at any time. Audit and control are generally conducted in accordance with good practice in the field. A host of conclusions may arise. Exchanges, advice and recommendations are essentially designed to improve transparency and consistency in the future in the event of another audit. Applying the recommendations or complying with the relevant accounting standards and rules creates no future immunity.
[23] First, the appellant's interpretation of the doctrine of legitimate expectation is incorrect; second, he brought no evidence that the essential conditions for that theory to apply were met, that is to say, that an actual promise had been made by the public administration; that there had been a serious breach of the rules of natural justice; and that there was a reasonable and justified expectation of a certain result.
[24] Furthermore, the appellant was not very clear, and indeed was evasive on why and how the doctrine of legitimate expectation should apply. He stated and contended that his appeal was well founded on the basis of that doctrine and referred to the writings of Claudine Roy without providing any detail or identifying relevant excerpts.
[25] I think it appropriate to cite a passage from Claudine Roy's book, La théorie de l'expectative légitime en droit administratif ["The Theory of Legitimate Expectation in Administrative Law"], at page 63.
[TRANSLATION]
2. OBJECT AND PROTECTION OF LEGITIMATE EXPECTATION
Once it is acknowledged that an expectation has been created and is legitimate, the question arises as to what the object of that expectation is. What does the person expect? To be heard by the public authority to state arguments in favour of one decision over another, or to obtain some benefit (permit, visa, etc.)? In the latter case, what remedy can that person obtain from the courts: the right to be heard by the public authority, or can the person go so far as to demand from the courts that the expectation be realized? For example, could the authority be compelled to abide by a promise it has made?
The vast majority of doctrine and case law appears to lean in favour of procedural protection. Yet a more recent minor trend goes further in some cases; in some circumstances, it might be appropriate, as a remedy, to have the expectation created by the discretion holder realized. Here, a debate similar to that on the scope of the duty to act fairly can be seen to be re-emerging.
[26] In the instant case, no promise was made to the appellant. He was not deprived or limited in the expression of his fundamental rights.
[27] By his own admission, he was assessed in a manner consistent with the provisions of the Act. He disputed the assessment's correctness by means of the instant appeal. He had the opportunity to be heard and to bring evidence in support of his claims.
[28] He chose to resort to the doctrine without understanding its requirements and without explaining its relationship to his case.
[29] The facts were very simple. The appellant was registered for the purposes of the GST. As a registrant, he acted as an agent of the federal Minister of Revenue, with an obligation to collect and remit the GST applicable in respect of taxable supplies made.
[30] He leased space in an office building belonging to him. He also provided his tenants with a number of services, including photocopying, office cleaning, hydro, telephone, secretarial services and parking. The goods and services supplied constituted taxable supplies. The appellant neither collected nor remitted the applicable GST on the value of the consideration for the goods and services supplied to his tenants.
[31] Subparagraphs 9(j), (k), (m) and (n) of the Reply to the Notice of Appeal read as follows:
[TRANSLATION]
(j) during the period in issue, the appellant claimed all taxes paid or payable in respect of the building as input tax credits (ITCs), whereas he could only claim 75 percent, and the difference of 25 percent was therefore assessed in his hands;
(k) the appellant claimed an ITC in respect of 100 percent of his personal telephone line expenses, but the auditor reduced it to 25 percent since the appellant used his line for business only when the office facsimile was in operation;
(l) 50 percent of the ITCs claimed in respect of entertainment expenses were allowed;
(m) the appellant keeps what may be characterized as summary accounting records;
(n) the appellant wrongly believed that he could separate his various income sources in order to qualify as a "small supplier";
[32] The appellant brought no material evidence in support of the soundness of his appeal. He essentially stated and repeated that his appeal should be allowed under the doctrine of legitimate expectation.
[33] Nothing in the evidence adduced justifies the application of that theory. Being a registrant for GST purposes, the appellant had an obligation to collect and remit the GST on the goods and services he sold. He did not do so. His appeal must therefore be dismissed.
Signed at Ottawa, Canada, this 31st day of July 2003.
Judge Tardif
Translation certified true
on this 22nd day of July 2004.
Sophie Debbané, Revisor
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