[OFFICIAL ENGLISH
TRANSLATION]
Date:
20010706
Docket:
2000-285(GST)G
BETWEEN:
GERMAIN
PELLETIER LTÉE,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre
Proulx, J.T.C.C.
[1] This is an appeal from an
assessment dated September 25, 1998, for the period from July 1st,
1993, to December 31, 1997, notice of which bears number 0252933.
[2] The case concerns the
application of section 281.1 of the Excise Tax Act ("the Act")
with regard to the discretion that the Minister of National Revenue ("the
Minister") has to waive interest and penalties. It also concerns the due
diligence defence in relation to a penalty assessed under section 280 of the Act.
[3] When the hearing began, the
parties submitted the following partial agreement on the facts:
[TRANSLATION]
1. When the
provisions of the Excise Tax Act (hereinafter "the Act")
came into force on January 1, 1991, the appellant made an election under section
156 of the Act, which made it possible for supplies between
"closely related corporations" to be deemed to have been made for no
consideration.
2. That at that
time, that is, when the Act came into force on January 1, 1991, the
appellant and Les Supermarchés GP Inc. were considered to be "closely
related corporations" within the meaning of subparagraph 128(1)(a)(vi)
of the Act;
3. That the
transactions between the appellant and Les Supermarchés GP Inc. are what
are known as "wash transactions".
[4] Bernard Sylvain, the vice-president of the
Germain Pelletier corporate group, and Bernard Blanchet, a
socio-economic planning research officer for Revenu Québec, testified at
the request of counsel for the appellant. Alain Thérien, a financial
management officer for Revenu Québec, testified at the request of counsel for
the respondent.
[5] Prior to 1993, Mr. Sylvain
was part of an accounting firm and acted as the appellant's external auditor.
On March 15, 1993, he was hired by the appellant as its chief financial
officer, and he became its chief executive officer and vice‑president in
1997.
[6] The appellant is a company
that owns and manages various immovable properties, including shopping centres
in Matane, Amqui, Trois‑Pistoles,
Rimouski and Mont‑Joli. Les Supermarchés GP Inc. operates a number of
food stores and rents space owned by the appellant.
[7] As stated in the partial
agreement on the facts, (1) those two corporate entities were closely related
corporations within the meaning of subparagraph 128(1)(a)(vi) of the Act, and (2) the
appellant made an election on January 1, 1991, under section 156 of the Act
so that the supplies made to one of them would be deemed to have been made for
no consideration. The appellant therefore did not have to collect tax on the
rent paid by Les Supermarchés G.P. Inc., and that company could not claim any
input tax credit.
[8] Subparagraph 128(1)(a)(vi) of the Act read
as follows:
128(1) For the purposes of
this Part, a particular corporation and another corporation are closely related
to each other at any time if at that time the particular corporation is
resident in Canada and is a registrant and at that time
(a) the other
corporation is resident in Canada and is a registrant and not less than 90% of
the value and number of the issued and outstanding shares of the capital stock
of the other corporation, having full voting rights under all circumstances,
are owned by
…
(vi) a person or group
of persons (not exceeding five) owning not less than 90% of the value and
number of the issued and outstanding shares of the capital stock of the
particular corporation, having full voting rights under all circumstances, or
[9] That subparagraph was
repealed by S.C. 1993, c. 27,
subs. 12(1), retroactive to December 17, 1990.
[10] Subsection 156(1) of the Act
read as follows in 1990:
For the purposes of this Part, where a
specified member of a closely related group files an election made jointly with
a corporation that is also a specified member of the group, every taxable supply
(other than a taxable supply by way of sale of real property or a supply of
property or a service that is not for use, consumption or supply exclusively in
commercial activities of the recipient of the supply) made at a time when the
election is in effect between the specified member and the corporation shall be
deemed to have been made for no consideration.
[11] During an audit conducted
in 1998 by the Minister's officials, Claire Desjardins and Alain Thérien, the appellant was
informed of the 1993 legislative amendment that eliminated subparagraph 128(1)(a)(vi)
of the Act. The auditors notified the appellant that it and Les
Supermarchés G.P. Inc. were not closely related corporations because of that
legislative amendment and that it had to collect and remit tax on the rent.
[12] The auditors also informed
the appellant that they had to assess the penalties provided for in section 280
of the Act and compute interest.
[13] Mr. Sylvain said that he was very surprised when notified
of the legislative amendment. He subsequently checked the correspondence from
the Department and the information it sent and found no reference to that
amendment. The external auditor from the accounting firm to which
Mr. Sylvain had previously belonged had not mentioned anything during the
years at issue either.
[14] Mr. Sylvain said that at all times the appellant's
intention was to comply with the Act. It kept its books in accordance
with what it believed was correct at the time. It kept the supplies made to Les
Supermarchés GP Inc. separate from the supplies made to its other clients. It
made its returns and remitted the amounts owed on time.
[15] Bernard Blanchet, the Minister's official for
objections, said that the Minister felt that the appellant was in a due
diligence situation.
[16] Mr. Blanchet explained that he had relied on Memoranda
GST‑500‑3‑2 of March 16, 1994, and Bulletin B‑074
of November 28, 1994, to reduce the interest and penalties that were in excess
of four percent of the tax not collected. The Bulletin is entitled: Guidelines
for the Reduction of Penalty and Interest in "Wash Transaction"
Situations. It was filed as Exhibit A‑8. The conditions of application
read as follows:
The Minister will consider waiving or
cancelling the portion of the penalty and interest that is in excess of 4% of
the tax not collected in a "wash transaction" situation where the
following conditions are satisfied:
(a) It must be
demonstrated that the supply in question was made to a registrant who would
have been entitled to a full input tax credit if the tax had been correctly
applied.
(b) The
supplier must not have been previously assessed for the same mistake and must
have a satisfactory history of voluntary compliance.
(c) The
supplier must have remedied the situation to ensure that tax is collected on
future supplies of a similar nature.
(d) The
supplier must have exercised reasonable care and diligence without being
negligent or careless in the conduct of its affairs to ensure that tax is
collected on all taxable supplies.
These guidelines will be applied
retroactively to January 1, 1991, and may be adjusted in the future if the
Minister considers it necessary.
In all circumstances where the Minister is
considering whether to waive or cancel penalty and interest, the Minister
retains the right to either waive or cancel only a portion of the penalty and
interest, or all or a portion of one or the other.
[17] Mr. Blanchet admitted that the appellant met all the
above criteria, including the one on diligence.
[18] The decision on the
objection, which is dated November 25, 1999 (Exhibit A‑5), reads as
follows:
[TRANSLATION]
The Minister of Revenue has considered the
facts and grounds set out in your notice of objection and has decided that:
The assessment was made in accordance with
legislative provisions, particularly—but without limiting the generality of the
foregoing—in that the penalties and interest were assessed pursuant to the
provisions of section 280 of the Excise Tax Act.
Arguments
[19] Counsel for the appellant
argued that, under section 281.1 of the Act, the Minister does not have
the power to cancel a portion of the interest and penalties. He can only cancel
all of them. As an alternative argument, he raised the appellant's due
diligence and therefore that the penalties assessed under section 280 should be
cancelled. He argued that the appellant's due diligence has been not only
admitted by the respondent but also confirmed by the evidence.
[20] Counsel for the appellant
referred in particular to Patrice Garant,
Droit Administratif, 4th ed., vol. 1 (1996), at pages 346
et seq., and to Pierre‑André Côté, The Interpretation of
Legislation in Canada, 3rd ed., at pages 275‑76, to support his
assertion that the terms "all" or "any portion" must not be
added. I cite the author last mentioned:
Assuming a statute to be well drafted, an
interpretation which adds to the terms of its provisions or deprives them of
meaning is not recommended.
Since the judge's task is to interpret the
statute, not to create it, as a general rule, interpretation should not add to
the terms of the law. Legislation is deemed to be well drafted, and to express
completely what the legislature wanted to say: "It is a strong thing to
read into an Act of Parliament words which are not there, and in the absence of
clear necessity it is a wrong thing to do." [Per Lord Mersey, Thompson
v. Goold & Co., [1910] A.C. 409, 420.]
[21] He also referred to a few
specific legislative provisions, including subsection 220(3.1) of the Income
Tax Act, which reads as follows:
Waiver of penalty or interest. The Minister may at any time waive or
cancel all or any portion of any penalty or interest otherwise payable under
this Act by a taxpayer or partnership and, notwithstanding subsections 152(4)
to (5), such assessment of the interest and penalties payable by the taxpayer
or partnership shall be made as is necessary to take into account the
cancellation of the penalty or interest.
[22] With regard to his second
argument, counsel for the appellant submitted that penalties must not be
assessed in circumstances of due diligence. On this point, he referred to the
Federal Court of Appeal's decision in Attorney General of Canada v. Consolidated Canadian
Contractors Inc., which
was rendered on September 29, 1998. Robertson J.A. concluded as
follows:
Having regard to the analytical framework
outlined in Sault Ste. Marie and to the arguments advanced by the
Minister, I am not persuaded that section 280 of the Excise Tax Act
gives rise to absolute liability. In my view, an implied due diligence is
neither incompatible with the legislative scheme, nor does it frustrate or
undermine the purposes underlying that scheme. The presumption in favour of
strict liability has not been rebutted.
[23] Counsel for the appellant
also referred to Memorandum 16.3.1,
Reduction of Penalty and Interest in Wash Transaction Situations, which
was issued in September 2000. It replaces Information Bulletin B‑074.
Paragraph 9 reads as follows:
In the case of a wash transaction where the
penalty and interest is reduced to a penalty of 4% of the tax not collected and
the CCRA has determined that the person has exercised due diligence, the
remaining penalty will be cancelled. For further information on due diligence,
refer to Policy Statement p. 237, The Acceptance of a Due Diligence Defence
for a Penalty Imposed Under Subsection 280(1) of the Excise Tax Act for Failure
to Remit or Pay an Amount When Required.
[24] The respondent argued that
the Minister correctly exercised the discretion conferred on him by section
281.1 of the Act. He argued that the appellant has not shown that the
Minister acted in bad faith or failed to take account of all the relevant facts
in exercising his discretion and that the Minister's decision was contrary to
the Act. He therefore submitted that the Court has no grounds for
intervening to review the Minister's decision. He referred on that point to the
decision by Reed J. of the Federal Court–Trial Division in Revivo v. Canada, [2000] F.C.J. No. 40, especially
paragraph 6 of that decision:
The nature of the Court's jurisdiction when
reviewing decisions of the Fairness Committee was described by Mr. Justice
Rouleau in Kaiser v. Minister of National Revenue (1995), 93 F.T.R. 66
at 68, quoting McIntyre J. in Re Maple Lodge Farms Ltd. v. Government of
Canada, [1982] 2 S.C.R. 2 at
7:
... It is, as well, a clearly-established
rule that courts should not interfere with the exercise of a discretion by a
statutory authority merely because the court might have exercised the
discretion in a different manner had it been charged with that responsibility.
Where the statutory discretion has been exercised in good faith and, where
required, in accordance with the principles of natural justice, and where
reliance has not been placed upon considerations irrelevant or extraneous to
the statutory purpose, the courts should not interfere. ...
[25] Counsel for the respondent
also referred to a decision I rendered in Marée Haute Enr. v. The Queen,
[2000] T.C.J. No. 3, especially paragraph 16 of that decision:
With regard to interest, penalties and
section 281.1 of the Act, I refer to what was stated by Judge Bowman of this
Court in Somnus Enterprises No. 1 Ltd. v. Canada, [1995] T.C.J. No. 23:
Nor can I provide any relief against the
assessment of interest. Interest is exigible automatically where there is a
deficiency in the tax paid. The only circumstance in which relief against
interest is available is where the Minister of National Revenue exercises his
discretion under section 281.1 of the Excise Tax Act. I agree with the
respondent that it is not within this court's jurisdiction to review the
Minister's exercise of his discretion under section 281.1. Our jurisdiction,
like that of the Federal Court, is defined by the statute creating the court.
If such a jurisdiction is conferred upon the Federal Court it is for that court
to determine under the Federal Court Act.
Where this court clearly does have
jurisdiction is, not to review the exercise of the Minister's discretion to
waive penalties and interest under section 281.1 where interest and penalties
have otherwise been properly assessed under the Act, but rather to determine
whether the penalties and interest have been properly assessed in accordance
with the law. I can do nothing about the interest in this case, but the
penalties are another matter. As stated in Pillar Oilfield Projects Ltd. v. The
Queen [1993] G.S.T.C. 49
there can be no justification for the routine and automatic imposition of
penalties merely because a taxpayer has incorrectly computed his or her tax
liability. Such penalties are not absolute. Rather they are strict, in the
sense in which that expression is used in The Queen v. Sault Ste Marie [1978] 2 S.C.R. 1299
and are susceptible of a defence of due diligence.
[26] In that case, I had adopted
the position taken by this Court's judges that this Court has no jurisdiction
to review the Minister's discretion, but I had also noted that, in any event,
the evidence did not show that the appellants had exercised due diligence.
Conclusion
[27] Section 281.1 of the Act
reads as follows:
Waiving or cancelling interest
281.1 (1)
The Minister may waive or cancel interest payable by a person under section
280.
Waiving or cancelling penalties
281.1 (2)
The Minister may waive or cancel penalties payable by a person under section
280.
[28] The argument raised by
counsel for the appellant presupposes that the power to cancel or waive
interest and penalties does not implicitly include the power to cancel or waive
a portion of them. This may be too inflexible a position. I refer to Pierre‑André Côté, The
Interpretation of Legislation in Canada, 3rd ed. (Scarborough, Ont.:
Carswell, 2000), at pages 276‑77:
[Emphasis
added.]
[29] In my view, the position
taken by counsel for the appellant is not in line with the Act's
objectives either. I refer to the same book he referred to, Patrice Garant's Droit
Administratif, 4th ed., vol. 1 (1996), at page 351:
[TRANSLATION]
The extensive case law basically ties the
extent or scope of the discretion to a close examination of the legislature's
objectives. According to the Supreme Court:
[D]iscretion cannot be considered in the
absence of an examination of the legislative objectives, and the important
question is whether the presence of such discretion can be rationally tied to
those objectives. (Young v. Young, [1993] 4 S.C.R. 3, at p. 73)
[30] Parliament's objectives are
those of fairness, and it would be difficult for them to be all‑or‑nothing
in nature. In my view, the Minister's interpretation of his discretion, which
would allow him to remit all or any portion of the penalties and interest, is
more in keeping with Parliament's objectives than the radical interpretation
proposed by counsel for the appellant, which may become dangerous even for the
appellant. This is because counsel's proposition is that all the penalties be
cancelled, but the contrary is also possible, with nothing being cancelled. In
accordance with the principles of natural justice, the Minister has established
criteria that enable him to exercise his discretion objectively and
impartially, and that discretion may be exercised with respect to all or any
portion of the interest and penalties.
[31] Although he referred me to
the Federal Court's decisions concerning the exercise of discretion under the Act,
counsel for the respondent did not raise this Court's lack of jurisdiction to
review that exercise. He confined himself to the argument that the Minister had
exercised his discretion in accordance with the principles set out in the case
law to which he referred.
[32] My analysis of the Act's
provisions relating to that ministerial discretion confirms that he was right
not to raise the point that this Court has no jurisdiction. As I stated in
paragraphs 25 and 26 of these Reasons, it seemed to be accepted by the courts
that the exercise of the Minister's discretion under section 281.1 of the Act
could not be reviewed by this Court. After reading the Act carefully, I
think that this is not the case. A provision in the Income Tax Act that
is apparently similar but is actually different has led to some confusion.
[33] Under subsection 220(3.1) of the Income Tax Act, the
Minister exercises a similar discretion concerning penalties and interest. The
Minister's decision following that exercise of discretion is reflected in an
assessment under subsection 220(3.7) of that statute. According to
subsection 165(1.2) of the Income Tax Act, such an assessment is not
subject to the appeal process in this Court. As a result, it is the Federal
Court that has jurisdiction pursuant to the powers set out in the statute
creating it. I have already considered this Court's lack of jurisdiction to
review the exercise of the Minister's discretion in Gretillat v. The Queen,
T.C.C., No. 96-4454(IT)I, February 18, at pages 7 and 8 (98 DTC, at page 1486).
[34] The
provision of the Act that authorizes the Minister to waive interest and
penalties is section 281.1. Under subsection 296(1) of the Act, the
Minister may make an assessment after exercising his discretion. The objection
procedure is provided for in section 301, and there is no exception for
assessments made following the exercise of the Minister's discretion. The
appeal procedure is set out in section 302, and it is this Court that hears
appeals from assessments under the Act. The exercise of the Minister's
discretion is therefore reviewable by this Court.
[35] The respondent's position
was based solely on the Minister's discretion having been exercised in
accordance with the established criteria. However, those criteria were
established on the basis of an incorrect legal concept that the Act did
not allow for a due diligence defence against the assessment of a penalty under
section 280 of the Act. As stated in paragraph 23 of these Reasons, the
Minister amended his memorandum in September 2000. It is therefore surprising
that counsel for the respondent did not take that amendment into account and
above all did not take into account the effect of the Federal Court of Appeal's
decision in Consolidated, supra, in his argument.
[36] As for whether the Minister
exercised his discretion properly, I must note that there was no legal debate
on the impact of an error of law resulting from a court decision that is
subsequent to both the exercise of the ministerial discretion and the resulting
assessment. In these circumstances, it would be difficult for me to decide
whether the Minister exercised his discretion properly, even though this Court
does have a review power for the reasons I stated in paragraphs 31 to 34 of
these Reasons.
[37] The penalties in respect of
which the Minister's discretion was exercised were assessed under section 280
of the Act. I prefer to limit myself to this aspect. The appellant's due
diligence was not questioned by the respondent and was confirmed by the
evidence. It is a well‑established legal principle that ignorance of the
law is not an excuse to argue against the application of the law. However, it
is a factor that may be taken into account in assessing penalties if the
evidence otherwise shows that due diligence was exercised. In my opinion, the
assessment of penalties under section 280 must be cancelled because the
appellant exercised due diligence in carrying out its duties under the Act.
[38] The appeal is allowed to reduce the assessment of penalties to
nil.
Signed at Ottawa, Canada, this 6th day of
July 2001.
J.T.C.C.
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