REASONS
FOR ORDER
Tardif J.
[1]
This is a motion by the appellant to obtain a
higher lump sum than what is provided for in this Court’s principles on costs, as
it was successful.
[2]
Following the appeal, a judgment was rendered in
favour of the appellant. Appealed from by the respondent, the Federal Court of
Appeal upheld my judgment. However, the Court of Appeal ordered that I re-hear
the parties on the issue of costs in accordance with the oral motion that the
appellant filed at the hearing; the appellant asked this Court’s permission to make
additional and specific arguments to obtain higher costs than those provided
for in the tariff in the event that its appeal was allowed, which was the case.
[3]
In the appeal on the merits, this Court had to determine
whether Salaison Lévesque Inc. (Salaison) was entitled to an amount of $12,443.35,
which represented the input tax credits disallowed by Quebec’s Minister of Revenue
on the ground that Salaison supposedly participated in a scheme of invoices of
convenience. Given the absence of a preponderance of evidence of such a scheme
and the absence of collusion with the employment agencies that failed to remit
to the Minister the GST/QST collected, the judgment was as follows:
The appeal
from the assessment made under Part IX of the Excise Tax Act (R.S.C.
1985, c. E-15) for the period from August 7, 2006, to August 29, 2009, notice
of which is dated April 13, 2010, is allowed, and the assessment is vacated,
with costs in favour of the appellant.
[4]
At the time of the judgment, I did not consider
the request by counsel for the appellant to hold a hearing to allow it to make
additional arguments regarding the granting of higher costs than those provided
for in the tariff.
[5]
On the respondent’s appeal, the Federal Court of
Appeal’s finding was as follows:
[40] For the above reasons, I propose
that the main appeal be dismissed, except with regard to the $2,348.29 and
$855.09, amounts which Salaison never disputed. Salaison should be entitled to
costs on appeal.
[41] The matter should also be
referred back to the judge so that he can redetermine the amount of costs to be
awarded to Salaison.
[Emphasis
added.]
[6]
The hearing of the parties in accordance with the
instructions of the Federal Court of Appeal on the issue of costs took
place at Montréal on May 27, 2015.
[7]
The parties made the following arguments:
The appellant’s submissions
[8]
As to costs, Salaison is seeking a lump sum of $50,000,
representing 80% of the fees paid, plus disbursements of $1,200. It submits to
the Court that that amount is justified given the settlement offer to the
respondent and the criteria listed in subsection 147(3) of the Tax Court of
Canada Rules (General Procedure) (Rules).
[9]
The appellant also referred to the considerable
impact on the financial patrimonies of the individuals associated with it. The
following table is also very telling to that effect:
|
ASSESSMENTS
|
ASSESSMENT TOTALS ($)
|
|
Goods and
Services Tax (GST)
|
20,430.32
|
|
Quebec Sales Tax (QST)
|
41,114.10
|
|
Corporate tax (provincial)
|
75,224.90
|
|
Corporate tax (federal)
|
265,315.41
|
|
Deductions at source (provincial)
|
87,364.80
|
|
Régis Lévesque personal tax (provincial)
|
287,402.21
|
|
Régis Lévesque personal tax (federal)
|
497,474.28
|
|
Annie Lévesque personal tax (provincial)
|
201,068.59
|
|
Annie Lévesque personal tax (federal)
|
513,201.29
|
|
TOTAL
|
1,988,595.90
|
[10]
Finally, the appellant stressed the poor quality
of the work performed by the auditors. To that effect, I do not see the
relevance of reproducing the various passages of the judgment other than to
agree with that entirely appropriate assessment.
The respondent’s submissions
[11]
The respondent, at the outset, submitted that it
was a completely ordinary case that created no precedent because, in
particular, it was essentially an unimportant case that turns on its facts.
[12]
The respondent also maintained that only the
assessment amount had to be taken into consideration adding that the file could
have been heard under the informal procedure had it not been for the
appellant’s request to be subject to the general procedure rules.
[13]
The respondent stated that the Court cannot take
into account the settlement offer since it did not meet the very precise
criteria set out in subsection 147(3.1) of the practice note:
147(3.1) Settlement offers
. . .
(c) Paragraphs (a) and (b)
do not apply unless the offer to settle
[Conditions that
must be met.]
(i) is a written
offer of settlement;
. . .
(iii) is not
withdrawn; and
(iv) does not
expire earlier than 30 days before the commencement of the hearing.
[14]
To summarize the respondent’s position with
respect to the other grounds for her assessment, I find it helpful and relevant
to reproduce certain excerpts of the transcript:
[translation]
. . . the case before us, before the Tax
Court of Canada represents an amount of $20,800.
. . .
Therefore, this is a significant case—that
is significant for Salaison Lévesque but does not have the significance that my
friend seems to give to other types of cases.
. . .
. . . I submit that this is a case that has
required a considerable amount of work but that has not required more work than
other tax cases as a whole. The hearings lasted only a day and a half. . . .
There were no experts; there were no expert witnesses
heard in this case. There was no specific issue, specific tax issue. It is a
question of fact, Mr. Justice.
The issue was whether employment agencies
rendered service. That is the only issue to determine . . . .
. . .
. . . the issue was simple and also the facts
surrounding it were not complex . . . .
[15]
Counsel for the respondent also raised the
following:
[translation]
The auditor even—so I think the costs have
nothing to do with the work that the auditor performed or did not perform. Really
it is in the course of the proceedings, were there any problems identified by
counsel for the respondent? There were not, Mr. Justice. The proceedings went
smoothly. There were not any unnecessary objections. It went well.
Analysis
[16]
The respondent focused mainly on the issue that
it was essentially an inconsequential case that turns on its facts adding that
the appellant itself had taken the initiative to ensure that the matter be
subject to the general procedure instead of the less demanding, more flexible, less
restrictive and less costly informal procedure.
[17]
At first, it appears that the settlement offer issue
does not meet the established criteria. However, I am of the view that that is a
somewhat relevant element.
[18]
The trial revealed evidence of the poor quality
of and the lack of seriousness of the audit work performed; in fact, I noted a
serious lack of rigour to the point of finding that the work that led to the
assessments had quite simply been botched.
[19]
However, I stated that the respondent was
justified in objecting to the appellant’s notice of appeal and bringing it
before the court given the state of the case law. Based on that determination,
I concluded that it was not an abusive, unreasonable or frivolous position.
[20]
Clearly, counsel for the respondent relied on the
findings of the investigative work and validated it by the proceedings that led
to the trial.
[21]
The fundamental issue that arises in the case is
whether the quality of the audit work performed in the context of a
reassessment may be considered for the purposes of granting additional costs.
[22]
It is important to remember that audit work is
complex and fraught with many challenges that generally come from the ignorance,
carelessness, negligence of the person being audited; the degree of difficulty
and constraints may vary significantly from one file to another.
[23]
The passage of time is one of those constraints,
along with the inability to locate certain players, the poor quality or even lack
of documents, the willingness or unwillingness of interveners, etc.
[24]
When faced with these countless problems,
difficulties and the high complexity of files, Parliament set out a whole series
of powerful and restrictive measures to remedy the various obstacles, difficulties
and refusals to cooperate. Such powers generally make the completion of audit
work possible; moreover, they contribute to the development of the work, the
findings of which are generally reliable or at least probative.
[25]
With such authority and powers, it is essential
and completely fundamental that the quality of the audit work be impeccable and
above reproach. In other words, there is no reason or justification that can
explain or support work that is incomplete, botched, or shaped by any kind of bias
particularly since any reassessment may be the subject of severe penalties with
interest. Given the complexity of tax obligations, and given that all natural
and legal persons are subject to them, it is normal that all persons can be the
subject of spot tax audits. Such audits must be carried out with respect and a
great deal of rigour, without being botched under the pretext that the burden
of proof is on the shoulders of the person being audited.
[26]
A trial must not be a fishing expedition
allowing auditors to validate their intuition and/or perception. A tax trial requires
exorbitant fees and disbursements. That reality often results in dissuading a
reasonable person with limited means from challenging a possibly unjustified
assessment.
[27]
The issue of higher costs than those provided
for in the tariff is a very important and increasingly topical issue that is raised
more and more.
[28]
It is an issue with multiple consequences in
several respects. Already, it is common knowledge that access to the courts has
become prohibitive with respect to costs, without regard to the outcome.
[29]
In other words, it is very rarely possible to be
successful in a judicial experience except when a matter of principle is at
issue. However, today, matters of principle generally involve the very wealthy.
[30]
Originally, the purpose of awarding costs was
undoubtedly to reach some sort of balance. Over the years, although improved, bills
of costs remain overall fairly marginal in relation to the actual costs that
must be invested in a trial.
[31]
With time, things have improved slightly in that
Parliament has passed several new provisions; I am particularly refering to the
possible sanctions in civil law that arise from abuse of process, SLAPP suits,
etc.
[32]
Other initiatives are moving in the same
direction; I am refering to informal proceedings, small claims, mediation,
settlement conferences, etc.
[33]
The possibility of obtaining higher costs than
those provided for in the tariff is an effective action that can re-establish
the balance between the opposing forces in a tax dispute. That possibility may
be a very helpful tool for sanctioning abuses of authority by tax authorities.
[34]
The Rules on costs include the following general
provisions:
COSTS
GENERAL PRINCIPLES
147(1) The Court may determine the amount of the costs of all
parties involved in any proceeding, the allocation of those costs and the
persons required to pay them.
(2) Costs may be awarded to or against the Crown.
(3) In exercising
its discretionary power pursuant to subsection (1) the Court may consider:
(a) the
result of the proceeding,
(b) the
amounts in issue,
(c) the
importance of the issues,
(d) any
offer of settlement made in writing,
(e) the
volume of work,
(f) the
complexity of the issues,
(g) the
conduct of any party that tended to shorten or to lengthen unnecessarily the
duration of the proceeding,
(h) the
denial or the neglect or refusal of any party to admit anything that should
have been admitted,
(i) whether
any stage in the proceedings was,
(i) improper, vexatious, or unnecessary, or
(ii) taken through negligence, mistake or excessive caution,
(i.1)
whether the expense required to have an expert witness give evidence was
justified given
(i) the nature of the
proceeding, its public significance and any need to clarify the law,
(ii) the number, complexity or technical nature of the issues in
dispute, or
(iii) the amount in dispute; and
(j) any
other matter relevant to the question of costs.
(3.1) Unless
otherwise ordered by the Court, if an appellant makes an offer of settlement
and obtains a judgment as favourable as or more favourable than the terms of
the offer of settlement, the appellant is entitled to party and party costs to
the date of service of the offer and substantial indemnity costs after that
date, as determined by the Court, plus reasonable disbursements and applicable
taxes.
(3.2) Unless otherwise ordered by the Court,
if a respondent makes an offer of settlement and the appellant obtains a
judgment as favourable as or less favourable than the terms of the offer of
settlement or fails to obtain judgment, the respondent is entitled to party and
party costs to the date of service of the offer and substantial indemnity costs
after that date, as determined by the Court, plus reasonable disbursements and
applicable taxes.
(3.3) Subsections (3.1) and (3.2) do not
apply unless the offer of settlement
(a) is in
writing;
(b) is
served no earlier than 30 days after the close of pleadings and at least 90
days before the commencement of the hearing;
(c) is not
withdrawn; and
(d) does not
expire earlier than 30 days before the commencement of the hearing.
(3.4) A party who
is relying on subsection (3.1) or (3.2) has the burden of proving that
(a) there
is a relationship between the terms of the offer of settlement and the
judgment; and
(b) the
judgment is as favourable as or more favourable than the terms of the offer of
settlement, or as favourable or less favourable, as the case may be.
(3.5) For the purposes of this section,
“substantial indemnity costs” means 80% of solicitor and client costs.
(3.6) In ascertaining whether the judgment
granted is as favourable as or more favourable than the offer of settlement for
the purposes of applying subsection (3.1) or as favourable as or less
favourable than the offer of settlement for the purposes of applying subsection
(3.2), the Court shall not have regard to costs awarded in the judgment or that
would otherwise be awarded, if an offer of settlement does not provide for the
settlement of the issue of costs.
(3.7) For greater certainty, if an offer of
settlement that does not provide for the settlement of the issue of costs is
accepted, a party to the offer may apply to the Court for an order determining
the amount of costs.
(3.8) No communication respecting an offer
of settlement shall be made to the Court, other than to a judge in a litigation
process conference who is not the judge at the hearing, until all of the
issues, other than costs, have been determined.
(4) The Court may fix all or part of the
costs with or without reference to Schedule II, Tariff B and, further, it may
award a lump sum in lieu of or in addition to any taxed costs.
(5) Notwithstanding any other provision in
these rules, the Court has the discretionary power,
(a) to award
or refuse costs in respect of a particular issue or part of a proceeding,
(b) to award
a percentage of taxed costs or award taxed costs up to and for a particular
stage of a proceeding, or
(c) to award
all or part of the costs on a solicitor and client basis.
(6) The Court may
give directions to the taxing officer and, without limiting the generality of
the foregoing, the Court in any particular proceeding may give directions,
(a)
respecting increases over the amounts specified for the items in Schedule II,
Tariff B,
(b)
respecting services rendered or disbursements incurred that are not included in
Schedule II, Tariff B, and
(c) to
permit the taxing officer to consider factors other than those specified in
section 154 when the costs are taxed.
(7) Any party may,
(a)
within thirty days after the party has knowledge of the judgment, or
(b) after
the Court has reached a conclusion as to the judgment to be pronounced, at the
time of the return of the motion for judgment,
whether or not the
judgment included any direction concerning costs, apply to the Court to request
that directions be given to the taxing officer respecting any matter referred
to in this section or in sections 148 to 152 or that the Court reconsider its
award of costs.
[35]
The restrictive criteria, such as reprehensible,
scandalous and outrageous conduct by one of the parties that had to be
demonstrated to obtain higher costs than those provided for in the tariff, are now
clearly outdated.
[36]
Indeed, the case law now takes into account many
new elements such as the significance of the case in terms of the amount
involved, its complexity and its consequences. The work required for preparation
and the importance of the precedent established by the new judgment are also
considered.
[37]
The Honourable Chief Justice Rossiter summarized
the state of the law on the matter in Velcro Canada Inc. v. The Queen, 2012 TCC 273:
[11] The discretion in 147(1) is extremely
broad – it gives the Court total discretion in terms of (1) the amount of
costs; (2) the allocation of costs; and (3) who must pay them.
[12] Rule 147(3) provides the factors to be
considered in exercising the Court’s discretionary power. After enumerating a
list of factors, it specifies that the Court may consider “any other matter
relevant to the question of costs”, thereby providing the Court with even
broader discretion to consider other factors it thinks relevant on a case by
case basis. Such other factors that may be relevant could include, but are not
limited to:
1. the actual costs incurred by a litigant and their breakdown
including the experience of counsel, rates charged, and time spent on the
appeal;
2. the amount of costs an unsuccessful party could reasonably
expect to pay in relation to the proceeding for which costs are being fixed;
and
3. whether the expense incurred for an expert witness to give
evidence was justified.
[13] The factors to be considered by the
Court in exercising its discretionary power to award costs are extremely broad,
they are specific to every appeal before the Court and as noted, the Court may
consider any other matter relevant to the question of costs.
[14] There is no mention of the Tariff until
Rule 147(4) which provides:
The Court may fix all or part of the
costs with or without reference to Schedule II, Tariff B and, further, it may
award a lump sum in lieu of or in addition to any taxed costs.
[15] Rule 147(5) goes even further saying:
Notwithstanding any other provision
in these rules, the Court has the discretionary power,
(a) to award or refuse costs in
respect of a particular issue or part of a proceeding,
(b) to award a percentage of taxed
costs or award taxed costs up to and for a particular stage of a proceeding, or
(c) to award all or part of the
costs on a solicitor and client basis.
Note that there is no reference to the
Tariff in Rule 147(5).
[16] Under the Rules, the Tax Court
of Canada does not even have to make any reference to Schedule II, Tariff B in
awarding costs. The Court may fix all or part of the costs, with
or without reference to Schedule II of Tariff B and it can award a lump
sum in lieu of or in addition to taxed costs. The Rules do not
state or even suggest that the Court follow or make reference to the Tariff.
If the Tax Court of Canada Rules Committee had felt the Tariff was so
significant, the Rules could easily have said that the Tariff shall be
applied in all circumstances unless the Court is of the view otherwise. The
Rules Committee did not do this, not even close. In fact, it is hard to imagine
how the Tax Court of Canada’s discretionary power could be broader for awarding
costs given the wording in Rules 147(1), (3), (4) and (5). These particular
provisions of Rule 147 really make reference to Schedule II, Tariff B a totally
discretionary matter.
[17] It is my view that in every case the
Judge should consider costs in light of the factors in Rule 147(3) and only
after he or she considers those factors on a principled basis should the Court
look to Tariff B of Schedule II if the Court chooses to do so. The Rules
Committee in their wisdom made brief mention of the Tariff but only after
giving the Tax Court of Canada very broad and significant discretion in all
matters on costs. As stated by my colleague Justice Hogan in General
Electric:
[26] …
I believe that the Rules Committee was well aware of the fact that there are
numerous factors which can warrant a move away from the Tariff towards a different
basis for an award of party and party costs, including lump sum awards.
Subsection 147(3) of the Rules confirms this by listing specific factors
and adding the catch-all paragraph (j), which refers to "any other
matter relevant to the question of costs". If misconduct or malfeasance
was the only case in which the Court could move away from the Tariff,
subsection 147(3) would be redundant. Words found in legislation are not
generally considered redundant. As stated by the Supreme Court in Hills v. Canada
(AG), [1988] 1 S.C.R. 513:
[106] ... In reading a statute it
must be "assumed that each term, each sentence and each paragraph have
been deliberately drafted with a specific result in mind. Parliament chooses
its words carefully: it does not speak gratuitously" (P.-A. Côté, The
Interpretation of Legislation in Canada, (1984), at p. 210).
[27] It has been repeatedly affirmed
that McLachlin J.'s comment requiring misconduct or malfeasance in Young v.
Young, above, was specifically and only made in reference to the
availability of solicitor-client costs. It is true that "[t]he general
rule is that a successful litigant is entitled to party and party costs,"
in accordance with the Tariff. It is also true that a measure of
reprehensibility is required for either party to be ordered to pay costs to the
other party on a solicitor-client basis. The two rules must not be conflated,
as to do so would remove all middle ground.
[28] The Interpretation Act
applies to the ITA and to this Court's Rules. Section 12 of the Interpretation
Act provides that every enactment "is deemed remedial, and shall be
given such fair, large and liberal construction and interpretation as best
ensures the attainment of its objects". It is reasonable to conclude that
the purpose of section 147 of the Rules was to give a judge the
discretion to move away from the Tariff in order to provide fair and reasonable
relief in the circumstances -- with or without reference to Schedule II, Tariff
B. A restrictive interpretation of that section that would require a taxpayer
to meet the same burden in order to move from the Tariff to any level of
partial indemnity or to a lump sum award in lieu of or in addition to any costs
as it would have to meet to obtain solicitor-client costs would defeat at least
one of the purposes of the section.
[18] A comparison of the discretionary power
in Rule 147 of the Rules and Rule 400(4) of the Federal Court Rules,
SOR/98-106 (“Federal Court Rules”) provide an example of how a Rules
Committee may take a different approach.
[19] The Tax Court of Canada’s Rule 147(4) says:
The Court may fix all or part of the
costs with or without reference to Schedule II, Tariff B and, further,
it may award a lump sum in lieu of or in addition to any taxed costs.
[emphasis added]
The Federal Court’s Rule 400(4) says:
The Court may fix all or part of any
costs by reference to Tariff B and may award a lump sum in lieu of, or in
addition to, any assessed costs.
[emphasis added]
There is a significant difference in my view
in the wording and the emphasis put on the Tariff in the Federal Court Rules
compared to the Tax Court of Canada’s Rule 147(4). Despite this distinction,
the Federal Court of Appeal, when reviewing the Federal Court Rules in Consorzio
Del Prosciutto Di Parma v. Maple Leaf Meats Inc., 2002 FCA 417, concluded
that those Rules nonetheless allow the Court discretion in awarding
costs. As stated by the Federal Court of Appeal:
[8] An award of party-party costs is
not an exercise in exact science. It is only an estimate of the amount the
Court considers appropriate as a contribution towards the successful party's
solicitor-client costs (or, in unusual circumstances, the unsuccessful party's
solicitor-client costs). Under rule 407, where the parties do not seek
increased costs, costs will be assessed in accordance with Column III of the
table to Tariff B. Even where increased costs are sought, the Court, in its
discretion, may find that costs according to Column III provide appropriate
party-party compensation.
[9] However, the objective is to
award an appropriate contribution towards solicitor-client costs, not rigid
adherence to Column III of the table to Tariff B which is, itself, arbitrary.
Rule 400(1) makes it clear that the first principle in the adjudication of
costs is that the Court has "full discretionary power" as to the
amount of costs. In exercising its discretion, the Court may fix the costs by
reference to Tariff B or may depart from it. Column III of Tariff B is a
default provision. It is only when the Court does not make a specific order
otherwise that costs will be assessed in accordance with Column III of Tariff B.
[10] The Court, therefore, does have
discretion to depart from the Tariff, especially where it considers an award of
costs according to the Tariff to be unsatisfactory. Further, the amount of
solicitor-client costs, while not determinative of an appropriate party-party
contribution, may be taken into account when the Court considers it appropriate
to do so. Discretion should be prudently exercised. However, it must be borne
in mind that the award of costs is a matter of judgment as to what is
appropriate and not an accounting exercise.
[20] Reference may also be made to Ontario’s
Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Ontario Rules”),
in particular Rule 57.01 and the Tariffs. Rule 57.01(3) states:
Fixing Costs: Tariffs
(3) When the court awards costs, it shall
fix them in accordance with subrule (1) and the Tariffs.
[emphasis added]
The Tax Court of Canada Rules have no
similar provision such as Rule 57.01(3) of the Ontario Rules – nothing
even remotely suggesting the Court shall fix costs according to the Tariff.
[21] Although Rule 57.01(3) of the Ontario Rules seems to provide the Court with little discretion, it is interesting
to note that recent amendments have actually increased the Court’s
discretionary power in awarding costs. Previously, the Ontario Rules
included a “costs grid” in Tariff A (Part I). The Court needed to follow the
costs grid, and their only discretion available was to refer exceptional cases
for assessment as described in Rule 57.01(3.1). On July 1, 2005, the costs grid
was repealed. While the Tariffs continue to address amounts for disbursements
(Tariff A, Part II) and lawyer fees for accounts passed without a hearing (Tariff
C), they no longer include set rates for lawyer fees. The Court now relies on
s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and the
discretionary factors listed in Rule 57.01(1). Parties seeking costs must bring
a “costs outline” (using Form 57B) to the hearing. The Costs Subcommittee of
the Civil Rules Committee also published a list of the maximum rates per hour
that the Court will normally consider for partial indemnity costs. [See
Professor Garry D. Watson, Q.C. and Michael McGowan, Ontario Civil Practice
2012 (Toronto: Carswell, 2011) at 1200–1203; James J. Carthy, W.A. Derry
Millar, & Jeffrey G. Cowan, Ontario Annual Practice (Aurora,
Ontario: Thomson Reuters, 2011) at 1197-1198.]
[38]
Paragraph 28 of the same decision is also very
interesting:
[28] Costs should reflect the efforts within
reason of a litigant during the litigation. Accordingly, the complexity or the
volume of the litigation or the amount at issue will and do play a role in the
effort put into litigation and as such, the costs awarded must be something
which reflects the realities of tax litigation in the context of each case.
[Emphasis
added.]
[39]
There is an increasing number of tax disputes.
[40]
Over the years, Parliament and several interveners
with better management and access to justice at heart have invested in various
reforms to improve access and efficiency. One of the initial objectives of
those reforms was to reduce the prohibitive costs that are unfortunately incurred
mainly by taxpayers because the ability to pay in a tax dispute is very often
disproportionate, as the state can draw on unlimited financial and human
resources.
[41]
For the respondent, this matter is handled by
true specialists who benefit from all the human and financial resources required
and very broad enforcement powers. There is absolutely nothing that justifies
audit work that is superficial, incomplete, or that produces conclusions that
are based on intuition or unfounded bias.
[42]
Taxpayers are entitled to obtain and expect work
that is serious, impeccable and very thorough on the part of tax auditors to
ensure that the basis of an assessment is precise, serious and complete to the
extent that relevant documents and information were made available and that the
persons being audited cooperated.
[43]
It is well known that, in tax matters, many
taxpayers do not meet their fundamental responsibility when it comes to their obligations
to have all of the helpful, necessary and reliable documents and information available
at all times to allow for a complete and reliable audit of all of their income,
and/or when it comes to other obligations, particulary those related to GST and
QST matters.
[44]
If they fail to meet those obligations, they risk
having to deal with notices of assessment, the basis of which is inevitably
arbitrary, hypothetical and even intuitive in some cases. Still, audits must be
carried out with seriousness and professionalism, and render hypothetical conclusions
probative.
[45]
The fact that a tax assessment is made using
legal provisions that are often very difficult to understand or even identify
must be added to that reality. Auditors or those analyzing the files to make
reassessments are generally specialized in the subject area of the reassessment.
A great imbalance between the opposing forces often results.
[46]
In response to a motion to obtain higher costs than
those provided for in the tariff for the class level involved, the grounds of
opposition or objection may generally be summarized by the argument that
unusual and exceptional circumstances must be present to justify an award of
costs higher than those provided for in the tariff. This case is distinct in
that way.
[47]
Indeed, I have pointed out that some auditors
responsible for the appellant’s file clearly broke the basic rules of rigour. There
is no reason, in similar circumstances, for exorbitant financial costs to be incurred
primarily by the appellant.
[48]
At trial, the respondent stressed the
appellant’s failure to call upon various interveners to substantiate its claims.
According to the respondent, that was a minimum duty given that the burden of
proof rested on its shoulders. However, if the testimony of those persons was
so important, even essential, why did the auditors themselves not take that initiative
as part of their audit work?
[49]
I am far from trying to reduce or dilute the duties
of those associated with the appellant with respect to their burden, since they
act as agents or trustees for the amounts owing. They have duties and a great
deal of responsibility; to meet those duties, they must be able to account for
their management in a reliable and credible manner validated by appropriate
documentary evidence or face severe sanctions such as interest and penalties.
[50]
The other side of the coin means that tax
authorities, which have exceptional financial and human resources, must carry
out audits by way of an investigation in a manner that is irreproachable and above
all complete; in other words, audits must not be a fishing expedition guided essentially
by intuition, bias and/or speculation with the intent to make a notice of
reassessment at any price.
[51]
In this case, even though the assessment may be of
little importance, the case had direct and considerable impact on all of the
tax liabilities of the appellant and the individuals associated with it.
[52]
The issue here is an element that was the
subject of a very different appreciation, as the respondent argued that this is
essentially a case with no importance or consequence with respect to both
precedent and the amounts involved.
[53]
The appellant argues precedent, but also the
important issue of the direct and indirect amounts in question. In this regard,
I accept the appellant’s position, adding that this is a factor that could have
been brought to my attention if I had allowed the request by counsel for the
appellant to hold a specific investigation into the costs in the event of a
victory.
[54]
All tax audits are important and consequential. When
an audit leads auditors to find that the taxpayer was very negligent, dishonest
and/or indifferent and careless with respect to his or her tax obligations, they
generally have suspicious reflexes, even negative perceptions in carrying out
the full audit work with respect to compliance with all of the other tax obligations.
Put another way, the conclusions drawn in a case may greatly influence and
shape the objectivity of an audit of the same taxpayer with respect to other
tax segments.
[55]
The motion raised awareness about certain
elements that the appellant had undoubtedly retained at the time of the trial
for the potential hearing on the request for higher costs in the event that its
appeal was allowed. In particular, I refer to the consequences and/or implications
of the judgment with respect to the other tax matters affecting the appellant,
which were minimized by the respondent.
[56]
At the time of the hearing of the case on the
merits, I admit that I addressed the case as a whole with respect to costs; however,
I am of the opinion that it is relevant to make a distinction between the
quality of the preparation of the assessment by the auditors and that of the presentation
at the trial. Put differently, I make a distinction between the quality of the
work of counsel for the respondent and the quality of the audit work that led
to the notices of assessment at the heart of the appeal.
[57]
It seems clear to me that the auditors assumed
that they could draw hasty conclusions from doubtful, incomplete facts on the
basis that, in any event, the burden of proof was on the appellant.
[58]
It is completely unreasonable that taxpayers
must bear the financial consequences of botched audit work; the grounds for an audit
should be serious, objective and justified and must not come from intuition, bias,
hypotheses and/or speculation particularly when the audited file provided all
of the relevant information.
[59]
Unfortunately, too often, assessments must be
made on hypothetical bases. These are cases where the persons concerned are
negligent, careless and/or dishonest. In such matters, reasonableness, good
faith and the competence of the auditors shape the quality of the basis of an
assessment.
[60]
In this case, the evidence has shown that the
appellant acted in accordance with the customs and practices and cooperated
fully. It need not, in the face of this reality, bear all of the financial
consequences that resulted from the many assessments that totalled
approximately $2,000,000.
[61]
Given the specifics in the case, the granting of
a lump sum of $35,000 plus $1,200 in disbursements as costs in addition to
those provided for in the tariff seems to me to be appropriate, justified and
reasonable.
[62]
For these reasons, the motion is allowed on the
basis that the respondent must pay the appellant a fixed amount of $35,000 plus
$1,200 in disbursements in addition evidently to the costs established in
accordance with the tariff.
Signed at Ottawa, Canada, this 21st day of October 2015.
“Alain Tardif”
Translation certified true
on this 20th day of January 2016.
François Brunet, Revisor
Email this Content