Date: 20060109
Docket: T-79-05
Citation: 2006 FC 17
Ottawa, Ontario, the 9th day of January 2006
PRESENT:
THE HONOURABLE MR. JUSTICE SIMON NOËL
BETWEEN:
AXA CANADA INC.
Applicant
and
THE MINISTER
OF NATIONAL REVENUE
and
THE ATTORNEY
GENERAL OF CANADA
Respondents
REASONS FOR ORDER AND ORDER
[1]
On
January 14, 2005, the applicant Axa Canada Inc. filed an application for
judicial review of a decision of the Policy and Planning Branch (Policy and
Planning Branch – CRA) of the Canada Revenue Agency (CRA, formerly known as the
Canada Customs and Revenue Agency – hereinafter CCRA), dated September 17,
2004, and issued to the applicant on December 14, 2004. By that decision,
the CRA refused to approve a goods and services tax (GST) remission order
application by the applicant. The power to make such an order ultimately
belongs to the Governor General in Council, and is set out in
subsection 23(2) of the Financial Administration Act, R.S.C. 1985,
c. F-11 (FAA). The procedure to be followed in making such an application
is explained in the document entitled Revenue Canada Guidelines for the
Remission of Income Tax or GST/HST under the Financial Administration Act
(the Guidelines).
[2]
Other
applications of the same type were made by Canadian subsidiaries of the applicant
(Axa Boréal Assurances Agricoles [docket T-76-05]; Axa Insurance Canada [docket
T‑77‑05]; Axa Pacifique Compagnie d’Assurance [docket T‑78‑05];
Axa Assurances Inc. [docket T‑80‑05]). On May 12, 2005,
pursuant to a written motion by the applicant, Prothonotary Morneau made
an order that a single record be filed by the applicant in each application.
The order that follows will thus have to be filed in dockets T‑76‑05,
T‑77‑05, T‑75‑05 and T‑80‑05 and the
reasons in this case will be part of the order made in each of these cases.
[3]
The
applicant is asking the Federal Court to:
(1) order that the decision
at issue in the application be quashed;
(2) return the file to the
decision-maker so that the decision may be reconsidered with a direction to
apply the criteria set out in the Guidelines.
ISSUES
[4]
The issues
are the following:
(1) What standard of review
is applicable to the CRA decision?
(2) Did the CRA make an error when
it refused to approve the applicant’s application for a remission order?
CONCLUSION
[5]
For the
reasons that follow, the application for judicial review will be dismissed.
FACTS
[6]
Around
February 2000, representatives of the Minister of National Revenue commenced a
tax audit of the applicant and of its Canadian subsidiaries for the 1995, 1996,
1997 and 1998 taxation years. Five audit reports were prepared by Revenue
Canada, one for the applicant and one for each of its Canadian subsidiaries
(except for Axa Boréal Assurances Agricoles, for which no report was filed – I
will refer to the reports as follows: “audit report – [(Axa Canada Inc.) or
(subsidiary name)]”. The audit concluded in February 2002.
[7]
The
expenses which are at issue in the case at bar are the following. In 1997 and
1998, the applicant received services (referred to by the applicant as
“management services”) from GIE AXA, the applicant’s parent company. It
appeared from the audit report (Axa Boréal Assurances Inc., at pages 7 to
16) that the consideration for these services was paid by the applicant and its
Canadian subsidiaries to the parent company for the performance of certain
centralized activities (training, centralized information system and so on).
Pursuant to section 218 of the Excise Tax Act, R.S.C. 1985,
c. E-15 (the ETA), the applicant assessed itself for GST purposes on the
value of the consideration paid for these services. That amount was paid to
the Department of National Revenue.
[8]
The
applicant asked that, for income tax purposes, the consideration paid for
management services be deducted from its net income so as to reduce its tax
payable. Now, part of the deductions requested, corresponding to expenditures
for management services for 1997 and 1998, was disallowed by the CRA. For
1997, the amount paid as GST for management services expenditures disallowed
was $184,866. For 1998, the amount was $194,862. These amounts are taken from
the GST Remission Report dated March 6, 2003 filed by the Legislation and
Investigations Branch of the Ministère du Revenu du Québec (Legislation and
Investigations Branch – MRQ; GST Remission Report – MRQ). It appears from the
record that the total amount of GST paid on expenditures which were disallowed
accordingly was about $379,728.
[9]
In early
2002, negotiations took place between the applicant and CRA representatives.
On February 5, 2002, Wilfrid Lefevbre, the applicant’s representative,
sent Robert Ouellette, Senior Auditor, Large Files section of the CCRA, a
letter confirming the agreement made between the parties in the negotiations
(the Agreement). Just before the usual complimentary clause, the letter ends
as follows:
[translation]
If this letter reflects the Agreement made between the parties, I would be
obliged if you would sign this letter and return it to me at your convenience.
This letter bears the notation [translation] “Accepted”, followed by Mr. Ouellette’s
signature, and is dated February 12, 2002. In particular, the Agreement
provided for the reduction of the amount of expenditures disallowed in the
audit report. The negotiations which took place between the parties and which
led to the Agreement are briefly described in a report dated October 7,
2004 and signed by Gilbert Deneault (Mr. Deneault was assigned to replace
Mr. Ouellette in this matter following the latter’s retirement) and
addressed to Ian Matthews of the CRA’s Large Business Audit section
(page 146 of applicant’s record):
A full-scale audit was undertaken of the Axa
Group that included primarily domestic issues and a few non-resident issues.
The management fees issue was only one aspect of the overall audit. Three
meetings were held to arrive at a negotiated settlement. At all times, the
Senior Auditor of the Large Files section of the CCRA and the auditor were
present and they negotiated in good faith with company officials and their
legal representative to arrive at a reasonable settlement for both parties.
That description of the negotiations is not in dispute.
[10]
Point 4 of
the Agreement reads as follows:
[translation]
4. The disallowed GST amount totalling $379,728 would be recovered from the
provincial authorities in the usual way and no inclusion in the calculation of
the income of Axa Canada Inc. or any of its subsidiaries would have to be made
regarding the receipt of this amount.
[11]
In the
territory of Quebec, the Ministère du Revenu du Québec (MRQ) is the agent of
the CRA for the implementation of the ETA pursuant to the Agreement with
respect to the Administration by Québec of Part IX of the Excise Tax Act
(R.S.C. 1985, c. E-15) relating to the Goods and Services Tax (Canada-Quebec
Agreement). In March 2002, the applicant and its Canadian subsidiaries
asked the MRQ to reimburse the GST amounts already paid, corresponding to the
expenditures, the deduction of which had been disallowed. Now, this request
was made after the expiration of the deadline specified in
subsection 261(3) of the ETA. The subsection provides that a
reimbursement of overpaid GST cannot be requested after two years
following the payment of the amount. This is the main reason why the applications
were denied. It appears from the affidavit dated March 10, 2005, of
Michael McGlynn, director of the Technical Publications Unit of the CRA’s
Excise and GST/HST Rulings Directorate (Excise Directorate – CRA), that the
applications were denied on July 23, 2002.
[12]
On
March 6, 2003, following these unfavourable decisions, the Legislation and
Investigations Branch – MRQ recommended to the CCRA, in its GST Remission
Report – MRQ, entitled [translation]
“GST Remission Report for Axa Canada Inc. submitted to the GST/HST
Interpretation and Rulings Branch . . . by the Ministère du
Revenu du Québec”, that it make a remission order in the applicant’s favour
(only the applicant – though the amount requested corresponded to the
expenditures of the applicant and its Canadian subsidiaries that were
disallowed) pursuant to subsection 23(2) of the FAA. This action by the
Legislation and Investigations Branch – MRQ was taken following a meeting held
between the applicant’s tax representative and the MRQ representatives. The
reasons for the initiative were explained, at least in part, in an e‑mail
to Karen Stirling of the Policy and Planning Branch – CRA. I set out
below the relevant passage (at page 186 of the applicant’s record):
[translation] In processing this application, the file was
sent to our Branch, attention Serge Bouchard, to ascertain whether the
rebate sought could indeed be granted under the Act. This Branch concluded
that the Act did not allow Revenue Quebec to approve this GST rebate
application. However, considering the special nature of the file and the
agreement made with the auditor of the CCRA, the Branch decided to submit a GST
remission application to the CCRA. [Emphasis added.]
[13]
On
March 29, 2004, a Memorandum (the March 29 Memorandum – see at
pages 157 to 161 of the applicant’s record) containing an analysis of the
application and a recommendation was submitted to the head office Remissions
Committee (the Committee) that it examine the remission reports and
recommendations, as provided for in points 3 and 4 of Section 1 of
the Guidelines. This Memorandum, prepared by the CRA’s Technical Publications
Unit, recommended that the remission application be denied for the following
reasons:
(1) at the time
the negotiations began, the deadline for applying for a rebate under
subsection 261(3) had already expired;
(2) the
information given in paragraph 4 of the Agreement gave false expectations
to the applicant but did not constitute misinformation, and the auditor’s
statements did not give rise to tax consequences unfavourable to the applicant;
(3) the applicant had already
received significant tax relief due to the fact that interest on the services
disallowed for 1995 and 1996 was calculated for 1997 and 1998; hence, the
taxpayer paid less interest;
(4) the amount of $379,728.09
cannot cause a serious financial problem to the applicant, in view of its
revenues are of $1 billion.
[14] On March 31, 2004, the Committee met and
refused to recommend a remission in the applicant’s favour (see meeting
transcript, at pages 154 to 156 of applicant’s record, and Guidelines at
pages 5 and 6). On September 17, 2004, in response to the
recommendation by the MRQ of March 6, 2003, the Policy and Planning Branch
– CRA sent the Legislation and Investigations Branch – MRQ a letter stating the
decision made, for reasons similar in essence to those contained in the
March 29 Memorandum (at page 138 of the applicant’s record). On
December 14, 2004, the Business Audit Branch (Business Audit Branch – MRQ)
in turn informed the applicant of the decision, adding that the MRQ could not
approve the reimbursement application.
ANALYSIS
[15] This is an application for judicial review of the
decision by the Policy and Planning Branch – CRA contained in the letter of
September 17, 2004, issued on December 14, 2004. Under
subsection 18.1(2) of the Federal Courts Act, R.S.C. 1985,
c. F-7, the deadline for making an application is 30 days after the
decision was first communicated:
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18.1
(2) An application for judicial review in respect of a decision or an order
of a federal board, commission or other tribunal shall be made within
30 days after the time the decision or order was first communicated by
the federal board, commission or other tribunal to the office of the Deputy
Attorney General of Canada or to the party directly affected by it, or within
any further time that a judge of the Federal Court may fix or allow before or
after the end of those 30 days.
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18.1
(2) Les demandes de contrôle judiciaire sont à présenter dans les
trente jours qui suivent la première communication, par l’office
fédéral, de sa décision ou de son ordonnance au bureau du sous-procureur
général du Canada ou à la partie concernée, ou dans le délai supplémentaire
qu’un juge de la Cour fédérale peut, avant ou après l’expiration de ces
trente jours, fixer ou accorder.
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This application was filed on January 14, 2005 and the
respondents were agreed at the hearing that it was in fact the letter of
September 17, 2004 which was the subject of the application for judicial
review, and that as it was issued on December 14, 2004 and the application
for judicial review was made within 30 days, prescription is not an issue
herein. The Court accordingly has jurisdiction to decide this case.
1.
Standard
of review
(a)
Identification of disputed decision
[16] The disputed decision is one made by the Minister
of National Revenue, in particular the Policy and Planning Branch – CRA, not a
decision by the Governor General in Council. However, under the FAA, the power
to issue a GST remission order belongs to the Governor General in Council.
This must be considered for the purposes of the pragmatic and functional
approach.
[17] Before commencing that analysis, we must carefully
examine the decision made by the Committee in this case, by explaining the
administrative process which led to that unfavourable decision. It is also
necessary to understand the process that would have been followed if the
decision had been favourable and had ultimately led to the issuance of a GST
remission order pursuant to subsection 23(2) of the FAA. That procedure
is explained in part at points 3 and 4 of Section 1 of the
Guidelines.
[18] The recommendation that a remission order be
issued originated with the Legislation and Investigations Branch – MRQ, which
made the request on the applicant’s behalf. The request was first forwarded to
the Excise Branch – CRA, and then to the Technical Publications Unit, which
examined it and then submitted its analysis to the Committee for decision. If
the decision had been favourable, the Committee’s report would have been
followed by a draft remission order and an official recommendation prepared by
the CRA Legal Services. These documents would then have been sent to the
Minister of National Revenue, who is responsible for deciding whether to
recommend that the Governor General in Council issue a GST remission order.
Ultimately, it is the Governor General in Council who is responsible for
deciding whether a remission order should be issued, and the power has to be
exercised in accordance with the FAA. This is in fact what is set out in the
Guidelines, at point 2 of Section 1:
Under subsection 23(2) of the Financial
Administration Act, the Governor in Council, on the Minister’s
recommendation, may remit tax or penalty, including any related interest, where
the Governor in Council considers that “the collection of the tax or the
enforcement of the penalty is unreasonable or unjust or that it is otherwise in
the public interest to remit the tax or penalty”.
. . .
The following guidelines are based primarily
on the Department’s case experience. However, the underlying rationale for
remission must also be consistent with the principles stated in the Financial
Administration Act.
(b) Standard of review
[19] To determine the applicable standard of review, the two
leading cases are Pushpanathan v. Canada, [1998] 1 S.C.R. 982, and Dr. Q
v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R.
226. In the second case, the pragmatic and functional approach was updated, so
that it is now the leading authority in this area, although in Pushpanathan
v. Canada, supra, the analysis is more detailed.
[20] It is appropriate to recall the factors that should be
taken into account in determining the applicable standard of review. In Dr. Q
v. College of Physicians and Surgeons of British Columbia, supra, at
paragraph 26, Chief Justice McLachlin wrote:
In the pragmatic
and functional approach, the standard of review is determined by considering
four contextual factors – the presence or absence of a privative clause or
statutory right of appeal; the expertise of the tribunal relative to that of
the reviewing court on the issue in question; the purposes of the legislation
and the provision in particular; and the nature of the question – law, fact or
mixed law and fact. The factors may overlap. The overall aim is to discern
legislative intent, keeping in mind the constitutional role of the courts in
maintaining the rule of law . . . The virtue of the pragmatic
and functional approach lies in its capacity to draw out the information that
may be relevant to the issue of curial deference.
[21] The first factor concerns the control machinery
provided by the Act. There is no privative clause in this case. In Pushpanathan
v. Canada, supra, at paragraph 30, Mr. Justice Bastarache
wrote, however, that “[t]he absence of a privative clause does not imply a high
standard of scrutiny, where other factors bespeak a low standard”.
[22] The relative expertise of the decision-maker
factor appears to the Court to be a very important factor here, thus suggesting
great restraint with respect to the CRA decision. Indeed, the CRA has an
undeniable expertise in implementing the Guidelines. In particular, the
members of the Committee are CRA officials from various sectors of the
Department and have considerable experience and knowledge of the facts and of
the law applicable to such matters, while taking the public interest into
account.
[23] It seems to the Court that the intent of
Parliament (the purpose of the legislation) also requires great judicial
restraint. Although the disputed decision is administrative in nature, it
would seem that the purpose of subsection 23(2) FAA is to confer a broad
discretion on the Governor General in Council to decide whether an amount paid
should be remitted. That paragraph reads as follows:
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23. (2) The Governor in Council may, on
the recommendation of the appropriate Minister, remit any tax or penalty,
including any interest paid or payable thereon, where the Governor in Council
considers that the collection of the tax or the enforcement of the penalty is
unreasonable or unjust or that it is otherwise in the public
interest to remit the tax or penalty. [My emphasis.]
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23. (2) Sur recommandation du ministre
compétent, le gouverneur en conseil peut faire remise de toutes taxes ou
pénalités, ainsi que des intérêts afférents, s’il estime que leur
perception ou leur exécution forcée est déraisonnable ou injuste ou
que, d’une façon générale, l’intérêt public justifie la remise.
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The use by Parliament of the word “considers” shows that the
Governor in Council must weigh a variety of factors and thus must enjoy a broad
discretion. Further, the purpose of the legislation is that the Governor
General in Council shall determine whether the remission is “in the public
interest”. The reference to this notion, as well as the wording of the
provision, tend to indicate that Parliament intended to give the competent
Minister and his officials a broad discretion. As to the Guidelines, they only
serve to give officials broad limits, with supporting examples, and to explain
the procedure to be followed by the person making an application for a
remission order. It is well settled that, in Canadian law, internal policies
or guidelines, which are administrative interpretations, are only binding if
the legislation so provides (Pezim v. British Columbia (Superintendent of
Brokers), [1994] 2 S.C.R. 557, at paragraph 75; Maple Lodge Farms
v. Government of Canada, [1981] 1 F.C. 500, at page 513, aff. by [1982] 2
S.C.R. 2). Accordingly, the power exercised by the Governor General in Council
under subsection 23(2) FAA is discretionary in nature, and this suggests
restraint. At page 699 of Pierre ISSALYS and Denis LEMIEUX, L’action
gouvernementale: Précis de droit des institutions administratives, Éditions
Yvon Blais, 2002, the authors write:
[translation]
The possibility that the Government allows a tax debtor a remission of his or
her debt represents one of the most typical applications of the discretionary
power to an individual situation. Such a decision necessarily involves a
departure, in the particular case of a taxpayer, not only from the ordinary
rules of taxation but from the principle of equality of treatment. (In this
case, a remission of GST is at issue.)
The purpose of the legislation and the intent of Parliament
thus incite the Court to exercise restraint.
[24] Finally, the nature of the question in issue in
this application for judicial review also suggests a measure of restraint. The
CRA must apply the Guidelines to the facts while taking into account a number
of factors relating to the public interest. Accordingly, the question is a
mixed one of fact and law, requiring extensive knowledge of the facts in very
complex cases.
[25] The pragmatic and functional approach leads this
Court to conclude that the standard of review in the case at bar is that of the
patently unreasonable decision. The wording of subsection 23(2) FAA, the
extent of the discretionary power and the expertise of the decision-maker have
persuaded the Court that the CRA’s decision calls for considerable restraint.
2. Did CRA make an
error?
[26] The Guidelines state the raison d’être of
the power and the tests on which decisions are based. At point 2 of
Section 1 of the Guidelines, it is stated:
Under subsection 23(2) of the Financial
Administration Act, the Governor in Council, on the Minister’s
recommendation, may remit tax or penalty, including any related interest, where
the Governor in Council considers that “the collection of the tax or the
enforcement of the penalty is unreasonable or unjust or that it is otherwise in
the public interest to remit the tax or penalty”.
. . .
Our role is to prepare a recommendation for
the Minister’s approval.
The following guidelines are based primarily
on the Department’s case experience. However, the underlying rationale for
remission must also be consistent with the principles stated in the Financial
Administration Act.
[27] The Guidelines provide for four main cases
warranting a remission, namely:
(1) extreme hardship;
(2) incorrect departmental
action or advice;
(3) financial setback
coupled with extenuating factors; or
(4) unintended results of
the legislation.
[28] Essentially, the applicant argued that the CRA
refused to take certain relevant facts into account and took into account
irrelevant facts. The applicant relied in particular on criteria 2 and 4 in
its memorandum of fact and law. To begin with, therefore, the question is
whether the Minister took incorrect action affecting the applicant or gave the
latter incorrect advice. Secondly, the Court must determine whether the
applicant was the victim of an unintended result of the legislation. Finally,
it must be seen whether the CRA took unrelated or irrelevant facts into account
in making its decision.
(a)
Incorrect
action or advice by the Minister
[29] Point 2 of Section 3 of the Guidelines specifies
the elements that must be established for a remission to be given on account of
incorrect action or advice by the Minister:
-
the advice
given was in fact incorrect at that time;
-
the person
acted on the basis of the advice and accordingly paid an additional amount of
tax as a result of the incorrect action or advice;
-
the person
had reasons to believe that the officer was acting in an official capacity; and
- for
income tax purposes, another course of action within the law was open to the
taxpayer that would have significantly reduced the amount of tax to be paid.
[30] In my view, the wording of the Agreement must be
examined in order to determine whether incorrect advice was given to the
applicant. The Agreement sets out the mutual intent of the parties and the
outcome of the negotiations conducted between them. I again quote point 4
of the Agreement:
4. The disallowed GST amount totalling
$379,728 would be recovered from the provincial authorities in the usual way
and no inclusion in calculating the income of Axa Canada Inc. or any of its
subsidiaries would have to be made regarding receipt of this amount.
Several comments need to be made in regard to the wording of
this point in the Agreement.
[31] First, the drafter has used the conditional mood
“may be” and “would have to be” (“serait” and “n’aurait” in the original
French) instead of the future tense (“will be”). That indicates that the
intent of the parties was not to ensure that the rebate application would have
the result desired by the applicant.
[32] Then, there is a reference to the “usual way” of
recovering the GST paid. It is clear that an application for a GST remission
order by the Governor General in Council is not the “usual way” of recovering a
sum of money. In fact, it is an “extraordinary measure” used in cases where it
is not possible to obtain the desired result using the ETA. That is indicated
at two places in the Guidelines, point 1 of Section I and
point 1 of Section II:
SECTION I – GENERAL INFORMATION
1. What is a remission order?
A remission order is an extraordinary measure to
provide complete or partial relief from federal income tax, the Goods and
Services Tax (GST) . . . when such relief is not otherwise
available to taxpayers or GST/HST registrants under the existing tax laws.
. . .
SECTION II – REMISSION PROCESS
1. When is remission appropriate?
A remission allows the government to provide relief to
a person when the desired result cannot be otherwise achieved within the tax
legislation, through assessing or other action.
In L’action gouvernementale: Précis de droit des
institutions administratives, supra, Pierre Issalys and Denis
Lemieux also describe the procedure of applying for a remission order as an
exceptional measure:
[translation]
Although such remissions may be granted to groups of taxpayers, they are
clearly intended to remain the exception. This is indicated by the requirement
that a report be made to Parliament annually: the review of public accounts
allows Parliament to object if necessary to the abuse – or perhaps the
unnecessarily limited use – of this highly discretionary power.
[33] In the case at bar, it is more plausible that the
“usual way” referred to by the parties is the GST remission application
provided for in section 261 of the ETA, not the application for a
remission order provided for in subsection 23(2) FAA. I set out below the
relevant paragraphs of section 261 ETA:
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261.
(1) Where a person has paid an amount
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261.
(1) Dans le cas où une personne paie un montant au titre de la taxe, de la
taxe nette, des pénalités, des intérêts ou d’une autre obligation selon la
présente partie alors qu’elle n’avait pas à le payer ou à le verser, ou paie
un tel montant qui est pris en compte à ce titre, le ministre lui rembourse
le montant, indépendamment du fait qu’il ait été payé par erreur ou autrement.
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(a)
as or on account of, or
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(b)
that was taken into account as, tax, net tax, penalty, interest or other
obligation under this Part in circumstances where the amount was not payable
or remittable by the person, whether the amount was paid by mistake or
otherwise, the Minister shall, subject to subsections (2) and (3), pay a
rebate of that amount to the person.
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.
. .
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[...]
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(3)
A rebate in respect of an amount shall not be paid under subsection (1) to a
person unless the person files an application for the rebate within two years
after the day the amount was paid or remitted by the person.
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(3)
Le remboursement n’est versé que si la personne en fait la demande dans les
deux ans suivant le paiement ou le versement du montant.
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This interpretation is consistent with the wording of the
Agreement. Under the Canada-Quebec Agreement, an application for a
rebate must be made to the MRQ. That explains the reference to “provincial
authorities”. Indeed, the first rebate application made by the applicant
following the signature of the Agreement, as indicated in the affidavit of
Johanne Cassis, at paragraphs 7 and 8, was based on section 261 ETA
(applicant’s record, at page 11 – see also the application and the MRQ
auditor’s report rejecting the application, at pages 174 to 176).
Following the signature of the Agreement, the applicant’s representative, Bruno
Morin, contacted the MRQ to consult it about whether he was entitled to the
rebates. This appears from the [translation]
“auditor’s report” prepared by the MRQ following the refusal to grant the
rebate (at page 175 of applicant’s record):
[translation]
The tax expert of these agents believes he is entitled to adjustments in
respect of the amounts disallowed and nevertheless consulted us before filing
any application whatever in February 2002. We . . . do not see
any direct connection with the federal tax existing on certain GST components,
and moreover we consider that the expenditure of money was actually made, that
the GST remains due on these amounts. Further, we and the agent were both
facing the imminent expiration of the prescription period: the agent
accordingly exercised its rights and claimed in the annual returns of the five
entities in question creditor adjustments for the amounts disallowed by federal
tax, while notifying us and forwarding the amounts owed to us without taking
these creditor adjustments into account in order to avoid penalty charges and
interest in the event of a final refusal.
All of the actions taken by the applicant following the
signature of the Agreement were thus consistent with the interpretation I have
given to the Agreement: it sought a rebate from the provincial authorities. As
described in the March 29 Memorandum, at page 4 (at page 160 of
applicant’s record), it was not until later that a remission order was sought
under subsection 23(2) FAA:
In March 2002, AXA’s Canadian
subsidiaries filed GST returns for the period January 1, 2001 to
December 31, 2001 to adjust the GST payable on imported goods and services
in the amount of $379,728.09. The returns were audited and refused by the MRQ
(which was apparently unaware of the agreement negotiated by the CRA auditor)
on the basis that there was no legislative authority to allow the adjustments.
Subsequently, AXA Canada’s representative met with MRQ officials in Montreal,
and presented the February 5, 2002 letter, signed by the CRA official,
confirming the agreed terms of the negotiated settlement. At that point, the
matter was referred to MRQ’s Legislation and Investigations Branch in Québec
City.
[34] The GST Remission Report – MRQ sets out the same
facts:
[translation]
The company made a GST rebate application to the [MRQ], relying on an agreement
concluded with Robert Ouellette, Canada Customs and Revenue Agency auditor.
[35] In short, it may not be inferred from the language
of the Agreement that incorrect advice was given to the applicant. Thus, the
latter did not act in such a way as to suggest that it believed the CRA
representatives had guaranteed it would receive a rebate or advised it to make
a remission order application. The Agreement did not give the applicant any
right to a remission order either, a power which, in any case, is conferred on
the Governor General in Council, who is never bound by the CRA. In fact, the
applicant made an application under section 261 of its own volition,
without having been given advice in this regard, and the application was denied
as it was prescribed. In addition, the evidence as to the tenor of the negotiations
conducted between the parties and the circumstances in which the Agreement was
concluded reveal that no incorrect advice was given to the applicant or to its
representatives at any time during the discussions. I will review this evidence
in the following paragraphs.
[36] Firstly, the decision of September 17, 2004
itself states that no advice was given (at page 139 of applicant’s
record):
[translation]
That statement by the CRA auditor regarding GST relief did not cause the
subsidiaries of AXA Canada to report tax in such a way as to produce tax
consequences detrimental to their operations. His statement may actually have
given false expectations to the subsidiaries, which thought they could recover
the GST applied to management service fees, when there was no legal basis for
doing so. In fact, the CRA auditor actually stated that the AXA Canada tax
representative was fully aware of the fact that he could not attempt to recover
the GST from the MRQ, and it was certainly not a fait accompli. [Emphasis
added]
[37] The March 29 Memorandum, which was the basis
for the Committee’s decision, also relied on this fact:
. . . the auditor’s statement
[regarding the GST rebate] may have set up a false expectation with [AXA’s
Canadian subsidiaries] that the GST in respect of the management fees could be
recovered, when, legally, it could not (although the auditor states,
unequivocally, that he did not set up a false expectation in this regard).
[Emphasis added]
[38] Further, the Memorandum sent to Ian Matthews by
Gilbert Deneault on October 7, 2004 notes the same fact (at page 147
of applicant’s record):
It is important to note that “serait
récupéré” is written in the conditional voice, which means that it is not
automatic: certain conditions have to be met before the refund may be issued.
It is clear in our minds that the legal representative knew quite well that had
he written the sentence in the future tense i.e. “sera récupéré” the Case
Manager would have never signed the letter because no such guarantee was ever
given. In addition, the sentence ends with “le processus habituel” which
clearly means that there is a process to follow.
[39] The August 27, 2003 telephone notes from
Gilbert Deneault to Karen Stirling are also relevant (at page 142 of
applicant’s record). They set out the content of a call:
As noted in the Ogilvy Renault settlement
letter, it was understood that the company would make a request for the GST
paid on the disallowed management fees. We never confirmed to them during the
negotiations that they were entitled to this refund because the issue was
beyond our authority. In fact, I emphasized to Karen that in Quebec the GST
legislation is administered by the MRQ. Therefore, in contrast to CRA auditors
in other provinces our knowledge of GST law is very limited.
[40] Finally, at page 15 of the audit report – Axa
Boréal Assurances Inc. (at pages 231 and 232 of applicant’s record), the
negotiations are described as follows:
It must be remembered that this was a simple
proposal open to negotiation in the hope of arriving at a mutual win-win
agreement for both parties. In total, three meetings were held with both
company officials and the legal representative of the company after our trip to
Paris. After some hard negotiating, we concluded the following deal with AXA
CANADA in respect of our audit of management fees . . .
. . .
7. Finally, the company will request a
refund of the G.S.T. disallowed i.e. $379,728 from the respective
authorities.
The audit report – Axa Pacifique Insurance Company, at
pages 14 and 15, contains a similar passage (see at pages 254-255 of
applicant’s record).
[41] This evidence as a whole provides a true picture
of the discussions between the parties and helps to clarify the language of the
Agreement, which in any case seems to the Court to be clear. It emerges from
the above-cited passages that, at all times, the Department’s representatives
refrained from giving any incorrect advice whatever to the applicant, who was
duly represented, or at least that there is no evidence to show that such
advice was given. The latter nevertheless chose to sign the Agreement, despite
the fact that the deadline in subsection 261(3) ETA had expired.
[42] The applicant relied heavily on two arguments in
support of its claim that it is entitled to a GST remission under the
Guidelines.
[43] Firstly, the applicant argued that, at the time of
signature in February 2005, the parties must have been aware that the
deadline in subsection 261(3) ETA had already expired. Therefore, in the
applicant’s submission, point 4 of the Agreement could only refer to
applications for GST remission orders under subsection 23(2) FAA. The
applicant alleged that, accordingly, it was made to understand by the respondent’s
representatives that it would be entitled to the GST rebate and that is what
led it to sign the Agreement. In my view, that argument must be rejected since
it is patently at variance with the language of the agreement as well as the
evidence in the record on the discussions surrounding the conclusion of the
Agreement. It is not impossible that the applicant hoped that it could recover
the amounts at issue. However, I am of the view that, in order to apply, the
concept of advice must at a minimum involve words originating from the
respondent. There is no evidence in the case at bar that words amounting to
advice were spoken and it is not the role of CRA auditors to act as tax
advisers to taxpayers, and to point out to them that the section 261
remedy is prescribed and that the remission order is an “extraordinary measure”
and is discretionary, falling within the jurisdiction of the Governor General
in Council.
[44] The applicant also emphasized passages from the
cross-examination of Mr. McGlynn (see at pages 43 to 45 of the
cross-examination, at pages 100 to 102 of applicant’s record). In these
extracts Mr. McGlynn acknowledged that the applicant was given incorrect
advice, but that it is wrong to say the advice involved the payment of
additional tax:
A. . . . I think, I agree
with even each individual point [the circumstances in which a remission order
is granted under the Guidelines on the ground that incorrect advice has been
given]. However, they have to be read in the context of the first sentence of
that, of Section 2, Incorrect Departmental Advice: “A remission may be
recommended when a person is required to pay additional tax because the
Department has taken an incorrect action and provided incorrect
advice” . . . Our bad advice did not involve the person being
required to pay additional tax. That’s our point
basically . . .
In my view, Mr. McGlynn’s statements must be read in
context. They related to the effect that incorrect advice would have had, had
it been given. Further, he did not personally take part in the negotiations
and his opinion cannot be regarded as the opinion of the Committee as a whole
(as it is composed of three other members, in addition to Mr. McGlynn –
see at page 154 of applicant’s record), and it based its decision on several
other factors, as appears from the March 29 Memorandum, the minutes of the
meeting on March 31, 2004, the decision of September 17, 2004 and the
letter communicating the decision, dated December 14, 2004.
[45] Finally, I would add that even if incorrect advice
was given, this does not mean that the applicant would be entitled to a
remission order, since the amount of GST paid on the management services was
not paid as a result of statements that may have been made in the negotiations
or as a result of the Agreement. Now, as Mr. McGlynn noted in his
cross-examination, the Guidelines provide that a remission is possible only
when the applicant is required to pay an additional amount of tax on account of
an incorrect action or advice. The first sentence in point 2 of
Section III reads as follows:
A remission may be recommended when a person
is required to pay additional tax because the Department has taken an incorrect
action or provided incorrect advice.
In fact, the GST amount was paid before the audit was
initiated (February 2000), not as a result of discussions or the signature of
the Agreement. Accordingly, the amount could not have been paid as a result of
incorrect advice given during the negotiations, since it had already been paid
even before the latter began.
[46] For these reasons, I consider that no incorrect
advice was given to the applicant.
(b)
Unintended
results of legislation
[47] The applicant argued
that in this case the application of ETA produced results which are contrary to
the spirit of the Act. In particular, it drew the Court’s attention to
comments made by Mr. Deneault in his memorandum to Ian Matthews, dated
October 7, 2004. The relevant passage reads as follows:
[translation]
In conclusion, the tax and GST legislations provide for different prescription
periods. As a suggestion, this question of prescription should be submitted to
Finance to see if they could rectify the anomaly by harmonizing the time frames
under which an amended return could be filed under both the Income Tax Act
and the Excise Tax Act. If you have any questions do not hesitate to
call me.
[48] Point 4 of Section III explains the
circumstances in which a remission may be granted on account of unintended
results of the legislation:
Proper application of the legislation
occasionally creates results that are clearly inequitable to a person and
contrary to the intent of the law. In these situations, a remission may be
recommended to correct the inequity, until a legislative solution can be achieved.
[49] The current subsection 261(3) of the ETA,
which provides for a prescription period of two years, was adopted in
March 1997 by Bill C‑70, An Act to amend the Excise Tax Act,
the Federal-Provincial Fiscal Arrangements Act, the Income Tax Act, the Debt
Servicing and Reduction Account Act and related Acts, 2d Sess., 35th
Parl., 1997 (assented to on March 20, 1997). The new version shortened
the prescription period provided for in section 261 ETA from four to
two years. Section 71 of this Act reads as follows:
|
71. (1) Subsection
261(3) of the Act is replaced by the following:
|
71. (1) Le paragraphe
261(3) de la même loi est remplacé par ce qui suit :
|
|
(3)
A rebate in respect of an amount shall not be paid under subsection (1)
to a person unless the person files an application for the rebate within
two years after the day the amount was paid or remitted by the person.
|
(3)
Le remboursement n’est versé que si la personne en fait la demande dans les
deux ans suivant le paiement ou le versement du montant.
|
|
(2)
Subsection (1) applies
|
(2)
Le paragraphe (1) s’applique aux montants suivants :
|
|
(a)
to amounts that, after June 1996, are paid as or on account of, or are
taken into account as, tax or other amount payable or remittable under
Part IX of the Act; and
|
a) ceux qui, après juin 1996, sont payés
ou comptabilisés au titre de la taxe ou d’un autre montant à payer ou à
verser en application de la partie IX de la même loi;
|
|
(b)
to amounts that, on or before the last day of that month, were paid as or on
account of, or were taken into account as, tax or other amount payable or
remittable under that Part, other than amounts that are claimed in an
application under section 261 of the Act filed on or before
June 30, 1998.
|
b) ceux qui, avant juillet 1996, sont
payés ou comptabilisés au titre de la taxe ou d’un autre montant à payer ou à
verser en application de cette partie, à l’exception des montants dont le
remboursement est demandé aux termes de l’article 261 de la même loi
avant juillet 1998.
|
[50] The applicant argued that the purpose of the
amendment [translation] “was to
limit the Government’s liability for claims which were often made by sales tax
consultants, who made tax claims for the past for specific industries, and for
which they received remuneration varying between 30% and 50% of the rebates
made by the Government”.
[51] The language of section 71 is quite clear:
Parliament intended that, after two years following the payment, it would
no longer be possible to apply for a rebate. It is true that the reason why
the Act was amended was as stated by the applicant. However, that does not
mean that Parliament was not aware of the consequences of the legislative
amendment adopted. Accordingly, there is no reason to think that the situation
in which the applicant found itself was an unintended result of the
legislation.
(c)
Unrelated
or irrelevant facts
[52] Finally, the applicant argued that the respondent
took into account irrelevant facts, namely tax relief already given, and that
this should not have been taken into consideration in making the decision as
the Guidelines make no mention of such a criteria.
[53] In my opinion, there is nothing in the Guidelines
to prevent the use of such a criteria. We should bear in mind that
subsection 23(2) FAA provides that applications should be assessed in
light of “the public interest”. Additionally, the language of the Guidelines
indicates that the criteria mentioned therein are not exhaustive and that there
is nothing to prevent additional criteria from being taken into account:
SECTION II – REMISSION PROCESS
. . .
5. Remission criteria
Although remission requests are considered
on their own merits,
deserving cases normally have common characteristics that provide objective
guidelines for recommending remission. The guidelines have four principal
categories . . .
. . .
SECTION III – REMISSION GUIDELINES
The following categories do not cover every
circumstance for recommending a remission. However, they do provide some of the limits within
which a recommendation for remission might be supported. Consideration for
remission should take into account all pertinent facts and circumstances of the
case, including the compliance history of the person requesting the
remission. [Emphasis added.]
***
[54] Where GST remission orders based on
subsection 23(2) FAA are concerned, it must be proceeded on a case-by-case
basis. Decisions made by the CRA are subject to the standard of patent
unreasonableness, since they are made in the public interest by a decision-maker
whose expertise is recognized. In this case, the evidence was that no
incorrect advice was given to the taxpayer and that the decision-maker could
properly take factors not specifically listed in the Guidelines into account.
Moreover, taken as a whole, the decision reflected in the letter of
September 17, 2004 was not patently unreasonable. It contains proper
justifications taking relevant factors in such matters into account. When the
decision-maker exercised his discretion in arriving at this decision, he took
into account the facts in the record, the applicable law and the Guidelines.
Nothing warrants the intervention of the Court.
[55] In view of my decision, costs will be awarded to
the respondents.
ORDER
THE COURT ORDERS THAT:
- the application
for judicial review be dismissed with costs against the applicant;
- this
judgment shall be entered in cases T‑76‑05, T‑77‑05, T‑78‑05
and T‑80‑05.
“Simon
Noël”
Certified true
translation
François Brunet, LLB,
BCL
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