Date: 20060628
Docket: T-1404-05
Citation: 2006
FC 825
Ottawa, Ontario, June 28, 2006
PRESENT: The Honourable Madam Justice Hansen
BETWEEN:
K-BEL
HOLDINGS
Applicant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR ORDER AND ORDER
Introduction
[1] On July 15, 2005, the Canada Customs and
Revenue Agency (CCRA or Respondent) refused the Applicant’s request pursuant to
subsection 220(3.1) of the Income Tax Act, R.S.C. 1985 c.1 (5th
Supp.) (Act or the fairness legislation) for relief from a late
remittance penalty of $25,334.75. The Applicant asks the Court to set aside
this decision.
Facts
[2] On November 8, 2004, CCRA notified the
Applicant that it would be a Threshold 2 remitter for the 2005 calendar year.
As such, the Applicant was required to remit source deductions of $362,425.00
from management bonuses by February 3, 2005. On February 8, 2005,
the Applicant remitted this amount with a cheque dated February 10, 2005. As a
result of the late remittance, CCRA assessed the penalty at issue in these
proceedings.
[3] On March 9, 2005,
the Applicant’s accountant wrote to the Respondent requesting that the penalty
be reversed pursuant to the fairness legislation (the first request) for the
following reasons:
-
the Applicant’s part-time bookkeeper missed the remittance date due to
maternity leave, Christmas season and the sporadic nature of her involvement in
the file;
-
remittance was made only 3 working days after
the required payment date;
-
this was the first remittance after the
Respondent’s letter and it was for a very large bonus and thus, subject to an
extreme penalty; and
-
the Applicant had not been late with remittances
in the past and makes all attempts to conform to the remittance requirements.
[4] On May 5, 2005, Mr. J.D. Barr advised the
Applicant that its first request was denied. In particular, Mr. Barr stated
that the Applicant’s situation did not fall under the scope of “extraordinary
circumstances beyond the employer’s control” as defined by the fairness
legislation.
[5] On May 11, 2005,
the Applicant’s accountant wrote to the Respondent requesting a second level
review of the penalty (the second request). In his letter, he essentially
reiterated the facts presented in his first request. He added that the amount
of the penalty appeared to be excessive having regard to the fact that the
remittance was only three days overdue, the company’s exemplary compliance
history, and the change in circumstances experienced by the company for the
first time.
[6] Ms. G. Antaya, a
Second Level Fairness Coordinator, reviewed the Applicant’s second request and
prepared a recommendation report for Ms. S. Nixon, the Acting Director of the
Vancouver Island Tax Services Office. In her report, Ms. Antaya stated that
the Applicant’s fairness “request was reviewed in light of recent changes to
penalties for payroll remittances.” In her review, she looked at the
following:
-
the pilot “graduated penalty system” introduced
in July 2003, however, it did not benefit the Applicant because the remittance
was seven days late;
-
the Applicant would have benefited from the
administrative tolerance of “one free” late in place prior to July 2003; and
-
the Applicant could have benefited from the
application of Directive 92-25 that was eliminated shortly after the fairness
legislation came into force.
[7] She also states in her report that having
regard to the above review and the harshness of the penalty for the short
period the payment was overdue, she contacted a senior officer in Ottawa to ascertain whether any partial relief from the
penalty could be considered. She reports being informed that where the
circumstances are not beyond the employer’s control, both IC 92-2 and the FPRG
direct that the penalty be upheld and that compliance history is not a factor.
[8] After noting that
even though compliance history is not a factor when no extraordinary
circumstance beyond the employer’s control exists, she reviewed the file to
ascertain what had made the Applicant a Threshold 2 remitter. She observes
that the Applicant would have been in this category from the time they opened
their account in 2002 but it had failed to inform the Respondent about an
associated company.
[9] Ms. Antaya also
considered the various professionals involved with the Applicant and its
associated company and their contact with the Respondent. She concluded that
it was reasonable to expect that one of these individuals would have realized
that the Applicant should have been contributing on an accelerated basis.
[10] Finally, she
noted that she was unable to confirm whether the cheque tendered to the
Respondent on February 8, 2005 was post dated to February 10, 2005. She asked
the Applicant’s accountant to contact her if the cheque was in fact dated on
the 8th as that would result in a reduction of about $7,000.00 to
the penalty. Based on these considerations she recommended the following:
It is clear that the lateness resulted from an employee error and
not an extraordinary circumstance beyond the employer’s control. K-Bel could
have made other arrangements to have their books and records and remittances
looked after while their bookkeeper was away on maternity leave, either through
their associated corporation, their external accountant or elsewhere.
Prior to July
2003 this penalty would not have been assessed (due to the “one-free” late).
Even if it had, up to June 2004 Directive 92-25 would have allowed some
administrative leeway in cancelling the penalty under the fairness provisions.
With the elimination of the “one-free” late and the cancellation of Directive
92-25, there is no option but to deny cancellation of the penalty. The
fairness policies currently in place do not allow relief under the
circumstances of this case.
[11] On July 15, 2005, Ms. Antaya forwarded the
report to Ms. Nixon. On the same day, Ms. Nixon concurred with Ms. Antaya’s
recommendation and denied the Applicant’s second request. Specifically, Ms.
Nixon advised the Applicant’s accountant as follows:
As requested, I have reconsidered the circumstances leading to the
assessment of the late remitting penalty and have reviewed the company’s
overall compliance history…
After careful
thought, I have concluded that while I agree that K-Bel Holdings Inc. has a
limited, but otherwise good compliance history, I must concur with the first
level decision to deny relief. The company was not prevented from timely
remitting due to extraordinary circumstances outside their control. As stated
in your letter, the lateness in making the remittance was due to an employee
oversight and as other arrangements regarding the upkeep of your clients books,
records and remittances could have been made while the bookkeeper was away on
maternity leave, I find that the circumstances of this case do not fall within
the parameters of the fairness provisions as outlined in IC 92-2.
I understand
that Gwen Antaya, 2nd level fairness coordinator of our Victoria office, has contacted you in
regard to this case. Prior to finalizing this decision she conferred with CRA
representatives in Ottawa to
confirm CRA’s position with respect to this type of situation.
Issues
[12] The Applicant raises the following issues:
1.
Did the Respondent err in law by considering irrelevant factors?
2.
Did the Respondent err in law by fettering its discretion by
automatically following policies, rules or guidelines?
3.
Did the Respondent violate the principles of procedural fairness
by delegating its decision-making power to a subordinate?
Standard of Review
[13] Relying on the Federal Court of
Appeal’s decisions in Lanno v. Canada Customs and Revenue Agency, 2005
DTC 5245 (F.C.A.) at para. 7 and Vitellaro et al. v. Canada Customs and
Revenue Agency, 2005 DTC 5275 (F.C.A.) at para. 5, the Respondent submits
that the appropriate standard of review of the Minister’s exercise of
discretion under the fairness legislation is reasonableness.
[14] The Applicant
submits that the appropriate standard of review is correctness. In Dorothea
Knitting Mills Ltd. v. Canada (Minister of National Revenue - M.N.R.), 2005
FC 318, the Court held that where a question involves a consideration of the
parameters of the discretion conferred by the relevant sections of the Act, it
is a question of law and thus, the appropriate standard of review is
correctness. The Applicant submits that just as in Dorothea the issues
in the present case concern whether the Minister’s delegate fettered her
discretion. Therefore, the standard of review is correctness. I agree with
the Applicant’s submissions that the issues raised are all questions of law and
reviewable on a standard of correctness.
Consideration of Irrelevant Factors
[15] The Applicant submits that Ms. Antaya and, in turn,
Ms. Nixon erred by considering irrelevant factors, namely, the changes to
penalties for payroll remittances including the graduated penalty system, the
elimination of a “one free late” policy and Directive 92-25. The Applicant
argues that these factors, such as the fact that the Applicant could have
benefited from the application of Directive 92-25, are completely irrelevant to
the issue of whether the waiver of penalties should be granted.
[16] The Applicant relies on Courchesne v. Canada
(Revenue), [1996] F.C.J. No. 1469 (FCTD) where Justice Noël set
aside a refusal to waive penalties under the fairness provisions because the
decision of the officer appeared to be based on the validity of the penalty
assessment and not whether the taxpayer’s failure was excusable. Justice Noël
found that the duty to act fairly had not been discharged.
[17] While I agree with the Applicant that a consideration
of the historical practices and policies in relation to penalties for late
payroll remittances would have constituted an error of law, there is no
evidence before the Court that Ms. Nixon focused on this historical information
or that she took this background information into account in reaching her
decision.
Delegation to a Subordinate
[18] The Applicant contends that Ms. Nixon breached the
principles of procedural fairness when she delegated her decision-making
authority to her subordinate, Ms. Antaya. The Applicant points out that Ms.
Nixon acknowledged during the cross-examination on her affidavit that she did
not discuss any substantive matters with Ms. Antaya and that she simply
concurred with her decision and signed the July 15, 2005 letter Ms. Antaya had
drafted.
[19] In my opinion,
this assertion is not supported by the evidence when Ms. Nixon’s affidavit and
the cross-examination on the affidavit are considered in their entirety. On my
reading of the record, it is clear that the decision was made by Ms. Nixon on
the basis of the factors enumerated in her affidavit. As well, I note the
following from the cross-examination:
Q: Okay. In paragraph 22 of your affidavit, you list a number of
considerations. And you say: “I considered the following” in reaching the
decision to deny waiver of penalty. And this is your decision, not anyone
else’s decision; is that correct?
A: That is correct.
(Transcript of cross-examination
of Ms. Nixon at page 59
Fettering of discretion
[20] The Applicant submits that Ms. Nixon
fettered her discretion by treating the guidelines and policy as binding and by
excluding other valid or relevant factors in the exercise of her discretion.
As well, the Applicant submits that Ms. Nixon’s discretion was fettered in that
Ms. Antaya was instructed to deny the request on the basis that a new internal
policy no longer allowed a waiver of the penalty in the Applicant’s particular
circumstances.
[21] In particular,
the Applicant points to the report of Ms. Antaya and the email correspondence
between her and the senior officer in Ottawa where Ms. Antaya indicates that
she considers the penalty harsh under the circumstances and that her “hands are
tied”. In reply, the senior officer reviews what was done in the past, prior
to the elimination of the “one free late” policy and states:
If we cancel a penalty based on compliance history, we are, in fact,
allowing the “one free late” and this runs contrary to Finance’s direction.
This
situation has become a “black” and “white” issue. Where the circumstances are
beyond an employer’s control, we can cancel the penalty and we might look at
the compliance history of the account. Where the circumstances are not beyond
the employer’s control, both the IC 92-2 and the FPRG direct us to uphold the
penalty and compliance history is not a factor. To ensure consistency in the
application of the fairness provisions, everyone who is handling fairness
requests must rely on these two sources. (Applicant’s Record p. 275)
[22] This argument is grounded on the Applicant’s
contention that Ms. Nixon’s adoption of Ms. Antaya’s report results in a
decision that is tainted with the same errors as those of Ms. Antaya. In this
regard, the Applicant submits that the facts of the present case are similar to
the facts in Courchesne where the Court found that the Minister’s delegate had
essentially reproduced the report given to him by the reviewing officer and,
accordingly, his decision was tainted with the same errors as those of the
reviewing officer.
[23] While I accept the
Applicant’s submission that Ms. Antaya appears to have considered herself
constrained by the guidelines and policies, I am satisfied on the evidence,
pages 30 to 33 of the transcript of the cross-examination of Ms. Nixon, that
she did not consider herself bound by these guidelines, policies or
instructions from the senior officer. As well, I note, in particular, the excerpt
from the transcript cited above where Ms. Nixon states that the decision was
hers alone and not that of anyone else.
[24] Finally, the
Applicant argues that Ms. Nixon erred by improperly imposing limits on the
factors that she would consider as potentially justifying a waiver of the
penalty when the fairness provisions contain no language that limits the
discretion. The Applicant states that the basis for the refusal was that it
was “not prevented from timely remitting due to extraordinary circumstances
outside their control.” As this criteria is not found in the legislation it
was not open to the Ms. Nixon to deny the request on this conclusion alone.
[25] The Applicant
relies on Dorothea where the Court found that the Minister’s delegate
had erred by limiting his consideration of the request to whether the
circumstances fell within three particular criteria.
[26] In my opinion, that
case is distinguishable on its facts. In Dorothea, the decision-maker
specifically identified three criteria within which the taxpayer had to fall in
order to be granted the relief sought. In the present case, I am unable to
find any evidence that Ms. Nixon considered that she could only waive the
penalty if there were exceptional circumstances for the failure to remit in a
timely fashion. In fact, her evidence is to the contrary.
Conclusion
[27] For these
reasons, the application for judicial review is dismissed with costs to the Respondent.
ORDER
THIS COURT ORDERS that: the application for
judicial review is dismissed with costs to the Respondent.
“Dolores
M. Hansen”
Email this Content