Date: 20061004
Docket: T-238-05
Citation: 2006 FC
1180
Ottawa, Ontario,
October 4, 2006
PRESENT: The Honourable Mr. Justice Lemieux
BETWEEN:
André L'HEUREUX
Applicant
and
ATTORNEY GENERAL OF
CANADA
Respondent
REASONS FOR JUDGMENT AND
JUDGMENT
[1]
André L’Heureux (the
applicant) through this application for judicial review is seeking to set aside
the decision by the Chief of Appeals of the Tax Services Office of Montréal
(the decision-maker) of the Canada Customs and Revenue Agency (the Agency) dated
January 10, 2005, to the effect that his voluntary disclosure request for
certain income that he failed to declare for 2002 and 2003 did not qualify
under the Voluntary Disclosure Program (VDP), the guidelines for which are
found in Information Circular IC00-1R dated September 30, 2002 (the Circular ).
[2]
The essence of the
impugned decision as expressed by the decision-maker, in his letter to the
applicant dated January 10, 2005, is:
[TRANSLATION]
The analysis of the facts and elements in the file did
not enable me to identify a situation supporting the acceptance of your
voluntary disclosure. In fact, to be voluntary, a disclosure must not be
related to an audit or to enforcement action initiated by the Canada Customs
and Revenue Agency (CCRA).
Your request was filed when you were aware that there
would be a review of the claim for a tax credit for Scientific Research and
Experimental Development (SR&ED) of the company ADL Tobacco Canada Inc. In
our records, on that point, there is correspondence dated April 13, 2004. At
that time, you were acting as person in charge of SR&ED with this company
and attended a meeting on May 19, 2004, with CCRA representatives, for the
purpose of reviewing the claim.
[Emphasis
added.]
Facts
[3]
The applicant is a
consultant and his business is known as Sphere Technologies (Sphere).
[4]
Sphere’s primary client
was ADL Tobacco Canada (ADL Tobacco) where he had been in charge of SR&ED
since September 2001.
[5]
In the beginning of
2004, ADL Tobacco claimed a tax credit under SR&ED. On April 13, 2004,
Louis Tremblay from the Agency called ADL Tobacco’s outside accountants
(Mallette) to inform them that ADL Tobacco [TRANSLATION]
“will be subject to a financial and scientific audit regarding the SR&ED
claim”. He scheduled a meeting between the officials from the Agency and from
ADL Tobacco and their representatives, a meeting which was scheduled on May 19,
2004, after consultation with the applicant, inter alia.
[6]
On April 16, 2004,
Louis Tremblay of the Agency went to Mallette to obtain the financial
information regarding his SR&ED claim for ADL Tobacco.
[7]
On May 19, 2004, the meeting that had been scheduled took
place at ADL Tobacco. In attendance were: (1) Louis Tremblay and Martin Roy
from the Agency. Martin Roy was the scientist of record; (2) two
representatives of ADL Tobacco’s outside accountants; (3) the applicant in his
capacity as ADL Tobacco consultant in charge of SR&ED and not in a personal
capacity.
[8]
On May 24, 2004, Louis Tremblay asked Mallette to send him
all of the invoices as well as the cheques paid to the applicant as a
consultant. The outside accountant in charge of the ADL Tobacco matter told
Mr. Tremblay that she would communicate with ADL Tobacco and would send
him the requested information by fax.
[9]
On May 28, 2004, the applicant’s accountant filed a
voluntary disclosure request for Mr. L’Heureux.
[10]
On May 31, 2004, the Agency received by facsimile all of
the cheques and invoices requested.
[11]
In June 2004, the Agency accepted the tax credit claim by
ADL Tobacco.
[12]
In support of his
application for judicial review, André L’Heureux filed a detailed affidavit on
which he was not examined, the salient points are:
(a) He recognizes that he
omitted to declare for income tax purposes certain income earned in the
operation of his business Sphere, i.e. fees invoiced and paid by various
clients, including ADL Tobacco;
(b) He consulted his
accountant [TRANSLATION] “in the
winter of 2004” in order to straighten out this situation. His accountant
advised him to make a voluntary disclosure request. He stated [TRANSLATION] “I therefore mandated my
accountant to prepare a voluntary disclosure file” which was filed on
May 28, 2004 “through my accountant”.
(c) At the meeting of May
19, 2004, he presented and explained the different SR&ED projects
contemplated by ADL Tobacco and answered technical and scientific questions.
The financial aspects were the responsibility of ADL Tobacco’s outside
accountants;
(d) He stated [TRANSLATION “I did not open a voluntary disclosure
record on May 28, 2004, because I was aware that the credit claimed by ADL
Tobacco was under review, but rather because for several months I had wanted to
straighten out my personal income tax for the 2002 and 2003 fiscal years”[Emphasis
added];
(e) He also stated that [TRANSLATION “I never feared that the review by the
CCRA of the ADL Tobacco tax credit claim would reveal the discrepancies in my
personal tax file” but rather that “to the contrary, it seemed entirely
normal that the credit claimed . . . would be reviewed by CCRA before being
allowed” and that “in his eyes, the analysis . . . was a completely
different matter with no connection to my voluntary disclosure request”.
Therefore, “it was not the meeting in May 2004 that prompted me to open a
voluntary disclosure file”, that “I would have opened it . . . even if ADL
Tobacco had not claimed a tax credit or even if CCRA had not conducted any
review of it” [Emphasis added].
Analysis
i. The Act and the Circular
[13]
The legislative basis
of the VDP is found at subsection 220(3.1) if the Income Tax Act (ITA),
which reads:
|
Income Tax Act
(R.S.C. 1985, c. 1 (5th Supp.))
PART
XV
ADMINISTRATION AND ENFORCEMENT
ADMINISTRATION
Waiver of penalty or interest
220.(3.1)
The Minister may at any time waive or cancel all or any portion of any penalty
or interest otherwise payable under this Act by a taxpayer or partnership
and, notwithstanding subsections 152(4) to 152(5), such assessment of the
interest and penalties payable by the taxpayer or partnership shall be made
as is necessary to take into account the cancellation of the penalty or
interest.
|
Impôt sur le
revenu, Loi de l’
(L.R.C. (1985), ch. 1 (5e suppl.))
PARTIE
XV
APPLICATION ET EXÉCUTION
APPLICATION
Renonciation aux pénalités et aux
intérêts
220.(3.1)
Le ministre peut, à tout moment, renoncer à tout ou partie de
quelque pénalité ou intérêt payable par ailleurs par un contribuable ou
une société de personnes en application de la présente loi, ou l’annuler en
tout ou en partie. Malgré les paragraphes 152(4) à (5), le ministre établit
les cotisations voulues concernant les intérêts et pénalités payables par le
contribuable ou la société de personnes pour tenir compte de pareille
annulation.
[Emphasis added.]
|
[14]
The Circular elaborates
the basic principles of VDP, and I refer to the relevant elements:
(A) Purpose of the Voluntary Disclosure Program
The purpose of
the Canada Customs and Revenue Agency's (CCRA) Voluntary Disclosures Program
(VDP) is to promote voluntary compliance with the accounting and payment of
duty and tax provisions under the Customs Act, Customs Tariff, Income
Tax Act, and Excise Tax Act. The VDP encourages clients to come
forward and correct deficiencies to comply with their legal obligations. It is
a fairness program that is aimed at providing clients with an opportunity to correct
past omissions, thus rendering themselves compliant. By offering this
opportunity for clients to self-correct, the program provides a greater level
of fairness to all clients and stakeholders.
(B)
Principles of the Program
Clients can make
disclosures to correct inaccurate or incomplete information, or to disclose
information not previously reported. For example, clients may not have met
their tax or duty obligations if they claimed ineligible expenses, failed to
remit source deductions or the GST, or did not file the correct customs
accounting information. Relief is determined on a case-by-case basis if the
disclosure meets the validity conditions listed below. Clients who make a valid
voluntary disclosure will have to pay the taxes and duties owing, plus
interest. In this situation, the CCRA can provide relief from penalties and
prosecution that would otherwise be imposed under the acts listed above, and
from specified interest in the case of the Customs Tariff.
(C) Conditions for a valid disclosure
(a) The CCRA
determines that the disclosure is voluntary.
The disclosure
must be voluntary. The client has to initiate the voluntary disclosure. A
disclosure may not qualify as a voluntary disclosure under the above policy if
it is found to have been made with the knowledge of an audit, investigation, or
other enforcement action that has been initiated by the CCRA, or other
authorities or administrations with which the CCRA has information exchange
agreements.
(b) The CCRA
determines that the disclosure is complete.
(c) The
disclosure involves a penalty.
...
(d) The
disclosure must include information.
…
(ii) The standard of review
[15]
With regard to the
appropriate standard of review, the parties agree that the standard is that of
reasonableness simpliciter. I endorse this point of view which in my
opinion is consistent with the decisions of the Federal Court of Appeal in Lanno
v. Canada (Canada Customs and Revenue Agency), 2005 FCA 153 and Vitellaro
v. Canada Customs and Revenue Agency, 2005 FCA 166, and of this Court in Karia
v. Minister of National Revenue, 2005 FC 639 and Brown v. Canada,
2005 FC 1639.
[16]
Karia and Brown, supra, involve the VDP
and, accordingly, are of immediate application in this case. Lanno and Vitellaro
contemplated other Agency programs.
[17]
Relying on the Supreme
Court of Canada’s decision in Law Society of New Brunswick v. Ryan,
[2003] 1 S.C.R. 247, I briefly summarize the components or the
requirements of the notion of an unreasonable decision:
1. “An
unreasonable decision is one that, in the main, is not supported by any
reasons that can stand up to a somewhat probing examination.” (paragraph
48). The reviewing court stays close to the reasons given by the tribunal and
looks to see whether any of those reasons adequately support the decision . . .
2. When
undertaking a correctness review, the Court may undertake its own reasoning
process to arrive at the result it judges correct. When deciding whether an
administrative action was unreasonable, the Court should not at any point ask
itself what the correct decision would have been. Applying the standard of
reasonableness gives effect to the legislative intention that a specialized
body will have the primary responsibility of deciding the issue according to
its own process and for its own reasons. The standard of reasonableness
does not imply that a decision-maker is merely afforded a “margin of error”
around what the court believes is the correct result (paragraph 50).
3. Unlike a review for correctness, there
will often be no single right answer to the questions that are under review
against the standard of reasonableness. . . . even if there could be,
notionally, a single best answer, it is not the Court’s role to seek this out
when deciding if the decision was unreasonable (paragraph 51).
4. A decision
will be unreasonable only if there is no line of analysis within the given
reasons that could reasonably lead the tribunal from the evidence before it to
the conclusion at which it arrived. If any of the reasons that are sufficient
to support the conclusion are tenable in the sense that they can stand up to a
somewhat probing examination, then the decision will not be unreasonable and a
reviewing court must not interfere. This means that a decision may satisfy the
reasonableness standard if it is supported by a tenable explanation even if
this explanation is not one that the reviewing court finds compelling (paragraph
55).
This does not
mean that every element of the reasoning given must independently pass a test
for reasonableness. The question is rather whether the reasons, taken as a
whole, are tenable as support for the decision. “Applying a somewhat probing
examination of the . . . analysis and decision . . . the reasons given . . .
taken as a whole [must be] tenable, [and] grounded in the
evidence . . .”(paragraph 59).
[Emphasis added.]
(iii) Findings
[18]
The issue before the
Court is whether, in applying the standard of review of reasonableness
simpliciter, the evidence before the decision-maker, assessed objectively,
supported the finding that Mr. L’Heureux’s disclosure was not voluntary
because it was connected to an audit by the Agency, i.e. the financial and
scientific audit of the SR&ED claim of ADL Tobacco, where the applicant was
acting as a scientific consultant.
[19]
The role of the
reviewing judge is not to substitute his assessment of the evidence to that of
the decision-maker, but to examine the decision with the requisite degree of
deference (Dr. Q v. College of Physicians and Surgeons of British
Columbia, [2003] 1 S.C.R. 226).
[20]
When the standard of
review is reasonableness, the reviewing judge’s role is not to posit alternate
interpretations of the evidence; rather, it is to determine whether the
decision-maker’s interpretation is unreasonable, i.e. whether the
decision-maker’s finding on this point had some basis in the evidence (see Dr.
Q., supra, paragraph 41).
[21]
In his memorandum of
fact and law, the Attorney General of Canada acknowledges that [TRANSLATION] “the basis of the
Minister’s decision is supported by the fact that the Agency’s audit of the
research credit at ADL Tobacco is an “audit” within the meaning of paragraph 6(a)
of the Circular”.
[22]
Second, Mr. L’Heureux
admitted that he was aware of this financial and scientific audit, but argued
that it was not an “audit or investigation, within the meaning of
paragraph 6(a) of the Circular, submitting that the context and the
objective contemplated by this audit were different and have too remote a
connection with the voluntary disclosure request involving his personal income.
[23]
Furthermore, Mr.
L’Heureux disputed the decision-maker’s determination to the effect that he
filed his voluntary disclosure request because he was aware of this audit. He
submitted that the causal link had not been examined. I would add that the
decision-maker does not deny that some causal connection must exist between the
disclosure and the fact that an audit is in progress.
[24]
I must dismiss the
applicant’s submissions. The notion of “audit” within the meaning of
paragraph 6(a) of the Circular cannot be limited to a direct and
immediate review of the tax return or the financial statements of an
individual, but includes audits of third parties when it is reasonable to
believe, under the circumstances, that the purpose and the impact of the audit
are sufficiently related to the object of the disclosure, in this case, the
applicant’s income. In my opinion, that is the case in this matter.
[25]
The decision-maker’s
finding to the effect that Mr. L’Heureux had filed his disclosure request because
indeed he was aware that the ADL Tobacco audit was in progress is based on an
inference reasonably drawn from the evidence before him. I cannot find that
this determination by the decision-maker has no basis in the evidence.
[26]
Finally, I agree with the
Minister that the correctness of the finding that a person’s disclosure was not
voluntary because he was aware of an audit must be assessed objectively and not
subjectively, i.e. according to the applicant’s intention. Assigning the
Minister the burden of establishing the mens rea of the disclosure would
not be consistent with the purpose of the Act (a discretionary power to waive a
penalty or interest) or the objective of the program, especially since the
applicant has the right to discuss his situation anonymously before proceeding
(See Brown, supra).
JUDGMENT
1. This application for judicial review is dismissed with costs.
“François Lemieux”
Certified true translation
Kelley A. Harvey, BCL, LLB
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