Date: 20061027
Docket: T-2223-05
Citation: 2006 FC 1296
Ottawa, Ontario, October 27,
2006
PRESENT: The Honourable Barry Strayer
BETWEEN:
MCNAUGHT
PONTIAC BUICK CADILLAC LTD.
Applicant(s)
and
CANADA CUSTOMS AND
REVENUE AGENCY
Respondent(s)
REASONS FOR JUDGMENT AND JUDGMENT
Introduction
[1]
This
is an application for judicial review of a decision of the Canada Customs and
Revenue Agency (CCRA) of November 28, 2005 refusing the Applicant’s request for
the waiver of a penalty of $10,538.60 imposed by a Notice of Assessment dated
September 28, 2005. The power to waive penalties is given to the Minister of
National Revenue (Minister) by subsection 220(3.1) of the Income Tax Act
(Act), R.S.C. 1985, c. 1 (5th Supp.) which provides as follows:
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(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.
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(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.
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[2]
The
decision in question here was taken on behalf of the Minister by Bruce Cook,
Director of the Winnipeg Tax Services Office of the CCRA.
Facts
[3]
The
main facts are not in dispute. The Applicant is a Winnipeg business
which is considered for income tax purposes to be a large employer as defined
by the Income Tax Act and Regulations. As such it is required to remit tax
deductions from employees’ salaries to CCRA through a financial institution,
such remittance being accompanied by a remittance form. On September 20, 2005
such a remittance was due in the amount of $105,386.05. Albert Sankow, an
employee of the Applicant, had as one of his duties the delivery of documents,
cheques, etc. On that day, he was given by the Accounting Department a cheque
in the full amount together with a remittance document. He went to the
Applicant’s bank, a branch of the Royal Bank of Canada, and when he
arrived he discovered that he had misplaced the remittance form. A bank teller
told him that without the remittance form the bank could not accept the
payment. As he knew of the importance of payment being made that day, he went
to the Winnipeg Tax Services Office of CCRA. He spoke to a cashier, explained
to her that he did not have the remittance form but he had the cheque, and was
advised by the cashier that payment could be made there. A cheque was accepted
by the Tax Services Office and Mr. Sankow was given a cheque remittance stub
stamped September 20, 2005. Judy Karlson, the Payroll Administrator of the
Applicant subsequently learned that the remittance had been delivered to the
Tax Services Office and not the bank. She had worked for the Applicant less
than a year and while she understood that the normal practice was to make
remittances at the bank she did not know that the Applicant was required by law
to make its remittances there.
[4]
On
September 28, 2005, CCRA sent a Notice of Assessment of a penalty of $10,538.60
because the remittance of $105,386.05 had been made directly to CCRA rather
than to a financial institution. (Under paragraph 227(9)(a) of the Act a
person who has failed to remit a sum as required by the Act or Regulations is
subject to a penalty of ten percent of that amount.) On September 30, 2005,
the Applicant made a request to have the penalty waived, giving the explanation
that “in error the gentleman who acts as our in-house courier mistakenly took
the remittance to your location on Broadway instead of the Royal Bank”. The
first decision on this fairness request was given in a letter of October 21,
2005 by K. Guse, Manager of Revenue Collections, at the Tax Services Office.
The relevant part of that letter reads as follows:
We are unable to approve your request for
relief under the criteria of ‘extraordinary circumstances’, because we can find
no evidence of circumstances beyond your control that would have prevented you
from complying with the requirements of the Income Tax Act.
Examples of ‘extraordinary circumstances’
include, but are not limited to, exceptional situations such as a natural
disaster or a postal strike, all of which have grave impact on our day-to-day
activities. Unfortunately, human error is not considered to be an
‘extraordinary circumstance’ as per our policies. As you are a Threshold 2,
Accelerated remitter, you are required to make your remittances at a Canadian
financial institution.
[5]
On
October 26, 2005, the Applicant wrote another letter requesting a
reconsideration of this decision. The letter set out in more detail what had
happened on September 20, 2005. Unlike the first request which simply referred
to the error of their courier in going to the wrong place, the new letter
explained that the process had started out correctly with the courier taking
the cheque and remittance form and going to the Royal Bank, but somehow
misplacing the remittance form. The point was made that the cheque was accepted
at the Tax Services Office by the cashier and a receipt issued and no
suggestion was made by the cashier that a remittance to that office was
improper. The Applicant’s letter confirmed that neither the courier nor the
Payroll Administrator of the Applicant had been aware that remittance to a
financial institution was the only method permitted. A letter of November 28,
2005 dismissing this second review of the fairness request was sent by Bruce
Cook who had conducted the second review. The relevant paragraphs are as
follows:
On second review, I am unable to approve
your request for relief under the criterion of ‘extraordinary circumstances’,
because I could not find evidence that the Agency’s discretion was not
exercised in a reasonable manner during the first review, or that any further
information has been submitted to demonstrate there were circumstances beyond
your control that prevented you from complying with your statutory requirements
under the Income Tax Act.
As outlined in our letter of October 21,
2005, it is the employer’s responsibility to ensure that payroll remittances
are received on a timely basis. As per our policies, the anticipation of the events
you have described, and the implementation of alternate remitting procedures is
a part of that responsibility. Moreover, our records indicate that you were
made aware of the requirement to bank-remit payroll deductions at least on two
previous occasions.
[6]
These
are the essential elements of the case. There are a few internal documents
which Mr. Cook would have had before him, some of which will be mentioned in
passing. The Respondent however has supplemented his record by filing an
affidavit of Bruce Cook whose decision is under review. Some of this may be admissible
as evidence of the procedure and the documents which he had before him in
making the decision, but I have serious reservations about him testifying now
as to the factors he took into account in exercising his discretion. When a
tribunal decision is under judicial review, the record should consist of the
material which was before the tribunal together with its recorded decision (see
e.g. Canadian Broadcasting Corp. v. Paul, [2001] F.C.J. No. 542 at
para. 77 (C.A.)), not an ex
post facto explanation of why the decision was made. There may be rare
occasions where there are factual issues concerning the manner of conduct of
the decisional process, where some such affidavit as to procedure may be justified
(see e.g. Ontario Assn. of Architects v. Assn. of Architectural
Technologists of Ontario, [2002] F.C.J. No. 813, para. 30 (C.A.)) or where
an issue of jurisdiction is involved (see McFadyen v. Canada (Attorney
General), [2005] F.C.J. No. 1817 at para. 15 (C.A.)) but no such issues are
involved here. The Applicant did not object to this affidavit and I did not
reject it but I may be somewhat selective in resorting to it: for example, the
deponent makes the statement that he “took into consideration the criteria
outlined in Information Circular 92-2…”. That is not apparent from his written
decision of November 28, 2005 which appears to focus on one or two criteria
only.
Analysis
[7]
The
parties agree that the standard of review in judicial review of the exercise of
the Minister’s discretion under subsection 220(3.1) is that of reasonableness.
The Federal Court of Appeal has so held in respect of the exercise of
ministerial discretion under another fairness section of the Act: see Lanno
v. Canada (Customs and
Revenue Agency) [2005] F.C.J. No. 714. I respectfully accept that their
pragmatic and functional analysis would be equally applicable to this fairness
section and will proceed on that basis.
[8]
I
believe that the decision maker in this case, the Director of the Winnipeg Tax
Services Office (Director), who signed the final letter of November 28, 2005
failed to take into account factors and in purporting to apply the “Guidelines
for the Cancellation and Waiver of Interest and Penalties” (Information
Circular 92-2 hereafter referred to as “the guidelines”) applied them somewhat
selectively and in my view misconstrued them.
[9]
To
begin with there seems to be a certain assumption that the guidelines are
binding and exhaustive. It will be noted in both departmental decisions of
October 21 and November 28, 2005 that there is considerable emphasis on the
non-existence of “extraordinary circumstances”. That is an expression found
once in the guidelines under the heading “Guidelines and examples of
circumstances where cancelling or waiving interest or penalties may be
warranted”. The guidelines also contain paragraph 3:
These are only guidelines. They are not
intended to be exhaustive, and are not meant to restrict the spirit or intent
of the legislation. As the Department gains experience in applying the
legislation, these guidelines may be adjusted, as necessary.
[10]
Indeed
if the guidelines did purport to be binding or exhaustive, they could be successfully
attacked as fettering the Minister’s discretion: see, for example, Yhap v. Canada (Minister of
Employment and Immigration) [1990] 1 F.C. 722. The Director and those
advising him seem to have rejected the Applicant’s request mainly because the facts
did not in their view amount to “extraordinary circumstances”. In doing so,
they ignored one of the examples of extraordinary circumstances namely
paragraph 6(d) “errors in processing”. In my view, they should have considered
whether the willingness of the cashier at the Tax Services Office to accept a
cheque for $105,386.05
was not an “error in processing”. I find unconvincing the Respondent’s
arguments that a cashier could not quickly ascertain whether this taxpayer was
entitled to remit to the Tax Services Office, or could not reject an improper
payment without disclosing the details of the taxpayer’s affairs.
[11]
Section
10 of the guidelines also lists several factors which will be considered when
determining whether or not to waive penalties. One of these is:
(c)
whether or
not the taxpayer or employer has exercised a reasonable amount of care and has
not been negligent or careless in conducting their affairs under the
self-assessment system;
[12]
In
the internal memoranda and in the recorded decisions, I see little evidence of
consideration as to whether the Applicant has used reasonable care in the
conduct of its affairs. CCRA seems to treat the responsibility of the taxpayer
as one of strict liability. The Applicant admits that it had not explained to
the courier or the Payroll Administrator that such remittances could only be
made at a financial institution. On the other hand, there is evidence which is
not contradicted that the Applicant had set up a system whereby the courier
would take the remittance cheques and the remittance forms to the Royal Bank in
a timely fashion. A problem arose here not because the courier was sent without
a cheque or remittance form but because somehow he misplaced that form before
he reached the Royal Bank. The Director in my view should have considered
whether, in the circumstances, what happened was reasonably foreseeable by the
employer or whether it was an unforeseen accident. The decision makers
obviously gave some weight to the fact that this taxpayer had been warned twice
before about making remittances to the wrong place, thereby deducing that the
Applicant here was careless in allowing the same thing to happen again.
However, it should also have been noted that these two warnings had been issued
back in 1999, some six years before the incident in question. In considering
the guideline factor of whether or not the taxpayer or employer “has a history
of compliance with tax obligations”, mention was made in the material of this
taxpayer having been late in paying taxes in 1997 and in 2001 although no
written evidence is provided of these incidents. There is nothing to indicate
the circumstances or the amounts involved. Mention is also made that the
penalty levied by the Notice of Assessment of September 28, 2005 had not yet
been paid as of the time of the negative decision on the fairness request dated
exactly two months later. Some consideration might have been given as to the
reasonability of a taxpayer delaying payment of a penalty while a request for
relief was still pending.
[13]
I
am therefore of the view that the decision made by the Director on behalf of
the Minister should be set aside because he did not have regard to some
relevant factors.
Disposition
[14]
The
decision will be set aside and the matter referred back to the Minister for
reconsideration in accordance with these reasons, having regard to whether his
discretion should be exercised so as to waive the penalty in whole or in part.
JUDGMENT
THIS COURT ADJUDGES that:
1. the decision of the Minister
represented by the letter of November 28, 2005 be set aside;
2. the
matter be referred back to the Minister or his representative for
redetermination in accordance with these reasons as to whether the penalty
should be waived in whole or in part; and
3. costs be awarded to the
Applicant.
“ B.
L. Strayer ”
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