Date: 20061006
Docket : T-379-06
Citation: 2006 FC 1196
Edmonton,
Alberta, October 6, 2006
PRESENT: The Honourable Mr. Justice Blais
BETWEEN:
MARVIN BOONSTRA
Applicant
and
THE
ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
This
is an application under section 18.1 of the Federal Court Act, R.S.C. 1985,
c. F-7, for judicial review of a decision rendered by the Director of the
Winnipeg Tax Centre, Canada Revenue Agency (CRA), on January 16, 2006, whereby
he refused to reverse the initial decision not to waive the penalty and
interest owing by the applicant under the Excise Tax Act, R.S.C. 1985,
c. E-15 (the “Act”), pursuant to the fairness legislation.
BACKGROUND
[2]
The applicant became self-employed in 1997, at which time he
met with his accountant who determined that the applicant would not
need to register for and report GST, as he did not expect to make supplies in
excess of $30,000.
[3]
In fact, since 1998, the applicant has reported gross
income from self-employment in excess of $30,000, in T1 returns of income, for
the purposes of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).
[4]
In the course of an audit by the CRA’s Registrants
Identification Program, it was determined that the applicant was not accounting
for GST correctly and on February 24, 2005, the CRA registered the applicant
for GST purposes, with an effective date of January 1, 2001.
[5]
The CRA contacted the applicant on March 23, 2005, in
regards to the overdue GST returns. On May 18, 2005, the applicant filed GST returns
for the periods covering 2001 through 2004. The 2001 and 2003 returns were
filed with an amount owing, while the 2002 and 2004 returns were filed for
refunds.
[6]
The applicant was then assessed for unremitted GST, with
the refunds being applied to the amounts owing from the debit returns. Penalty
and interest were also assessed and the applicant was informed of the amounts
due.
[7]
By letter dated July 14, 2005, Millar Hall Ltd., General
Accountants, on behalf of the applicant, filed a request to cancel the taxes
owing, or alternatively to cancel the penalty and interest owed by the
applicant.
[8]
The request was denied in a letter dated August 29, 2005. In
this letter, the decision maker stated:
It is the responsibility of a sole
proprietor to keep track of his total taxable revenues and if the revenues
(before expenses) exceed $30,000.00 in a single calendar quarter or in four
consecutive calendar quarters he must register for and collect GST. Not being
aware of this requirement is not considered an extraordinary circumstance under
the parameters of “extraordinary circumstances beyond the registrant’s control”
as defined by the fairness legislation.
(Refusal letter dated
August 29, 2005, included at page 24 of the Respondent’s Record)
[9]
By an undated letter delivered to the CRA on November 14,
2005, the applicant filed a second request to waive interest and penalties on
his GST account.
[10]
By letter mistakenly dated January 16, 2005 (instead of
2006), the applicant’s second request was denied. It is this second decision
that is the subject of judicial review.
ISSUES FOR CONSIDERATION
[11]
The central issue for consideration is whether the decision
maker committed a reviewable error in dismissing the applicant’s request under
the fairness legislation. In making this determination, this Court must answer
the following questions:
§
Was there a duty on the part of the Canada Revenue Agency
to inform the applicant that he must register for and collect GST?
§
Did the Minister err in not waiving the penalties and interest
on the applicant’s GST account?
§
Did the Minister err by not refunding interest based upon
an overpayment on the part of the applicant?
§
Did the Minister err by relying on a misapprehension of a
relevant fact?
STANDARD OF REVIEW
[12]
The Federal Court of Appeal in Lanno v. Canada (Customs
and Revenue Agency), [2005] F.C.J. No. 714, found that a discretionary
decision made under the ‘fairness package’ of the Income Tax Act should be
subject to a standard of reasonableness. In reaching this conclusion, the Court
engaged in a pragmatic and functional analysis and considered the following
factors at paragraph 6:
(1) The fairness package was enacted because Parliament
recognized the need for relief from certain provisions of the Income Tax Act
that can result in undue hardship because of the complexity of the tax laws and
the procedural issues entailed in challenging tax assessments. The granting of
relief is discretionary, and cannot be claimed as of right. This factor would
point to a standard of review that is more deferential than correctness.
(2) The decision under review cannot be appealed, but it is
subject to judicial review by the Federal Court, and it is not protected by a
privative clause. That would point to a reasonableness standard.
(3) The decision under review combines fact finding with a
consideration of the policy of tax administration, and sometimes questions of
law. The expertise of the decision maker is undoubtedly higher than that of the
courts in relation to matters of the policy of tax administration.
However, the expertise of the decision maker is not higher than that of the
courts in relation to questions of law or findings of fact. That would point to
a reasonableness standard.
[13]
As stated by Justice Micheal L. Phelan in Charlottetown
Bottle and Metals Ltd. v. Canada (Minister of National Revenue), [2005]
F.C.J. No. 2002, the relevant provisions of the Excise Tax Act as
relates to the fairness legislation are essentially the same as those in the Income
Tax Act, so that the standard of review should be the same, namely
reasonableness.
[14]
As stated by Justice Frank Iacobucci in Canada (Director of Investigation and Research) v. Southam, [1997] 1 S.C.R. 748 at
paragraph 56, “[a]n unreasonable decision is one that, in the main, is not
supported by any reasons that can stand up to a somewhat probing examination”.
ANALYSIS
Was there a duty on the part of the CRA to inform the
applicant that he must register for and collect GST?
[15]
In answering the applicant’s claim that he relied on the notices
of assessment that were sent to him and that it was the responsibility of the
CRA to inform him that he had to report and remit GST, the respondent notes
that the duty is not upon the CRA to audit the taxpayer’s account so that the
taxpayer will know whether the remittances are made properly or not. It is a
self-assessing system and the duty lies upon the taxpayer to do this work.
Furthermore, there is no reason to believe that an assessment of tax under one
statute, equates to an assessment of tax under all statutes. The notices of assessment
referred to by the applicant are assessments under the Income Tax Act
and do not assess, nor refer to, the applicant’s GST liabilities under the Excise
Tax Act.
[16]
The respondent further argues that, if the applicant’s
position were to be accepted, then no one should ever pay interest or penalty
from a reassessment, since they could claim to have relied upon earlier
assessments. Such reasoning would likely encourage incorrect filings and would
lead to a breakdown of the self-assessing system.
[17]
Having considered the matter, I find that I must concur
with the respondent’s analysis. While there is no question that the tax system
in Canada is complex, the
responsibility still lies with the taxpayer to ensure that returns are filed
properly and, in the case of a self-employed individual, that GST is properly
accounted for when his business generates supplies in excess of $30,000.
Furthermore, the applicant himself has acknowledged consulting with an
accountant who disclosed the necessity of registering for a GST number in such
circumstances. Yet, when his business began generating supplies in excess of
$30,000, he did nothing. As such, this Court must agree with the respondent
that the applicant clearly knew, or ought to have known, that he was not
reporting GST properly.
Did
the Minister err in not waiving the penalties and interest on the applicant’s
GST account?
[18]
In reviewing the decision in this case, it is important to
keep in mind that the power of the Minister, as set out in subsection 281.1(1)
of the Act, is a discretionary power, and as such, there is no obligation on
the part of the Minister to reach any given conclusion. The extent of the
obligation on the part of the decision maker is articulated by Justice Yvon
Pinard in Edwards v. Canada, [2002] F.C.J. No. 841, at paragraph 14:
A
discretionary power of this nature must be exercised in good faith, in
accordance with the principles of natural justice, taking into account all
relevant considerations and without regard to irrelevant or extraneous ones.
[19]
Subsection 280(1) of the Act imposes a liability for penalties
and interest on amounts not remitted to the Receiver General as required under
the Act. As noted by the respondent, the liability of a taxpayer to pay
penalties and interest results from the application of the Act itself, not from
any discretionary decision of the Minister to impose such penalties and
interest.
[20]
Instead, the statutory provision that grants the
ministerial discretion is found at subsection 281.1 (1) of the Act, and simply
states that the Minister
may waive or cancel penalties and interest. Any further
directions as to how this discretion might be exercised are found in GST Memorandum 500-3-2-1 (the “Memorandum”). Paragraph 3 of the Memorandum
states the following:
This
memorandum sets out the administrative guidelines under which the cancellation
or waiver of penalties and interest may be considered. The administrative
guidelines are neither all encompassing nor meant to restrict the spirit or
intent of the legislation. These guidelines may be adjusted in the future if
the Department considers it necessary.
[21]
While there is no question that such a memorandum does not
have the force of legislation, the respondent does acknowledge that it reflects
some of the considerations used by the Minister in his determination.
[22]
The applicant argues that penalties and interest should
have been waived as per paragraph 7 of the Memorandum, because these penalties
and interest were incurred primarily because of the actions of the Department.
In other words, the applicant argues that the omissions on his part were the
result of misinformation provided by the Minister. This argument rests on the
fact that he was not advised by the CRA eight years ago that he needed to
obtain a GST number. The respondent argues, and I must agree, that such
notification is not, as discussed above, the responsibility of the CRA and is
not contemplated as a possible ground for waiver under paragraph 7. As the
applicant has not submitted any evidence that would support a claim that the
CRA was at fault under any of the grounds enumerated under paragraph 7, this
argument cannot succeed.
[23]
The applicant further submits that, pursuant to paragraph
8(b), penalties and interest should be waived when they represent a significant
percentage of the amount owing. In this case, the applicant submits that penalties
and interest represent 183% of the amount owing. While the respondent does not
question the figure submitted by the applicant, it does point out that the
applicant has failed to consider paragraph 8 in its entirety. Paragraph 8 of
the Memorandum reads as follows:
It may be appropriate for the Department,
in circumstances where there is an inability on the part of the person to
pay amounts owing, to consider cancelling or waiving penalties and interest
in whole or in part to facilitate collection. […] [emphasis added]
[24]
Before looking at the specific grounds that are provided as
examples under paragraph 8, the decision maker must first determine that the
applicant has demonstrated an inability to pay the amount owing. In his
application to the Minister for fairness review, the applicant did not provide
any evidence to that effect, so that there was no need for the decision maker
to proceed further.
[25]
Considering all of the above, I must conclude that the
decision of the Minister not to waive penalties and interest was reasonable
based on the evidence before him.
Did the Minister err by not refunding interest based upon
an overpayment on the part of the applicant?
[26]
The applicant also submits that paragraph 13 of the
Memorandum requires that interest be refunded on amounts returned and that,
while he received a refund for the years 2002 and 2004, no interest was
credited for those years.
[27]
Beyond the basic argument that the Minister is not required
to do anything subject to the Memorandum, the respondent further submits that
the applicant misunderstood the ‘interest’ referred to, as those are interest
on “amount refunded to the person on any reassessment that cancels all or any
portion of penalties and interest previously paid”. In other words, the
paragraph refers to situations where the Minister has determined it appropriate
to waive interest or penalties and issues reassessments to that effect.
[28]
On this issue, I must also agree with the respondent; since
no determination was made to waive penalties and interest that were already
paid, this paragraph does not apply to the applicant.
Did the Minister err by relying on a misapprehension of a
relevant fact?
[29]
The applicant finally submits that a payment on GST owing
was made in May of 2005, but that it was misdirected by the CRA to his 2005 income
tax liability. The applicant also alleges a number of other administrative
errors on the part of the CRA, in support of which no evidence has been
submitted.
[30]
As stated by Justice Dolores Hansen in Johnston v.
Canada, [2003] F.C.J. No. 919 at paragraph 23, where a fairness
decision of the Minister is based on a misapprehension of the facts, the Court
may interfere.
[31]
On the issue of a misdirected GST payment, the respondent
notes that no evidence has been submitted to that effect and that the
respondent has been unable to substantiate the applicant’s claim. However, the
respondent admits that if there was any error, it might be found in the CRA reports
prepared for the Director stating that “No payments have been made on the
account after numerous notices have been sent out” (Exhibit L of the Affidavit
of Ian Gray, reproduced at page 47 of the Respondent’s Record). However, even
if this alleged error did occur, it was immaterial to the Minister’s decision
that the applicant did not qualify for a waiver under subsection 281.1(1) of
the Act. As noted by the respondent, the relevant facts in this determination
were: whether the applicant’s failure to file correctly was the result of
misinformation provided by the Minister; whether the applicant demonstrated an
inability to pay; and whether the applicant was entitled to a refund of an
overpayment of interest.
[32]
The fact that the applicant has already made one payment on
the amount owing might show a willingness to remedy the omission, as set out in
paragraph 9 of the Memorandum. However, this paragraph provides a series of
factors that may be considered by the Minister once it has been established
that “an extraordinary circumstance beyond the person’s control has prevented
the person from complying with the Act”. Such has not been established in this
case.
[33]
Therefore, on this final issue, I agree with the respondent
that the applicant has not demonstrated to this Court that the Minister erred
by relying on a relevant misapprehension of the facts in reaching his
decision to deny the waiver of penalties and interest.
JUDGMENT
The
application is dismissed.
“Pierre
Blais”
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