Date: 20050927
Docket: T-98-05
Citation: 2005 FC 1312
Ottawa, Ontario, September 27, 2005
PRESENT: THE HONOURABLE MR. JUSTICE SHORE
BETWEEN:
ROBERT GRUNDY
Applicant
and
CANADACUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR ORDER AND ORDER
INTRODUCTION
[1] A decision will be unreasonable if there is no line of analysis within the given reasons that could reasonably lead to the conclusion of the tribunal. If the reasons are sufficient to withstand a "somewhat probing examination", then the decision will be reasonable and a reviewing Court must not intervene.(Law Society of New Brunswick v. Ryan, [2003] S.C.J. No. 17 (QL), [2003] 1 S.C.R. 247)
JUDICIAL PROCEDURE
[2] This is an application for judicial review, pursuant to s. 18.1 of the Federal Courts Act from a decision rendered on behalf of the Minister of National Revenue ("the Minister") whereby the Applicant, Mr. Grundy's request for relief from payment of penalties and interest with respect to his failure to report income in the amount of $49,210 in his 1998 tax return which resulted in penalties levied pursuant to subsection 163(2) of the Income Tax Act (ITA). Interest was charged on Mr. Grundy's outstanding tax balances. Mr. Grundy's request for fairness relief was denied on the basis that his circumstances did not fall within the guidelines for waiver of penalties and interest.
BACKGROUND
[3] The facts are set out in the Affidavit of Ms. Sherryl Williams, sworn April 21, 2005. The relevant facts from the Affidavit are summarized below:
a) Mr. Grundy was employed by Yorkton Securities Inc. ("Yorkton") as a registered representative in the sales department. He plead guilty to defrauding Yorkton of money and valuable securities by fraudulently transferring cash and stock from client accounts, to his friends' accounts, to his wife or to himself (the "fraudulent transfers"). Mr. Justice A. A. Fradsham stated that Yorkton was required to correct the accounts or make cash settlements totalling $217,749.85 (the "Yorkton Debt") in order to compensate for these fraudulent transfers, and ordered that Mr. Grundy make restitution for the Yorkton debt. Yorkton had not sought restitution.
b) By means of the fraudulent transfers, Mr. Grundy received the amount of $49,210.00 in 1998 and did not report this amount as income. He was assessed unreported income in the amount of $49,210.00, penalties under subsection 163(2) of the ITA in the amount of $8,106.44 and interest in the amount of $4,826.58.
c) As a result of Mr. Grundy's outstanding tax balances, the following amounts of interest have been charged to his account:
Taxation Year Amount
1997 $ 2,974.16
1998 $12,275.81
1999 $ 477.67
d) As a result of the fraudulent transfers, the Investment Dealers Association of Canada assessed Discipline Penalties ("Discipline Penalties") against Mr. Grundy in the amount of $617,765.92.
e) Mr. Grundy's income was $66,219 in the 2001 taxation year, $61,741 in the 2002 taxation year, and $73,918 in the 2003 taxation year.
f) Mr. Grundy's net income was $4,388 per month during the 2004 taxation year.
First Level Fairness Request:
g) By letter dated October 30, 2001, Mr. Grundy submitted a fairness request to the Canada Customs and Revenue Agency ("CCRA"). This request was treated as a "first level" fairness request. Mr. Grundy sought relief from penalties in the amount of $8,106.46, and arrears interest in the amount of $4,826.58 because the amount presented financial hardship.
h) By letter dated January 18, 2002, Mr. Grundy was asked for further information by the "first level" review officer. Mr. Grundy responded by letter dated February 18, 2002.
i) After review of Mr. Grundy's submissions, the Minister concluded that Mr. Grundy did not meet the criteria necessary for the relief that he sought. By letter dated April 12, 2002, the Minister notified Mr. Grundy of the decision to deny fairness relief on the basis that the circumstances surrounding the imposition of the penalties under subsection 163(2) were within his control; and therefore, the penalties could not be waived, and the financial information provided by Mr. Grundy failed to verify that payment of the tax debt in its entirety would cause financial hardship.
Second Level Fairness Request:
j) By letter dated November 18, 2002, Mr. Grundy submitted a second fairness request to CCRA. This request was treated as a "second level" fairness request.
k) By letter dated December 17, 2002, the "second level" fairness review officer asked Mr. Grundy for additional information. Mr. Grundy failed to provide a response to CCRA by January 21, 2003, so his file was closed.
l) By letter dated September 8, 2004, Mr. Grundy submitted further information to CCRA. This information was considered part of his "second level" fairness request.
m) Mr. Grundy's "second level" fairness request was based on financial hardship. His letter dated September 8, 2004 stated that he "could only pay the principal amount owing to Revenue Canada if the penalties and interest charges were cancelled".
n) On September 14, 2004, the "second level" fairness officer, Ms. S. Williams requested further information from Mr. Grundy.
o) By letter dated October 20, 2004, Mr. Grundy's file was closed as Ms. Williams had not received any additional information within the 30 days allowed for the submission of the further information.
p) On October 25, 2004, Mr. Grundy submitted additional information to CCRA. This information was considered as part of the "second level" fairness request. Mr. Grundy claimed that he was under "unusual and extraordinary hardship during 1996 to 1998 due to his ex-wife's gambling addictions." Mr. Grundy indicated that as a result of the "unusual and extraordinary" hardship, he "committed acts against his nature." He requested that "the interest accumulated to this point and the penalties assessed be waived in order that he not be under such overwhelming odds to effectively pay down the outstanding balance."
q) Upon receipt of the information provided by Mr. Grundy, and in accordance with procedures established for consideration of such fairness requests, Ms. Williams considered the following in respect of Mr. Grundy's request for fairness relief:
i) the guidelines set out in Information Circular 92-2 (the "Guidelines");
ii) the landlord tenant agreement between Mr. Grundy and Ms. Estey;
iii) the fact that Ms. Estey handled all of Mr. Grundy's financial affairs;
iv) the lease agreement for the 1996 Jeep Cherokee Sport;
v) the fact that Mr. Grundy and Ms. Estey had resided in the same house for a considerable period; and Mr. Justice A.A. Fradsham stated that Mr. Grundy was "presently involved in a common-law relationship with a woman who is aware of his current difficulties, but remains supportive of him";
vi) the Royal Bank Visa card with a $15,000 limit for which Mr. Grundy indicated he was obligated to pay $250 per month, while his credit bureau search did not list any active credit cards;
vii) Ms. Estey's credit bureau search listed a Royal Bank Credit card with a $15,000 limit that was closed in October 2004;
viii) Mr. Grundy's obligation to pay child support in the amount of $880 per month, when Ms. Nichol Pankewich, Mr. Grundy's former spouse, had sworn an affidavit relinquishing custody of the children to him;
ix) Mr. Grundy's statement that he did not have a bank account, yet there were cheques that name both Ms. Estey and himself on the cheques; and Ms. Estey had her own bank account;
x) Ms. Estey's cheques that pay the Laurentian Bank where the memo line indicates that the payment is for Mr. Grundy's mortgage;
xi) the land titles' search that showed Mr. Grundy and Ms. Pankewich owned property until August 17, 2001;
xii) Mr. Grundy's arrears payment arrangement with CCRA was $200 per month, which would not resolve the debt within 150 months; and
xiii) both Mr. Grundy and Ms. Estey have used the address 62 Citadel Meadow Close NW Calgary, AB, since the year 2000. Ms. Estey secured a mortgage in the amount of $232,264 was secured from Toronto Dominion Bank on August 27, 2004.
r) Upon review and consideration of Mr. Grundy's submissions, Ms. Williams concluded that Mr. Grundy's circumstances did not fall within the Guidelines.
s) Ms. Williams prepared a "second level" summary with recommendation for the fairness committee. Ms. Williams recommended denial of the relief requested by Mr. Grundy. The summary with recommendation was then reviewed by the "second level" fairness committee, the members of which were not involved in the "first level" fairness request.
t) By letter dated December 20, 2004, Mr. Grundy was advised of the Minister's decision to deny fairness relief. The relief requested was denied on the basis that Mr. Grundy's circumstances did not fall within the Guidelines for waiving or cancelling interest and penalties.
DECISION UNDER REVIEW
[4] In a letter dated December 20, 2004, the Minister advised Mr. Grundy of the decision of the CCRA to deny Fairness relief pursuant to subsections 220(3.1) and 220(3.2) of the ITA .
ISSUE
[5] Did the Minister err in the exercise of his discretion in refusing to waive or cancel interest and penalties?
ANALYSIS
[6] Solely, the evidence on the record should be considered in an application for judicial review. The Respondent opposes the inclusion of items 2 to 8 of page 41 described as physical exhibits, as these materials were not before the fairness review officer and do not form part of the record.
[7] At page 41 of Mr. Grundy's record, item 1, the Respondent notes that the date of the conditional sentence order is April 11, 2001 and not April 11, 2000.
The Minister's Decision is Reasonable
[8] This Court may grant relief pursuant to subsection 18.1(4) of the Federal Courts Act if it is satisfied that the Minister:
a) acted without jurisdiction, acted beyond his jurisdiction or refused to exercise his jurisdiction;
b) failed to observe a principle of natural justice, procedural fairness or other procedure that he was required by law to observe;
c) erred in law in making a decision or an order whether the error appears on the fact of the record;
d) based his decision or order on an erroneous finding of fact made in a perverse or capricious manner or without regard to the material before him;
e) acted, or failed to act, by reason of fraud or perjured evidence; or
f) acted in any other way that was contrary to law.
[9] Because the CCRA is given a broad discretion in section 220(3.1) of the ITA, the deference shown by the reviewing court should be broad. Where the statutory discretion has been exercised in good faith and, where required, in accordance with the principles of natural justice, and where reliance has not been placed upon considerations irrelevant or extraneous to the statutory purpose, the Court should not interfere.
[10] While earlier jurisprudence of the Federal Court of Appeal held that the standard of review in a judicial review of the denial of a fairness request was that of patent unreasonableness, the recent Federal Court of Appeal decision in Lanno v. Canada (Customs and Revenue Agency) preferred the standard of reasonableness as set out in the Hillier v. Canada (Attorney General) decision.
[11] In Law Society of New Brunswickv. Ryanthe Supreme Court of Canada explained the "standard of reasonableness". It held that "reasonableness" was whether the reasons, taken as a whole, were tenable as support for the decision.
[12] A decision will be unreasonable if there is no line of analysis within the given reasons that could reasonably lead to the conclusion of the tribunal. If the reasons are sufficient to withstand a "somewhat probing examination", then the decision will be reasonable and a reviewing court must not intervene.
[13] Subsection 220(3.1) of the ITA gives the Minister, through his delegates, the discretionary power to cancel or waive all or any portion of penalty or interest otherwise payable under the ITA in respect of 1985 and subsequent taxation years.
[14] To assist the Minister to determine whether to waive or cancel any or all interest and penalties, policy guidelines were developed.
[15] Determining whether the Minister complied with the Guidelines, involves an interpretation of the language of the Guidelines and applying the Guidelines to the facts. It is, therefore, a question of mixed fact and law, and the appropriate standard is reasonableness.
[16] The Minister concluded that Mr. Grundy could not get relief from the subsection 163(2) penalties and had not demonstrated financial hardship that would justify cancelling the interest;
therefore, his fairness request was denied. The Minister's decision was reasonable and was a proper exercise of the discretion granted under subsection 220(3.1) of the ITA.
[17] The Minister's decision was made after careful consideration of all of the factors before him and was in accordance with the Guidelines. In particular, the Minister considered the following:
a) when returns are not filed on time, penalties are assessed if there is an outstanding balance due to CCRA;
b) a client must demonstrate an inability to address the debt based on their financial circumstances before CCRA will cancel or waive interest;
c) there was no evidence that the Discipline Penalties or the Yorkton Debt would have to be paid and it was not clear how these payments, if made, would affect Mr. Grundy's income;
d) the CCRA was not able to confirm a credit card in Mr. Grundy's name;
e) the vehicle lease agreement did not have a termination date, and it was not likely that such a lease would last for more than 4 years; and
f) Mr. Grundy indicated that Ms. Estey was his landlord and friend; however, Mr. Justice A.A. Fradsham stated that Mr. Grundy was involved in a common law relationship.
[18] The Minister's denial of Mr. Grundy's request for fairness relief was reasonable in that:
a) Mr. Grundy failed to report the $49,210 in his 1998 return. This was an action within his control; therefore, Mr. Grundy did not meet paragraph 5 of the Guidelines which permits a waiver of interest and penalties for circumstances beyond the taxpayer's control.
b) Mr. Grundy did not demonstrate an inability to pay the interest and penalties; and therefore, did not meet paragraph 7 of the Guidelines. More particularly:
i) Mr. Grundy's annual income exceeded $60,000 in the 2001 to 2003 taxation years and in 2004, his net monthly income was $4,388;
ii) Mr. Grundy did not demonstrate that a reasonable payment arrangement could not be concluded because the interest charges absorb a significant portion of the payments;
iii) Mr. Grundy provided information that was contradictory, and that did not demonstrate an inability to pay. Specifically:
(a) while there is evidence that Mr. Grundy makes child support payments; there is also evidence that he has since obtained custody of his children;
(b) while Mr. Grundy asserts that Ms. Estey is only a friend, she does control his financial affairs, they have lived in the same residence together since 2000, and Mr. Justice A.A. Fradsham found that Mr. Grundy was living in a common-law relationship;
(c) while Mr. Grundy indicates that he is leasing a vehicle, the lease payments are $320.00 per month to Ms. Estey for an unspecified period;
(d) while Mr. Grundy indicates that he is paying rent, the rent payments to Ms. Estey have not been included in her income;
(e) while Mr. Grundy indicates that he has to pay a $15,000 debt to Royal Bank Visa, the Royal Bank Visa is not listed on Mr. Grundy's credit bureau search but there is a Royal Bank Visa listed on Ms. Estey's credit bureau search;
(f) while there is information on the record with respect to the amount of the Discipline Penalties and the Yorkton Debt; there is no documentation provided by Mr. Grundy that demonstrates that he is making payments on either of these debts, or if he will have to make payments on these debts.
[19] In any event, even if the Minister's discretion was not exercised in a reasonable manner, the only remedy available to Mr. Grundy is a referral back to the Minister with a direction that the discretion under subsection 220(3.1) of the ITA be exercised fairly and in accordance with the principles of natural justice. The remedy requested by Mr. Grundy, that "relief from interest and penalties made under the Income Tax Act for 1996, 1997, and 1998 be allowed," cannot be granted by this Court.
CONCLUSION
[20] The Minister made his determination on a full review of the materials before him. In consideration of the information provided by Mr. Grundy, the Minister based his decision on the relevant facts, and did not consider any irrelevant facts.
[21] Accordingly, the Minister's decision to decline to exercise his discretion to grant relief under subsection 220(3.1) of the ITA was reasonable in the circumstances.
[22] Mr. Grundy has failed to demonstrate that the decision of the Minister meets any of the grounds set out in subsection 18.1(4) of the Federal Courts Act that would justify intervention by this Court, and the application for judicial review is dismissed.
ORDER
THIS COURT ORDERS that the application for judicial review be dismissed with costs.
"Michel M.J. Shore"
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