Date: 20050617
Docket: T-2169-03
Citation: 2005 FC 872
Ottawa, Ontario, this 17th day of June, 2005
PRESENT: THE HONOURABLE MR. JUSTICE JOHN A. O'KEEFE
BETWEEN:
DALE deFREITAS
Applicant
- and -
ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR ORDER AND ORDER
O'KEEFE J.
[1] This is an application for judicial review of the October 22, 2003 decision of the Minister of National Revenue as represented by Mr. M. J. Walker , a revenue manager in the North Toronto Tax Services Office of the Canada Customs and Revenue Agency (the "Agency"), wherein he declined to waive the interest and penalties owed by the applicant in relation to his 1996 GST account, pursuant to the fairness provisions in subsection 281.1 of the Excise Tax Act, R.S.C. 1985, c. E-15 (the "Act").
[2] The applicant seeks an order of cancellation of the penalties and interests charged to the applicant's GST account with respect to 1996 GST.
Background
[3] The applicant, Dale deFreitas (the "applicant"), received a call on June 27, 2003 from Mr. Champagne of the Agency, requesting he submit a GST return for 1996. Mr. Champagne confirmed that the applicant=s GST remittance payment of $6,118.50 was posted to the Agency system in September 1997, but, notwithstanding the applicant=s contention that his 1996 return had been filed in 1997, the Agency had no record of it having been received. The applicant was requested to submit a new return which he did on June 27, 2003. On July 4, 2003, the applicant received a reminder notice indicating he owed interest and penalty in the amount of $1,135.95. He subsequently received a notice of (re)assessment dated July 7, 2003, indicating a total amount owing of $1,136.85.
[4] By letter dated July 22, 2003, the applicant made a request for a waiver of the penalty and interest pursuant to the fairness provision under section 281.1 of the Act.
[5] By letter dated August 26, 2003, Mr. D=Aguanno, on behalf of the Agency, advised the applicant that as the applicant had not made the required GST installment payments on April 30, 1996, July 31,1996, October 31, 1996, and January 31, 1997, penalties and interest had accrued. Further, the applicant had not provided any evidence that the $6,118.50 payment had been received prior to the posted date of September 19, 1997. As the applicant did not meet the specific circumstances for the cancellation of penalties and interest, the applicant=s request was denied.
[6] By letter dated September 4, 2003, the applicant requested an independent administrative review (based in part on Agency error) of the August 26, 2003 decision denying his request. The applicant maintained that he had in fact filed his 1996 GST return on time and further, that he had never received any reminder notices. The applicant also requested: (i) the cheque number that he had made the $6,118.50 payment on, (ii) an accounting of how the interest and penalties to date had been calculated, (iii) the amount of penalty and interest that had accrued as of September 16,1997, and (iv) copies of the previous reminder statements that were sent to him commencing September 1997.
[7] The administrative review was performed by Ms. Heather Robinson and her recommendation was that in light of the Guidelines on the Cancellation and Waiver of Interest and Penalties, the applicant=s request should be denied as there was no evidence of either Agency error or evidence indicating earlier payment or filing on time. By letter dated October 22, 2003, Mr.M. J.Walker, Manager, Revenue Collections, advised the applicant that his request for penalty and interest relief had been denied.
Decision under Review
[8] The October 22, 2003 letter from Mr. Walker denying the applicant=s request under the fairness provisions stated the following:
The Agency has now completed its administrative review. The fairness provisions allow the Agency to exercise limited discretion in the cancellation of penalties and interest in certain and specific circumstances. These circumstances are: factors beyond the control of a client, severe financial hardship, and delay or error on the part of the Agency.
First, I must clarify that installment payments are not a change in the filing frequency for your return. You have stated in your letter that your GST return was required to be filed on an annual basis. This is essentially correct. However, when a registrant files a GST return with an amount due in excess of $1500.00 as you did for the period ending December 31, 1995 instalments will be necessary for the following tax year. When you filed your return for the period ending December 31, 1995 on May 10, 1996 it was determined that instalments would be necessary for 1996. The first installment was due April 30, 1996. The Agency could not determine an instalment base for the first quarter of 1996. It is the responsibility of the registrant to ensure remittances are made on time and in the correct amount to avoid penalty and interest charges. This information is available to all registrants in the GST information guides at all Tax Services Offices.
I understand that Mrs. McEachern reviewed the addresses of record that the Agency had over the years and no errors were located. I have determined that no mail was returned to the Agency from Canada Post. Twenty-one separate notices were issued to your address of record between July 1997 and November 2001.
You raise concerns about the lack of statements of amounts due. Your return for the period ending 1996 12 31 was not filed until July 2, 2003 therefore there was no amount available upon which to base a statement of arrears. The Agency was unable to issue a statement of arrears until the return was actually received.
As indicated in Mr. D=Aguanno=s letter dated August 26, 2003 additional information to support your claim was requested for this review. No evidence has been provided to indicate that your payment of September 19, 1997 was made at an earlier date, or the return in question filed on time. I am therefore unable to cancel penalty and interest in this case.
Issue (as framed by the respondent)
[9] Did the Minister fail to observe the principals of procedural fairness or err in law pursuant to subsection 18.1(4) of the Federal Courts Act, R.S.C. 1985, c.F-7, in making the decision?
Applicant's Submissions
[10] The applicant submitted that he filed his 1996 GST return (covering the period from January 1, 1996 to December 31 1996) and made a payment of $6,118.50, along with the filing of his personal income tax in April 1997. The Agency confirmed they posted the payment on September 16, 1997.
[11] The applicant submitted that although the Agency claimed to have sent him twenty-one notices during the period from July 1997 to November 2001 to submit a 1996 return, the first correspondence he received from the Agency on this matter was the faxed letter from P. Champagne dated June 30, 2003, requesting the applicant file a new GST return for 1996. Further, although he has requested copies of these notices, none have ever been provided to him. The applicant submitted the return as requested, and on July 4, 2003, received a GST notice from the Agency indicating that he had incurred penalties and interest with respect to 1996 GST in the amount of $1,135.95. The applicant=s wife provided an affidavit stating that she and the applicant both open mail that comes to the house and she has never seen a notice from the Agency regarding an overdue 1996 GST return.
[12] The applicant submitted that the Agency stated that he was required to file GST installment payments for 1996 on April 1996, July 31, 1996, October 31, 1996 and January 31, 1997. If the Agency required quarterly installments in April 1996, July 1996, October 1996 and January 1997, it does not seem reasonable that they would wait until July 1997, 15 months after they believed the first installment was due, to send reminder notices.
[13] The applicant submitted that the Agency failed to send him any notification that as a result of his 1995 GST remittance being over $1,500, he would be required to make quarterly payments in 1996. Something as material as that should be communicated in writing by the Agency.
[14] The applicant submitted that he was willing to accept reasonable charges for penalty and interest from April 1997 to September 1997. He requested an accounting of the principal and interest charges, but the Agency refused to provide information on the actual calculation of interest and penalty.
[15] The applicant submitted that he has never been late with any of his tax filings as evidenced by his previous history and current filings. The applicant submitted that notwithstanding that his 1996 GST payment was received by the Agency in 1997, the Agency unfairly continues to charge and accrue penalties and interest on a daily basis.
Respondent=s Submissions
[16] Standard of review:
The respondent submitted that the standard of review to be applied when considering the exercise of the Minister=s discretion is patent unreasonableness (see Sharma v. Canada Customs and Revenue Agency, [2001] 3 C.T.C. 169 (F.C.T.D.), and Cheng v. Canada, [2001] F.C.J. No. 1532, T-767-01, October 15, 2001 (T.D.)).
[17] Did the Minister fail to observe the principals of procedural fairness or err in law pursuant to subsection 18.1(4) of the Federal Courts Act, supra, in making the decision?
Subsection 281.1 of the Act confers upon the Minister the discretion to waive or cancel interest penalties payable under section 280. GST Memorandum 500-3-2-1 sets out the policy guidelines that have been formulated by the Agency to assist it with the exercise of the Minister=s discretion under the subsection.
[18] In an application for the judicial review of the exercise of a discretionary power conferred on the Minister by the Act, the Court is to determine whether the Minister, in reaching his decision, failed to observe the principles of procedural fairness or erred in law.
[19] The respondent submitted that in evaluating the applicant=s request to waive or cancel interest and penalties pursuant to subsection 281.1 of the Act, the Agency correctly considered whether it would have granted relief on the outstanding debt.
[20] The respondent submitted that in evaluating the applicant=s request, the Agency duly considered the fact that:
1. The applicant did not provide the Agency with any supporting documentation showing that the return for the period of December 1996 was filed prior to September 1997.
2. Twenty-one notices were issued to the applicant by the Agency between July 1997 and November 2001, none of which were returned. Further, the applicant confirmed that there were no problems with his address on record.
3. Two notices were sent to the applicant: (i) a failure to pay requirement notice (a system-generated notice that is issued upon the creation of a debit balance on an account), and since the account was already non-compliant, the notice included only penalties and interest; and (ii) a failure to pay reminder notice that was issued by a collections officer three days later (it reflected the tax, penalty and interest owing). The two notices are unrelated to each other so, therefore, no error was made in the issuance of these notices, and
4. The applicant carried on a business from August 1995 to December 1996. Due to the tax payable in the first year of operation being in excess of $1,500, he was required to make quarterly instalment for the 1996 tax year. This was not a change in the reporting periods. The applicant has the sole responsibility to be aware of payment and filing requirements.
[21] The respondent submitted that the Minister observed the principles of procedural fairness and did not err in law in making the decision. Over the course of several reviews by the Agency, the applicant had the opportunity to make representations and submit relevant documentation. The Minister=s representatives carefully considered all of the facts before them and declined to exercise the Minister=s discretion pursuant to subsection 281.1 of the Act. The decision is not patently unreasonable.
[22] The respondent requested that the application for judicial review be dismissed with costs.
Relevant Statutory Provisions
[23] The relevant sections of the Excise Tax Act, supra, state:
| 237. (1) Where the reporting period of a registrant is a fiscal year or a period determined under subsection 248(3), the registrant shall, within one month after the end of each fiscal quarter of the registrant ending in the reporting period, pay to the Receiver General an instalment equal to
(a) except where paragraph (b) applies, 1/4 of the registrant's instalment base for that reporting period; or
(b) the amount determined under subsection (5).
. . .
(3) For the purposes of subsection (1), where a registrant's instalment base for a reporting period is less than $1,500, it shall be deemed to be nil.
280. (2) Notwithstanding subsection (1), where a person fails to pay all of an instalment payable by the person under subsection 237(1) within the time specified in that subsection, that person shall pay, on the amount of the instalment not paid,
(a) a penalty of 6% per year, and
(b) interest at the prescribed rate,
computed for the period beginning on the first day following that time and ending on the earlier of
(c) the day the total of the amount, penalty and interest is paid, and
(d) the day on or before which the tax on account of which the instalment was payable is required to be remitted.
281.1 (1) The Minister may waive or cancel interest payable by a person under section 280.
(2) The Minister may waive or cancel penalties payable by a person under section 280.
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237. (1) L'inscrit dont la période de déclaration correspond à un exercice ou à une période déterminée selon le paragraphe 248(3) est tenu de verser au receveur général, au cours du mois qui suit chacun de ses trimestres d'exercice se terminant dans la période de déclaration, un acompte provisionnel égal au montant suivant:
a) sauf en cas d'application de l'alinéa b), le quart de sa base des acomptes provisionnels pour la période de déclaration;
b) le montant déterminé selon le paragraphe (5).
. . .
(3) Pour l'application du paragraphe (1), la base des acomptes provisionnels d'un inscrit qui est inférieure à 1 500 $ pour une période de déclaration est réputée nulle.
280. (2) Par dérogation au paragraphe (1), la personne qui n'a pas payé la totalité d'un acompte provisionnel payable en application du paragraphe 237(1) dans le délai qui y est précisé est tenue de payer la pénalité et les intérêts suivants, calculés sur l'acompte non payé pour la période commençant à l'expiration de ce délai et se terminant le jour où le total de l'acompte, de la pénalité et des intérêts est payé ou, s'il est antérieur, le jour où la taxe au titre de laquelle l'acompte est payable doit être versée:
a) une pénalité de 6 % par année;
b) des intérêts au taux réglementaire.
281.1 (1) Le ministre peut annuler les intérêts payables par une personne en application de l'article 280, ou y renoncer.
(2) Le ministre peut annuler la pénalité payable par une personne en application de l'article 280, ou y renoncer.
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[24] The relevant sections of the GST Memorandum 500-3-2-1, Cancellation or Waiver of Penalties and Interests state:
4. It is recognized that, despite a person's best efforts, there may be occasions where, as a result of extraordinary circumstances beyond a person's control, a person may be prevented from complying with the requirements of the Act and may, therefore, incur penalties and interest imposed under section 280. In such situations, the Department may consider it appropriate to exercise discretion in the application of penalties and interest.
EXTRAORDINARY CIRCUMSTANCES
6. Penalties and interest may be cancelled or waived where they resulted from an extraordinary circumstance beyond the person's control, which prevented the person from complying with the Act. For example, one of the following extraordinary circumstances may have prevented a person from making a payment when due, or otherwise complying with the Act:
(a) natural or human-made disasters, such as flood or fire;
(b) civil disturbances or disruptions in services, such as a postal strike;
(c) a serious illness or accident; or
(d) serious emotional or mental distress, such as death in the immediate family.
The cancellation or waiver of penalties and interest may also be appropriate in some circumstances if the penalties and interest were incurred primarily because of the actions of the Department. For example:
(a) processing delays that resulted in the person not being informed within a reasonable amount of time that an amount was owing;
(b) errors in departmental publications, which led the person to file returns or make payments based on incorrect information;
(c) incorrect written information provided in an interpretation or notice given to a specific person by the Department;
(d) departmental errors in the processing of GST returns or information; or
(e) delays in providing information necessary for the person to comply with the Act.
8. 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. For example:
(a) when collection has been suspended due to an inability to pay;
(b) when a person is unable to conclude a reasonable payment arrangement because the penalty and interest charges represent a significant portion of the payments. In such cases, consideration may be given to waiving penalties and interest in whole or in part for the period beginning on the first payment due date under the payment arrangement until the amounts owing are paid, provided the agreed payments are made on time.
9. Where an extraordinary circumstance beyond the person's control has prevented the person from complying with the Act, the following factors will be considered by the Department to determine whether or not penalties and interest will be cancelled or waived:
(a) Does the person have a satisfactory history of voluntary compliance (i.e., have previous GST returns been filed and payments made on time)?
(b) Has the person knowingly allowed an outstanding balance to exist upon which the penalties and interest have accrued?
(c) Has the person acted quickly to remedy the omission or the delay in compliance, which originally resulted in penalties and interest being charged?
(d) Is there evidence that the person exercised reasonable care and diligence (e.g., planned for anticipated disruptions) and was not negligent or careless in the conduct of its affairs? The onus is on the registrant to keep abreast of any new developments in the administration of the GST so as to ensure continuing compliance.
The standard or review for "fairness" decisions by the Minister under the Act is patent unreasonableness (see Nail Centre and Esthetics Salon v. Canada (Customs and Revenue Agency), [2004] F.C.J. No. 685).
Analysis and Decision
[26] Installment Payments
Section 237 of the Act required the applicant to pay his GST in quarterly instalments since his instalment base exceeded $1,500 due to the amount of GST he paid in the previous year. This is a requirement of the law and the applicant, like all taxpayers, is expected to be aware of the requirements. This was not a change in a filing frequency requirement, but is a mandatory provision of the Act. As the quarterly payments were not made on time, the applicant began to accrue interest and penalties pursuant to subsection 280(2) of the Act. The onus is on the applicant to be aware of filing requirements.
[27] Non-receipt of Various Reminder Notices
The respondent stated that the applicant's GST return was not received until July 2, 2003, but the payment for the 1996 reporting year was posted to the applicant's account on September 16, 1997. The respondent sent out a number of reminder notices to the applicant which the applicant stated he did not receive. None of the reminder notices were returned to the respondent.
[28] The reminder notices sent out by the respondent are not required by statute to be sent as is, for example, a notice of assessment under subsection 300.1(1) of the Act. Accordingly, the non-receipt of the reminder notices does not assist the applicant.
[29] In refusing to waive interest and penalties, the Minister noted that no evidence was provided to show that the return was filed on time or the payment was made earlier than September 19, 1997. The applicant stated that he had filed a GST return when he sent the payment in April 1997.
[30] The applicant submitted that the respondent made an error when, by a statement dated July 4, 2003, it told him that he owed $1,135.95 and then by a statement dated July 7, 2003, stated that the amount outstanding was $7,255.35. The respondent stated that the first statement reflected the amount owing by the applicant.
[31] Based on the evidence before me, I am of the opinion that the decision to deny the applicant relief under the Fairness Provision was not patently unreasonable. Therefore, I cannot set aside the decision. No copy of the GST return was available and no cancelled cheque or cheque book entry was filed.
[32] The application for judicial review is therefore dismissed.
[33] There shall be nor order for costs.
1. The application for judicial review is dismissed.
2. No costs are awarded.
Ottawa, Ontario
June 17, 2005
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-2169-03
STYLE OF CAUSE: DALE deFREITAS
- and -
ATTORNEY GENERAL OF CANADA
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: January 24, 2005
REASONS FOR ORDER AND ORDER OF: O'KEEFE J.
DATED: June 17, 2005
APPEARANCES:
Dale deFreitas
Self-Represented
SOLICITORS OF RECORD:
Dale deFreitas
Toronto, Ontario
John H. Sims, Q.C.
Deputy Attorney General of Canada
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