Date: 20040202
Docket: T-1713-02
Citation: 2004 FC 176
Ottawa, Ontario, the 2nd day of February 2004
Present: The Honourable Madam Justice Danièle Tremblay-Lamer
BETWEEN:
MICHEL LAVIOLETTE
Applicant
and
THE CANADA CUSTOMS AND REVENUE AGENCY
and
YVAN MARCEAU, in his capacity as Chief,
Appeals Office, Taxation Services, Québec
Respondents
REASONS FOR ORDER AND ORDER
[1] This is an application for judicial review from a decision by the Canada Customs and Revenue Agency (the Agency) by which the applicant must pay costs, taxes and interest from September 13, 1995, for the 1992 taxation year and from February 21, 1996, for the 1993 taxation year, pursuant to the Income Tax Act, R.S.C. 1985, c. I-1 (ITA).
[2] On September 13, 1995, Revenue Canada issued a notice of reassessment to the applicant for the 1992 taxation year, by which he owed $4,832.28 for interest on arrears, instalments and refunds. On February 21, 1996, it issued a notice of reassessment to the applicant for the 1993 taxation year charging interest on arrears, instalments and refunds amounting to $5,335.75.
[3] According to the new notices of assessment, the loss reported by a company in which the applicant had invested money for research and development was disallowed since the said company was not regarded as operating a business with an expectation of profit.
[4] On or about November 24, 1995, the applicant filed a notice of objection to these reassessments.
[5] In fall 1995, Revenue Canada made an offer to a large part of the taxpayers who had invested in doubtful projects (the first group). This offer acknowledged part of the taxpayers' investment and cancelled their interest. The applicant was part of the second group of investors, to whom this offer was not made. The files of the taxpayers in the second group were to be dealt with at a later date, because of ongoing court proceedings. According to Revenue Canada, the taxpayers who were part of the second group had invested between 1992 and 1994 in companies which had not applied for a tax shelter number and the members of which had not applied for an investment tax credit.
[6] The applicant withdrew his notice of objection on April 24, 2002, to take advantage of the provision regarding equity.
[7] On April 30, 2002, the Agency sent a letter to the applicant telling him that it had agreed to cancel part of the interest on arrears to take account of the delay that had occurred between audit of the companies and the issuing of the new notices of assessment. It thus cancelled the interest for the period between July 5, 1994 and September 13, 1995 (the date of the first notice of assessment) for 1992, representing an amount of $5,338.77. It also cancelled the interest for the period between July 5, 1994 and February 21, 1996 (the date of the second notice of assessment) for 1993, representing the sum of $8,043.97.
[8] On May 28, 2002, the applicant asked the Agency to reconsider his case once again.
[9] On September 16, 2002, the Agency notified the applicant it was cancelling another part of his interest on arrears, namely $2,857.22 for the period between May 1, 1993 and July 4, 1994, in respect of the 1992 taxation year and $339.10 for the period between May 1, 1994 and July 4, 1994, in respect of the 1993 taxation year.
[10] The applicant requested a review of this last decision by the Agency. He maintained that Revenue Canada should have cancelled all the interest in question, since it was responsible for the delays in the matter, even following the issuing of the reassessments, and that it had created an expectation of settlement for members in the second group.
[11] The respondent submitted that the Agency's decision was made in accordance with the guidelines on cancellation of interest and penalties published in information circular IC-92-2, and the policy "Application of Fairness Provisions to Interest and Penalty" dated March 1996.
[12] All the relevant information and each of the reasons in support of the application were analyzed and considered. The decision-making process was fair and equitable and it observed procedural fairness.
[13] The applicant knowingly chose not to pay the balance of tax owed following the reassessments while awaiting the result of his objection, and this is why the interest accumulated. He cannot therefore now require the Agency to cancel interest incurred between the time of assessment.
ANALYSIS
[14] A decision based on the equity provision is discretionary in nature (Orsini Family Trust v. Canada (Revenue Canada, Customs, Excise and Taxation) (1996), 112 F.T.R. 289 (F.C.)). The applicable standard of review in the case at bar is therefore that of the patently unreasonable error.
[15] Subsection 220(3.1) of the ITA (the provision relating to equity) reads:
| 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.
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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.
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[16] Paragraph 6 of the guidelines gives a non-exhaustive list of the cases in which interest may be cancelled on account of actions by the Department:
Cancelling or waiving interest or penalties may also be appropriate if the interest or penalty arose primarily because of actions of the Department, such as:
(a) processing delays which result in the taxpayer not being informed, within a reasonable time, that an amount was owing;
(b) material available to the public contained errors which led taxpayers to file returns or make payments based on incorrect information;
(c) a taxpayer or employer receives incorrect advice, such as in the case where the Department wrongly advises a taxpayer that no instalment payments will be required for the current year;
(d) errors in processing; or
(e) delays in providing information, such as the case where the taxpayer could not make the appropriate instalment or arrears payments because the necessary information was not available.
[17] It is difficult to regard the Agency as responsible for the delays, since we have to consider that the applicant filed an objection which was set aside for a lengthy period of time pending the resolution of certain proceedings in the Court of Quebec, and it was he who chose to withdraw his objection in order to file an application under the equity provision.
[18] The applicant's argument that the Agency created an expectation of settlement I find to be without basis. In a letter dated November 29, 2001, the Agency informed the applicant that the second group had not received an offer of settlement like that offered to the first group because of the special features of the investments that differed between the two groups, namely that he had invested in a company that had not applied for a tax shelter number and the members of which had not applied for an investment tax credit.
[19] Contrary to the arguments made by the applicant, there is no evidence of bad faith on the Agency's part, all the interest that could have been cancelled was cancelled and the balance owing consisted solely of interest incurred since the assessments. It is on account of the applicant's own actions that he is now required to pay these amounts.
[20] Further, I feel that the decision-making process was fair. In the Agency's letter dated November 29, 2001, it is clearly explained that the decision was made in accordance with the principles set out in the guidelines on interest cancellation. The applicant accordingly knew in advance what criteria would be applicable to his application under the equity provision.
[21] The applicant had filed an objection and chose to withdraw it so he could take advantage of the immediate cancellation of interest rather than having to wait until the objection proceedings were completed and a decision was made. If he had really objected to the Agency's reassessments, he should not have waived his rights of objection and appeal to the Tax Court of Canada. Under paragraph 169(1) of the ITA, it is the Tax Court of Canada which has jurisdiction to hear appeals from assessments.
[22] For these reasons, the application for judicial review is dismissed.
ORDER
THE COURT ORDERS that the application for judicial review be dismissed.
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"Danièle Tremblay-Lamer"
J.F.C.
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Certified true translation
Suzanne M. Gauthier, C Tr, LLL
FEDERAL COURT OF CANADA
SOLICITORS OF RECORD
DOCKET: T-1713-02
STYLE OF CAUSE: Michel Laviolette v. Canada Customs and Revenue Agency and YVAN MARCEAU, in his capacity as Chief, Appeals Office, Taxation Services, Québec
PLACE OF HEARING: Québec, Quebec
DATE OF HEARING: January 22, 2004
REASONS FOR ORDER AND ORDER BY: The Honourable Madam Justice Danièle Tremblay-Lamer
DATED: February 2, 2004
APPEARANCES:
Michel Laviolette for the applicant
Nadine Dupuis for the respondents
SOLICITORS OF RECORD:
Michel Laviolette for the applicant
1085 rue de Saint-Sébastien
Cap-Rouge, Quebec
G1Y 2S4
Morris Rosenberg for the respondents
Deputy Attorney General of Canada
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