Date: 20040525
Docket: T-162-03
Citation: 2004 FC 759
Ottawa, Ontario, the 25th day of May 2004
Present: THE HONOURABLE MR. JUSTICE SIMON NOËL
BETWEEN:
SIXGRAPH INFORMATIQUE LTÉE
Applicant
AND
THE MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR ORDER AND ORDER
[1] This is an application for judicial review of a decision by the Minister of National Revenue made pursuant to the discretion granted to him by subsection 220(3) of the Income Tax Act, R.S.C. 1985 (5th Suppl.), c. 1, as amended (hereinafter the Act). The Minister rejected the request by Sixgraph Informatique Ltée (hereinafter Sixgraph) for an extension of the time provided by the Act for filing a request for a tax credit after a delay of some 59 months.
FACTS
[2] I note at this point that with the exception of Sixgraph's allegations concerning the seizures of documents and the sale of a building for taxes, the respondent agrees with the applicant's statement of the following facts:
[3] Sixgraph is a research and development company specializing in sound cards. The company has received a number of awards for its research and was directed by Mr. Vo Hoang Hien until his sudden death in June 1993. At the time of his death, Mr. Vo Hoang Hien was heading up the research and development project that is the subject matter of the claim for credits for the taxation periods from February 1993 to February 1994 and from February 1994 to February 1995. At the date of his death, the files for the 1990, 1991, 1992 and 1993 taxation years were pending and assigned to a tax lawyer, Sylvain Castonguay. Following his death, the technical management of Sixgraph was handled by Mr. Dzung, but responsibility for the financial management does not appear to have been assigned to anyone. The company subsequently encountered some financial difficulties and its claim for scientific research and experimental development (SR and ED) credits was refused for the February 1993-February 1994 fiscal year. Meanwhile, reassessments were issued for the fiscal periods from February 1990 to February 1991, February 1991 to February 1992 and February 1992 to February 1993.
[4] Because the SR and ED claim for the February 1993-February 1994 year was rejected for a project that was to be spread over a two-year period, the claim for the SR and ED credits for the February 1994-February 1995 year was delayed pending the outcome of the claim for the preceding period. Sixgraph argues that this decision was made primarily because of the lack of financial resources to pay the amounts owing to the accounting firms that had filed claims for the previous periods. Sixgraph hoped to use these credits to pay the debt outstanding to the accounting firm before the latter would agree to prepare tax returns and SR and ED claims for the year ending in February 1995, and before the end of the 18-month period provided by the Act, i.e. August 28, 1996.
[5] Sixgraph alleges that on June 10, 1996, before the file for the February 1993-February 1994 year was closed, the company 1034364 Ontario Inc. seized all of its documents in court file number 500-05-020032-965 and that on June 19, 1996, Sixgraph's creditor, the Caisse populaire de Cartierville, had seized all of its bank statements and the statements of the other companies sharing the same premises as Sixgraph. After legal proceedings, Sixgraph's counsel reported that 99.9% of the documents seized had been recovered on March 2, 1999.
[6] Sixgraph further argues that its employees stored some documents in the building they were living in until the day when that building was sold for taxes. Sixgraph was therefore obliged to take steps to enable the tax lawyer Sylvain Castonguay to recover about fifty boxes of documents on or about January 3, 1997. Some of these boxes were subsequently stored in the basement of the residence of Ms. Anh Huyen Nguyen, Mr. Vo Hoang Hien's widow. During the ice storm of January 1998, the basement was flooded by a break in the waterpipe system caused by the lack of heat resulting from the power blackout and a major portion of the documents was damaged and/or destroyed. However, as mentioned previously, the quantity of documents that were stored was minimal, since 99.9% of the documents were recovered in March 1999.
[7] The claim for SR and ED credits for the February 1993 to February 1994 fiscal year was subsequently granted on or about October 4, 1999 and the refund cheque was received on January 20, 2000. The accountants were paid that same day and they commenced the preparation of the tax return and claim for SR and ED credits for the February 1994 to February 1995 year, while requesting final assessments for the preceding years: 1991, 1992, 1993 and 1994. However, since it received only a backup of the notices of assessments it had requested, on or about March 9, 2001, Sixgraph submits that its accountants were unable to submit the tax return and SR and ED claim for February 1994 to February 1995 until August 1, 2001 - a date, they argue, that is well within the allocated 18-month period from receipt of the respondent's statement of account. The Minister's opinion is that these documents were not needed in order to submit the tax return and the credit request. However, the Minister rejected the SR and ED tax credit claim for the 1995 taxation year since it had been filed with about 60 months' delay.
[8] On September 7, 2001, therefore, Sixgraph asked the respondent to consider its claim, citing the "fairness" provisions in subsection 220(3) of the Act and alleging three reasons to justify the delay in sending in the claim:
a. the death of Sixgraph's president in June 1993;
b. the damage allegedly caused by the January 1998 ice storm; and
c. the fact that the Minister had initially refused its claim for a tax credit for 1994.
[9] Following a study conducted by Ms. B. Gener, the Minister, through Mr. Chikani in a letter dated January 9, 2002, rejected the claim for the SR and ED credits for 1995. In the following days (on January 14, 2002), the applicant asked the Director of Tax Services to review the decision on the following grounds:
a. again, the impact the death of Sixgraph's president had on the claim for the SR and ED credits for 1995; and
b. the fact that Sixgraph had experienced some financial difficulties while the company was appealing the Minister's decision to refuse a similar claim for SR and ED credits made for the 1994 year.
[10] Having consulted "[translation] all of the documents in the file" and the brief by Mr. J. Thompson, a lawyer, dated December 27, 2002, Mr. Patrice Allard, the appeals chief, representing the Minister, refused Sixgraph's request for an extension of the time provided by the Act under the "fairness" program in which to file an SR and ED tax credit claim for the 1995 taxation year, because the request had been filed belatedly:
[translation] I have carefully examined the facts surrounding this matter and your arguments concerning the applicable statutory provisions. I noted from my review that although the company was in financial difficulty, it had an obligation to file the income tax return and the SR & ED claim within the times provided by the Act. Furthermore, close to five years elapsed between the normal deadline for filing your claim and the actual date of filing. This delay is not justified by the events cited in your request or in the evidence placed in the file.
[11] I note as well that the respondent argues that the following facts should be added to Sixgraph's account:
A. Under paragraph 150(1)(a) and subsection 127(9) of the Act, a company must file its SR and ED claim no later than 18 months after the end of its fiscal year;
B. Because Sixgraph's 1995 fiscal year ended on February 28, 1995, the respondent argues, it had to file its claim for an SR and ED credit no later than August 1, 1996, by completing form T-661;
C. Sixgraph waited until August 1, 2001 before filing its SR and ED tax credit claim for the 1995 taxation year and the Minister rejected the claim since it had been filed too late.
ISSUES
[12] The issues are as follows:
A. Did the Minister consider all of the relevant factors when making his decision of December 27, 2002? and
B. Did the Minister act in accordance with the principles of natural justice when making the decision of December 27, 2002?
STANDARD OF REVIEW
[13] As the respondent states, subsection 220(3) of the Act was enacted in order to give the Minister of National Revenue, upon request, discretionary authority to extend any period provided by the Act. I reproduce the subsection here:
220(3) The Minister may at any time extend the time for making a return under this Act.
[14] This discretionary authority is subject to the policy governing the application of subsection 220(2.1) of the Income Tax Act in the context of scientific research and experimental development, dated November 8, 2000 (SR and ED). However, the Minister used the "Guidelines for the Cancellation and Waiver of Interest and Penalties" dated March 18, 1992. The Minister's opinion is that both policies use the same analytical criteria.
[15] It is established doctrine in administrative law, and in particular in the context of reviewing discretionary decisions by the Minister, that the Court will intervene only if the decision was made in bad faith or the decision-making body clearly failed to consider relevant facts or considered irrelevant facts or if the decision is wrong in law. I reproduce, inter alia, the conclusions reached by Gibson J. in Cheng v. Canada, [2001] F.C.J. No. 1532, at para. 18, regarding the standard of review applicable to a decision made by the Minister of National Revenue under subsection 220(3.1):
In Sharma v. The Minister of National Revenue, my colleague, Mr. Justice Pelletier, noted at paragraph [21] that "... much has been written on the subject of standard of review since the decision in Maple Lodge Farms ...". The same might be said with respect to the Barron decision. After reviewing the guidance regarding the "pragmatic and functional analysis" with regard to standard of review found in Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982 and in Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817, Mr. Justice Pelletier analysed the factors at issue in a "fairness" decision under the Income Tax Act, albeit not the same fairness provision here at issue, and concluded at paragraph [24]:
The purpose of subsection 110.4(2) of the Act is to allow the Minister to grant relief from time limitations in appropriate cases. The fact that each case turns on its own particular facts suggests that cases have limited precedential value. As a result, there is little reason for the Court to intervene in the name of public policy. Because the issue is access to a relieving provision, there is no ruling on an issue of legal entitlement, which once again suggests deference. All of the factors considered suggest a considerable degree of deference to the Minister's decision. In the circumstances, I conclude that the standard of review is patent unreasonableness.
As here, the Minister's "decision" to which Mr. Justice Pelletier was referring was in fact a decision made on behalf of the Minister of National Revenue by an official duly authorized to act on behalf of the Minister. I adopt the analysis and conclusion of Mr. Justice Pelletier as my own.
[16] Moreover, as Joyal J. held in Kutlu v. R., 97 D.T.C. 5180, when he interpreted subsection 220(3):
it is clear law that in the exercise of a discretionary authority it is necessary not only to keep within the statutory mandate but also to consider all factors relevant to the statutory decision-making function.
It is my opinion, therefore, that the standard of judicial review applicable to this case is the standard of patent unreasonableness of the decision, and that the criteria the Court must examine in conducting its review of the validity of a discretionary decision are the ones laid down by the Supreme Court of Canada in Oakwood Development Ltd. v. Rural Municipality of St-François Xavier, [1985] 2 S.C.R. 164:
a. the decision must be made in good faith;
b. the decision-maker must be impartial;
c. the decision must be made "in accordance with proper principles reflected in the 'policy and objects of the [governing] Act'"; and
d. the decision must not take into consideration matters which were not proper to be regarded, or fail to consider matters which were of direct importance.
ANALYSIS
A. Did the Minister consider all of the relevant factors when making his decision of December 27, 2002?
[17] The applicant is of the opinion that two important facts were not considered when the decision was made on December 27, 2002:
- the accounting records needed to prepare the tax return for the year ending February 2, 1995, and the claim for a research and development credit were seized on June 10 and 19, 1996, and were not recovered until March 2, 1999;
- the notices of assessment for the years prior to 1995 were not provided because they were not available and were replaced by a statement of account that was supplied only on March 9, 2001; this delayed the remittance of the 1995 tax return and the claim for a credit.
[18] A party who asks the Minister to exercise his discretion for the purpose of obtaining an extension of the time for filing a tax return or a request for a scientific research and experimental development credit must provide the Minister with all the reasons justifying its request along with supporting documentation. It has the onus of doing so clearly and specifically.
[19] In this case, I note that the applicant did not inform the Minister that the accounting documents had been seized and were unavailable. Furthermore, no document was submitted confirming the seizures of documents. Similarly, the problem resulting from the notices of assessment was not communicated to the Minister for consideration (see the applicant's letters to the Minister, dated December 7, 2001 and January 14, 2002). Indeed, the applicant cited the argument concerning the delay in obtaining the notices of assessment in the context of the present proceedings in an attempt to justify in part the five-year delay. And these documents were not essential to the filing of the 1995 tax return and the claim for a credit.
[20] The Minister cannot be asked to consider certain reasons, including documents, unless the applicant expressly provides the information and the documents. The applicant's letters, the summary of the facts in the fairness request of December 20, 2001, Mr. Thompson's memo to Mr. P. Allard, etc., explain clearly the situation in which the Minister found himself, through his representative, and the information he had before him. However, the Minister did not have before him any submissions and documents reporting the seizure of documents and the delay in obtaining the assessment notices because the applicant did not supply them. The Minister made his decision in light of what had been presented to him and the decision of December 27, 2002, clearly reflects the situation.
[21] The applicant also argued in writing on the issue of the delay applicable to the 1995 taxation year in order to file an SR and ED tax credit claim. I have carefully reviewed the submissions of both parties concerning this issue and I am satisfied that under paragraph 150(1)(a) and subsection 127(9) of the Act, the ultimate delay for filing an SR and ED claim for 1995 was 18 months.
[22] A careful analysis of the evidence presented by both parties, therefore, does not disclose any factor that might support a finding that the Minister's representative, before reaching his decision, did not consider all of the relevant information communicated by the applicant.
B. Did the Minister act in accordance with the principles of natural justice when making the decision of December 27, 2002?
[23] The Minister's record in the wake of the two requests by the applicant for an extension of time, and the meetings between the respective representatives of the applicant and the Department, show that the applicant had a number of opportunities to be heard and that it was heard.
[24] It is true that the respondent did not analyze the file using the appropriate policy, but I note that the policy used resembles the one that was applied by the Minister and that the applicant was consequently not deprived of any right.
[25] I am also considering the judgment in Edison v. Canada, [2001] F.C.J. 1064, where the Federal Court of Appeal, commenting on "the fairness legislation", stated:
The position of Rouleau J. was also adopted by Cullen J., in Orsini Family Trust v. Revenue Canada where he stated:
A decision made under the "fairness legislation" is discretionary. It is not a case where a decision-maker must arrive at a certain outcome; rather, the decision-maker, after considering all the circumstances, may come to a certain conclusion. Discretionary decisions cannot be made arbitrarily or in bad faith and, like other decisions, are subject to judicial review. The scope of judicial review, however, is quite narrow. This Court should not substitute its decision for that of the Minister's statutory delegate. Rather, the Court must determine whether the decision was made fairly, not arbitrarily or in bad faith. So long as the evidence in the record supports the decision, this Court should not interfere.
[26] Irrespective of my personal opinion about the situation in which the applicant found itself in the 1991 to 1995 taxation years, if I am to apply the patently unreasonable decision as the standard of review I am obliged to conclude that in view of the process of investigation and consideration of the facts that was undertaken at the first and second decision-making levels; and given the scope of the discretionary authority given to the Minister or his representative by subsection 220(3.1) of the Act as specified by the tests laid down in the policy on the application of subsection 220(2.1) of the Income Tax Act, dated November 8, 2000, the respondent could validly make the decision that he did. I conclude therefore that the decision of December 27, 2002 was made in accordance with the principles of natural justice.
[27] As to costs, the parties made no submissions. I therefore urge them to submit their comments to me within 15 days of this date.
ORDER
FOR THESE REASONS:
- The application for judicial review is dismissed.
- I reserve my decision concerning the costs.
"Simon Noël"
Judge
Certified true translation
Suzanne Gauthier, C.Tr., LL.L.
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-162-03
STYLE: SIXGRAPH INFORMATIQUE LTÉE v. THE MINISTER OF NATIONAL REVENUE
PLACE OF HEARING: Montréal
DATE OF HEARING: April 20, 2004
REASONS: The Honourable Mr. Justice Simon Noël
DATED: May 25, 2004
APPEARANCES:
Lam Chan Tho FOR THE APPLICANT
Louis Sébastien FOR THE RESPONDENT
SOLICITORS OF RECORD:
Malo, Dansereau FOR THE APPLICANT
Montréal, Quebec
Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada
Montréal, Quebec
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