Mueller v. Canada (Attorney General), docket T-2326-98

Date: 20000918

Docket: T-2326-98

BETWEEN:

     BARBARA MUELLER

     Applicant

     -and-

     THE ATTORNEY GENERAL OF CANADA

     Respondent

     REASONS FOR ORDER

TEITELBAUM, J:

[1]      This is an application for judicial review of a decision of the Minister of National Revenue, pursuant to subsection 220(3.1) of the Income Tax Act, R. S.C.1985, c.1 (5^th Supp.), as amended (hereinafter the "Act"), dated November 6, 1998 denying the waiver of interest otherwise payable under the Act in respect of her 1985 and 1986 taxation years.

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[2]      The applicant seeks an order reversing the interest charges, repaying an overpayment of interest to the applicant and granting her the costs of this application.

FACTS

[3]      The applicant was audited by Revenue Canada for the first time in 1983 for the 1978, 1979, 1980, 1981 and 1982 taxation years.

[4]      In 1984 and 1985 the applicant received Re-assessment Notices which resulted in her owing $25,552. in additional taxes, penalties and interest.

[5]      On August 26, 1986, the Minister of National Revenue assessed the applicant in respect of her 1985 taxation year, at the amount of $390.64, with $360.00 of that amount being assessed in respect of Canada Pension Plan Contributions.

[6]      On March 3, 1987, the Minister reassessed the applicant in respect of her 1985 taxation year. The applicant was assessed an additional $842.94, the majority being federal and provincial taxes.

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[7]      On August 10, 1992, the Minister reassessed the applicant in respect of her 1985 taxation year. The applicant was credited $1,625.46. Approximately half of this amount represented a credit for all federal and provincial taxes previously assessed for the applicant's 1985 taxation year. The remaining half represented a credit for all refund interest and arrears interest previously charged on those taxes.

[8]      The result of the assessments and reassessments for the 1985 taxation year was that the applicant was assessed no federal or provincial tax. All interest previously charged on federal and provincial taxes was reversed in the August 10, 1992 reassessment. The assessment of $360.00 in CPP contributions remained.

[9]      The only interest the applicant was assessed in respect of her 1985 taxation year was $20.40 on the CPP contributions, which represented interest from May 1, 1986 until May 1, 1987 when the applicant's contributions and interest were paid in full. No penalties were ever assessed against the applicant in respect of her 1985 taxation year.

[10]      On August 31, 1987, the Minister first assessed the applicant in respect of her 1986 taxation year. The applicant was assessed $573.97, which represented federal and provincial taxes, CPP contributions and interest.

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[11]      On August 10, 1992, the Minister reassessed the applicant in respect of her 1986 taxation year. The applicant was credited $697.02. Approximately half of this amount represented a credit for all federal and provincial taxes previously assessed. The remaining half represented a credit for all arrears interest previously charged on those taxes.

[12]      The net result of the assessment and reassessment for the 1986 taxation year was that the applicant was assessed no federal or provincial tax. All interest previously charged on federal and provincial taxes was reversed in the August 10, 1992 reassessment. An assessment of $184. in CPP contributions remained.

[13]      As of January 9, 1999, interest of $418.31 had accrued on the amount assessed ($184.) for the applicant's 1986 taxation year. This amount was accrued on the CPP contributions from May 1, 1987. No penalties were ever assessed against the applicant in respect of her 1986 taxation year.

[14]      I have attempted to accurately record the dates and amounts of monies allegedly owing but may have erred. The errors, if any, have no effect on my decision as that is not the issue before me. This issue may have been for the Tax Court to decide.

[15]      On August 20, 1997, the applicant applied to the Minister of National Revenue pursuant to subsection 220(3.1) of the Act for the waiver of interest and penalties payable under the Act in respect of her 1985 and 1986 taxation years. The applicant provided further information in a second letter dated September 22, 1997.

[16]      Barbara Spaans, a collections officer for Revenue Canada, considered the applicant's request for waiver of interest and penalties, looking at the following factors before deciding to deny the request:

(1)      the applicant had the ability to pay the debt as she had substantial assets;

(2)      her interest calculations were incorrect;

(3)      the applicant agreed with Ms. Spaans that no credits that had been promised to her by Revenue Canada were outstanding; and

(4)      a series of Revenue Canada employees had reviewed her file over numerous years and the calculations made on her account were found to be accurate.

[17]      Ms. Spaans met with the applicant on two occasions and spoke to her on the telephone numerous times. She also reviewed the financial statements provided by the applicant. Pursuant to Revenue Canada policy, Ms. Spaans requested that the applicant provide a financial statement for her household, but she refused to do so. The applicant provided her own financial information but not that of her common law husband. Even based on the incomplete statement, the Application for Waiver did not qualify under the `hardship' criteria because the applicant had substantial assets.

[18]      Ms. Spaans recommended to her Team Manager, Ms. Biblow, that the applicant's request for waiver of interest and penalties be denied. Ms. Biblow concurred with Ms. Spaans' recommendation and a letter under the signature of Mr. J. Upton-Noot was sent to the applicant on July 15, 1998.

[19]      Ms. Spaans received a letter from the applicant dated September 23, 1998 which she treated as a request for a review of the initial decision ("a second level fairness request"). Ms. Spaans forwarded the letter along with relevant material to Ms. Co who reviews second level fairness requests in the Vancouver Taxation Service Office.

[20]      On November 6, 1998, Mr. Upton-Noot, Assistant Director, Revenue Collections Division, Vancouver Tax Services Office, made the final decision on the applicant's request for waiver of interest and penalties. In making his decision, he considered the summary prepared by Ms. Co and the recommendation of Ms. Co and her supervisor, Mr. Vondette.

[21]      On November 6, 1998, Mr. Upton-Noot sent a letter to the applicant advising her of his decision and explaining Revenue Canada's position.

[22]      Revenue Canada's guidelines for the consideration of applications made under subsection 220(3.1) of the Act (also called "Fairness Requests") are set out in Information Circular 92-2. These guidelines provide that interest or penalties for 1985 and following years may be waived if these arise from circumstances beyond a taxpayer's control, if the charges arose primarily because of the actions of Revenue Canada, or when the taxpayer has proved an inability to pay the amounts owed.

[23]      The following factors are considered by Revenue Canada when a claim is assessed:

a)      whether or not the taxpayer or employer has a history of compliance with tax obligations;

b)      whether or not the taxpayer or employer has knowingly allowed a balance to exist upon which arrears interest has accrued;

c)      whether or not the taxpayer has exercised a reasonable amount of care and has not been negligent or careless in conducting their affairs under the self-assessment system;

d)      whether or not the taxpayer is subject to hardship that affects their ability to pay assessed amounts: and

e)      whether or not the taxpayer has acted quickly to remedy any delay or omission.

[24]      Applications made under subsection 220(3.1) of the Act are dealt with in the following manner in the Vancouver Taxation Services Office where the applicant's request was made:

1)      The Collections Officer in charge of that applicant's file considers the request and reviews the file to ensure there is sufficient information to allow a fair decision.

2)      The Collection Officer reviews the applicant's request and the appropriate file and makes a recommendation as to whether to grant the applicant's request, which is forwarded to the Team Manager.

3)      The Team Manager reviews the file and depending on the amount of the request either makes a final decision or refers it to the Group Manager for a decision or further referral.

4)      The applicant may request a review or "second level fairness request" if they do not agree with the initial decision.

POSITIONS OF THE PARTIES

Applicant's Position

[25]      The applicant submits that the central issue is the variance between the amount demanded by the Collections Department, approximately $9000, and her calculation of the Re-assessment Notice which is approximately $6000. This difference results from the Minister declining to exercise his discretion under subsection 220(3.1) of the Act.

[26]      The applicant argues that the Minister acted unlawfully by continuing to pursue collections of further amounts of interest based on their Statement of Account which was erroneous.

[27]      Further, the applicant submits that the Minister made a reviewable error of law by not affording her an opportunity to participate in the proceedings by having never spoken to the individuals, Ms. Co and Mr. Vondette who are handling her case.

Respondent's Position

[28]      The respondent submits that the only issue before the Court is whether the applicant has shown that the Minister did not exercise his discretion pursuant to

subsection 220(3.1) of the Act by denying the applicant's application for waiver of interest and penalties.

[29]      The respondent submits that the evidence shows that the Minister's decision was made in good faith, in accordance with the principles of natural justice and considering all

the relevant factors.

[30]      Further, the respondent submits that the points in issue set out in the applicant's memorandum of law are not issues properly before this Court.

STATUTORY PROVISIONS

Federal Court Act, R.S.C.,1985 c. F-7

Grounds of Review 18(4) The Trial Division may grant relief under subsection (3) if it is satisfied that the federal board, commission or other tribunal (a) acted without jurisdiction, acted beyond its jurisdiction or refused to exercise its jurisdiction; (b) failed to observe a principle of natural justice, procedural fairness or other procedure that it was required by law to observe; (c) erred in law in making a decision or an order, whether or not the error appears on the face of the record; (d) based its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it; (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.

Motifs 18(4) Les mesures prévues au paragraphe (3) sont prises par la Section de premiere instance si elle est convaincue que l'office fédéral, selon le cas a) a agi sans competence, outrepassé celle-ci ou refuse de 1'exercer; b) n'a pas observé un principe de justice naturelle u d'équité procédurale ou toute autre procédure qu'il était 1également tenu de respecter-. c) a rendu une décision ou une ordonnance entachée d'une erreur de droit, que celle-ci soit manifeste ou non au vu d u dossier; d) a rendu une decision on une ordonnance fondée sur une conclusion de fait erronée,tirée de façon abusive on arbitraire ou sans tenir compte des éléments dont il dispose; e) a agi ou omis d'agir en raison d'une fraude ou de faux témoignages; f) a agi de toute autre façon contraire à la loi.

ISSUES

[31]      This application raises one question:

Did the Minister correctly interpret and apply the discretion granted by subsection 220(3.1) in his decision which denied the applicant's request for waiver?

ANALYSIS

The Purpose of Subsection 220(3.1)

[32]      Subsection 220(3.1) of the Act reads as follows:

220(3.1) Waiver of penalty or interest - 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 subsection 152(4) and (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.

220(3.1) Renonciation aux pénalités et aux intérêts. 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 153(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.

[33]      To assist in the interpretation of this provision, the Minister has implemented guidelines which can be found in Information Circular 92-2. The following three circumstances are enumerated to indicate when interest or penalties should be waived:

(i) extraordinary circumstances such as a disaster or disruption of services beyond a taxpayer's control that may have prevented a taxpayer from making a payment when due or otherwise complying with the Income Tax Act;

(ii) where the interest or penalty arose primarily because of actions of Revenue Canada including delay, and,

(iii) where there is an inability to pay the amounts owing.

[34]      Also relevant to this application is paragraph 10 of the Information Circular which

states:

a) whether or not the taxpayer or employer has a history of compliance with tax obligations;

b) whether or not the taxpayer or employer has knowingly allowed a balance to exist upon which arrears interest has accrued;

c) whether or not the taxpayer has exercised a reasonable amount of care and has not been negligent or careless in conducting their affairs under the self-assessment system:

d) whether or not the taxpayer is subject to hardship that affects their ability to pay assessed amounts; and

e) whether or not the taxpayer has acted quickly to remedy any delay or omission.

[35]      Equally relevant to this application is paragraph 14 of the Information Circular

which reads:

If taxpayers or employees believe that the Department has not exercised its discretion in a fair and reasonable manner, then they may request that the director of a district office or taxation centre review the situation.

[36]      This subsection was interpreted by the Court in Kaiser v. M.N.R. (1995), 95 D.T.C. 5187 at page 5188 where Mr. Justice Rouleau states:

The purpose of this legislative provision is to allow Revenue Canada, Taxation, to administer the tax system more fairly, by allowing for the application of common sense in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, are unable to meet deadlines or comply with rules under the tax system. The language used in the section bestows a wide discretion on the Minister to waive or cancel interest at any time. To assist in the exercise of that discretion, policy guidelines have been formulated and are set out in Information Circular 92-2.

The Court went on to state at page 5188-9:

Every case is required to be decided on its own merit in order that circumstances unique to that individual taxpayer are taken into account...[W]hen the Minister exercises his discretion under subsection 220(3.1), he is required to take into account considerations relevant and unique to that taxpayer alone.

[37]      Again, in Orsini Family Trust Revenue Canada (1996), 96 D.T.C. 6347 the

Court elaborated on this interpretation of subsection 220(3.1) at paragraph 9 where Cullen J. states:

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.

[38]      The Court is dealing with an administrative provision and a discretionary decision made by the Minister's delegate. This being the case, the only question to be asked is whether the Minister discharged his duty to act fairly towards the applicant, through his representative, in the decision not to exercise his discretion granted to him under subsection 220(3.1) of the Act to waive the applicant's interest for the 1985 and 1986 taxation years.

[39]      In the Estate of the Late Henry H. Floyd v. The Minister of National Revenue [1993] F.C.J. No 986, Dubé J. considered the scope of the duty to act fairly in the context of subsection 220(3.1) and stated at paragraph 9:

A duty to act fairly, in general, means a duty to observe the rudiments of natural justice in the exercise of administrative functions. (See [1980] 1 S.C.R. 602">Martineau v. Matsqui Disciplinary Board, [1980] 1 S.C.R. 602 at 630)

At common law, a duty to exercise procedural fairness lies on every public authority making an administrative decision which is not of a legislative nature and which affects the rights, privileges or interests of an individual. (See Cardinal v. Director of Kent Institution, [1985] 2 S.C.R. 43 at 653 and R. v. Miller, [1985] 2 S.C.R. 613 at 623-24.)

[40]      In the case at bar, the evidence demonstrates that the Minister took into account all the circumstances surrounding the applicant's financial situation and rightly weighed and assessed all the information contained in the documents submitted by the applicant.

l cannot conclude that the Minister acted unfairly in any way during the decision-making process which led him to decline to exercise his discretion under subsection 220(3.1) of the Act.

[41]      Moreover, the Act is silent on the criteria to be used by the respondent in exercising the discretion conferred under subsection 220(3.1), and therefore it is only necessary that the Minister act in good faith and not consider irrelevant factors in his assessment. 1 am thus in agreement with the assertion of the respondent at paragraphs 27 and 28 of his memorandum of law which provides that the Minister can use the criteria he chooses so long as it is relevant and he acts in good faith.

[42]      With respect to the allegation of the applicant at paragraph 29, that the Minister made several reviewable errors of law, the applicant refers to the decision of this Court in Barron v. Canada (Minister of National Revenue - M.N. R.) [1996] F.C.J. No. 461. In that case, Jerome A.C.J., as he then was, held that the "Fairness Committee" which considered the applicant's request for discretionary relief made a reviewable error in failing to advise the applicants of the facts which it would consider in granting the relief and in failing to provide the applicants an opportunity to make representations. Further, the Court found that the Committee erred in that it misapplied the discretionary relief provisions when it determined that the applicant's request did not fall within the intent of the discretionary relief provision.

[43]      On appeal, this decision was overturned and it was held that the Minister's

decision was discretionary and the Court could only interfere if that decision was made in bad faith, if the Minister ignored some relevant facts or took into consideration irrelevant facts or if the decision was contrary to law. Writing for the Court, Pratte J. stated at paragraph 5 of Barron v. Canada (Minister of National Revenue - M.N.R.) [1997] F.C.J. No. 175:

Before saying why we think these finds are wrong, it may be useful to recall that subsection 152(4.2) of the Income Tax Act confers a discretion on the Minister and that, when an application for judicial review is directed against a decision made in the exercise of a discretion, the reviewing court is not called upon to exercise the discretion conferred on the person who made the decision. The court may intervene and set aside the discretionary decision under review only if that decision was made in bad faith, if its author clearly ignored some relevant facts or took into consideration irrelevant facts or if the decision is contrary to law.

Pratte J. then further stated at paragraph 6:

The judge's findings that the Minister failed to inform the respondents of the factors that he would take into consideration in exercising his discretion and that he also failed to give them an opportunity to make representations in support of their requests are both contrary to the evidence. The record shows that the respondents were invited by an officer of the Department of National Revenue to take advantage of subsection 152(4.2) and were sent an Information Circular explaining that provision and indicating how the Minister would exercise his discretion. The record also shows that the respondents were given a full opportunity to make representations in support of their requests; true, they were not given the opportunity to make oral representations, but the law is clear that, save in exceptional cases, fairness does not require an oral hearing.

[44]      The record is clear that the applicant spoke with the Collections Officer twice

over the telephone and provided written representations on numerous occasions. More specifically, the applicant made her initial request to the Minister on August 20, 1997 and then forwarded further written representations on September 22, 1997, and again on September 23, 1998.

[45]      Furthermore, I adjourned the present hearing to allow the applicant to obtain an affidavit from her accountant to show if errors in calculations were made by the respondent. She failed to produce such an affidavit as she had promised.

[46]      Applying these facts to the principles enunciated by the Federal Court of Appeal in Barron, supra, I find that the process by which the Minister exercised his discretion conferred upon him by subsection 220(3.1) was fair and in good faith. The applicant was afforded various opportunities to participate in the decision-making process and took full advantage of these. The Minister did not arrive at a decision based on irrelevant factors, and I certainly cannot conclude that the decision was contrary to law.

[47]      For the foregoing reasons, I find that there is no reviewable error to warrant the intervention of this Court in the Minister's decision. The application is hereby dismissed with costs payable to the respondent.

                        

                                 J.F.C.C.

Ottawa, Ontario

September 18, 2000