Hillier v. Canada (Attorney General), docket T-1455-99

Date: 20001027

Docket: T-1455-99

Ottawa, Ontario, this 27th day of October, 2000

PRESENT:      THE HONOURABLE MR. JUSTICE JOHN A. O'KEEFE

BETWEEN:

LLOYD D. HILLIER

Applicant

- and -

ATTORNEY GENERAL OF CANADA

Respondent

REASONS FOR ORDER AND ORDER

O'KEEFE J.

Proceedings

[1]      This is an application for judicial review pursuant to section 28 and subsection 18.1 of the Federal Court Act, 1998, in respect of a decision of Jim Tobin, Director, Newfoundland and Labrador Tax Services Office, dated July 16, 1999, which stated, in part:

The Fairness Legislation allows for the cancellation of interest and penalties when circumstances beyond an individual's control prevent that individual from making a payment, filing a return on time, or otherwise complying with the Income Tax Act. Furthermore, the interest and penalties may be cancelled if they arise from Department errors or delays or in hardship situations where the individual demonstrates an inability to pay the amounts owing.

We have reviewed the facts of this case and considered the issues raised by your Representative's letter of November 23, 1998. As there is no indication that such circumstances existed in your case, I must confirm that the interest and penalties charged to you were properly assessed. Our review indicated that there were no undue delays which occurred during the audit process. With respect to the period of time this case was outstanding at the Objection stage, the Department's position is that once a Notice of Reassessment has been issued, an individual becomes aware of any balances outstanding and has the option, after a Notice of objection has been filed, to pay the outstanding balances and avoid any further accumulation of interest. At this point, payment of these balances is within the control of the individual.

Order Sought

[2]      The applicant seeks an order "setting aside the said decision and referring the matter to the Tax Court of Canada for determination in accordance with such directions as this Honourable Court considers to be appropriate".

Background Facts

[3]      In August 1993, the respondent commenced an audit of the applicant's income tax returns for taxation years 1989 to 1992. Reassessments for taxation years 1989, 1990, 1991 and 1992 were issued to the applicant on April 28, 1995. The applicant was assessed penalties and arrears in interest for each of the audited years.

[4]      As a result of the audits, the Minister reassessed the applicant for the 1989 to 1992 taxation years by Notice of Reassessment dated April 28, 1995 as follows:

	Revised Income	Arrears Interest	Penalties
1989	$105,087	$20,906.60	$ 9,130.53
1990	$115,518	$19,984.47	$ 9,925.46
1991	$186,310	$14,471.85	$11,072.35
1992	$ 97,530	$11,083.76	$ 2,335.08

[5]      On June 29, 1995, the applicant filed Notices of Objection with respect to the reassessments. Between October 31, 1995 and February, 1998 (a period of 27 months), there was no contact between the parties. On August 27, 1998, Notices of Reassessment for the 1990-1992 taxation years and a Notice of Confirmation for the 1989 taxation year were issued.

[6]      On November 23, 1998, representatives of the applicant requested cancellation of penalties and waiver of interest under subsection 220(3.1) of the Income Tax Act with respect to the Notices of Reassessment for the 1989, 1990, 1991 and 1992 taxation years. The applicant alleged that between the start of the review process in January, 1994, to the final assessment dated August 27, 1998, undue delay was caused by Revenue Canada.

[7]      A letter dated June 4, 1999 was sent by Alan Ross, Chief of Appeals, Newfoundland and Labrador Tax Services Office, to the applicant denying the applicant's request. In part, the letter stated:

. . .

A detailed review of the audit process indicates that there were no undue delays during the audit as there were ongoing discussions between your representatives and the Audit Division officials throughout this period.

At the time you received your Notices of Reassessment, you became aware of the balance outstanding. You chose not to pay the amount owing and exercised your right under the Income Tax Act and filed a Notice of Objection. While this action was in progress arrears interest continued to accrue on the outstanding balance. Although the Department did not enforce payment of this balance, because of the Notice of Objection you filed, the option remained to pay the tax balance outstanding, pending the outcome of the Notice of Objection, to avoid further accumulation of interest.

It should be noted that the amount of the penalties assessed each year was not affected by the period of time it took to process the Notice of Objection. Accordingly, cancelling or waiving of the penalties would not be appropriate in the circumstances.

[8]      A Ministerial inquiry was treated as a request for a second review of the decision. As a result of the inquiry and review, Mr. Tobin, Director, Newfoundland and Labrador Tax Services Office, denied the applicant's request for waiver of penalties and interest in a letter dated July 16, 1999. Mr. Tobin stated as follows:

...

We have reviewed the facts of this case and considered the issues raised by your Representative's letter of November 23, 1998. As there is no indication that such circumstances existed in your case, I must confirm that the interest and penalties charged to you were properly assessed. Our review indicated that there were no undue delays which occurred during the audit process. With respect to the period of time this case was outstanding at the Objection stage, the Department's position is that once a Notice of Reassessment has been issued, an individual becomes aware of any balances outstanding and has the option, after a Notice of objection has been filed, to pay the outstanding balances and avoid any further accumulation of interest. At this point, payments of these balances is within the control of the individual.

Issue

[9]      Did the Minister's statutory delegate err in law and fact or breach his duty to act fairly in declining to exercise his discretion in favour of the applicant under subsection 220(3.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) ("the Act")?

Relevant Statutory Provisions

[10]      Subsection 220(3.1) of the Act permits the Minister (or his statutory delegate) to waive penalty or interest amounts payable under the Act. Subsection 220(3.1) provides 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 subsections 152(4) to (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 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.

[11]      In Kaiser v. Minister of National Revenue (1995), 93 F.T.R. 66 at 68, Rouleau J. addresses the purpose of subsection 220(3.1) and the discretion it bestows on the Minister:

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.

See also Goldmaker v. Minister of National Revenue, 2000 Carswell Nat. 278 (F.C.T.D.).

Guidelines

[12]      Guidelines concerning the cancellation and waiver of interest and penalties are published in Information Circular 92-2. The Circular outlines three circumstances where the cancelling or waiving of interest or penalties may be warranted:

1.      Where the interest or penalties result from circumstances beyond a taxpayer's control (e.g. natural disasters, civil disturbances, serious illness or accident or serious emotional distress);

2.      Where the interest or penalties arose primarily because of actions of the Department (e.g. processing delays, material available to the public containing errors, a taxpayer or employer receives incorrect advice, errors in processing or delays in providing information); or

3.      Where there is an inability to pay amounts owing (e.g collection suspended due to an inability to pay or taxpayer unable to conclude a reasonable payment arrangement because interest payments absorb a significant portion of the payments).

[13]      Paragraph 9 of the Circular identifies the information which is required to support

an application for waiver of interest. Subparagraph (c) requires the taxpayer to show the following:

. . . the facts and reasons why the interest or penalties levied, or to be levied, were primarily caused by factors beyond the taxpayer's control;

[14]      Paragraph 10 of the Circular states that the following factors will be considered in

deciding whether or not to waive outstanding interest charges:

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

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

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

(d) whether or not the taxpayer or employer has acted quickly to remedy any delay or omission.

Applicant's Submissions

[15]      The applicant applies for an order setting aside the decision of the Director of the

Newfoundland and Labrador Tax Services Office on the following grounds:

1.      The Director of the Tax Services Office of Newfoundland and Labrador erred in law and fact in finding that the audit of the applicant indicated no undue delays which occurred during the audit process.

2.      The audit process determined that the amount owing by the applicant was considerably less than the initial reassessment and, therefore, the amount of penalties and interest should have been reduced proportionally.

[16]      The applicant relies on paragraph 6(a) of Information Circular 92-2 in regards to

the first ground. Paragraph 6(a) states:

6. 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; . . .

The applicant argues that the time period between January, 1994 (when the respondent commenced the audit of the applicant) and July, 1999 (when the respondent denied the applicant's request under subsection 220(3.1) of the Act) caused the applicant undue hardship. In particular, the applicant submits that there were undue delays between October 31, 1995 and February, 1998. Furthermore, the applicant argues that he was forced to spend considerable amounts of money in professional fees to meet the demands of the respondent over this period.

Respondent's Submissions

[17]      The respondent submits that there were no delays during the audit process, that

the audit was completed in a timely manner and that the applicant knew of his tax liability at the time.

[18]      The respondent submits Mr. Tobin considered all factors put before him by the

applicant and the policy established by the guidelines relevant to exercising discretion pursuant to subsection 220(3.1) in reaching his decision to deny the applicant's request.

[19]      Regarding the applicant's second ground in support of the order sought, the

respondent submits there is no evidence to support the allegation, and that penalties need not be adjusted unless they relate to a reassessed item.

Standard of Review

[20]      In a recent case concerning subsection 220(3.1), Heneghan J. cited Kaiser, supra,

when considering the standard of review of discretionary decisions in the context of subsection 220(3.1):

The scope of judicial review in relation to a Ministerial decision, made in the exercise of discretion, is limited to reviewing whether the Minister has properly exercised his discretion, with regard for relevant considerations and without regard to extraneous factors. The standard of review of discretionary decisions in the context of section 220(3.1) of the Income Tax Act was addressed by Mr. Justice Rouleau in Kaiser v. Minister of National Revenue, supra, as follows:

The jurisprudence has established the standard to be employed by the courts when called upon to review the exercise of a discretionary power such as the one in question here. In Re Maple Lodge Farms Ltd. and Government of Canada et al (1982), 137 D.L.R. (3d) 558 (S.C.C.), McIntyre, J. stated at p. 562:

In construing statutes such as those under consideration in this appeal, which provide for far-reaching and frequently complicated administrative schemes, the judicial approach should be to endeavour within the scope of the legislation to give effect to its provisions so that the administrative agencies created may function effectively, as the legislation intended. In my view, in dealing with legislation of this nature, the courts should, wherever possible, avoid a narrow, technical construction, and endeavour to make effective the legislative intent as applied to the administrative scheme involved. It is, as well, a clearly-established rule that courts should not interfere with the exercise of a discretion by a statutory authority merely because the court might have exercised the discretion in a different manner had it been charged with that responsibility. 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 courts should not interfere.

This passage would appear to suggest that a high level of deference should be given to the statutory delegate in the case at bar.

[21]      I am in agreement that a high level of deference should be given to decision

makers acting pursuant to subsection 220(3.1) of the Act. In this case, the applicant argues that the delay in carrying out the audit process was much too long and therefore when the fairness legislation should be applied to the interest and penalties owing to Revenue Canada. I have reviewed the time taken to complete the initial reassessment which was from approximately January, 1994 to Spring of 1995. I do not consider this period of time to be unreasonable to carry out the audits that were carried out in this case as the auditors had to also look at records of companies partially owned by the applicant.

[22]      The applicant filed Notices of Objection to his assessments in June, 1995 and

from October 24, 1995 until March 20, 1998, nothing transpired with respect to the Notices of Objection. This delay apparently was caused by changes in staff at Revenue Canada. Although this is a long period of time, it must be remembered that the applicant knew the amount of taxes and interest that were payable in May, 1995, subject, of course, to any adjustment made as a result of the Notices of Objection. The applicant could have paid the taxes and interest then. The penalties did not change.

[23]      The decision maker, Mr. Tobin, considered the following in making his decision:

a)      the request made by the applicant and the reasons therefor;

b)      the applicant is a major shareholder in Hillier's Trades Limited and Northern Home Products Limited;

c)      in filing his income tax return for the 1989 taxation year, the applicant did not include income in the amount of $37,836 in his computation of total income;

d)      in filing his income tax return for the 1990 taxation year, the applicant did not include income in the amount of $34,632 in his computation of total income;

e)      in filing his income tax return for the 1991 taxation year, the applicant did not include income in the amount of $40,386 in his computation of total income;

f)      in filing his income tax return for the 1992 taxation year, the applicant did not include income in the amount of $17,615 in his computation of total income;

g)      the applicant does not dispute his liability;

h)      the "self-assessing" system of taxation puts the onus on the taxpayer to properly report income;

i)      the guidelines established in Information Circular No. 92-2 and Internal Directive ARD-92-01 dated April 16, 1992 were not met in these circumstances.

[24]      When I review the process and the factors considered by Mr. Tobin in coming to a

decision not to apply the provisions of the fairness legislation (subsection 220(3.1) of the Act), I can come to no conclusion other than his decision was a reasonable decision. There is no indication of bad faith on the part of the Minister or his delegate, no breach of natural justice and there was no reliance placed on considerations extraneous to the statutory provisions, hence the Court should not intervene.

[25]      The application for judicial review is therefore dismissed.

ORDER

[26]      IT IS ORDERED that the application for judicial review is dismissed.

     "John A. O'Keefe"

     J.F.C.C.

Ottawa, Ontario

October 27, 2000