Date: 20020411
Docket: T-698-01
Neutral citation: 2002 FCT 410
BETWEEN:
CHRISTOPHER ROBIN ISAAC
Applicant
and
THE ATTORNEY GENERAL
OF CANADA
Respondent
REASONS FOR ORDER AND ORDER
HENEGHAN J.
INTRODUCTION
[1] Mr. Christopher Robin Isaac (the "Applicant") seeks judicial review of the decision of P. A. Kidd, an Assistant Director, Revenue Collections, with Canada Customs and Revenue Agency ("CCRA"), Penticton, British Columbia. This decision, dated March 16, 2001, denied the Applicant's request for waiver of interest and penalties pursuant to the Excise Tax Act, S.C. 1990, c. 45, as amended (the "Act"). The Applicant seeks the following relief:
(1) An order for a Writ of Certiorari quashing the decision of the Designated Tax Officer "Patricia Kidd" in tax file #12353 4455RT dated March 16, 2001, wherein the said tax officer refused the Applicant's application for a Fairness ruling specifically the removal of penalties and interest because of hardship and inability to pay.
(2) An order for a Writ of Mandamus directing the Respondent to process the Applicant's application for a Fairness Ruling specifically to remove penalties and interest in a favourable manner.
FACTS
[2] The Applicant is the sole director of Salmon Arm Jewellers Ltd., a company which was liable for collection and payment of Goods and Services Tax ("GST") pursuant to the Act. Salmon Arm Jewellers Ltd. was registered with account number 123534455RT with the CCRA.
[3] The company was assessed for outstanding GST for the period November 1, 1992 to December 31, 1996. It was unable to pay that liability. As a consequence of his status as sole director of the company, the Applicant was personally assessed for payment of the tax pursuant to section 323(1) of the Act.
[4] On October 15, 1997, the company applied for wavier of that tax liability pursuant to the fairness provisions of the Act.[1] The application was denied, at the first level, on October 31, 1997. A second level request was submitted on November 18, 1997; that request was denied on December 10, 1997.
[5] The Applicant offered to pay $20,000.00 in full settlement of the tax liability, in other words, upon waiver of the balance of some $5,000.00. According to the Collections Account Diary maintained by the CCRA, the Applicant was advised on December 23, 1997 that the Agency would accept that $20,000.00 amount and take payments on the balance. This proposal was rejected by the Applicant who, according to that diary, indicated that "he would go bankrupt before doing that".
[6] The Applicant appealed the personal assessment against him for the company's GST to the Tax Court of Canada. A Judgment was issued by that court on September 21, 2000, dismissing his appeal and confirming the personal liability of the Applicant for the GST owing by the company.
[7] The Reasons for Judgment reviewed the statutory basis for the Applicant's liability for the outstanding GST and concluded that the Applicant had failed to establish that he was entitled to an exemption from personal liability pursuant to section 323(2) of the Act. However, Judge Bell of the Tax Court of Canada noted the efforts which had been made by the Applicant to resolve the matter of the outstanding GST and said as follows:
The Appellant, fully aware of the Company's GST obligation, in an earnest attempt to solve the Company's problem, borrowed $20,000 and offered it to Revenue Canada to conclude the matter. In these circumstances, it is astounding Revenue Canada was so insensitive to this earnest Appellant's plight that it did not conclude a settlement with him by waiving or cancelling interest and penalties payable under section 280 by virtue of its ability so to do described in section 280(1.1). The sum of $20,000 was in excess of the amount of GST owing.
[8] A copy of the Judgment and Reasons for Judgment delivered by the Tax Court were forwarded to both the Applicant and the CCRA.
[9] On November 15, 2000, an application for a "fairness ruling" was submitted to the CCRA from the office of Mr. Darrel Stinson, MP for the District of Okanagan Shuswap. The application, which was sent out by Ms. Rhelda Evans from the Parliamentary Office of Mr. Stinson, included a Financial Statement dated November 11, 2000 completed by the Applicant. By letter dated December 4, 2000, the Agency acknowledged receipt of this request and asked the Applicant to provide further information, as follows:
- what is your marital status?
if married, we require full household income and expenses
- where do you reside?
- with regards to your income from KKIS Enterprises Ltd, please provide a copy of your contract or details of your work arrangements.
- please provide documentation of the last two months income and expenses (for example paystubs, receipts, bank statements ....)
- Name of your financial institution as well as account numbers.
- You have stated you have a debt with Gustafson's Auto Service in the amount of $7,229.00. Please provide details as to the origin of this debt.
[10] The Applicant responded to this letter on December 15. His answers to the specific questions posed by the Agency were as follows:
- I am separated
- I reside in the semi truck that I drive for KKIS
- my work arrangement with KKIS is
- I am paid $11,000 a year net
- I am responsible to claim my own income
- I am paid in U.S. cash because I spend the majority of my time in the U.S. and they won't take Canadian cash or any cheques and the ATM machines don't work in U.S. funds. I have poor credit therefore I can not get a credit card.
- I have not had a reason to keep all my receipts, therefore I have not done so. Therefore, I can not provide them for you.
- I found keeping a bank account was an unnecessary expense because I am never in one place and there is no banking institution that has ATM availability in the US for US funds. Trying to get to a bank during banking hours is near impossible as is parking a truck and trailer near a bank.
- I was mistaken regarding the debt with Gustafsons Auto. As you can see by the letter attached, that debt is between Edith Isaac and Gustafsons.
[11] The material submitted by the Applicant was reviewed by the Agency. According to a fairness checklist prepared by B. Foisy dated November 29, 2000, the Applicant had failed to provide a financial statement and a payment arrangement. A note on the bottom of that fairness checklist refers to a "prior fairness request". Computer notes dated January 8, 2000 from the Collections Account Diary contains the following statements under the heading "Fairness Recommendation":
Christopher Issac (sole director) was assessed for directors liability on November 5, 1998. He had filed an Appeal to the Tax Court and his case was dismissed on September 21, 2000. We received a fairness request on November 15, 2000 via the MP office.
The debtor states that he had offered CCRA 20,000 for settlement of this debt previously and because we can not accept settlement offers, he would like p & i cancelled.
[12] The Collections Account Diary also records the following recommendation:
As taxpayer has not provided [substantiation] of income and expenses, no payment [arrangement] in place, recommend deny fairness request.
Note: Taxpayer has been denied previously for same issue. This was more than 2 years ago and I have not located documentation.
[13] By letter dated March 16, 2001, the Agency denied the Applicant's personal request for a fairness ruling. The refusal letter provided, in part, as follows:
We have carefully considered your submission in relation to the applicable legislation. Under existing legislation, consideration may be given to cancelling or waiving interest in those situations where an individual is experiencing financial difficulties and has no ability to pay the liability in full. This is determined after a careful review of factors such as assets and liabilities, household income, basic living expenses and capacity to borrow. As the system must also be equitable toward those who pay their taxes when they become due, the Department must act in a fair and reasonable manner.
Your assets and liabilities, household income, basic living expenses and capacity to borrow were not addressed in sufficient detail in your submission, therefore it was concluded that your request does not meet the guidelines. This information was requested in a letter to you dated December 4, 2000, as well as business financial information, and a payment arrangement for your outstanding account.
[14] The Applicant received this letter on or about March 28, 2001. On April 20, 2001, he commenced this application for judicial review. In support, the Applicant filed an Application Record, a Supplementary Application Record and his supporting affidavit.
APPLICANT'S SUBMISSIONS
[15] The Applicant argues that his request for fairness ruling was unfairly dealt with by the Agency. He argues that the Agency ignored and failed to consider the information he submitted. He also submits that the Agency improperly ignored the recommendation made by the Tax Court in its decision rejecting his appeal against the assessment.
RESPONDENT'S SUBMISSIONS
[16] The Respondent argues that the decision to refuse waiver of penalties and interest was properly made by a duly authorized delegate of the Minister of National Revenue in the exercise of the discretion conferred on the Minister of National Revenue pursuant to section 281.1(1) of the Act. Furthermore, the Respondent argues that, absent a breach of procedural fairness, the decision of the Minister's delegate is subject to review on a standard of patent unreasonableness and that the decision in issue is reasonable, having regard to the record.
[17] The Respondent submits that the Minister is not bound by any remarks made by the Tax Court in its decision upon the Applicant's appeal before that court. The Minister is vested with a broad discretion which is to be exercised in accordance with the guidelines set forth in the GST Memorandum 500-3-2-1, a copy of which was provided to the Applicant together with the refusal letter of March 16, 2001.
ANALYSIS
[18] The Applicant, in his capacity as director of Salmon Arm Jewellers Ltd., was liable for payment of GST for that company, pursuant to section 323(1) of the Act. That section provides as follows:
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323. (1) Where a corporation fails to remit an amount of net tax as required under subsection 228(2) or (2.3), the directors of the corporation at the time the corporation was required to remit the amount are jointly and severally liable, together with the corporation, to pay that amount and any interest thereon or penalties relating thereto.
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323. (1) Les administrateurs de la personne morale au moment où elle était tenue de verser une taxe nette comme l'exigent les paragraphes 228(2) ou (2.3), sont, en cas de défaut par la personne morale, solidairement tenus, avec cette dernière, de payer cette taxe ainsi que les intérêts et pénalités y afférents.
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[19] The Applicant's personal liability in this regard was confirmed by the Tax Court of Canada in its Judgment dated September 21, 2000.
[20] The basis for the Applicant's request for waiver of penalty and interest of this GST liability is found in section 281.1(1) and (2) of the Act. That section provides as follows:
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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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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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[21] This section confers on the Minister a broad discretion to waive penalty and interest. Subject to the requirements of procedural fairness, the exercise of such ministerial discretion will generally attract judicial restraint; see Maple Lodge Farms Limited v.
[1982] 2 S.C.R. 2">Government of Canada, [1982] 2 S.C.R. 2 where the Court said at pages 7 - 8:
It is, as well, a clearly-established rule that the 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.
[22] The Applicant's personal liability for payment of the taxes was confirmed by the Tax Court of Canada in its judgment dated September 21, 2000. By operation of law, the Applicant was held personally responsible for payment of the tax liability of the company. However, this finding pursuant to section 323 of the Act does not override the long-standing and well-recognized principle that a corporation is a distinct legal person, independent in law from its directors and shareholders; see Salomon v. Salomon & Co., [1897] A.C. (H.L.), Meadow Farm Ltd. v. Imperial Bank of Canada, [1922] 2 W.W.R. 909 (Alta. C.A.), and [1980] 2 S.C.R. 774">Covert et al. v. Minister of Finance (N.S.), [1980] 2 S.C.R. 774 at page 823 where the Supreme Court of Canada said:
It is fundamental that a company as a body corporate is in contemplation of law an entity separate and distinct from shareholders who compose it. The principle of Salomon v. Salomon & Co. Ltd., supra, is still very much part of our law and in general the courts have rigidly applied it.
[23] At paragraphs 8 and 9 of the Affidavit of Heather Campbell, she states that she reviewed the following materials prior to entering her recommendation on the Fairness Worksheet and Control Document:
(1) the Applicant's request for waiver of interest and penalties,
(2) the recommendation from Brenda Foisy,
(3) the information provided by the Applicant in his letter dated December 19, and
(4) the Collections Account Diary for the company.
[24] She goes on to recount several paragraphs of "background facts" related to the application submitted by the company which she drew from the Collections Account Diary for the company.
[25] In my opinion, the delegate of the Minister erred in law when she took into consideration these facts which are irrelevant to the present application. The application of the Applicant is a different matter than that of the company. While related, the facts to one are not applicable to the facts of the other. The Applicant was entitled to have his case considered on the basis of the record and without consideration of extraneous facts
such as those contained in the previous application of a separate person. I am not satisfied that the November 2000 application was assessed on its own merits.
[26] In these circumstances and having regard to the prevailing facts, I conclude that the decision is unreasonable.
[27] The application will be allowed on that basis. The further relief sought by the Applicant, that is an order of mandamus, is beyond the jurisdiction of the Court.
[28] The decision dated March 16, 2001 will be quashed and the matter remitted to the CCRA for determination by another duly authorized delegate of the Minister.
ORDER
[29] The application is allowed and the matter is remitted to the CCRA for determination by another duly authorized delegate of the Minister.
"E. Heneghan"
____________________________
J.F.C.C.
Ottawa, Ontario
April 11, 2002
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-698-01
STYLE OF CAUSE: Christopher Robin Isaac v. AGC
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: March 27, 2002
REASONS FOR ORDER AND ORDER OF THE COURT BY: Heneghan J.
DATED: April 11, 2002
APPEARANCES:
Christopher Robin Isaac APPLICANT
Linda Bell FOR RESPONDENT
SOLICITORS OF RECORD:
- FOR APPLICANT
Deputy Attorney General of Canada FOR RESPONDENT
Department of Justice
Vancouver, British Columbia
[1]Respondent's Application Record, page 8.
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