Unrevised certified
translation
Date: 20100513
Docket: T-940-08
Citation:
2010 FC 531
Ottawa, Ontario, May 13, 2010
PRESENT:
The Honourable Mr. Justice Lemieux
BETWEEN:
MARCEL
LALONDE
Applicant
and
CANADA
REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT AND
JUDGMENT
I. Introduction and background
[1]
The
self-represented applicant, Marcel Lalonde (applicant), has applied for
judicial review of the decision dated May 13, 2008, by Guy Gohier,
the Minister of National Revenue’s delegate (delegate) and the Chief of Appeals
of the Canada Revenue Agency (Agency). His decision was further to the judgment
of my colleague, Justice Luc Martineau, who, on February 14, 2008, set
aside, in part, the decision of Jean Laporte, a litigation manager at the Agency.
Justice Martineau’s judgment is reported at 2008 FC 183, [2008] F.C.J. No.
316.
[2]
On
May 8, 2007, Mr. Laporte, in a second‑level decision, denied Mr.
Lalonde’s application under subsection 220(3.1) of the Income Tax Act, R.S.C.
1985, c. 1 (5th Supp.) (ITA) for a waiver of interest that had accrued pursuant
to assessments for the 1992 and 1993 taxation years. Mr. Laporte concluded
that, apart from the periods of May 24, 1996, to June 9, 1997, and September 15
to December 15, 2001, there had been no undue delay in the Agency’s processing
of the applicant’s file.
[3]
In
allowing the application for judicial review, Justice Martineau held as follows:
70 The application for judicial
review is therefore well-founded. The impugned decision does not withstand
a probing examination. In my opinion, the general conclusion that there
was no undue delay except during the two periods referred to in the impugned
decision is arbitrarily unreasonable. I also consider the general conclusion in
Ms. Lepage’s report that the applicant does not satisfy the criteria set out in
Circular 92‑2 arbitrary and unreasonable. Finally, all of the reasons in
Mr. Laporte’s letter and Ms. Lepage’s report do not support their conclusion
that there was no undue delay in processing the applicant’s file after December
15, 2001.
[Emphasis added.]
[4]
Justice
Martineau ordered as follows:
2. The decision of May 8, 2007,
by the Minister’s representative is set aside in part. Specifically, the
Court sets aside the conclusion that there was no undue delay in the processing
of the applicant’s file after December 15, 2001;
3. The matter is referred back to
the respondent so that a new decision can be made on the applicant’s request
for the cancellation of interest on the unpaid balance from the assessments
dated April 30, 1997, and September 21, 2000, for the 1992 and 1993
taxation years;
4. In particular, the
Minister’s representative will have to reconsider the appropriateness of
granting a reduction of interest for any period subsequent to December 15, 2001;
5. The respondent will have to
follow the review procedure applicable to such matters and ensure that no one
who was involved in the previous decisions on the applicant’s fairness request
takes part in the decision‑making process;
6. Before making a final
decision, the Minister’s representative will have to take account, inter alia,
of the specific circumstances of the applicant’s file, the applicant’s
additional submissions, Circular 07‑1, the spirit and intent of
subsection 220(3.1) of the ITA, the guidance provided by the Court’s reasons
and any other relevant factor;
7. Any decision by the
Minister refusing to cancel all or any portion of the interest will have to be
supported by reasons so that the applicant and, if applicable, any reviewing
court can understand the reasoning behind the decision and the way the relevant
factors identified in the applicant’s case were applied;
8. The final decision will have
to be made within 90 days after the date of the Court’s order;
[Emphasis added.]
[5]
The
dispute between the parties has simplified: Mr. Lalonde is only seeking the
cancellation of the interest accrued on the unpaid balance during the period
from December 15, 2001, to the date, in 2008, when he paid the
principal balance after receiving Mr. Laporte’s decision. The Agency had suspended
the processing of his file (1) on the basis of his appeal to the Tax Court
of Canada (TCC) in October 2001, and (2) on the basis that, after
that appeal was discontinued on June 9, 2004, similar cases
were pending, the outcome of which might be favourable to the applicant. Mr.
Lalonde submits that the Agency’s delay in processing his file is not warranted
because he filed his appeal further to an erroneous opinion from the Agency,
because the Agency had lost his file, and because the purportedly “similar
cases” were not, in fact, similar.
[6]
The
following facts are not in dispute and are helpful in the understanding of this
judicial review:
1.
With
respect to his 1992 and 1993 tax returns, Mr. Lalonde claimed deductions
for exploration expenses related to certain flow-through shares that he had
purchased. The shares were issued by Société Auriginor, a mining company. The
deductions were initially allowed by the Minister, and Mr. Lalonde was assessed
accordingly.
2.
In
1995, the Minister of Revenue (the Minister) commenced an audit of seven
financing arrangements implemented by three mining companies, including Auriginor,
and of the tax returns of 234 investors, including Mr. Lalonde. The mining
companies’ promoters were charged with fraud and convicted in 2000.
3.
In
the meantime, on August 30, 1997, the Minister decided to reassess
Mr. Lalonde, eliminating the deductions that had been allowed earlier. On June 2,
1997, Mr. Lalonde objected to those reassessments.
4.
The
Minister did not rule on Mr. Lalonde’s objection until September 21, 2000,
after the verdicts in the promoters’ trial. The exploration expense deductions
were disallowed, and the taxable capital gain on the buyback of the
flow-through shares was cancelled and replaced with an $11,000 capital loss.
5.
By
letter dated July 10, 2001, Mr. Lalonde asked the Agency
to adjust a T1 (income tax return) for the years 1992 and 1993. He ended
his letter with the statement [translation]
“the request to cancel interest pursuant to the fairness package is maintained”.
6.
My
colleague Justice Martineau analyzed this request of July 10, 2001,
and the confusion to which it gave rise. In his view, Mr. Lalonde, in a single
document called the “fairness request”, was raising two distinct legal
components. Justice Martineau wrote the following:
29 On July 10, 2001, the
applicant, in a single document (the fairness request), made a [translation] “T1 adjustment request”
for 1992 and 1993 and an [translation]
“interest cancellation request”.
30 First, the applicant amended
his tax returns in order to
1) reduce (1992 and 1993) to nil the
amounts entered as mining exploration expenses;
2) report (1993) taxable capital gains
($5,250 and $6,000) and net capital losses corresponding to the total of
these amounts ($11,000); and
3) claim (1992 and 1993) allowable
business investment losses ($9,000 and $10,500).
He requested that reassessments be made
accordingly (the adjustment request).
31 Second, in accordance with Mr.
Dugré’s letter of January 31, 1997, the applicant maintained his [translation] “interest cancellation
request pursuant to the fairness package” (the interest cancellation request).
32 The applicant’s fairness
request was sent to the Shawinigan-Sud Tax Centre and was received on July 13,
2001. Receipt of the [translation]
“adjustment request” for 1992 and 1993 was acknowledged by means of a
letter dated August 23, 2001: [translation]
“We will process the request as soon as possible, and we will send you a
notice of reassessment if applicable”. . . .
[Emphasis added.]
7.
This
confusion is at the heart of the dispute between the parties. In actual fact,
Mr. Laporte did not render a decision on the two requests until May 8, 2007.
The only thing that Mr. Lalonde contested before Justice
Martineau was the cancellation of interest.
8.
The
adjustment component was reviewed by an objections officer in October 2001;
the officer in question discussed it with Mr. Lalonde. On October 25, 2001, she
wrote in her notes (Respondent’s Record, page 117): [translation] “Taxpayer understands that we will not
be taking action on his request because he has to go before the TCC.” The officer
also consulted Officer François Blais, who had issued the reassessments dated
September 21, 2000. On November 5, 2001, the objections
officer was aware that Mr. Lalonde had filed an appeal with the TCC, along with
an application for an extension of time; she left a message for Mr. Blais. On November 6, 2001,
she noted the following: [translation]
“François explained the file to the taxpayer, and believed the taxpayer was
satisfied and did not feel the need to file an appeal in the Court [emphasis added].
This prompted Justice Martineau to make the following comment at
paragraph 78 of his judgment:
Fifth, the fact that the applicant was
granted leave to appeal from the 2000 assessments (including the interest
cancellation) on January 25, 2007, is no doubt a relevant factor. It must
be assessed in light, inter alia, of the apparently confused or
contradictory information the applicant had previously received from Ms. Charette
and Mr. Blais in the fall of 2001. This is a point the Minister’s
representative will have to consider.
[Emphasis added.]
9.
The
interest cancellation component was decided on November 14, 2001, by D. Corbeil,
Chief of Appeals. He completely rejected Mr. Lalonde’s cancellation
request. The Agency then treated that decision as a first-level decision reviewable
by the Agency at a second level, and noted that Mr. Lalonde had raised it
in his appeal to the TCC, which clearly had no jurisdiction to grant a waiver
of interest on the unpaid balance.
10.
Mr.
Gohier, the delegate, acknowledged that after the TCC appeal was discontinued, the Agency
suspended [translation] “the
processing of his relief request” [emphasis added], preferring to await the
outcome of certain disputes [translation]
“that might have had a positive impact on Mr. Lalonde’s relief request”.
He also acknowledged that Mr. Lalonde was not notified of this administrative
suspension.
II. Other
comments by Justice Martineau
[7]
In
his reasons, Justice Martineau raised certain questions and made certain
additional comments so that the parties would clearly understand “the purpose
and effect of the order to set aside and refer back accompanying these reasons”.
I consider it important to point out the following questions and comments
that Justice Martineau raised.
[8]
At
paragraph 62, Justice Martineau asks the following question:
Can it be said that, in the
applicant’s case, there were errors in processing, delays, missing
information in the file, incorrect information or changes of position that
resulted from the Agency’s actions? If so, do those actions justify any relief
from the interest resulting from the reassessments in the applicant’s specific
circumstances? In other words, can it be said that there was undue delay, and
during which particular periods?
[Emphasis added.]
[9]
At
paragraph 77, he addresses the question of the non-payment of a tax balance, the
accrual of interest, and the suspension of collection measures, in the
following terms:
Fourth, non‑payment of the tax
payable by a taxpayer creates an obligation to pay as well any interest claimed
by the Agency following the Minister’s initial assessment or reassessment for a given
taxation year. Of course, a taxpayer may take advantage of the fact that collection
is suspended while his or her objection or appeal to the TCC is being dealt
with to wager on the outcome of the objection or appeal by not paying
the amounts claimed by the Agency, with the result that interest will continue
to accrue. However, if the objection or appeal is dismissed, then, in
principle, the taxpayer cannot complain that the rules of the game put him or
her at a disadvantage and must pay the interest that has accrued, unless,
of course, the Minister agrees to cancel all or any portion of it under
subsection 220(3.1) of the ITA (Comeau v. Canada Customs and
Revenue Agency, 2005 FCA 271, at paragraph 20). On the other hand, a
taxpayer who is entitled to a tax refund following a reassessment can also
expect to be paid interest (subsections 164(3) and (3.2) of the ITA). Therefore,
the applicant should not claim victory too quickly here and should ensure that
the additional submissions he makes to the respondent will, if appropriate,
allow the Minister’s representative to exercise his or her discretion by
granting interest relief after December 15, 2001.
[Emphasis added.]
[10]
I
should point out that Mr. Lalonde had the opportunity to submit additional
representations to the Agency but did not do so.
[11]
With
respect to the two components included in the “fairness request”, Justice
Martineau notes the following, at paragraph 79:
Sixth, the fairness request included
not only an interest cancellation request but also a request to have the
previous assessments adjusted. The applicant was unable to convince the
Agency, in May 2007, to treat the losses he had incurred in 1993 as
business losses. The applicant is not disputing the lawfulness of
this conclusion now. This factor may therefore have a negative impact on
the amounts of arrears accrued after December 15, 2001. On the other hand,
the fact that interest relief was not granted to the applicant until
May 8, 2007, even though it could easily have been granted on June 9,
2004, when the applicant discontinued his appeal to the TCC, seems to be a
factor that works in favour of the applicant and in favour of a partial
reduction of interest if the delay was due to the Agency’s actions. These
are points the Minister’s representative will therefore have to consider.
[Emphasis added.]
III. The
impugned decision
[12]
The
delegate notified Mr. Lalonde by letter dated February 14, 2008, of
the following:
[translation]
Based on an analysis of the
file, I cannot grant the requested waiver which would start on
December 15, 2001. In my opinion, there was no undue delay, and the
interest is not the result of situations beyond your control or actions
primarily attributable to the CRA.
However, I find that it is appropriate to
grant a reduction of interest for the period from January 10 to
April 30, 2001,
because some notes in the file suggest to me that the information sent to you
on January 10, 2001, may have caused some confusion about the
years in respect of which there was an objection and about the balance
owing until April 2001.
I have also ensured that the net capital
loss totalling $8,250, incurred in 1993, has been added to the net capital loss
carry-forward balance.
[Emphasis added.]
[13]
In
support of his decision, the delegate filed an affidavit sworn on
August 7, 2008, on which he was not cross-examined. Exhibit A to that
affidavit sets out his decision and his reasons, in which he analyzes the delays
in processing the applicant’s file after September 2001 (Respondent’s Record,
at pages 26 and 27).
[14]
After
setting out the facts on which his analysis was based, he framed the question before
him as follows:
[translation]
Could the “fairness request” have been
processed in June 2004, when the applicant withdrew his notice of appeal
from the Court? The answer is probably yes. However, it is important to
specify that from the moment that he received his notices of reassessment in
September 2000, he was aware of the fact that an amount was owing, and it
stands to reason that when the applicant discontinued his appeal in 2004, he
was very much aware that the challenges were over and the balance was due. It
was indisputably the applicant’s decision to allow a balance to remain owing, which
he knew would result in arrears interest.
[Emphasis added.]
[15]
According
to the delegate, [translation] “[f]or this
reason, the time at which the ‘fairness request’ was processed is inconsequential,
because there was no processing delay resulting in the taxpayer not being
informed, within a reasonable time, that an amount was owing”. [Emphasis added.]
[16]
In
his opinion,
[translation]
. . . the errors in processing (the
failure to enter the net capital loss of $8,250 in the applicant’s file in 2000
and 2007), the information missing from the file or the loss of documents (the
difficulty in 2001 in finding the notices of reassessment issued in 2000 for
the years 1992 and 1993, and the difficulty in 2007 in finding the fairness
request following a discussion between the applicant and the Minister’s
representative Jean Laporte), and the Agency’s failure to notify the applicant
that his fairness request was being suspended as of 2004 were all taken into
consideration in this analysis [and] all these points are not determinative and
are not relevant in this case, where the issue is whether there were undue
delays after December 15, 2001.
[Emphasis added.]
[17]
He
concluded his decision with the following remarks:
[translation]
…the analysis of the file, in light of
the factors set out in Information Circulars 92-2 and 07-1, the special
circumstances in the applicant’s file, the spirit and intent of
subsection 220(3.1) of the ITA, the guidance contained in the Court’s
reasons, and all other relevant factors, does not justify the granting of
interest relief for undue delays subsequent to December 15, 2001,
arising primarily from the Agency’s actions.
[Emphasis added.]
[18]
However,
he reduced the interest accrued from January 10, 2001 to
April 30, 2001 on the basis that the applicant received
incomplete information from the Agency, thereby causing him some confusion.
[19]
The
delegate also analyzed the questions that Justice Martineau held should be
analyzed.
[20]
Justice
Martineau stated that Mr. Lalonde’s appeal to the TCC was “no doubt a
relevant factor”, but was to be assessed “in light . . . of the apparently
confused or contradictory information the applicant had previously received
from Ms. Charette and Mr. Blais in the fall of 2001”. The delegate
responded that Ms. Charette [translation]
“correctly informed the applicant that he would have to file an appeal in
the Court [the TCC] in respect of his loss claim”. He noted that a
taxpayer cannot make a correction request or an objection on a point already
decided by the Appeals Division. In his opinion, the September 2000 notices of
reassessment had determined the issue of the losses. As for the correspondence
between Officer Blais and Mr. Lalonde, the delegate determined as
follows:
[translation]
Based on the analysis, it appears that at
some point between October 25 and November 6, 2001, the
objections officer, F. Blais, contacted the applicant to explain that he did
not meet the Act’s requirements for a BIL claim, and that, in a sense, it was pointless
for him to waste his time filing a notice of appeal in the Court. He did not
contradict the process mapped out by Officer D. Charette. Instead, he
seems to have tried to dissuade the applicant from filing a court appeal
because the BILs were not allowable.
Consequently, it is our opinion that the
applicant was not given confusing or contradictory information.
[Emphasis added.]
[21]
Justice
Martineau also asked whether a notice of reassessment had to be issued to give
effect to the Minister’s decision (1) granting an interest reduction for
the periods from May 24, 1996, to June 9, 1997, and from September 15
to December 15, 2001; and (2) recognizing net capital losses totalling
$8,250 incurred by the applicant in 1993. The delegate’s answer to the
first question was negative; a statement of account was sufficient and had been
sent to the applicant on June 4, 2007. With respect to the
second point, the delegate acknowledged that the net capital loss of $8,250 had
not yet been accounted for, but that this omission had no impact on the outstanding
income tax balance because Mr. Lalonde had no taxable capital gains in 1992 and
1993, and, in his subsequent taxation years, his capital losses greatly exceeded
his capital gains.
[22]
With
respect to Justice Martineau’s assertion that Mr. Lalonde had contacted
the Agency regularly for five years to try to find out how his file was
progressing, but was never able to obtain any information whatsoever or even
the name of a person or division responsible for his file, the delegate wrote
the following:
[translation]
In January 2002, the applicant was
notified by letter that his notice of appeal had been accepted. He was
therefore aware that his file was the subject of a court appeal, and he could
have contacted the contact person named.
In October and November 2001, the
applicant was in touch with two objections officers (D. Charette and F. Blais).
In our opinion, the applicant could have contacted one of those officers, who were
still on staff at the Appeals Division. D. Charette sent out a letter
dated November 14, 2001, and her contact
information was in that letter.
We have no way of corroborating the
allegation that the applicant regularly placed calls every month for five years.
In any event, it is our opinion that this does not constitute probative
information that would have any bearing whatsoever on the decision concerning
the interest waiver.
[Emphasis added.]
[23]
Justice
Martineau had noted that the second period for which Mr. Laporte agreed to
grant a waiver postdates the 2000 assessments. He had wondered why the
calculation of interest relief stopped on December 15, 2001, and had stated
that this point should be examined “having regard to the effect of the
Agency’s past errors in processing, if any”. The delegate stated (1) that
the first‑level decision (made on November 14, 2001) did
not grant any interest relief, but that it was acknowledged that the fact that Mr.
Lalonde’s net capital loss was allowed had not been accounted for, and that
this would be rectified [translation]
“as soon as the objection and appeal processes were over”; and (2) that additional
relief was being granted [at the second level] for the period from January 10
to April 30, 2001.
IV. The statutory
scheme and the guidelines
A. The ITA
[24]
The
parties acknowledge that subsection 220(3.1) of the ITA gives the Minister the
discretion, on the application of a taxpayer, to waive or cancel all or any
portion of any penalty or interest payable. The provision was enacted in 1991
and applies to the 1985 and subsequent taxation years.
B. The guidelines
[25]
The
guidelines are set out in Information Circular IC 92-2. Their purpose is to
help apply the relevant subsection of the statute. The Information Circular
clearly states that its provisions are only guidelines, and that “[t]hey are
not intended to be exhaustive, and are not meant to restrict the spirit or
intent of the legislation”. Information Circular IC 92-2 was replaced on
May 31, 2007, by Information Circular IC 07-1. A comparison of
the two documents shows that, for the purposes of this judgment, they are
essentially identical.
[26]
Paragraphs
5 and 6 of the Information Circular were reproduced in my colleague’s judgment,
at paragraphs 13 and 15:
13 Paragraphs 5 and 6 of
Information Circular 92‑2, Guidelines for the Cancellation and
Waiver of Interest and Penalties (Circular 92‑2), are
relevant:
5. Penalties and interest
may be waived or cancelled in whole or in part where they result in
circumstances beyond a taxpayer’s or employer’s control. For example, one of
the following extraordinary circumstances may have prevented a taxpayer, a
taxpayer’s agent, the executor of an estate, or an employer from making a
payment when due, or otherwise complying with the Income Tax Act:
(a) natural or human‑made
disasters such as, flood or fire;
(b) civil disturbances or
disruptions in services such as, a postal strike;
(c) a serious illness or accident;
(d) serious emotional or mental
distress such as, death in the immediate family.
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;
(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.
15 That being said, even where
the delay is due to the actions of the Department or the Agency, other factors
may come into play and possibly limit the amount of interest relief. This will
depend on the taxpayer’s conduct. Paragraph 10 of Circular 92‑2
refers to these additional factors:
10. The following factors will be
considered when determining whether or not the Department will cancel or waive
interest or penalties:
(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 or
employer has exercised a reasonable amount of care and has not been negligent
or careless in conducting their affairs under the self‑assessment systems;
(d) whether or not the taxpayer or
employer has acted quickly to remedy any delay or omission.
[Emphasis added.]
V. The standard of review
[27]
There
is no dispute between the parties regarding the standard of review. The delegate’s
decision must be reviewed against the standard of reasonableness, further to
the decision of the Supreme Court of Canada in Dunsmuir v. New Brunswick, 2008 SCC 9,
[2008] 1 S.C.R. 190. Before and after Dunsmuir, the Federal Court of
Appeal held that the same standard applies in the case at bar: see Lanno
v. Canada (Customs and Revenue Agency), 2005 FCA 153, [2005] F.C.J. No. 714
and Slau Ltd. v. Canada (Revenue Agency), 2009 FCA 270, [2009] F.C.J. No.
1194. Justice Martineau applied the decision in Lanno, and thus, the
reasonableness standard of review, in his judgment.
[28]
Dunsmuir answers the
question, “What does this revised reasonableness standard mean?” I quote
from paragraphs 46 and 47 of the judgment of Justices Michel Bastarache and Louis LeBel:
46 What does this revised
reasonableness standard mean? Reasonableness is one of the most widely used
and yet most complex legal concepts. In any area of the law we turn our
attention to, we find ourselves dealing with the reasonable, reasonableness or
rationality. But what is a reasonable decision? How are reviewing courts to
identify an unreasonable decision in the context of administrative law and,
especially, of judicial review?
47 Reasonableness is a deferential
standard animated by the principle that underlies the development of the two
previous standards of reasonableness: certain questions that come before
administrative tribunals do not lend themselves to one specific, particular
result. Instead, they may give rise to a number of possible, reasonable
conclusions. Tribunals have a margin of appreciation within the range of
acceptable and rational solutions. A court conducting a review for
reasonableness inquires into the qualities that make a decision reasonable,
referring both to the process of articulating the reasons and to outcomes. In
judicial review, reasonableness is concerned mostly with the existence of
justification, transparency and intelligibility within the decision-making
process. But it is also concerned with whether the decision falls within a
range of possible, acceptable outcomes which are defensible in respect of the
facts and law.
[29]
This
standard of review does not exclude the application of paragraph 18.1(4)(d)
of the Federal Courts Act, R.S.C. 1985, c. F‑7, which reads as
follows:
|
Application
for judicial review
Grounds
of review
(4)
The Federal Court may grant relief under subsection (3) if it is satisfied
that the federal board, commission or other tribunal
(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;
[Emphasis
added.]
|
Demande
de contrôle judiciaire
Motifs
(4)
Les mesures prévues au paragraphe (3) sont prises si la Cour fédérale est
convaincue que l’office fédéral, selon le cas :
d) a
rendu une décision ou une ordonnance fondée sur une conclusion de fait
erronée, tirée de façon abusive ou arbitraire ou sans tenir compte des
éléments dont il dispose;
|
[30]
In
Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12,
[2009] 1 S.C.R. 339, the Supreme Court recognized that although
paragraph 18.1(4)(d) was not a standard of review as such, it does
provide “legislative guidance as to ‘the degree of deference’ owed to the . . .
findings of fact” (paragraph 3) and “[i]t provides legislative precision to the
reasonableness standard of review of factual issues in cases falling under the Federal
Courts Act”. That is to say, “Parliament intended administrative fact
finding to command a high degree of deference” (paragraph 46). Justice Martineau
recognized that determinations under subsection 220(3.1) of the ITA are
essentially factual in nature (see paragraph 52 of his judgment; see also Slau Ltd.,
above, at paragraph 34).
[31]
However,
it goes without saying that if the delegate erred in law in making his
decision, the correctness standard applies.
VI. Analysis
A. Certain principles
[32]
The
case law regarding subsection 220(3.1) of the ITA establishes the following
principles:
(1) The
power to grant or deny interest relief is a discretion that must be exercised
in good faith, in reliance on relevant factors and not on considerations
irrelevant or extraneous to the statutory purpose (see Maple Lodge Farms
Ltd. v. Canada, [1982] 2 S.C.R. 2; Hillier v. Canada (Attorney
General), 2001 FCA 197, [2001] F.C.J. No. 945; Robertson v.
Canada (Minister of National Revenue
M.N.R.), 2003 FCT 16,
[2002] F.C.J. No. 1828).
(2) The
Minister can publish guidelines, but the guidelines cannot fetter the
Minister’s discretion by excluding other valid or relevant reasons (see Maple
Lodge, above; Baker v. Canada (Minister of
Citizenship and Immigration), [1999] 2 S.C.R. 817 at paragraphs 72-73;
Nixon v. Canada (Minister of National Revenue M.N.R.), 2008 FC
917, [2008] F.C.J. No. 1146).
(3) The
Court can intervene where there is an erroneous finding of fact (see Robertson
and Johnson v. Canada, 2003 FCT 713, [2003] F.C.J. No. 919 at paragraph
23).
(4) The
purpose of subsection 220(3.1) was articulated as follows by Justice Paul Rouleau
in Kaiser v. Canada (Minister of National
Revenue - M.N.R.), [1995] F.C.J. No. 349:
8. 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.
[Emphasis added.]
[33]
Justice
Karen R. Sharlow, in Lanno, above, wrote the following at paragraph 6:
. . . The fairness package was enacted
because Parliament recognized the need for relief from certain provisions of
the Income Tax Act that can result in undue hardship because of
the complexity of the tax laws and the procedural issues entailed in challenging
tax assessments. The granting of relief is discretionary, and cannot be claimed
as of right. . . .
[Emphasis added.]
[34]
Justice
Martineau provides the following guidance at paragraph 9 of his judgment:
The purpose of the “fairness” provisions
(for example, subsections 152(4.2), 164(1.5) and 220(3.1) and (3.2) of the
ITA) is to provide relief from the overly rigid application of some of the
ITA’s provisions by helping taxpayers resolve issues that arise through no
fault of their own and by allowing for a common‑sense approach. . . .
[Emphasis added.]
V. Discussion and conclusions
[35]
Justice
Martineau came to the following conclusions in his reasons for judgment:
(1) At
paragraph 61, he concluded that the Agency had to provide the taxpayer with an
explanation of the reasons for and factors in the decision, that the request
had to be decided on on its own merits by the Agency, and that, in this case,
[o]ne of the major flaws of the impugned
decision is the apparent failure . . . to analyze the merits of the interest
cancellation request in light of the applicant’s specific situation [and
that] the problem with [the] analysis…is the lack of findings of fact on the
causes of the delay and the responsibility of the Agency’s employees.
[Emphasis added.]
(2) Immediately
after making these remarks, he asked the following question at paragraph 62,
which I have already quoted:
Can it be said that, in the applicant’s
case, there were errors in processing, delays, missing information in the file,
incorrect information or changes of position that resulted from the Agency’s
actions? If
so, do those actions justify any relief from the interest resulting from the
reassessments in the applicant’s specific circumstances? In other words, can
it be said that there was undue delay, and during which particular periods?
[Emphasis added.]
(3) Justice
Martineau doubted the relevance of similar cases on which the Agency relied in
suspending its consideration of the fairness case after Mr. Lalonde discontinued
his appeal. He notes (with regard to Comeau) that the Federal Court
trial and appellate judgments were rendered [translation]
“several years ago, on July 6, 2004, and August 10, 2005,
respectively”. At paragraph 67, he questions why the Agency did not
process Mr. Lalonde’s interest cancellation request earlier, if the
request in Comeau was identical. With respect to the other purportedly
similar case, namely, Rouleau v. Placements Etteloc Inc., 2006 QCCS
5319, Justice Martineau stated that “[a]t first glance . . . I do not see
how the judgment expected in Rouleau‑Joncas could have had any
impact on the exercise of the relevant ministerial power in the applicant’s
specific case”.
(4) Justice
Martineau wrote as follows, at paragraph 69 of his judgment:
In light of the evidence on file, the
Agency has not provided a reasonable explanation for a large portion of the
delays since December 15, 2001, and especially between June 10, 2004, and
May 8, 2007. Those delays are due mainly to the actions of the
Minister or the Minister’s representatives. I also note that the applicant does not
seem to have been informed within a reasonable time that his file had been
suspended pending decisions to be rendered shortly in “similar” cases.
[Emphasis added.]
(5) At
paragraph 70, he found that “the general conclusion that there was no undue
delay except during the two periods referred to . . . is arbitrarily
unreasonable” and that “all of the reasons . . . do not support their
conclusion that there was no undue delay in processing the applicant’s file
after December 15, 2001”. In my view, this is why Justice Martineau
specifically set aside the conclusion that there was no undue delay in the
processing of the applicant’s file after December 15, 2001, having
regard to the fact that the applicant’s file had two components: the interest
relief component and the component involving the correction of his tax returns
under subsection 152(4), 152(4.2) or 152(6) of the ITA following the amendments
made by Mr. Lalonde on July 10, 2001.
(6) In
many places, Justice Martineau noted that the respondent’s file contained no
evidence in support of some of the decision-maker’s contentions. For example, (1) no
reassessments were produced (paragraphs 4 and 23); (2) the applicant’s
judicial review record included a statement of account dated
June 11, 2007, showing that the last account statement he received
was dated December 1, 2006 (paragraph 5); (3) there was
a lack of information about the way in which the tax liabilities payable under
the September 2000 reassessments were calculated, and Mr. Lalonde
therefore become somewhat confused (paragraphs 26 and 27); (4) it appears
that, on April 20, 2001, the collection officer sent him a letter
informing him of his tax balance for the years 1992 and 1993, but the evidence
in the court file does not indicate the balance (unpaid tax and interest) owed
by the applicant on that date (paragraph 28); and (5) the applicant was
required to provide the Agency with a copy of his file, e.g., copies of
assessments and excerpts from certain documents (paragraphs 32 and 44). In
this regard, I should note that the only deficiency rectified in the matter
before me was the production of the September 2000 reassessments. However,
the respondent’s record contains no explanatory letter or appendix accompanying
the 2000 reassessments, and no subsequent correspondence providing the
applicant with the additional information that Justice Martineau said was
missing.
[36]
At
paragraph 64, Justice Martineau wrote that “the Minister
took a long time to make a final decision after the applicant discontinued his
appeal to the TCC in June 2004” [emphasis added] and that “[a]ccording to
the uncontradicted evidence on file, it was only the applicant’s insistence on
obtaining a final decision on his fairness request” that brought about such a
decision.
[37]
At
paragraph 66, Justice Martineau stated that he was not satisfied that the “additional
reasons given by Mr. Laporte in his affidavit prevented the Agency from
making a final decision on the applicant’s fairness request”.
[38]
At
paragraph 28, Justice Martineau noted the following:
The applicant wrongly treated the 2000
assessments as mere account notices. In January 2001, after receiving
information by telephone from one Martine Manta, who worked at the Agency, he thought
that he did not have to make payments or do anything else given that the
challenge to the assessment [translation]
“for the entire group involved” was being appealed to the TCC.
[Emphasis added.]
[39]
With
respect, I find, for the following reasons, that the Court’s intervention is
warranted. However, before going into further detail, I will recapitulate the
essence of the impugned decision:
(1) It was made after Justice Martineau
issued his judgment determining that the Agency “has not
provided a reasonable explanation for a large portion of the delays since
December 15, 2001, and especially between June 10, 2004, and
May 8, 2007. Those delays are due mainly to the actions of the
Minister or the Minister’s representatives.” He doubted the similar
cases’ relevance. He demanded explanations from the Agency. He pointed out
that certain claims were unsupported by evidence.
(2) The
delegate acknowledged that the fairness request [translation] “could have been processed in June 2004”,
after the discontinuance of the TCC appeal. This is an important admission,
because it is about a three-year processing delay.
(3) However,
the delegate tempered his admission by stating that [translation] “it is important to specify that from the moment
that he received his notices of reassessment in September 2000, he was aware of
the fact that an amount was owing [and that it] “was indisputably the
applicant’s decision to allow a balance owing, which he knew would result in
arrears interest.”
(4) According
to the delegate, this knowledge of his outstanding balance, and failure to pay
it, meant that [translation] “the
time at which the ‘fairness request’ was processed is inconsequential,
because there was no processing delay resulting in the taxpayer not being
informed, within a reasonable time, that an amount was owing”.
(5) The
delegate said that he considered the processing errors but determined that they
[translation ] “are not
determinative and are not relevant in this case, where the issue is whether
there were undue delays after December 15, 2001”.
(6) The
delegate therefore decided that it would not be appropriate to grant [translation] “interest relief for undue
delays subsequent to December 15, 2001, arising primarily from the
Agency’s actions”.
[40]
All
things considered, the delegate’s reasoning is very simple. It boils down to
saying that Mr. Lalonde knew that he had a balance owing after he received
his reassessments in September 2000, and that it was his fault if interest
then accrued because he could have, and should have, paid off his balance in
order to avoid that accrual, notwithstanding Justice Martineau’s finding that,
following Mr. Lalonde’s discontinuance of the appeal, the delays in
processing his “fairness request” primarily arose because of actions of
the Agency.
[41]
The
delegate appears to have accepted that the delays in processing his “fairness
request” arose primarily from actions of the Agency, but to have accorded no weight
to this, having found the [translation]
“errors in processing” to be immaterial and inconsequential because the
interest accrued by reason of the applicant’s unpaid balance. In other
words, Mr. Lalonde wagered on the outcome of his fairness request and lost
(see the decision in Comeau, at paragraph 20).
[42]
It
is clear that the delegate’s decision is based on two factors that are referred
to in the guidelines and apply to two very different situations. The first factor
is one of the factors referred to in subparagraph 6(a) of the guidelines in
Information Circular 92-2 as an example of interest that “arose primarily
because of actions of the Agency”. That subparagraph reads as follows:
. . . processing delays which result
in the taxpayer not being informed, within a reasonable time, that an amount
was owing;…
[Emphasis added.]
Other examples cited include incorrect
advice from the Agency and errors in processing.
[43]
The
other factor that the delegate considered is in subparagraph 10(b):
(b) whether or not the taxpayer has
knowingly allowed a balance to exist on which arrears interest has accrued;…
[Emphasis added.]
This paragraph lists the factors that
the Agency must consider in determining whether it will cancel interest that
arose primarily from its actions.
[44]
In
his judgment, Justice Martineau
(1) was
aware of the remarks of Justice Pelletier of the Federal Court of Appeal in Comeau,
at paragraph 20, about the danger of allowing interest on a tax balance to
accumulate while an objection before the Agency or an appeal before the TCC is
being processed. Justice Martineau was of the opinion that the existence of
this factor did not exclude the possibility of interest relief under
subsection 220(3.1) of the ITA (see paragraph 77 of Justice Martineau’s
decision);
(2) was
also aware that paragraph 6 of the guidelines in Information Circular 92-02 applied
to cases where the delay is attributable to the Agency’s actions, but that the
purpose of paragraph 10 was to list factors that could come into play and
possibly limit the amount of interest relief, depending on the taxpayer’s
conduct (paragraph 15).
[45]
I
find that subparagraph 10(b) of the guidelines is just one relevant factor, and
that there are others, including whether the taxpayer has a history of
compliance with tax obligations, which seems to be admitted in this case,
because Mr. Laporte and Officer Lepage acknowledged that Mr. Lalonde had
complied with his tax obligations in the past (Respondent’s Record, page 101).
[46]
Moreover,
at the request of the Department of Justice Canada, Mr. Lalonde had cooperated
during the prosecution of the promoters, and this caused the Crown prosecutor
to mention the possibility of [translation]
“claiming the interest charged by Revenue Canada” (Applicant’s Record in
the matter before Justice Martineau, at page 14).
[47]
My
final comments about these considerations are that Mr. Lalonde’s record,
in the matter before Justice Martineau, included a copy of the September
2000 reassessments, which showed a revised balance of $294 for 1992, and
balance of $3,887 for 1993.
[48]
I
will now set out the reasons for my conclusion that the delegate’s decision
must be set aside.
[49]
Firstly,
the delegate misinterpreted and misapplied the guidelines. According to the
guidelines, the first question for the decision-maker to address was whether or
not the interest arose primarily out of the Agency’s actions; if so, the
decision-maker would have to consider the factors set out in paragraph 10 to
determine whether the Agency should cancel the interest.
[50]
In
my opinion, the delegate’s fundamental error was in applying the guidelines’
factors. The relevant, but not exhaustive, factors
to
be considered in deciding the first question are set out in paragraph 6, notably
subparagraph 6(b), which the delegate determined to be inapplicable as an example
of an action of the Agency, because Mr. Lalonde was informed of his
balance owing in September 2000 through the reassessments issued that
month. With respect, the delegate was mistaken. The processing delays that
Mr. Lalonde alleges were not the delays in processing his objections to
the 1997 assessments, which led to the September 2000 reassessments. Rather,
the delays that he alleges are the delays in processing his (two-pronged)
fairness request, which was submitted on July 10, 2001, but was only
decided in May 2007 (leaving aside the first-level decision not to cancel
the interest), a date which, in the delegate’s view, was inconsequential [translation] “because there was no
processing delay resulting in the taxpayer not being informed, within a
reasonable time, that an amount was owing”. In my opinion, that assertion is
not supported by any evidence in the record. The applicant did not produce
any statement of account.
[51]
As
a result of the exaggerated importance that the delegate attached to factor
6(a),
(1) the delegate neglected to consider
the other relevant factors that the Minister has cited as indicia of actions of
the Agency, notably erroneous answers, and processing errors such as the loss
of his file;
(2) even
if the delegate took the processing errors into consideration, he deemed those
errors immaterial, which is contrary to subparagraphs 6(c) and (d) of the
guidelines;
(3) the
delegate took only the factor in subparagraph 10(b) into consideration, and
neglected the other facts referred to in paragraph 10;
(4) the
delegate deemed this factor determinative, thereby minimizing all the other
factors contained in paragraphs 6 and 10 of the guidelines, and, consequently, contravening
the spirit of the guidelines and the purpose of the ITA, which requires that
all relevant factors be weighed.
[52]
These
analytical errors committed by the delegate resulted in an absurd
interpretation of the guidelines. According to that interpretation, no delay in
processing by the Agency can result in interest relief if the taxpayer is aware
of his or her unpaid balance. I acknowledge that allowing an unpaid balance to
accumulate is a relevant factor under subparagraph 10(b) of the guidelines, but
this factor must be weighed along with all the other factors set out in
paragraphs 6 and 10, and the decision-maker did not carry out this task.
[53]
Secondly,
as Justice Martineau noted, the respondent’s record was short on evidence in
support of the delegate’s findings and conclusions. The record in the matter
before me is similar to the respondent’s record before Justice Martineau. I
note the following examples:
(1) The
decision-maker firmly asserts that Mr. Lalonde decided to allow a balance to
remain unpaid, thereby voluntarily and knowingly allowing arrears interest to
accrue. He referred to the correspondence between Mr. Lalonde and a
collection officer, but never adduced the relevant notes from the comments, or
the the officer’s correspondence with Mr. Lalonde.
(2) Justice
Martineau had made a comment on the letter that Mr. Lalonde had sent to Martine Manta
on January 11, 2001, regarding the obligation to make instalments.
The delegate did not clear up this point by adducing the relevant notes written
by that officer.
(3) As
has been mentioned, apart from the account statement that he himself adduced,
Mr. Lalonde’s file contains no account statements, sent to him during the
relevant period, that would enable us to understand the magnitude of the
accrued interest and assess whether the accrual was of such significance in the
grand scheme of things that it warranted the decision not to grant even a
partial interest waiver.
(4) The
respondent did not correct the deficiencies in the evidence that Justice
Martineau pointed out.
[54]
It
was such an absence of evidence from the Agency that prompted Justice Rouleau,
in Elwell v. Canada (Minister of National Revenue – M.N.R.), 2004 FC
943, [2004] F.C.J. No. 1151 at paragraph 9, to allow a judicial review in
favour of a taxpayer whose interest waiver request had been denied.
[55]
Thirdly,
I find that some of the decision-maker’s answers to the questions raised by
Justice Martineau are unreasonable. In particular, the delegate’s conclusion
that Mr. Lalonde was not given any confusing or contradictory information in
connection with his TCC appeal is not based on any evidence in the record, and
the record contains no affidavit from François Blais with regard to his
conversations with the applicant. And in addressing Justice Martineau’s comment
regarding Mr. Lalonde’s efforts to obtain answers from the Agency, the
delegate stated that there is no way to corroborate the applicant’s efforts,
but found that the applicant’s efforts were not a probative (or relevant)
factor. This conclusion is unreasonable. On the contrary, I find that this
evidence was very probative because it supported the applicant’s contention,
substantiated by further evidence, that the Agency had lost his file and that
this was a major reason for the delay in processing the file that he submitted
on July 10, 2001.
[56]
Fourthly,
at the hearing, the respondent did not provide any additional arguments capable
of altering Justice Martineau’s view, at “first glance”, as to whether the
Agency properly relied on Comeau and Rouleau to suspend the
processing of Mr. Lalonde’s file, without notice, following his
discontinuance. This is reinforced by the fact that counsel for the Minister
has not satisfied me that there was no inconsistency in the Agency’s conduct with
respect to the question of whether or not the applicant would have to deal with
the TCC in order to have his request for an adjustment to his 1992 and 1993 tax
returns dealt with. The inconsistency stems from the fact that Mr. Laporte made
a ruling on this question after the TCC appeal was discontinued.
[57]
Fifthly,
throughout the delegate’s analysis, there is a persistent ambiguity as to
whether the delegate was taking both components of the applicant’s July 2001
fairness request into consideration. It appears to me that he was not doing so,
and was only only considering the interest relief component, not the adjustment
component.
[58]
Lastly,
it is my opinion that this judgment finds support in the very recent decision
of the Federal Court of Appeal in Slau Ltd., most notably paragraphs 33
and 39.
[59]
For
these reasons, the application for judicial review is allowed.
JUDGMENT
THE COURT ORDERS
AND ADJUDGES that this application for judicial review is well-founded,
that the decision of the Minister’s delegate is set aside, and that the matter
is referred back to the respondent for a redetermination of Mr. Lalonde’s
request for the cancellation of interest accrued after
December 15, 2001, on the unpaid balance of the assessments related
to the 1992 and 1993 taxation years. The redetermination in question must
comply with the reasons for this judgment, and must be made on or before July
13, 2010, unless there is a settlement between the parties, which the Court
considers desirable and encourages. The applicant is entitled to reasonable
disbursements and to assessable costs, which I set at $250.
“François Lemieux”
Certified true translation
Susan Deichert, Reviser
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