Date: 20091119
Docket: T-194-09
Citation: 2009 FC 1189
Toronto, Ontario, November 19,
2009
PRESENT: The Honourable Mr. Justice Hughes
BETWEEN:
CRAIG
McCRACKEN
Applicant
and
HER
MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
This
application deals with a judicial review of a decision made by the Canada
Revenue Agency dated January 13, 2009 wherein it was determined that the
Applicant Craig McCracken did not qualify for interest and penalty relief under
the Voluntary Disclosures Program administrated by that Agency. For the
reasons that follow I am dismissing the application without costs to either
party.
[2]
The
Applicant McCracken has for several years sold goods, largely small goods such
as toys, on the internet through services by an organization known as eBay.
That organization was recently the subject of decisions in this Court and the
Federal Court of Appeal. In correspondence between the Applicant’s solicitors
and the Revenue Agency it was estimated that in the period from 2000 to 2006
McCracken’s transactions were in the order of one million dollars, most
individual transactions being in the order of under $10.00. McCracken did not
keep good records of these transactions nor did he pay income tax or goods and
services tax in respect thereof.
[3]
On
October 9, 2007 McCracken’s solicitors wrote to the Revenue Agency seeking to
make a voluntary disclosure of McCracken’s activities on a “no-name” basis. By
letter dated December 31, 2007 the solicitors disclosed McCracken’s identity to
the Revenue Agency and renewed an earlier request for a 90 day extension to
file returns on McCracken’s behalf. On January 8, 2008 McCracken’s solicitors
wrote a follow up letter to their letter of December 31, 2007 providing reasons
for requesting the 90 day extension, namely:
a. Records had
been requested from eBay but had not yet been provided
b. McCracken had
received his bank records and recently was trying to use them together with
other records to recreate his relevant income and expenses
c. McCracken’s
accountant had been on vacation
[4]
On
January 20, 2008 the Revenue Agency wrote to McCracken’s solicitors granting a
60 day extension of time and advising that if all returns and adjustments had
not been provided by March 10, 2008 the request for forgiveness of penalties
under the Voluntary Disclosure Program would be closed.
[5]
On
March 10, 2008 McCracken’s lawyers wrote to the Revenue Agency, not to provide
the requested information but to ask for a further 60 day extension on the
basis that eBay had still not provided the records that had been requested of
them. This letter was followed by a further letter dated April 16, 2008 which
outlined the various requests that had been made of eBay.
[6]
On
April 23, 2008 the Revenue Agency wrote two letters both from a Team Leader,
Ms. Locke, one was sent to McCracken with a copy to his solicitors, the other
was sent only to McCracken’s solicitors without copying him. The letters are
similar and identical in their result which was a denial of the request for a
further extension, and each indicated that a second review of the matter could
be undertaken. The letter addressed to McCracken stated, wrongly as the
Revenue Agency’s representative Miklos admitted on cross-examination, that
complete information had to have been submitted at the time of the no name
disclosure. The letter from the same person of the same date sent only to
McCracken’s solicitors states, correctly, that a final and complete submission
needs only to be filed usually within 90 days from the initial disclosure but
also states that the case was in any event closed.
[7]
It
is to be noted that at the time of the initial “no-name” disclosure the Revenue
Agency had in place a written policy, IC00-IR respecting the Voluntary Disclosure
Program stipulating a number of grounds for compliance including disclosures which
could be followed up by other documents and verification. No provision was
made for a second review.
[8]
About
two weeks after the Applicant’s initial no-name disclosure the Revenue Agency
published a second policy, IC00-1R2 as to the Voluntary Disclosure Program
which was much more fulsome than the first. It provided, among other things,
for closure of the file if complete information was not received within a
stipulated time period in respect of no-name disclosures. It also provided for
a second review which would “review and reconsider the original decision.”
[9]
By
letter dated May 15, 2008 McCracken’s solicitors requested a second level
review thus presumably invoking the second version of the policy. That request
identified a decision dated April 23, 2008 but did not say which letter was at
issue or whether it was both. The letter was five pages long and reiterated
the need for records from eBay that were not yet forthcoming. A request for a
further extension of time of 60 days from receipt of the eBay records was made.
[10]
The
affidavit of Miklos, Assistant Director, Enforcement Division of the Revenue
Agency paragraph 26 addresses a telephone conversation that he had on November
3, 2008 with a person he identified at paragraph 15 of the affidavit as a
student-at-law in McCracken’s solicitor’s office. Paragraph 26 says:
26. I also spoke with Mr. Moussadji
by telephone on November 3, 2008 to discuss this file. During that
conversation he advised me that the T1 and GST tax returns necessary to
complete Mr. McCracken’s voluntary disclosure request had still not been
completed, and that despite a letter threatening legal action, the eBay records
had still not been received. I asked Mr. Moussadji why his firm had not
proceeded with preparing Mr. McCracken’s returns based on his banking records.
Mr. Moussadji seemed uncertain and said that it must be that they need the eBay
records.
[11]
There
is no other evidence as to this telephone conversation. Mr. Moussadji was the
Counsel appearing before me on McCracken’s behalf. Rule 82 of this Court
precludes a solicitor from giving evidence and arguing the same matter without
leave of the Court. Mr. Moussadji would have been better advised to have
somebody else argue the matter if he wished to elaborate on this evidence or
contradict it. The Court is left with the impression that McCracken’s
solicitors were given an opportunity to submit further material or advise as to
why that could not be done. In any event, nothing was provided. I note also in
the evidence before the Court now correspondence between McCracken’s solicitors
and eBay was provided, but none of this was given to the Revenue Agency at the
relevant time. As Miklos says at paragraph 27 of his affidavit:
27. I did not receive, review, or
consider the documents found at Exhibits “K”, “N”, “O”, “P”, “R”, “S”, and “T”
of Mr. McCracken’s March 12, 2009 affidavit during the course of my
second-level review of Mr. McCracken’s voluntary disclosure request, or at any
other time prior to my review of Mr. McCracken’s March 12, 2009 Affidavit.
[12]
The
decision resulting from the second level review is the decision now under
judicial review. It is set out in a letter dated January 13, 2009 from Miklos to
McCracken’s solicitors and says, in the operative portion:
In your letter of May 15, 2008, you
outline at some length the difficulties that were encountered in obtaining
records from eBay and you point out that paragraph 53 of IC00-1R2 provides some
discretion with respect to authorizing an extension to the time to complete the
disclosure.
With respect to completeness, the
disclosure was denied because the requested T1 and GST returns were not
submitted during the time period stipulated. Pursuant to the VDP guidelines,
you had 90 days to supply the returns from the effective disclosure date which
was October 10, 2007. You subsequently requested and received a 60-day
extension until March 10, 2008 to supply the returns. In his letter to you of
January 10, 2008, Mr. Deszpoth granted the extension and advised that the VDP
request would be closed if all of the requested returns were not received by
the March 10, 2008 deadline. Your request for a further 60 day extension on
March 10, 2008 was considered by Michele Locke, the VDP Team Leader and
denied. In her letter she noted that even though the disclosure was initiated
on October 9, 2007, records were not requested from eBay until January 17,
2008. Further, I noted in your letter of January 8, 2008, you indicated that
bank statements for the relevant years had been received and that work was
proceeding on recreating the income and expenses from the bank statements. It
would seem that would have been the most practical way to proceed given the
apparent resistance from eBay and the high transaction volumes that you
indicate were the nature of the business. In reviewing the actions of the VDP
Officer and Team Leaders, it is clear that they did exercise their discretion
to grant a 60 day extension to the normal 90 day maximum and that this
extension and the ramifications of not meeting the dealing were clearly communicated
to yourself.
Paragraph 57 of IC00-1R2 states that “The
CRA will not consider a request for a second review if a disclosure was denied
because the information was not previously submitted within the stipulated time
frame.”
The circumstances of this case have been
carefully considered and I regret to inform you that your request cannot be
granted. As indicated in the VDP policy attached to our previous
correspondence, four conditions must be satisfied to qualify for the benefits
of the VDP. Unfortunately, the completeness condition has not been met as
discussed above.
[13]
McCracken’s
Counsel states that this decision contains several important errors:
a. it states
erroneously, that records were not sought from eBay until January 17, 2008
whereas, Counsel says, there is nothing on the record to support that
allegation
b. that the
decision is based on the second version of the Voluntary Disclosure Program policy
whereas it should have been based on the first which was the version in force
at the time of the initial “no-name” disclosure
c. that the
decision for the first time indicates that a recreation from bank records would
have been appropriate but at the same time closes the file to any further
submissions
[14]
McCracken’s
Counsel argues that these errors constitute fundamental errors in law and that
the decision must be reviewed on the basis of correctness.
[15]
The
Revenue Agency’s Counsel acknowledges that errors were made such as saying,
incorrectly that no requests were made of eBay before January 17, 2008 and, in
one of the April 23, 2008 letters, that a complete disclosure had to be made at
the time of the first “no-name” disclosure. She submitted that the first error
was immaterial and that the second error was of no effect since the second
level review was a full reconsideration of the matter, it was not in the nature
of a judicial review nor an appeal of either letter of April 23, 2008. Counsel
had no explanation as to why two different letters were sent on April 23, 2008.
[16]
Revenue
Agency’s Counsel argues that an overall view of the matter be taken. Taxpayers
are supposed to report annually providing complete information in their returns
and pay their taxes on time. The Minister has a discretion to waive penalties
in the instances of those who fail to provide a complete information or to pay
their taxes on time, but that is not a right that the taxpayer has, it is an
exercise of discretion. The Revenue Agency publishes guidelines to assist
those seeking to have the Minister exercise discretion. In this particular
case at the second level the taxpayer and his solicitor was given ample
opportunity to provide information and make submissions. The second level
decision was fairly made on the basis of the evidence and arguments submitted.
[17]
I
am satisfied that the decision under review must be considered on a standard of
reasonableness. The Revenue Agency was required to make factual, not legal,
determinations. The essence of the decisions to be made was whether to grant
the Applicant yet further extensions of time to complete his returns.
Admittedly, the Applicant was being given the “runaround” by eBay, but he had
other means at his disposal, such as bank records, so as to make a reasonable
effort in completing his disclosure. As early as his solicitor’s letter of
January 8, 2008 the Applicant indicated that he was assembling bank records for
this purpose. As late as the telephone conversation of November 3, 2008 the
Applicant’s solicitors were invited to submit bank records.
[18]
In
the case of Canada Revenue Agency v. Telfer, 2009 FCA 23 the Federal
Court of Appeal stated that decisions such as this must be considered on the
basis of reasonableness using context specific analysis. At paragraph 29 Evans
J.A. for the Court wrote:
29 While
the formulation of the standard of unreasonableness as applied to the process
for making discretionary decisions is invariable, its application is context-specific:
compare Mills v. Ontario (Workplace Safety and Insurance Appeals Tribunal),
[2008] O.J. No. 2150, 2008 ONCA 436 at paras. 21-22, where the Court
"contextualized" the application of the unreasonableness standard to
a tribunal's findings of fact. In determining whether the decision-making
process in this case provided adequate justification,
transparency, and
intelligibility in order to render the decision reasonable, I have taken into
account the following considerations.
[19]
Where
the Minister’s extraordinary discretion is being invoked, broad latitude must
be offered to the Minister as set out in paragraphs 33 and 34 of Telfer,
supra:
33 In
these circumstances, Ms Telfer can hardly say that the Minister overlooked any
relevant facts. The most that can be said is that the Minister failed to give
sufficient weight to the fact that her tax liability was not settled until Brown was decided. Since deciding what
weight to accord to a particular fact is at the heart of exercising discretion,
it will normally be difficult to persuade a court that an administrative
decision-maker has acted unreasonably in this regard.
34 Third,
the nature of the discretion is another aspect of the context for determining
whether an impugned decision is unreasonable. In this case, the refusal to
grant relief against accumulated interest did not infringe any right or
expectation of Ms Telfer's. On the contrary, she was invoking the Minister's
extraordinary statutory discretion to grant her an exemption from a basic
principle of the tax system, namely, that taxpayers are liable to pay taxes
owing by April of the following year, failing which, they must pay interest, at
the prescribed rate, on any amount owing.
[20]
In
the present case the Minister’s officials at the Revenue Agency gave
appropriate opportunity for the Applicant and his solicitors to make
submissions and provide evidence. The Agency arrived at a decision that is
within the bounds of reasonableness. I will not set it aside.
[21]
As
to costs, the Revenue Agency made a number of gaffes, none of which, in the end
result, is material to the outcome of the matter, but each of which
demonstrates incompetence or lack of
[22]
attention
to the file. The same is apparent in respect of some of the steps taken on the
Applicant’s behalf. I will not award costs to any party.
JUDGMENT
For the
reasons provided;
THIS COURT
ORDERS AND ADJUDGES that:
1.
The
application is dismissed;
2.
No
Order as to costs.
“Roger
T. Hughes”
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