Date: 20090707
Docket: T-1702-08
Citation: 2009 FC 694
Ottawa, Ontario, July 7, 2009
PRESENT: The Honourable Justice Johanne Gauthier
BETWEEN:
DOUGLAS
SMITH
Applicant
and
CANADA
REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
Mr.
Smith seeks the judicial review of the 2nd level Fairness Review
decision made by the delegate of the Minister of National Revenue (hereinafter
the Minister) on October 2, 2008, pursuant to subs. 220(3.1) of the Income
Tax Act, R.S.C. 1985 c. 1 (5th Supp.).
Background
[2]
The
Applicant was an employee at Sierra Systems from January 1, 2004 until November
15, 2006. He was informed by his employer in the fall of 2006 that he would be
dismissed and paid a sum of $45,000.00 (less statutory deductions of
$13,500.00) in addition to his final paycheque.
[3]
The
Applicant delivered his income tax slips in an envelope to the accounting firm
which usually prepares his income tax returns but did not advise his
accountants that he had received an extra sum of money from his employer. He
asserts that he did not receive the T4A for the $45,000.00 from Sierra Systems,
alleging that it was forwarded to an incorrect address or forwarded to the
correct address but then stolen or not delivered by Canada Post.
[4]
The
Minister first assessed the Applicant on May 10, 2007. The undeclared
$45,000.00 sum was not calculated into the Applicant’s income, nor was the
$13,500.00 income tax which had been deducted on said sum taken into account.
The balance due was assessed at $1,286.86, which included tax payable of
$1,283.69 and arrears interest of $3.17 and this was paid in full by the
Applicant.
[5]
The
Minister reassessed the Applicant on December 10, 2007 to include the
$45,000.00 in his income for the 2006 tax year and added the $13,500.00
deducted by his former employer to the income tax already deducted. This
resulted in the Applicant owing $8,861.79, which was reduced to $7,578.10 to
reflect the sum already paid following the original assessment. An additional
amount of $941.29 in arrears interest on this sum was also included.
[6]
As
he had not reported the $45,000.00 in income on his 2006 return, the Applicant
was charged an omission penalty (the Penalty) in the amount of $9,000.00
(federal and provincial penalty which are each 10% of the amount that was not
reported as income), pursuant to subs. 163(1) of the Income Tax Act and
s. 80 of the New Brunswick Income Tax Act, S.N.B. 2000, c. N-6.001.
[7]
On
January 2, 2008, the Applicant’s accountants submitted to the Canada Revenue
Agency (CRA) a “Request for Taxpayer Relief” seeking the cancellation or waiver
of the Penalty on the basis of “[o]ther extraordinary circumstances […]
taxpayer never received the T4A from his employer”. More precisely, it was
explained that “Mr. Smith did not intentionally omit the T4A. He was not
expecting to receive a T4A, only a T4 which was the normal practice. Sierra
Systems deducted 30% withholding tax on the T4A. If the marginal rate of tax
was deducted, as with T4, then there would be no tax owing.”
[8]
A
“Taxpayer Relief Provisions Report” was prepared concerning the Applicant’s
request on March 18, 2008. The Applicant was noted as having an excellent
account history and a fair compliance history. It was also noted that the T4A
had been issued with the Applicant’s correct mailing address and that the
Applicant should have known that the $45,000.00 sum would not be reported in
his T4 earnings because it was a retiring allowance. Finally, the report noted
that this was not the Applicant’s first failure to report, in light of the 2003
reassessment for unreported investment income. As there was deemed to be no
extenuating circumstances and no attempt to report the omitted income, it was
suggested that the Applicant’s request be denied. This was agreed to by the Review Committee on March 19,
2008, and confirmed by the Minister’s decision dated April 1, 2008.
[9]
On
August 27, 2008, the Applicant wrote to the Minister requesting an independent
review of the decision not to waive the Penalty. The grounds raised were: (i) that his former employer never mentioned to him that the $45,000.00 to be
received was a retiring allowance
which would not be reported on his T4; (ii) that he assumed that
even if he was missing slips the CRA received copies and would correct any
missing amounts on the assessment; (iii) that he did not receive the T4A
possibly because of multiple break ins in his new home or because of Canada
Post has problems properly delivering mail to their residence on an unmarked
lane for which the postal code is often associated to a different city; (iv)
that $13,500.00 in tax had been deducted which was not reported on the return
and yet the Penalty was assessed as if no tax had been paid at all; (v) that
the prior failure cited was for a small amount also unintentionally unreported;
and, (vi) that because of the penalties the CRA collected $31,019.39 of his
$45,000.00 in severance pay and that such a penalty is excessive punishment for
inattention and lack of knowledge of the Income Tax Act.
[10]
On
September 2, 2008, a second review was performed as per the Applicant’s request
that the Penalty be cancelled. It was recommended that the request be denied.
In the summary of facts prepared for this purpose (summary of facts), the
$45,000.00 sum was characterised as severance pay, as indicated on the Record
of Employment from Sierra Systems. However, it is also noted that
there is no record that the Applicant ever
made a complaint regarding the missing T4A slip and that despite the move, said slip was
prepared with the proper address. Finally, the 2003 omission and the fact that no penalty had been applied
at the time as it was the Applicant’s “first offence” is mentioned. The summary
of facts incorrectly noted that the Applicant had been employed at Sierra
Systems for a year and a half.
[11]
It
was recommended that the request be denied as the Applicant had not provided
“any additional information to prove that he was prevented from claiming his
income due to extraordinary circumstances.” This recommendation was accepted
and the Applicant was informed of the Minister’s decision by letter dated
October 2, 2008. It is this decision which is now subject to judicial review.
The decision and the
issues
[12]
In said letter, it is indicated that:
I have carefully
considered all of the information available to me including the original
request to determine if the Taxpayer Relief Provisions apply. As a result of
this review, I cannot conclude that the omission of the retiring allowance
income on your 2006 income tax return was due to any extraordinary circumstances
that were beyond your control. Therefore, cancelling the penalty would be
inappropriate in this case.
[13]
The self represented Applicant describes the errors made by
the Minister in coming to his decision in an affidavit filed in support of his
application as well as at p. 102 and following of his written representations.
The Applicant submits that the number of factual errors (referring to the
income as “retiring allowance” instead of “severance”; length of employment,
etc.) and irrelevant information (noting the fact that the Applicant never made
an employee complaint for having not received the T4A, etc.) contained in the
summary of facts shows a biased approach aiming to simply deny relief. What is
more, the recommendation simply concludes that no additional information was
provided by the Applicant when in fact a number of elements set out in his
request were simply not considered, such as his lengthy record of compliance
and his complete lack of knowledge of the omission.
[14]
He argues that the facts here, including: (i) the fact that
the slip may have been stolen or not delivered by Canada Post; (ii) the fact
that income was not intentionally omitted; and, (iii) the lack of
proportionality between the offence and the fine imposed; should have been sufficient
for a proper review to conclude that there existed extraordinary circumstances
justifying the omission and, in any event, the Minister had the discretion to
grant relief pursuant to para. 24 of the Income Tax Information Circular
IC07-1 Taxpayer Relief Provisions (the Circular).
[15]
Some of the elements raised by the Applicant were not
before the decision maker and cannot be considered. For example, the Applicant
attacks the accrual of arrears interest on the basis that the CRA had to have
known that discrepancies existed at the time of the first assessment as
$13,500.00 had been collected in excess of the amounts declared on the return.
[16]
Finally, the Applicant argued that insufficient reasons
were given in support of the decision.
The standard of review
[17]
In Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1
S.C.R. 190 (Dunsmuir), the Supreme Court of Canada established that the
first step in assessing the appropriate standard of review is to “ascertain
whether the jurisprudence has already determined in a satisfactory manner the
degree of defence to be accorded with regard to a particular category of
question.” (para. 62)
[18]
In Slau Ltd v. Canada (Revenue Agency), 2008 FC
1142, 336 F.T.R. 80, Justice Michael Kelen held, relying on the decision of the
Federal Court of Appeal in Lanno v. Canada (Customs and Revenue Agency),
2005 FCA 153, 334 N.R. 348, that discretionary decisions taken pursuant to s.
220(3.1) of the Income Tax Act are reviewable on the standard of
reasonableness. I agree.
[19]
Thus, the duty of this Court is to examine “the existence
of justification, transparency and intelligibility within the decision-making
process” and to determine “whether the decision falls within a range of
possible, acceptable outcomes which are defensible in respect of the facts and
law.” (Dunsmuir, para. 47)
[20]
With respect of questions of procedural fairness (such as
inadequate reasons in support of the decision), there is no standard of review
as the Court must usually intervene whenever a breach of this obligation is
found to have occurred (Sketchley v. Canada, 2005 FCA 404, [2006] 3 F.C.R. 392).
Analysis
[21]
The Court cannot fault the decision maker for not
considering arguments not raised before it. In the present circumstances, it is
clear that both the request made by the Applicant’s accountants and by the
Applicant himself were based on the existence of extraordinary circumstances
(i.e. the fact that the T4A slip had not been received) and was assessed on
that basis. Also, it must be considered that when the Fairness Committee
considered the Applicant’s request it had before it not only the summary of
facts but also the Applicant’s letter of August 27, 2008 and the documentation
pertaining to the first review. Furthermore, as the summary of facts clearly
focused on the new elements raised by the Applicant in his August letter, there
was no need to repeat issues which had already been considered, such as the
Applicant’s excellent account history and fair compliance history. These
elements were all before the decision maker.
[22]
There is simply no good reason to believe that the decision
maker did not consider all of Mr. Smith’s arguments. What is more, he is
presumed to have considered all of the evidence before him (Woolaston v. Canada
(Minister of Manpower and Immigration), [1973] S.C.R. 102; Do v.
Canada (Minister of Citizenship and
Immigration), 2003 FCT 432, 29 Imm. L.R. (3d) 98, para. 35).
[23]
The allegations on which the Applicant insisted the most at
the hearing relate to the basis for the Penalty (disproportionate nature of the
Penalty, lack of knowledge of the Income Tax Act, etc.). The Applicant
does not dispute that he did not report the impugned income. Rather, he
suggests that he should not be penalized for this omission as he had no
intention to avoid paying his taxes. Also, the Applicant’s position really amounts to
saying that it is the responsibility of others (his accountant, his former
employer, the CRA)
to ensure that his reporting is complete and accurate. Such a position is
entirely at odds with the principles on which our income tax collection system
is based. The fact that the CRA conducts re-assessments is not a license given
to Canadians to elude their self-assessment and self-reporting obligations.
[24]
As noted by Justice Luc Martineau in Northview
Apartments Ltd. v. Canada (A.G.), 2009 FC 74, 2009 D.T.C. 5051, “[i]t is the essence of our
tax collection system that taxpayers are sole responsible for self-assessment
and self-reporting to the CRA” (para. 11). The Penalty which was assessed in
the case of the Applicant seeks to provide a meaningful consequence for failing
to diligently self-assess and self-report income to the CRA. Intent is
of no relevance in these circumstances, nor is the proportionality of the
Penalty to the amount of tax owing as the legislatures have chosen to fix the
penalty in relation to the income the taxpayer failed to declare, which is the
behavior the penalty seeks to sanction.
[25]
Paras.
35 and following of the Circular make it clear that a taxpayer cannot rely on
the failure of his agents – his accountants – unless it can be established that
the circumstances are so exceptional as to warrant relief despite this
principle. In any event, it is not clear at all how the use of accountants by
the Applicant is relevant here, given that he failed to advise them or give
them any information whatsoever with respect to the income reflected in his pay
slip of November 15, 2006.
[26]
While it is true that the summary of facts contains some
inaccuracies (for example, the length of employment at Sierra Systems), the Applicant has not
demonstrated how any of them are material to the impugned decision. The
Applicant’s pay slip dated November 15, 2006 and his Record of Employment from
Sierra Systems dated November 11, 2006 both refer to the $45,000.00 sum as severance
pay while it is reported as a retirement allowance on the T4A. At the hearing,
it was made clear that this distinction has no impact on the Applicant’s
obligation to report the sum as income or on the rate of tax applicable
thereto. Further, the Applicant’s length of employment is equally irrelevant
with regard to reporting obligations and the calculation of penalties
applicable to omissions in this respect.
[27]
As for what the Applicant characterizes as irrelevant
considerations contained in the summary of facts, particularly the
consideration of the fact that he never complained of the missing T4A slip, the
Court disagrees with the Applicant’s characterization of this consideration as
being irrelevant. The Applicant argued that he evidently could not complain of
the missing T4A slip since his employer never mentioned he should be receiving
one and he is insufficiently knowledgeable with respect to the Income Tax
Act to have known this on his own. While that may be, the Applicant ought
to have noticed that the $45,000.00 sum he received was not reported on his T4
slip and, most importantly, on his income tax return. Had he been diligent in
performing his self-assessment obligations, he would have brought this to the
attention of his accountants or his employer and, ultimately, to the CRA. That
he neglected to do so is a relevant consideration in the circumstances.
[28]
There is no evidence that the decision maker (not the
author of the summary of facts) was biased. There is thus no need to consider
this issue further.
[29]
Having considered all the facts before the decision maker
in their context, the
conclusion that no extraordinary circumstances prevented the reporting of the
impugned income is not unreasonable. Given the basis of the review sought,
there was no need to provide more detailed reasons.
[30]
The
application for judicial review is dismissed.
JUDGMENT
THIS COURT ORDERS AND
ADJUDGES that:
This application for judicial review is
dismissed, with costs.
“Johanne
Gauthier”
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