Date: 20090731
Docket: T-786-08
Citation: 2009 FC 795
BETWEEN:
LOUIS
ROBINSON
Applicant
and
HER
MAJESTY THE QUEEN IN RIGHT OF CANADA
Respondent
REASONS FOR
JUDGMENT
LUTFY C.J.
[1] The applicant seeks
judicial review of the April 2008 second level review decision (the decision)
by the Canada Revenue Agency (CRA or the respondent), refusing his request for
the cancellation of penalties under the Voluntary Disclosures Program (VDP).
[2] On April 15, 2005,
the applicant through his tax solicitor (the applicant’s solicitor) applied for
relief under the VDP with respect to unpaid payroll remittances, income tax and
goods and services tax (GST). The applicant’s solicitor is an affiant in
support of this application for judicial review. The applicant is represented
by different counsel in this proceeding.
[3] On August 18, 2005,
the applicant and his solicitor signed a client agreement form acknowledging
that they understood the four conditions to qualify for the VDP. The principal
condition in issue here is whether the applicant’s disclosure was voluntary and
one not made with the knowledge of an audit, investigation or other enforcement
action initiated by the CRA.
[4] In his covering fax
transmission sheet forwarding the client agreement form, the applicant’s
solicitor acknowledged one issue of prior interest by the CRA concerning the
applicant:
We should
note that the only issue in terms of prior interest of the department of which
I am aware is a phone call which was received by our client from the payroll
department after he engaged our services… [W]e were already engaged in the
process and so we contacted the person from payroll and we told them that we
were in the process of making a voluntary disclosure involving GST, Income Tax
and payroll.
[5] The CRA, on the other
hand, relies on more than one action taken by its officials in late 2004 and
early 2005, prior to the applicant’s disclosure. On the basis of the
respondent’s affidavit and the uncontradicted information at pages 14 and 16 of
the respondent’s record, I accept as accurate the facts set out in the
respondent’s memorandum of fact and law:
On December
13, 2004, Peter Prebtani, an Enforcement Officer of the Revenue Collections
Division of the Canada Revenue Agency (“CRA”) contacted the applicant’s office
for failing to remit the correct amount of employee source deductions for 2003
and 2004 payroll remittances. The applicant or the applicant’s assistant
advised Prebtani that they would speak to their accountant and call back.
On February
23, 2005, Jean Salvas, a Trust Examiner of the Collection Division Branch
called the applicant and left a message asking him to call back. Salvas called
the applicant to set a time to conduct a payroll audit of the applicant’s books
and records.
…
On March
17, 2005 Salvas delivered a letter to the applicant at the applicant’s place of
business to set an appointment to conduct the payroll audit on April 18, 2005.
On March
21, 2005 Salvas advised Marcos Collados, a Non-Filer/Non-Registrant Office
Contact Agent of the Non-Filer /Non-Registrant Section in the Revenue
Collections Division, of the applicant’s non-registration of GST.
(footnotes
omitted)
While the applicant’s solicitor may only have been aware of one of these
actions, the others have not been contradicted by the applicant. It is
acknowledged that the action of March 21, 2005 was internal to the CRA.
[6] The parties’ submissions can be framed under two issues:
(i)
did the CRA accept the applicant’s disclosure concerning
the unpaid income tax and GST, prior to the negative first level decision of
December 6, 2006?
(ii)
was the applicant’s disclosure voluntary?
[7] Each of these issues
is either a question of fact or a mixed question of fact and law. In either event,
the decision should be reviewed under the reasonableness standard: Dunsmuir
v. New Brunswick, 2008 SCC 9 at ¶ 47. I
do not accept the applicant’s initial characterization of the issues as one of
procedural fairness to be reviewed on the correctness standard. The first issue
presents no question of procedural fairness. The situation in Wong v. Canada,
2007 FC 628, differs from this case. Moreover, in his reply submissions during
the hearing, the applicant properly referred to the reasonableness standard in
addressing the second issue.
(i) Did the CRA accept the applicant’s disclosure concerning
the unpaid income tax and GST, prior to the negative first level decision of
December 6, 2006?
[8] On January 14, 2008,
the applicant’s solicitor made written submissions to support a favourable
second level review (the second level submissions). The solicitor represented
that on February 2, 2006, he met with an officer of the appeals division, VDP
(the VDP officer). The VDP officer’s supervisor (the supervisor) also
participated in the meeting, according to the applicant’s solicitor.
[9] According to the
second level submissions, the supervisor: “… tentatively approved the
acceptance of the voluntary disclosure… but he needed to see explanations for…
[certain items]… before his decision was finalized. This condition was met and
so the Voluntary Disclosure was complete and accepted.”
[10] In his affidavit in
this proceeding (the solicitor’s affidavit), the applicant’s solicitor stated
that during the meeting of February 2, 2006, the CRA – through the VDP officer
and the supervisor – approved which years were to be reassessed for income tax
and GST. It was during his cross-examination that he appears to have realized
this date was incorrect. The applicant now acknowledges that there could have
been no acceptance, tentative or otherwise, on February 2, 2006.
[11] Since the
cross-examination of his solicitor, the applicant now submits in his written
and oral argument that the acceptance of his voluntary disclosure would have
occurred at the meeting of May 9, 2006 with the VDP officer. During his
cross-examination (questions 39-48), the applicant’s solicitor stated that the
agreement was communicated to him by the VDP officer, not the supervisor as he
had suggested in his second level submissions.
[12] In the decision, the
CRA determined that the file, while under the care of the VDP officer:
“… was
never closed and no correspondence was sent to you or to your client advising
that the [Income Tax] and GST disclosures were accepted. As an expert in
this field, we (sic) are confident you would agree that “tentative”
acceptances of disclosures cannot be relied upon. It is our normal practice to
advise taxpayers, in writing, of any decision reached regarding disclosures
filed with the CRA.”
(Emphasis
added)
[13] Put simply, the May 9,
2006 meeting, for whatever reason, was not mentioned in the second level
submissions. The assertions in the solicitor’s affidavit concerning a meeting
with CRA on May 9, 2006, together with documentary references, were only
introduced in this Court.
[14] On the record placed
before the CRA decision-maker, the second level review determination that the
applicant’s file “… was never closed and no correspondence was sent to you or
your client advising that the [Income Tax] and GST disclosures were accepted”
was a reasonable one within the meaning of Dunsmuir. In the words used
in his factum to identify the first issue, the applicant has not shown that a
decision had been made on the voluntary disclosure for income tax and GST,
prior to the negative one of December 6, 2006.
[15] My determination in
favour of the respondent has been made solely on the information which was
before the second level review, as filed in this proceeding. As urged by the
applicant, I have not taken into account the information in paragraphs 24(a)
and (b) of the respondent’s affidavit concerning a communication said to have
occurred some three months after the second level review decision. This
information should not have been filed in this proceeding.
[16] Similarly, exhibits
(c), (d) and (e) to the solicitor’s affidavit were not before the second level
review and should not form part of the record in this Court, even though the
respondent does not appear to have objected to their production. The
information in these exhibits suggest that the meeting of May 9, 2006 did take
place, a fact that may not be in dispute even though not referred to in the
second level review. Even if they were properly before the Court, these
documents do little, if anything, to support the applicant’s version that the
CRA and he reached an agreement on that occasion.
[17] The applicant has not
shown that any information concerning the May 9, 2006 meeting was before the
second level review decision-maker. Also, the applicant has not established
that the VDP officer or his supervisor made a decision in his favour prior to
the negative first level decision of December 6, 2006.
[18] Accordingly, it is
unnecessary to address the applicant’s reliance on the CRA’s absence of
jurisdiction and the principles of functus officio, legitimate
expectation and promissory estoppel.
(ii)
Was the applicant’s disclosure voluntary?
[19] Stated differently,
the issue here is whether the payroll audit would have led to the discovery
that the applicant’s income tax and GST returns for some years had not been
filed.
[20] The applicant came forward to seek relief under the VDP on April 15,
2005.
[21] Previously, in late
2004 and early 2005, the CRA had made the following contacts with the
applicant: (a) an enforcement officer advised that the applicant had
failed to remit the correct amount for employee payroll source deductions, to
which the applicant or his assistant replied that they would speak to their accountant
and call back; (b) a trust examiner left a message requesting the
applicant to return his call; and (c) one month prior to the proposed
appointment, the trust examiner delivered a letter to the applicant’s office to
set up a meeting for April 18, 2005 to conduct a payroll audit.
[22] None of this information is contested.
[23] On December 4, 2006, in its first written decision, the CRA advised
that the applicant’s disclosures for payroll, income tax and GST were not
voluntary:
… There was
enforcement action by our Trust Compliance unit prior to your April 15, 2005
disclosure. You were contacted for a trust exam on March 17, 2005. As a result,
your payroll disclosure is not accepted under the VDP.
The [Income
Tax] and GST disclosures are also not considered voluntary. As a
result of the trust exam the unfiled [Income Tax] and GST returns would have
been discovered.
(Emphasis
added)
[24] The applicant does not
challenge the CRA refusal to accept his disclosure of unpaid payroll
remittances as not being voluntary. The dispute under this second issue is
limited to the CRA’s conclusion that the applicant’s disclosure of unpaid
income tax and GST was not voluntary.
[25] The applicant relies on
clause 8.3.5 of the CRA internal VDP Guidelines which the respondent’s counsel
produced, after cross-examination, with the caveat that the document was
outdated at the time of the second level review.
[26] However, for the
purposes of the applicant’s argument, that provision is substantially
reproduced, albeit in different wording, in ¶ 32 and ¶ 34 of the current
publicly available information circular, dated October 22, 2007:
¶ 32. A
disclosure will not qualify as a valid disclosure, subject to the exceptions in
paragraph 34, under the “voluntary” condition if the CRA determines:
·
the taxpayer was aware of, or had knowledge of an audit, investigation or
other enforcement actions to be conducted by the CRA … and
…
·
the enforcement action is likely to have uncovered the information being
disclosed.
…
¶ 34. Not
all CRA initiated enforcement action may be cause for a disclosure to be denied
by the CRA. …
… There may
be no correlation between [payroll and GST] issues and, as such, the
enforcement action on the payroll account may not be cause to deny the [GST]
disclosure, …
[27] The applicant’s
submission is that a refusal to accept voluntary disclosure for payroll should
not necessarily dictate the same outcome for income tax and GST.
[28] For the applicant, the
CRA actions prior to his disclosure were limited to payroll issues. In his
view, voluntary disclosure for income tax and GST is to be seen as separate
from the payroll disclosure. The applicant denies that a payroll audit would
have led to the uncovering of income tax and GST returns that had not been submitted.
As in the example in ¶ 34 of the information circular, the applicant argues
that there is no correlation between the payroll and GST disclosures in his
case. In the words of the applicant’s solicitor in his second level
submissions, “… it is a remote stretch to say that the Payroll officer’s query
would have led to the uncovering of un-filed GST and Income Tax returns. In
this Counsel’s extensive experience, Payroll Auditor’s scope is very, very
narrow.”
[29] For the respondent, the
three areas of unpaid taxes are correlated for purposes of voluntary disclosure
in the applicant’s situation, notwithstanding the possible scenario described
in ¶ 34 of the information circular. The respondent states that the facts of
this case establish a correlation among the payroll, income tax and GST
disclosures. I agree.
[30] In March 2005, the
trust examiner advised another CRA official concerning the applicant’s
non-registration of GST. This communication, even if unknown at the time to the
applicant, can be relied upon in assessing whether the voluntary disclosures
can best be characterized as separate or correlated.
[31] There is also the
evidence in the respondent’s affidavit at paragraph 6 describing the role of
the trust examiner in a payroll audit:
The purpose
of the payroll audit was to determine whether the correct amount of deductions
have been made from the employees’ remuneration for the Canada Pension Plan
(“CPP”), Employment Insurance (”EI”) and Income Taxes. The officer
conducting the payroll audit also ensures that these deductions for CPP, EI and
Income Taxes; and any amounts with respect to GST are remitted to the CRA.
(Emphasis
added)
During her cross-examination, the respondent’s affiant confirmed her view
that the trust examiner’s role includes looking at GST as a trust fund within
the scope of the payroll audit.
[32] This evidence is also
consistent with the work description of the trust examiner as extending beyond
payroll issues:
Client-Service
Results
Enforcement
of compliance with respect to withholding, remitting, and reporting
requirements of various Acts including the initiation of assessments through
the examination of taxpayer books and records; the provision of information to
taxpayers.
Key
Activities
Organizes,
schedules, and examines taxpayer’s books, records, and supporting documentation
pertaining to unreported income, taxable benefits, and other amounts deducted
or held in trust.
…
Obtains
outstanding GST/HST returns and information slips from taxpayers or their
representatives.
[33] The applicant also
submits that, from his subjective point of view, he did not or could not have
known that the contacts his office received from the CRA prior to April 15,
2005 were enforcement measures. There is no merit to this argument. The applicant’s
solicitor presented at CRA offices on April 15, 2005 to disclose under the VDP,
three days prior to the date for the appointment which had been communicated to
him by the trust examiner.
[34] Similarly, the
applicant’s reliance on the February 2006 information at page 21 of the
respondent’s record is misplaced. Neither party could identify the author of
the document. One cannot conclude from this document that the VDP officer
viewed the payroll disclosure as separate from the other two on the basis of a
statement attributed to him that “part” of the voluntary disclosure was being
refused. Neither counsel referred in argument to the November 2006 CRA
memorandum to file (page 45 of the respondent’s record) attributing a statement
to the VDP officer that he “… confirmed that he did not do a voluntary check or
confirm with the rep that the disclosure was voluntary”.
[35] Finally, the applicant
invokes the interim notification provision in clause 8.3.8 (Interim
Notification) of the internal VDP Guidelines:
Within 30
calendar days of the date the client provided all disclosure information, the
client should be notified whether or not we will consider the disclosure to be
“voluntary”. If this decision cannot be made within 30 days, the client should
be provided with the expected timeframes.
[36] Even if this guideline
was in force at the relevant time, it is at most an internal best practice for
CRA officers. It affords no legal rights to the applicant. Also, the applicant
is hardly in a position to complain about the lapse in time in view of his
solicitor’s acknowledgement, in the second level submissions, of the delay
caused by the “breakdown in communications” between the two of them. Also, in
these same submissions, the applicant’s solicitor refers to interim
notification in clause 8.3.8 as having been respected. This issue cannot be dispositive
of this application for judicial review, even if it had been properly raised in
the applicant’s factum.
[37] The applicant’s
argument that the payroll audit would not have led to the knowledge that
income tax and GST returns had not been filed was dismissed in the second level
review decision:
Our
position is that the ongoing enforcement action would have uncovered the unfiled
GST and T1 returns. Significant non-compliance issues such as non-filing,
non-reporting and non-remitting of amounts for many years as is the case in
this payroll account would have uncovered the same issues in the T1 and GST
accounts.
[38] In the light of the
facts of this case, the second level review decision that the voluntary
condition was not met is also a reasonable one. The applicant has not satisfied
me that the payroll audit would not have disclosed the non-filings in income
tax and GST.
[39] For these reasons, this
application for judicial review will be dismissed. If necessary, the parties
may serve and file written submissions concerning costs. Counsel can agree on
the dates for the exchange of representations on the understanding that the
process is completed by August 24, 2009.
“Allan
Lutfy”
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