Date: 20090817
Docket: T-353-07
Citation: 2009 FC 832
OTTAWA, Ontario, August 17, 2009
PRESENT: The Honourable Louis S. Tannenbaum
BETWEEN:
BENJAMIN
R. HOFFMAN
Applicant
and
ATTORNEY
GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
On
February 28, 2007, the Applicant filed an application for judicial review of a
decision made by the delegate of the Minister of National Revenue dated January
26, 2007, whereby it was determined that the Applicant’s request for additional
investment losses for the 1999 taxation year was not substantiated by the
documentation provided and consequently resulting in the denial of the
Applicant’s fairness request. Furthermore, in regard to the Applicant’s request
to cancel the arrears interest pertaining to the 1998 taxation year, it was
determined that no errors were made, consequently it would not be appropriate
to cancel the arrears interest on the taxes payable as a result of the
Applicant’s 1998 reassessments.
[2]
The
application for judicial review was argued before the undersigned on December
10, 2008, and judgment was reserved. While the matter was under advisement, two
additional requests were filed by the Applicant, namely: December 11, 2008 a
request to stay the enforcement of taxes already assessed, and December 17,
2008 a request to re-open the hearing that took place on December 10, 2008 to
allow the Applicant to present arguments on additional matters. These two
additional requests were argued before the undersigned on June 1, 2009, and
judgment was reserved.
[3]
The
Applicant, Benjamin Hoffman, was a resident of Canada operating as
a medical doctor up until approximately January 1, 2000.
[4]
As
of the year 2000 the Applicant ceased to be a Canadian resident.
[5]
M.
Hoffman was the owner and operator and sole shareholder of 1289423 Ontario
Inc., operating as Rocky Mountain Chocolate Factory (RMCF), located in Ottawa.
[6]
The
Applicant was an arm’s length shareholder of Phase Remediation Inc. (Phase) and
Newmatic Tools Inc. (Newmatic).
[7]
Two
previous Allowable Business Investment Loss (ABIL) requests by the Applicant in
relation to RMCF were denied in January of 2002 and 2003. In each case, the
request was denied due to the absence of supporting documentation.
[8]
According
to the Fairness Request Summary of Facts, on January 25, 2005, the Canada
Revenue Agency (CRA) commenced its first level review of the Applicant’s
request for fairness.
[9]
By
letter dated March 13, 2006, the Applicant was advised that CRA was allowing a
portion of the original amount claimed and what adjustments were being made.
[10]
On
August 22, 2006, the Applicant’s auditor, David F. Cameron, wrote to CRA in
relation to additional ABIL amounts to be claimed in 1999 for RMCF and asking
that these amounts be included in the amount approved on the first level review.
Mr. Cameron further requested a reduction of arrears interest he claimed was
overcharged in the 1998 taxation year.
[11]
Subsequently,
Mr. Cameron, by letter to CRA, dated October 31, 2006, sought a second review
under the fairness provisions.
[12]
In
a letter received by CRA on December 7, 2006, the Applicant forwarded
documentation seeking further adjustments to the ABIL amounts.
[13]
Mr.
Barry Colpitts carried out a review of the Applicant’s request and, on January
24, 2007, recommended that the Applicant’s request for additional expenses in
respect of losses incurred under paragraph 39(1)(c) of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.) [ITA], be denied as no evidence was submitted to
substantiate the claim. Mr. Colpitts further recommended that the Applicant’s
request regarding excessive arrears interest in the 1998 taxation year be
denied as it was calculated as the prescribed rate in accordance with the
outstanding balance on the Applicant’s account.
[14]
Steve
Mombourquette of the Review Committee reviewed the file and, on January 24,
2007, agreed with Mr. Colpitt’s recommendation contained in the Fairness
Recommendation Report.
[15]
Donald
Gibson reviewed the file and agreed with the recommendation and, on January 26,
2007, he wrote to the Applicant advising of his decision to deny his request.
It is this decision that is the subject of the application for judicial review
filed February 28, 2007.
[16]
The
decision was twofold. First, to not reassess tax payable by the Applicant for
the 1999 taxation year by allowing the Applicant to claim further ABIL so as to
reduce his tax payable. Second, to deny the Applicant’s request to cancel
interest accumulated on the Applicant’s 1998 tax debt on the basis that
excessive interest had been charged by the Canada Revenue Agency.
[17]
The
Applicant’s challenge, as set out in his Memorandum of Facts and Law, is to the
merits of the decision in relation to allowable business investment losses. He
does not point out any errors made by the minister’s delegate in or in reaching
his decision. He does not challenge the decision in relation to interest.
[18]
The
overriding issue in the present case is whether the Minister’s delegate made an
error in his consideration of the Applicant’s request such that the decision
ought to be set aside and sent back for redetermination.
[19]
The
standard to be applied in the present situation is that of reasonableness (Lanno
v. Canada Customs & Revenue Agency (2005) 334 N.R. 348 (FCA)).
[20]
The
first issue raised by the Applicant is in regards to the original cost base of
the Amalgamated income shares invested in RCMF through a section 85 rollover.
The Applicant argues that he has not been granted a residual adjusted cost
base. He asserts that it is an ABIL or capital gain.
[21]
The
Report prepared for the Minister’s delegate however provides a detailed
analysis of what occurred in relation to these shares. The reviewer concluded
that the shares were owned by 1289423 Ont. Inc. and consequently did not belong
to the Applicant. In these circumstances the Applicant could not incur any loss
in relation to the shares with the result that no adjustment could be made in
his ABIL.
[22]
The
Report and its determinations are reasonable. It was under the CRA’s discretion
to apply and interpret the facts of the particular situation in order to
determine if the Applicant was eligible for such relief.
[23]
The
Applicant further disputes the finding that certain expenses were not incurred
by him and therefore could not form part of his losses. I note that the
affidavit of Alexander Hoffman was not part of the material before the decision
maker and therefore could not have been considered by him. Moreover, the letter
dated March 20, 2007 from Lynn Reierson (the Applicant’s lawyer for matters
pertaining to his divorce and relating to RMCF), in which she indicates that
the Applicant’s father would have paid the legal fees, was not according to a
reading of the Report prepared for the second review before the Minister when
he came to his decision. I do not believe that this evidence constitutes “new
evidence” and it should not be considered during this judicial review.
[24]
The
expenses in question related to certain invoices for accounting and legal
services copies of which were provided to the CRA. In relation to the first
three invoices, the reviewer concluded that it was not possible to determine
whether these were paid by the Applicant personally. In addition the first
invoice related to another tax year. The reviewer also reviewed personal and
corporate bank account statements and the Applicant’s Visa statements in order
to verify these payments.
[25]
The
Report reviewed by the Minister’s Delegate clearly demonstrates that all the
documents were reviewed and based on such these claimed business expenditures
could not qualify for ABIL.
While payment by the taxpayer of business
expenditures may qualify for ABIL treatment for 1998 and 1999 under subsection
50(1), no evidence to substantiate payment was submitted so it is not possible
to determine whether payment is made from corporate or personal funds. In addition,
any debt incurred by the taxpayer subsequent to the cessation of Ontario Inc.’s
business operations (which apparently was in July, 1999) would, technically,
not qualify for an ABIL pursuant to subparagraph 40(2)(g)(ii) of the ITA since
the debt is not incurred for the purpose of gaining or producing income from a
business.
(Respondent’s Application Record, vol 3,
Level 2 Fairness Request, p. 493 at pp. 494-495)
[26]
This
finding of fact is not unreasonable.
[27]
In
reading the evidence, it is clear that the CRA carefully weighed the
Applicant’s request and it was incumbent upon it to make the final decision.
The Minister’s Delegate was reasonable when concluding that the Applicant’s
fairness request should be denied. Accordingly, the application for judicial review
respecting the decision of January 26, 2007 will be dismissed.
The Motion to
Stay the Collection of Taxes Assessed
[28]
There
is absolutely no legal basis upon which the Court can grant a stay of
enforcement in the present circumstances. The taxes have been assessed and are
due and owing notwithstanding the proceedings. The request for a stay will
accordingly be dismised.
The Motion to
Re-open the Hearing of December 10, 2008
[29]
The
Applicant requests the re-opening of the hearing of December 10, 2008 for the
following reasons:
“Wherefore, I respectfully requests that
the record be reopened as to the hearing of December 10, 2008 and/or extend
the time to amend the Notice of Application to allow me to present arguments
regarding the evidence in the record before the court involving the Level One
Fairness Review dated March 13, 2006 and the Level Two Fairness Review
dated January 26, 2007 as to ABIL’s claimed by me as to PRI and
Neumatics.”
[30]
The
Applicant also states in his argument:
“I accept Mr. Ashley’s argument that I
did not raise the issue of the PRI and Neumatic losses directly in my initial
application to this court contesting the Level 1 and 2 Fairness Review. I
directed the arguments to RMCF which review had been concluded. I did this on
the belief that CRA would complete its review of the other ABIL’s or loss
carrybacks in a timely fashion hopefully obviating the need to further contest
RMCF as these other losses would negate the principal remaining tax
liability and no refund has been sought.”
[31]
The
Applicant reviews what appear to be the arguments submitted to the undersigned
on December 10, 2008. The Applicant acknowledges taxes owing for 1998 and 1999,
but maintains that he has been treated unfarily due to the two and a half year
delay in reviewing his 2000 tax return (i.e., his final tax return before he
emigrated to the United States). His position is that once his 2000 tax
return is assessed, the balance owing will be canceled out, thus he does not
have to address his existing liability. He also reiterates his position that a
payment of $35,000 made on December 15, 1998 was not credited to his
account until June 26, 1999. He argues, therefore, that the penalties and/or
interest that accrued on the balance for that six month period are unfairly
attributed to his account.
[32]
The
Applicant notes that the hearing before the undersigned focused on the Rocky Mountain business losses
and expenses. He states that he did not raise the losses incurred in connection
with two other businesses (PRI and Neumatic) as he believed that once his 2000
tax return was accepted by CRA, there would be no outstanding disputes. In
fact, the Applicant implies that he and the Respondent had come to an agreement
about the issues to be argued before the undersigned. He also notes in his
affidavit that the losses are due to a Mareva injunction issued against him as
part of divorce proceedings; the value of his holdings in these two companies
diminished drastically during the time he was unable to move them.
[33]
The
Respondent puts forward arguments supporting his position that the motion
should be dismissed. He argues that the motion record is defective in that it
does not comply with the Federal Courts Rules and unacceptably seeks to
expand the scope of the underlying application.
[34]
The
Respondent submits that the Applicant’s motion does not comply with Rule and
Form 359 in a number of particulars; it does not state any grounds for the
motion, the evidence to be relied upon, or the bases on which the motion is
made; does not include phone and fax numbers; and the paragraphs in the
affidavit are not numbered, and the exhibits are improperly attached.
[35]
The
Respondent submits that these deficiencies are sufficient grounds for the
motion to be dismissed.
[36]
The
Respondent also submits that the Applicant is attempting to expand the scope of
the existing application on two fronts: 1) by challenging the decision
of March 13, 2006, which was not noted in the Notice of Application; and
(2) by raising additional grounds, apart from the legal and accounting expenses
cited in the Notice of Application, for his challenge to the January 26, 2007
decision.
[37]
The
Respondent submits that the Applicant is attempting to achieve an outcome that
should have been dealt with through a motion to extend the time to amend the
original Notice of Application, or to extend the time to file a Notice of
Application to review the March 13, 2006 decision. The Respondent also points
out that challenging two decisions in one application contravenes Rule 302,
which limits applications to a single order.
[38]
It
is difficult to discern from the Applicant’s representations what he is
seeking, and the bases for his requests. The Applicant’s last paragraph
requests that the “record be reopened as to the haering of December 10, 2008 to
allow me to present arguments regarding the evidence in the record before the
court involving the Level One Fairness Review dated March 13, 2006 and the
Level Two Fairness Review dated January 26, 2007 at to ABIL’s claimed by me as
to PRI and Neumatic.” However, it seems to me that this motion was really filed
in response to the notice of levy that the Applicant received.
[39]
On
the issue of re-opening the record, the Applicant’s motion could be interpreted
as a request either to make additional arguments before the undersigned, or as
a request to adduce fresh evidence. On the former interpretation, if the issue
is regarding a decision made on March 13, 2006, this is not included in the
Notice of Application. He would have to seek leave to add anything to the
application at this point. Furthermore, if the evidence regarding PRI and
Neumatic was, in fact, contained in the record and relevant to the January 26,
2007 decision under review, then the arguments should have been made on
December 10, 2008. Unless a matter cannot be foreseen, it should be argued at
the first available opportunity.
[40]
The
only new document is the notice of levy from the IRS. While it is true that
this could not have been adduced on December 10, 2008 because Mr. Hoffman had
not yet received it, I do not believe it would influence the mater since the
tax liability and the CRA’s statutory justification to collect is unaffected.
[41]
The
Respondent’s arguments regarding the failure to comply with Rule 359 and Form
359 merit mention. I believe that allowing new arguments on existing issues at
this point would unduly delay the proceedings. The Applicant had the
opportunity to address these matters and did not do so. Allowing the Applicant
to do so now would not only delay proceedings, but would also unduly prejudice
the Respondent.
JUDGMENT
For the above reasons, the COURT ORDERS AND ADJUDGES THAT the
Motion to Stay is dismissed; that the Motion to Re-open is dismissed and that
the Application for Judicial Review is dismissed.
"Louis S. Tannenbaum"
Authorities
consulted by the Court
1.
Her
Majesty the Queen in Right of Canada as Represented by Canada Customs and
Revenue Agency (CCRA) v. Judi Johnson, 2003 FCT 568;
2.
Communications,
Energy and Paperworkers Union of Canada v. Canadian Human
Rights et al; A-698-00;
3.
The
Income Tax Act v. Swiftsure Taxi Co. Ltd.; 2004 FC 980;
4.
Gilbert
c.
R. 2007 FCA 254;
5.
Canada v. Fishing
Vessel Owner’s Association of B.C.; (1985) 61 N.R. 128;
6.
M.N.R. v.
Tomas, [2007] N.R. Uned. 34;
7.
687764
Alberta Ltd. Operating as West End Health and
Home Care Centre v. Minister of Health, A-280-99;
8.
Pieters
v.
Canada (Attorney
General),
2004 FC 342;
9.
Smith
v. Canada, 2001 FCA
86;
10.
Pharmacia
Inc. et al v. David Bull Laboratories (Canada) Inc. et al, 64 C.P.R.
(3d) 340;
11.
Merck
Frosst Canada Inc. Et al v. Canada (Minister of Health) et al, 76 C.P.R. (3d) 468;
12.
Tajgardoon
v. Canada (Minister of
Citizenship and Immigration) [2000] F.C.J. No. 1450;
13.
Merck
Frosst Canada Inc. v. Canada (Minister of National Health and Welfare), 55 C.P.R. (3d) 302;
14.
Merck
Frosst Canada Inc. v. Canada (Minister of Health) [1977] F.C.J. No. 1847;
15.
Lanno
v. Canada Customs and Revenue
Agency,
(2005), 334 N.R. 348 (FCA);
16.
Dunsmuir
v. N.B.
[2008] 1 S.C.R. 190;
17.
Rohm
& Haas v.
Anti-Dumping Tribunal (1978), 22 N.R. 175 (FCA);
18.
Barron
v. MNR,
(1997) 209 N.R. 392 (FCA).
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-353-07
STYLE OF CAUSE: Benjamin
R. Hoffman v. Attorney General of Canada
PLACE OF
HEARING: Ottawa, Ontario
DATE OF
HEARING: December
10, 2008
REASONS FOR JUDGMENT
AND JUDGMENT: TANNENBAUM D.J.
DATED: August
17, 2009
APPEARANCES:
Mr. Benjamin
R. Hoffman
|
FOR THE APPLICANT
|
Mr. John J.
Ashley
|
FOR THE RESPONDENT
|
SOLICITORS
OF RECORD:
None
|
FOR THE APPLICANT
|
John H. Sims,
Q.C.
Deputy
Attorney General of Canada
|
FOR THE RESPONDENT
|