Date: 20091117
Docket: T-1209-08
Citation: 2009 FC 1162
Ottawa,
Ontario, November 17, 2009
PRESENT:
The Honourable Mr. Justice Simon Noël
BETWEEN:
ANDRÉ
LESAGE
Applicant
and
THE
ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT AND
JUDGMENT
Introduction
[1]
On
August 4, 2008, André Lesage (the applicant) applied for
judicial review of a decision made on July 3, 2008 by the Acting
Assistant Director, Revenue Collections, of the Montréal Tax Services Office
(TSO) of the Canada Revenue Agency (CRA) concerning a request to cancel
interest and penalties under subsection 220(3.1) of the Income Tax Act,
R.S.Q. 1985, c. 1 (5th Supp.) (ITA). The application alleges
that the CRA did not correctly exercise its discretion and did not take account
of the relevant facts of the applicant’s request.
Facts
[2]
The CRA is
claiming amounts from the applicant for the taxation years 1990 through 1994
and 1999 through 2001. According to the notices of assessment for those years,
the CRA is claiming $99,040.22 in duties and $945.23 in penalties from the
applicant. On August 1, 2008, the applicant’s tax liability was over
$390,000. The interest portion of that liability therefore amounts to about
three times the total of the duties and the assessed penalties.
[3]
According
to the applicant, he was unable to pay the duties, penalties and interest
claimed from him owing to circumstances beyond his control, namely major
financial hardship and the state of his health. The applicant and his partner,
Jacques Cooke (T‑1208‑08), carried on business in the real
estate field. As a result of the disastrous period in the real estate industry
in Quebec between 1990 and 1998, the applicant lost several million dollars in
equity, there were almost no sales of land and several judgments were rendered
against the applicant personally in favour of his hypothecary creditors.
[4]
Based on
those circumstances, the applicant made a request to the CRA on
May 21, 2004 to cancel the interest and penalties pursuant to subsection 220(3.1)
of the ITA. According to the applicant, his circumstances fit within the
“Guidelines and examples of circumstances where cancelling or waiving interest
or penalties may be warranted” (Guidelines) set out in Information Circular IC 92‑2
published by the CRA (now “Taxpayer Relief Provisions”, Information
Circular IC 07‑1).
[5]
Following
an exchange of information in November 2004, the CRA’s Manager, Revenue
Collections, decided on December 2, 2004 to deny the request.
According to the letter she wrote for that purpose, the applicant had not
proved financial hardship, that is, an inability to provide himself with basic
necessities and, within reasonable limits, to obtain other non‑essential
items.
[6]
On
January 20, 2005, as stated in paragraph 13 of Information
Circular IC 92‑2, the applicant requested that the Director of
the Montérégie Tax Services Office review the decision of
December 2, 2004.
[7]
The
applicant received a letter from the respondent dated
February 4, 2005 stating that the request for review would be
submitted to the fairness package committee. The CRA’s decision of
December 2, 2004 was confirmed by the Assistant Director, Revenue
Collections (and not the Director of the Montérégie TSO as provided for in
paragraph 14 of the Circular) in a decision dated
April 11, 2005.
[8]
On
May 9, 2005, the applicant applied to this Court for judicial review
of that decision. Pursuant to an out‑of‑court agreement, the
applicant discontinued the application for judicial review in return for an
undertaking by the CRA to have the fairness request reviewed again by a person
who had not been involved in the process of deciding the first request for
relief or reviewing the first decision.
[9]
On
October 30, 2007, a CRA collection officer requested additional information
from the applicant as well as security for the payment of the principal amount
of the tax liability and the assessed penalties. On
November 20, 2007, the applicant proposed instead that his spouse
stand surety for the liability if the CRA waived the interest and completed its
processing of the file by December 31, 2007. On
November 23, 2007, the applicant, through his counsel, confirmed and
completed his request for review and provided the CRA with various balance
sheets for the years from 1990 to 2006. On July 3, 2008, the Acting
Assistant Director, Revenue Collections, decided against the applicant. This
application for judicial review concerns that decision.
[10]
The
applicant argues that the decision contains few details, which is why a request
was made to the CRA for a report detailing the reasons for the decision. The
request was denied because the official responsible for the file did not have
the power to provide the information. The applicant was told that he could make
a formal request under the access to information rules.
Issues
(1) Did the Minister correctly
exercise his discretion and take account of the factors relevant to the
applicant’s file in his decision of July 3, 2008?
Applicable legislation
[11]
Subsection 220(3.1)
of the ITA reads as follows:
|
(3.1) The Minister may,
on or before the day that is ten calendar years after the end of a taxation
year of a taxpayer (or in the case of a partnership, a fiscal period of the
partnership) or on application by the taxpayer or partnership on or before
that day, waive or cancel all or any portion of any penalty or interest
otherwise payable under this Act by the taxpayer or partnership in respect of
that taxation year or fiscal period, and notwithstanding subsections 152(4)
to (5), any assessment of the interest and penalties payable by the taxpayer
or partnership shall be made that is necessary to take into account the
cancellation of the penalty or interest.
[Emphasis
added]
|
(3.1) Le ministre peut,
au plus tard le jour qui suit de dix années civiles la fin de l’année
d’imposition d’un contribuable ou de l’exercice d’une société de personnes ou
sur demande du contribuable ou de la société de personnes faite au plus tard
ce jour-là, renoncer à tout ou partie d’un montant de pénalité ou
d’intérêts payable par ailleurs par le contribuable ou la société de
personnes en application de la présente loi pour cette année d’imposition ou
cet exercice, ou l’annuler en tout ou en partie. Malgré les
paragraphes 152(4) à (5), le ministre établit les cotisations voulues
concernant les intérêts et pénalités payables par le contribuable ou la
société de personnes pour tenir compte de pareille annulation.
|
[12]
The
relevant paragraphs of the Guidelines set out in Information
Circular IC 92‑2 published by the CRA read as follows:
|
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; or
(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.
[Emphasis
added]
|
5. Il sera convenable d’annuler la totalité ou
une partie des intérêts ou des pénalités, ou de renoncer à ceux-ci, si ces
intérêts ou ces pénalités découlent de situations indépendantes de la
volonté du contribuable ou de l’employeur. Voici des exemples de
situations extraordinaires qui pourraient empêcher un contribuable, un agent
d’un contribuable, l’exécuteur d’une succession ou un employeur de faire un
paiement dans les délais exigés ou de se conformer à d’autres exigences de la
Loi de l’impôt sur le revenu:
a)
une calamité naturelle ou une catastrophe provoquée par l’homme comme une
inondation ou un incendie ;
b)
des troubles civils ou l’interruption de services comme une grève des
postes ;
c)
une maladie grave ou un accident grave ;
d) des troubles
émotifs sérieux ou une souffrance morale grave comme un décès dans la famille
immédiate.
6. L’annulation des intérêts ou des
pénalités ou la renonciation à ceux-ci peuvent également être
justifiées si ces intérêts ou pénalités découlent principalement d’actions
attribuables au Ministère comme dans les cas suivants:
a)
des retards de traitement, ce qui a eu pour effet que le contribuable
n’a pas été informé, dans un délai raisonnable, de l’existence d’une somme en
souffrance ;
b)
des erreurs dans la documentation mise à la disposition du public, ce
qui a amené des contribuables à soumettre des déclarations ou à faire des
paiements en se fondant sur des renseignements erronés ;
c)
une réponse erronée qu’un contribuable ou un employeur a reçue
concernant une demande de renseignements comme dans le cas où le Ministère
a informé par erreur un contribuable qu’aucun acompte provisionnel n’est
nécessaire pour l’année en cours ;
d)
des erreurs de traitement ;
e) des
renseignements fournis en retard comme dans le cas où un contribuable n’a
pu faire les paiements voulus d’acomptes provisionnels ou d’arriérés parce
qu’il n’avait pas les renseignements nécessaires.
|
Standard of review
[13]
The
applicable standard of review in matters involving relief from penalties and
interest is the standard of reasonableness. Subsection 220(3.1) of the ITA
shows the extent of the Minister’s power to waive penalties and interest. The
decision on relief from penalties and interest therefore involves the exercise
of a discretion by the Minister, with account being taken of the Guidelines. It
has been demonstrated many times that the CRA has considerable freedom of
action and that, in principle, the Court will interfere with the exercise of
that freedom only on rare occasions: see Jenkins v. Canada (National
Revenue), [2007] 3 C.T.C. 104 ; 2007 FC 295.
[14]
According
to Dunsmuir v. New Brunswick, [2008] 1 S.C.R. 190,
2008 SCC 9, at paragraph 53, “[w]here the question is one of fact,
discretion or policy, deference will usually apply automatically”. More
specifically, Canada (Citizenship and Immigration) v. Khosa,
2009 SCC 12, [2009] 1 S.C.R. 339, applies to the interpretation of
the standard of review under section 18.1 of the Federal Courts Act.
Justice Binnie states the following at paragraph 43:
. . . it
is clear from s. 18.1(4)(d) that Parliament intended administrative
fact finding to command a high degree of deference. This is quite
consistent with Dunsmuir. It provides legislative precision to the
reasonableness standard of review of factual issues in cases falling under the
Federal Courts Act.
Therefore, Dunsmuir also applies
to applications for judicial review before the Federal Court.
Analysis
(1) Did the
Minister correctly exercise his discretion and take account of the factors
relevant to the applicant’s file in his decision of July 3, 2008?
[15]
According
to Dunsmuir, at paragraph 47:
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.
[16]
That being
said, I do not think that the impugned decision in this case is unreasonable.
As already stated, the CRA has considerable discretion in deciding to cancel
interest and penalties under subsection 220(3.1) of the ITA. Relying on
the Guidelines, it will exercise that discretion only in extraordinary
circumstances.
[17]
In Kaiser v.
Canada (Minister of National Revenue – M.N.R.), [1995] F.C.J. No. 349,
the Court concluded as follows at paragraph 11:
Every case is required to be decided on
its own merit in order that circumstances unique to that individual taxpayer
are properly taken into account. . . . when the Minister exercises
his discretion under subsection 220(3.1), he is required to take into
account considerations relevant and unique to that taxpayer alone.
The applicant submits that the respondent was negligent in
not considering the specific factors raised in the request. This argument must
be rejected. As will be shown, the CRA, in making its decision, took into
account the important factors unique to the taxpayer.
[18]
The
applicant submits that the real estate slump in the 1990s is similar to
extraordinary circumstances as discussed in the Guidelines, since it was an
event beyond his control. The Court notes that we are not dealing here with an
event comparable to the examples set out in paragraphs 5(a) and (b) of the
Guidelines, such as flood, fire, civil disturbances or disruptions in services.
The real estate slump was caused by a series of decisions made by
businesspeople. It did not arise out of extraordinary circumstances such as the
examples in the Guidelines. Of course, the circumstances were not intended by
the businesspeople, but their decisions made the circumstances possible. The
same thing could apply to the crash in the high‑technology sector in the
late 1990s and early 2000s.
[19]
In making
his decision, the respondent also took account of several factors in addition
to the real estate slump. According to the affidavit of
Timothéos Coshiantis, a relief program officer at the CRA who was in
charge of the taxpayer’s request, he took account of the following in his
analysis:
(a) the
applicant’s tax liability resulting from the reassessments for the 1990 to 1994
and 1999 to 2001 taxation years;
(b) the real estate slump
of the 1990s;
(c) financial
hardship, namely the various balance sheets submitted by the applicant, the
legal proceedings brought against him or against companies in which he held
shares, his personal income from his activities, the financial capacity of the
applicant and his spouse as a couple, the retained earnings of the businesses
of which he was the sole shareholder and the amounts he received in
reimbursement of advances he had made to a company of which he was the sole
shareholder;
(d) the fact
that the CRA had informed the applicant regularly of the balance of his
liability;
(e) the
state of the applicant’s health. He had not provided any medical evidence of
his inability to generate income during the relevant period.
[20]
With
regard to the state of the applicant’s health, paragraphs 5(c) and (d) of
the Guidelines state that extraordinary circumstances may be present where the
applicant proves “a serious illness” or “serious
emotional . . . distress”. The applicant’s file shows that,
during the period under review, he went about his affairs, making the
appropriate representations, and, as stated in the previous paragraph, no
medical evidence was filed in support of his request.
[21]
The file
prepared by the CRA’s relief program officer shows that, during the period
under review, very large amounts were in circulation both for the applicant
personally and through companies in which he held shares. Moreover, the amounts
assessed over the years range between $1,500 and $55,000. During that period,
the applicant therefore made it a priority to pay certain creditors, to the
CRA’s detriment. By doing so, he increased amounts (the duties claimed and the
penalties) with very high interest rates, thereby creating an additional
liability of more than $290,000.
[22]
The record
shows that the Minister, through his officials, exercised his discretion. The
applicant was heard several times, and all his requests were examined by CRA
representatives. The respondent’s record shows the work done on the taxpayer’s
request. In his review, the analyst considered each of the points raised in the
requests, commented on those points one by one and concluded in each case that
the Guidelines did not apply to the applicant’s circumstances. That analysis
was approved by the Acting Assistant Director before she signed the letter of
July 3, 2008 denying the applicant’s request.
[23]
The
applicant also notes that the decision contained few details and requests
specific reasons for the decision. However, the decision of
July 3, 2008 briefly described the analyst’s review and considered
each of the points raised by the applicant before concluding that the request
was denied. It is a reasoned decision that meets the reasonableness standard.
[24]
Finally,
the applicant submits that the interest arose because of actions of the CRA,
particularly delays in processing the file. It is important to note that
interest continues to accrue for the applicant. Nonetheless, the delays are
attributable to the actions of both the applicant and the CRA. There was a long
interval of time between the first application for judicial review and the
applicant’s discontinuance, but that interval resulted from an out‑of‑court
agreement between the applicant and the respondent. Therefore, the interest did
not arise because of actions for which the CRA is to blame.
Conclusion
[25]
For the
reasons set out above, the Court dismisses the application for judicial review.
Costs
[26]
Although
the respondent seeks an award of costs against the applicant, I am exercising
my discretion under subsection 400(1) of the Federal Courts Rules,
SOR/98‑106, and I conclude that there will be no costs.
JUDGMENT
THE COURT ORDERS AS FOLLOWS:
-
The
application for judicial review is dismissed.
-
No costs
are awarded.
“Simon
Noël”
Certified
true translation
Brian
McCordick, Translator
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-1209-08
STYLE OF CAUSE: André
Lesage v. The Attorney General of Canada
PLACE OF HEARING: MONTRÉAL, QUEBEC
DATE OF HEARING: November 3, 2009
REASONS FOR JUDGMENT
AND JUDGMENT: The
Honourable Justice Simon Noël
DATED: November 17, 2009
APPEARANCES:
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Emmanuelle Campeau
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FOR THE APPLICANT
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Ian Demers
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FOR THE RESPONDENT
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SOLICITORS OF RECORD:
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Ravinsky, Ryan, Lemoine
1010 de la Gauchetière Street West
Suite 1200
Montréal, Quebec H3B 2N2
|
FOR THE APPLICANT
|
|
Department
of Justice Canada
Guy-Favreau
Complex
200
René Lévesque Blvd. West
East
Tower, 9th Floor
Montréal,
Quebec H2Z 1X4
|
FOR THE RESPONDENT
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