Date: 20071130
Docket: T-1921-06
Citation: 2007 FC 1255
BETWEEN:
3651541
CANADA INC.
Applicant
and
ATTORNEY
GENERAL OF CANADA
Respondent
REASONS FOR
JUDGMENT
Pinard
J.
[1]
This
is an application for judicial review of the second level Fairness decision of Guy Daigneault,
Acting Assistant Director of Montreal Tax Services Office, Enforcement
Division, at the Canada Revenue Agency (the Minister’s Delegate), refusing to
waive the penalties and interest owed by the applicant and its predecessor
corporations. The applicant submits that the Minister’s Delegate failed to take
account of the ongoing health problems suffered by Mr. Friedmann, the
individual responsible for filing the applicant’s tax returns. The applicant
argues that it may be that these health problems were not the cause of his
failure to comply with the Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.), (the Act) but that the Minister’s Delegate completely failed to address
the evidence of ongoing illness after December 2001, and in particular the
applicant’s submission that Mr. and Mrs. Friedmann “étaient sous l’effet d’une
batterie de puissants medicaments qui affectaient grandement leurs capacités.”
* * * * * * *
* * *
[2]
Eva
and Joseph Friedmann are the sole shareholders, directors, and officers of the
applicant and its predecessor corporations, 3531856 Canada Inc. and 3531864
Canada Inc. (the “Predecessor Corporations”). The three corporations owe
interest and penalties for the late filing of their 2001-2003 tax returns.
[3]
In
the fall of 2000, Mr. Friedmann was diagnosed with cancer, and underwent
chemotherapy treatments until December 2001. Mr. Friedmann has provided
affidavits from his doctors to the effect that his health condition remained
poor until the end of 2002. Mr. Friedmann also affirms that he remained on
anti-depressants and other medications throughout 2002 and 2003.
[4]
During
this time, Mrs. Friedmann also suffered from a variety of illnesses. The
applicant also notes that Mrs. Friedmann has no knowledge of the business or
its financial affairs.
[5]
In
July 2002, the applicant’s accountant sought extensions of time to file the tax
returns of the applicant and its Predecessor Corporations.
[6]
In
April 2004, the applicant contacted the Canada Revenue Agency (the “CRA”) to
request waiver of the penalties and interests that had accumulated.
[7]
On
July 23, 2004, the tax returns for the applicant and its Predecessor Corporations
were filed.
[8]
In
September 2004, the CRA informed counsel for the applicant that the request
under the Voluntary Disclosures Program was denied on the basis that the
disclosure was not actually voluntary. However, on the basis of the Friedmanns’
health problems, the file was sent for consideration under the Fairness
provisions of the Act.
[9]
On
March 31, 2006, the CRA wrote to inform the applicant that its request was
being denied. It noted that “[a]fter examining the circumstances involved, we
note that there were no circumstances beyond your control, which affected the
company’s ability to file the tax return on time.”
[10]
The
applicant requested a review of this decision. On October 12, 2006, the
applicant’s request for a waiver of the penalties and interest was again
denied.
* * * * * * *
* * *
[11]
The
Minister’s Delegate relies upon Information Circular 92-2 and the case of Young
v. R. (1997), 138 F.T.R. 37, 98 D.T.C. 6028, to determine that the question
in this application was “de
savoir si les maladies ont empêché les monsieur et madame Friedmann de produire
les déclarations de leurs sociétés à temps.”
[12]
The
Minister’s Delegate notes that Mr. Friedmann had completed his chemotherapy at
the end of 2001, and thus had from six months to three years after the end of
his treatment to file the returns in question. The Minister’s Delegate also
notes that Mr. Friedmann did not ask his accountant to put his affairs in order
until the fall of 2003, twenty months after completion of his medical
treatment. Furthermore, the corporations in question have always been late in
filing their returns.
[13]
Finally,
the Minister’s Delegate contrasts the corporations’ tax returns with Mr. and
Mrs. Friedmann’s individual returns. According to the Minister’s Delegate,
the Friedmanns’ accountant should have had access to all the information
required to fill out the tax returns for the corporations in question. Furthermore,
the Friedmanns were able to engage in complex fiscal planning and transactions,
but apparently did not have time to prepare the tax returns for their
corporations, although these were less complex than their personal tax returns.
[14]
The
Minister’s Delegate also denied the applicant’s request for relief from the
interest and penalties accumulated during the course of the assessment.
* * * * * * * * * *
[15]
The
relevant provisions of the Act read as follows:
|
220.
(2.01) The Minister may authorize an officer or a class of officers to
exercise powers or perform duties of the Minister under this Act.
[…]
220.
(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.
|
220. (2.01) Le ministre peut
autoriser un fonctionnaire ou une catégorie de fonctionnaires à exercer les
pouvoirs et fonctions qui lui sont conférés en vertu de la présente loi.
[…]
220.
(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.
|
* * * * * * * * * *
[16]
The
applicant submits that the Minister’s Delegate erred by taking account of
irrelevant considerations and ignoring relevant ones. In particular, the
applicant submits that the Minister’s Delegate incorrectly concluded that Mr.
Friedmann’s illness only affected him until December 2001. In addition, the
applicant takes issue with the Minister’s Delegate’s reliance on the fact that
the Friedmanns had filed their personal income tax returns on time, and had
retained a professional accountant to deal with their finances.
[17]
With
regard to the standard of review of the Minister’s decision under the Fairness
provisions of the Act, the Federal Court of Appeal has determined that the
applicable standard is that of reasonableness (Lanno v. Canada (Customs
and Revenue Agency) 2005 FCA 153, 2005 D.T.C. 5245 and Comeau c. Canada (Agence
des douanes et du revenu), 2005 FCA 271, 361 N.R. 141). While this
standard should be customized to suit the facts and issues of each particular
case, I would not find, nor did the parties propose, any reason to deviate from
the standard of reasonableness in this case (Gandy v. Canada (Customs
and Revenue Agency), 2006 FC 862, 2006 D.T.C. 6510).
[18]
Review
of a decision on the standard of reasonableness requires that the Court not
intervene in a decision unless it is “not supported by any reasons that can
stand up to a somewhat probing examination” (Cartier-Smith v. Canada
(Attorney General), 2006 FC 1175, 2006 D.T.C. 6707 at para. 19). This can
occur, for example, if the Minister has taken account of irrelevant
considerations, or failed to take account of relevant considerations.
[19]
The
Information Circular 92-2, entitled “Guidelines for the Cancellation and Waiver
of Interest and Penalties,” outlines how the Minister’s discretion to waive all
or a portion of any interest or penalties payable should be exercised (the
Guidelines). Essentially, penalties and interest should be waived when the
failure to comply with the Act results from circumstances beyond the taxpayer’s
control. The Guidelines go on to provide some examples of situations where this
may be the case, including in the event of a serious illness or accident, or of
serious emotional or mental distress. However, the Guidelines do not have the
force of law and cannot fetter the Minister’s discretion (see, for example, Ross
v. Canada (Customs and Revenue Agency) 2006 FC 294, 289 F.T.R.
160).
[20]
The
burden lies on the party seeking a waiver of interest and penalties to provide
the Minister with the necessary evidence to determine whether the failure to
comply with the Act was due to circumstances beyond the control of that party,
in this case, due to the illnesses suffered by Mr. Friedmann and his wife (Young,
supra). Evidence which was not before the original decision-maker should
not be considered on judicial review (Ross, supra).
[21]
Applying
these principles to the present case, I find, on the basis of the information
which was before the Minister, that the applicant has failed to show that the
decision to refuse to waive the penalties and interest accumulated by the
applicant and its Predecessor Corporations was unreasonable. The applicant
submits that the Minister’s Delegate failed to consider the serious mental and
emotional distress the Friedmanns suffered during the relevant period. However,
this was never specifically raised before the Minister’s Delegate, the focus of
the request being on the Friedmanns’ illnesses and medication.
[22]
The
applicant also takes issue with the Minister’s Delegate’s comparison between
the tax returns of the corporations in question and Mr. and Mrs. Friedmanns’
personal tax returns, along with the fact that the Friedmanns have an
accountant who could have prepared the returns, pointing to Isaac v. Canada
(Attorney General), 2002 FCT 410, 218 F.T.R. 314. In that case, the Court
quashed the Minister’s decision not to waive interest and penalties because the
Minister had relied upon a previous application by the corporation of which the
individual applicant had been sole director. According to Madam Justice Heneghan:
[25] In my
opinion, the delegate of the Minister erred in law when she took into
consideration these facts [related to the application by the corporation] which
are irrelevant to the present application. The application of the Applicant is
a different matter than that of the company. . . .
[23]
I
would not find that this reasoning applies in this case. Mr. Friedmann’s
ability to deal with other matters, including his ability to file other tax
returns, and the possibility that another person could have prepared the
returns in question, are relevant considerations in assessing whether it was
his illness which prevented him from being able to file those returns. In that
context, I do not find that it was unreasonable for the Minister’s Delegate to
conclude that Mr. Friedmann’s health problems were not the cause of his failure
to comply with the Act, even if there was evidence to the effect that the
Friedmanns were on a number of medications after December 2001. Indeed, there
was no medical opinion before the decision-maker that Mr. Friedmann was unable,
because of his illness and medications, to file the tax returns of the
applicant and its Predecessor Corporations.
[24]
The
question here is not whether I would have appreciated the factual situation
differently, but whether the Minister’s Delegate’s decision was reasonable.
[25]
Finally,
the applicant sought cancellation of the interest and penalties which had
accumulated during the assessment, and states that the Minister’s Delegate
relied on paragraph 6(a) of the Guidelines to deny this request, thus fettering
his discretion. However, a reading of the Minister’s Delegate’s decision
demonstrates that it was actually the applicant which had relied upon paragraph
6(a) to seek cancellation of the interest and penalties. Paragraph 6(a)
suggests consideration of “processing delays which result in the taxpayer not
being informed, within a reasonable time, that an amount was owing.” The
Minister’s Delegate determined that, since the applicant had known since July
2004 that an amount was owing, this paragraph did not apply. The applicant did
not raise any other basis for cancellation of the interest and penalties which
had accumulated during the assessment. In my opinion, it was not unreasonable
for the Minister’s Delegate to not consider what the applicant did not raise.
* * * * * * * * * *
[26]
For
all the above reasons, the application for judicial review is dismissed, with
costs.
“Yvon
Pinard”
Ottawa, Ontario
November
30, 2007
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