Citation: 2011 FC 766
Ottawa, Ontario, June 24,
PRESENT: The Honourable Mr. Justice Rennie
R. JON WILLIAMS
THE MINISTER OF NATIONAL REVENUE
REASONS FOR JUDGMENT AND
applicant seeks an order setting aside the Minister of National Revenue’s
decision that he did not qualify under the Voluntary Disclosure Program (VDP)
for relief from certain obligations imposed under the Income Tax Act,
RSC 1985 (5th Supp), c1 (the Act). For the reasons that
follow, this application for judicial review is dismissed.
reporting of income and payment of tax is the foundation of the Canadian
taxation system. Individuals who fail to report their income or pay amounts
owed have an obligation to pay the tax and associated interest and penalties. However,
section 220(3.1) of the Income Tax Act grants the Minister of National
Revenue (the Minister) broad discretion to waive or cancel penalties to which
the taxpayer would otherwise be subject. The Minister’s exercise of discretion
is guided by various policy considerations, including those set forth in
Information Circular IC-001R. This document is available to the public and sets
out guidelines for the exercise of the Minister’s discretion in relation to the
Voluntary Disclosure Program.
to IC-001R, the purpose of the VDP is to promote voluntary compliance with the
provisions of the Customs Act, Customs Tariff, Excise Tax Act,
and Income Tax Act. It encourages taxpayers to correct inaccurate or
incomplete information or to disclose information not previously reported. Taxpayers
who make disclosure under the program are liable for the taxes and duties
owing, plus interest, but the penalties that would otherwise be imposed under
the Acts may be waived.
order to qualify for the VDP, a valid disclosure must meet four conditions set
out in IC-001R:
disclosure is voluntary;
disclosure is complete;
disclosure involves a penalty; and
disclosure includes information that is at least one year past due, or if less
than one year past due, not initiated simply to avoid the late filing or
voluntary disclosure must be initiated by the taxpayer. A disclosure will not
qualify as voluntary if it was found to have been made with the knowledge of an
audit, investigation or other enforcement action that has been initiated by the
Canada Revenue Agency. The purpose of this condition is self-evident. The
objective of the VDP is to promote and enhance the voluntary compliance and
reporting that is the cornerstone of the Income Tax Act. The VDP is not
a safety-valve for individuals who see the wisdom of compliance only after they
come across CRA’s radar screen.
complete disclosure must include full and accurate reporting of all previously
inaccurate, incomplete or unreported information. Information provided must be
substantially complete. Disclosures with material errors or omissions will not
qualify for the VDP.
applicant had not filed T1 returns for the 1997, 1998, and 2000-2003 tax years,
or GST returns for 1997-2002. In consequence, the applicant received Demand to
File Notices for his outstanding T1 returns. He also had periodic contact with
officers in the Non-Filer Division of the Canada Revenue Agency who requested
that he file his outstanding returns.
several years of contact with the Non-Filer Division, in a letter dated April
21, 2006, the applicant applied under the VDP for relief in respect of his
failure to file the 1997-2003 taxation years and for related GST obligations.
The Decision Under Review
applicant’s VDP request was rejected after a first-level review by a VDP
officer. The applicant requested a second-level review of the decision to deny
his VDP request, but the first level-decision was upheld.
both the first level and second level decisions, the applicant’s VDP request
was denied on the grounds that neither the voluntary nor the completeness
criteria were met. The voluntary condition of VDP was not met because the
Non-Filer unit had contacted the applicant on numerous occasions regarding the
outstanding T1 returns. Notices were also sent to the applicant requesting that
the returns be filed for tax years 1997, 1998 and 2000-2003. The completeness
criteria was not met because the applicant did not file the outstanding returns
by the deadline, and therefore failed to provide complete disclosure.
applicant challenges the second-level review decision upholding the denial of
his VDP application.
applicant contends that the decision to deny him the benefits of the VDP was
unreasonable, that he was not afforded procedural fairness and that the
decision under review infringed his rights under section 7 of the Canadian Charter
of Rights and Freedoms, Part I of the Constitution Act, 1982.
made under the taxpayer relief provisions of the Act are reviewed on a
standard of reasonableness: Canada Revenue Agency v Telfer, 2009 FCA 23 at
para 2. In Telfer the Court held that the broad nature of the
Minister’s extraordinary statutory discretion militates against close scrutiny
of the decision (para 40). Procedural fairness issues arising from the
decision making process are reviewed on a correctness standard: Sketchley v Canada (Attorney
2005 FCA 404 at para 53.
a preliminary issue, the applicant challenges the accuracy and admissibility of
a paragraph in an affidavit filed by the respondent on the basis that it
contains inadmissible hearsay. In paragraph 14 of the affidavit sworn by Mr.
Merali, the affiant states that he has reviewed the internal computer diary
notes made by CRA employees when they have contact with taxpayers. The
computerized diary notes relating to the applicant are attached as an exhibit
to the affidavit.
computerized notes were not written by Mr. Merali, and he cannot confirm the
truth of their contents. Consistent with Rule 81(1) of the Federal Courts
Rules (SOR/98-106), I find that
paragraph 14 of the Merali Affidavit and the attached computerized notes are
admissible as part of the record before the decision maker, but I have not
relied on the computerized notes as evidence of the truth of their contents.
applicant argues that the computer generated Demands to File his return and his
contact with the Non-Filer Division do not constitute enforcement action, and
that the Minister’s delegate erred in law in considering them as such. I find
that the decision that the issuance of Notices to File and the contact with CRA
Non-Filer officials constituted enforcement action for the purposes of the VDP
was, having regard to the facts before the decision-maker, reasonable.
Merali’s second level review report notes that TX11 or TX14D computer-generated
notices to file were issued with respect to each outstanding return the
applicant sought to file under the VDP. As well, the Non-Filer section of CRA
had contact with the applicant over the two years prior to the purported
disclosure in an effort to convince the applicant to file his outstanding
returns. The returns the CRA sought from the applicant were exactly the
returns he sought to file under the VDP.
do not accept the argument advanced that enforcement activity is confined to
use of criminal prosecution authority. Compliance with the Act is
through voluntary self-reporting and the Minister, under the Act has
various mechanisms to encourage, short of prosecution, compliance. To confine
enforcement to prosecution would be to take a narrow view of the scope and
nature of remedies open to the Minister.
Voluntary Disclosure Program Guidelines are internal Guidelines which describe
how VDP requests are to be assessed in both first and second level reviews. The
Guidelines explicitly state that enforcement activity includes
“computer-generated notices to file (e.g. TX11, TX14, RC80)”, and collection
activity in progress.
response to the question in the VDP Client Agreement Form whether there had
been any enforcement action, the applicant responded “Calls from the non-filer
section only. No enforcement action to my knowledge.” Whether or not conduct
by the CRA constitutes enforcement action cannot depend on the subjective view
of either the CRA or the applicant. It must be an objective assessment,
informed by the facts, and of course, the provisions of the Income Tax Act.
Thus the applicant’s argument that he, personally, did not perceive the Notices
to File as enforcement activity, does not assist his case. Moreover, there was
clear evidence before the officer that the applicant sought refuge in the VDP
directly in response to the CRA collection efforts. A reasonable person would
conclude, having regard to the extent of non-compliance, the repeated issuance
of Notices to File and the communications with the Non-Filers Division of CRA
that enforcement activity was underway. Viewed in light of the on-going
efforts by CRA to obtain compliance, the decision that the applicant’s
disclosure was not voluntary is reasonable.
the applicant argues that he should not have to make a disclosure prior to a
determination being made on his VDP application, and that it was unreasonable
to find that his disclosure was incomplete. This argument is based on a
misunderstanding of how the VDP works.
who want to ensure they will qualify for the VDP prior to making a disclosure
can approach the CRA on an anonymous basis to obtain an opinion whether their
disclosure will be accepted under the VDP. Once a hypothetical VDP
determination has been made the taxpayer can file an actual disclosure under
his or her identity. CRA will honour any determination made under a “no-name”
process. This is explained in the IC00-1R policy.
requirements and risks of the VDP are clearly set out in the IC-001R and the
Client Agreement Form. Taxpayers must make full disclosure, and if they are
not accepted as voluntary, or found to be incomplete, the taxpayer may be
liable for the penalties that flow from their disclosure. In this regard, the
applicant received a letter from the VDP stating “you have 90 days from the
date of disclosure to submit all documentation needed to substantiate the
disclosure”. The applicant replied that he would deliver his outstanding
returns on October 4, 2006. He did not do so.
purpose of the program is to encourage taxpayers to make disclosure. The
applicant was provided with the Client Agreement Form (VDP-1) which described
the need to provide complete disclosure, and the consequences of failing to do
so. The applicant in this case never disclosed his outstanding returns. In
these circumstances, it was reasonable for the CRA to refuse the applicant’s
VDP application on the grounds that it was incomplete.
case is unlike Wong v Canada (National Revenue) 2007 FC 628,
where Justice Michael Phelan found that the applicant disclosed under the
illusion that the only issue with respect to his VDP application was
completeness. In that case, it was a breach of procedural fairness for the
officials to accept Wong’s disclosure, knowing full well that it would be
considered involuntary and failing to inform him to that effect. To further
mark the distinction between this case and Wong, Justice Phelan noted at
paragraph 28 that the presentation of the VDP-1 form might have eliminated all
of the problems in that proceeding. In this case, the VDP-1 form was presented
to the applicant, and signed.
substantive content of the duty of procedural fairness varies depending on the
nature of the decision under review and its consequence: Baker v Canada (MCI),  2
SCR 817 at paras 21-22. Here, the obligation of fairness in reaching a
decision under the VDP program is minimal: Wong v Canada (MNR), 2007 FC 628
at para 29. The applicant was under an obligation to comply with the
requirements of the Act, and became liable for penalties when he failed
to do so. The discretion accorded to the Minister to waive or cancel any penalties imposed is broad, and constitutes
exceptional relief from penalties for which taxpayers are otherwise liable to
pay under statute.
support of the procedural fairness argument the applicant argues that there was
both an actual lack of independence and a perceived lack of independence in the
way the second level review was conducted. The applicant points out that all
of the people involved in reviewing his file work closely together in the same
level review was conducted by Mr. Merali, who was a co-worker of the person who
conducted the first level review (Ms. Neal).
official who signed off on the first review is Ms. Giraldi. Ms. Giraldi was
the officer who trained Mr. Merali on key aspects of the VDP. Ms. Giraldi was
Mr. Merali’s supervisor prior to the second level review taking place. Therefore,
Mr. Merali was essentially reviewing his supervisor’s decision.
officer who signed off on the second level review, Mr. Meggetto, was also part
of the same tax office, and should have known of Mr. Merali’s working
relationship with the other CRA officials involved in the first level review.
Merali confirmed that he simply reviewed the file, and did not take any notes
or conduct any interviews in order to prepare his second level review report. Mr.
Meggetto also did not interview anyone or conduct any independent analysis
before signing off on the second level review.
my view, the relationships between the officers conducting the first and second
level reviews do not amount to a breach of procedural fairness. There was no
evidence that the individuals involved in the second review, Mr. Merali and Mr.
Megetto, consulted with Ms. Neal or Ms. Garibaldi, the individuals who
conducted the first level review. There was no evidence that either Mr. Merali
or Mr. Megetto felt pressure to uphold the findings of the first review. In
fact, during cross-examination Mr. Merali consistently stated that he
understood that his review had to be independent from the first review.
the applicant made no allegations that Mr. Megetto’s independence was
compromised by his proximity to Ms. Giraldi or Ms. Neal. Mr. Megetto was the
actual decision maker. It is a common administrative practice with respect to
discretionary decisions to have a junior officer prepare a report for a senior
officer to review and sign off on. On the facts of this case, it was not a
breach of procedural fairness for Mr. Megetto to sign off on Mr. Merali’s
leaving this argument, I would add that the degree of procedural fairness and
the robustness by which the principle is implemented varies with the nature of
the interests or rights engaged and with the nature of the discretion. The VDP
is a highly discretionary program which, as its object, encourages compliance
with important mandatory statutory requirements. Put more bluntly, it is
designed to encourage taxpayers to do that which they were required by law to
have done in the first place. As such, the criteria governing the exercise of
discretion are strict and narrow and the rights involved are minimal.
applicant relies on Blencoe v British Columbia (Human
Rights Commission),  2 S.C.R. 307 for the proposition that the
decision to deny him the benefits of the VDP imposed severe psychological harm
and infringed his security of the person under section 7 of the Charter.
applicant’s Charter arguments were advanced at a late stage in the
proceedings, after the parties filed their affidavits and completed
cross-examinations. The applicant did not refer to the Charter in his
Notice of Application, nor did he submit an amended Notice of Application. The
applicant did not submit any affidavit evidence to support his Charter
Supreme Court of Canada (SCC) has stressed the importance of deciding Charter
claims based on a proper factual foundation. In MacKay v Manitoba,  2
SCR 357, at para 20, the SCC held that:
If the deleterious effects are not
established there can be no Charter violation and no case has been made out.
Thus the absence of a factual base is not just a technicality that could be
overlooked, but rather it is a flaw that is fatal to the appellant’s position.
comments are apt. The applicant has not provided affidavit evidence to support
his claim of psychological harm and has not made out the deleterious effects of
the Minister’s negative decision. This is fatal to the applicant’s position. Without
a proper factual foundation the Court will not hear a Charter issue. In
any event, if I were to hear the applicant’s Charter claim, I would find
that section 7 rights are not implicated in the decision under review. There
being no breach of procedural fairness, or natural justice, it is difficult to
see what aspect of the procedural protections encompassed by section 7 are
to the substantive content of section 7, the test for assessing whether
psychological harm amounts to a deprivation of section 7 of the Charter
is set out in Blencoe, above. The psychological harm must be imposed by
the state and must have a “serious and profound effect on [their] psychological
integrity”; Blencoe para 81. In New Brunswick (Minister of
Health and Community Services) v G(J),  3 S.C.R. 46 at
para 59, the SCC held that section 7 does not protect individuals from “the
ordinary stresses and anxieties that a person of reasonable sensibility would
suffer as a result of government action”. There is no evidence in this case
that the applicant would suffer anything other than the ordinary stresses
experienced by any Canadian who does not comply with the requirements of the Act.
In sum, even if the Charter claim had a proper evidentiary footing, it
would fail on the merits.
respondent decided that the applicant did not qualify for the VDP because he
was subject to enforcement action relating to the outstanding returns prior to
applying for the VDP and because he failed to actually disclose his outstanding
returns. In my view, the respondent’s conclusions fall within the range of
acceptable outcomes having regard to the facts, and having regard to the nature
of the discretion. Turning to the second issue, the applicant was afforded
procedural fairness in the second level review of the negative VDP decision. For
these reasons, I conclude there are no grounds to intervene in the Minister’s
decision to deny the applicant the benefits of the VDP program.
application for judicial review is dismissed. I make no order for costs.
THIS COURT’S JUDGMENT
the application for judicial review is dismissed