Date:
20070531
Docket:
T-597-06
Citation:
2007 FC 560
[ENGLISH
TRANSLATION]
Ottawa, Ontario, May 31, 2007
PRESENT:
The Honourable Mr. Justice Shore
BETWEEN:
LES
PEINTRES FILMAR INC.
Applicant
and
CANADA
REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT AND
JUDGMENT
OVERVIEW
[1]
Truth
is unequivocal! If it is not complete, it cannot be qualified as the truth. No
one has all the truth, but what a person has must be shared to be qualified as
his or her truth. Otherwise, what person or, similarly, what government body
could have confidence in its content?
[2]
In
sharing or correcting explanations regarding their truth, or what they know, a
person or a corporate entity is not blamed for what they admit, but rather for
what is not said. Simply put, in the case of voluntary disclosure, it is not
what is said that makes them liable, but rather their actions, related to the
evidence, that themselves expose them to what they knew and did not fully
disclose, as applicable. Before this Court, at this stage, it is only the
reasonableness of the decision itself, refusing to follow up on the voluntary
disclosure, that is considered, not the final result, weighing what was said in
that voluntary disclosure.
[3]
The Minister of
National Revenue is authorized to cancel or waive penalties under subsection
220(3.1) of the Income
Tax Act,
R.S.C. 1985, c.1, (5th
Supp.) (ITA), and paragraph 900(4)(b) of the Income Tax Regulations,
C.R.C., c. 945, with regard to the criteria set out in Circular IC00-IR
(Circular) and the Canada Revenue Agency’s Guidelines.
[4]
The Voluntary
Disclosure Program (VDP) is a fairness initiative that allows taxpayers to
correct inaccurate or incomplete information or provide information that was
not reported, without incurring a penalty or legal action.
[5]
The purpose of the
program is to promote voluntary compliance and payment of duties and taxes set
out in the ITA, among other things. The VDP encourages taxpayers to take the
initiative to correct any problems in order to comply with their legal
obligations.
INTRODUCTION
[6]
The
desired purpose of the application for judicial review filed by the applicant
on April 3, 2006 is to [translation]
“declare invalid and unlawful” the “decision made on March 2, 2006 [...] by Mr.
Guy Gohier, Chief of Appeals at the Montréal Tax Services Office [...]”, by
which he refused to follow up on the voluntary disclosure proposed by the
applicant, on that grounds that it was incomplete. (C. I and II, Application
for Judicial Review, April 3, 2006; Exhibit N, Affidavit by Eugene Cirillo, May
3, 2006.)
[7]
The
sole issue is therefore whether, in doing so, the Chief of Appeals reasonably
exercised the discretion afforded him by subsection 200(3.1) of the ITA and paragraph 900(4)(b) of the Income
Tax Regulations with regard to the
criteria set out in Circular ICOO-IR and the Guidelines. (Exhibits O and P,
Affidavit by Eugene Cirillo; Litmar Ltd. v. Canada (Customs and Revenue
Agency), 2006 FC 635, [2006] F.C.J. No. 814 (QL).)
[8]
Under
the powers granted it by section 18.1 of the Federal Courts Act, R.S.1985, c. F-7, this Court does not have
jurisdiction to judicially review any other decision that the Minister’s
employees may have made as part of their duties, including but not limited to,
that of [translation] “proceeding
to the Special Investigations Division” or that of “pursuing a criminal
investigation”. (C. III, Application for Judicial Review, April 3, 2006.)
JUDICIAL PROCEEDING
[9]
This is a motion asking
the Court to issue an interim order under section 18.2 of the Federal Courts
Act aimed at preventing the respondent from assessing penalties under
subsection 163(2) of the ITA, from pursuing its criminal investigation or from
filing charges until a final decision is made in this case.
[10]
It is also a motion
asking the Court to issue an order to have all documents in the respondent’s
possession transmitted to it that were not transmitted in response to the request
submitted by the applicant under Rule 317 of the Federal Courts Rules,
SOR/98-106. As such, the applicant is seeking an extension of the time set out
in Rule 309 of the Federal Courts Rules for serving the applicant’s
record by 30 days from the date on which the applicant receives the transmitted
documents.
[11]
The applicant is also
asking that the Court award it costs related to this motion.
FACTS
[12]
On February 18, 2003,
the applicant, Peintres Filmar Inc., contacted the Appeals Division at the
Montréal Tax Services Office of the Canada Revenue Agency to make anonymous use
the VDP.
[13]
On about March 18,
2003, the Small and Medium Enterprise Audit Division of the Tax Services Office
contacted the applicant to advise it of their intention to conduct an audit.
The applicant advised them that a voluntary disclosure was already underway.
The applicant decided to proceed with an audit despite the ongoing voluntary
disclosure.
[14]
On April 14, 2003, as
part of the VDP, the applicant sent a summary of invoices totalling $163,953.46
covering the calendar years from 1999 to 2001. On January 26, 2004, as part of
the VDP, the applicant sent a copy of the invoices listed in the summary. It
was not advised in advance that the respondent refused the voluntary disclosure
on the grounds that the applicant had already made use of the VDP.
[15]
On March 22, 2004, the
Small and Medium Enterprise Audit Division transferred the applicant’s file,
without its knowledge, to the Special Investigations Division on the grounds
that the voluntary disclosure was incomplete because an amount of $35,865
(including taxes) was omitted from the disclosure.
[16]
During a meeting held
on March 25, 2004, the officer responsible for the applicant’s file advised it
that he could not retain its file as a voluntary disclosure because it was
incomplete.
[17]
The applicant alleges
that it never had an opportunity to explain the alleged discrepancies. Instead,
following a meeting held before March 22, 2004, between the Small and Medium
Enterprises Audit Division and the Appeals Division of the respondent, the
decision was made to transfer the file to the Special Investigations Division
following the audit.
[18]
On July 5, 2004, the
applicant received a letter from the respondent advising, on the one hand, that
its file was refused under the VDP and, on the other hand, that it could
request a second review by the Director of the Tax Services Office.
[19]
On September 20, 2005,
the respondent executed five search warrants based on the information obtained.
[20]
On November 28, 2005,
the applicant asked the Director of the Tax Services Office to conduct a second
impartial review of its file. On March 2, 2006, the Chief of Appeals issued a
decision by which he refused to accept the request by the applicant as part of
the VDP to cancel or waive penalties. The applicant received that letter on
March 8, 2006.
[21]
On April 3, 2006, the
applicant filed an application for judicial review of the decision issued on
March 2, 2006. First, the application seeks to have the decision to refer the
applicant’s file invalid and unlawful. Second, the application seeks a
declaration that the respondent acted without jurisdiction or exceed its
jurisdiction by refusing the applicant’s request under the VDP. Finally, the
application seeks an order under subsection 24(1) of the Canadian Charter of
Rights and Freedoms, Part I, Schedule B of the Canada Act 1982, c.
11 (UK) (Charter), declaring that the decision violates the applicants Charter
rights.
On July 7, 2006, the applicant filed a motion under section 18.2 of the Federal
Courts Act that is the subject of this case.
IMPUGNED DECISION
[22]
Having found that the
voluntary disclosure application by the applicant, Peintres Filmar Inc., was
incomplete, the Montréal Tax Services Office dismissed the request for a second
impartial review of the applicant’s voluntary disclosure file.
ISSUE
[23]
The applicant’s motion
essentially seeks three things:
(1) The extension of the
deadline set out in Rule 309 of the Federal Courts Rules regarding the
service of the applicant’s record;
(2) An interim order under
section 18.2 of the Federal Courts Act to prevent the respondent from
assessing penalties, pursuing its criminal investigation or filing charges
until a final decision is made in this case;
(3) An order to have all
documents in the respondent’s possession transmitted that have not been
transmitted, namely:
•
a copy of computer
screen captures from the audit file identifying the grounds for selection for
audit;
•
other documents that
the respondent objects to transmitting, i.e. a full copy of the special
investigations file and a full copy of the numerous exchanges between the
Appeals Division, the Audit Division and the Director’s office as part of the
applicant’s impartial second review.
VDP
[24]
The Minister of
National Revenue is authorized to cancel or waive penalties under subsection
220(3.1) of the ITA and paragraph 900(4)(b) of the Income Tax Regulations,
with regard to the criteria set out in the Circular and the Canada Revenue
Agency’s Guidelines.
[25]
The VDP is a fairness
initiative that allows taxpayers to correct inaccurate or incomplete
information or provide information that was not reported, without incurring a
penalty or legal action.
[26]
The purpose of the
program is to promote voluntary compliance and payment of duties and taxes set
out in the ITA, among others. The VDP encourages taxpayers to take the
initiative to correct any problems in order to comply with their legal
obligations.
[27]
The Revenue Agency
allows taxpayers to avoid penalties when the conditions set out in the Circular
are met. For a voluntary disclosure to be valid, it must meet four conditions:
be voluntary, be complete, include a penalty, and contain information that is
at least one year late being filed.
[28]
Under paragraph 6(b) of
the Circular, although the information provided in a disclosure must be
essentially complete, a disclosure will not be disqualified simply because it
contains errors or minor omissions. Under paragraph 8.4 of the Guidelines,
determination of whether or not a disclosure is complete must take into account
the efforts by the taxpayer to provide the most accurate and complete
information. If the disclosure is essentially complete, it will be deemed
complete. According to the DPV Guidelines, to determine whether an omission is
material for a given year, the respondent must consider all omissions and the
original amount disclosed by the applicant.
[29]
The Guidelines also
state the following regarding the determination of the completeness or
incompleteness of a voluntary disclosure:
[translation]
•
In many cases, the VDP
officer will be able to determine whether or not the disclosure is complete.
However, when in doubt in this regard, the disclosure should be forwarded to
V&E for them to conduct a subsequent validation and recommend a position on
whether or not to accept the disclosure as complete. In some situations, the
VDP officer and the auditor may find it useful to discuss a case. In all cases,
V&E must advise the VDP officer of the results and provide the audit
report. Although the recommendation by V&E must be taken into
consideration, the final decision on whether a disclosure is complete is up to
Appeals.
[30]
Under paragraph 10.3 of
the VDP Guidelines, if a taxpayer disagrees with a decision and believes that
the respondent did not fairly and reasonably exercise its discretion, the
taxpayer may contact the Director of the appropriate Tax Services Office in
writing to request a second impartial review.
LEGISLATIVE FRAMEWORK
[31]
Section 18.2 of the Federal
Courts Act reads as follows:
|
18.2 On an
application for judicial review, the Federal Court may make any interim
orders that it considers appropriate pending the final disposition of the application.
|
18.2 La Cour fédérale
peut, lorsqu’elle est saisie d’une demande de contrôle judiciaire, prendre
les mesures provisoires qu’elle estime indiquées avant de rendre sa décision
définitive.
|
[32]
The three conditions
for granting an interim order under section 18.2 of the Federal Courts Act
are as follows: i) the existence of a serious question to be tried; ii) irreparable
harm to the applicant if the interim order is not issued; and iii) the balance
of convenience. (R.J.R. - MacDonald Inc. v. Canada (Attorney General),
[1994] 1 S.C.R. 311, [1994] S.C.J. No. 17 (QL).)
[33]
Moreover, an interim
order staying proceedings if, without it, an application for judicial review
would be ineffective or moot. (Capital Vision Inc. v. Canada (Minister of
National Revenue – M.N.R.), [2000] F.C.J. No. 954 (QL).)
Granting of an interim order
i) Serious question to be
tried
[34]
The applicant bears the
burden of establishing the existence of a serious question to be tried.
According to the courts, for a proceeding to raise a serious question to be
tried, it must not be frivolous or vexatious. These minimal requirements are
not high. (R.J.R. - MacDonald, above.)
[35]
The applicant alleges
that there is a serious question to be tried, namely whether:
a) The respondent acted
without jurisdiction or exceeded its jurisdiction in refusing to consider the
applicant’s voluntary disclosure to be complete;
b) The respondent’s decision
violated the applicant’s Charter rights;
c) The respondent did not
exercise the rules of natural justice or procedural fairness;
d) The respondent’s decision
is clearly unreasonable under the circumstances.
ii) Irreparable harm
[36]
The applicant claims
that it would suffer irreparable harm if the interim order is not granted, as
the application for judicial review before this Court would become moot and
ineffective. Before this Court could have the opportunity to rule on the merits
of the application, the applicant could be assessed the civil penalties and
criminal fines set out in subsection 163(2) and section 239 of the ITA. If
charges were laid against the applicant, without being convicted, it could also
lose the right to the protection of confidential information and the privacy
promised under the VDP (Capital Vision, above.)
iii) Balance of convenience
[37]
The applicant alleges
that the balance of convenience favours granting the interim order, as the
respondent would not suffer any harm if the order is granted. On the one hand,
there is no timeline within which the Minister of National Revenue must assess
when a penalty applies under subsection 163(2) of the ITA. On the other hand,
the Court has ample time to rule on the application before the filing of
charges is statute-barred. Consequently, only the applicant would suffer harm
if the order is not granted.
Documents (according to the applicant)
[38]
The applicant alleges
that the documents in the respondent’s possession that were not sent to it in
response to its request under Rule 317 of the Federal Courts Rules are
necessary for the preparation of the applicant’s record.
[39]
The applicant also
argues that the other documents requested in the notice of application, which
the respondent objects to transmitting on the grounds that the requested
documents and information are protected under the privilege of the ongoing
investigation, are not subject to any privilege that would prevent the
applicant from obtaining them as part of its application before the Court.
[40]
As such, the applicant
claims that a portion of the documents transmitted confirms that there were numerous
exchanges between the Appeals Division, the Audit Division and the Director’s
office as part of the applicant’s second impartial review and, thus, that the
respondent cannot allege privilege when some of the parties involved are not
investigative bodies.
Extension of the deadline (according to the
applicant)
[41]
The applicant alleges
that an extension of the deadline for filing its record with this Court is
needed if other documents are to be provided to it by the respondent.
Extension of the deadline (according to the
respondent)
[42]
The respondent does not
object to this request.
Documents (according to the respondent)
[43]
The respondent alleges
that all copies of screen captures in the audit file that identify the reasons
for selection for audit were sent to the applicant, except one copy that is
included in Appendix A of the respondent’s arguments.
[44]
Regarding other
documents (see statements below)
CONCLUSION
Granting of an interim order
i) Serious question to be tried
[45]
The Court agrees with
the two parties that there is a serious question to be tried.
ii) Irreparable harm
[46]
The applicant would not
suffer irreparable harm in this case by being the subject of a criminal
investigation, particularly as that investigation is clearly related to facts
that have no relevance is determining whether the Chief of Appeals reasonably
exercised his discretion under the ITA. Moreover, the applicant retains the
right to exercise all its rights under the Criminal Code, R.S.C. 1985,
v. C-46, if criminal charges are eventually laid against it, including arguing
that the evidence gathered during the investigation was gathered in a manner
inconsistent with the Charter guarantees, if such were the case.
[47]
Further, the applicant
suffers no irreparable harm from the fact that it could be assessed the
penalties set out in the ITA on amounts that it failed to disclose or on
elements that the investigation could eventually reveal, particularly as it
retains the right to exercise its rights under the relevant provisions of the
ITA regarding assessments that may be raised against it under the regular
application of the ITA.
iii) Balance of convenience
[48]
The balance of
convenience favours the respondent if an order is issued by the Court requiring
that it transmit to the applicant the “full copy of the special investigations
file” and the “full copy of the file of Carole [Gouin], including any
communications with her or an assistant regarding it and the Special
Investigations Division”. A litigant who is the subject of a criminal
investigation does not have the right as such to be actively involved in the
search for evidence to determine if a criminal offence was committed. The
applicant therefore has no right, apart from the process set out in the Criminal
Code, to obtain advance disclosure of evidence gathered at a given time,
much less to obtain such an order from the Court before the investigation is
even completed or charges are laid. (R. v. Stinchcombe, [1991] 3 S.C.R.
326, [1991] S.C.J. No. 83 (QL); Canada (Attorney General) v. O’Neill,
[2005] O.J. No. 2130.)
[49]
The same would be true
for interrupting the respondent’s criminal investigation or the laying of
charges until a final decision is rendered in this case, as that would prevent
the Minister from exercising his rights and duties under the ITA when there is
no link between the action taken and the reasonableness for the Chief of
Appeals of basing his decision solely on the elements in the file.
[50]
The Court dismisses the
applicant’s motion and also dismisses the “remedies” sought in the notice of
motion.
JUDGMENT
THE COURT ORDERS that
1) The applicant’s motion is
dismissed, and the remedies sought in the notice of motion are dismissed;
2) With costs.
“Michel
M.J. Shore”
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