Date: 20070726
Docket: T-1569-06
Citation: 2007 FC 782
Vancouver, British Columbia, July
26, 2007
PRESENT: The Honourable Mr. Justice Campbell
BETWEEN:
JIM'S PIZZA (1980) LTD. and
HANEY 2 FOR 1 PIZZA LTD.
Applicants
and
CANADA
REVENUE AGENCY
Respondent
REASONS FOR ORDER AND ORDER
[1]
In
the present case, the principals of the two corporate Applicants who are in the
restaurant and pizza production business respectively, failed to remit GST and payroll
as required by law. As a result, hefty interest and penalties were imposed by
the Respondent from which the Applicants applied for “fairness” relief pursuant
to s.220(3.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.) and s.281.1 of the Excise Tax Act, R.S.C. 1985, c. E-11.
[2]
The
fairness process resulted in three reviews and rejections of the Applicants’
plea, the last being a formal rejection dated August 1, 2006 which is the
decision presently under review. The reason for the rejection is capsulated by
the decision-maker’s informal comment on the record as follows:
Client made business decision to keep
operating a business that appears to have been financially unviable.
Circumstances are unfortunate but still no excuse for not filing and paying .
(Respondent’s Record, p.12).
[3]
The
standard of review of the present decision is reasonableness (Lanno v.
Canada Customs and Revenue Agency, 2005 D.T.C. 5245 (F.C.A.)).
I. The
relief provisions
Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.)
|
220(3.1) The Minister may at any
time waive or cancel all or any portion of any penalty or interest otherwise
payable under this Act by a taxpayer or partnership and, notwithstanding
subsections 152(4) to 152(5), such assessment of the interest and penalties
payable by the taxpayer or partnership shall be made as is necessary to take
into account the cancellation of the penalty or interest.
|
220(3.1) Le ministre
peut, à tout moment, renoncer à tout ou partie de quelque pénalité ou intérêt
payable par ailleurs par un contribuable ou une société de personnes en
application de la présente loi, 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.
|
Excise Tax Act, R.S.C. 1985, c. E-11
|
281.1 (1) The Minister may waive or cancel interest payable by
a person under section 280.
(2) The Minister may waive or cancel penalties payable by
a person under section 280.
|
281.1 (1) Le ministre peut annuler les intérêts
payables par une personne en application de l’article 280, ou y renoncer.
(2) Le ministre peut annuler la pénalité payable par une personne
en application de l’article 280, ou y renoncer.
|
II. The Guidelines
for granting relief
[4]
While
they are not binding on the Minister’s discretion to grant relief,
nevertheless, Guidelines entitled Memorandum GST 500-3-2-1, Cancellation or
Waiver of Penalties and Interest (March 14, 1994) were followed in reaching
the decision under review:
EXTRAORDINARY CIRCUMSTANCES
6. Penalties and interest may be cancelled or waived
where they resulted from an extraordinary circumstance beyond the person’s
control, which prevented the person from complying with the Act. For example,
one of the following extraordinary circumstances may have prevented a person
from making a payment when due, or otherwise complying with the 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.
[. . . ]
FACTORS
9. Where an extraordinary circumstance beyond the
person’s control has prevented the person from complying with the Act, the
following factors will be considered by the Department to determine whether or
not penalties and interest will be cancelled or waived:
(a) Does the person have a satisfactory history
of voluntary compliance (i.e., have previous GST returns been filed and
payments made on time)?
(b) Has the person knowingly allowed an outstanding
balance to exist upon which the penalties and interest have accrued?
(c) Has the person acted quickly to remedy the
omission or the delay in compliance, which originally resulted in penalties and
interest being charged?
(d) Is there evidence that the person exercised
reasonable care and diligence (e.g., planned for anticipated disruptions) and
was not negligent or careless in the conduct of its affairs? The onus is on the
registrant to keep abreast of any new developments in the administration of the
GST so as to ensure continuing compliance.
(10) During the evaluation of these factors, the
Department may contact the person and request further information or
clarification concerning the circumstances under which penalties and interest
became payable.
(Respondent’s Record, pp.12-15)
III. The fairness
decision under review
[5]
The
Applicants based their request for interest and penalty relief on a number of
grounds including: the Applicants’ business suffered from the introduction of
the GST; legal action by the CRA to collect outstanding GST and payroll debt
caused the Applicants hardship; the principals of the Applicants had their
house expropriated in 1991, but was finalized in 1994; and one of the
principals had hip and knee replacement surgeries and the other had arthritis
and fibromyalgia.
[6]
There
was substantial consideration of the Applicants’ arguments.
[7]
The
Applicant, Jim’s Pizza (1980) Ltd., failed to remit GST for the period of
February 28, 1997 to August 31, 1999. The Applicant, Haney 2 For 1 Pizza Ltd.,
failed to remit GST for the period from February 28, 1998 to November 30, 2002.
[8]
The
Applicants applied to the Minister for fairness relief with respect to their GST
and payroll debt on July 29, 2004. The Minister was not prepared to consider
the Applicants’ request as the Applicants had not filed all their corporate tax
returns, a payment proposal and financial statements. Further, the request did
not specify what the Applicants were seeking.
[9]
On
January 10, 2005, the Applicants wrote to the Minister requesting the reversal
of all interest from 1997 until the present time for both GST and payroll. The
Minister treated this letter as the Applicants’ first-level fairness relief
request. An officer of Canada Revenue Agency (CRA) reviewed this request and
concluded there were no circumstances to warrant the waiver of interest or
penalties. The officer’s report was reviewed by two members of the Fairness
committee, who agreed with the officer’s conclusions. The Minister notified
the Applicants of its decision on February 8, 2005.
[10]
In
March 2005, the Applicants sent a letter to the Minister requesting a second
level Fairness review, and provided additional information to the Minister. A
CRA officer reviewed this request and concluded that there were no
circumstances to warrant the waiver of interests or penalties. This report was
reviewed by two CRA managers and the Assistant Director of Revenue Collections
at Burnaby-Fraser Tax Services. They all agreed with the CRA officer’s report.
The Applicants were sent a letter notifying them of this decision on August 19,
2005.
[11]
On
July 14, 2006, the Applicants sent the Minister a letter requesting a fresh
second level Fairness review. A CRA Officer reviewed the Applicants’ request which
related mainly to the GST issue and prepared a report which concluded that
there were no circumstances to warrant the waiver of interest or penalties.
The following is my summary of the findings made:
Departmental Delay
a. The Applicants, as of July 30,
2004, did not file their tax returns or financial statements despite being
advised to do so on numerous occasions.
b. There were no delays caused by
the CRA that resulted in the imposition or unnecessary accrual of interest or
penalties.
Illness and Expropriation
a. There is no evidence to
support the Applicants’ contention that medical conditions of the principal
affected the Applicants’ ability to remit GST owing.
b. Expropriation was finalized in
1994, prior to the relevant time period of 1997-1999 tax years, the principals
lived in a house rent-free until 2003, the mortgage and title of the new
property is in the name of the principal’s three children, and the children
financed the property with the principals as guarantors. All of this did not
prevent the Applicants from meeting their tax obligations.
Financial Hardship
a. The principals have $250,000
in credit card debt.
b. The Applicants have debt for
workers compensation premiums.
c. One of the principals admits
to using the GST to pay the rent of and expenses of the business as late as
January 20, 2005.
d. Despite the repeated
imposition of penalties, the Applicants have shown disregard.
e. One of the principals stated
that he used trust funds to keep his business going and will do so again if the
need arises.
(See Respondent’s Record,
pp.123-125)
[12]
A
CRA Team leader reviewed the report and accepted the recommendations in it. In
the end result, the Manager of the Revenue Collections Division of the Vancouver
Tax Services Office reviewed the Applicants’ file and the reports prepared on
the third review of the Applicants’ fairness arguments. In rendering the August
1, 2006 decision presently under review, the Manager came to his own conclusion
on the evidence and arguments, and in the reasons provided, reiterated the
findings of the CRA Officer.
IV. The issue for
determination: Is the decision under review unreasonable?
[13]
There
are clearly limited circumstances in which the Minister may use discretion to
waive penalties and interest (see: Estate of the Late Henry H. Floyd v.
M.N.R. (1993), 93 D.T.C. 5499). According to the Guidelines as quoted
above and applied in reaching the decision presently under review, the
triggering event which allows relief to be given is “extraordinary
circumstances” beyond a person’s control. Once established, and before relief
can be granted, these circumstances are considered together with a number of
“factors” with respect to that person’s remittance history.
[14]
As
first stated above, and it is admitted to be true, the overriding factor
resulting in the imposition of the interest and penalties which were the
subject matter of the relief application to the Minister is the Applicants’
initial and continuing decision to use the GST collected to support their
business ventures. Indeed, no extraordinary circumstance was shown to exist to
the satisfaction of the Minister, and I can find no reviewable error in
reaching this result.
[15]
The
decision cannot be found to be unreasonable if it can withstand a probing
examination (Dr. Q. v. College of Physicians and Surgeons of British
Columbia, [2003] 1 S.C.R. 226). In my opinion, not only do the findings of
fact and conclusions reached in the decision withstand a probing examination, there
is no basis to say that they are in any way subject to attack for being reached
in reviewable error. Indeed, I find that the fairness process engaged by the
Applicants resulting in the decision under review was fairly and carefully
conducted. I find no surprise in the result.
ORDER
For the reasons provided, this Application
is dismissed.
“Douglas
R. Campbell”
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