Date: 20070727
Docket: T-84-06
Citation: 2007 FC 784
Ottawa, Ontario,
July 27, 2007
PRESENT: The Honourable Mr. Justice Blanchard
BETWEEN:
PPSC ENTERPRISES LIMITED
Applicant(s)
and
MINISTER
OF NATIONAL REVENUE
Respondent(s)
REASONS FOR ORDER AND ORDER
[1]
The Applicant seeks judicial review of the
December 15, 2005 decision of the Minister of National Revenue (the Minister)
denying the Applicant’s request for the cancellation or waiver of interest and
penalties pursuant to subsection 220(3.1) of the Income Tax Act, R.S.C.
1985, c.1 (5th Supp.) (the ITA). Late filing penalties and interest
were charged on the Applicant’s failure to remit outstanding Canada Pension
Plan (CPP) contributions.
1. Facts
[2]
The Applicant, an Alberta corporation, provides management and supervisory consulting
services to the oil and gas industry, and pays consulting fees to Brian Boulton
as officer and director of the corporation who is also the representative of
the Applicant in this application.
[3]
The Applicant failed to remit outstanding CPP
contributions assessed and owing for the 2001, 2002 and 2003 taxation years.
The Applicant was assessed as follows:
|
Taxation Year
|
CPP
Contributions Assessed
|
|
2001
|
$2,992.80
|
|
2002
|
$3,346.40
|
|
2003
|
$3,603.60
|
[4]
The Applicant was assessed interest and
penalties as a result of its failure to pay the aforementioned outstanding CPP
amounts.
[5]
The Notices of Assessment for the years in
question, all dated February 11, 2005, were sent to the Applicant shortly
thereafter. The Applicant paid the assessments in full on February 22, 2005.
[6]
The Respondent issued further assessments with
late payment penalties and interest, dated February 23, 2005, February 25, 2005
and March 3, 2005 against the Applicant. The Applicant paid these additional
penalties and interest on March 15, 2005. Further interest of $5.05 was
assessed against the Applicant on the March 15, 2005 statement. This amount was
also paid by the Applicant on March 22, 2005.
[7]
The consultant Brian Boulton, an officer and
director of the Applicant, had in his personal tax return declared the moneys
paid by the Applicant as self employment revenue and remitted the above-noted
CPP contributions for the taxation years at issue on a timely basis. By notice
of assessment dated March 14, 2005, the Respondent reassessed Mr. Boulton’s
2001, 2002 and 2003 personal tax returns and as a result credited the full
amounts of the CPP payments made plus $700.79 in interest. A cheque reimbursing
Mr. Boulton was attached to the notice of assessment.
[8]
The Applicant acknowledges that it had expensed
the sums paid to Mr. Boulton as salary and wages and did not submit the CPP
source deductions required for employees. The Applicant claims that its annual
tax returns were prepared by a third party and it alleges that it was advised that
unless the Company had employees it was not required to issue T-4s and that
directors were not considered employees.
[9]
On June 20, 2005, the Applicant submitted its
first-level fairness request to the Canada Revenue Agency (CRA). In it, the Applicant
sought relief from penalties and interest on the basis that Brian Boulton, a
director and employee of the Applicant, had paid the CPP contributions
personally. The request was denied on September 19, 2005.
[10]
The Applicant submitted a second-level fairness
request on November 8, 2005. A
different CRA Officer considered this request. The second-level request was
denied on December 20, 2005. The decision denying this second-level request is
the subject of the within judicial review application.
2. The
Decision
[11]
The CRA Officer’s notes to file indicate that
the following facts were considered in assessing the second-level fairness
request:
1)
the Applicant’s tax returns for the years 2001
through 2004;
2)
there is no record that a representative of the
Applicant had spoken with the Calgary TSO regarding the issuance of T-4s for
employees and whether directors are considered employees;
3)
there is no indication on CRA’s records that it
had delayed providing any information to the Applicant regarding the appropriate
filing procedures;
4)
the Applicant’s representative, Brian Boulton,
reported income from the Applicant on his personal income tax returns;
5)
the Applicant did not expense director’s fees
for the years in question;
6)
the Applicant expensed salaries and wages on its
business income tax returns for the years in question;
7)
the Applicant did not report the salary and wage
expenses for the purposes of remitting CPP contributions for the years in
question. The Applicant neither withheld the appropriate deductions nor
remitted them by the due date;
8)
the Applicant did not have a payroll account
before February 2005;
9)
in 2004 the Applicant only remitted CPP and did
not remit any income tax;
10)
the Applicant did not remit the CPP deductions
and failed to file its T-4 Returns by the due dates although it always reported
the income;
11)
the Applicant does pay its assessments in a
timely manner.
[12]
The CRA Officer concluded that the Applicant’s
situation was “a result of ignorance of the law or third party errors”, and “that
the Applicant did not have a history of compliance with its tax obligations and
had not exercised reasonable care in conducting its affairs.” The CRA Officer
guided by a policy “memo from head office” found that
ignorance of the law and third party error were insufficient to warrant
granting the request. The CRA Officer recommended that the request be denied.
[13]
The Fairness Committee comprised, in this case
of a Director, agreed with the CRA Officer’s recommendation with the following
comments:
While the “memo
from head office” is not in itself justification to uphold, the facts of the
case do not suggest cancellation is warranted. The client relates no attempt
other than being “advised by the Calgary TSO” to clarify the reporting. If
there had been incorrect handling of the issue this could be considered
sufficient however the client did not report the earnings as T4 income on the
T1 return while expensing the cost to the corporation as ‘salaries and wages’.
It would be reasonable to expect this inconsistency to be investigated if there
was due diligence in handling of this matter. This is not evident to me. No
information included as to any other professional advice he may/may not have
sought. The delays are not an issue since all actions were taken within
timeframe outlined in the Income Tax Act & related legislation.
While his T1 record is in fact good, this by itself is not sufficient to
support cancellation.
3. Issue
[14]
Did the Minister err in denying the Applicant’s
request for relief under Subsection 220(3.1) of the ITA?
4. Standard
of Review
[15]
The Federal Court of Appeal in Lanno v.
Canada (Customs & Revenue Agency), 2005 FCA 153 (paragraphs 3-7)
conducted a pragmatic and functional analysis with the view of determining the
applicable standard of review of a decision of a tax officer exercising
discretion under subsection 152(4.2) of the ITA. The Court found the applicable
standard to be reasonableness simpliciter. In Comeau v. Canada (Customs and Revenue Agency), 2005 FCA 271 (paragraphs 15-17), the Federal Court of
Appeal adopted the same reasoning and found that the standard of review
applicable to a discretionary decision pursuant to subsection 220(3.1) of the
ITA was also reasonableness simpliciter. I will adopt and apply this
standard in reviewing the Minister’s decision in this application.
5. Preliminary
Issue
[16]
As a preliminary issue, the Respondent argues
that only the evidence that was before the decision-maker should be considered
in this application. In particular, information contained in paragraph 2 of the
Applicant’s Affidavit, which describes the Applicant’s shareholders and lists
its shareholders, officers and directors, was not before the CRA Officer. It is
well accepted that only the information that was before the decision-maker can
be considered by a reviewing court on judicial review. I therefore accept the
Respondent’s argument and will disregard the information contained in paragraph
2 of the Applicant’s affidavit. I note, however, that the CRA Officer did
review materials from Mr.Brian Boulton indicating that he had incorporated the
Applicant and which suggest that he was a director of the Applicant.
6. The
Law
[17]
Subsection 220(3.1) of the ITA confers
discretion upon the Minister, through his delegates, to waive penalties or
interest otherwise payable under the ITA. The section provides as follows:
|
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.
|
[18]
The ITA is silent as to what criteria are to be used by the Minister in
exercising discretion, but policy guidelines set out in Information Circular
92-2 are provided to assist Revenue officers having to determine fairness
applications in respect to the waiving of interest and penalties in
extraordinary circumstances. I reproduce these guidelines in Appendix 1.
[19]
A policy letter form the CRA, also referred to in the reasons for
decision as the “memo from head office” addressed to all Revenue Collection
Officers, stresses the need for a uniform application of the policy, and states
that “[n]either ignorance of the legislation nor third party errors are
acceptable reasons for the waiver/cancellation of penalty and interest under
the Fairness provisions, and do not constitute extraordinary circumstances
which warrant granting fairness relief.”
7. Analysis
[20]
It is well accepted that reviewing courts should
not interfere with the exercise of a discretion by a statutory authority merely
because the court might have exercised the discretion differently had it been
charged with that responsibility. The Supreme Court of Canada in Maple Lodge
Farms [1982] 2 S.C.R. 2 at page 4, held:
Where the
statutory discretion has been exercised in good faith and, where required, in
accordance with the principles of natural justice, and where reliance has not
been placed upon considerations irrelevant or extraneous to the statutory
purpose, the courts should not interfere.
[21]
Here, the parties agree that the Minister’s
discretion was exercised in good faith and in accordance with the principles of
procedural fairness.
[22]
The purpose of the fairness package enacted by
Parliament was to provide relief from certain provisions of the ITA that can
result in undue hardship because of the complexity of the tax laws and the
procedural issues entailed in challenging tax assessments. The granting of relief
is discretionary and cannot be claimed as of right.
[23]
The error, which is acknowledged by the
Applicant and Mr. Boulton, is not the result of circumstances beyond their
control. Nor does the evidence support a finding that the error arose by reason
of actions of the Department. Further, there is no evidence of hardship let
alone undue hardship or extraordinary circumstances that may have prevented the
Applicant from making the payments when due, or otherwise complying with the ITA.
Ignorance of the legislative requirements or third party error do not
constitute extraordinary circumstances which would warrant granting the request
for relief as described in the Respondent’s policy guidelines.
[24]
I note that the CPP contributions were made in a
timely manner by Brian Boulton and that the Minister at no time was out of
pocket. There is no evidence of bad faith on behalf of the Applicant or Mr.
Boulton, nonetheless, the contributions were not remitted by the Applicant on a
timely basis as required under the Act.
[25]
Here, the CRA Officer was well aware of the
relationship that existed between the Applicant and Mr. Brian Boulton. It
cannot be said that the Officer’s decision was based on an erroneous finding of
fact or made without regard to the evidence. Nor can it be said that the CRA Officer
based the decision on considerations that are extraneous to the statutory
purpose.
[26]
In the circumstances, I may not have exercised
my discretion in the same manner as did the CRA Officer. However, my function
here is not to substitute my decision for that of the CRA Officer, but rather
to determine whether the Officer’s decision is reviewable on the applicable
standard of review.
[27]
I find that the CRA Officer’s decision is not
unreasonable. The assessments were proper and, in the circumstances, the
Court’s intervention is not warranted.
[28]
For the above reasons, the application for
judicial review will be dismissed.
[29]
In circumstances where the Minister was at all
times in receipt of the sums due as a result of an erroneous third party
payment and where there is no question of bad faith on behalf of the Applicant,
in the exercise of my discretion, no costs will be awarded on the application.
ORDER
THIS COURT ORDERS
that
1. The application
for judicial review is dismissed without costs.
“Edmond P. Blanchard”
APPENDIX 1
Guidelines for the cancellation and waiver
of interest and penalties
Introduction
1. This
circular provides information and guidelines to taxpayers and employers
regarding certain legislation contained in Bill C-18, enacted December 17,
1991. The legislation gives discretion to cancel or waive all or a portion of
any interest or penalties payable, and it applies to taxation ears back to
1985.
2. this
circular outlines the guidelines that Revenue Canada, Taxation will follow when
applying the legislation. It also explains how taxpayers or employers can made
a request to cancel or waive interest and penalties for years dating back to
1985, and describes the information required for such requests to be
considered.
3. These
are only guidelines. They are not intended to be exhaustive, and are not meant
to restrict the spirit or intent of the legislation. As the Department gains
experience in applying the legislation, these guidelines may be adjusted, as
necessary.
The law
4. The
new legislation provides for the cancelling or waiving of all or a portion of
any interest or penalties. The appendices to this circular list the more common
provisions of the Income Tax Act concerning interest and penalties that
can be cancelled or waived. This measure took effect on December 17, 1991, and
applies to 1985 and subsequent taxation years. The term “normal reassessment
period” is relevant in paragraph 13. The “normal reassessment period” is the
period that ends three years after the day of mailing of a notice of an
original assessment.
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 when 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.
7. It
may be appropriate, in circumstances where there is an inability to pay amounts
owing, to consider waiving or cancelling interest in all or in part to
facilitate collection. For example,
(a) When
collection has been suspended due to an inability to pay.
(b) When
a taxpayer is unable to conclude a reasonable payment arrangement because the
interest charges absorb a significant portion of the payments. In such a case,
consideration may be given to waiving interest in all or in part for the period
from when payments commence until the amounts owing are paid provided the
agreed payments are made on time.
Requests
for cancelling or waiving interest and penalties
8. Taxpayers
and employers, or their authorized representatives, can make their requests by
writing to the taxation centre where they file their returns, or by sending
their requests to the district office serving their area.
9. To
support a request, the following information is required:
(a) the
name, address, social insurance number or account number of the taxpayer or
employer;
(b) the
taxation years involved;
(c) the
facts and reasons why the interest or penalties levied, or to be levied, were
primarily caused by factors beyond the taxpayer’s control;
(d) any
relevant documents or correspondence including receipts of payment.
10. The
following factors will be considered when determining whether or not the
Department will or waive interest or penalties:
(a) whether
or not the taxpayer or employer has a history of compliance with tax
obligations;
(b) whether
or not the taxpayer or employer has knowingly allowed a balance to exist upon
which arrears interest has accrued;
(c) whether
or not the taxpayer or employer has exercised a reasonable amount of care and
has not been negligent or careless in conducting their affairs under the
self-assessment system;
(d) whether
or not the taxpayer or employer has acted quickly to remedy any delay or
omission.
Unemployment
Insurance premiums and Canada Pension
Plan contribution
11. The
new measures also apply to interest and penalties provided for in the Unemployment
Insurance Act and Canada Pension Plan regarding premiums and contributions
required to be made.
Refund
Interest
12. Refund
interest will be paid on any reassessment that cancels all or a portion of any
interest and penalty previously paid.
Objections
and appeals
13. A
taxpayer cannot file an objection or appeal where the request to waive or
cancel interest or penalties has not or has only been partially granted except
for taxation years within the normal reassessment period (see 4 above).
Exercise
of the discretion
14. If
taxpayers or employers believe that the Department has not exercised its
discretion in a fair and reasonable manner, then they may request, in writing
that the director of a district office or taxation centre review the situation.
15. If
you have any comments about this circular, please write to:
Revenue Canada Taxation
Taxation Programs Branch
875 Heron Road
Ottawa, Ontario
K1A 0L8
Appendix A
Interest which may be
cancelled or waived
Income
Tax Act
reference
Subsection
161 (1) Interest on the balance of taxes owing under Part 1 to a taxation
year.
Subsection
161 (2) Interest on instalments required under Part 1.
Subsection
161 (11) Interest on penalties.
Subsection
227 (8.3) Interest on amounts not deducted or withheld.
Subsection
227 (9.2) Interest on amounts deducted or withheld but not remitted.
Note: This
is not a complete list of interest provisions in the Income Tax Act. Other
types of interest may be cancelled or waived.
Penalties which may be
cancelled or waived
Income
Tax Act
reference
Subsection
162 (1) Penalty for failing to file a return of income.
Subsection
162 (2) Penalty for repeatedly failing to file a return of income.
Subsection 162 (3) Penalty for
failing to file a return of income as required under subsection 150(3) (e.g.,
trustees, agents).
Subsection 162 (4) Penalty for
filing to complete an ownership certificate (section 234), or for failing to
deliver an ownership certificate as required, or for cashing a coupon or
warrant without completing an ownership certificate.
Subsection 162 (7) Penalty for
failing to make an information return or failing to comply with a duty or
obligation.
Section 163.1 Penalty
for failing to pay all or part of an instalment on the day it is required.
Subsection
227 (8) Penalty for failing to deduct or
(8.5) withhold.
Subsection
227 (9) Penalty for failing to remit or
(9.5) pay amounts deducted or with-held.
Note: This
is not a complete list of penalty provisions in the Income Tax Act. Other
penalties may be cancelled or waived.
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