Date: 20071003
Docket: T-505-07
Citation: 2007
FC 1014
Halifax, Nova
Scotia, October 3, 2007
PRESENT: The Honourable Madam Justice Layden-Stevenson
BETWEEN:
THE ESTATE OF KENNETH CHRISTIE
as represented by SANDRA CHRISTIE,
EXECUTOR
Applicant
and
ATTORNEY
GENERAL OF CANADA
Respondent
REASONS FOR ORDER AND ORDER
[1]
The
applicant seeks judicial review of a ministerial delegate’s decision dated
February 1, 2007, denying a request for relief pursuant to subsection 220(3.1)
of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (ITA).
For the reasons that follow, I conclude that the application must be dismissed.
Background
[2]
Approximately
one month before his death on November 17, 2000, Kenneth Christie executed a
Will (contradictory to the terms of an estate plan he had arranged with the
benefit of advice from his solicitor and financial adviser) providing that his
new wife was to be the beneficiary of his Registered Retirement Income Fund
(RRIF). Somewhat contemporaneously, his wife entered a trust agreement
delineating specific terms and conditions in relation to the distribution of
the RRIF payments and the disposition of the capital. Following Mr. Christie’s
death, his widow failed to acknowledge the trust agreement.
[3]
The
executors of the estate refused to recognize the widow as the rightful owner of
the RRIF. Mr. Christie’s final T1 income tax (IT) return, filed on April 30,
2001, did not include reference to the RRIF (valued at approximately $159,000
at the time of Mr. Christie’s death). Negotiations between the widow and the
estate ensued over a period of two and a half years. A settlement was achieved
only after the executors threatened litigation. In the interim, the financial
institution refused to collapse the RRIF.
[4]
On October
16, 2003, a T1-ADJ request to include the fair market value of the RRIF on Mr.
Christie’s final tax return was filed. Tax liability of $78,000 was paid at
that time. A notice of reassessment reflecting the disposition of the RRIF was
issued on May 5, 2005. The notice of reassessment included an amount of
$17,312.85 payable with respect to arrears interest.
[5]
On July
27, 2005, one of the executors (also the ultimate beneficiary of the RRIF and
henceforth referred to as the “executor”) requested that the Canada Revenue Agency (CRA), under
subsection 220(3.1) of the ITA, waive the interest assessed on the account
because of circumstances beyond the taxpayer’s control. The stated basis for
the request was that “the estate, represented by [its] executors, refused to
probate the will until [the widow] acknowledged the agreement. [The financial
institution] refused to collapse the RRIF until the probate was complete. The
matter was not resolved until more than two years later”. Further, “[i]t was
not clear that the RRIF should be included in [the deceased’s] final return
until the matter with the widow was resolved…the only way to avoid the interest
was to capitulate to his widow receiving full ownership of the RRIF which was
contrary to [the deceased’s] wishes and was against all principals (sic) of
equity and fairness”.
[6]
Following
a two-tier review, by correspondence dated November 15, 2005, a ministerial
delegate informed the executor that the arrears interest would be cancelled for
the period encompassing the 18 months that the CRA had taken to process the
adjustments. Otherwise, the request was denied.
[7]
On March
28, 2006, the executor’s solicitor requested a second review of the request to
cancel the arrears interest. Upon receipt of this request, the file was
referred to officers other than those involved in the first review. A second
two-tier review was conducted. By correspondence dated February 1, 2007, the
Director of Nova
Scotia Tax
Services Office, CRA (the Director) informed the executor as follows:
·
arrears
interest from April 27, 2006 until February 5, 2007 would be cancelled (because
of delay in the processing of the request);
·
since a
new allegation ─ that the estate had no means of paying the taxes without
suffering grave hardship ─ had been raised, this submission would be
considered on the basis of inability to pay and would be referred to a fairness
review under the financial hardship provision;
·
the
circumstances did not meet the conditions [beyond the taxpayer’s control] that
would allow for cancellation of the total amount.
[8]
It is the
ministerial delegate’s February 1, 2007 decision wherein he declined to
exercise discretion pursuant to subsection 220(3.1) of the ITA that is the
subject of this application.
Legislative Provisions
[9]
The
pertinent legislative provisions are subsections 146.3(6) and 220(3.1) of the
ITA. The latter is commonly referred to as one of the fairness provisions.
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Income
Tax Act,
R.S.C.
1985, c. 1 (5th Supp.)
146.3(6)
Where the last annuitant under a registered retirement income fund dies, that
annuitant shall be deemed to have received, immediately before death, an
amount out of or under a registered retirement income fund equal to the fair
market value of the property of the fund at the time of the death.
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.
|
Loi
de l’impôt sur le revenu,
L.R.C.
1985, ch. 1 (5e suppl.)
146.3(6)
Le dernier rentier dans le cadre d’un fonds enregistré de revenu de retraite
est réputé, s’il est décédé, avoir reçu, immédiatement avant son décès, un
montant dans le cadre d’un tel fonds égal à la juste valeur marchande des
biens du fonds au moment de son décès.
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.
|
Issues
[10]
The applicant’s written submissions contain
various allegations of error on the part of the ministerial delegate. At the
hearing, the applicant’s counsel candidly, and in my view appropriately,
abandoned all but one of the arguments. The sole outstanding issue is whether
the Minister’s delegate failed to have regard to the “legal ownership” of the
RRIF during the period from Mr. Christie’s death to the date of the settlement.
The Standard of
Review
[11]
The applicable standard of review in relation to
discretionary decisions of the Minister under the fairness provisions of the
ITA has been authoritatively determined by the Federal Court of Appeal: Lanno
v. Canada Customs and Revenue Agency (2005), 334 N.R. 348 (F.C.A.) (Lanno);
Comeau v. Canada Customs and Revenue Agency (2005), 361 N.R. 141
(F.C.A.). Such decisions are to be reviewed on the standard of
reasonableness. Since Lanno, the Federal Court has applied a
reasonableness standard of review to subsection 220(3.1) decisions: Dort
Estate v. Minister of National Revenue, [2005] 4 C.T.C. 233 (F.C.); Dobson
Estate v. Canada (Attorney General), [2007] 4 C.T.C. 93 (F.C.); Carter-Smith
v. Canada (Attorney General), [2007] 1 C.T.C. 163 (F.C.); Young v. Canada
(Attorney General), [2007] 1 C.T.C. 124 (F.C.); Ross v. Canada (Customs
and Revenue Agency) (2006), 289 F.T.R. 160, [2006] 3 C.T.C. 42
(F.C.); Hauser v. Canada (Revenue Agency), [2007] 2 C.T.C. 152
(F.C.).
Analysis
[12]
The applicant asserts that the CRA Information Circular
IC92-2 entitled Guidelines for the Cancellation and Waiver of Interest and
Penalties specifies that the guidelines are not intended to be exhaustive
or to restrict the spirit or intent of the legislation. The applicant contends
that in the unique circumstances of this matter, relief ought to have been
granted. The ministerial delegate erred in that he failed to consider the
“legal” status of the RRIF in arriving at his decision.
[13]
While I am sympathetic to the applicant’s
plight, it is not correct to say that the above-noted submission was not
addressed. The second request for review was conducted by two officers. Their
recommendation was accepted and approved by the Director. Accordingly, regard
should be had to the contents of the recommendation as well as the
correspondence of the Director.
[14]
In addressing the various submissions of the
applicant’s solicitor, the recommendation document specifically refers to the
applicant’s position that “the estate had no legal entitlement whatsoever to
the RRIF until July 31, 2003”. The comments in the recommendation state that
if the RRIF had become the property of the spouse, it need not have been
included in the final income return for the deceased. The executors should
have been aware, if successful in contesting the will, that the income would be
fully taxable to the deceased, yet they made no attempt to lessen the interest
burden. Further, “the RRIF income is not income of the estate, but income to
the deceased…the executors were fully aware of the RRIF and its approximate
value”. Additionally, the officers state that the CRA must be satisfied that
the estate took a reasonable amount of care to comply with the ITA. That is,
the estate was expected to make efforts to avoid or minimize delays in complying,
paying or remitting amounts due. A taxpayer’s action or inaction must reflect
what might reasonably be expected in comparable circumstances.
[15]
The Director explained that because the proceeds
of the RRIF did not become the property of the deceased’s spouse, the full
amount had to be reported as income on Mr. Christie’s 2000 income tax return.
The requirement arises when a RRIF is transferred to an unqualified
beneficiary. The requirement to report exists even where an information slip
is not provided. Here, the executors were aware of the existence of the RRIF
and its value. Therefore, the onus was on the executors to know that the
income would be fully taxable to the deceased. Inability to access the funds
does not operate to eliminate or postpone the tax implications. The arrears
interest on this account is similar to that charged on other accounts in
similar situations. The Director concluded that the circumstances did not meet
the conditions [beyond the taxpayer’s control] that would allow for the
cancellation of the requested amount.
[16]
To succeed on this application, the applicant
must demonstrate that the ministerial delegate’s conclusion was unreasonable.
The reasonableness standard of review is described in Law Society of New
Brunswick v. Ryan, [2003] 1 S.C.R. 247 at paragraphs 55 and 56 as follows:
A decision will
be unreasonable only if there is no line of analysis within the given reasons
that could reasonably lead the tribunal from the evidence before it to the
conclusion at which it arrived. If any of the reasons that are sufficient to
support the conclusion are tenable in the sense that they can stand up to a
somewhat probing examination, then the decision will not be unreasonable and a
reviewing court must not interfere (see Southam, at para. 56). This means that
a decision may satisfy the reasonableness standard if it is supported by a
tenable explanation even if this explanation is not one that the reviewing
court finds compelling (see Southam, at para. 79).
This does not
mean that every element of the reasoning given must independently pass a test
for reasonableness. The question is rather whether the reasons, taken as a
whole, are tenable as support for the decision. At all times, a court applying
a standard of reasonableness must assess the basic adequacy of a reasoned
decision remembering that the issue under review does not compel one specific
result. Moreover, a reviewing court should not seize on one or more mistakes or
elements of the decision which do not affect the decision as a whole.
[17]
I am unable to conclude that the ministerial
delegate did not properly consider the various submissions tendered by the
applicant. It is evident from the documentation that the officers and the
Director were fully aware of the circumstances including the submission in
relation to the “legal ownership” of the RRIF. While I may have arrived at a
different conclusion, it is not my function to substitute my opinion for that
of the decision-maker. The reasons contained in the recommendation and the
Director’s correspondence of February 1, 2007 withstand the scrutiny of a
somewhat probing examination. Consequently, the application for judicial
review must be dismissed.
[18]
Both parties requested costs. Neither pressed
the issue at the hearing. In the exercise of my discretion, the application
will be dismissed without costs.
ORDER
THIS COURT
ORDERS THAT the application is dismissed. No costs
are awarded.
“Carolyn
Layden-Stevenson”
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