Date: 20070906
Docket: T-1236-06
Citation: 2007 FC 892
Ottawa, Ontario, September 6,
2007
PRESENT: The Honourable Madam Justice Mactavish
BETWEEN:
KENNETH
THOMAS KREKLEWICH
Applicant
and
CANADA
REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
Kenneth
Kreklewich seeks judicial review of a “fairness” decision by which the Minister
of National Revenue refused his request for relief from the interest and
penalties assessed in relation to Mr. Kreklewich’s 1995, 1996 and 1997 income
tax years.
[2]
While
I am not unsympathetic to Mr. Kreklewich’s position, for the reasons that
follow his application for judicial review will be dismissed.
Background
[3]
In
June of 1998, Mr. Kreklewich was advised that an audit of his income tax
returns for his 1995, 1996 and 1997 tax years would be carried out. This audit
was completed in August of 1999.
[4]
As
a result of the disallowance of a number of deductions claimed by Mr.
Kreklewich, he was reassessed. On August 24, 1999, a statement identifying the
final adjustments made to his income tax assessments was mailed to Mr.
Kreklewich. By this Notice, Mr. Kreklewich was advised that he owed an
additional $9,210.00 in unpaid taxes.
[5]
Mr.
Kreklewich was further advised that interest would continue to accrue on his
unpaid balance, and that he could avoid further interest charges by paying his
account.
[6]
Mr.
Kreklewich and his accountant evidently did not take issue with some of the
deductions being disallowed, but did dispute the disallowance of others. As a
result, in February of 2000, a departmental appeal was commenced by Mr.
Kreklewich in relation to the disputed deductions. Just over a week later,
this appeal was dismissed.
[7]
Mr.
Kreklewich then appealed the disallowance of the disputed deductions to the Tax
Court. His appeal was scheduled to be heard in August of 2001. Following
discussions between Mr. Kreklewich and counsel for the respondent, an agreement
was reached, the result of which was a consent judgment issued by the Tax
Court, providing $6,345.00 in tax relief to Mr. Kreklewich.
[8]
According
to Mr. Kreklewich, after the consent judgment was signed, the respondent
advised him that he owed approximately $8,822.00 in unpaid taxes. Mr.
Kreklewich could not understand how, having obtained $6,345.00 in tax relief, his
balance owing had only decreased by approximately $400.00. As he explained in
his affidavit, “This frankly did not seem logically possible. With no way to
verify Revenue Canada’s claim I decided to wait for a complete
statement of account. Such a statement never arrived.”
[9]
It
appears that the reason that Mr. Kreklewich’s balance owing did not decrease
appreciably after the consent judgment of the Tax Court was because interest
had continued to accrue on the balance owing with respect to that portion of
the disallowed deductions that had not been disputed by Mr. Kreklewich.
[10]
In
February of 2002, Mr. Kreklewich was contacted by Calvin Miller, a
representative of the respondent, who wanted to know when Mr. Kreklewich would
be paying his unpaid taxes. Mr. Kreklewich evidently advised Mr. Miller that
he was still waiting for an explanation as to how the claimed balance had been
calculated.
[11]
In
February of 2003, Mr. Kreklewich was contacted by a second representative of
the respondent, one James Curtis, who was again demanding payment of Mr.
Kreklewich’s outstanding arrears. Mr. Kreklewich again indicated that he
“could not pay the amount without a proper statement”. According to Mr.
Kreklewich, he felt that without such a statement, the claim for payment was
“unjust”.
[12]
Mr.
Curtis evidently provided Mr. Kreklewich with a statement in March of 2003,
purporting to explain how the balance was arrived at. According to Mr.
Kreklewich, neither he nor his accountant could understand the statement. As a
consequence, Mr. Kreklewich had his accountant prepare a calculation of what he
thought Mr. Kreklewich owed to the respondent.
[13]
On
March 20, 2003, Mr. Kreklewich met with Mr. Curtis, and provided him with a
cheque in the amount of $4,622.38, which Mr. Kreklewich believed to be what his
original tax bill should have been, without any interest having accrued.
[14]
In
May of 2003, Mr. Kreklewich received a further statement regarding his unpaid
tax liabilities from the respondent, this time in a form that was comprehensible
to Mr. Kreklewich. As I understand it, Mr. Kreklewich did not disagree with the
respondent’s calculations as to his indebtedness.
[15]
Mr.
Kreklewich then sought relief from the respondent in accordance with the
fairness provisions of subsection 220(3.1) of the Income Tax Act, R.S.C.
1985 c. 1 (5th supp.), with respect to the interest and penalties that had
accrued in relation to the unpaid balance to that point.
[16]
In
this regard, Mr. Kreklewich relies on the provisions of Information Circular
92-2, prepared by the respondent, which provides guidance in the interpretation
and application of subsection 220(3.1) of the Act. Specifically, Mr.
Kreklewich relies on sections 6(a) and 6(e) of Information Circular 92-2 which
provides that:
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;
…
e)
delays in providing information such as the case where the taxpayer
could not make the appropriate instalment or arrears payment because the
necessary information was not available.
[17]
Mr.
Kreklewich’s request for fairness relief was reviewed by a first level Fairness
Request Committee, which determined that the audit of Mr. Kreklewich’s 1995,
1996 and 1997 taxation years had been completed in a timely manner and that
there were no undue delays caused by the respondent. As a consequence, Mr.
Kreklewich’s request was denied.
The Decision Under
Review
[18]
By
letter dated February 9, 2004, Mr. Kreklewich made a second request for
fairness relief with respect to his 1995, 1996 and 1997 taxation years. It is
the final decision made with respect to this request that is the underlying
decision in this application for judicial review.
[19]
Mr.
Kreklewich’s second request was initially reviewed by a Team Leader in the
respondent’s Verification and Enforcement Division, who prepared a report
recommending that the request be denied, as the audit of Mr. Kreklewich’s 1995,
1996 and 1997 taxation years had been completed in a timely manner, and because
there were no undue delays caused by the respondent.
[20]
This
report was then reviewed by the Director of the Regina Tax Service Office, who
also considered the documentation relating to Mr. Kreklewich’s first fairness
request in her deliberations. The Director concluded that there were no undue
delays with respect to the Objection and Appeal processes. She further
observed that at the conclusion of the audit and appeal processes, Mr.
Kreklewich had been provided with Notices of Assessment and Reassessment that
had explained the adjustments that had been made to Mr. Kreklewich’s tax
payable, and identified the balance due.
[21]
In
her decision letter, the Director goes on to note that:
With respect to interest charges, it is
noted that in our initial correspondence to you, you were advised that interest
continues to accrue on your unpaid balance and you could avoid interest charges
by paying your account balance. Therefore, I have concluded that this is not a
case in which it would be appropriate to cancel the arrears [of] interest.”
[22]
Mr.
Kreklewich now seeks judicial review of this decision, asserting that the audit
conducted by the respondent was not carried out in a fair or timely manner.
As I understand his position, he says that the decision of the Director should
be set aside, as the respondent consistently refused his reasonable request to
provide him with a breakdown of the amount that the respondent claimed was
owing by Mr. Kreklewich.
[23]
Without
such a breakdown, Mr. Kreklewich says that he could not reasonably have been
expected to make a payment.
Standard of Review
[24]
This
case involves a discretionary decision made by the Canadian Revenue Agency,
pursuant to the ‘fairness’ provisions of the Income Tax Act. It is not
the task of this Court, sitting on judicial review, to substitute its own view
of the situation for the decision of the respondent. Rather, the task of the
Court is to determine whether the decision of the respondent was reasonable:
see Lanno v. Canada (Canada Customs and
Revenue Agency), [2005] F.C.J. No. 714, 2005 FCA 153.
[25]
That
is, the question is whether the decision can withstand a somewhat probing
examination: Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247,
2003 SCC 20.
Analysis
[26]
The
respondent’s audit of Mr. Kreklewich’s 1995, 1996 and 1997 taxation years took
some fourteen months. A review of the chronology of events surrounding the
audit discloses that some of the time taken for the audit resulted from Mr.
Kreklewich or his accountant failing to provide the respondent with information
requested in a timely fashion.
[27]
Having
reviewed all of the available information with respect to progress of the
audit, I am satisfied that the time taken for audit was acceptable, and that
the Director’s conclusion that the audit of Mr. Kreklewich’s 1995, 1996 and
1997 taxation years had been completed in a timely manner was one that was reasonably
open to her on the record before her.
[28]
As
a consequence, Mr. Kreklewich has not persuaded me that there were processing
delays in this case that resulted in him not being informed, within a
reasonable time, that an amount was owing, as is contemplated by section 6(a)
of Information Circular 92-2.
[29]
This
leaves Mr. Kreklewich’s contention that he could not reasonably have been
expected to have paid the balance claimed by the respondent, without having
first receiving a breakdown of how the amount was calculated.
[30]
In
this regard, the Director found that Mr. Kreklewich had been advised interest
would continue to accrue on his unpaid balance, and that he could avoid further
interest charges by paying his outstanding balance.
[31]
It
would certainly have been helpful had the respondent simply given Mr.
Kreklewich what he sought – namely a clear and timely explanation of how it had
arrived at the balance it claimed was owing. That said, this is not a
situation such as that contemplated by section 6(e) of Information Circular
92-2.
[32]
That
is, Mr. Kreklewich was not precluded from paying the outstanding arrears
because the information necessary to allow him to make such a payment was not
available. The respondent had told Mr. Kreklewich precisely how much the
respondent believed he owed. If Mr. Kreklewich did not agree with that
assessment, it was open to him to make the payment in order to stop the clock
on the interest charges, and then to challenge the respondent’s calculation
through the appeal process.
[33]
As
a consequence, I am satisfied that the decision of the Director not to exercise
her discretion in favour of Mr. Kreklewich was not unreasonable, and should not
be set aside. Mr. Kreklewich’s application for judicial review is dismissed.
Costs
[34]
While
costs were sought by the respondent in its memorandum of fact and law, counsel
for the respondent did not press the matter at the hearing. In all of the
circumstances, and in the exercise of my discretion, I decline to make any
order of costs.
JUDGMENT
THIS COURT ORDERS AND
ADJUDGES that this application for judicial review is dismissed,
without costs.
“Anne
Mactavish”
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