Docket: T-585-11
Citation: 2011 FC 1490
Ottawa, Ontario, December 16, 2011
PRESENT: The Honourable Mr. Justice Harrington
BETWEEN:
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CHARLES DESJARDINS
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Applicant
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and
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THE MINISTER OF NATIONAL REVENUE
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Respondent
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REASONS FOR ORDER AND ORDER
[1]
Mr.
Desjardins owes more than $2 million dollars in back taxes, penalties and
interest. More than 70% thereof is for penalties and interest. He requested the
Minister to exercise the discretion vested in him by section 220(3.1) of the Income
Tax Act and waive all penalties and interest otherwise payable for the 1999
through 2007 tax years.
[2]
Mr.
Desjardins was unsuccessful at the first and second administrative levels, and
so has asked this Court, by way of judicial review, to quash the second
administrative level decision. It is common ground that the standard of review
is reasonableness: see Cartier-Smith v Canada (Attorney General), 2006
FC 1175, 2006 DTC 6707; Russ v Canada (Customs and Revenue Agency), 2006
FC 294, 2006 DTC 6196; 3651541 Canada Inc v Canada (Attorney General), 2007
FC 1255, 2008 DTC 6021; and Dunsmuir v New Brunswick, 2008 SCC 9, [2008]
1 SCR 190.
[3]
The
Act does not set out the circumstances in which decision makers, on behalf of
the Minister, may waive penalties and interest. There is, however, Canada
Revenue Agency’s Income Tax Information Circular No. IC07-1 entitled Taxpayer
Relief Provisions, which sets out the procedure and lists some of the non-exhaustive
factors which may be taken into account.
[4]
Section
23 of the Circular provides that the Minister may grant relief if the
taxpayer’s inability to pay arose from extraordinary circumstances, actions of
the Canada Revenue Agency itself, or inability to pay or financial hardship. If
a confirmed inability to pay all amounts owing has been established, section 27
provides that it may be appropriate to consider waiving or cancelling interest
in whole or in part in order to enable taxpayers to pay their account. One consideration
is if payment of accumulated interest would cause a prolonged inability to
provide basic necessities (financial hardship) such as food, medical help,
transportation or shelter.
[5]
Section
28 goes on to provide that consideration will not generally be given to
cancelling a penalty based on an inability to pay or financial hardship unless extraordinary
circumstances had prevented compliance, such as natural or man made disasters,
civil disturbances or postal strikes, a serious illness or accident, or serious
emotional distress. Section 33 enumerates factors to be considered, which are: a)
whether or not the taxpayer has a history of
compliance with tax obligations; b) whether or not the taxpayer has knowingly
allowed a balance to exist on which arrears interest has accrued; c) whether or
not the taxpayer has exercised a reasonable amount of care and has not been
negligent or careless in conducting his or her affairs under the
self-assessment system; and d) whether or not the taxpayer has acted quickly to
remedy any delay or omission.
[6]
Taxpayer
relief applications are on two levels. A Canada Revenue Agency Office reviews
the initial application and makes a recommendation to the team leader who makes
a decision. In this case, the decision was negative. In such cases, the
taxpayer may make a second level request. The file is assigned to a Canada
Revenue Agency officer who was not involved at the first level. This officer
conducts a complete review of the file to date and takes into account any
additional information which was submitted. In this case, the file with summary
of the officer’s recommendation was forwarded to the manger of the Vancouver
Island Tax Services Office, who after reviewing the file again denied Mr.
Desjardins relief.
MR. DESJARDINS’ CASE
[7]
At
the first level, Mr. Desjardins emphasized serious emotional or mental
distress, arising from his then wife’s drug addiction, stress arising out of
divorce and custody of children issues and mental depression. Although called
upon to do so, he provided no medical opinion with respect to his depression.
[8]
At
the second level, he emphasized inability to pay and financial hardship. He
says he is insolvent, and indeed a tax collection officer suggested that since
he could never pay off the debt in its entirety, he should consider bankruptcy.
This is not really a viable option for Mr. Desjardins as he earns his living as
an officer or director of several British Columbia publicly traded
companies. He could not serve in that position as an undischarged bankrupt.
Some 35% of his earnings in that capacity has been garnished, which prevents
him from paying his current taxes. If interest and penalties were waived, he might
be able to pay the tax owing.
[9]
The
decision under review was made by Richard Soderquist, manager, Revenue
Collections Division, Canadian Revenue Agency, Tax Services Office, Victoria.
He determined that relief would not be granted for a number of reasons. He was
of the view that Mr. Desjardins had not exercised reasonable care in conducting
his affairs under the self-assessment system and knowingly allowed a balance to
exist upon which arrears interest had accrued. He had an extended history of
not filing his returns on time, maintained active investment accounts,
contributed to a spousal RRSP while carrying a debt balance, and transferred funds
to his current common law spouse while carrying a debt balance.
[10]
In
addition, his allegations that he was prevented from complying with filing
obligations due to circumstances associated with his health were not
substantiated. This finding was not strongly contested in Court.
[11]
According
to Mr. Desjardins, insufficient weight was given to the fact that over the last
three years he has filed his returns on time (but has not paid all taxes
owing), and notwithstanding garnishment of up to $9,000 a month because of
ongoing excessive interest charges, he has made practically no headway in
reducing his overall indebtedness, which includes sums both before and after the
1999 through 2007 tax years.
[12]
Furthermore,
in 2008 he made voluntary payments of close to $300,000. These payments were
hardly “voluntary” as they related to an arrangement whereby Mr. Desjardins
exercised various stock options 75% of the proceeds of which were applied to
his tax.
[13]
The
second level review had been carried out by a taxpayer relief coordinator,
Darren Marr, who in his report recommended that Mr. Desjardins’ relief request
be denied. According to Mr. Desjardins, Mr. Marr made a serious error in
his analysis. He noted that the taxpayer’s balance owing was $2,026,723.56
covering various years from 1994 through to 2009. He went on to say that the
total interest accumulated for the above period was $680,011.71 with penalties
of $183,558.53. Those figures are wrong in that they were the accumulated
interest and penalties for the years 1999-2007. Of the $2,026.723.56 owing, the
interest portion is actually $1,193,763.69 and the penalties are $225,979.07.
This led him to refer to the decision of Mr. Justice von Finkenstein in Dick
v Canada (Customs and Revenue Agency), 2005 FC 560, 2005 DTC 5241, in which
he held under the patently unreasonable standard of review current at the time,
that the Agency did not take into account that the penalty and interest owing
far exceeded the tax owing, and that Mr. Dick, given his chronic alcoholism,
his substance abuse and his age, was unlikely to ever earn the amounts owed.
[14]
As
Mr. Soderquist had the entire file before him, it cannot be said with any
certainty that he was not of the view that the amount owing was primarily for interest
and penalties. Even if so, that is only one factor to consider.
[15]
Mr.
Desjardins is 18 years younger than Mr. Dick. Although his income fluctuates,
on his last return he earned more than half a million dollars. Furthermore, he
has even more stock options than in 2008 which options generated close to
$400,000. Mr. Desjardins downplayed the fact that between December 2007 and
July 2010 he transferred over $300,000 to his current common-law spouse. This
money was then transferred back to him and he lost it all gambling at the River
Rock Casino! The Minister’s counsel is absolutely correct in saying that Mr.
Desjardins’ lifestyle choices pay scant heed to the taxman!
[16]
His
submission that garnishment of wages has prevented him from paying all his
taxes on current years is sheer nonsense.
[17]
Mr.
Desjardins’ submission is that he has reformed, and that that is a factor which
should have been taken into account in considering his history of
non-compliance. That may well be so. However, the facts do not support him. On
the plus side, he has been paying about $9,000 a month through salary
garnishment, voluntarily paid almost $300,000 over and above that amount, and
filed his last three returns in time. On the other hand, there is scant reason
to believe that he would be paying $9,000 a month without garnishment, the
voluntary payment of close to $300,000 was not voluntarily at all but arose
through an arrangement with the Agency, and although he has filed his returns
on time for the last three years, he has not paid all tax owing. Leaving aside
a somewhat lavish lifestyle, he gambled away $300,000 at a casino. Little room
for the milk of kindness here.
[18]
Section
21 of Information Circular IC07-1 reflects common sense:
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21. The ability of the CRA to waive or cancel penalties and
interest is not to be used by taxpayers as a way to arbitrarily reduce or
settle their tax debt.
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21. Les contribuables ne devraient pas utiliser la capacité de
l'ARC de renoncer ou d'annuler les pénalités et les intérêts comme un moyen
de réduire ou de régler de façon arbitraire leur impôt à payer.
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[19]
The
decision was well thought out and transparent. It is reasonable within the
meaning of paragraph 47 of Dunsmuir, above. It is not my role to reweigh
evidence.
[20]
There
is an element of gamesmanship here. Mr. Desjardins does not want to go bankrupt
as he will lose his livelihood, at least for a while, and the government will
get nothing. He says it should compromise. On the other hand, the Minister
submits that the integrity of the voluntary self-reporting system is such that
she would rather get nothing and let him go bankrupt “pour encourager les
autres”.
ORDER
FOR REASONS
GIVEN;
THIS COURT
ORDERS that:
1.
The
application for judicial review is dismissed.
2.
Costs
in favour of the Minister in the amount of $4,500, all inclusive.
“Sean Harrington”
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