Docket: T-490-07
Citation: 2011
FC 1506
Toronto, Ontario, December 20,
2011
PRESENT: The Honourable Mr. Justice Hughes
BETWEEN:
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INLINE FIBERGLASS LTD.
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Applicant
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and
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CANADA REVENUE AGENCY
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Respondent
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REASONS FOR JUDGMENT AND
JUDGMENT
[1]
The
Applicant, Inline Fiberglass Ltd., has brought this judicial review, which
seeks to set aside and return to another decision-maker in the Respondent
Canada Revenue Agency (CRA), a decision communicated to Inline by letter dated
February 22, 2007. That decision was a second and final review of the CRA’s
decision issued on May 31, 2006 to deny the cancellation of interest and
penalties assessed against Inline pertaining to the 2004, 2005 and 2006
taxation years on the basis of financial hardship. In that second and final
decision, the CRA stated that it was unable to grant Inline relief in respect
of interest and penalties that it requested.
[2]
For
the reasons that follow, I am dismissing this application, with costs.
[3]
Inline
has a lengthy history with the CRA with respect to interest and penalties
imposed for failure to comply with Income Tax Act, RSC 1985 c 1 (5th
supp) provisions. In 1996 and 1997, CRA refused to waive such interest and
penalties; in 2003 and 2004, it did waive interest and penalties. Gross
negligence penalties arose out of Trust Account Examinations conducted in 2005
and 2006. Inline’s director and representatives were given a prosecution
warning as a result of the 2005 examination.
[4]
Inline,
in the present case, seeks waiver of $42,125.58 in penalties and $19,236.00 in
interest (at the time the evidence was submitted in these proceedings) accruing
with respect to the 2005, 2006 and 2007 taxation years. It made several
submissions to CRA stressing financial hardship, including references to senior
officials mortgaging their home and restructuring their salaries to assist in
funding the corporation.
[5]
The
evidence submitted by Inline to CRA indicates that in the year ending January
31, 2004 it made over $900,000.00 profit; in the year ending January 31, 2005
over $72,000.00 profit; in the year ending January 31, 2006 over $235,000.00
profit; and that in the year ending January 31, 2007 it expected to make in the
order of $700,000.00 profit.
[6]
In
response to Inline’s request for waiver of interest and penalties, CRA provided
a first response by letter dated May 31, 2006. That letter stated, inter
alia:
A review of the facts of this
case has failed to show that there is conclusive evidence of financial
hardship. Consequently, we have concluded that it would be inappropriate to
cancel any penalty or interest charges.
As you will appreciate, the charging of
penalties and interest serves to encourage compliance with our filing,
withholding and remitting requirements. In particular, since amounts withheld
under the “Excise Tax Act,” the “Excise Act,” 2001, the “Income Tax Act,” the “Canada Pension Plan” and the
“Employment Insurance Act” are trust funds, the laws governing the handling of
these funds are necessarily strict.
[7]
Inline
requested a second administrative review of this decision. This caused a CRA
employee, Webster, to review the file and prepare a report. That report was not
sent to Inline, although CRA’s Counsel advises that it would have been
available to Inline upon request. That report stated:
Summary of facts:
This company was previously denied
cancellation of interest and penalties in October 1996, March 1997 and November
2006. The company was allowed cancellation of interest and penalties totalling
$111,802.00 in September 2003 and $15,636.06 in July 2004. In May 2006 the
corporation was denied cancellation of interest and penalties on the basis of
financial hardship. In August 2006 a request was received for an administrative
review. On August 11, 2006 a letter was issued to the corporation requesting
copies of supporting documents and financial statements. These documents were
submitted to the Agency in January 2007.
This company operates as a manufacturer
of fibreglass products and has been in Collections since 1994. According to the
owner, the corporation had a very poor year in 2004 followed by chronic
financial hardship in 2005. Our records show the corporate tax return for 2004
showed a net profit of $931,309.00 and total revenues of $11,196,389.00. The
2005 return showed a net profit of $72,565.00 and total revenues of
$11,496,359.00. Although the T2 return for the fiscal period ending January 31,
2006 has not been filed, financial statements submitted by the director show a
net profit of $235,029.00 and total revenues of $13,541,428.00. Our records
show that the corporation received a research and development credit of
$702,287.00 in August 2004 and $540,214.38 in August 2005. There is currently a
credit of $723,001.00 approved. This balance is currently being held until the
amount required to repay this account is transferred. In February 2006 the
mortgage on the property the corporation operates from was refinanced for an
additional $287,000.00. According to the letter, the shareholders remortgaged
their property and injected the funds into the business. Documents submitted
show the property is the premise the corporation operates from. Although the
director’s letter states that in 2006 all remittances were made as required,
our records show the company was assessed six failure to remit penalties in
2006 and three late remitting penalties and a late filing penalty. According to
the director, for 2007 they are projecting profits of $700,000.00 and sales of
14.3 million. The corporate account and Goods and Services Tax account both
have nil balances. The last payment to this debt was $20,000.00 in December
2006.
Based on the information submitted the
request does not meet the criteria of the Fairness Legislation on the basis of
financial hardship. There is currently a research and developments credit
available in the amount of $723,001.00 and the funds to repay this account are
being transferred from this credit. The corporation has shown a net profit
every year for the past three years. The corporation was assessed ten
additional penalties in 2006. The company was previously allowed cancellation
of interest and penalties in September 2003 in the amount of $111,802.50 and an
additional $15,636.06 IN July 2004. There is no indication that the payment of this
debt will cause financial hardship to the corporation. I recommend that the
request be denied.
[8]
The
Director of the Toronto West Tax Services Offices reviewed the file and made the
decision under review delivered by letter to Inline dated February 22, 2007. In
part, that letter stated:
The Fairness Legislation allows for the
cancellation or reduction of all or a portion of penalties and interest
payable. A number of factors are given consideration by the Agency in
determining whether such relief can be granted. We have again carefully
reviewed your submission with regard to the interest and penalties charged to
your account in relation to this legislation. After careful consideration, we
have concluded that there is no conclusive evidence that the payment of this
debt will cause financial hardship to the corporation. Our records also show
that in 2006 the company has been assessed three additional late remitting
penalties, a late filing penalty and six failure to remit penalties. The
corporate return for the fiscal period ending January 31, 2006 has also not
been filed. Therefore, I regret that we are unable to grant the relief you
request.
[9]
The
Applicant has filed the affidavit of Michael Shurety, President of Inline, in
support of its application. The Respondent has filed the affidavits of Marisetti,
the person making the decision under review; of Webster, the person making the
report previously referred to; and the affidavit of Allen, a legal assistant in
the Department of Justice Office in Toronto. There was no
cross-examination upon any of the affidavits.
[10]
Applicant’s
Counsel objects to certain portions of the Marisetti affidavit, particularly
paragraph 17, being read in as part of this evidence. Counsel argues that this
material is really an attempt to provide further and better reasons for the
decision at issue. Respondent’s Counsel argues that the affidavit “fleshes out”
rather than supplements the reasons given in the decision. The remarks of
Pelletier JA in Sellathurai v Canada, 2008 FCA 255, at paragraph 46, are
appropriate…“a tribunal or a decision-maker cannot improve upon the reasons
given by means of an affidavit filed in the judicial review.” I will give
no weight to paragraph 17 or those other portions of the Morisetti affidavit,
which purport to “flush out” the decision.
[11]
Applicant’s
Counsel raises essentially two arguments respecting the decision at issue.
First, the decision states erroneously that the Applicant had not filed its 2006
return. Second, the decision-maker failed to give full weight to the precarious
cash flow situation experienced by Inline. Both Counsel are agreed that the
standard of review is reasonableness.
[12]
With
respect to the first issue, the 2006 return had been filed, albeit a month
late, by the time the decision under review was made. It is, however, to be
noted that the decision under review states that the 2006 report “has also
not been filed (emphasis added)”. The use of the word also means that this
is an additional ground for refusing to waive interest and penalties. The main
ground for refusal is that “…there is no conclusive evidence that the
payment of this debt will cause financial hardship to the corporation.”
Thus, even if the failure to file the 2006 return was in error, the principal
ground for refusal remains intact.
[13]
As
to the principal ground, Applicant’s Counsel argues that too little, if any
weight, was given to Inline’s precarious cash flow situation. This is a matter
of weight and judgment to be afforded by the CRA. As O’Keefe J of this Court
stated in Holmes v Canada (Attorney General), 2010 FC
809, at paragraph 20: “Tax fairness decisions are informal and
non-adjudicative in nature.” As the Supreme Court of Canada has written
very recently in Newfoundland and Labrador Nurses’
Union v Newfoundland and Labrador (Treasury Board), 2011 SCC 62
at paragraph 17:
Reviewing judges should pay “respectful
attention” to the decision-maker’s reasons and be cautious about submitting
their own view about designating certain omissions in the reasons to be fateful.
[14]
In
the present case, the Report to the decision-maker outlines in considerable
detail all aspects of Inline’s financial situation, including its cash flow and
past history respecting penalties and interest. The decision at issue states
that the record has been carefully reviewed, including the submissions made on
behalf of Inline.
[15]
The
decision at issue is reasonable within the boundaries established in Dunsmuir
v New
Brunswick,
[2008] 1 S.C.R. 190, at paras 46-50. Accordingly, the application is dismissed. The
parties are agreed that the prevailing party, here the Respondent, should be
awarded lump sum costs of $2,500.00.
JUDGMENT
FOR THE
REASONS PROVIDED:
THIS COURT’S JUDGMENT
is that:
1.
The
application is dismissed; and
2.
The
Respondent is awarded costs in the sum of $2,500.00.
“Roger
T. Hughes”
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