Date: 20080220
Docket: T-1185-07
Citation: 2008 FC 218
Ottawa,
Ontario, February 20, 2008
PRESENT: The Honourable Orville Frenette
BETWEEN:
M.
DIANNE TELFER
Applicant
and
CANADA
REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
Ms
Telfer filed for tax losses for the tax years 1996 and 1997, carried losses
back to 1993 through 1995 and forward to 1998 and 1999. She was reassessed for
the tax years 1993, 1994 and 1996 by Notice dated June 29, 2000. She filed
Notices of Objection for the reassessment of those years with the Minister of
National Revenue (Minister) on July 31, 2000.
[2]
The
applicant was also reassessed for tax years 1997, 1998 and 1999 by Notice dated
March 26, 2001, and filed related Notices of Objection on May 19, 2001.
[3]
At both of these
instances, the respondent, Canada Revenue Agency (Agency) acknowledged receipt
of the objection Notices with a letter which indicated that interest would
continue to accumulate on the unpaid balance in dispute.
[4]
The
Agency opted to hold the applicant’s Notices of Objection in abeyance, as the
issue raised therein was substantially similar to that in the Brown case
then before the Tax Court. It notified Ms Telfer of this decision by letter
January 15, 2002. In that letter, the respondent again informed Ms Telfer that
interest would continue to accumulate on the unpaid balance and that the
Agency would pay interest on the relevant amount should her objections
ultimately be successful.
[5]
In
2004, following the decision of the Tax Court in the similar case, the Agency
made a settlement offer in respect of the 1996 and 1997 taxation years which
was accepted by Ms Telfer. The applicant was required to provide a waiver of
appeal as part of the settlement, and did so on December 9, 2004. In
accordance with the terms of the settlement, the Minister confirmed the
reassessments of the 1993 and 1994 taxation years, and reassessed Ms Telfer for
1996, 1997, 1998 and 1999 on March 21, 2005.
[6]
Ms
Telfer requested interest relief (of $10, 467.00) on her tax liability on
September 22, 2006 on the basis of departmental delay and financial hardship.
The Agency’s letter confirming receipt of this request again noted that
interest would continue to accumulate on any unpaid balance and that the
assignment of an Officer to assess her case might take several months. The Minister
denied the request by letter dated February 19, 2007. The applicant then
requested an administrative review of the February 19th decision,
which was denied by letter dated May 23, 2007. It is the refusal by the
appeals officer who undertook the administrative review to grant relief which
is the subject of the instant judicial review.
I. Issues
A. Should
the delay in assessing the applicant’s Notices of Objection be a basis of
relief under the fairness provisions of the Income Tax Act, 1985, c. 1
(5th Supp.)?
B. What is the
appropriate time for the application for relief to start running?
II. Analysis
[7]
The
Minister has a discretion to waive any penalty of interest pursuant to
subsection 220 (3.1) of the Income Tax Act, which reads as follows:
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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.
|
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.
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[8]
This
discretionary decision with respect to waiver of interest is subject to review
on the standard of reasonableness simpliciter: Dort Estate v. Canada (Minister of
National Revenue - M.N.R.), 2005 FC 1201, [2005] F.C.J. No. 1460 [Dort];
Lanno v. Canada (Customs and Revenue Agency), 2005 FCA 153, [2005]
F.C.J. No. 714 [Lanno]; Kreklewich v. Canada Revenue Agency, 2007
FC 892, [2007] F.C.J. No. 1153 [Kreklewich].
A. Should
the delay in assessing the applicant’s Notices of Objection be a basis of
relief under the fairness provisions of the Income Tax Act, 1985, c. 1 (5th
Supp.)?
[9]
The
applicant asserts that there is no reason delays in court proceedings cannot be
considered as the basis of relief under the fairness provisions. She cites Cole
v. Canada (Attorney General), 2005 FC 1445, [2005] F.C.J. No. 1764 [Cole]
and Dort in support of
this proposition.
[10]
The
respondent counters that this case is distinguishable because Ms Telfer was not
a party to the case which caused the delay and she was informed several times
that interest would continue to accrue on her tax liability during the
abeyance.
[11]
Ministerial
guidelines on the factors to be considered in the exercise of the discretion to
waive penalties and interest pursuant to subsection 220 (3.1) of the Income
Tax Act have been issued in the form of Information Circular 07-1 –
Taxpayer Relief Provisions. Circumstances where relief is warranted are
described in paragraphs 23 through 27. Paragraph 25 provides for circumstances
beyond the control of the taxpayer, such as natural disaster or serious
illness. See McLeod Estate v. Canada (Minister of
National Revenue - M.N.R), 2007 FC 1111, [2007] F.C.J. No. 1443 [McLeod
Estate].
[12]
Paragraph
26 of the Information Circular illustrates circumstances where penalties
and interest might be waived due to the actions of the Agency, including:
(a) processing delays that result in the
taxpayer not being informed, within a reasonable time, that an amount was
owing;
[…]
(e) delays in providing information, such
as when a taxpayer could not make the appropriate instalment or arrears
payments because the necessary information was not available; or
(f) undue delays in resolving an
objection or an appeal, or in completing an audit.
[13]
While
guidelines such as these are not binding on the Minister or the Agency, they
are useful in assessing the reasonableness of the decision: Jim's Pizza
(1980) Ltd. v. Canada (Revenue Agency), 2007 FC 782,
[2007] F.C.J. No. 1052.
[14]
In
her decision, the appeals officer noted that there had been no delays by the
Agency; that Ms Telfer had agreed to have her Notices of Objection held in
abeyance pending the outcome of the other case at the Tax Court; and, that she
had been informed on three separate occasions that interest would continue to
accrue on her outstanding balance. She found, therefore, that Ms Telfer did not
qualify for interest cancellation on the basis of delay. A separate request
based on financial hardship was referred to the Toronto North Collections
Fairness Committee.
[15]
Ms
Telfer does not dispute that she was informed that interest would continue to
be charged on her unpaid tax bills. She simply asserts that the delay in processing
her objections to her tax assessments pending the outcome of another taxpayer’s
case at the Tax Court of Canada should be sufficient grounds to find the
decision of the appeals officer unreasonable.
[16]
The
standard of review of reasonableness simpliciter essentially questions
whether the discretionary decision can be based on the evidence. Unless it is
made in bad faith, contrary to law or considering irrelevant facts, it should
not be disturbed.
[17]
However,
such a decision involving interpretation of the consequences of undue delays
and accrued interest in Income Tax matters has been considered sufficient to
vacate an officer’s decision in Dort and McLeod Estate.
[18]
In
Cole, which involved a 10 year delay, Justice Michael L. Phelan wrote at
paragraph 20:
There is no reason why delays in court
proceedings, depending on the circumstances, could not be considered as a basis
for relief. In addition, neither the legislation nor the Minister's policy
restricts consideration only to those events within departmental or Agency
control.
See also Lanno.
[19]
I
agree with the reasoning of Phelan J., but I would add that there could be a
valid argument to contest the decision if the delay was due to the proceedings,
and was a predicable risk on the part of the party, see Kreklewich.
[20]
In
the present case, the delay was caused by the deferral while awaiting the
results in the Brown case which was before the Tax Court and which
presented similarities to the instant case.
[21]
This
suspension or delay was made at the suggestion of the Minister and although the
applicant agreed, is it fair that she bear all of the interest accumulated
during that period? I do not think so.
[22]
Justice
Sean J. Harrington, in Dort, granted a review in
the favour of the tax payer’s’ estate because the assessment had been appealed
to the Tax Court and the Federal Court of Appeal. Justice Harrington wrote at
paragraph 17 “…The principle of legitimate expectations is part of procedural
fairness.”
[23]
In
Cole, the lengthy delay was due to the tax payer’s appeal and the
judge’s alleged conduct. A judicial review was granted for those reasons
against a Minister’s decision to refuse interest relief.
[24]
It
seems to me that in the present case even if the applicant was warned by the
Minister of the continuance of interest during the delay caused by the court
proceedings in the Brown case, it is unfair to impose all of the
interest upon the applicant who was not before the Tax Court. Therefore, I
believe it would be only fair that the applicant should only have to pay
one-half of the accrued interest during the waiting period caused by the Brown
case.
B. What
is the appropriate time for the application for relief to start running?
[25]
The
applicant also contends that her application for interest relief should be
assessed based on the date the Objections were filed, so as to bring the
earliest years for which she claims relief within the ten year limitation
contained in subsection 220 (3.1) of the Income Tax Act.
[26]
I
would, however, agree with the argument of the respondent that the limitation
in subsection 220 (3.1) is expressly laid out to restrict the Minister’s
discretion on the waiver or cancellation of interest and penalties to the ten
calendar years after the end of the relevant taxation year. The Agency is,
therefore, statutorily barred from considering waiving or cancelling interest
or penalties for tax years prior to that period.
[27]
I
would also note that the applicant’s request for direction to the respondent to
make a decision regarding the tax years 1993 and 1994 is without merit, as the
Objection concerning those years was resolved by a confirmation of the relevant
reassessments. Notice of that confirmation was sent to the applicant on March
21, 2005, according to the respondent, although copies of that notice are not
before me.
[28]
Therefore,
for all of these reasons, the application for judicial review should be
granted.
JUDGMENT
THIS COURT ORDERS AND
ADJUDGES that this application for judicial review is allowed and the
matter is referred back to a person authorized by the Minister, other than the
one who made the impugned decision, for a review limited to the issue of the
delays invoked. Costs are granted in favour of the applicant.
"Orville
Frenette"
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