Docket: T-1410-13
Citation:
2014 FC 1033
Ottawa, Ontario, October 31, 2014
PRESENT: The
Honourable Mr. Justice LeBlanc
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BETWEEN:
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GREGORY SAILSMAN
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Applicant
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and
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MINISTRY OF NATIONAL REVENUE
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Respondent
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JUDGMENT AND REASONS
[1]
This is an application for judicial review
pursuant to section 18.1 of the Federal Courts Act, RSC 1985, c F-7, of
a decision by the Minister of National Revenue, acting through the Canadian
Revenue Agency (CRA), refusing to grant the Applicant an extension of time to
file a non-resident tax return under the Income Tax Act, (RSC, 1985, c 1
(5th Supp.)) (the Act) so as to avoid the penalty associated with the late
filing.
[2]
For the reasons that follow, the judicial review
application is dismissed.
I.
Background
A.
Mr. Sailsman’s Tax Arrangements While Residing
Outside Canada
[3]
On or around December 2007, Mr. Sailsman moved
to Bermuda with his wife and son. While in Bermuda, he arranged for his father
to be his agent and submit tax returns on his behalf and receive all related correspondence.
In a letter dated March 30, 2009, Mr Sailsman was notified by the CRA that he
was considered a non-resident and could be subject to non-resident withholding
tax on rental income received from a Canadian source.
[4]
According to subsection 212(1) of the Income
Tax Act every non-resident shall pay an income tax of 25% on every amount
that a Canadian resident pays or credits to the non-resident. The non-resident
has the option of choosing another method of payment of that tax by undertaking
to file, within six months after the end of his taxation year, an income tax
return under Part I of the Act, and more particularly, subsection 216(4).
Pursuant to that method of payment, the tax is calculated based on the net, as
opposed to the gross, rental income.
[5]
This is the option Mr Sailsman chose by
submitting an “Undertaking to File an Income Tax Return
by a Non-Resident Receiving Rent form Real Property or Receiving a Timber
Royalty” (the NR6 Form) which was received by the CRA on February 4,
2010 and was deemed to apply to the 2010 taxation year.
[6]
By submitting the NR6 Form, Mr. Sailsman undertook
to file, pursuant to subsection 216(4) the Act, a tax return for his rental
income from Canadian sources for the 2010 taxation year (the 2010 Rental Income
Return). The deadline for doing so was June 30, 2011.
B.
Mr. Sailsman’s Divorce while in Bermuda
[7]
On or around April 6, 2010, Mr Sailsman was
served with an application for divorce by his wife, which he alleges took him
completely by surprise. A battle for custody of their only son ensued. Finally,
on or about September 22, 2010, the Supreme Court of Bermuda ordered the son
back to Canada. Mr Sailsman and his son therefore moved back to Canada on September 25, 2010. The Applicant’s wife stayed in Bermuda, although she now
lives in Jamaica, and has continued her legal proceedings for custody and
equalization of assets. In 2013, these proceedings were still ongoing. Additionally,
Mr Sailsman lost his job at IBM in March of 2012.
C.
Mr. Sailsman’s Return to Canada
[8]
In a letter dated December 31, 2010, Mr Sailsman
attempted to advise the CRA that he had returned to Canada and was no longer a
non-resident by submitting the form “Statement of Amounts
Paid or Credited to Non-Residents of Canada” (the NR4 Form). He
included a cheque for $180.00 and asked that his non-residency account be
closed.
[9]
In February 2011, Mr. Sailsman’s father called
the CRA to inquire whether Mr. Sailsman’s NR4 Form had been received and asked
that his non-residency account be closed once the NR4 Form processed. Mr.
Sailsman’s father was informed that the NR4 Form had been received but not yet
processed.
[10]
On September 26, 2011, the CRA sent a letter to
Mr Sailsman advising him that he had failed to file his 2010 Rental Income Return
by the June 30, 2011 deadline as undertaken in his NR6 Form. The CRA therefore
advised him that a 25% non-resident tax was payable on his Canadian rental
income. This amount was assessed as being $7,920.00, plus applicable interest.
D.
Mr. Sailsman’s Request that the late filing of
his 2010 Rental Income Return be Accepted
[11]
In a letter dated October 9, 2011, Mr Sailsman’s
father advised the CRA that Mr Sailsman did not know that, although he had filed
an NR4 Form, he was still required to file his 2010 Rental Income Return. He
attached a completed Section 216(4) return form to this letter asking for it to
be accepted with no penalty.
[12]
On February 2, 2012, the CRA acknowledged receipt
of the October 9, 2011 letter and informed Mr. Sailsman that the request
contained therein would be referred to the Taxpayer Relief Committee. On March
1, 2012, Mr Sailsman was informed that this request would be treated by the
Taxpayer Relief Committee as a request for an extension of time under
subsection 220(3) of the Act which empowers the Minister of National Revenue to
extend, at any time, the deadlines for making a return under the Act.
[13]
By a letter dated March 12, 2012, the CRA
advised Mr Sailsman that his request for an extension of time was denied.
E.
Mr. Sailsman’s First Request for Reconsideration
[14]
On March 28, 2012, Mr Sailsman applied to the
Director of International Tax Services of the CRA for reconsideration of the
March 12, 2012 decision. He reiterated that had he understood what documents
were required for his tax return filings for the year 2010, he would have submitted
them as there was no logical reason to file one form and not another. He
further reiterated that this situation “could only be
attributed to [his] understanding of the requirements, which [he] can only
attribute to [his] state of mind at the time”. He added that “the complexities of the filing process and lack of easily
getting information regarding [his] filing did not help as (sic) either”
Mr. Sailsman concluded by “appealing for leniency”
as although some mistakes were made, he “did what [he]
thought was right at the time”.
[15]
Mr. Sailsman’s reconsideration request was
assigned to a Taxpayer Relief Officer of the International Tax Services Office.
By a letter dated August 23, 2012, Mr. Sailsman was informed that his request had
been denied. He began thereafter a process for judicial review of that
decision. This application was discontinued when the Director of the
International Tax Services Office agreed to have his request for reconsideration
referred to a CRA officer not previously involved in the matter.
F.
Mr. Sailsman’s Second Request for
Reconsideration and the Impugned Decision
[16]
On July 23, 2013, Mr Sailsman ’s second request
for reconsideration was denied on the ground that it revealed no circumstances
that would have prevented the filing of the 2010 Rental Income Return by the June
30, 2011 deadline.
[17]
The July 23, 2013 decision (the Impugned
Decision) addressed each reason given by Mr Sailsman for not filing the 2010 Return
on time. It can be summarized as follows:
a.
The Canadian tax system being based on
self-assessment, it is up to the tax payer to educate himself on his tax
responsibilities, and misunderstanding of the filing requirements is not a
valid reason for granting relief;
b.
Although Mr Sailsman’s divorce proceedings and
custody battles could be viewed as extraordinary circumstances, these events
were resolved by the end of 2010, giving the Applicant time to file his 2010 Return
by June 30, 2011;
c.
The fact that Mr Sailsman and his son were
returning to regular life in Canada as of November 1, 2010 should not have
prevented him from filing by June 30, 2011;
d.
It is not the responsibility of the taxpayer’s
agent to file tax returns nor is it the responsibility of the CRA’s phone
officers to provide the agent or the tax payer with information outside of the
nature of the inquiry; and
e.
Mr Sailsman filed an income tax return on May
17, 2011 for the 2010 taxation year, meaning that he should have been able to
file the 2010 Rental Income Return by the applicable deadline a month a half
later.
[18]
Mr. Sailsman began the present application for
judicial review on August 21, 2013.
II.
Issues
[19]
Mr. Sailsman’s judicial review application has
two aspects. First, Mr. Sailsman complains of a failure, on the part of the
CRA, to provide clear and timely assistance when he requested it following his
return to Canada in the Fall of 2010. He attributes this failure to the CRA’s
delays in answering his letters, the amount of time he had to wait on the phone
before speaking to CRA’s phone officers, and the alleged lack of information
that he was given by these officers. He claims that in so doing, the CRA “failed to observe a principle of procedural fairness”.
[20]
Second, Mr. Sailsman questions the
reasonableness of the Impugned Decision on the ground that the CRA did not
adequately consider his extraordinary circumstances, that is the severe stress
he was facing, and is still facing, due to the abrupt end of his marriage in
April 2010. While he recognizes that it is the tax payers’ responsibility “to exercise reasonable care in conducting their tax matters”,
he says that he “tried [his] upmost” in that regard.
III.
Analysis
A.
The Procedural Fairness Concern
[21]
This argument on the part of Mr. Sailsman stems from
a misunderstanding of the nature of the decision that is being challenged
through the present judicial review application. What is being challenged is
the decision of the CRA not to extend the time Mr. Sailsman had under the Act to
file his 2010 Rental Income Return. As a result, any procedural fairness
concerns that would be relevant to the disposition of the present judicial
review application would have to do with the way Mr. Sailsman’s October 9, 2011
request for leave to file his 2010 Rental Income Return without a penalty had
been handled, from a procedural standpoint, by the CRA and his agents.
[22]
Mr. Sailsman alleges no such concerns. Rather,
the argument he advances as a procedural fairness concern is related to the way
the CRA handled his NR4 and NR6 Forms and what led the CRA to take the position
that he had failed to file his 2010 Rental Income Return by the applicable deadline.
This argument forms part of the merits of his claim that the CRA should have extended
the time for filing his 2010 Rental Income Return under subsection 220(3) of
the Act. It goes to the facts that, according to him, should have prompted the
CRA to accept the late filing of his 2010 Rental Income Return. It goes, as a
result, to the reasonableness of the Impugned Decision, not to its legality
from a procedural fairness perspective.
[23]
In any event, there were no breaches of
procedural fairness in the CRA’s decision-making process that led to the
Impugned Decision. As indicated previously, subsection 220(3) of the Act provides
that the Minister of National Revenue “may at any time
extend the time for making a return under this Act”. The power
conferred on the Minister is purely discretionary (Sixgraph Informatique
Ltée v Minister of National Revenue, 2004 FC 759). No statutory procedural
framework governs requests made under subsection 220(3) of the Act.
[24]
In this context, Mr. Sailsman was entitled to
expect that he would be given the opportunity to make representations in
support of his request for late filing and that these representations would be
considered by the CRA. The evidence on record clearly shows that the Impugned
Decision was procedurally fair : Mr. Sailsman was provided with the opportunity
to state his case, his request for late filing was reconsidered on two
occasions and his representations in support of such request were considered by
the CRA at all stages of the treatment of the said request.
B.
The CRA’s Decision not to Extend the Deadline
for Filing the 2010 Income Return was Reasonable
[25]
Mr. Sailsman contends that the Impugned Decision
is unreasonable because the CRA did not adequately consider his extraordinary
circumstances resulting from the stressful breakdown of his marriage. He also
contends that the Impugned Decision is reviewable on the ground that the CRA
did not adequately consider the fact that he was not provided with clear and
timely assistance when he requested it following his return to Canada in the
Fall of 2010, specifically, the delays in answering his letters, the amount of
time he had to wait on the phone before speaking to CRA’s phone officers, and
the lack of information he was given by these officers.
[26]
It is well settled that on findings of facts and
discretionary decisions, the reasonableness standard, which is the most
deferential standard, will usually apply (Dunsmuir v New Brunswick, 2008
SCC 9, [2008] 1 S.C.R. 190, at paras 53-54). In Sixgraph, above, this
Court ruled that a decision made pursuant to subsection 220(3) of the Act was
to be reviewed on the “patent unreasonableness” standard.
Before Dunsmuir, this was the most deferential standard, and post-Dunsmuir,
it refers to the reasonableness standard (Dunsmuir, at para 45).
[27]
In this case the Impugned Decision was
discretionary and was based on the specific facts of Mr. Sailsman’s
circumstances. Therefore, the reasonableness standard of review applies. This
standard of review recognizes that there is a range of acceptable outcomes in
any given case and that a decision-maker cannot be faulted for choosing one
over the other. What this means in this case is that the Court cannot
review the facts of the case and substitute the outcome of the Impugned
Decision with its own conclusion and that it can only interfere with it if
it lacks “justification, transparency and intelligibility
within the decision-making process” and if it falls outside the “range of possible, acceptable outcomes which are defensible in
respect of the facts and law” (Dunsmuir, paragraph 47).
[28]
In this case, I find that the Impugned Decision is
reasonable: it sets out the reasons for decision in the letter sent to Mr.
Sailsman on July 23, 2013; it addresses each point made by Mr Sailsman in his
request that the late filing of his 2010 Rental Income Return be accepted and
indicates why the extension of time should not be granted; it points out relevant
facts and explains why the circumstances are not enough to justify granting an
extension in this case.
[29]
All the points raised by Mr Sailsman as to why
he did not file on time and should be granted an extension of time were
examined.
[30]
First, the CRA found that misunderstanding the legal
requirement to file was not a valid reason to grant an extension of time. It
is explained in the Impugned Decision that, because there is a self-assessment
system in Canada, taxpayers must properly educate themselves on their tax
responsibilities.
[31]
Second, the CRA concluded that, even though Mr
Sailsman underwent divorce and custody proceedings in 2010, he would have had
enough time to file his 2010 Rental Income Return. The impugned Decision
states that in the evidence presented by Mr Sailsman, his custody and divorce
proceedings were finalized by the end of 2010, and his 2010 Return was only due
on June 30, 2011, which the CRA considered to be ample time to file.
[32]
Third, the CRA decided that Mr Sailsman’s resumption
of regular life in Canada as of November 1, 2010 and his son suffering trauma
as a result of the divorce and custody proceedings were not acceptable reasons
for missing the June 30, 2011 deadline for filing his 2010 Rental Income Return.
The CRA indicated that although there would be an adjustment period for him and
his son, Mr Sailsman did not explain how this prevented him from filing on
time.
[33]
Fourth, the CRA found that Mr Sailsman’s father not
being advised of the 2010 Rental Income Return filing requirement was not a
valid reason to grant an extension either. The CRA stated that it was Mr
Sailsman’s responsibility to file the income tax returns, not his father’s. Additionally,
the CRA noted that Mr Sailsman’s father had not inquired specifically about obligations
regarding proper tax compliance while on the phone with the CRA officer but
that the inquiry was of a more general nature.
[34]
Fifth, the CRA concluded that Mr Sailsman not
being advised of the filing requirements while inquiring about his NR4 Form and
residency status was not a valid reason to grant an extension of time. The CRA
explained that when making a general inquiry on the phone with a CRA officer,
the phone officer would not be prompted to provide information about additional
filing requirements unless more specific information was given, such as
the fact that Mr Sailsman was renting property in Canada while a non-resident. Mr
Sailsman did not provide this information in this case. This evidence was not
challenged by Mr. Sailsman.
[35]
Finally, the CRA noted that, since Mr Sailsman
had filed an income tax return for the 2010 tax year on May 17, 2011, he should
have been able to file his 2010 Rental Income Return by June 30, 2011.
[36]
In sum, Mr. Sailsman was told in February 2011 that
his NR4 Form had not yet been processed. He nevertheless assumed that he did
not have to produce, by the June 30, 2011 deadline, the 2010 Rental Income
Return he had undertaken to file through the NR6 Form submitted the year before.
As he says, had he had known what to file, he would have filed the proper
returns in time. However, in a self-assessment tax system like the one we have
in Canada, it is for him to be aware of his tax responsibilities. There is no
evidence that he was misled by the CRA in this regard.
[37]
Mr. Sailsman proceeded on the assumption that he
no longer had to file his 2010 Rental Income Return. This assumption was
incorrect. As evidenced by his filing of an income tax return for the 2010 tax
year on May 17, 2011, had he not made that incorrect assumption, nothing would
have prevented him from producing his 2010 Rental Income Return despite the
circumstances he describes with respect to his state of mind at the time.
[38]
As a result, considered as a whole, I am
satisfied that the Impugned Decision is justified, transparent and intelligible
and falls within the range of possible acceptable outcomes. In other words,
there is nothing in the decision that warrants intervention by this Court.
[39]
Mr. Sailsman recognizes in his written
submissions that it is the tax payers’ responsibility “to
exercise reasonable care in conducting their tax matters”. He says in
this regard that he “tried [his] upmost”. However,
this was not the test he had to meet. Rather, he had to satisfy the CRA that
there were special circumstances that prevented him from meeting the June 30,
2011 deadline. The CRA found that he had not established that he was facing
such circumstances. Based on the record before me, I find that this was an
acceptable and defensible outcome in respect of the facts and the law.
[40]
Throughout his oral submissions before the
Court, Mr. Sailsman kept referring to the fact that he would have expected a
much better service on the part of the CRA, like the services financial
institutions provide to their clients. These expectations were simply misplaced.
[41]
Unlike financial institutions, the CRA is not a
commercial undertaking offering its products and services in an open,
competitive market. The CRA is a creature of statute whose mandate is to
administer an income tax system that relies on self reporting by
taxpayers. To that end, the Act gives the CRA broad powers in supervising the
scheme of assessing and auditing taxpayers. In such context, the CRA and the
taxpayers have opposing interests. Their relationship is therefore not one
where the CRA should be responsible for protecting taxpayers from losses
arising from their assessments (Leighton v Canada (Attorney General), 2012 BCSC 961, at para 54). Rather, it is that of debtor-creditor, governed by statute and in a sense, adverse.
As a result, absent a breach of the powers in the Act, the CRA has no
duty towards a taxpayer other than to act in accordance with the Act for the purposes
of the Act (Humby v Central Springs Ltd. 2013 FC 1136, at paras 118-122).
[42]
Although Mr. Sailsman did not seek costs on his
application for judicial review, the CRA has. According to Rule 400 of the Federal
Courts Rules, the Court has full discretion over the amount and allocation
of costs and the determination of by whom they are to be paid. As a general
rule, costs should follow the event and they will in this case. However, considering
that Mr. Sailsman is self-represented, that he showed
good faith all along and this is a straightforward case, I have decided to
award to the CRA a lump sum of $500.00, inclusive of all disbursements.
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