Docket: T-1039-13
Citation: 2014 FC 890
[UNREVISED
ENGLISH CERTIFIED TRANSLATION]
Ottawa,
Ontario, September 22, 2014
PRESENT: The Honourable Madam Justice St-Louis
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BETWEEN:
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PIERRE GILBERT
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Applicant
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and
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THE MINISTER OF NATIONAL REVENUE (CANADA REVENUE AGENCY)
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Respondent
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JUDGMENT AND REASONS
I.
INTRODUCTION
[1]
This is an application for judicial review filed
by Pierre Gilbert (the applicant) of a decision rendered by Antonio Almeida, [Officer]
of the Canada Revenue Agency [the CRA], who granted him interest relief for the
period from May 21, 2012 to May 15, 2013.
[2]
The applicant is unhappy with the Officer’s
decision, who reduced the amount of interest, but did not cancel it entirely.
II.
BRIEF SUMMARY OF
THE FACTS
[3]
The applicant and his spouse were the sole proprietors
and shareholders of Sécovac Inc. [Sécovac] from the moment it was incorporated
in 1996, until it was struck off the register in May 2000.
[4]
In order to understand the position of the
parties, a brief description of the three notices of assessment issued to the
applicant by the Minister of National Revenue will be helpful.
[5]
The first of these notices of assessment was
established on June 6, 2002, pursuant to section 160 of the Income Tax
Act, RSC 1985, c 1 (5th Suppl.) [ITA].
It was with regard to a dividend payment by Sécovac to the applicant, at a time
when Sécovac owed a tax debt to the Minister of National Revenue [notice of
assessment under 160].
[6]
The applicant challenged that notice of
assessment before the Tax Court of Canada [the TCC], which allowed his
application in part. However, the Federal Court of Appeal [the FCA], called
upon to intervene, re-established the notice of assessment under section 160 in
its entirety. The Supreme Court of Canada [SCC] refused the application for
leave to appeal filed by the applicant.
[7]
The second of these notices of assessment was
established on June 21, 2004, for the 1999 taxation year, under paragraph 39(1)(c)
of the ITA. In that notice, the CRA refused an allowable business investment
loss [ABIL]. The applicant had requested that a loss be carried over to 1999
for amounts paid in 2001 and for this to be credited to Sécovac [notice of
assessment under paragraph 39(1)(c)].
[8]
The third of these notices of assessment was
also established on June 21, 2004, for the 2000 taxation year, pursuant to
subsection 15(1.2) of the ITA. In that notice, the CRA added $814,894 to
the applicant’s income, which corresponded to the amount received by Sécovac
between 1996 and 2000 from a commercial loan [notice of assessment under
subsection 15(1.2)].
[9]
On September 17, 2004, the applicant filed
notices of objection to the notices of assessment under paragraph 39(1)(c)
and subsection 15(1.2), which were received by the CRA on November 1, 2004.
The CRA then informed the applicant that interest would continue to accrue
regardless of the notice of objection and that he could still make payments
towards his debt.
[10]
On November 13, 2007, the CRA confirmed the
notice of assessment under paragraph 39(1)(c), thereby reaffirming
the assessment for the 1999 taxation year.
[11]
In addition, the CRA allowed, in part, the
applicant’s notice of objection for the 2000 taxation year, vacated the notice
of assessment under subsection 15(1.2), replacing it with a notice of
reassessment in which an amount of $85,981 was added to the applicant’s
income. The CRA argued that the amounts referred to in that notice of assessment
needed to be included in the applicant’s income as a shareholder loan, taxable
under subsection 15(2) of the ITA [notice of assessment under subsection 15(2)].
[12]
On April 24, and July 16, 2009, the TCC upheld
the validity of the notices of assessment under paragraph 39(1)(c)
and subsection 15(2) respectively. The applicant has not challenged those TCC decisions
before the FCA.
III.
REQUESTS FOR RELIEF
UNDER SUBSECTION 220(3.1) OF THE ITA
[13]
Following the denial of the first request for
relief on March 22, 2011, the applicant submitted a second request for relief
on May 20, 2011. This second request sought the cancellation of the interest
accrued with regard to the notice of assessment pursuant to subsection 15(2). The
applicant alleges that there was an error and an undue delay attributable to
the CRA; he further alleges that the auditor acted in bad faith. On September 21, 2012,
he filed additional submissions. He is arguing that the three notices of
assessment are invalid.
[14]
The Officer prepared a report recommending that
relief be granted, and that report was subsequently approved by the Taxpayer
Relief Committee of the CRA’s Tax Services office, whose decision was mailed on
May 15, 2013.
[15]
This second request for relief, and the claims
made therein, are in regard to the 2000 taxation year, that is to say, the
notice of assessment pursuant to subsection 15(2), as indicated by the Officer
at page three of his decision: [translation] “the second
request for relief is dated May 20, 2011, and September 21, 2012. It concerns
the year 2000.”
[16]
The Officer granted relief for the 1999 and 2000
taxation years. In this case, the applicant contends that the three
aforementioned notices of assessment are invalid. Similarly, the respondent
refers to two notices of assessment when he asserts, at paragraph 22 of his
memorandum of fact and law:[translation] “[o]n May 20, 2011, the applicant submitted a second request
for relief (the 2nd request for relief ) wherein he sought the cancellation of
interest owed with respect to assessments 15(2) and 39(1)(c) …” Thus,
although the request giving rise to the impugned decision in the present case
was with regard to the notice of assessment pursuant to subsection 15(2), the
parties submitted arguments whose scope goes beyond the outcome of this decision.
[17]
In the present case, I will respond to the
arguments of the parties, as they have been presented, and I will make reference
to the three aforementioned notices of assessment. However, the outcome would
not have been different had the analysis been restricted to the assessment
pursuant to subsection 15(2).
IV.
THE IMPUGNED
DECISION
[18]
In his decision, the Officer examined the delays
incurred at each stage of the processing of the applicant’s file. Upon
completing his review, he granted the applicant interest relief for the period
from May 21, 2012, to May 15, 2013. He considered the delay to be excessive and
attributable to the CRA. According to the Officer, none of the other delays or
any error could be attributed to the CRA.
[19]
In addition, the Officer concluded that the TCC
had upheld all of the assessments challenged by the applicant and that he had
lacked diligence by deliberately letting interest accrue on his tax debt. The Officer
further noted that no other relief could possibly have been granted under
subsection 152(4.2) of the ITA.
V.
ISSUE
[20]
The only issue here is the following:
•
Did the CRA err in allowing the second request
for interest relief only in part?
VI.
STANDARD OF REVIEW
[21]
The decision to allow the applicant’s request
for relief in part must be reviewed on a standard of reasonableness. Indeed,
Justice Boivin recently affirmed as much in Amoroso
v Canada (Attorney General), 2013 FC 157 at para 50:
The standard of review to apply to a
Minister's discretionary decision to cancel interests owed is that of
reasonableness (Lalonde v Canada (Revenue Agency), 2010 FC 531 at paras
27-30, [2010] FCJ No 638 (QL); Telfer v Canada (Revenue Agency), 2009
FCA 23 at para 24, [2009] FCJ No 71 )QL); Jim's Pizza (1980) Ltd v Canada
(Revenue Agency), 2007 FC 782 at para 3, [2007] FCJ No 1052 (QL) [Jim's
Pizza]). The Minister’s decision to waive or cancel
interests is a discretionary one, and as such this Court must show deference
and be “concerned mostly with the existence of justification, transparency and
intelligibility within the decision-making process” as well as “whether the
decision falls within a range of possible, acceptable outcomes which are
defensible in respect of the facts and law” (Dunsmuir v New Brunswick,
2008 SCC 9 at para 47, [2008] 1 S.C.R. 190 [Dunsmuir]). As pointed out by
the respondent, the Minister’s discretionary power to cancel interests is an
exceptional relief (Jim’s Pizza, above, at para 13).
VII.
APPLICANT’S
ARGUMENTS
[22]
In the applicant’s view, the impugned decision
is unreasonable.
[23]
He primary argument is that the Officer failed
to consider certain facts and elements proving that the notices of assessment
under paragraph 39(1)(c) and subsection 15(2) are invalid because
they were established on the basis of erroneous facts. Furthermore, he claims
that the notice of assessment under section 160 is also invalid, and that the CRA’s
decision to issue this notice of assessment was an abuse of power, given that
the applicant was no longer a shareholder in Sécovac.
[24]
In essence, the applicant contends that the
Officer ought to have agreed to waive the interest in order to compensate for
the actions of CRA representatives, which he alleges were marked by bad faith
and deception in addition to being knowingly misleading.
[25]
With respect to the assessment under paragraph 39(1)(c),
the applicant asserts that the Officer ought to have considered the argument
according to which he would not have initiated the present legal proceedings
had the CRA informed him that he could not declare an ABIL, as his company had
been struck off the register on May 5, 2000. Moreover, regarding the notice of
assessment pursuant to subsection 15(2), the Officer should have taken
into account the fact that Sécovac’s being struck off the register resulted in
the expiration of the time limit for claiming interest, as the applicant was no
longer a shareholder in Sécovac.
[26]
In addition, considering that the notice of
assessment under subsection 15(1.2) – subsequently replaced by the notice
of assessment pursuant to subsection 15(2) – had been issued on
the basis of misrepresentations, an amount equivalent to three and a half
years’ interest was unduly added to the notice of assessment pursuant to
subsection 15(2).
[27]
Lastly, in his calculation of the interest the
Officer purportedly failed to take into account the various payments made by
the applicant and his spouse with regard to their tax debt.
VIII.
RESPONDENT’S ARGUMENTS
[28]
The respondent contends that the Officer’s
decision is reasonable, for the three reasons that follow.
[29]
First, the respondent submits that the
applicant’s goal in this proceeding is to have the interest he owes cancelled
by asserting that the notices of assessment on which the interest is based are
invalid. However, those notices of assessment were upheld by the TCC, whose decision
has the authority of a final judgment and is res judicata. The applicant
is therefore attempting to have his notices of assessment cancelled indirectly.
A judicial review proceeding before the Federal Court is not an appropriate
vehicle; the applicant had the onus of proving that the notices of assessment
were incorrect before the TCC. As for the issue of the business having been
struck from the register, the applicant was cognizant of this fact and should
have raised the issue before the TCC when he had the opportunity to do so.
Furthermore, the mere fact that a company has been struck from the register
does not automatically entail the cancellation of the notices of assessment for
its shareholders.
[30]
Second, the respondent submits that none of the
delays in the processing of the applicant’s request for relief can be
attributed to the CRA, including the proceedings before the TCC, and that the
applicant failed to provide evidence of any such delay. Indeed, it was up to
the applicant to hasten the hearing of his case before the TCC. As such, the CRA
cannot be held responsible for the length of processing time.
[31]
Third, the respondent submits that the applicant
made a conscious decision to maintain an outstanding balance with the CRA,
having been informed that interest continued to accrue on his tax debt despite
the filing of notices of objection to the notices of assessment under paragraph
39(1)(c) and subsection 15(2).
[32]
In addition, the respondent is requesting that
the Court award costs on a solicitor-and-client basis in its favour due to the
frivolous and abusive nature of the proceeding initiated by the applicant.
IX.
ANALYSIS
[33]
The application for judicial review will be
dismissed for the reasons set out below.
[34]
It appears the applicant is clearly trying to do
indirectly what he cannot do directly, namely, challenge once again the
validity of the notices of assessment issued to him.
[35]
The Minister’s power to grant the relief sought
is set out in subsection 220(3.1) of the ITA :
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Income Tax
Act, RSC 1985, c 1
(5th Supp)
PART XV ADMINISTRATION AND ENFORCEMENT
Administration
[…]
Waiver of penalty or interest
220 (3.1) 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.
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Loi de l’impôt
sur le revenu, LRC 1985, c 1 (5e supp)
PARTIE XV APPLICATION
ET EXÉCUTION
Application
[…]
Renonciation aux pénalités et aux intérêts
220 (3.1) 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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A.
The applicant’s principal argument cannot
succeed
[36]
In support of his request for relief, in his
memorandum and again at the hearing of this application, the applicant submits
that the Officer’s decision is incorrect because he failed to recognize the
invalidity of the three aforementioned notices of assessments. However, as the
respondent indicated in his memorandum, these notices of assessment had been examined
and confirmed. Indeed, the TCC confirmed the notice of assessment under subsection 15(2)
on July 16, 2009 (Gilbert v Canada (Minister of National Revenue),
2009 TCC 328) and the notice of assessment under paragraph 39(1)(c)
on April 24, 2009 (Gilbert v Canada (Minister of National Revenue), 2009
TCC 102. The FCA upheld the legality of the notice of assessment under
section 160 on April 4, 2007 (Gilbert v Canada (Minister of
National Revenue), 2007 FCA 136) and the SCC refused the application for
leave to appeal (Gilbert v Canada (Minister of National Revenue), [2007]
SCCA No. 274).
[37]
In other words, these notices of assessment are,
for application of law purposes, valid. Neither the Officer nor the Court may
reassess these notices or make a judgment as to their validity. That task is
for the TCC (Canada (Minister of National Revenue) v JP Morgan Asset
Management (Canada) Inc, 2013 FCA 250).
[38]
The applicant had an opportunity to challenge
the validity of the notices of assessment issued to him. He had the onus of
persuading the TCC of the merits of his claims, but was unable to do so. This
Court cannot support or encourage a new collateral attack (see, for example: City
of Toronto v Canadian Union of Public Employees (CUPE), Local 79, 2003 SCC
63 at paras 33 and 34).
[39]
The conclusion appears evident, given that each notice
of assessment deemed to be invalid by the applicant was confirmed, including the
one made pursuant to subsection 15(2), on which his second request for
relief was based.
[40]
Lastly, the applicant criticizes the Officer for
having failed to consider the prejudice caused to him by notices of assessment
that were in his view invalid; he further claims to have been the victim of
harassment and deception, and accuses the CRA and its representatives of bad
faith. There is nothing in the evidence to support such a conclusion.
B.
The Officer’s decision is reasonable
[41]
The Officer’s decision is reasonable. The CRA was
not responsible for any undue delay other than the one it acknowledged
responsibility for. The applicant knowingly allowed an outstanding balance to
exist, on which interest was accruing.
[42]
The Officer granted relief for the period from
May 21, 2012, to May 15, 2013, a period he described as excessive. The
applicant provided no evidence that would suggest that any other delays were
attributable to the CRA, whether in the processing of the initial audit, notices
of objection or requests for relief.
[43]
The Officer’s decision to partially allow the
application for interest relief falls within “a range of possible, acceptable outcomes which are defensible in respect of the
facts and law” (Dunsmuir, above, at para 47) and as a result, the
intervention of the Court is not warranted.
C.
Order as to costs
[44]
It is appropriate that an award of costs be made
against the applicant in this matter.
[45]
The respondent is claiming costs against the
applicant on a solicitor-client basis. Despite the applicant’s inflammatory
language, the Court disagrees with this proposal, as it not likely to have the
desired deterrent effect. Thus, the Court orders the applicant to pay a lump
sum of $10,000, as this sum is nearest to what would be owing based on the
highest scale of Tariff B of the Federal Courts Rules.
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