Docket: T-2628-14
Citation:
2015 FC 1057
Montréal, Quebec, September 10, 2015
PRESENT: The
Honourable Madam Justice St-Louis
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BETWEEN:
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GARY FORD
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Applicant
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and
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THE ATTORNEY
GENERAL OF CANADA
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Respondent
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JUDGMENT AND REASONS
[1]
Mr. Gary Ford, the applicant, seeks judicial
review of the August 20, 2014 decision by Mr. Doug Fleming, Director at the
Canada Revenue Agency [CRA], who, acting on behalf of the Minister of National
Revenue, refused to grant him the second level taxpayer relief he sought under
subsection 152(4.2) of the Income Tax Act, RSC 1985, c 1 (5th Supp) [the
Act].
[2]
For the reasons that follow, this application is
dismissed.
[3]
As a preliminary matter, the Court accedes to
the respondent’s request that the respondent’s name be changed from the
Minister of National Revenue to the Attorney General of Canada, in line with
common practice. The style of cause has been amended accordingly.
I.
Background
[4]
Mr. Ford is a Canadian citizen who, in 1994,
moved to the United States for work and returned to Canada to settle in the
house he had bought in LaSalle, Ontario in June 2001.
[5]
The set of facts that led to the August 2014
decision initiated on December 17, 2003, when Mr. Ford filed Canadian income
tax returns under the Voluntary Disclosures Program [VDP] for taxation years
2000, 2001 and 2002.
[6]
In those returns, Mr. Ford declared that he
resided in Ontario, Canada during each of those taxation years, and did not
declare any change in address. Mr. Ford namely claimed significant rental
expenses related to his former rental property in the United States, property
he purchased on March 4, 1998, and disposed of on March 1, 2000 (para 15 of the
applicant’s affidavit) although he contends having continued to receive
proceeds from said disposition in the 2001 and 2002 taxation years.
[7]
In January 2004, Mr. Ford was assessed by the
CRA for the years 2000, 2001 and 2002, based on the information he declared in
the income tax returns he filed under the VDP.
[8]
On August 18, 2004, the CRA asked Mr. Ford for
all documentation to support the rental losses claimed in each taxation year
and gave him 90 days to respond.
[9]
On November 18, 2004, Mr. Ford requested an
adjustment to his 2001 return in order to increase the rental expenses he had
initially claimed.
[10]
On April 19, 2005, Mr. Ford was reassessed by
the CRA, and the late filing penalties were cancelled, based on the fact that he
had filed under the VDP.
[11]
In June 2005, given that the amount of rental
expenses claimed were significant, the CRA undertook an audit process. As part
of this process, the CRA requested clarifications and supporting documentation
but was unable to reach either Mr. Ford or his representative, Mr. Stevens.
[12]
On August 8, 2005, the CRA sent Mr. Ford a
letter requesting precise documentation and completion of a rental
questionnaire.
[13]
On September 28, 2005, having received no
response, the CRA sent Mr. Ford another letter advising him that it would
disallow the totality of the claimed rental expenses and reassess his returns
unless he submitted the requested information within 30 days.
[14]
On January 9, 2006, having received no
information from Mr. Ford or his representative, the CRA reassessed Mr. Ford
for the 2000, 2001 and 2002 taxation years. Taxable dividends, capital gains
and disallowed rental expenses were added to his income.
[15]
Mr. Ford did not object to these reassessments.
[16]
On April 16, 2007, Mr. Stevens wrote to the CRA
and requested an adjustment on behalf of Mr. Ford. For the first time, he then
alleged that Mr. Ford had been a resident of the United States until June 2001.
However, to support this allegation, Mr. Stevens provided only a handwritten
note from Mr. Ford dated March 24, 2007 in which he indicated namely that he
resided in Canada as of June 1, 2001. No other documents were provided to the
CRA.
[17]
By letters dated October 15, 2007 and March 25,
2008, the CRA again requested supporting documentation, and neither Mr. Ford
nor Mr. Stevens responded.
[18]
On May 6, 2008, the CRA consequently denied the
request for adjustment.
[19]
On November 22, 2010, Mr. Ford applied for
relief under subsection 152(4.2) of the Act with respect to the 2000, 2001 and
2002 taxation years, but, once again, submitted no documents to support his
application.
[20]
On May 19, 2011, the CRA again asked Mr. Ford to
forward the required supporting documentation; in fact, it asked for the very same
documents it had requested back in 2005. The CRA provided Mr. Ford with 30 days
to respond, but he failed to do so.
[21]
On June 28, 2011, the CRA denied Mr. Ford’s
application for relief under subsection 152(4.2) of the Act as he had failed to
provide the necessary documentation, and informed him that he could ask the
director of his Tax Services Office for a review.
[22]
On June 19, 2012, Mr. Ford applied for the second
level relief, again under subsection 152(4.2) of the Act. For the first time,
along with his application, he included some documents, hence answers to the
rental questionnaire the CRA had sent him in 2005, evidence of legal fees paid to
two American attorneys in 2002, and statements relating to mortgage payments
made in 2000, 2001 and 2002, although he had then already disposed of the
rental property.
[23]
On August 20, 2014, Mr. Fleming, acting as the
Minister’s delegate, denied the second level application, which is the decision
challenged here.
II.
Issue
[24]
The Court must decide if the Minister’s delegate
erred in exercising his discretion and in denying the second level application
for relief Mr. Ford filed under subsection 152(4.2) of the Act, the text of
which is annexed hereto.
III.
Standard of Review
[25]
The Court agrees with the parties that the
standard of reasonableness governs this application, given the discretionary
nature of decisions reached under subsection 152(4.2) of the Act and the
existing jurisprudence (Hoffman v Canada (Attorney General), 2010 FCA
310 at para 5; Canada (Attorney General) v Abraham, 2012 FCA 266 at para
33 [Abraham]).
[26]
When reviewing a decision against the standard
of reasonableness, the Court will be concerned 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).
IV.
Decision under Review
[27]
In his August 20, 2014 decision, Mr. Fleming
informs Mr. Ford that granting him relief would not give effect to the
intention of the legislation. He first refers to paragraph 8 of the relevant
CRA information circular, IC07-1: Taxpayer Relief Provisions [the
Information Circular], which states:
The legislation gives the CRA the ability to
administer the income tax system fairly and reasonably by helping taxpayers to
resolve issues that arise through no fault of their own, and to allow for a
common-sense approach in dealing with taxpayers who, because of personal
misfortune or circumstances beyond their control, could not comply with a
statutory requirement for income tax purposes.
[28]
Mr. Fleming goes on to outline that Mr. Ford
declared himself a resident of Canada on the income tax returns he filed under
the VDP in December 2003 for taxation years 2000, 2001 and 2002, and that the
main concept behind a voluntary disclosure is that the taxpayer attests to the
fact that the information contained in those returns is accurate and complete.
[29]
Mr. Fleming also reminds Mr. Ford that the CRA
attempted to contact him and his representative on numerous occasions to no
avail. Given the information before the CRA, Mr. Ford’s requests for adjustments
were denied; he was reassessed, and disallowed certain rental expenses. Mr.
Fleming recalls that Mr. Ford submitted a first level taxpayer relief request
on November 22, 2010 without attaching the relevant supporting documentation;
once again, attempts made by the CRA to reach Mr. Ford or his representative to
discuss the matter were unsuccessful. Hence, the request was denied. Given
these facts, granting second level relief would not meet the intent of the
legislation referred to in paragraph 8 of the Information Circular.
[30]
Mr. Fleming also refers to paragraph 73 of the
Information Circular, which clarifies that the taxpayer relief provisions are
not intended as a substitute for the normal objection and appeals process, and
that Mr. Ford did not take advantage of the opportunity he had to file an
objection to his reassessment. Mr. Ford’s second level request for taxpayer
relief essentially disputes the correctness of the reassessment, which cannot
be permitted; Mr. Ford should have objected to his reassessment within the
timeframe established by the Act.
V.
Submissions of the Parties
A.
Applicant’s submissions
[31]
Mr. Ford submits two main arguments. First, the
Minister’s delegate erred by fettering the exercise of his discretion and
second, his decision to deny relief was otherwise not reasonable.
(a)
The Minister’s delegate fettered his discretion
[32]
Mr. Ford submits that the Minister’s delegate
improperly fettered his discretion by treating paragraph 73 of the Information
Circular as a rule of law rather than as a guideline, which is contrary to the
spirit of the legislation (White v Canada (Attorney General), 2011 FC
556 at para 66).
[33]
Mr. Ford further submits that subsection
152(4.2) of the Act provides the Minister with very broad powers to grant
relief to those who request it. He argues that the explanatory notes from when
the subsection was introduced buttress his interpretation of the provision. He draws
our attention to the Federal Court of Appeal decision in Stemijon
Investments Ltd v Canada (Attorney General), 2011 FCA 299 [Stemijon],
which states at paragraph 60 that decision-makers who are given a broad
discretion under the law “cannot fetter the exercise of
their discretion by relying exclusively on an administrative policy”,
and at paragraph 24 that a decision which results from fettered discretion is
necessarily unreasonable. Mr. Ford contends that Mr. Fleming’s decision was
unreasonable because he treated paragraph 73 of the Information Circular as a
binding rule.
[34]
Moreover, Mr. Ford submits that paragraph 73
does not recommend refusing his application for relief. The decision-maker
unreasonably concluded that he was seeking reconsideration of his reassessments
without having used the normal appeals process. Yet, according to Mr. Ford, the
issues which are relevant to his application for relief were never decided in
the reassessments, since the CRA did not have the proper documentation.
[35]
Mr. Ford asserts that, for reasons unknown, Mr.
Stevens never sent these documents to the Minister on his behalf. He recalls
that the Minister and her delegates were amenable to receiving supporting
documents in the past, but that, when Mr. Ford finally submitted the documents
as part of the second level review of his relief application, the Minister
refused to consider them by reasoning that this was an attempt to circumvent
the appeals process. Mr. Ford contends that the Minister acted in a
contradictory fashion, as she had previously exercised her discretion broadly
by indicating a willingness to accept the documents – until they were actually
provided, when she decided to fetter her discretion on the basis of an
administrative policy.
(b)
The decision is not reasonable
[36]
Mr. Ford also disputes Mr. Fleming’s reasoning
that the VDP precludes relief under subsection 152(4.2). There is no language
within the Act which excludes the application of subsection 152(4.2) to
taxation years which were assessed under the VDP. Moreover, Mr. Ford alleges
that he believed the voluntary disclosures were complete and accurate at the
time he filed them, and that he only discovered his errors and omissions
afterwards.
[37]
Mr. Ford acknowledges that the CRA made
unsuccessful attempts to gather documents from him in the past. He says that he
does not know why Mr. Stevens never forwarded the documents he had provided him
to the CRA. He suggests that this issue arose through no fault of his own and,
therefore, that his case falls within the ambit of paragraph 8 of the
Information Circular.
[38]
Finally, Mr. Ford insists that the Minister’s
contradictory approach to the receiving of his documentation offends the
requirement of acting with common sense, which is entrenched in paragraph 8 of
the Information Circular. In addition, he contends that this approach fails to
meet the standard of intelligibility required by Dunsmuir, above, at
para 47.
B.
Respondent’s submissions
[39]
The respondent submits that the relief under
section 152(4.2) is discretionary and must rest on evidence, and that the
dismissal of Mr. Ford’s application for relief is reasonable.
(a)
Discretionary relief must rest on evidence
[40]
The respondent submits that an application for
discretionary relief under subsection 152(4.2) of the Act requires evidence
that a taxpayer would have been entitled to a refund had he claimed expenses or
deductions in a timely manner. Mr. Ford’s evidence is weak on both counts. His
allegation that he was a resident of the United States until June 2001 is
unsupported. His claim for rental expenses does not show the context in which
those expenses incurred.
[41]
In the respondent’s view, paragraph 8 of the
Information Circular accurately represents the general purpose of the relief
provisions in the Act. Subsection 152(4.2) is not simply meant for a taxpayer
to object to a reassessment after the expiry of the 90-day deadline set out in
subsection 165(1) of the Act, the text of which is reproduced in annex. It was
enacted to allow taxpayers to claim deductions or refunds of which they were
unaware – and that they could have obtained at an earlier date. Therefore, an
application for relief requires proof that the deduction would have been
granted if it had been claimed in a timely fashion (Abraham, above, at
para 31). It must be supported by all the relevant documents – unless it is
impossible for the taxpayer to obtain these documents, in which case the CRA
will issue a refund only if it can validate the claim from its own records (see
paragraphs 81-83 of the Information Circular).
(b)
The decision is reasonable
[42]
The respondent argues that the decision under
review is reasonable in light of the evidence on record. Mr. Ford presented no
evidence to support his allegation that he was a resident of the United States
until June 2001. The respondent suggests that he could have provided documents
such as a work visa, records of employment, bank account statements, driver’s
licence, US tax returns or any other relevant documents.
[43]
In addition, the respondent argues that there is
no evidence to support Mr. Ford’s claim that he disposed of his rental property
during the 2001 taxation year. He did not submit any purchase or sales
contracts or any invoices for rental fees or repairs. The bank statements he
provided simply show that he made payments against a mortgage in 2000, 2001 and
2002, without details.
[44]
The respondent submits that Mr. Ford failed to
prove that he could have obtained the deductions he seeks had he claimed them
earlier. As with all his other applications to the Minister, his second level
application for relief was unsupported by evidence. Mr. Ford’s continuous
disregard for tax authorities and his failure to substantiate his claimed
expenses are relevant to the Minister’s exercise of discretion.
[45]
The respondent disputes Mr. Ford’s allegation
that he did not have access to the proper documentation until the summer of
2011. In any event, the respondent submits that this argument was made for the
first time in this application for judicial review and is therefore
inadmissible (Society of Composers, Authors and Music Publishers of Canada v
Canadian Assn of Internet Providers, 2001 FCA 4 at para 12 [Society of
Composers]).
[46]
The respondent concludes that the decision is
reasonable in light of the paucity of Mr. Ford’s evidence, the general purposes
of the relief provisions and the administrative policy embodied in the
Information Circular. The Minister’s delegate did not fetter his discretion,
nor did he take irrelevant factors into account. His decision should not be
disturbed.
VI.
Analysis
[47]
Mr. Fleming, acting for the Minister, offered
three grounds for rejecting Mr. Ford’s request. First, he stated that the
request fell outside the bounds of the legislative intention as expressed in
paragraph 8 of the Information Circular namely, to help taxpayers resolve
issues which arose through personal misfortune or through no fault of their
own. Second, and linked to the first, he recalled Mr. Ford’s history of failing
to provide supporting documents in various requests and in response to the
CRA’s requests. Third, he stated that the request was an attempt to circumvent
the normal objection and appeals process, in contravention of paragraph 73 of
the Information Circular.
[48]
As Justice Sharlow stated in Lanno v Canada
(Customs and Revenue Agency), 2005 FCA 153 at para 2, subsection 152(4.2) of
the Act is “part of a statutory scheme, referred to as
the ‘fairness provisions’ or the ‘fairness package’, that gives the tax
authorities the discretion to grant relief against the operation of certain
provisions of the Income Tax Act”.
[49]
Subsection 152(4.2) of the Act authorizes the
Minister to exercise his or her discretion to offer relief to a taxpayer beyond
the strict timelines for reassessment. Due to the discretionary nature of this
relief, it cannot be claimed as of right by the taxpayer. In Abraham,
above, at paras 9, 27 and 31, Justice Stratas of the Federal Court of Appeal
described the nature and operation of this provision and it is noteworthy to
reproduce these passages:
[9] Subsection 152(4.2) of the Income
Tax Act is part of the taxpayer relief sections of the Act. As can be seen
from the text of subsection 152(4.2), set out below, the Minister has the
discretion to reassess an individual after the expiration of the normal
reassessment period for a year, if the individual requests the reassessment to
reduce the tax payable or permit a claim for a tax refund for that year. When
the Minister exercises that discretion in the taxpayer’s favour, the taxpayer
is relieved from the usual requirement that a request for a reassessment can
only be made within a particular period of time.
[...]
[27] It must be recalled that under
subsection 152(8) of the Income Tax Act, in the absence of a
reassessment following a timely objection or a successful appeal, an assessment
is final and binding. Later, the taxpayer may discover an error in the
assessment, but it is too late – the taxpayer has no entitlement to have the
error corrected. Rather, recourse is to be had under subsection 152(4.2) of the
Income Tax Act – a request, not for an entitlement, but for an exercise
of discretion. There is nothing in subsection 152(4.2) that requires the
Minister to exercise his discretion in favour of the taxpayer if the taxpayer
would be entitled to a tax benefit if he or she claimed within the regular
reassessment period. In the words of this Court in Lanno v. Canada (Customs
and Revenue Agency), 2005 FCA 153 at paragraph 6, “[t]he granting of relief
is discretionary, and cannot be claimed as of right.”
[...]
[31] Seen in this way, subsection
152(4.2) of the Income Tax Act is like any other section that vests a
broad discretion in a decision-maker, a discretion founded upon legal and
factual matters. Here, the Minister (or, in this case, the Delegate) must,
in the words of section 71 of Information Circular 07-1-Taxpayer Relief
Provisions, be “satisfied that such a refund or reduction would have been
made if the return or request had been filed on time” – this is the component
in the discretion that has some legal content – and may take into account a
number of other factors, many of which are also enumerated in the Information
Circular.
[Emphasis added]
[50]
The respondent argues that Mr. Ford’s request
was denied mainly because he offered insufficient evidence to substantiate it,
although Mr. Fleming did not expressly mention this. In fact, Mr. Fleming
mentioned Mr. Ford’s failure to provide corroborating documents in past
requests, but did not explicitly comment upon the evidence which Mr. Ford
included in his second level request for discretionary relief. On judicial
review, the Court cannot entertain justifications offered after the fact by
counsel for the Attorney General (Stemijon, above, at para 41), and will
confine its analysis to the reasoning expressed in the decision under review.
[51]
In regards to Mr. Ford’s argument that the Minister’s
delegate fettered his discretion by restricting his analysis to the Information
Circular, I note that the rule against the fettering of discretion does not
prevent a decision-maker from making any use of an administrative policy. The Federal
Court of Appeal distinguished permissible and impermissible uses of such
policies in Stemijon, above, at paras 59-60:
[59] Policy statements
play a useful and important role in administration:
Thamotharem v. Canada (Minister of Citizenship and Immigration), 2007
FCA 198, [2008] 1 F.C.R. 385. For example, by encouraging the application of
consistent principle in decisions, policy statements allow those subject to
administrative decision-making to understand how discretions are likely to be
exercised. With that understanding, they can better plan their affairs.
[60] However,
as explained in paragraphs 20-25 above, decision-makers
who have a broad discretion under a law cannot fetter the exercise of their
discretion by relying exclusively on an administrative policy: Thamotharem,
supra at paragraph 59; Maple Lodge Farms, supra at page 6; Dunsmuir, supra (as
explained in paragraph 24 above). An administrative policy is not law.
It cannot cut down the discretion that the law gives to a decision-maker. It
cannot amend the legislator’s law. A policy can aid or guide the exercise of
discretion under a law, but it cannot dictate in a binding way how that
discretion is to be exercised.
[Emphasis added]
[52]
Furthermore, in Lanno at para 6, the Federal
Court of Appeal accepted that decisions taken under subsection 152(4.2) “combin[e] fact finding with a consideration of the policy of
tax administration, and sometimes questions of law” [emphasis added]. It
is uncontroversial that the decision-maker may turn his mind to administrative
policies in this context.
[53]
In my view, Mr. Fleming did not fetter his
discretion when referring to paragraph 8 of the Information Circular. Instead,
he relied on that policy statement to guide the exercise of his discretion.
Paragraph 8 does not express a hard and fast rule for deciding taxpayer relief
requests; on the contrary, it instructs decision-makers to exercise their
discretion so as to assist taxpayers facing issues which arose through “personal misfortune” or “through
no fault of their own”. These are broad, open-ended categories which
invite the decision-maker to examine the particular facts of each request. A
decision-maker who orients the exercise of his discretion in line with this
policy does not thereby commit a reviewable error.
[54]
I am satisfied that it was reasonable for Mr.
Fleming to conclude that Mr. Ford’s tax issues did not flow from personal
misfortune or from an error for which he could not be faulted. Mr. Ford never
explained why he declared Canadian residence throughout the 2000, 2001 and 2002
taxation years in his voluntary disclosures.
[55]
Mr. Fleming also pointed to Mr. Ford’s failure
to provide supporting documentation in the past, despite CRA’s numerous
requests. Again, this failure was left unexplained in Mr. Ford’s application,
and I am thus satisfied it was reasonable for Mr. Fleming to conclude that Mr.
Ford’s issues did not arise from personal misfortune or through no fault of his
own.
[56]
In this proceeding, Mr. Ford explains that he
did not know that his then representative Mr. Stevens had withheld information
from the CRA, or why he did so thus suggesting this problem arose through no
fault of his own. However, this argument was never put before the Minister’s
delegate, even though his second level request for relief was submitted by a
lawyer who is not affiliated with Mr. Stevens. I cannot give any weight to his
explanation, as on judicial review, the Court’s role is to determine whether
the decision-maker rendered a decision that is reasonable on the facts and
arguments that were before him. It is not the venue to present new evidence and
arguments in order to try the issues de novo (Society of Composers,
above, at para 12; see also Gitxsan Treaty Society v Hospital
Employees’ Union, [2000] 1 FCR 135, [1999] FCJ No 1192 (FCA) at para 15).
[57]
Mr. Ford did claim the rental expenses from the
onset and it is thus not a situation where the claim was not presented. It
is rather a situation whereby he did not submit any documents to support his
claims and did not respond to CRA’s numerous demands for documentation. In
addition, he presented requests for adjustments that also remained
unsubstantiated despite CRA’s numerous requests for supporting
documents.
[58]
The issue of his alleged residency in the United
States until June 2001 was brought up for the first time in April 2007, and was
examined as part of the request for adjustment. However, it remained unsubstantiated,
and it was thus reasonable for the Minister’s delegate to deny relief.
[59]
Mr. Ford ultimately included a few documents and
pieces of information in support of his second level relief application, but
did so leaving out the bulk of the requested information, the nature and
context of the expenses.
[60]
Thus, I am satisfied Mr. Ford’s application for
second level relief amounts to an objection to or an appeal of the CRA’s
reassessment, contrary to the guidance of paragraph 73 of the Information
Circular, and that the Minister’s delegate’s decision is reasonable as it forms
part of the possible outcomes given the facts and the law.
[61]
For these reasons, the Court’s intervention is
not warranted.
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