Docket: T-866-14
Citation:
2015 FC 448
Ottawa, Ontario, April 13, 2015
PRESENT: The
Honourable Mr. Justice O'Keefe
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BETWEEN:
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KAREN FINANDERS
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Applicant
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and
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ATTORNEY GENERAL OF CANADA
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Respondent
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REASONS FOR JUDGMENT AND JUDGMENT
[1]
Ms. Finanders (the applicant) asked the Canada
Revenue Agency (the CRA or the respondent) to cancel the penalty and interest
charged on her 2009 tax year, which the Minister can do by virtue of subsection
220(3.1) of the Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA]. However,
the applicant’s request was refused at the first level review and partly
allowed at the second level review. She now applies to this Court for judicial
review of the second level decision pursuant to subsection 18.1(1) of the Federal
Courts Act, RSC 1985, c F-7.
[2]
In the applicant’s record, she asks the Court to
grant the relief for her tax penalties “$2,478.00 for
Federal and Provincial in the total amount of $4,957.40.”
I.
Background
[3]
The applicant started working for NYK Canada
Inc. in January 2001. She went on short term disability in June 2008 due to
surgeries for carpal tunnel syndrome.
[4]
In July 2008, the applicant moved from 748
Herring Cove Road to 940 Herring Cove Road, Halifax, Nova Scotia. Later, as a
result of surgical complications, she left work in March 2009 and went on long
term disability.
[5]
In 2009, the applicant filed her 2008 income tax
return based on the T4 slip and short term disability slip issued by her
employer NYK Canada Inc. The applicant was informed by her case manager at the
Great-West Life Assurance Company that her long term disability was
non-taxable. Also, she did not receive the T4 slip for her 2009 long term
disability payments because it was sent to her former address. Further, in
2009, the applicant received a severance package from her company. It affected
her disability benefits and resulted in a $200 overpayment per month that the
applicant had to pay back.
[6]
In 2010, the applicant did not claim the long
term disability payments on her 2009 tax return. After the applicant received a
call from the CRA regarding the unclaimed long term disability on her 2009 tax
return, she found out the T4 slip for the long term disability was issued but
sent to her former address.
[7]
Subsequently, the applicant withdrew from her registered
retirement savings plan funds to pay off some of the balance, causing her
hardship due to increased income and loss of eligibility for tax credits.
[8]
In addition, the applicant states that she is a
single mom who no longer receives childcare benefits. She states that she
recently went through difficult family changes as well.
II.
First Level Review
[9]
By a letter dated March 23, 2011, the applicant
made a request for taxpayer relief to waive the penalty and interest for the
2009 taxation year on the basis of inability to pay due to financial hardship
and other extraordinary circumstances. The applicant provided the CRA with an
income and expense/assets and liabilities statement as well as supporting
documents.
[10]
The first level decision maker made the
following finding. The applicant failed to report T4RSP income on her 2006
return which resulted in her owing $276.08, but no penalty was implemented
because it was the applicant’s first income omission. The applicant’s total
outstanding amount for her 2009 income tax return was $14,335.80. She made a
payment of $4,500.00 on March 25, 2011. After the reassessment completed on
August 5, 2011, the outstanding amount was reduced to $8,838.70. Further, the
decision maker found the applicant had assets and did not demonstrate an
inability to pay.
[11]
The decision maker stated although the applicant
states she was misinformed by her long term disability manager, records
indicate that the applicant “received long term
disability from Great West Life in 2008 and it was properly reported on [her]
2008 income tax return.” The decision maker concluded that the applicant
failed to show that she was prevented from complying with the CRA’s filing and
remitting requirements due to factors beyond her control and that payment of
the liability in its entirety would cause undue hardship.
[12]
The applicant’s request for relief was denied by
the first level decision maker. The decision was rendered by a letter dated
February 9, 2012.
III.
Second Level Review
[13]
The CRA received a letter from the applicant on
May 11, 2012 wherein the applicant requested a second review of her request for
relief. The applicant provided the following information requested by the CRA
to complete the review: mutual fund account statements, a property assessment,
mortgage statements, bank account statements, credit card statements, a
benefits statement and an agreement between the applicant and her benefits provider.
[14]
At the second level review, the decision maker
noted the applicant failed to report T4RSP income on her 2006 return in the
amount of $1,228.00 and filed late returns for the 2008, 2010, 2011 and 2012
taxation years, where the 2008 and 2012 taxation years were in a refund status
and the 2010 and 2011 tax years have a total balance of $6,823.27 owing. The
current balance owing for the 2009 tax year is $5,437.63.
[15]
The applicant has demonstrated an inability to
pay as shown by a monthly deficit and an inability to borrow; therefore, the
decision maker allowed the cancellation of the interest assessed on the 2009
tax year based on financial hardship. Cancellation of penalties was not allowed
because consideration would generally not be given based on financial hardship
unless an extraordinary circumstance has prevented compliance.
[16]
It was further noted that “Canada’s tax system is based on self-assessment that places
the initial responsibility on taxpayers or their representatives for filing
complete and accurate returns and remitting any amounts owing on time.
Taxpayers are expected to have a general knowledge of their obligations and to
comply with any obligations they may have without notice or demand by the CRA.”
The decision maker concluded that the applicant’s submission failed to
demonstrate any extraordinary circumstance.
[17]
The decision was delivered to the applicant by a
letter dated February 28, 2014. The applicant’s request was allowed in part to
waive the interest charges.
IV.
Issues
[18]
The applicant does not explicitly submit an
issue, but implicitly, through her submissions, requests a determination whether
the second level review decision was reasonable.
[19]
The respondent submits the issue is whether the
decision in question ought to be set aside on any of the grounds set out in subsection
18.1(4) of the Federal Courts Act.
[20]
In my view, there are two issues:
A.
What is the standard of review?
B.
Was the decision reasonable?
V.
Applicant’s Written Submissions
[21]
The applicant submits that the CRA did not
realize she was on short term disability in the year 2008.
[22]
The applicant submits her situation surrounding
the 2009 tax return was beyond her control. She argues that she has done
everything to ensure her 2009 tax was filed properly. Firstly, she was misled
by her case manager at Great-West Life Assurance Company and secondly, because
she moved in 2009, the T4 slip for her long term disability went to her former
address so she never received it. She argues that had she received the T4 slip,
she would have claimed it on her tax return. The applicant pleads to this Court
to consider her situation and grant the relief for the penalties so that she can
get out of her financial hardship.
VI.
Respondent’s Written Submissions
[23]
The respondent first reviews the jurisdiction of
this Court in granting relief by citing subsections 18.1(3) and 18.1(4) of the Federal
Courts Act.
[24]
The respondent submits reasonableness is the
standard of review applicable to a decision made under subsection 220(3.1) of
the ITA (see Telfer v Canada (Revenue Agency), 2009 FCA 23 at paragraph
24, [2009] FCJ No 71 [Telfer]).
[25]
The respondent argues the decision was reasonable.
The applicant has not specified the reviewable error made by the decision maker
in denying the waiving of penalty and interest. The decision maker stated the
interest would be waived due to financial hardship. It concluded that penalties
would not be waived on the basis that: a) the applicant had a history of
non-compliance; b) the applicant had correctly reported disability benefits in
previous years; c) the applicant did not ensure that the tax advice she
received was correct which was her responsibility, and d) there were no
circumstances beyond the applicant’s control which prevented her from correctly
reporting her income.
[26]
The respondent further submits the applicant has
not demonstrated any grounds for relief under subsection 18.1(4) of the Federal
Courts Act.
VII.
Analysis and Decision
A.
Issue 1 - What is the standard of review?
[27]
Where previous jurisprudence has determined the
standard of review applicable to a particular issue before the court, the
reviewing court may adopt that standard (see Dunsmuir v New Brunswick,
2008 SCC 9 at paragraph 57, [2008] 1 S.C.R. 190 [Dunsmuir]). The Federal
Court of Appeal held that the standard of review for a decision under
subsection 220(3.1) of the ITA is reasonableness (Telfer at paragraph
24). This means I will apply the standard of reasonableness and not intervene
if the decision is transparent, justifiable, intelligible and within the range
of acceptable outcomes based on the evidence before the decision maker (Dunsmuir
at paragraph 47; and Canada (Citizenship and Immigration) v Khosa, 2009
SCC 12 at paragraph 59, [2009] 1 S.C.R. 339 [Khosa]). As the Supreme Court
held in Khosa at paragraphs 59 and 61, a reviewing court cannot
substitute its own view of a preferable outcome, nor can it reweigh the evidence.
B.
Issue 2 - Was the decision reasonable?
[28]
Under subsection 220(3.1) of the ITA, the
Minister may waive or cancel interest and penalties. Here, the applicant
challenges the decision pertaining to the denial of penalty waiver made by the
second level review. The decision maker concluded that penalties would not be
waived on the basis: a) the applicant had a history of non-compliance; b) the
applicant had correctly reported disability benefits in previous years; c) the
applicant did not ensure that the tax advice she received was correct which was
her responsibility, and d) there were no circumstances beyond the applicant’s
control which prevented her from correctly reporting her income. The applicant
does not dispute the first and third factors. She argues that short term disability
is different from long term disability and it was the short term disability
benefit in 2008 which she reported correctly, unlike the long term disability
in 2009. Also, the incorrect advice on the 2009 long term disability she
received should be considered as circumstance beyond her control.
[29]
A review of section 18.1(4) of the Federal
Courts Act shows subsection (d) could be relevant. It states that relief
may be granted if the decision maker “based its
decision or order on an erroneous finding of fact that it made in a perverse or
capricious manner or without regard for the material before it.” The
applicant alleges the CRA based its finding on a mistake of fact that the 2008
disability was short term, not long term.
[30]
A review of the record shows that CRA has, since
at least February 9, 2012, believed that the applicant received long term
disability payments from Great West Life and claimed them in her 2008 income
tax return. At page 32 of the certified tribunal record, the first level
decision stated:
…However our records indicate that you
received long term disability from Great West Life in 2008 and it was properly
reported on your 2008 income tax return. …
[31]
In the taxpayer relief fact sheet for the second
level request, the following is stated at page 77 of the certified tribunal record:
… I have noted the TP correctly reported T4A
income on her 2008 return.
And at page 80 of the certified tribunal
record:
A review of our system shows that you
received disability payments from Great-West Life in 2008 and correctly
reported these amounts on your 2008 tax return.
[32]
There is no dispute that one of the reasons for
refusing the applicant relief was that she had received long term disability
benefits in 2008 and she had included the amounts in her 2008 tax return. As a
result, she should have known to include the long term benefit amount in her
2009 income tax return.
[33]
The evidence in the record before me shows that
the applicant received short term disability payments in 2008, not long term
benefits. The applicant was further told by her case manager at Great-West Life
Assurance Company that long term disability payments were not taxable. Based on
these facts, it would not appear to be unreasonable for the applicant to
believe that the long term payments were not taxable, especially in light of
the fact that she did not receive a T4 slip from her employer.
[34]
The decision letter dated February 28, 2014
shows that the decision maker relied on the fact that she had claimed long term
disability amounts in 2008 to support the decision to deny relief. I cannot
tell how much this influenced the decision maker to deny the relief or whether
the result would have been different had the decision maker considered the
actual facts.
[35]
As a result, the decision is unreasonable and
must be set aside and the matter remitted to another decision maker for
redetermination.
[36]
There shall be no order as to costs.
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