Docket: T-656-14
Citation:
2016 FC 643
Ottawa, Ontario, June 9, 2016
PRESENT: The
Honourable Madam Justice Mactavish
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BETWEEN:
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RUSSELL J.
GORDON
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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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JUDGMENT AND REASONS
[1]
Russell Gordon seeks judicial review of a
decision of a Minister’s Delegate cancelling some, but not all of the interest
he owed under the Excise Tax Act.
[2]
Mr. Gordon accrued the interest in question
as a result of an error he and an associated business, Coastal Collision, made
as to which of them was properly responsible for collecting and remitting
GST/HST on the sales of a number of vehicles they sold together. Based on
advice from each of their accountants, Mr. Gordon and Coastal Collision
operated under the mistaken belief that Coastal Collision was responsible for
remitting the tax. Mr. Gordon was consequently reassessed and charged
interest on the GST/HST remittances that he was assessed as owing.
[3]
Mr. Gordon then applied to the Minister to
have the interest resulting from his reassessment cancelled. Mr. Gordon
argued that it was unfair to charge him interest on GST/HST payments that were
in the Canada Revenue Agency’s possession, having been made on time and in
full, but simply remitted by the wrong party.
[4]
The Minister’s Delegate did not agree. She
determined that she could not grant Mr. Gordon the full relief he
requested, as the relevant CRA guidelines only permitted her to consider
cancelling the portion of the interest owing that exceeded 4% of the value of
the tax not properly collected. As a result, the Minister’s Delegate granted Mr. Gordon
only partial relief.
[5]
For the reasons that follow, I have concluded
that the Minister’s Delegate fettered her discretion by holding that she could
only consider cancelling a portion of the interest Mr. Gordon owed. Mr. Gordon’s
application for judicial review will therefore be granted.
I.
Background
[6]
Starting in 2008, Mr. Gordon began to buy
and import a number of vehicles using the dealer licence of Coastal Collision,
a local auto dealership. Mr. Gordon would refurbish the vehicles, which
would then be sold at Coastal Collision’s dealership.
[7]
During the course of this arrangement, Mr. Gordon
and Coastal Collision each consulted their accountants regarding who should be
responsible for collecting and remitting the GST/HST on the sales of these
vehicles. Both sets of accountants provided the same answer: it was Coastal
Collision’s responsibility to pay the GST/HST. As a result, from January 1,
2008 to June 30, 2010, Coastal Collision collected and remitted the GST/HST on
all the vehicles it sold in association with Mr. Gordon.
[8]
In 2010, Mr. Gordon was audited by the CRA.
The CRA determined that it was Mr. Gordon, and not Coastal Collision, who
was properly responsible for remitting the GST/HST on these vehicle sales. Mr. Gordon
was consequently reassessed in April of 2011 in the amount of $46,650.84.
[9]
On October 27, 2011, Coastal Collision was
refunded the GST/HST payments it had remitted. It then proceeded to issue Mr. Gordon
a cheque for the same amount the following day. Mr. Gordon made a partial
payment for the GST/HST he owed that same day and paid the remainder three days
later, on October 31, 2011.
II.
Mr. Gordon’s request for relief
[10]
In December of 2012, Mr. Gordon applied to
the Minister to cancel the interest he owed as a result of his reassessment,
pursuant to subsection 281.1(1) of the Excise Tax Act, R.S.C. 1985, c.
E.-15. This request for relief was denied on July 17, 2013.
[11]
Mr. Gordon made a second application for
relief in November of 2013. In this request, Mr. Gordon sought to have the
Minister cancel all of the interest that he owed except for the portion that
accrued from October 27 to 31, 2011, as that was the only period in which the
tax owing was not in the CRA’s possession.
[12]
Mr. Gordon argued that his request for
relief should be granted because the interest was incurred as a result of a “wash transaction”. A “wash
transaction” is defined in GST/HST Memoranda Series 16.3.1: Reduction
of Penalty and Interest in Wash Transaction Situations [Guideline 16.3.1]
as being a transaction in which a supplier fails to charge and remit GST/HST
from a party that is also a GST/HST registrant and is entitled to a full input
tax credit on the transaction, or a transaction in which the GST/HST is
collected and remitted by the wrong entity within a closely related group of
commercial entities or associated persons.
[13]
On February 12, 2014, a Minister’s Delegate
determined that Mr. Gordon’s circumstances qualified as a wash
transaction. She further determined that, in accordance with Guideline 16.3.1,
that portion of the interest owed by Mr. Gordon that was in excess of 4%
of the value of the tax not properly collected should be cancelled. She held,
however, that she could not cancel all of the interest that Mr. Gordon
owed, as he had requested, as “the wash transaction
rules do not allow or provide” for her to cancel that portion of the
interest owed by Mr. Gordon that was less than 4% of the value of the tax
not properly collected.
III.
The Legislative Scheme and the Relevant
Guidelines
[14]
Subsection 280(1) of the Excise Tax Act
imposes liability for penalties and interest on amounts owing to the Receiver
General in accordance with the Act. However, subsection 281.1(1) of the Act
provides the Minister and his Delegates with a broad discretionary power to
waive or cancel interest owed by a taxpayer: Guerra v. Canada Revenue Agency,
2009 FC 459 at para. 17, 348 F.T.R. 1.
[15]
The Act is silent, however, regarding the manner
in which the Minister should make this decision, as well as the appropriate
criteria the Minister should apply in doing so. As a result, the CRA has
developed a number of guidelines to assist the Minister when considering a
taxpayer’s request for relief.
[16]
The first such guideline is GST/HST Memoranda
Series 16.3: Cancellation or Waiver of Penalties and/or Interest [Guideline
16.3], which provides general guidance for all applications under subsection
281.1(1).
[17]
Of particular note are the circumstances in
which Guideline 16.3 states that the Minister may waive or cancel interest owed
by a taxpayer. These include where:
1.
The interest accrued is the result of
extraordinary circumstances beyond a person’s control;
2.
The interest owing is primarily the result of
the actions of the CRA; or
3.
The tax-payer has demonstrated an inability to
pay, and the waiver or cancellation of the interest owing will facilitate
collection.
[18]
The second relevant guideline is Guideline
16.3.1, which provides additional guidance where relief is sought for interest
that accrued as a result of a wash transaction.
[19]
In addition to defining the term “wash transaction”, Guideline 16.3.1 also outlines the
criteria that must be met for the Minister to consider waiving or canceling a
taxpayer’s interest:
1.
A wash transaction must have occurred;
2.
The person must not have been previously
assessed for the same mistake, and must have a satisfactory history of
voluntary compliance with the Act;
3.
The person must have remedied the situation to
ensure compliance going forward; and
4.
The person must not have been negligent or
careless in the conduct of his or her affairs.
[20]
Where the Minister determines that relief is
warranted, Guideline 16.3.1 states that the Minister will consider waiving or
cancelling the portion of the interest owing that is in excess of 4% of the
value of the tax not properly collected. This is the provision at issue in this
case.
IV.
Analysis
[21]
Mr. Gordon challenges the decision of the
Minister’s Delegate on the basis that it was unfair to charge him interest on
GST/HST payments that were already in the CRA’s possession. As a result, he
argues that the Minister’s Delegate erred by refusing to grant him all of the
relief he had requested – namely, cancelling all of the interest he owed, less
three days’ interest representing the period that the money was out of the
CRA’s hands.
[22]
The respondent submits that Mr. Gordon has
not identified any reviewable error in the decision under review, and that,
moreover, the decision is reasonable. The Minister’s Delegate considered all
the relevant factors and provided Mr. Gordon with the relief that was
appropriate in the circumstances, as set out in Guideline 16.3.1.
[23]
At the hearing, I raised the question of whether
Guideline 16.3.1 fetters the discretion of the Minister’s Delegate by limiting
her to considering the cancellation of only that portion of the interest owed
by Mr. Gordon that exceeded 4% of the value of the tax not properly
collected. The parties were then invited to make submissions on this question.
[24]
In my view, this is the determinative issue of
this application. As such, it is unnecessary for me to determine whether the
decision under review is reasonable.
A.
The Standard of Review
[25]
Some confusion exists regarding the appropriate
standard of review where the fettering of discretion is at issue.
[26]
Traditionally, the fettering of discretion has
been reviewable on the correctness standard: Thamotharem v. Canada (Minister
of Citizenship & Immigration), 2007 FCA 198 at para. 33, 366 N.R. 301.
[27]
However, the Federal Court of Appeal has
recently posited that post-Dunsmuir, the fettering of discretion should
be reviewed on the reasonableness standard, as it is a kind of substantive
error. The Federal Court of Appeal has, however, also been careful to say that
the fettering of discretion is always outside the range of possible, acceptable
outcomes, and is therefore per se unreasonable: Stemijon Investments
Ltd. v. Canada (Attorney General), 2011 FCA 299 at paras. 23-25, 425 N.R.
341.
[28]
It is sufficient to state in this case that the
fettering of discretion is a reviewable error under either standard of review,
and will result in the decision being quashed: JP Morgan Asset Management
(Canada) Inc. v. Minister of National Revenue, 2013 FCA 250 at paras.
71-73, 450 N.R. 91; see also Stemijon Investments, above, at para. 23.
Simply put, if the Minister’s Delegate fettered her discretion, her decision
should be set aside regardless of the standard of review applied.
B.
Did the Minister’s Delegate Fetter her
Discretion?
[29]
While decision-makers are permitted to consider,
and indeed, base their decisions on administrative guidelines, a decision-maker
will fetter their discretion if they treat a guideline as binding: Waycobah
First Nation v. Canada (Attorney General), 2011 FCA 191 at para. 28, 421
N.R. 193. Administrative guidelines do not have the force of law. They
therefore cannot be relied on in a way that limits the discretion conferred on
a decision-maker by statute: Stemijon Investments, above, at para. 60.
[30]
Upon reviewing Minister’s Delegate’s reasons, it
is clear that she believed that she was bound by Guideline 16.3.1 regarding the
amount of relief she could consider granting Mr. Gordon. The Minister’s
Delegate held that where a wash transaction is found to exist, “the CRA will cap the portion of the interest payable that is
in excess of 4% of the GST/HST that was not properly collected.” She
further held that the “wash transaction rules do not
allow or provide” for her to consider granting the specific relief Mr. Gordon
requested [my emphasis].
[31]
Counsel for the respondent conceded that there
is no statutory basis to support the Minister’s Delegate’s conclusion that she
could only consider cancelling the portion of Mr. Gordon’s interest that
exceeded 4% of the value of the tax not properly remitted. Counsel agreed,
moreover, that the discretionary power granted by subsection 281.1(1) is broad
enough to allow the Minister to grant Mr. Gordon all of the relief that he
had requested if it was determined to be appropriate to do so.
[32]
Thus, it is apparent that the Minister’s
Delegate based her decision to limit the amount of relief she could grant Mr. Gordon
solely on Guideline 16.3.1, or, as she called it, “the
wash transaction rules”. In so doing, the Delegate fettered the
discretion conferred on her by subsection 281.1(1) of the Act. This is a
reviewable error.
[33]
The respondent argues that the Minister’s
Delegate did not fetter her discretion because the relief identified in
Guideline 16.3.1 – namely, waiving or cancelling that portion of the interest
owing that exceeds 4% of the tax not properly collected – is only applicable if
the taxpayer cannot establish another basis for relief apart from the existence
of a wash transaction, such as those set out in Guideline 16.3. The respondent
submits that Guideline 16.3.1 cannot therefore be seen as limiting the amount
of relief the Minister may consider granting for wash transactions, as the
Minister may always decide to provide further relief if the taxpayer can
demonstrate additional circumstances that warrant it.
[34]
I do not accept this argument for several
reasons.
[35]
First, while this argument may establish that
Guideline 16.3.1 does not preclude the Minister from considering granting
additional relief where there are other grounds for doing so, apart from the
existence of a wash transaction, it does not address those cases like this one
where the only basis for relief is the fact that the taxpayer’s interest
accrued as a result of a wash transaction. Indeed, where that is the case, the
respondent’s argument suggests that the Minister is limited to only
considering granting the relief set out in Guideline 16.3.1, and will not
consider waiving or cancelling any additional amount of interest beyond that
portion that exceeds 4% of the tax not properly collected.
[36]
Not only is there no statutory foundation for
this position, but it also runs counter to this Court’s jurisprudence, which
holds that the Minister cannot apply a uniform rule to all taxpayers, but must
consider each request for relief individually and on its own merits: Guerra,
above at para. 26; Kaiser v. Minister of National Revenue (1995), 93
F.T.R. 66 at para. 11, [1995] F.C.J. No. 349.
[37]
In this case, the Minister’s Delegate failed to
give any consideration to Mr. Gordon’s individual circumstances, including
his history of compliance with the Act, the fact that the GST/HST was remitted
promptly – first by Coastal Collision and then by Mr. Gordon – and that
the error was not the result of any negligence on Mr. Gordon’s part, but
rather his reliance on professional advice. All of these factors may have led
the Minister’s Delegate to grant Mr. Gordon the full amount of relief that
he requested if she had turned her mind to them. Instead she concluded that
Guideline 16.3.1 only permitted her to consider cancelling the portion of the
interest owing that exceeded 4% of the value of the tax not properly collected.
[38]
Finally, I cannot accept the respondent’s
argument because it implies that the only grounds for the Minister or his
delegate to consider granting relief to a taxpayer are those set out in the
relevant guidelines.
[39]
Once again, there is no statutory authority that
supports such a limitation on the Minister’s discretion. Subsection 281.1(1)
provides the Minister with an unfettered discretion to grant taxpayers relief
from interest owing under the Act, free of any restrictions on either the
circumstances in which the Minister may grant a taxpayer relief or the quantum
of relief the Minister may provide. The establishment of various criteria in
Guidelines 16.3 and 16.3.1 for when the Minister will exercise his discretion
does not change this. Thus, contrary to the respondent’s submission, it is
simply not the case that Guideline 16.3 and Guideline 16.3.1 exhaust all of the
circumstances in which the Minister may consider granting a taxpayer relief.
[40]
This is not to say that the Minister cannot
utilize administrative guidelines when deciding whether or not to grant relief
under subsection 281.1(1). Indeed, it is clearly beneficial for the Minister to
consider these guidelines when making his decision, as they provide
consistency, transparency, and fairness to the decision-making process: Guerra,
above, at paras. 18-19.
[41]
Administrative guidelines, however, are not law.
They are advisory only, and therefore cannot be relied on in a manner that
limits the discretion conferred on the Minister by statute.
[42]
In this case, the Minister’s Delegate considered
Guideline 16.3.1 to be binding on her decision, concluding that she could not
grant Mr. Gordon the relief he requested because “the
wash transaction rules do not allow or provide” for her to do so.
Instead, the Minister’s Delegate determined that she was limited to considering
only whether to cancel the portion of Mr. Gordon’s interest that was in
excess of 4% of the value of the tax not properly collected. As a result, the
Minister’s Delegate fettered the discretion conferred on her by subsection
281.1(1) of the Act. Accordingly, the Minister’s Delegate’s decision will be
quashed.
V.
Conclusion
[43]
For these reasons, Mr. Gordon’s application
for judicial review is granted. The decision of the Minister’s Delegate is set
aside, and the matter shall be returned to the Minister for redetermination in
accordance with these reasons.
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