Docket: T-1271-15
Citation:
2016 FC 579
[UNREVISED ENGLISH CERTIFIED TRANSLATION]
Ottawa, Ontario, May 25, 2016
PRESENT: The Honourable Mr. Justice Martineau
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BETWEEN:
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2750-4711
QUÉBEC INC.
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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]
After reviewing the application and responding
records submitted by the parties and considering the written and oral
submissions of counsel, but discounting what is inadmissible, this Court is of
the view that the application for judicial review should be allowed, as it
accepts all the review arguments made by the applicant, 2750‑4711 Québec Inc.
[2]
The decision on whether or not to grant a
request for relief under subsection 220(3.1) of the Income Tax Act,
R.S.C., 1985, chapter 1 (5th Supp.) [Act] is a discretionary power.
Given the information already in the possession or brought to the attention of
the Minister of National Revenue [Minister] and officials of the Canada Revenue
Agency [CRA], I am not satisfied that the June 29, 2015 final
decision to deny the request for relief made in response to the notices of
assessment issued for the 2001 and 2002 taxation years falls within a
range of possible, acceptable outcomes that are defensible in respect of the
facts and the law (Stemijon Investments Ltd. v. Canada (Attorney General),
2011 FCA 299, at paragraph 20 [Stemijon]; Canada
Revenue Agency v. Telfer, 2009 FCA 23, at paragraphs 24 and
25; Dunsmuir v. New Brunswick, [2008] 1 SCR 190, 2008 SCC 9,
at paragraph 47).
[3]
The request for relief made on behalf of the
applicant on July 19, 2013, was denied a first time on
November 1, 2013, by a CRA manager [the initial decision]. Under Information
Circular IC07-1 – Taxpayer Relief Provisions [the Circular], dated
May 31, 2007, a taxpayer may ask for a second independent review. The
taxpayer will have the opportunity to make more representations. This is a de
novo review that involves none of the CRA officials who took part in the
first review process. A decision report including the official’s recommendation
is then submitted to a director of the tax services office [delegate], with
whom the final decision rests (Circular at paragraphs 17 and 18; NRT
Technology Corp v. Canada (Attorney General), 2013 FC 200, at
paragraph 16).
[4]
In this case, the delegate says he reviewed the
factors cited in the applicant’s correspondence, received on
November 19, 2014 [the additional representations]. The essence of
his reasoning is set out in the following two paragraphs of the impugned
decision:
[translation]
We have carefully reviewed all the
circumstances surrounding your case, in accordance with the relevant statutory
provisions. The reasons cited in your request for the cancellation of penalties
and interest are not of themselves extraordinary circumstances beyond your
control preventing you from complying with a requirement of the ITA. We regret
to inform you that, in this case, there is no basis to cancel the penalties and
interest.
The fact that you were sick does not
constitute an extraordinary circumstance preventing you from filing your tax
returns on time, because you became sick after the normal assessment period.
[Emphasis added.]
[5]
The respondent admits that the [translation] “normal
assessment period” referred to by the delegate corresponds to the period
during which the Minister could make a reassessment under
paragraph 152(4)(b) of the Act following the filing, within three years,
of a taxpayer’s late or amended returns. In this case, that period ended on
August 1, 2006. The respondent also acknowledges that the delegate
was in error in saying that the applicant’s sole shareholder, Jean Beauchamp, [translation] “became
sick after the normal assessment period.” Accordingly, the respondent
invites the Court to examine the entire record to assess the reasonableness of
the decision (Newfoundland and Labrador Nurses’ Union v. Newfoundland and
Labrador (Treasury Board), 2011 SCC 62).
[6]
In this case, it is not disputed that for the
fiscal years ending March 31, 2001, and March 31, 2002, the
applicant had to file its tax returns [corporate taxes] no later than
September 30, 2001, and September 30, 2002, respectively.
Since it received no returns, the CRA’s Non‑Filer Division made on
August 1, 2003, under subsection 162(2) of the Act, an arbitrary
assessment of corporate taxes for the 2001 and 2002 taxation years, in
addition to imposing on the applicant penalties and interest for late or
insufficient instalment payments.
[7]
The circumstances where relief from penalty and
interest may be warranted are not exhaustive, and the Minister may grant relief
if a taxpayer’s circumstances do not fall within the situations stated in
paragraph 23 of the Circular (extraordinary circumstances, actions of the
CRA, and inability to pay or financial hardship). The Circular cannot under any
circumstances mandatorily dictate how the discretionary authority given by
subsection 220(3.1) of the Act should be exercised (Stemijon at
paragraphs 22 to 25 and 58 to 60). Therefore, the delegate’s analysis
must not be limited to whether or not a taxpayer filed his tax return on time.
The delegate must consider all of the taxpayer’s personal, tax and financial
circumstances, which in this case includes any reasonable cause preventing the
taxpayer from filing a return and/or paying the tax, interest or penalties that
may have been imposed as a result of an arbitrary assessment.
[8]
The delegate suggests that relief could have
been granted if the taxpayer had been sick during the normal assessment period.
Mr. Beauchamp was gravely ill in 2005 and 2006; he was battling
cancer, which forced him to rely on his accountant to file his returns within
the normal assessment period. However, Mr. Beauchamp’s inability was
indeed brought to the attention of the CRA and the Minister. Still, the
respondent submits that the delegate’s error is not determinative when one
considers the entire record and the decision report prepared by Marie‑Hélène Beaucage.
Justification for the outcome has not been established to the satisfaction of
the Court (Société Angelo Colatosti Inc. v. Canada (Attorney General),
2012 FC 124, at paragraphs 31 to 37 [Société Angelo
Colatosti]; Stemijon at paragraphs 36 to 39; 3563537 Canada
inc. v. Canada Revenue Agency, 2012 FC 1290, at paragraphs 66
and 70 to 82 [3563537 Canada inc.]).
[9]
First, on July 24, 2006, following the
measures taken to collect the outstanding tax debts [corporate taxes, GST and
QST], the applicant, Mr. Beauchamp and two other related companies (Planim‑Implan Inc.
and 9038-9594 Québec Inc.) [together, the debtors] signed an agreement
[the Agreement] with Revenu Québec and Her Majesty in right of Canada,
represented by the Minister. It was a comprehensive agreement whereby the
collection measures would be suspended and the debtors would file corporate and
individual tax returns for various periods between 1995 and 2005
inclusively no later than September 15, 2006. Although the Agreement
does not specify the amount of the applicant’s outstanding federal tax debts
for the years ending 2001 and 2002, it is clear that its overall scope and
general intent are relevant factors with regard to the request for relief, when
one considers that the tax, interest and penalties owed by the debtors were
substantially reduced after the amended returns were filed.
[10]
Second, on September 13, 2006, the applicant’s
former accountant did submit to a CRA official amended returns for 2001
and 2002, but by the respondent’s own admission, they were not accepted or
processed then, since they contained a clerical error regarding the year‑end
date (which was subsequently corrected by hand on the original documents). However,
for a reason that was never clarified, it was not until June 7, 2007,
that the CRA acknowledged receipt of the said amended returns, which are
mentioned in the computer system on June 20, 2007. At that time, the CRA
did not accept them, because they had been filed beyond the three‑year
period ending August 1, 2006. Legally speaking, the refusal to
process the amended returns is justified on the basis that the Minister cannot
make a reassessment beyond the three-year period. Still, one wonders whether
total or partial relief from the penalties and interest accrued over
10 years was not warranted, considering the unfairness of such treatment
under the comprehensive settlement signed on July 24, 2006.
[11]
Even though the delegate’s erring in his
assessment of the medical circumstances is determinative, in any case, I am not
satisfied that all relevant factors were fully examined during the second
independent review. The request for relief dated July 19, 2013, cites
not only Mr. Beauchamp’s battle with cancer in 2005 and 2006 but
also the fact that all his energy was previously put into his defence in court
regarding a dispute over land held by another one of his companies. Other
relevant factors include the fact that Revenu Québec agreed to make
reassessments, and the false or misleading statements of the applicant’s former
accountant.
[12]
Moreover, in its additional representations,
dated November 18, 2014, the applicant says that its new accountant
did in fact file the amended returns before August 1, 2006, which the
respondent is not prepared to admit today. In any event, the jurisprudence
recognizes that a taxpayer who was deceived concerning the filing of a tax
return can cite this as a circumstance beyond his control (3563537 Canada
inc. at paragraphs 60 et seq.). The lack of analysis and
sufficient reasons in this regard constitutes a reviewable error (Société
Angelo Colatosti Inc., at paragraph 30). That being said, it is
not really disputed that after receiving the arbitrary notices of assessment,
Mr. Beauchamp sent relevant information to his former accountant, asking
the latter to follow up with the tax authorities. He mistakenly believed that
everything was under control and that his former accountant would have the
assessments cancelled because the applicant had almost no revenue in 2001
and 2002. The accountant had told Mr. Beauchamp that he need not
worry about the time limit, because the tax authorities would make
reassessments and cancel the previous assessments as soon as the tax returns
were filed with the actual revenue earned by the applicant. Eventually the
former accountant admitted to being wrong, and Mr. Beauchamp got a new
accountant (although he may have consulted the old one).
[13]
These surely constitute significant
circumstances beyond the applicant’s control. And yet, when summarizing her
recommendation, Ms. Beaucage did not make the connection between
Mr. Beauchamp’s illness and the instructions given to his accountants. The
reasoning behind her conclusion that [translation]
“[i]t was perfectly reasonable to expect
Mr. Beaucoup to exercise due diligence in conducting his business and to
file his returns on time” is circular, such that her recommendation to
deny the request strikes me as gratuitous and unreasonable. Moreover, certain
portions of the decision report and the delegate’s decision suggest that the
CRA officials mistakenly believed that the provisions of the Circular were
mandatory, which also constitutes a reviewable error (Stemijon, at
paragraph 60; 3563537 Canada inc., at paragraphs 64, 69 and 75
to 85; Société Angelo Colatosti, at paragraphs 35 to 37).
[14]
The errors and omissions mentioned earlier, when
considered cumulatively, render the impugned decision unreasonable, such that a
new independent review will have to be conducted before a new final decision
can be made on behalf of the Minister concerning the applicant’s request for
relief. For these reasons, the application for judicial review will be allowed.
The decision made by the Minister’s delegate on June 29, 2015, will
be quashed, and the applicant’s request for relief will be sent back for
redetermination in accordance with these reasons for judgment.
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