Date: 20050304
Docket: A-338-04
Citation: 2005 FCA 86
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
PELLETIER J.A.
BETWEEN:
SIXGRAPH INFORMATIQUE LTÉE
Appellant
and
THE MINISTER OF NATIONAL REVENUE
Respondent
Hearing held at Montréal, Quebec, on February 16, 2005.
Judgment delivered at Ottawa, Ontario, on March 4, 2005.
REASONS FOR JUDGMENT: LÉTOURNEAU J.A.
CONCURRED IN BY: DÉCARY J.A.
PELLETIER J.A.
Date: 20050304
Docket: A-338-04
Citation: 2005 FCA 86
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
PELLETIER J.A.
BETWEEN:
SIXGRAPH INFORMATIQUE LTÉE
Appellant
and
THE MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT
LÉTOURNEAU J.A.
The Issues and the Appellant's Argument
[1] Did Mr. Justice Noël of the Federal Court err when he dismissed the application for judicial review made by the appellant in respect of a discretionary decision of the Minister of National Revenue (Minister)? The Minister's decision was in response to a request made by the appellant under section 220(2.1) of the Income Tax Act, R.S.C. 1985, (5th Supp.), c. 1, as amended (Act). The request, which was made on September 12, 2001, cited the equitable nature of that section, which, as interpreted by the Minister, allows a taxpayer to obtain an extension of the time allowed by the Act for making a request of the nature of the request made by the appellant. The appellant asked the Minister to extend the time allowed by the Act for filing a claim for the Scientific Research and Experimental Development (SR & ED) tax credit. The tax credit claimed related to the taxation year ending on February 28, 1995, and the claim should have been made with the income tax return for that year, which also was not filed within the time allowed. Although the maximum time allowed is 18 months after the end of the fiscal year, the appellant wanted to file its claim for the tax credit some 59 months later.
[2] The appellant argued that the Minister failed to consider evidence that was before him, and that had it not been for that failure, the decision would have been different and the request for an extension of time would have been granted. It criticized the Federal Court judge for not finding against the Minister for that failure.
[3] Essentially, the argument made by counsel for the appellant was based on three grounds.
[4] First, in making his decision, the Minister did not refer to the appellant's requests for notices of assessment for 1991, 1992 and 1993, which have still not been met. The appellant says that those notices of assessment were needed in order for it to be able to claim its tax credits, prepare its 1995 income tax return and complete the form T-661 it was required to file. The appellant asserted that it needed those previous years' assessments to prepare its financial statements and loss carrybacks.
[5] In the appellant's submission, the Minister was aware of the legitimate requests made by the appellant and disregarded the fact that it was impossible for the appellant to claim the tax credits to which it was entitled. The fact that the appellant did not have the previous notices of assessment explained the delay in filing its tax credit claim and justified its request for an extension of time.
[6] Second, the appellant justified its delay in filing its tax credit claim based on the fact that its books of account had been seized, making it impossible to file the claim on time. Here again, it submitted that the Minister was aware of the seizure. The appellant complained that the Minister disregarded this fact, which was relevant in making the decision concerning the request for an extension of time, and justified the appellant's course of conduct.
[7] Third, the appellant contended that the Minister failed to have regard to the Policy relating to the application of subsection 220(2.1) of the Income Tax Act to scientific research and experimental development. That policy is dated November 8, 2000, and numbered SR & ED 2000-01; it applies to the acceptance of prescribed forms that are filed late and to acceptance of information supplied within a reasonable time under the SR & ED program: see Appeal Book, at pages 157 et seq.
[8] To summarize, the Minister may, under that Policy, waive the 18-month deadline that applies to SR & ED claims. That discretion must be exercised fairly and reasonably: see Appeal Book, at pages 157 et seq. The Directive that incorporates the Policy identifies a number of factors that may be taken into consideration for a request for an extension of time, such as extraordinary circumstances (death, flood, fire), reasonable efforts to comply with the Act, failure by the Canada Customs and Revenue Agency (Agency) to act on a written request for information, delay by the Agency in providing the information requested, etc. The list is not exhaustive.
[9] On that last point, the appellant disputes the conclusion by the Federal Court judge, found at paragraph 24 of his decision. The judge concluded that the Minister had not used the appropriate policy in examining the case, and instead had used the Policy incorporating the guidelines for the cancellation of interest and penalties: see that Policy in the Appeal Book - Transcripts, pages 6 et seq. The judge stated that it was his opinion that that Policy was like the other and accordingly that the appellant had suffered no prejudice. The appellant submits that that conclusion is in error, because the Minister simply did not apply or follow any policy.
[10] This brings me to the analysis of the Minister's decision and the decision of the Federal Court judge, having regard to the appellant's arguments.
Analysis of the Decisions of the Minister and the Federal Court
(a) The requests for the notices of assessment
[11] For reasons that seem obvious to me, including reliability, security, uniformity of processing and the accountability of the decision-makers, the Policy that is applicable to SR & ED claims requires that requests for information made to the Agency be made in writing: Appeal Book, page 159, guideline 3.
[12] In this case, no written request for previous notices of assessment was made that was contemporary with the 1995 fiscal year, nor was there even one made during 1999, 2000 or 2001. The only documentary evidence found in the file, relating to an oral request for the notices of assessment, is dated June 26, 2002, after the request for an extension of time was made, on September 12, 2001: see Appeal Book, page 139.
[13] In addition to that evidence there is the affidavit of Serge Principe, a chartered accountant, who provided the appellant with accounting services: see Appeal Book, pages 84-85. At paragraph 7 of his affidavit, which is dated April 8, 2003, Mr. Principe stated that he had on more than one occasion, and more specifically on August 4, 1999, asked Revenue Canada for a copy of the assessments for 1991, 1992 and 1993. He added that he was told by Revenue Canada at that time that the notices of assessment could not be issued, but that he could be given a Corporate Statement of Account for the period from December 19, 1994, to September 25, 2000; this was done, and enabled him to complete the 1995 income tax return. That Corporate Statement of Account, which showed arrears and amounts assessed for the previous years, including 1991, 1992, 1993 and 1994, was not received by the appellant until March 9, 2001: see Appeal Book, pages 85, 87 and 88.
[14] There is no doubt in my mind that the repeated requests for the notices of assessment were made to Revenue Canada, and were very probably oral requests; otherwise, Mr. Principe would have filed copies of the requests. Mr. Principe's affidavit also indicates that in 1994, he placed a moratorium on the accounting services he was providing to the appellant because he had not been paid for the professional services he had performed for the preceding years. That was why, he said at paragraph 8 of his affidavit, he [TRANSLATION] "was waiting before providing other professional services including preparation of the SR & ED claim for the taxation year ending on February 25, 1995" (my emphasis). It was not until January 2000 that he was paid by the appellant, after its SR & ED claim for the taxation year ending on February 28, 1994, was allowed, in October 1999.
[15] It seems to me that the appellant's delay in filing its tax credit claim arose much more out of its financial difficulties and inability to secure its accountant's professional services than out of the fact that it did not have the notices of assessment for 1991, 1992 and 1993. As James Thompson, an employee of the Agency, pointed out in his testimony, the appellant could have submitted its income tax return for 1994, with its claim for the tax credits and form T-661, stating that it might have losses to carry back to other years, but that it was at present difficult to reconcile them, if not impossible to identify them accurately, because it did not have the notices of assessment for 1991, 1992 and 1993: Appeal Book, transcripts, pages 81-83.
[16] On the question of form T-661, much of the information requested could, in Mr. Thompson's submission, have been provided by the appellant: the number of employees, labour expenditures, capital costs, current expenditures, capital expenditures, and so on.
[17] In short, Mr. Thompson said, the SR & ED credits program is an incentive program whose purpose is to grant income tax credits. The role of the people assigned to those claims is to assist taxpayers in their efforts: ibidem, page 84.
[18] I agree with the judge's conclusion that the notices of assessment for 1991, 1992 and 1993 [TRANSLATION] "were not essential for filing the 1995 income tax return and credit claim": see his decision, at paragraph 19. The evidence is that the 1994 claim for the credit was approved in part, without the notices of assessment for the previous years being issued.
[19] Revenue Canada's failure to provide the appellant with a copy of the notices of assessment requested must be considered in context. The appellant's claims for the SR & ED credits for 1991, 1992 and 1993 were denied in their entirety. The appellant filed three objections in January 1995, but abandoned them in October 1996. It therefore knew the amounts that it had been denied: Appeal Book, page 186.
[20] In response to a fresh claim by the appellant, this time for 1994, and to the abandonment of the earlier objections, a Revenue Canada reviewer attempted without success, from April 9, 1997, to September 10, 1997, to arrange a meeting with the appellant's project officer. When this could not be done, the claim for 1994 was denied in its entirety and the file was closed.
[21] The appellant filed a notice of objection for 1994. On August 4, 1999, two people assigned by Revenue Canada were eventually able, after a number of unsuccessful attempts, to meet with the appellant's representatives, and allowed the claim for credits for the 1994 taxation year in part.
[22] I cannot approve of Revenue Canada's failure to produce the notices of assessment requested by the appellant, even though that failure did not have the impact that the appellant would like to attribute to it. As well, I find the fact that the Corporate Statement of Account was given to the appellant only in March 2001 to be unacceptable. However, failure to respond and delay in responding on the part of one party does not necessarily excuse delay, failure to act and lack of diligence on the part of the other. The appellant had to prove diligence, in respect of both the filing of its 1995 income tax return and the filing of its claim for credits, and it did not do this. In the circumstances, and like the Federal Court judge in his analysis of the Minister's exercise of his discretion, I would reject the appellant's complaint on this point.
(b) The seizure of the appellant's accounting documents
[23] After examining the record and the Minister's decision, the Federal Court judge said that the Minister had not been informed by the appellant of the seizure of documents belonging to the appellant: see his decision, at paragraphs 19 and 20. He concluded that the Minister's decision was justified in the circumstances because the Minister could not be criticized for failing to have regard to information that was not provided to him. With respect, I believe that this statement by the judge should be qualified, although his conclusion should not be altered.
[24] On September 12, 2001, the appellant made a request for an extension of time for the taxation year ending on February 28, 1995. The analysis of that request, signed by a financial reviewer and the Assistant Director of the Montreal Tax Services Office, shows that the tax authorities were partially aware of the seizure that had been carried out by the appellant's principal creditor, the Caisse Populaire Desjardins de Cartierville. On or about October 29, 2001, counsel for the appellant informed the people who signed the analysis of this fact and showed them the application for the seizure and surrender of property, and the judgment given for the creditor on January 24, 1996, allowing it to sell the property seized. Paragraph 6 of the analysis report, found at page 188 of the Appeal Book, states:
[TRANSLATION] On October 29, 2001, Mr. Tho told me that the company had been having cash flow problems in 1996 that had prevented it from submitting its claim on time. According to him, in 1996 the company was experiencing a slowdown, and was not able to pay an accountant to prepare its claim. On this point, Mr. Tho showed me the application for forced surrender (seizure of the company's property) filed on March 10, 1995, by Sixgraph's principal creditor, the Caisse Populaire Desjardins de Cartierville, which the company contested in the Quebec Superior Court. Mr. Tho showed me the judgment given on January 24, 1996, which found for the creditor and allowed it to sell the seized property.
(Emphasis added)
[25] Based on that analysis, the applicant's request for an extension of time was denied at the first level by James Thompson and at the second level by Patrice Allard: ibidem, pages 183-184. There is no basis for believing or inferring from that seizure that the appellant's accounting books were seized. The list of items seized before judgment mentions computers, facsimile machines, printers, readers, software, monitors, and so on.
[26] The seizure carried out on June 10, 1996, was followed, 10 days later, by a second seizure, which did involve all of the appellant's accounting books and bank statements: see the writ of seizure, Appeal Book, pages 110 to 112. However, a record of condition dated July 4, 1996, indicates that release of that seizure was granted: ibidem, pages 113-114.
[27] Based on the evidence in the record, it does not seem that this second seizure was brought to the Minister's attention. In any event, release of the second seizure was granted almost immediately, and so the seizure could not have justified the nearly five-year delay in filing the income tax credit claim for the 1995 taxation year. The seizure of furniture and other property of that nature also cannot explain and excuse that delay.
(c) The alleged failure to consider the policy relating to the application of section 220(2.1) of the Act
[28] The appellant submits that the Minister disregarded all policies in this respect and, accordingly, that his decision fails to meet the standard that should have been applied to the analysis of the fairness request. It bases this argument on a passage from the testimony of James Thompson, an employee of the Agency, that appears in the Appeal Book - Transcripts, at pages 62 and 63. It is not necessary to reproduce those two pages, except to say this.
[29] When questioned as to whether there were guidelines for assessing fairness requests, the witness said that there are also other bulletins or circulars (92-1, 92-2, 92-3, etc.) that must be taken into account. Primarily, however, the witness stressed the need to have regard to the case law in this area, the Act, and the spirit of the Act. He added that the bulletins and guidelines are invaluable aids, but that the role they play is secondary to the Act and the manner in which the courts have interpreted the Act.
[30] With respect, I do not see an assertion or indication in this part of Mr. Thompson's testimony that the Minister had disregarded all policies and instead acted arbitrarily. Moreover, the applicant's fairness request, for obtaining an extension of time, is based on several of the factors listed in the Policy applicable to SR & ED, and it was on the basis of the factors submitted by the appellant that the request was assessed by the Minister and his personnel: see Appeal Book, at page 186, the fairness request and the alleged factors that follow (death and flood) and, at page 159, the Policy relating to the application of subsection 220(2.1) of the Act, in which natural disasters (a flood or fire), illness, or a serious emotional or mental problem such as death (my emphasis) are identified as events beyond the applicant's control.
[31] In the circumstances, I do not see how the appellant can say that the Policy applicable to this kind of request was disregarded when the reasons cited by the appellant and considered by the Minister are the same reasons as are set out in the Policy.
Conclusion
[32] For these reasons, and there having been no reviewable error on the part of the Federal Court judge in his decision to dismiss the appellant's application for judicial review, I would dismiss the appeal with costs.
"Gilles Létourneau"
J.A.
"I agree
Robert Décary J.A."
"I agree
J.D. Denis Pelletier J.A."
Certified true translation
K. Harvey
FEDERAL COURT OF APPEAL
SOLICITORS OF RECORD
DOCKET: A-338-04
STYLE OF CAUSE: SIXGRAPH INFORMATIQUE LTÉE v. THE MINISTER OF NATIONAL REVENUE
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: February 16, 2005
REASONS FOR JUDGMENT: LÉTOURNEAU J.A.
CONCURRED IN BY: DÉCARY J.A.
PELLETIER J.A.
DATE OF REASONS: March 5, 2005
APPEARANCES:
|
Lam Chan Tho
|
FOR THE APPELLANT
|
|
Louis Sébastien
|
FOR THE RESPONDENT
|
SOLICITORS OF RECORD:
|
MALO, DANSEREAU
Montréal, Quebec
|
FOR THE APPELLANT
|
|
Department of Justice of Canada
Montréal, Quebec
|
FOR THE RESPONDENT
|
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