Date:
20050810
Docket:
A-408-04
Citation:
2005 FCA 271
CORAM: DÉCARY J.A.
LÉTOURNEAU
J.A.
PELLETIER
J.A.
BETWEEN:
WILFRID
COMEAU
Appellant
and
CANADA
CUSTOMS AND REVENUE AGENCY
Respondent
Hearing held at Montréal, Quebec, on May 4, 2005.
Judgment rendered at Ottawa, Ontario, on August 10, 2005.
REASONS FOR
JUDGMENT OF THE COURT: PELLETIER
J.A.
CONCURRED IN BY: DÉCARY
J.A.
LÉTOURNEAU J.A.
Date:
20050810
Docket:
A-408-04
Citation:
2005 FCA 271
CORAM: DÉCARY J.A.
LÉTOURNEAU
J.A.
PELLETIER
J.A.
BETWEEN:
WILFRID
COMEAU
Appellant
and
CANADA
CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT
PELLETIER J.A.
[1] The
question raised by this appeal is whether there were unjustified delays in
processing a notice of objection which would justify the cancellation of
interest accumulated on arrears.
Facts
[2] In
1992, Mr. Comeau invested $50,000 in a tax shelter, namely flow-through
shares in a mining exploration venture, Exploration Acabit. According to the
advice he received at the time, this investment entitled him to a tax deduction
of $45,000 and a rebate of $18,000. The tax deduction represented a proportion
of the exploration expenses contracted by Exploration Acabit. In his tax
return for the 1992 taxation year, Mr. Comeau claimed the $45,000 tax
deduction.
[3] In
1996, the Canada Customs and Revenue Agency (the Agency) undertook an audit of
Exploration Acabit and came to the conclusion that the exploration expenses it
was claiming were not such expenses and that accordingly investors were not
entitled to the tax deductions they had claimed. In 1997, a reassessment was
issued, significantly reducing the tax deduction claimed by Mr. Comeau.
He filed a notice of objection against this reassessment. On
September 18, 1998, the Agency offered to settle the objection according
to the following terms: he would not be entitled to any tax deduction but would
be granted a capital loss of $32,000.
[4] The
Agency clearly indicated in the letter containing the settlement offer that the
case would be put on hold if the settlement offer were not accepted.
Mr. Comeau rejected the offer because the Agency made a waiver of the
right of objection and right of appeal a term of the settlement. Rightly or
wrongly, he believed this would require him to give up the right to rely on
equity provisions as to interest. Following the rejection of the settlement
offer, the objection file was put on hold. It was not until September 11,
2000, when all the criminal proceedings had been concluded, that the Agency
issued a reassessment following the terms of the settlement offered by the
Agency in 1998, namely the complete cancellation of the tax deduction and the
granting of a $32,000 capital loss.
[5] Mr. Comeau
complied with this decision and rendered unto Caesar what was Caesar’s. At the
same time, he objected to the accrued interest which significantly increased
his tax debt. He said he acted at all times in good faith and with the
intention of carrying out his obligations. It was not until September 2000
that he finally learned the amount of his tax debt, and he immediately paid
it.
Proceedings
[6] Mr. Comeau
then exercised the right conferred on him by subsection 220(3.1) of the Income
Tax Act (the Act) to file an application to cancel the interest accrued on
his tax debt. The Act gives the Minister the power to cancel interest, but the
Minister has delegated it to the Agency. The latter rejected the application.
At Mr. Comeau’s request, the decision was reviewed by another
decision-maker in the Agency, who confirmed it. The Agency said it found
nothing in the file showing that the interest had accumulated for reasons
independent of Mr. Comeau’s will.
[7] Mr. Comeau
sought judicial review of the Agency’s decision (the first decision).
Martineau J. of the Federal Court ruled in his favour and referred the
matter back to the Agency for a new decision, that was to take [TRANSLATION] “into account the applicant’s submissions, the guidelines [of the
Agency on interest and penalties], the spirit and intent of
subsection 220(3.1) of the Act, the content of this order and any other
relevant factors”. The order contained certain findings by Martineau J.,
including the following:
. . . a significant part of the interest paid by the
applicant resulted from a situation beyond his control and was primarily due to
the actions of the Minister or his representatives;
. . . in the circumstances, the seven-year delay between
the original assessment in 1993 and the final assessment in 2000 seems
unreasonable;
. . . the result of the processing delays and errors
attributable to the Minister or the respondent was that the applicant was not
informed of the existence of the tax debt actually due within a reasonable
time;
. . . the unfavourable decision of November 15, 2001
[the decision approving the first decision which dismissed his application to
cancel interest] for which the applicant sought review and the unfavourable
decision of October 2, 2001 [the first decision dismissing his
application] referred to in the latter decision are patently unreasonable;
. . . the Minister’s designated representatives did not exercise the
Minister’s discretionary power reasonably and fairly and arbitrarily rejected
the grounds set out in the applicant’s application to reduce interest.
[8] The
matter was referred back to the Agency, where a new review was conducted. The
Agency divided the period which had elapsed since Mr. Comeau filed his tax
return for the 1992 taxation year into three segments:
- from the filing of Mr. Comeau’s tax
return on May 12, 1993 to the commencement of the Exploration Acabit audit on
November 24, 1995;
- from the commencement of the Exploration
Acabit audit to June 9, 1997, the date of the assessments; and
- from June 9, 1997 to the date of payment in
October 2000.
[9] The
Agency concluded that there was no delay in the processing of Mr. Comeau’s
file in the first segment. On the other hand, it found that the second segment
exceeded the six-month norm which it considered reasonable for carrying out an
audit. If the norm had been followed, Mr. Comeau’s audit would have been
completed on May 24, 1996, instead of June 9, 1997, as it turned out,
a discrepancy of 12.5 months.
[10] As to
the third segment, the Agency found that Mr. Comeau had been notified of
the outstanding amount in his reassessment of 1997 and could have paid it and
thus avoided the accumulation of interest.
[11] On
behalf of the Agency, Mr. St. Denis notified Mr. Comeau of its
decision to cancel interest on arrears for the segment from May 24, 1996
to June 9, 1997. Far from being satisfied with this result,
Mr. Comeau filed a new application for judicial review alleging that the
Agency had taken no account of the judgment of Martineau J.. This new
application was examined by Beaudry J., who held that the standard of
review was that of the patently unreasonable decision. He then examined each
of the three segments analyzed and, for each of them, found nothing patently
unreasonable in the reasons and findings of the Agency, except for one point
which I will consider below.
[12] The
judge reviewed Mr. Comeau’s allegation that the Agency’s decision was
vitiated by bad faith. He noted that the Agency had considered Mr. Comeau’s
supplementary submissions, as required by the order of Martineau J., and
had also considered the spirit and intent of subsection 220(3.1) of the
Act. The judge could not find that the Agency had acted in bad faith.
[13] However,
in the judge’s opinion, there was one point on which his intervention was
warranted. He felt that the Agency erred in setting the date for the
commencement of the audit as of November 24, 1995 (the date on which the
auditor arrived on the scene), instead of November 1, 1995 (the date on
which the form T979 authorizing the audit was issued), with the result
that the proper date for the termination of the audit would have been
May 1, 1996, rather than May 24, 1996. The judge allowed the application
for judicial review to give Mr. Comeau these 23 additional days of
respite.
Parties’ arguments
[14] Before
this Court, Mr. Comeau has maintained his claim that the Agency’s decision
did not in any way comply with the spirit and terms of the order rendered by
Martineau J.. He asked how the findings of Martineau J. could be
reconciled with the second decision by the Agency granting him a cancellation
of interest for barely 13 months, when the period for processing his
return extended over 8 years. The Agency, for its part, filed a
cross-appeal in which it denied that the judge had jurisdiction to alter the
interest cancellation period in any way whatever.
Analysis
Standard of review
[15] In Dr.
Q v. College of Physicians and Surgeons of British Columbia, [2003] 1
S.C.R. 226, 2003 SCC 19, the Supreme Court of Canada defined the role of an
appellate court called on to rule on the judgment of a superior court sitting
in review of a decision by an administrative tribunal:
[43] . . . The role of the Court of Appeal was to
determine whether the reviewing judge had chosen and applied the correct
standard of review, and in the event she had not, to assess the administrative
body’s decision in light of the correct standard of review, reasonableness. At
this stage in the analysis, the Court of Appeal is dealing with appellate
review of a subordinate court, not judicial review of an administrative
decision. As such, the normal rules of appellate review of lower courts as
articulated in Housen, supra, apply. The question of the right standard
to select and apply is one of law and, therefore, must be answered correctly by
a reviewing judge. The Court of Appeal erred by affording deference where none
was due.
[16] Therefore,
this Court must first determine whether the trial judge applied the standard of
review that was appropriate. According to the judge, it was the standard of
the patently unreasonable decision which applied. To arrive at this
conclusion, he relied on Barron v. Canada (Minister of National Revenue
(M.N.R.)) (1997), 209 N.R. 392 (F.C.A.), Cheng v. Canada, 2001 FCTD
1114 (Cheng) and Laviolette v. Canada (Customs and Revenue Agency),
[2004] F.C.J. No. 229, 2004 FC 176. Although such was the state of the
law at the date of the hearing before the judge, this had changed by the time
of this hearing, before this Court: it was held in Lanno v. Canada (Customs
and Revenue Agency), 2005 FCA 153, that it is the standard of the
reasonable decision which applies to discretionary decisions pertaining to the
equity provisions in the Act. When it so held, this Court disapproved Cheng,
on which the judge had relied.
[17] As the
trial judge erred on the standard of review, this Court must apply the standard
which should have been applied, namely that of the reasonable decision.
Application of standard of review to facts
[18] As to
the first segment ending at the beginning of the audit of November 24,
1995, it does not exceed the ordinary duration of the reassessment process,
which as the Agency noted [TRANSLATION] “makes it possible to
verify, check and maintain this system [of self-assessment]”. It is thus not
unreasonable to find that there is no basis for cancelling the interest
accumulated during this period.
[19] As to
the second segment, that of the audit itself, the decision of the Agency to
cancel interest for the audit period exceeding the six-month standard cannot be
qualified as unreasonable.
[20] As to
the third segment, from the assessment of June 1997 to the reassessment of
September 11, 2000, the Agency justified its refusal to cancel the
interest by the fact that, on June 26, 1997, Mr. Comeau was aware
that there was an outstanding amount and that this amount remained unpaid
throughout this third segment. Mr. Comeau could have paid the outstanding
amount, which would have terminated the accumulation of interest, subject to
being reimbursed if his objection succeeded. In other words, a taxpayer may
benefit from the suspension of collection proceedings while his objection is
being processed and wager on the outcome of his objection by not paying the
amounts claimed by the Agency, so that interest accumulates, but if he loses
his wager (when his objection is dismissed), he cannot complain that the rules
of the game put him at a disadvantage. There is nothing unreasonable in the
Agency’s decision.
[21] Finally,
Mr. Comeau claimed that the Agency had acted in bad faith by not
implementing the judgment of Martineau J., which concluded that the first
decision was patently unreasonable. However, if one looks carefully at the
judgment of Martineau J., it is apparent that it imposes no findings on
the new decision-maker. The only directive given to the latter by
Martineau J. is to make a decision [TRANSLATION]
“taking into account the applicant’s submissions, the guidelines [of the Agency
on interest and penalties], the spirit and intent of subsection 220(3.1)
of the Act, the content of this order and any other relevant factors”. The
minutes of the deliberations of the Agency committee indicate that the order by
Martineau J. was in fact considered (Appeal Book, at page 99). In
view of the Agency’s procedure, its reasoning and the cancellation of interest
which resulted, it cannot be said that the content of the judgment was not
taken into account in arriving at the second decision.
[22] For
these reasons, I would dismiss the appeal with costs.
Cross-appeal
[23] As to
the cross-appeal, when it was objected that Beaudry J. had exceeded his
jurisdiction by extending the interest cancellation period by 23 days, I
think it should be allowed. In the judge’s view, the audit period began when
the form T979 was issued. The Agency explained that its calculation for the
ordinary six-month period began as of the date the auditor arrived on the
scene. By intervening as he did, the judge in effect applied the standard of
the correct decision instead of that of the reasonable decision. There is
nothing unreasonable in the Agency’s original decision that would warrant this
Court’s intervention. The cross-appeal should be allowed without costs and the
part of the judge’s order regarding the interest cancellation period reversed.
|
|
“J.D.
Denis Pelletier”
J.A.
|
I concur.
Robert Décary
J.A.
I concur.
Gilles
Létourneau J.A.
Certified true
translation
François Brunet,
LLB, BCL
FEDERAL COURT OF APPEAL
SOLICITORS
OF RECORD
DOCKET: A-408-04
STYLE OF CAUSE: WILFRID
COMEAU v. CANADA CUSTOMS AND REVENUE AGENCY
PLACE OF HEARING: Montréal,
Quebec
DATE OF HEARING: May
4, 2005
REASONS FOR JUDGMENT BY: Pelletier
J.A.
CONCURRED IN BY: Décary J.A.
Létourneau J.A.
DATED: August
10, 2005
APPEARANCES:
Wilfrid Comeau THE
APPELLANT ON HIS OWN BEHALF
Marie-Claude Landry FOR
THE RESPONDENT
Maria-Grazia Bittichesu
SOLICITORS OF RECORD:
Wilfrid Comeau THE
APPELLANT ON HIS OWN
Montréal, Quebec BEHALF
John H. Sims, Q.C. FOR
THE RESPONDENT
Deputy Attorney General of Canada
Ottawa, Ontario
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