Docket: T-846-16
Citation: 2017 FC 210
Ottawa, Ontario, February 22, 2017
PRESENT: The Honourable Madam Justice Kane
| BETWEEN:
|
| DONALD COLEY AND TRADELINK STUCCO & CONSTRUCTION INC.
|
| Applicant
|
| and
|
| THE MINISTER OF NATIONAL REVENUE
|
| Respondent
|
JUDGMENT AND REASONS
[1]
The Applicant seeks judicial review of a decision of the Team Leader at the Taxpayer Relief Centre of Expertise – Appeals Branch [the Team Leader], denying the Applicant’s request for discretionary taxpayer relief pursuant to subsection 220(3.1) of the Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA] and section 281.1 of the Excise Tax Act, RSC 1985, c E-15 [ETA].
[2]
For the reasons that follow, the application is dismissed.
I.
The Decision Under Review
[3]
The Team Leader rendered the decision with respect to the Applicant’s request for discretionary taxpayer relief in the form of two letters dated April 22, 2016. The first letter addressed the Applicant’s request for relief from penalties and interest for payroll and GST/HST accounts for the 2009-2014 tax years. The second letter addressed the request for relief from penalties and interest related to arrears in income tax for the 2004 and 2005 tax years. Both requests were denied based on the same record and for the same reasons and, in my view, constitute one decision for the separate requests.
[4]
The Team Leader’s decision notes the purpose of the taxpayer relief provisions which give the Minister or his delegate the discretion to waive or cancel any penalty or interest payable under the ITA or the ETA. Specifically, the decision notes the definition of financial hardship applied by the Canada Revenue Agency [CRA] is where the continuity of business operations or the continued employment of the firm’s employees is jeopardized. The decision acknowledges that the Applicant’s information does not show a positive financial situation for some tax years, but finds that the Directors did not exercise the reasonable care expected to ensure proper filing and remittances.
[5]
The Team Leader refers to the financial information submitted by the Applicant, noting, among other things, that the corporation’s overdraft had been reduced, that the corporation’s accounts payable had been reduced and that the corporation had reported a net profit for the 2013 and 2015 taxation years. The Team Leader concludes that the corporation was not prevented from meeting its filing obligations due to circumstances beyond its control.
[6]
The Team Leader also notes that amounts deducted from employees for payroll deductions and amounts collected for GST/HST should be held in trust and remitted, not used to fund business operations.
[7]
The Team Leader’s decision is based on the recommendations of the Taxpayer Relief Officer [TRO], Ms. Doucette, which the Team Leader accepted. The TRO reviewed the Applicant’s request and financial records and found that there was no conclusive evidence of the Applicant’s financial hardship or inability to pay. The TRO’s recommendation is part of the record for the purpose of this judicial review. The affidavit of the TRO describes the information she considered and the assessment she conducted.
II.
The Issue
[8]
The issue is whether the exercise of discretion by the Team Leader to not grant relief and waive or cancel penalties and interest levied against the Applicant was reasonable.
III.
The Standard of Review
[9]
The standard of review of a discretionary decision of the Minister or the Minister’s delegate, in this case, the Team Leader, under subsection 220(3.1) of the ITA is reasonableness (Canada Revenue Agency v Telfer, 2009 FCA 23 at para 24).
[10]
To determine whether a decision is reasonable, the Court looks for “the existence of justification, transparency and intelligibility within the decision-making process”
and considers “whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law”
(Dunsmuir v New Brunswick, 2008 SCC 9 at para 47, [2008] 1 S.C.R. 190 [Dunsmuir]).
[11]
The assessment of the reasonableness of the decision is based on the record before the decision-maker and not on any information that may now be available or that may have been available but was not part of the record.
IV.
The Applicant’s Submissions
[12]
The Applicant argues that the financial documents submitted to the CRA demonstrate that the corporation was in a position of financial hardship beyond the Applicant’s control and the decision to refuse taxpayer relief (from payment of arrears interest and late filing penalties from 2004-2015) was an unreasonable exercise of the Minister’s discretion under the ITA and ETA.
[13]
The Applicant submits that: first, the TRO and the Team Leader conducted only a bare review of the corporation’s financial documents with little attempt to understand the extent of its financial picture, including its cash flow or the disposition of available funds; and, second, the TRO and the Team Leader did not understand the claim for relief based on financial hardship, which prevented the corporation from paying the arrears owed.
[14]
The Applicant notes that the corporation had significant accounts receivable which it could not collect, and was forced to take on work at “slim margins”
to keep its employees working. The Applicant adds that the reduction in its accounts payable, relied on by the TRO as showing a more positive financial picture, was the result of paying trade creditors, which was necessary to keep the business in operation. The Applicant also notes the letters he submitted to the CRA and his supplementary request in March 2016, which explained the financial hardship due to the challenges of collecting receivables, among other things. The Applicant submits that this was not fully appreciated by the TRO.
[15]
The Applicant submits that the TRO and the Team Leader failed to consider the overall financial picture portrayed by all of the documents and, instead, considered or placed more emphasis on irrelevant information, including the Applicant’s filing and remittance history.
[16]
The Applicant adds that if the current CRA records were examined these would reveal more compliance. A more detailed assessment of information now available and the Applicant’s actions to address previous bookkeeping issues should be considered and would support the request for taxpayer relief.
[17]
The Applicant submits that the present circumstances are analogous to those in Lund v Canada (Attorney General), 2006 FC 640 [Lund], where the Court found that the CRA should have made further inquiries regarding the taxpayer’s financial situation, that the CRA’s assessment was “somewhat cursory, if not perfunctory”
and that, if the financial statements had been more thoroughly assessed, the result could have been different. The Applicant submits that the assessment conducted by the TRO, Ms. Doucette, was not sufficiently thorough. She should have probed the documents provided and also sought additional information or explanations of the financial records from the Applicant.
V.
The Respondent’s Submissions
[18]
The Respondent submits that the Team Leader and the TRO did not misunderstand the Applicant’s request, nor did they fail to consider the submissions regarding the Applicant’s problems with accounts receivable. Taking everything into account, the TRO and the Team Leader reasonably concluded that there was no conclusive evidence of financial hardship.
[19]
The Team Leader accepted the recommendations of the TRO who reviewed all the materials submitted by the Applicant and considered all relevant facts. The Team Leader reasonably concluded that the Applicant’s financial information did not demonstrate an inability to pay causing financial hardship. The Respondent adds that the onus is on the taxpayer requesting relief to support the request with all the documents needed for a decision.
[20]
The Respondent points to subsection 220(3.1) of the ITA and section 281.1 of the ETA, as well as the guidelines established for the exercise of the discretionary relief under each provision, and submits that these were properly applied.
[21]
The Respondent also points to the information reviewed by the TRO, as described in her affidavit, which includes an assessment of all the financial documents submitted by the Applicant, as well as the Applicant’s history of late filing and payment of income tax, late filing and payment of GST/HST and late filing and failed remittances of payroll source deductions from the 2004-2015 tax years. The TRO also noted the verbal and written warnings given to the Applicant, as well as the high outstanding balances on the GST/HST and the payroll accounts. In addition, she described her detailed assessment of the records relating to the Applicant’s business operations. The Respondent submits that the conclusion that the Applicant had not demonstrated an inability to pay causing financial hardship is reasonable given that the Applicant had paid down his accounts payable, decreased his overdraft and decreased the amounts due to shareholders. Further, the Applicant had not demonstrated any extraordinary circumstances. The Respondent adds that the Team Leader’s decision reflects consideration of all the factors set out in the administrative guidelines, including the Applicant’s long history of late filing and failing to pay down his tax debt. The factors considered, whether individually or cumulatively, amply support the decision.
[22]
Finally, the explanations now offered by the Applicant were not part of the record before the Team Leader and the TRO.
VI.
The Decision is Reasonable
[23]
The Team Leader’s decision that there is no conclusive evidence of financial hardship and no evidence of extraordinary circumstances is reasonable based on the record that was before the TRO and the Team Leader.
[24]
I do not agree with the Applicant’s submission that the Team Leader conducted only a bare review of the financial documents, failed to understand the basis for the Applicant’s request or considered irrelevant information.
[25]
The Applicant’s initial request for relief asserted that relief should be granted based on the broad grounds of extraordinary circumstances, the actions of the CRA and/or financial hardship, without any particulars. In response to a request for financial documents, the Applicant provided a range of documents and also provided a letter which sought to explain the reason for the request and the financial situation.
[26]
In March 2016, the Applicant made a supplementary request with an explanation that financial hardship existed and that extraordinary circumstances had created a situation in which the Applicant was unable to discharge the corporation’s tax obligations when due.
[27]
The Applicant stated that the corporation could not pay all that was owed while still operating the business, but that if the interest and penalties were waived, it would be able to pay its other debts. The Applicant asserted that its financial situation was due to circumstances beyond its control, citing problems with collecting receivables and a need to take on work that was not profitable to keep employees working.
[28]
The assessment conducted by the TRO, Ms. Doucette, was extensive and thorough and reflects more than a bare assessment of the documents provided.
[29]
Ms. Doucette reviewed the Applicant’s first request, the supplementary request, the financial documents provided, the information on the CRA files, the history of filing and penalties assessed and the guidelines for relief, including the definition of financial hardship. Ms. Doucette considered the Applicant’s corporate tax situation, and his GST/HST and payroll accounts, listing all of the documents and records she considered in her affidavit.
[30]
The financial records assessed show, among other things, that accounts receivable increased, bank overdraft decreased and accounts payable decreased, which support the conclusion that financial hardship did not prevent payment of the penalties – or at least some effort to reduce the debt. Ms. Doucette’s analysis supports her finding that there was no conclusive evidence of financial hardship.
[31]
With respect to the Applicant’s submission that circumstances beyond his control caused financial hardship, there is nothing on the record to show circumstances beyond the Applicant’s control, other than that the corporation faced challenges collecting receivables. The Applicant did not assert the type of circumstances contemplated in the guidelines such as natural or man-made disasters; disruptions of essential services, or illness.
[32]
The TRO and the Team Leader, based on the financial information provided, could not conclude that the Applicant experienced extreme financial difficulty to the extent that enforcement of the penalties “would jeopardize the continuity of its operations, the jobs of the employees and the welfare of the community”
, as contemplated by the guidelines.
[33]
The TRO and the Team Leader considered all of the submissions made and the financial documents provided by the Applicant and did not rely on irrelevant considerations. The consideration of the Applicant’s history of late filing for his payroll, GST/HST and income tax accounts is a relevant consideration. The guidelines provide that the first step is to consider whether there is financial hardship or circumstances beyond the taxpayer’s control. Even if there are such circumstances, the other factors should be considered, including the taxpayer’s history.
[34]
The CRA’s policy guidelines with respect to taxpayer relief are set out in Information Circular 07-1. The CRA guidelines with respect to relief from penalties pursuant to the ETA for GST/ HST and payroll remittances are set out in the GST Memoranda Series, Chapter 16-3. Excerpts of the relevant provisions are found in Annex A.
[35]
I do not agree that the circumstances are analogous to those in Lund. In Lund, the Court noted, among other things, “sloppiness and imprecision in CRA’s approach”
to the requests, and factual and processing errors by the CRA that contributed to the taxpayer’s situation.
[36]
I accept that the Court’s admonishment at paragraphs 12 and 13 was warranted on the facts in Lund:
[12] . . . It appears that the CRA's analysis was based on a bare review of financial statements for Mr. Lund's numbered company with little, if any, attempt made to understand the true extent of Mr. Lund's available cash flow or the disposition of the funds he did receive. While it may not be legally incumbent upon CRA to make inquiries of the taxpayer about such missing details, it runs the risk, in a complex case such as this, that a failure to do so will lead to serious and reviewable factual errors.
[13] The approach taken here suggests that CRA's assessment of Mr. Lund's financial situation was somewhat cursory, if not perfunctory. Whether a more thorough review would have led to a different outcome is not for me to decide, but I do not accept that the denial of relief to Mr. Lund was inevitable had the Company financial statements been thoroughly assessed against Mr. Lund's explanations.
[37]
However, the circumstances in the present case differ. The affidavit of Ms. Doucette describes her comprehensive assessment of all the available information and the conclusions she reached based on that information. The onus was on the Applicant to provide all the relevant information. The Applicant does not point to any errors in the documents on the record considered by Ms. Doucette. There was no reason for Ms. Doucette to probe the Applicant for additional explanations.
[38]
The Team Leader did not misunderstand the Applicant’s request; rather the information provided did not justify the relief.
[39]
The Applicant’s submissions that explanations would have been available to elaborate on some of the financial information, that the Applicant had taken steps to address problematic bookkeeping, and that his compliance picture has improved, cannot be considered in assessing the reasonableness of the Team Leader’s decision which is based on the record before the Team Leader.
[40]
The Team Leader’s decision falls within the range of possible and acceptable outcomes and she rendered a decision that is transparent, justifiable and intelligible (Dunsmuir at para 47).
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