Docket: T-802-16
Citation:
2017 FC 411
Ottawa, Ontario, April 27, 2017
PRESENT: The
Honourable Mr. Justice Russell
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BETWEEN:
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GLENN WALSH
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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
I.
INTRODUCTION
[1]
This is an application under s 18.1 of the Federal
Courts Act, RSC 1985, c F-7 [Act] for judicial review of a decision of the Minister
of National Revenue [Minister], communicated October 9, 2015 [Decision], which
denied the Applicant’s request for interest relief relating to his 1998
taxation year.
II.
BACKGROUND
A.
Departure Trade Transaction
[2]
In 1998, the Applicant entered into a departure
trade transaction with the Canadian Imperial Bank of Commerce [CIBC]. In a
departure trade, an interest deduction is created to reduce the tax of an
individual who is planning to emigrate from Canada. The departing taxpayer
borrows money from a financial institution and incurs interest, which is
deductible in part for the period prior to the departure. The borrowed money is
simultaneously reinvested with the lender and the taxpayer earns interest that
is not taxable because it is received after the taxpayer has terminated
Canadian residence.
[3]
In February 1998, the Applicant obtained a
residency permit from Malta. The following June, the Applicant and CIBC each
created corporations resident in the Cayman Islands, named Falcon Enterprises
Inc [Falcon] and Phoenix Corporation [Phoenix], respectively. The
Applicant then borrowed $694,852,318 USD from CIBC New York Agency [CIBC NY] at
an interest rate of 8.74%, with the first interest payment due on December 31,
1998 and maturation of the loan occurring on January 15, 1999. The Applicant
used the loan to purchase preferred shares in Falcon; Falcon then used the
funds to purchase preferred shares in Phoenix. A subsequent series of transfers
resulted in a return of the funds to CIBC NY.
[4]
On December 29, 1998, the Applicant was to
depart Canada for Malta. Then, on December 31, 1998, following the Applicant’s
intended emigration, CIBC NY loaned the Applicant $47,499,148 to make the first
interest payment on the original loan. In 1999, the liabilities between the
parties were resolved, the Applicant’s shares in Falcon were redeemed, and
Falcon and Phoenix were dissolved.
[5]
In his 1998 tax return, the Applicant claimed a
deduction of $47,499,149 as interest and carrying charges, offsetting income
that he realized in that year through an employee profit sharing plan [EPSP]
created by three corporations under his control. He reported a taxable capital
gain of $7,493,510 for the deemed disposition of his shares in Falcon as a
result of ceasing to be a Canadian resident, which was based on an amount of
$10,000,000 as the proceeds of disposition.
B.
First Personal Reassessments
[6]
On October 10, 2002, the Minister reassessed the
Applicant’s 1998 income tax return [1998 Reassessment]. The 1998 Reassessment
denied the entire amount of Interest Debenture and increased the amount of
capital gain from the Falcon disposition to $48,119,646. On the same day, the
Minister also reassessed the Applicant’s 1999 income tax return [1999 Reassessment],
which denied the use of a loss carry-forward arising out of a loss that the
Applicant had claimed in his 1998 income.
[7]
In response, the Applicant filed Notices of
Objection for both reassessments. Following the confirmation of both
reassessments by the Minister on June 4, 2004, the Applicant filed a Notice of
Appeal to the Tax Court of Canada [TCC] on June 24, 2004.
C.
Corporate Reassessments
[8]
In the same year as the first personal reassessments,
the Minister also issued reassessments to the corporations under the
Applicant’s control, dated May 7, 2002; August 9, 2002; and April 15,
2002. The corporate reassessments denied the deductibility of payments made to
the corporations by the EPSPs in the 1998 and 1999 taxation years, despite the
inclusion of the transfers in the Applicant’s income in the first personal
reassessments.
[9]
The corporations filed objections to the
corporate reassessments, which were confirmed by the Minister on March 29, 2004.
Subsequently, the corporations filed Notices of Appeal to the TCC on June 24,
2004.
D.
Second Personal Reassessments
[10]
In a Notice of Reassessment dated May 11, 2006
of the 1999 tax return [Second 1999 Reassessment], the Minister included
$54,859,700 in income due to amounts received by the Applicant from
non-resident corporations after 1998. This inclusion was based on the view that
the Applicant had not ceased to be a resident of Canada in 1998, which was not
the view in the prior reassessments.
[11]
In response, the Applicant submitted a new
Notice of Objection on August 7, 2006.
E.
Litigation
[12]
On February 13, 2006, the TCC issued a Notice of
Status Hearing and the Applicant’s appeal became subject to case management. An
Order was issued requiring discoveries to be completed by the end of 2006.
However, in December 2006, following the second Notice of Objection, the Crown
advised that they did not wish to proceed with discovery until issues with the
Applicant’s pleadings were resolved. As a result of the second objection, the
Applicant had placed the 1999 Reassessment with the Canadian Revenue Agency
[CRA] appeals branch, despite it also being before the TCC.
[13]
At the same time, the TCC was considering a
similar case containing a departure trade transaction and the Applicant’s
personal Notice of Appeal was held in abeyance pending the outcome of the case.
In June 2006, the TCC upheld the denial of the interest deduction on the basis
that the taxpayer did not pay the interest he sought to deduct before ceasing
to be a Canadian resident: Grant v the Queen, 2006 TCC 373 [Grant].
Grant was upheld by the Federal Court of Appeal in April 2007 and leave
to appeal was dismissed by the Supreme Court of Canada in November 2007.
[14]
On May 29, 2007, the Applicant amended his
Notice of Appeal before the TCC to exclude the 1999 taxation year. The parties
then agreed to complete litigation steps by October 31, 2007; however, the
timeline was revised multiple times with the consent of both parties. Finally,
a week-long hearing was set for April or May 2010.
F.
Settlement
[15]
A settlement agreement between the two parties
was reached on April 19, 2010. The terms of the settlement were as follows: the
Applicant agreed that he would not be entitled to the interest and carrying
charge deduction of $47,499,148; the CRA agreed that there would be no deemed
dividend on the disposition of the Falcon shares in 1999; and the CRA agreed to
reduce the 1998 income by $1,542,104. Concurrently, the Minister allowed the
deductions of the EPSP payments for the corporations under the Applicant’s
control.
[16]
On July 7, 2010, the Minister reassessed the
Applicant’s 1998 and 1999 income tax returns in accordance with the settlement
agreement. The tax liabilities were reduced to $16,212,110 and nil for 1998 and
1999, respectively. The Applicant then paid the total balance owing of
$38,067,818.
G.
Request for Relief
[17]
On December 17, 2012, the Applicant submitted a
request for the cancellation of interest in respect of his 1998 income tax
return, with further submissions made on April 29, 2013.
[18]
In response, the Minister agreed to grant
interest relief in part on July 26, 2013. The Applicant requested a review of
the decision on August 16, 2013, which was upheld on December 6, 2013.
[19]
The Applicant then filed an application for judicial
review of the December 6 decision. On November 25, 2014, the Federal Court
issued an Order setting aside the decision and referred the Applicant’s request
for cancellation of interest in relation to the 1998 taxation year for
redetermination by individuals not previously involved in the matter.
[20]
Accordingly, the Applicant submitted a new
request for the cancellation of interest, which forms the subject of this
judicial review.
III.
DECISION UNDER REVIEW
[21]
In a Decision dated October 9, 2015, the
Minister refused the Applicant’s request for interest relief in relation to his
1998 taxation year.
A.
Legislation
[22]
In consideration of the request, the Minister
referred to s 220(3.1) of the Income Tax Act, RSC, 1985, c 1 (5th Supp)
[ITA], which provided situations under which relief could be granted.
However, the Minister also acknowledged that relief could be granted for
circumstances outside the situations in the ITA. Based on the
legislation and the Applicant’s submissions, the Minister’s review of the
request considered whether the Applicant: had a history of voluntary compliance
with tax obligations; knowingly allowed a balance to exist; took reasonable
care in conducting his affairs; and acted quickly to deal with any delay or
omission.
B.
Basis for Request and Examination of
Reassessments
[23]
The Minister then considered the basis for the
request, which was the disallowance of claimed interest in 1998. The Minister
then examined the reassessments that were made, including the reasons, time
frames, and amounts.
(1)
Disallowance of Expensed Interest in 1998
[24]
The Minister summarized the reasons for the
adjustment to the Applicant’s 1998 income tax return, which was reassessed to
disallow the interest claimed of $47,499,142.21. The reasons were: the
transactions were a sham in that they were undertaken to create a tax
deduction, had no bona fide business purpose, and were not profitable
from the beginning; the interest expense was not allowed under ss 18(1)(a) and
18(1)(h) of the ITA because it was for the Applicant’s personal benefit
and not incurred to earn business income; the Applicant was not entitled to
claim the interest per s 20(1)(c) of the ITA because he was a resident
at the time and the interest expense was not incurred to earn income; and the
general anti-avoidance rule was applicable because the transactions were
conducted with a primary purpose of generating an interest expense that would
offset future income.
(2)
Residency and Inconsistency of Reassessments
[25]
The Minister then reviewed the reasons for the
inconsistent reassessments based on the Applicant’s residency status, which was
non-resident in 1998 but resident in 1999. The 1999 Audit Report found that the
Applicant had been resident of Canada from 1999 to 2002 because he did not sever
all ties with Canada in that period. Accordingly, the Applicant’s 1999 tax
return was reassessed and resulted in a balance owing of $45,798,555.
[26]
Though inconsistent, the jurisprudence provided
that when facts were in dispute, the Minister was permitted to issue
inconsistent assessments pending the resolution of the dispute. As a result,
the 1999 Audit Report provided two possible conclusions: if the Applicant was
resident in 1998 and 1999, then the capital gain in the 1998 tax return would
be reversed; however, if he was non-resident in 1998 and 1999, the adjustments
would be removed from his 1999 income. Due to the inconsistency, the 1999 Audit
Report also stated that the 1999 Reassessment would be amended once
further information was available. The Applicant was therefore notified of the
Minister’s intention to reassess the 1999 tax return, which was done on July 1,
2010.
(3)
Inconsistent and Contradictory Positions in
Reassessment of the Corporations
[27]
The Minister then reviewed the deductions
claimed through the EPSP and the related reasons for reassessment. The Minister
found that: no trust relationship had been established; the proposed EPSP did
not qualify as it was set up for only one employee; the contributions were not
reasonable expenses; the contributions were not expenses incurred for the
purpose of earning income; and the contributions remained unpaid. Accordingly, reassessment
was required since deductions were not allowed but income was still reported. However,
this was not done at the time because it is CRA’s policy to not make downward
reassessments to a related taxpayer until the issue of the upward reassessments
is resolved.
[28]
Next, the Minister addressed the capital gain
reported on the Falcon shares. The Audit Division of the CRA had opined that
the fair market value of the Falcon shares ($48,128,299) was more than the
reported proceeds of disposition ($9,383,596). The 1999 Audit Report also
commented that the adjustment in regards to the proceeds of disposition would
be reversed if the CRA was successful in the disallowance of the carrying
charges, which occurred when the 1999 tax return was reassessed on July 1,
2010.
[29]
The Minister then discussed the amounts owing
after subsequent reassessments and payments. In 2006, the total tax owing was
determined to be $119,905,525, with $96,052,070 owing in personal tax and
$23,858,454.55 owing in corporate tax. However, the settlement in April 2010
reduced the total tax owing for 1998 to $38,067,818. The Applicant’s payments
on account totaled $38,568,251.
(4)
Collection Action Taken
[30]
The Minister then reviewed the details
concerning the CRA’s attempts to collect amounts owing on the Applicant’s T1
account, which included various seizures of the Applicant’s property, incoming
payments, deposits, shares, and investments as well as numerous requests to
various parties.
(5)
Evidence of Money Transfers
[31]
Next, the Minister reviewed the deposits paid by
the Applicant to various individuals, which included members of his family.
(6)
Residency Status and Assets
[32]
The Minister then examined the Applicant’s
residency status and assets, which included various real estate properties.
(7)
Proposals to Reduce Tax Owing
[33]
The Minister also reviewed the correspondence
and negotiations that occurred between the Applicant’s representatives and the
CRA on the resolution of the accounts. This included statements that the
Applicant had missed deadlines, failed to make payments as indicated, and
failed to provide requested information.
(8)
Reassessment and Interest Issues in the June 17,
2015 Submission
[34]
The Minister noted that CRA charged interest on
the amounts owed from the due date of the return on April 30, 1999 to the date
of the reassessment on July 1, 2010, with additional interest charged after
July 7, 2010 up until the account was fully paid. However, interest relief was
provided for the period in which the CRA and Applicant awaited the outcome of Grant,
above, which was between April 6, 2003 and June 3, 2004. The Minister referred
to correspondence from Samantha Eksal, dated November 10, 2003, that stated: “After reviewing the issues in these files, it has been
determined that all of the above Notices of Objection must be held in abeyance
pending the outcome of a similar issue that is currently before the Courts….”
(9)
Delay Issues in the June 17, 2015 Submission
[35]
In response to the issue of delay due to the TCC
appeals, the Minister noted that the CRA was not awaiting the resolution of the
Grant decision to resolve the Applicant’s file, as the T401 Appeals
Report for the 1998 T1 had been signed June 3, 2004, two years prior to the Grant
decision of June 29, 2006. Additionally, Grant was resolved two and
a half years prior to the April 2010 settlement. Furthermore, the term
“abeyance” had not been used in any correspondence save for a letter dated
April 19, 2010, which indicated that due to the settlement of April 2010, the
tax returns would be held in abeyance for 60 days to enable reassessment.
(10)
Reasonable Care Issues
[36]
The Minister noted that the Applicant was not
personally liable to pay any tax, interest, or penalty that was assessed to the
corporations. Additionally, the Minister acknowledged that the CRA obtained a
cheque for $22 million from the Applicant’s lawyer on October 25, 2013.
C.
Considerations for Requested Relief
(1)
History of Compliance
[37]
The Minister acknowledged the Applicant’s
compliance with return filing deadlines, which were on time from 1992 to 1997
and mostly on time after 1998.
[38]
With regards to the remittance of payments, the
Minister noted that the Collections Division of the CRA was involved with the
Applicant’s account from December 2, 1993 to October 22, 1997. Collection
activity resumed on July 27, 1999 and reached a balance of $4.98 million by
April 9, 2002. Although the Applicant’s representatives had proposed to settle
the account, the proposals were insufficient to pay the entire balance.
Additionally, despite the 2010 settlement, the Applicant continued to make
similar insufficient proposals and never submitted a repayment plan.
[39]
The Minister then noted that the Applicant did
not make voluntary payments to his account until April 15, 2014, which was 12
years after the 2002 reassessment and 4 years after the 2010 settlement.
Accordingly, extensive collections activity was required to ensure compliance.
[40]
The Minister pointed out that had the payments
been remitted in amounts larger than the amounts due, the funds would have been
returned to the Applicant with interest.
(2)
Knowledge
[41]
Next, the Minister considered whether the
Applicant knowingly allowed a balance to exist upon which interest accrued
amounts owing. The Minister found that the Applicant’s representative, in a
memorandum dated February 6, 2008, had acknowledged awareness that the
reassessments contained protective positions and that further reassessments
would be made to reduce the amounts once additional information was made
available. The Minister also found that the Applicant’s representatives could
have considered a best or worst case scenario to determine the amounts owing,
which was in fact done on July 14, 2003 and February 6, 2008. Furthermore, the
February 6 memorandum demonstrated that the Applicant’s representatives were
aware of the strength of CRA’s position and could have estimated taxes owing on
the 1998 return due to the high probability that the interest expense claimed
would be disallowed.
(3)
Reasonable Care
[42]
The Minister then evaluated the Applicant’s
claim that reasonable care was taken in conducting his affairs under the
self-assessment system, including the Applicant’s consultation with tax
accountants and lawyers during the trade departure transaction and
reassessments. In particular, the Minister noted that the Applicant had failed
to heed his former representative’s concerns regarding the departure trade
transaction and, instead, switched to a different representative.
(4)
Delay or Omission
[43]
Upon review of the file, the Minister concluded
that the duration of the audit was due to the Applicant’s failure to be
forthcoming with relevant information, including information related to his
residency and assets owned. Additionally, the Minister found that the Applicant
could have signed a waiver and thereby avoided the second reassessment for the
1999 tax return, but did not do so.
(5)
Extraordinary Circumstances
[44]
After reviewing the examples from the
Information Circular IC07-1 where extraordinary circumstances would prevent
compliance, the Minister concluded there were no extraordinary circumstances in
the Applicant’s situation.
(6)
Summary of Decision
[45]
The Minister determined that interest relief was
not warranted. First, there was no undue delay caused by the CRA or the Crown;
rather, the delays were the fault of the Applicant’s failure to be forthcoming
in a timely manner or were caused by the Applicant’s counsel. Second, the
Applicant’s failure to comply with payments allowed the balance to exist and
accrue interest for a period of 12 years. Third, the Applicant had not acted
quickly to deal with the reassessments and had ignored advice concerning the
validity of the departure trade transaction. Fourth, no extraordinary
circumstances existed. And finally, there were no other reasons to conclude
that relief should be granted.
IV.
ISSUES
[46]
The Applicant submits that the following is at
issue in this application:
A. Whether the Minister erred in the exercise of his discretion under s
220(3.1) of the ITA, resulting in a Decision that is contrary to law
and/or unreasonable?
[47]
The Respondent submits that the following is at
issue in this application:
A. Whether the Minister’s Decision is reasonable and, if it is not,
whether the Applicant’s request for taxpayer relief must be returned to the
Minister for redetermination?
V.
STANDARD OF REVIEW
[48]
The Supreme Court of Canada in Dunsmuir v New
Brunswick, 2008 SCC 9 [Dunsmuir] held that a standard of review
analysis need not be conducted in every instance. Instead, where the standard
of review applicable to a particular question before the court is settled in a
satisfactory manner by past jurisprudence, the reviewing court may adopt that
standard of review. Only where this search proves fruitless, or where the
relevant precedents appear to be inconsistent with new developments in the
common law principles of judicial review, must the reviewing court undertake a
consideration of the four factors comprising the standard of review analysis: Agraira
v Canada (Public Safety and Emergency Preparedness), 2013 SCC 36 at para
48.
[49]
Both the Applicant and Respondent agree that the
standard of review should be reasonableness. The exercise of the Minister’s
discretion to grant interest relief under s 220(3.1) of the ITA has been
held to be reviewable under reasonableness: Canada Revenue Agency v Telfer,
2009 FCA 23 at para 2 [Telfer].
[50]
When reviewing a decision on the standard of
reasonableness, the analysis will be concerned with “the
existence of justification, transparency and intelligibility within the
decision-making process [and also with] whether the decision falls within a
range of possible, acceptable outcomes which are defensible in respect of the
facts and law.” See Dunsmuir, above, at para 47, and Canada
(Minister of Citizenship and Immigration) v Khosa, 2009 SCC 12 at para 59.
Put another way, the Court should intervene only if the Decision was
unreasonable in the sense that it falls outside the “range
of possible, acceptable outcomes which are defensible in respect of the facts
and law.”
VI.
STATUTORY PROVISIONS
[51]
The following provisions from the ITA are
relevant in this proceeding:
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Waiver of penalty or interest
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Renonciation aux pénalités et aux
intérêts
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(3.1) The Minister may, on or before
the day that is ten calendar years after the end of a taxation year of a
taxpayer (or in the case of a partnership, a fiscal period of the
partnership) or on application by the taxpayer or partnership on or before
that day, waive or cancel all or any portion of any penalty or interest
otherwise payable under this Act by the taxpayer or partnership in respect of
that taxation year or fiscal period, and notwithstanding subsections 152(4)
to (5), any assessment of the interest and penalties payable by the taxpayer
or partnership shall be made that is necessary to take into account the
cancellation of the penalty or interest.
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(3.1) Le ministre peut, au plus tard
le jour qui suit de dix années civiles la fin de l’année d’imposition d’un
contribuable ou de l’exercice d’une société de personnes ou sur demande du
contribuable ou de la société de personnes faite au plus tard ce jour-là,
renoncer à tout ou partie d’un montant de pénalité ou d’intérêts payable par
ailleurs par le contribuable ou la société de personnes en application de la
présente loi pour cette année d’imposition ou cet exercice, ou l’annuler en
tout ou en partie. Malgré les paragraphes 152(4) à (5), le ministre établit
les cotisations voulues concernant les intérêts et pénalités payables par le
contribuable ou la société de personnes pour tenir compte de pareille
annulation.
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VII.
ARGUMENT
A.
Applicant
(1)
Extraordinary Circumstances
[52]
The Applicant submits that the Decision is
incorrect or unreasonable. The issuance of inconsistent and contradictory tax
reassessments constitutes either extraordinary circumstances that prevented
compliance, or circumstances beyond the Applicant’s control.
[53]
While the Minister has the authority to issue
inconsistent or contradictory assessments, this authority is limited to
exceptional cases and should not be exercised as a general rule: Duthie
Estate v Canada, [1995] FCJ No 770 at para 43; Hawks v the Queen, [1996]
FCJ No 1694 at para 7. If exercised in the context of a taxpayer relief
application, the central consideration is the impact of the assessments on the
Applicant.
[54]
The Applicant cites three inconsistent and
contradictory positions taken by the Minister: the adjustment to the proceeds
of disposition of the Falcon shares in the 1998 Reassessment; the determination
that the Applicant was a resident of Canada in the 1999 Reassessment; and the
inclusion of the Applicant’s 1998 income of EPSP amounts received while
concurrently denying the deductibility of the payment of such amounts by the
corporation reassessments. These inconsistent and contradictory reassessments
exceeded $110 million in liabilities and left the Applicant with no choice but
to wait for the Minister to take a conclusive and consistent position. The
Applicant submits that the Minister failed to consider the impact of the
inconsistent and contradictory assessments in the appropriate context and that
it was unreasonable not to consider them to be extraordinary circumstances.
[55]
In the Decision, the Minister states that the
Applicant knew that only one of the positions would ultimately stand and
therefore should have known that “double tax”
would not result; however, this was never communicated to the Applicant by the
CRA. In fact, by the time the Applicant was made aware of the CRA’s position in
this regard, settlement negotiations had commenced and the information became
less relevant.
[56]
The Applicant argues that the Minister could
have provided assurance or comfort to the Applicant around the time when the
assessments were proposed or made. The absence of this assurance left the
Applicant with no way of knowing how matters would ultimately be resolved.
[57]
In the Decision, the Minister failed to consider
the facts in the proper context; instead, the Minister took the position that
the authority to issue alternative reassessments precludes the availability of
relief. In other words, the Minister focused on the authority to issue the
assessments, not the impact of the assessments. The refusal of interest relief
is inconsistent with the spirit of taxpayer relief provisions and undermines
the fairness process.
[58]
The Applicant also argues that the Minister’s
consideration of extraordinary circumstances was limited to the examples in the
Guidelines. However, circumstances warranting relief need not be both beyond a
taxpayer’s control and extraordinary: 3500772 Canada Inc v Canada (National
Revenue), 2008 FC 554; Nixon v Canada (National Revenue), 2016 FC
906. The Applicant submits that the Minister erred by requiring the application
to meet both branches. The existence of inconsistent and contradictory
circumstances should constitute the type of circumstances beyond a taxpayer’s
control, particularly given the amounts involved in the present case.
[59]
The Applicant submits that the present case is
distinguishable from Telfer, above, which found that taxpayers who fail
to pay a tax debt pending a decision in a related case normally cannot complain
that they should have to pay interest. The present case is not a normal
situation due to the quantum owed.
[60]
The Applicant contends that the CRA aggressively
and knowingly assessed contradictory and inconsistent positions which placed
the Applicant in a position where there was no realistic alternative but to
wait for the outcome of the litigation, given that the liabilities exceeding
$110 million.
[61]
Accordingly, the Applicant submits that his request
for the cancellation of interest should be reconsidered.
(2)
Undue Delay
[62]
Alternatively, the Applicant submits that he was
subject to undue delay in this matter as a result of the CRA’s actions, thereby
rendering the Minister’s refusal to grant relief unreasonable.
[63]
The CRA linked all of the appeals together;
consequently, they could not be dealt with separately. Since the CRA does not
make downward reassessments to related taxpayers until upward reassessments are
resolved, in this case, the corporate reassessments could not be dealt with
until after the personal reassessments, which the CRA also chose not to deal
with until the Grant litigation was resolved. As a result, there was no
realistic alternative but to wait for the outcome of Grant. Although the
term “abeyance” was not specifically used, the appeals were effectively held in
abeyance at the will of the CRA and the Applicant was prejudiced by these
delays. While the delay in resolving the appeals is understandable, it should
not be attributed to the Applicant so as to preclude interest relief.
[64]
In the Decision, the Minister states that the
Applicant was not waiting for the outcome of the Grant case because the
TCC rendered the decision on June 29, 2006. The Applicant submits that this is
a misunderstanding of the relevant facts and process. In 2006, the 1998
Reassessment and Corporate Reassessments were not before the Appeals Division;
they were before the TCC. Additionally, the TCC decision was appealed to the Federal
Court of Appeal, with leave sought to the Supreme Court of Canada. Thus, Grant
was not fully resolved until November 2008. Accordingly, the Applicant could
not pursue a resolution based on Grant until November 2008.
[65]
Moreover, the Applicant submits that the
Minister ought to have vacated the 1999 Reassessment once the Grant decision
had been determined to be definitive of the 1998 and 1999 Reassessments.
However, the Minister did not do so until July 2010, after the settlement was
reached. The Applicant submits this delay was because the positions of the
parties were not certain until the settlement agreement was reached.
Consequently, the Applicant submits that the Applicant’s position was not clear
and obvious in 2006.
(3)
Non-Compliance
[66]
The Decision refers to the Applicant’s failure
to comply with payments on the account and various collections activity.
However, the Minister admitted in cross-examination that, while the
reassessments were under objection and appeal, the Applicant had no obligation
to pay the amounts. The Minister also stated that the non-payment of disputed
amounts is not the same as non-compliance. The Applicant submits that the
Decision does not take the aforementioned into account. Furthermore, the
Applicant also notes that the Minister clarified that collection action could
take place in certain circumstances, such as when a jeopardy order has been
issued; however, the Applicant has never been under such an order.
[67]
The Decision also clearly demonstrates that the
Minister considered the timing of payments for the outstanding amount arising
from the reassessments under the settlement agreement. The Applicant notes that
three significant payments were made to retire the balance owing, including two
that were in excess of $37 million and made shortly after the settlement agreement.
The Minister appears to have failed to consider these payments.
[68]
The Applicant therefore submits that his request
for the cancellation of interest should be reconsidered in light of the delays
which allowed the interest in question to accrue.
B.
Respondent
(1)
Considerations of the Minister
[69]
The Respondent submits that the Decision is
reasonable in light of the information before the Minister.
[70]
Section 220(3.1) of the ITA allows the
Minister a broad discretion to waive or cancel penalties and interest, which is
guided by CRA guidelines. Cancellation of interest may be justified in certain
circumstances, which is assessed under the following considerations: history of
compliance with tax obligations; knowingly allowing interest to accrue;
exercise of a reasonable amount of care in conducting affairs under the
self-assessment system; and acting quickly to remedy delays or omissions.
(2)
Undue Delay
[71]
Upon review, the Minister considered that the
Crown did not cause undue delay in the litigation concerning the Applicant’s
debt for the 1998 taxation year. The record does not reflect any request to the
TCC for abeyance of the Applicant’s appeal prior to settlement in April 2010;
if there was such an abeyance, the Applicant admits that it was on the consent
of both parties.
[72]
Despite the Federal Court of Appeal’s ruling
against the departure trade scheme on April 30, 2007, the Applicant
repeatedly requested and consented to timeline extensions before finally
setting down a hearing date and offering to concede the departure trade
deduction in April 2010. Throughout this process, the extensions were
agreed to on the consent of both parties, and on some occasions, were required as
a result of to the Applicant’s own conduct.
[73]
The Respondent contends that the Crown cannot be
held responsible for the Applicant’s failure to vigorously prosecute his own
appeal in the face of knowledge that interest was accruing. The Applicant chose
not to take steps in his appeal because he was awaiting rulings on other
departure trade scheme appeals; however, this is not a delay imposed by the
Crown.
[74]
Moreover, the present case is not
distinguishable from Telfer, above. The Applicant is not entitled to
relief because of his gamble on the outcome of Grant. The existence of
contradictory assessments did not prevent the Applicant from consulting with
counsel, determining the likelihood that his position would succeed, and making
efforts to address the situation by paying his debt, advancing litigation, or
cooperating with the CRA audit to resolve confusion about his residency.
Additionally, the Applicant has not submitted evidence to suggest that the
quantum of reassessments prevented him from addressing his tax debts promptly
at the time of reassessment, as contemplated by Telfer.
[75]
Consequently, the Respondent submits that it was
reasonable for the Minister to deny that no additional relief was merited due
to Crown delay.
(3)
Extraordinary Circumstances
[76]
The Respondent also submits that it was
reasonable for the Minister to conclude that contradictory reassessments did
not constitute an extraordinary circumstance. Extraordinary circumstances are
situations beyond a taxpayer’s control that prevent them from fulfilling an
obligation, such as natural disasters and civil disturbances. The contradictory
reassessments were not issued until May 11, 2006; accordingly, they cannot
justify failure to address the 1998 tax liabilities prior to that date. While
the Applicant may have been concerned about the significance of the
reassessments against the corporations he was involved with, he was not liable
for the amounts and has not provided evidence that the corporate reassessments
imposed financial hardship that would have impeded him from addressing his
personal debt.
[77]
Moreover, even after the contradictory reassessments
had been issued, the Applicant could have voluntarily addressed his 1998 tax
liabilities prior to the implementation of the settlement agreement on July 7,
2010. The 2006 reassessment was only raised because the Applicant declined to
provide information that would have allowed the CRA to take a consistent
position as to his residency, which was within his control.
[78]
The uncertainties regarding the 1998 and 1999
tax liabilities could have been clarified by the Applicant’s diligent efforts
to provide information to the CRA, pursuit of appeal before the TCC, or
settlement. He was not prevented from doing any of those things; instead, he
wagered upon the possibility that waiting to resolve the issues would be
beneficial. Accordingly, the Applicant cannot now claim that the appeals
process put him at a disadvantage.
[79]
Finally, the existence of contradictory
assessments is unconnected to the Applicant’s failure to address the
obligations after the July 7, 2010 reassessment. The Applicant’s liability was
certain at this point.
(4)
Additional Basis for Relief
[80]
The Minister reviewed the Applicant’s
representations and reasonably concluded the circumstances did not warrant
interest relief. The Applicant’s conduct did not merit it: he failed to make
payments; he knowingly allowed interest to accrue despite warnings from
counsel; he engaged in a pattern of behaviour designed to frustrate the CRA by
threatening bankruptcy and transferring assets to foreign jurisdictions; he
failed to make voluntary payments for 12 years; and he avoided addressing his
1998 tax liabilities even after settlement.
[81]
The Respondent submits that the Minister
considered an exhaustive amount of material and issued a reasonable Decision
that should be upheld.
VIII.
ANALYSIS
A.
Introduction
[82]
This application deals with the Minister’s
refusal of interest relief that the Applicant requested under s 220(3.1) of the
ITA for the 1998 taxation year.
[83]
The history of dealings that led to the refusal
is long and convoluted and grows out of an aggressive tax planning strategy
that the Minister found to be contrary to the ITA. The Applicant feels
that the Minister’s refusal to deny him the requested relief is based upon the
Minister’s disapproval of this strategy rather than the principles and
jurisprudence that govern interest relief.
[84]
In particular, the Applicant says that the
Minister:
a) Failed to consider the extraordinary impact that the issuance of
inconsistent and contradictory assessments had upon the Applicant in the
particular circumstances of this dispute; and
b) Failed to properly consider the administrative delay in moving the
matter forward, and ignored or misapprehended important underlying facts that
affected the delay.
[85]
There is no dispute between the parties that the
standard of review applicable to the issues raised in this application is
reasonableness, and the Court agrees. See, for example, Telfer, above,
at para 2.
B.
Inconsistent and Contradictory Reassessments
[86]
The Applicant says that the Minister’s issuance
of inconsistent and contradictory reassessments constituted extraordinary
circumstances, or circumstances beyond the Applicant’s control, for which he is
entitled to interest relief.
[87]
The inconsistent/contradictory assessments at
issue are:
a) The adjustments to the proceeds of disposition of the Falcon shares
in the 1998 Reassessment;
b) The determination that the Applicant was a resident of Canada in the
second 1999 Reassessment; and
c) The inclusion of the Applicant’s 1998 income of EPSP amounts
received while concurrently denying the deductibility of the payments of such
amounts by the corporate taxpayers involved.
[88]
The Applicant’s position is that these
inconsistent/contradictory assessments (which resulted in liabilities in excess
of $110 million) left the Applicant with no realistic alternative but to wait
for the outcome of relevant cases that the Minister had brought before the
Courts so that the Minister could take a conclusive position on the basis of
which the Applicant could respond.
[89]
The Applicant points out that the additional
amounts assessed by the Minister were “egregiously”
in excess of what was ultimately owing upon eventual settlement and should have
been accepted as an “extraordinary circumstances”
that entitled the Applicant to interest relief.
[90]
The Applicant feels the egregious assessments
should have been regarded as an extraordinary circumstance because:
a) It is simply unreasonable to not consider the inconsistent
reassessments to constitute extraordinary circumstances; and
b) The Minister’s position presupposes that the Applicant knew that
only one of the assessing positions would ultimately stand, with the result
that any double taxation issues would be resolved.
[91]
The Applicant’s principal point here is that the
Minister, in denying the interest relief requested, has focussed “on the authority to issue inconsistent or contradictory
reassessments” and has failed to consider the impact of doing so upon
the Applicant:
[T]he Minister has failed to consider the
facts in the proper context and has effectively taken the position that
authority to issue alternative reassessments precludes the availability of
relief. The Minister’s refusal to grant interest relief in these circumstances,
where the CRA has taken an aggressive and even punitive approach in assessing
the Applicant, is not consistent with the spirit of the taxpayer relief
provisions and undermines the fairness process.
[92]
The Applicant concedes that “extraordinary circumstances” means “circumstances beyond a taxpayer’s control.” While
acknowledging the Federal Court of Appeal decision in Tefler, above, he
says that his was a different situation because “the
quantum makes this distinguishable from a ‘normal’ situation.”
[93]
The Applicant’s full argument on this issue was
set out in his June 17, 2015 request for relief:
84. In dealing with the Taxpayer and
the Corporate Taxpayers the CRA, albeit in response to what CRA perceived to be
an aggressive ‘departure trade’ on the part of the Taxpayer, took an overly
aggressive assessing position with the Taxpayer and the Corporate Taxpayers
beginning with its re-assessment of October 10, 2002 of the Taxpayer which
both denied the interest deduction and assessed tax on a capital· gain
resulting in an excessive tax assessment. This was compounded unfairly with
concurrent contradictory assessments of the Corporate Taxpayers denying the
deduction of the expense of payments to the Taxpayer under the EPSPs. This was
followed by the Second 1999 Reassessment founded on the position (in
contradiction of the 1998 Reassessment) that the Taxpayer remained a resident
of Canada following his departure which had been acknowledged. Overall, the
response of the CRA, to what was perceived as an abuse of the provisions of the
Income Tax Act (the ‘departure trade’) was itself abusive. It most unfairly and
inequitably mis-used powers of Assessments and Reassessments against the
Taxpayer and the Corporate Taxpayers (and even a non-resident corporation).
85. In reference to the latter point,
the CRA took the position the Taxpayer remained a resident of Canada in the
Second 1999 Reassessment, even though the Taxpayer had severed all ties to
Canada. This position was contrary to its own position in the 1998 Reassessment
and in the First 1999 Reassessment. The result for. the taxpayer was an
additional liability in excess of $45,000,000. This position was eventually
abandoned and it was acknowledged by CRA that the Taxpayer had ceased to be a
non-resident of Canada on December 29, 1998.
86. The CRA also took inconsistent and
contradictory positions in its Corporate Reassessments. The CRA raised the
Corporate Reassessments, creating in excess of $18,000,000 of Corporate
liabilities based upon a position that the EPSP payments which the corporate
Taxpayers made were not expenses deductible to the corporations even though the
Taxpayer had included them in his income and·CRA assessed him on this basis.
87. The CRA even increased the Falcon
Shares Capital Gain reported in the Taxpayer’s 1998 tax return from $9,991,347
to $48,119,646, enormously increasing the Taxpayer’s tax liability for which
CRA could not have reasonably expected payment by the Taxpayer additional to
the Reassessment denying the interest expense. CRA eventually abandoned its
position.
88. The inconsistent and contradictory
reassessing positions of the CRA were aggressive and questionable over-reactions
to a perceived abusive ‘departure trade’. The CRA’s strategy effectively
prevented the Taxpayer from making an informed decision to pay taxes assessed
until when, ultimately, a rational settlement was concluded and payments made
by the Taxpayer· and by the Corporate Taxpayers. The Taxpayer was in a position
which, in practical terms, meant it was impossible to pay all assessed
liabilities to stop accumulation of interest. When the Second 1999 Reassessment
was raised, the aggregate liability of the Taxpayer was in excess of $90,000,000,
of which $62,119,030 was on account of tax. The egregiousness of the CRA’s position
is borne out by the terms of the Settlement Agreement, pursuant to which the
lability was reduced to approximately $21,000,000 of which $16,214,247 was tax.
This was a reduction in the tax liability of over $46,000,000. These amounts
were further reduced under the January 13, 2013 settlement agreement.
89. When the Second 1999 Reassessment
was issued, the Corporate Taxpayers were liable for in excess of $30,000,000 of
which $13,201,809 was on account of tax. The Corporate Reassessments were
vacated in their entirety under the Settlement Agreement.
90. In summary, the Taxpayer and
Corporate Taxpayers were facing, at the time of the Second 1999 Reassessment,
aggregate liabilities in excess of $110,000,000, of which approximately
$75,000,000 was on account of tax. This aggregate liability was reduced by
approximately $90,000,000 under the Settlement Agreement. The aggregate tax liability
was reduced by almost $60,000,000. These adjustments highlight how overly aggressive
the Minister’s reassessing positions were. In these circumstances, the Taxpayer
is entitled to relief from payment of interest. The usual rationale that a
taxpayer pays what is assessed to avoid interest has no justification here and
cannot prevail in these circumstances. Here, the CRA issued conflicting and
contradictory assessments knowing both could not be valid; yet, if interest relief
is denied, the CRA will have insisted both had to be paid in order for
the Taxpayer and the Corporate Taxpayers to avoid interest. Such a position by
the CRA would be egregious. A denial of interest relief would be an
extraordinary and unfair result which would sanction egregious conduct by CRA.
91. It is well-established, as a
general rule, the Minister should not issue inconsistent or contradictory
assessments. The courts have recognized that in “exceptional cases” it may be necessary
for the Minister to issue inconsistent or contradictory assessment. (See, for
example: Hawkes v. The Queen, 97 D.T.C. 5060 (FCA), at para. 7; Fink
v. The Queen, [1999] 2 C.T.C. 2088 (TCC), at para. 14; and Duthie Estate
v. Canada, [1995] 2 C.T.C. 157 (FCTD), at para. 42). However, in
this case it would be unreasonable and punitive to require the Taxpayer to pay
interest on such assessments. Certainly, the ‘exceptionally’ available use .of
inconsistent or contradictory assessments to protect the Minister’s position
does not justify the Minister refusing to grant relief in the present case under
the taxpayer relief provisions.
92. The Taxpayer acknowledges the
comments of the Federal Court of Appeal in Telfer v. Canada, 2009 FCA
23, that “those who ... knowingly fail to pay a tax debt pending a decision in
a related case normally cannot complain that they should have to pay interest”
(at para. 35). Note the term ‘normally’. This is not a normal situation. A
taxpayer who receives inconsistent and contradictory assessments such as in the
present case is in a fundamentally different position compared to the taxpayer
in Telfer. There, the taxpayer knowingly allowed a balance to exist
rather than paying it outright and subsequently obtaining a refund.
93. Here, the CRA aggressively and knowingly
assessed contradictory and inconsistent positions which put the Taxpayer (and
the Corporate Taxpayers) in a position where there was no realistic alternative
available other than to wait for the outcomes of the cases before the Courts
selected by the Minister. Aggregate liabilities were in excess of $110,000,000.
The Taxpayer was without any options.
94. The Taxpayer should be granted
relief on the basis of the Minister’s issuance of inconsistent and
contradictory assessments and the timing of them in the context of the actual
process which was followed and taking into account the administrative process
and delays which naturally and without fault of the Taxpayer (or the Corporate
Taxpayers) which inevitably occurred.
[emphasis in original]
[94]
The problem for the Court is that the Applicant
has presented no evidence that he “was without any
realistic options.” He simply leaves the Court, as he left the Minister,
to assume that the aggregate liabilities involved meant that, for him, there
were no realistic options. The sums involved are indeed significant, but they
do not in themselves establish that, in the Applicant’s particular
circumstances, he could not have paid the assessed tax debt.
[95]
No information was provided to the Minster and
no information has been brought before the Court to establish that the
Applicant could not have addressed his tax debts at the time of the
reassessment.
[96]
The Applicant’s case for no “realistic options” is answered in the Decision
itself:
Knowingly Allowed a Balance to Exist Upon
Which Interest Accrued Amounts Owing
It is agreed that the reassessments resulted
in large amounts owing. However, your representatives were well aware that they
contained protective positions and that further reassessments would be made to
reduce the amounts owing once additional information was made available. In his
15-page Memorandum dated February 6, 2008 Curtis Stewart acknowledged this when
he wrote “The CRA has indicated that any offer which they were prepared to make
would ensure there was only “one layer of tax.”
To determine the amounts owing, your representatives
could have considered a best case / worst case scenario. On July 14, 2003
Joel A. Nitikman prepared such a document; he created two potential
outcomes for 1998 and then estimated tax payable for each scenario. He also
advised which scenario was the more realistic of the two. On February 6, 2008
Curtis Stewart prepared a Memorandum, wherein he analysed the Agency’s various
positions and reasoned out possible outcomes. An estimate of potential taxes
owing was not made at this time.
In his Memorandum of February 6, 2008 Curtis
Stewart wrote “With the recent success the CRA achieved in the Grant
case their position on the assessment on the “Departure Strategy” is extremely
strong.” As a result, he could have estimated taxes owing on the1998 income tax
return as there was a high probability the interest expense claimed would be
disallowed.
[97]
The Applicant’s emphasis is upon the quantum of
the reassessments. However, it would appear that CRA’s aggressive reassessments
were a response to the lack of information from the Applicant. The Applicant:
could have provided the information required to make a realistic assessment;
could have provided a waiver so that CRA did not need to take a defensive
position and use inconsistent assessments; could have sat down with his
advisors and produced a settlement offer.
[98]
Instead, the Applicant chose to wait in the hope
that the “departure trade” would survive
scrutiny and/or that his tax debt would be significantly less than the
assessment figure. He now argues that it was the “quantum”
of the reassessment that meant “there was no realistic
alternative available other than to wait for the outcomes of the cases before
the Court selected by the Minister.” But he has not demonstrated how “quantum” prevented him from dealing with his tax
debt in the ways suggested. He appears to be saying that the only alternative
available to him was to pay the “aggregate liabilities”
of $110,000.000 and it would be totally unreasonable to expect him to do so in
a situation where he wanted to see what would happen in other cases before the
Courts. But this was not his only alternative. He had created a complex and aggressive
“departure trade” scheme and he chose to stay
with it until the Courts made it clear that this was not possible. This was not
something beyond his control; it was simply the tactic he chose in the
circumstances. In choosing this approach, he was fully aware of all quantum
issues. But he chose, no doubt with the advice of capable counsel, to deal with
quantum by waiting for the Courts to pronounce upon the validity of departure
trade.
[99]
In my view, the Minister did not ignore impact.
Impact was within the knowledge and control of the Applicant.
[100] If the Applicant was concerned about interest running then he could
have taken action. He controlled the information and he had the ability to
assess the situation and to make a reasonable settlement offer. He also knew
whether the 1999 defensive reassessment was ultimately sustainable. There was
no evidence before the Minister that the Applicant could not have estimated
taxes owing in 1998 and met his obligations. He simply chose not to do this.
This was not a quantum issue because, as Mr. Mienneau points out in his
decision, the Applicant and his representatives “were
well aware that [the reassessments] contained protective positions and that
further reassessments would be made to reduce the amounts owing once additional
information was made available.”
[101] The Applicant points to the settlement figure and the reduction of
some $46,000,000 in tax liability as evidence of CRA’s “egregious”
reassessment but, with the knowledge at his disposal, he would have known how “egregious” it was when the reassessment was made in
2002 and that it was purely defensive. The only plausible reason for not acting
earlier to retire his tax debt and reduce interest is that he wanted to see if
the Courts would endorse the departure trade. This was not an extraordinary
circumstance and it brings the Applicant with the warning contained in Telfer
that “Those who […] knowingly fail to pay a tax debt
pending a decision in a related case normally cannot complain that they should
not have to pay interest.” I don’t see that the quantum issue relied
upon by the Applicant in this application establishes something abnormal that
the Applicant could not have dealt with.
C.
Undue Delay
[102] The Applicant also says that there were lengthy delays in dealing
with his appeals and those of the linked Corporate Taxpayers. He says the
appeals could not be dealt with separately so that there was no realistic
alternative but for the Applicant to wait out the test case chosen by CRA,
which was Grant.
[103] The Applicant argues that, in effect, the appeals of the Applicant
and the linked corporate taxpayers were “held in
abeyance at the will of the CRA.”
[104] The Applicant says that, in the present application, the Minister’s
Decision assumes that the Applicant’s position was clear and obvious after the TCC
decision in Grant in 2006, but this was not the case. He says it was not
until November 2008 that the Grant decision was such that a resolution
of the Applicant’s 1998 and 1999 years could be pursued based upon Grant.
[105] Relying upon Telfer, the Minister says that the Crown cannot
be held responsible for the Applicant’s failure to vigorously prosecute his own
appeal in full knowledge that interest was accruing on the assessed liability.
[106] It is difficult to see, on the present facts, how the Applicant does
not fall into the category of someone who knowingly failed to pay a tax debt pending
a decision in a related case, as described in Telfer. When he says that
there was no realistic alternative but to await a decision in Grant, he
had to have known that interest would continue to accrue on all balances owing.
The complexity of the situation and the linkages between the Applicant and the corporate
taxpayers were a function of the departure trade arrangements that the
Applicant had chosen to enter into. The resolution to these complexities, which
were of the Applicant’s own making, cannot be used to absolve him from having
to pay interest. While the legalities of the departure trade scheme were being
debated and litigated, this does not mean, of course, that the Applicant should
have to pay interest for any undue delay on the part of the Crown, but there is
no evidence before me to suggest that any “abeyance”
was not consented to by both sides. The Applicant himself requested timeline
extensions in 2007, 2008 and 2009, and he took over eight months to amend his
pleadings following the May 11, 2006 reassessment of the 2009 taxation year.
[107] It is noteworthy that CRA did provide some interest relief granted
for delay for the 1998 income tax return. The Appeals Division of CRA cancelled
interest for the period of April 6, 2003 to June 3, 2004 “due to CRA delay.” This meant that “interest was cancelled for the maximum possible period that
it could have been – the entire time the file was in process by the Appeals
Division.”
[108] The Applicant’s detailed submissions on delay were as follows:
95. There were lengthy delays in
dealing with the appeals of the Corporate Taxpayers and of the Taxpayer for a
number of reasons. The appeals of the Taxpayer were, and were treated by the
Crown, as linked. None of the appeals could be dealt with or settled
separately; all had to be handled together. The Corporate Reassessments had to
be dealt with after the personal assessments of the Taxpayer. More
importantly, The CRA intended to first deal with a different ‘departure trade’
case [which ultimately was Grant] as a ‘test case’ before dealing with
the appeal of the Taxpayer.
96. The Notices of Objection respect
of both the Taxpayer and the Corporate Taxpayers were effectively held in
abeyance at the decision of the CRA for which no attribution of fault of the
Taxpayer or prejudice to his Submission fairly can be made. The Taxpayer
initiated contact with the CRA prior to the matter moving to the Tax Court, in
good faith, including numerous attempts to meet with CRA Appeals to resolve the
matter during this interval. However, the CRA determined it was not prepared to
attempt to resolve the objections then, instead determining to hold the matters
in abeyance pending the outcome of other Departure Trade appeals.
97. Upon CRA Appeals advising it was
going to await a Tax Court decision on a similar departure trade case put the
Taxpayer in the position where he was, through the actions of the CRA,
inevitably to be delayed as that case was heard and worked its way through the various
levels of Court. This is what happened. The Settlement Agreement was concluded
in Aril 2010 only after the Grant case ran its course. Resulting reassessments
were issued July 7, 2010.
98. Thus, the resolution of the Taxpayer’s
appeals was delayed. This was for understandable reasons which should, however,
be accounted for by interest relief.
99. As was entirely predictable, this
delay continued when the matters moved to the Tax Court of Canada. The Taxpayer’s
and Corporate Taxpayers’ Appeals were, by implicit agreement, held in abeyance
pending resolution of similar issues before the court. The Crown proceeded with
the cases it chose to advance first.
100. Given the Tax Appeals of the
Taxpayer and the Corporate Taxpayers were held in abeyance for these strategic
reasons, the Taxpayer is entitled to interest relief on the same rationale that
interest relief already has been given for the period April 6, 2003 to June 4, 2004
(the date the reassessment of the Taxpayer was confirmed). The interest relief
should continue after June 4, 2004. All that date signifies is that CRA had
made a decision such that the matter would have to be determined by the Tax
Court of Canada: The inconsistent and contradictory assessments continued. The
holding in abeyance of the Personal Tax Appeal pending the disposition of other
appeals justifies interest relief being granted to the Taxpayer.
[emphasis in original]
[109] The Decision under review deals with the delay issue in full:
Delay Issues Raised in the June 17, 2015
Submissions
In the submission of June 17, 2015, you cite
delays in dealing with the tax court appeals. The following summarizes our
understanding of the facts in dealing with these delays.
Catherine and David Grant were involved in a
trade departure plan; they, too, were clients of Jas Butalia. The TCC rendered
its decision on the case (2006 TCC 373) on June 29, 2006. The Federal Court of
Appeal heard the case (2007 FCA 174) on April 3, 2007; on April 30, 2007
that court upheld the lower court’s decision. Leave to appeal to the SCC was
denied in November of 2007 (SCC 2007/11/15).
The T401 Appeals Report for the 1998 Tl was
signed off on June 3, 2004. The TCC rendered its decision in the Grant
case on June 29, 2006. Consequently, the Appeals Division was not waiting
for the Grant case to be resolved before it completed the file.
With respect to paragraph 97 of the June 17,
2015 submission, I note that the Notice of Appeal to the TCC for your 1998
income tax return was received by the Department of Justice on September 15, 2004.
The Settlement Agreement was reached in April 2010. The final appeal in the
Grant case ended in November, 2007 -this was approximately 2 1/2 years before
the final settlement of April 2010.
On page 92 of the your [sic]
affidavit, (in an e-mail dated May 17, 2006 from Curtis Stewart to Jas Butalia
and Dave Horne at Tercon) Curtis Stewart wrote:
“Glen Walsh Tax Court matters . . . have
Glenn’s matters progress but not conduct Examinations for discovery until after
the Kitsch/Tower trial. The Crown is of the view they may win Kitsch/Tower on
the issue of residency. We will want to determine the Court’s views on both
residency and the Departure Trade itself in order to best chart our strategy on
Glenn’s matter.”
In a letter dated February 29, 2008 to the
Tax Court of Canada, Curtis Stewart wrote:
“As previously indicated to the
Court, Glenn Walsh. the Appellant, resides outside Canada and the parties are
currently seeking to arrive at mutually agreeable dates to recommence the
examination. . . In addition, the parties continue to examine whether this
matter may settle or the issues may be narrowed. We wish to advise the Court
that discussions in such regard encompass more than this single appeal. There
are three other Tax Court matters: Tercon Contractors Ltd. v. Her majesty the
Queen, Court No. 2004-2891(IT)G; Conex Services Inc. v. Her majesty the Queen,
Court No. 2004-2874(IT)G; and Elbee Development Corp. v. Her Majesty the Queen,
Court No. 2004-2890(IT)G which it is anticipated will be part of such
discussions.”
The letter was co-signed by Robert Carvalho
of the Department of Justice.
Justice Judith Woods of the Tax Court of
Canada became involved in managing the case as it was not proceeding in a
timely manner.
It is our understanding that the only time
the term “abeyance”; arose was in a letter dated April 19, 2010. The letter was
addressed to the Registrar of the Tax Court of Canada in Ottawa. It indicated that
a settlement had been reached in the cases of Glenn Walsh, Conex, Tercon, and
Elbee and it requested that the file be held in abeyance for 60 days to enable
the Minister to reassess the returns. The letter had both Robert Carvalho and
Curtis Stewart as signatories.
[110] Mr. Vienneau then concludes as follows:
There were no undue delays caused by CRA or
the Crown. Delays were caused because you were not forthcoming with
information/documentation in a timely manner; your file was not held in
abeyance by CRA waiting for the results of court cases; in many cases, the
delays were on the part of you or your counsel.
[111] The Applicant says that CRA looks beyond the period for which he is
seeking interest relief. The period ends when the Supreme Court of Ccanada
refused leave on the Grant case. He says he is only seeking interest
relief for the period of time during which the Grant case ran its course,
and his position is that, during that period, CRA made the decision “to hold the matters in abeyance pending the outcome of other
Departure Trade appeals.” This meant, says the Applicant, that he was “inevitably delayed” by the actions of CRA.
[112] It is true that the Settlement Agreement was concluded in April 2010
only after the Grant case ran its course, but this does not, in itself,
mean that CRA held matters in abeyance. It is clear that the Applicant himself
did not wish to negotiate a settlement until he was sure that the departure
trade could not be sustained. But, once again, that was his choice. He says
that it was “not until November 2008 that the Grant
decision was such that a resolution of the Applicant’s 1998 and 1999 years
could be pursued based on that Decision.”
[113] The Applicant’s position is that CRA was not prepared to resolve its
dispute with the Applicant until after the Grant case had fully
proceeded through the Courts:
75. Given the CRA’s policy not to make
downward reassessments to a related taxpayer until the issue of the upward
reassessment is resolved, the assessments of the Corporate Taxpayers had to be
dealt with after the assessments of the Applicant, and the CRA intended to deal
with both only after a different “departure trade” test case - one of the CRA’s
choosing (which ultimately was Grant).
76. In these circumstances, it is
submitted there was no realistic alternative but for the Applicant to wait as
the CRA’s chosen test case, Grant, proceeded through the Courts. The
Applicant’s and Corporate Taxpayers’ appeals were therefore effectively held in
abeyance at the will of the CRA. That the term “abeyance” may not have been
used in the materials is irrelevant; factually there can be no dispute that
this is what occurred. The Applicant was prejudiced by these delays.
77. The Applicant acknowledges that
the delay in resolving the appeals was for understandable reasons. The delay
should not, however, be attributed to the Applicant so as to preclude interest
relief. In the Decision the Minister states the position that the Tax Court
rendered its decision in the Grant case on June 29, 2006 and
“consequently, the Appeals Division was not waiting for the Grant case
to be resolved before it completed its file”.
78. It is submitted that this exhibits
a complete misunderstanding and or misapprehension as to the relevant facts and
process. Firstly, in 2006 the 1998 Reassessment and Corporate Taxpayer
Reassessment were not before the Appeals Division of the CRA, rather they were
before the Tax Court of Canada. Secondly, the Tax Court decision was appealed
to the Federal Court of Appeal and subsequently leave was sought to the Supreme
Court of Canada. It was not until November 2008 that the Grant decision
was such that a resolution of the Applicant’s 1998 and 1999 years could be
pursued based on that decision.
[footnotes omitted]
[114] The assertions by the Applicant that “CRA
intended to deal with both only after a different ‘departure trade’ test case –
one of the CRA’s choosing…” and that “CRA
determined it was not prepared to resolve the objections then, instead
determining to hold the matter in abeyance pending the outcome of other
Departure Trade appeals” are not supported by any evidence. It seems
clear that the Applicant wanted to wait until Grant had finally run its
full course, but there is no evidence that CRA required this to happen before
it would proceed with appeals or settle the dispute, or that there was even an
implicit understanding that matters would be held in abeyance.
[115] Once again, this issue seems to come back to Telfer and the
Applicant’s choice not to take steps in his appeal until he had Court rulings
in other departure trade cases.
D.
Conclusions
[116] In my view, the issues of inconsistent assessments and quantum, and
undue delay were the decisive issues in the appeal on interest relief. I can
see nothing material in the other factors considered that render the Decision
unreasonable.
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