Docket: A-276-16
Citation:
2017 FCA 87
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CORAM:
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STRATAS J.A.
NEAR J.A.
DE MONTIGNY J.A.
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BETWEEN:
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ATTORNEY
GENERAL OF CANADA
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Appellant
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and
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RON FINK
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Respondent
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REASONS
FOR JUDGMENT
DE MONTIGNY J.A.
[1]
The Attorney General of Canada (on behalf of the
Minister of National Revenue, hereinafter referred to as Canada Revenue Agency
or the CRA) appeals from an interlocutory decision made by Justice Manson of
the Federal Court (the Judge) which allowed the motion brought by the
respondent, Mr. Ron Fink, seeking to compel answers to certain
cross-examination questions and to order the production of a number of
documents.
[2]
The respondent’s motion was heard in the context
of a judicial review proceeding challenging the decision of the Assistant
Commissioner of the CRA refusing to recommend that the Governor in Council
issue a remission order for the purposes of the respondent’s 2007 tax liability
under subsection 23(2) of the Financial Administration Act, R.S.C. 1985,
c. F-11 (as amended) (the FAA). Pursuant to that provision, the Governor in
Council may remit any tax or penalty when of the view that the collection of
the tax or the enforcement of the penalty “is
unreasonable or unjust or that it is otherwise in the public interest to remit
the tax or penalty”.
[3]
There is no need to go into the details of Mr.
Fink’s tax liability. Suffice it to say that the CRA assessed the respondent
for a taxable employee benefit under section 7 of the Income Tax Act,
R.S.C., 1985, c. 1 (5th supp.) (ITA) in respect of a stock option
plan, the amount of which was eventually settled at $648,000 in April 2013.
When he sold the shares he had bought under the stock option plan, the
respondent realized a capital loss in the amount of $419,250, but was unable to
apply this capital loss to offset the amount of his employee benefit due to the
operation of the employee stock option rules and other provisions of the ITA.
As a result, the respondent submitted a request for remission of any income
tax, plus interest, in excess of the after-tax amount he received on the sale
of those shares.
[4]
In support of his remission request, the
respondent submitted that his situation was akin to that of other taxpayers
(the SDL employees) who had been granted relief as a result of being unable to
offset taxable employee benefits with a subsequent capital loss on the sale of
employee stock purchase shares. The respondent relied on statements made by the
Minister of National Revenue at the time, appearing before the Standing Finance
Committee, in support of his position that his remission request should be
treated consistently with the remission orders granted to a number of SDL
employees. He also argued that his circumstances fell within the “financial setback coupled with extenuating factors”
criteria for remission, as provided by the Canada Revenue Agency Remission
Guide (the Guidelines, Exhibit “A” of the Affidavit of Lynne Laplante, Appeal
Book at p. 84).
[5]
Following the decision of the Assistant Deputy
Commissioner of the CRA (on behalf of the Minister) not to recommend remission
to the Governor in Council, the respondent applied for judicial review of that
decision. In response, the CRA tendered the affidavits of the Assistant Deputy
Commissioner, Mr. Geoff Trueman, and of a senior policy analyst, Mrs. Lynne
Laplante. During cross-examination, the Attorney General of Canada objected to
a number of questions posed by the respondent’s counsel, five of which are the
subject of this appeal. These questions relate to the SDL employees’ remission
orders referred to by the respondent.
[6]
Applying the principles set out in Merck
Frosst Canada Inc. v. Canada (Minister of Health) (1997), 146 F.T.R. 249, 79
A.C.W.S. (3d) 609 (per Hugessen, J.) (F.C.), affirmed 169 F.T.R. 320 (note), 249
N.R. 15 (F.C.A.) [Merck Frosst], the Judge found that the questions met
the tests both of formal and legal relevance. He also found that the documents
requested by the respondent fell within the exception of paragraph 241(3)(b)
of the ITA, which authorizes Revenue Canada to disclose tax related information
in respect of “proceedings relating to the
administration or enforcement” of the ITA. Accordingly, he ordered that
the documents requested be produced, subject to redactions in order to protect
the personal information of the taxpayers.
[7]
Despite the Attorney General’s able arguments to
the contrary, I have not been convinced that the Judge made any reviewable
errors. The power to compel answers or the production of documents is
discretionary in nature. Such decisions are subject to the palpable and
overriding standard of review, unless an extricable error of law is identified
(Hospira Healthcare Institute of Rheumatology, 2016 FCA 215 at para. 79,
[2016] F.C.J. No. 943). In the case at bar, the Judge identified the correct
legal framework for a finding of relevance in the specific context of
cross-examination of affidavits, and identified the proper governing authority,
being the Federal Court’s decision of Merck Frosst (as affirmed by this
Court). The CRA argues that the Judge failed to fully consider the question of
formal and legal relevance, and applied an over-broad test for relevance. It
becomes clear from its submissions, however, that it simply disagrees with how
the criteria for a finding of relevance was applied to the set of facts before
the Judge.
[8]
The CRA could have taken the position from the
outset that the treatment of other taxpayers is never relevant to its discretionary
remission determinations. In reviewing the affidavits tendered by the CRA,
however, and especially Exhibit “A” of Mr. Trueman’s affidavit, it appears that
the CRA did in fact consider the financial circumstances of other employees in
making its determination regarding the respondent. While I accept that,
generally speaking, the CRA’s treatment of other taxpayers is irrelevant when
assessing whether to grant discretionary relief to a given individual, the
Judge could reasonably infer in the particular circumstances of this case that
the CRA’s decision not to recommend remission was premised, at least in part,
on the respondent not being in similar circumstances as the SDL employees. Such
being the case, the Judge’s finding that the disputed questions were formally
and legally relevant and went to the very reasonableness of the CRA’s decision,
was open to him.
[9]
The Attorney General submitted that the issue as
to whether the financial circumstances of Mr. Fink are similar to those of the
SDL employees “begins and ends in this case with
whether the respondent participated in a stock purchase plan or not” (Appellant’s
Memorandum at para. 52). On that reasoning, there would be no need to disclose
the personal financial circumstances of those employees, since the similarity
of Mr. Fink’s stock option plan with the SDL employees’ stock purchase plan
could be assessed simply by comparing the two schemes. This restrictive
interpretation may well be CRA’s position, but it did not bind the Judge.
Indeed, it would appear from Mr. Trueman’s letter dated October 28, 2015, that
other circumstances are taken into consideration to determine whether a
taxpayer is in the same situation as SDL employees. After noting that the
Minister of National Revenue had indicated that the same treatment would be
provided to any taxpayer with the same circumstances than the SDL employees,
Mr. Trueman stated:
An individual is considered to be in the
same circumstances if he or she participated in a stock purchase plan
offered by their employer and the purchase price of the shares was lower than
the fair market value of the shares at the time the individual signed up for
the stock purchase plan. In addition, an individual’s financial circumstances
would also be taken into consideration as well as their overall participation
in the stock purchase plan.
(emphasis in
original)
[10]
Bearing in mind that it will be for the
application judge to determine whether a stock purchase plan and a stock option
plan amount to the “same circumstances”, and that
Mrs. Laplante did swear that she “consulted the
decisions taken in other taxpayers’ files” (Affidavit dated February 17,
2016 at para. 28) and “took a random sampling of
information from a CRA file drawer containing the SDL former employee
information” (Affidavit dated July 5, 2016 at para. 7), I am of the view
that the Judge did not make a reviewable error in finding that the questions
put to the affiants on cross-examination were legally relevant. The answers to
those questions may clearly be of assistance to the respondent in trying to
convince the application judge that he deserves to be treated the same way SDL
employees have been treated in the past.
[11]
On the statutory interpretation question, the
CRA urged a narrow reading of paragraph 241(3)(b) of the ITA and invited
this Court to find that it has no application to the case at hand since
remission orders, being an exercise of discretion under a separate piece of
legislation (the FAA), lack the requisite nexus to the administration and
enforcement of the ITA. Such a restrictive approach is not supported by the
decision of the Supreme Court of Canada in Slattery (Trustee of) v. Slattery,
[1993] 3 S.C.R. 430, 106 D.L.R. (4th) 212, upon which the Judge relied. This
case stands for the proposition that a broad view must be adopted in
determining whether a proposed disclosure is in respect of proceedings relating
to the administration or enforcement of the ITA. As the outcome of a remission
request ultimately affects an individual’s tax liability, it follows that such
a proceeding is “connected” or “in relation to” the administration or enforcement of
the ITA. Accordingly, the Judge made no reviewable error and correctly
interpreted the above-mentioned provision of the ITA.
[12]
It goes without saying that any information
disclosed is subject to the implied undertaking rule, which means that the
information must be held in confidence by the parties within these proceedings.
[13]
For the above reasons, I would dismiss the
appeal, with costs.
"Yves de Montigny"
“I agree.
David Stratas J.A.”
“I agree.
D. G. Near J.A.”
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