AMENDED
REASONS FOR JUDGMENT
[These amended reasons for judgment are issued in substitution
for the reasons for judgment signed on May 29,
2017 and to correct
the first line of paragraph 72 as well as
the heading above the paragraph.]
Jorré J.
Introduction
[1]
The Appellant appeals from a repeated failure to
file penalty with respect to the 2013 taxation year. The Appellant filed his
return somewhat more than eight months after the date on which it should have
been filed. This resulted in an assessed federal penalty of $29,225.45.
[2]
Subsection 162(2) of the Income Tax Act (Act)
creates a penalty for repeated failure to file an income tax return on time.
What conditions must be met before the penalty is applicable?
[3]
That is the key question in this appeal. Given
the differences between the French and English versions of the Act, this
question is not as straightforward as it might seem on a quick read of the
English version.
[4]
This case is a good illustration of the fact
that a great many cases in the informal procedure are neither straightforward
nor easy.
[5]
Before the start of the hearing, having read the
notice of appeal and the reply to the notice of appeal, this case seemed like
it would be relatively straightforward. At the end of the argument, it appeared
that there would be one predominantly factual issue to decide, whether the Appellant
had exercised due diligence. Shortly after the end of the argument, it became
apparent that there was a significant interpretation issue. That turned out to
be far from the end of the surprises; when I had almost completed this judgment
I discovered something quite significant.
Background
[6]
Subsection 162(1) of the Act creates a
penalty for failure to file on time. It applies when the person fails to file
an annual income tax return at the time it is due, April 30, or
June 15 in the case of individuals.
The penalty is equal to 5% of the person’s tax payable that was unpaid when the
return was required to be filed plus 1% for each complete month of delay up to
a maximum penalty of 17%.
[7]
Subsection 162(2) of the Act creates a penalty
for repeated failure to file on time, which is in issue here. It is quite an
onerous penalty which starts at 10% of the tax payable that was unpaid when the
return was required to be filed if the return is a day late and reaches a
maximum of 50% when the return is more than 20 complete months late.
[8]
The English version of the provision reads as
follows:
162(2) Every
person
(a) who fails to file a return of
income for a taxation year as and when required by subsection 150(1),
(b) to whom a demand for a return
for the year has been sent under subsection 150(2), and
(c) by whom, before the time of
failure, a penalty was payable under this subsection or subsection 162(1) in
respect of a return of income for any of the 3 preceding taxation years
is liable to a
penalty equal to the total of
(d) an amount equal to 10% of the
person’s tax payable under this Part for the year that was unpaid when the
return was required to be filed, and
(e) the product obtained when 2% of
the person’s tax payable under this Part for the year that was unpaid when the
return was required to be filed is multiplied by the number of complete months,
not exceeding 20, from the date on which the return was required to be filed to
the date on which the return was filed.
[9]
Based on the English version, the subsection appears
to set out three conditions that must be met before the penalty applies:
1. The
person must fail to file his return of income as and when required by subsection
150(1).
2. A
demand for a return for the year must have been sent to the person under
subsection 150(2).
3. The
person must, before the time of failure, have been liable for a penalty for a
failure to file on time or for a repeated failure to file on time in respect of
an income tax return for any of the three preceding taxation years.
[10]
The Appellant does not dispute that the
conditions, as described immediately above, are met.
[11]
The Appellant’s position is that he exercised
due diligence in trying to file the return and for that reason the appeal
should be allowed. It is well settled that if due diligence is shown the
penalty is inapplicable.
[12]
There is no question as to the computation of
the amount of the penalty.
[13]
At the end of the evidence and argument, I
thought that I would probably be able to give my judgment later in the day. In
the course of working through the matter, I concluded that important questions related
to the English and French versions of the Act needed to be raised. As a
result, the parties were asked to provide additional submissions in writing. I
thank the parties for those submissions.
[14]
The first issue to decide is as follows: What
are the necessary conditions for the application of the penalty for repeated
failure to file? The second issue is whether those conditions have been met.
Finally, if the conditions have been met, the Court must determine whether a
successful due diligence defence has been made out.
What are the Necessary Conditions?
[15]
The first question requires a careful
examination of both the English and French versions of the Act:
|
162(2) Every person
(a) who
fails to file a return of income for a taxation year as and when required by
subsection 150(1),
(b) to
whom a demand for a return for the year has been sent under subsection
150(2), and
(c) by whom, before the
time of failure, a penalty was payable under this subsection or subsection
162(1) in respect of a return of income for any of the 3 preceding taxation
years
is liable to a penalty equal to the
total of
|
162(2) La personne qui ne produit
pas de déclaration de revenu pour une année d’imposition selon les modalités
et dans le délai prévus au paragraphe 150(1) après avoir été mise en demeure
de le faire conformément au paragraphe 150(2) et qui, avant le moment du
défaut, devait payer une pénalité en application du présent paragraphe ou du
paragraphe (1) pour défaut de production d’une déclaration de revenu pour une
des trois années d’imposition précédentes est passible d’une pénalité égale
au total des montants suivants :
|
|
(d) an amount equal to 10%
of the person’s tax payable under this Part for the year that was unpaid when
the return was required to be filed, and
|
a)
10 % de l’impôt payable pour l’année en vertu de la présente partie qui
était impayé à la date où, au plus tard, la déclaration devait être produite;
|
|
(e) the
product obtained when 2% of the person’s tax payable under this Part for the
year that was unpaid when the return was required to be filed is multiplied
by the number of complete months, not exceeding 20, from the date on which
the return was required to be filed to the date on which the return was
filed.
|
b) le produit de 2 % de cet impôt impayé par le nombre de mois
entiers, jusqu’à concurrence de 20, compris dans la période commençant à la
date où, au plus tard, la déclaration devait être produite et se terminant le
jour où la déclaration est effectivement produite.
|
[16]
For our purposes, the essential portions of
subsection 150(2) say:
Every person . . . shall, on demand sent by the Minister,
file, within such reasonable time stipulated in the demand
. . . a return of the income for the taxation year designated in the
demand.
[Emphasis added.]
[17]
The subsection creates an obligation on the person
to file his return within a specified reasonable time. The notice is simply the
means by which that obligation can be created.
[18]
Given the obligation created by subsection
150(2), paragraph 162(2)(b) of the English text is surprising. It seems
to only require that the notice be sent; it does not matter whether the
taxpayer complies with the obligation created. Put another way, paragraph
162(2)(b) seems to focus on the triggering mechanism of subsection
150(2) and not the substantive obligation subsection 150(2) creates. It is
difficult to imagine the rationale for this; the whole point of the Minister
using subsection 150(2) is to create the obligation.
[19]
Having said that, I do not disagree with the
Respondent on the apparent plain meaning of the English text. Given my
subsequent analysis, it is not necessary for me to decide if that plain meaning
is the correct interpretation taking account of the English text alone.
Although the history of subsection 220(3) of the Act makes this
conclusion very doubtful, I am going to assume at this point in the reasons,
without deciding, that it is the correct interpretation of the English text
alone.
[20]
The French version is rather different. First, I
would note that whereas the conditions in English are broken down into three
paragraphs the French version does not have such a breakdown. Secondly, there
are some significant differences in the French that are underlined below:
|
162(2) Every person
(a) who
fails to file a return of income for a taxation year as and when required by
subsection 150(1),
(b) to
whom a demand for a return for the year has been sent under subsection
150(2), and
(c) by whom, before the time
of failure, a penalty was payable under this subsection or subsection 162(1)
in respect of a return of income for any of the 3 preceding taxation years
is liable to a
penalty equal to the total of
. . .
|
162(2) La personne
qui ne produit pas de déclaration de revenu pour une année d’imposition selon
les modalités et dans le délai prévus au paragraphe 150(1) après avoir
été mise en demeure de le faire conformément au paragraphe 150(2) et
qui, avant le moment du défaut, devait payer une pénalité en application du
présent paragraphe ou du paragraphe (1) pour défaut de production d’une
déclaration de revenu pour une des trois années d’imposition précédentes est
passible d’une pénalité égale au total des montants suivants :
[…]
|
[21]
The Respondent takes the position that the
English text is plain and unambiguous, that the text in paragraph 162(2)(b)
only requires that the demand have been sent at some time in the past and that
it does not require that it be sent prior to the deadline in subsection 150(1).
As I explained above, without deciding the question, I am going to proceed on
the basis that that is the correct interpretation of the English text read in
isolation from the French.
[22]
The Respondent also argues that in the French
text the words after “après avoir” create some
ambiguity and should be interpreted in a manner consistent with the English
text; the words “après
avoir été mise en demeure de le faire conformément au paragraphe 150(2)” (emphasis
added) should be interpreted to mean “qui a été mise en
demeure de le faire conformément au paragraphe 150(2)” and
that this has the same meaning as paragraph 162(2)(b) of the English
text. I disagree.
[23]
Finally, the Respondent argues that the words “when the return was required to be filed” in
paragraphs 162(2)(d) and (e) of the English text (and paragraphs
162(2)(a) and (b) of the French text) are a reference to the
filing deadline provided for in subsection 150(1). Given my conclusions, it is
not strictly necessary to decide what the time point referred to is. However, I will discuss the
question towards the end of these reasons.
[24]
Let us turn to whether the French text is the
same as that in paragraph 162(2)(b) of the English text and why I do not
agree with the Respondent.
[25]
The phrase “La personne qui ne produit pas de déclaration de revenu pour une
année d’imposition selon les modalités et dans le délai prévus au paragraphe
150(1) après avoir été mise en demeure de le faire conformément au
paragraphe 150(2)” (emphasis added) has a very
different meaning from the English version.
[26]
Whereas paragraph 162(2)(b) in English is
a condition on its own with respect to the person referred to in the opening
words “Every person”, the words “après avoir été mise en demeure de le faire
conformément au paragraphe 150(2)” do not set out a condition applying
to just to “La personne”.
[27]
The words “après avoir été mise en demeure de le faire
conformément au paragraphe 150(2)” are a clause qualifying all the preceding
text of the subsection.
[28]
The structure of subsection 162(2) prior to
paragraph (d) means that it, in effect, reads as if the preamble “Every
person” is at the start of each of paragraphs (a), (b) and (c).
It is as if it reads:
162(2)
Every person
(a)
Every person who fails to file a return of income for a taxation year as and
when required by subsection 150(1),
(b) Every person to whom
a demand for a return for the year has been sent under subsection 150(2), and
(c) Every person by
whom, before the time of failure, a penalty was payable under this subsection
or subsection 162(1) in respect of a return of income for any of the 3
preceding taxation years
is
liable to a penalty equal to the total of...
[29]
Reading the French text in the same way
produces:
162(2) La personne qui ne
produit pas de déclaration de revenu pour une année d’imposition selon les
modalités et dans le délai prévus au paragraphe 150(1),
la personne après avoir
été mise en demeure de le faire conformément au paragraphe 150(2) et
la personne qui, avant le
moment du défaut, devait payer une pénalité en application du présent
paragraphe ou du paragraphe (1) pour défaut de production d’une déclaration de
revenu pour une des trois années d’imposition précédentes
est passible d’une
pénalité égale au total des montants suivants…
[30]
The phrase “la personne
après avoir été mise en demeure de le faire conformément au paragraphe 150(2)” simply makes no sense. That phrase and what precedes it have to be
read as a whole.
[31]
Consequently, the French text of subsection
162(2) has to be read as follows:
162(2) La personne qui ne
produit pas de déclaration de revenu pour une année d’imposition selon les
modalités et dans le délai prévus au paragraphe 150(1) après avoir été mise en
demeure de le faire conformément au paragraphe 150(2)
et qui, avant le moment
du défaut, devait payer une pénalité en application du présent paragraphe ou du
paragraphe (1) pour défaut de production d’une déclaration de revenu pour une
des trois années d’imposition précédentes
est passible d’une
pénalité égale au total des montants suivants…
[32]
The words “de le faire” (to do so)
are clearly a reference to filing the return and “conformément
au paragraphe 150(2)” (in accordance with subsection
150(2)) is a reference to complying with subsection 150(2); one complies with
subsection 150(2) by filing the return within the reasonable time specified in
the demand.
[33]
Unlike “to whom a demand
for a return for the year has been sent” in paragraph 162(2)(b)
of the English text which focuses on the simple sending of the demand, the
French text, which does not have the separation of paragraphs (a) and (b)
in English, focuses not only on missing the filing deadline of subsection
150(1) but simultaneously on the failure to comply with the substantive obligation
created by the demand.
[34]
Roughly, the French text amounts, in English, to
this:
The person who fails to
file a return of income for a taxation year as and when required by subsection
150(1) after having been given formal notice to do so in accordance with
subsection 150(2)…
[35]
The contrast becomes even clearer if I
substitute into the text what “to do so” and “in accordance with subsection
150(2)” mean:
The person who fails to
file a return of income for a taxation year as and when required by subsection
150(1) after having been given formal notice to file that return by the day
specified in the formal notice…
[36]
This is clearly very different from the English
text.
[37]
The four requirements in the French text are as
follows:
1. The
person must fail to file a return of income as and when required by subsection
150(1).
2. A
demand for a return for the year must have been sent to the person under
subsection 150(2).
3. The
person must have failed to file his return within the reasonable period set out
in the demand.
4. The
person must, before the time of failure, have been liable for a penalty for a
failure to file on time or for a repeated failure to file on time in respect of
an income tax return for any of the three preceding taxation years.
[38]
Thus the French text requires an additional
condition not required in the English text. The two texts cannot be reconciled.
[39]
As set out in subsection 18(1) of the Constitution
Act, 1982 the English and French versions of our laws are equally
authoritative and we must turn to the rules of interpretation of bilingual
statutes.
[40]
In R. v. S.A.C., the Supreme Court of Canada
sets out the approach to be followed in interpreting bilingual statutes:
14 The
interpretation of bilingual statutes begins with a search for the shared meaning
of the English and French versions. This Court has on a number of occasions
discussed the appropriate approach for determining the shared meaning of
English and French legislative provisions: see, e.g., R. v. Daoust, [2004]
1 S.C.R. 217, 2004 SCC 6; Schreiber v. Canada (Attorney General), [2002]
3 S.C.R. 269, 2002 SCC 62. In those cases, the Court adopted a two‑step
approach.
15 The first
step is to determine whether there is discordance between the English and
French versions of the provision and, if so, whether a shared meaning can be
found. Where a provision may have different meanings, the court has to
determine what kind of discrepancy is involved. There are three possibilities.
First, the English and French versions may be irreconcilable. In such cases, it
will be impossible to find a shared meaning and the ordinary rules of
interpretation will accordingly apply: Daoust, at para. 27;
P.-A. Côté, The Interpretation of Legislation in Canada (3rd ed.
2000), at p. 327. Second, one version may be ambiguous while the other is plain
and unequivocal. The shared meaning will then be that of the version that is
plain and unambiguous: Daoust, at para. 28; Côté, at p. 327. Third, one
version may have a broader meaning than the other. According to LeBel J. in Schreiber,
at para. 56, “where one of the two versions is broader than the other, the
common meaning would favour the more restricted or limited meaning”.
16 At the
second step, it must be determined whether the shared meaning is consistent
with Parliament’s intent: Daoust, at para. 30. In the penal context,
courts must also ensure that any ambiguity is resolved in favour of the accused
whose liberty is at stake (Marcotte v. Deputy Attorney General for Canada,
[1976] 1 S.C.R. 108).
[41]
Given that we cannot reconcile the two texts,
for the purposes of the first step set out in paragraph 15 of S.A.C., we
are in the first case set out by the paragraph and “it
will be impossible to find a shared meaning and the ordinary rules of
interpretation will accordingly apply”.
[42]
As set out by the Supreme Court in Canada
Trustco Mortgage Co. v. Canada:
10 . . . The interpretation of a
statutory provision must be made according to a textual, contextual and
purposive analysis to find a meaning that is harmonious with the Act as a whole.
When the words of a provision are precise and unequivocal, the ordinary meaning
of the words plays a dominant role in the interpretive process. On the other
hand, where the words can support more than one reasonable meaning, the
ordinary meaning of the words plays a lesser role. The relative effects of
ordinary meaning, context and purpose on the interpretive process may vary, but
in all cases the court must seek to read the provisions of an Act as a
harmonious whole.
[43]
Bearing this in mind, let us consider the
context of the relevant parts of the Act and its purpose.
[44]
The first part of the Respondent’s argument in
respect of the scheme and purpose of the Act is:
10. The purpose of the demand can be determined by looking at
subsection 162(2) as a whole and its interaction with subsection 150(1).
Subsection 150(1) specifies deadlines for the filing of tax returns. Subsection
150(1.1) identifies various exceptions to the statutory filing deadline,
including an exception for individuals who did not have any tax payable in the
year.
11. For a
taxpayer falling within the subsection 150(1.1) exception, the Minister cannot
know whether the first requirement in paragraph 162(2)(a) has been met
unless and until a return is actually filed. Further, the penalty amount cannot
be calculated since it is based upon the person’s “tax payable” for the year
(as per paragraphs 162(2)(d) and (e)). Consequently, a subsection
150(2) demand for a return can result in the necessary information.
12. Non‑compliance
with the demand is not a prerequisite to the application of a repeated failure
to file penalty. If it were, a taxpayer could fail to file as and when required
under subsection 150(1) but nonetheless avoid a subsection 162(2) penalty
merely by waiting for and complying with the demand. This would have the
unexpressed and unintended consequence of providing an extension of time to the
statutory filing deadline under subsection 150(1).
[45]
I do not disagree with the statements in
paragraphs 10 and 11 of the Respondent’s argument but I am not certain how this
helps support the Respondent’s position.
[46]
As to paragraph 12 of the Respondent’s argument,
it is true that if failing to comply with the demand is a prerequisite, then a
person who complies with the demand would avoid the subsection 162(2) penalty.
However, if that is a requirement of the Act before the penalty can be
applied, then that is simply the correct result under the Act.
[47]
Turning to the submission that “[t]his would have the unexpressed and unintended consequence
of providing an extension of time to the statutory filing deadline under
subsection 150(1)”, I am unable to understand why this would be the
case. Nothing in subsections 162(2) or 150(2) suggests that there is an
extension of the statutory filing date under subsection 150(1). Subsection
150(2) does not override the filing obligation in subsection 150(1); it creates
an additional obligation to comply with the demand. If a person files late, the
person remains liable for the subsection 162(1) penalty computed, in the case
of an individual for example, as of April 30 or June 15.
[48]
The Respondent further argues that the penalty
is to be computed from the statutory filing deadline in subsection 150(1). Although
it is not necessary for me to decide this in the circumstances, I will discuss
this question later.
[49]
Subsection 162(2) in its current form was deemed
to come into force on September 13, 1988.
Prior to that date, subsection 162(2) was quite different.
[50]
The enactment of subsection 162(2) was part of a
scheme modifying and reorganizing penalties; those changes arose as part of the
much broader changes proposed in the 1987 White Paper Tax Reform and are
important to a “textual, contextual and purposive
analysis” of the legislative provisions.
[51]
The new subsection 162(2) replaced the then
existing subsection 163(1) which read as follows:
163(1) Wilful
failure to file return — Every person who wilfully attempts to evade
payment of the tax payable by him under this Part by failing to file a return
of income as and when required by subsection 150(1) is liable to a penalty of
50% of the amount by which
(a) the tax sought to be evaded
exceeds
(b) that portion of the amount
deemed by subsection 120(2) to have been paid on account of his tax under this
Part that is reasonably attributable to the amount referred to in paragraph (a).
[52]
Under the old subsection 163(1), wilfully
attempting to evade payment of the tax payable by failing to file a return was
clearly a serious matter. It was a straight 50% penalty and the words “wilfully
attempts” set a high test. The burden of proof of establishing the facts
justifying the assessment rested on the Minister pursuant to subsection 163(3).
[53]
Under the old provision, the “tax sought to be
evaded” was no doubt a question of fact but logically could not include any
amount that had already been paid by instalment or withheld by the payer and
remitted to the Minister. Thus the 50% penalty it provided for applies to an
amount that is the same or no greater than the amount of unpaid tax that current
subsection 162(2) applies to.
[54]
This was replaced by the current subsection
162(2):
162(2) Every
person
(a) who fails to file a return of
income for a taxation year as and when required by subsection 150(1),
(b) to whom a demand for a return
for the year has been sent under subsection 150(2), and
(c) by whom, before the time of
failure, a penalty was payable under this subsection or subsection 162(1) in
respect of a return of income for any of the 3 preceding taxation years
is liable to a
penalty equal to the total of
(d) an amount equal to 10% of the
person’s tax payable under this Part for the year that was unpaid when the
return was required to be filed, and
(e) the product obtained when 2% of
the person’s tax payable under this Part for the year that was unpaid when the
return was required to be filed is multiplied by the number of complete months,
not exceeding 20, from the date on which the return was required to be filed to
the date on which the return was filed.
[55]
It is useful to compare the two subsections:
1. Subsection 162(2) has just as high a penalty after the 20‑month
delay as the old subsection 163(1) although for the first 20 months it is
a lesser amount that builds up monthly.
2. It
is much easier to demonstrate the conditions required by subsection 162(2) than
to demonstrate that someone “wilfully attempt[ed] to
evade payment of the tax payable by him under this Part by failing to file a
return” required by the old subsection 163(1).
3. It
is hard to imagine that the old subsection 163(1) could have been successfully
applied where the taxpayer was only a few months late.
4. In
addition, the onus on the Minister created by subsection 163(3) has no
application to the new provision which is in section 162.
[56]
If the apparent plain meaning of the English
text is the correct interpretation of the provision, then Parliament has eliminated
a penalty for “wilfully attempts to evade payment of
the tax payable by him under this Part by failing to file a return” and
replaced it with a penalty applicable where (i) filing late in the year, (ii)
having filed late once in the previous three years and (iii) the Minister
sending a demand, whether or not there is compliance with the demand, triggers
a penalty that is almost as severe.
[57]
These conditions in the English text widen the application
of the penalty in comparison with the French text that requires, in addition, a
fourth condition: that the taxpayer fail to comply within the reasonable time
set out in the demand. Although the French text has an additional condition
that the English text does not appear to have, it too is nonetheless applicable
much more easily than the old subsection 163(1). It is a lot easier to show
that a demand has been sent and not complied with than to show that someone has
wilfully attempted to evade payment of tax by failing to file.
[58]
The scheme of the Act is that, for
example, individuals must file on the April 15 or June 30. If they
file late and there is a balance owing, they are liable to a penalty under
subsection 162(1). The Minister may, pursuant to subsection 150(2), demand a
return from them and in that demand the Minister must set a reasonable time
period within which the taxpayers must file a return. That demand creates a new
additional obligation to file a return.
[59]
Where an individual has been late in filing in
at least one of the three previous years, the individual may be liable for an
additional penalty under subsection 162(2). The subsection 162(2) penalty, a
fairly severe one, was enacted in replacement of a previous one which was for
wilful attempt to evade payment of the tax payable by failing to file a return
(subsection 163(1), as it then was). It is much easier to show the necessary
elements of a subsection 162(2) penalty than the prior subsection 163(1)
penalty.
[60]
Another indicator of how serious the subsection
162(2) penalty is, is the fact that it can be up to 50%, the same level of
penalty as that in subsection 163(2), the penalty for making false statements
wilfully or under circumstances amounting to gross negligence.
[61]
The English language version of the text of
subsection 162(2) seems to simply require that the demand be sent and nothing
more; the French language version requires that the person fail to file the
return within the time limit set out in the demand.
[62]
It is hard to see what purpose is served if all
that is required is that the Minister send the demand and nothing more.
[63]
When one considers the scheme and purpose of
these provisions, as well as their history, the French language text which
focuses on compliance with the demand, rather than the mere sending, is clearly
more consistent with the scheme.
[64]
As a result, on “a
textual, contextual and purposive analysis to find a meaning that is harmonious
with the Act as a whole”,
the French language version reflects the proper interpretation of the subsection.
Subsection 162(2) cannot apply unless the taxpayer has failed to file within
the time period set out in the demand.
[65]
I might add that I can understand how the Canada
Revenue Agency (CRA) came to apply the provision as it did. Looking at the
English language text alone, I initially started with the same understanding.
Nedza Enterprises
[66]
Before continuing, I should briefly discuss the
interesting case of Nedza Enterprises Ltd. v. Canada Revenue Agency that the Respondent brought
to my attention.
[67]
Nedza’s tax return for 2007 was due on November 30,
2007. On June 3, 2008 the CRA issued a demand to file to Nedza; Nedza
requested extensions twice with respect to the date set out in the demand and
was granted extensions. Finally, on November 15, 2008, one day prior to
the last day of the second extension, Nedza filed its 2007 tax
return.
[68]
The Minister assessed both the late filing
penalty under subsection 162(1) and the repeat failure to file penalty under
subsection 162(2). Nedza made a request for relief from the subsection 162(2)
penalty to the Minister pursuant to subsection 220(3.1); no relief was sought
from the subsection 162(1) penalty.
[69]
The Minister turned down the request and Nedza
sought judicial review in the Federal Court; Nedza was unsuccessful.
[70]
I do not disagree with the decision in Nedza
given what was raised; however, I do not see how this assists the Respondent
insofar as the question of the difference between the English language and
French language texts of the Act that I have just examined was simply
not raised in Nedza.
[71]
I will return to Nedza in a moment.
Conclusion
as to the Conditions that are Required Before a Subsection 162(2)
Penalty can Apply
[72]
To summarize, subsection 162(2) can only
apply where all four of the following conditions are met:
1. The
person must fail to file a return of income as and when required by subsection
150(1).
2. A
demand for a return for the year must have been sent to the person under subsection
150(2).
3. The
person must have failed to file his return within the reasonable period set out
in the demand.
4. The
person must, before the time of failure, have been liable for a penalty for a
failure to file on time or for a repeated failure to file on time in respect of
an income tax return for any of the three preceding taxation years.
Have the Four Conditions been Met?
[73]
The Appellant does not contest that the first,
second and fourth conditions were met. The remaining question is whether the
Appellant failed to file a return within the time stipulated in the demand.
[74]
Has the taxpayer filed within the time period
stipulated in the demand? The Respondent submits that there is no evidence that
the Appellant complied with the deadline contained in the demand and there is
no evidence that the Appellant requested or received an extension of time to
comply with the demand.
[75]
However, given that the Respondent did not plead
that it made an assumption or finding of fact that the Appellant failed to
comply with the time limit in the demand, there was no onus on the Appellant to
prove that he did. It was for the Minister to demonstrate that this requirement
of the penalty was met.
[76]
In addition, in this particular case, I would
note paragraph 17 of the Minister’s reply to the notice of appeal, which says: “Subsequent to the Minister’s demands, the
Appellant filed his 2013 income tax return in accordance with subsection [150(2)]
of the Act.”
[77]
Although it is in part C of the reply, it does
seem like an allegation of fact and one would naturally conclude from the words
“in accordance with” that the Appellant did
indeed file within the period stipulated in the demand. Obviously, an
allegation is not proof of the fact; however, from a point of procedural
fairness the Appellant could not, given paragraph 17 of the reply, expect that
he needed to prove that he had complied in a timely way.
[78]
It follows that it has not been demonstrated
that the preconditions to the application of subsection 162(2) have been met
and, accordingly, the appeal must be allowed.
Due Diligence
[79]
It is not really necessary that I deal with due
diligence, but I will set out in a short annex why I conclude that there was no
due diligence by the Appellant with respect to filing his return by the due date
set out in subsection 150(1).
[80]
While this is sufficient to dispose of the
appeal, I think it is quite important to make the additional comments below.
Additional Comments Resulting from the Evolution of
Subsection 220(3)
[81]
I discovered what follows when these reasons
were close to complete and was obliged to make some modest changes in what I
had already written, but the key points that arise are below.
[82]
I decided for completeness to see if Nedza
had been discussed by any other case; while I found no such cases, I found the
following in David Sherman’s notes to subsection 162(2) in TaxPartner: “. . . the FCA allowed the
company’s appeal on consent, after the Court drew the parties’ attention to the
2006 amendment to 220(3): A-199-10.”
At the Federal Court of Appeal website one can confirm this by doing a search
in proceeding queries and, in particular, one finds:
Written
directions of the Court: The Honourable Mr. Justice Nadon dated 18‑JAN-2011
directing “The parties are requested to address at the hearing the 2006
amendment to subsection 220(3) of the Income Tax, in light of the following
comment in Annex 3, Tax Measures: Supplementary Information, produced by the
Department of Finance Canada in relations to the 2006 budget: ... .”
[83]
The evolution of subsection 220(3) of the Act
is as follows:
1. In respect of
extensions granted prior to February 19, 2003, it read:
The Minister may at any time extend the
time for making a return under this Act.
2. In respect of
extensions granted after February 18, 2003 and prior to April 1, 2007, it read:
The Minister may at
any time extend the time for making a return under this Act. However, the
extension does not apply for the purpose of calculating a penalty that a person
is liable to pay under section 162 if the person fails to make the return
within the period of the extension.
[Emphasis added.]
3. In respect of
extensions granted after March 31, 2007, the current version, it reads:
The Minister may at any time extend the
time for making a return under this Act.
[84]
The first two paragraphs of the technical note
with respect to the change that took effect after March 31, 2007 read as
follows:
Subsection
220(3) provides that while the penalty for making a late return will not be
charged if the person files the return within the extended period the Minister
of National Revenue has granted, the penalty for filing late return will be
charged from the regular filing-due date if the return is not filed within the
period so extended.
This subsection is amended to provide that a penalty for making a
late return will be charged only after the extension period has expired.
[Emphasis added.]
[85]
What does this history tell us about the scheme
of the Act? First, I note that the Minister can extend the time for any
return, including the return an individual has to file and a return that is
required under a demand. I would note that the obligation to file, on
April 30 or June 15 in the case of individuals, the filing due date,
and the obligation to file in response to a demand are two separate
obligations. The obligation in the demand does not extinguish the obligation to
file on the filing due date; the date set out in the demand is not a time
extension of the original due date.
[86]
Given the history of subsection 220(3) above, it
is clear that where a time extension is granted in respect of the filing due
date,
a taxpayer who files within the extend time cannot be liable for a penalty.
Further, if he misses the extended deadline the penalty only applies from that
date.
[87]
It is also clear that if a demand has been made,
for the purposes of a subsection 162(2) penalty, a time extension granted after
February 18, 2003 and prior to April 1, 2007 in respect of the date
specified in the return will result in no penalty being levied if the extended
delay is complied with.
[88]
In the same situation where the time extension
is granted after March 31, 2007, no penalty can be levied if the extended
delay is complied with. Further, it is clear, from the words removed from subsection
220(3) with respect to a time extension granted after March 31, 2007 and from
the technical notes cited above, that if the extended deadline is missed, the
subsection 162(2) penalty will only be calculated as of the extended deadline.
[89]
What is also clear from the history and the technical
notes I have just discussed is that the scheme of subsection 220(3) is based on
the penalty being computed from the date by which the demand requires the
taxpayer to file or the extended date.
[90]
This is consistent with the result I have
already reached above.
Conclusion
[91]
To conclude, the necessary requirements of the
subsection 162(2) penalty are not made out and the appeal should be allowed.
However, because of the jurisdictional limit of $25,000 for the informal
procedure, I can only reduce the penalty by $25,000. Accordingly, the appeal is
allowed and the matter is referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the penalty assessed is to
be reduced by $25,000 from $29,225.45 to $4,225.45.
Signed at Ottawa, Ontario, this 30th day of
May 2017.
“Gaston Jorré”
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