Docket: T-2049-16
Citation:
2017 FC 1075
Toronto, Ontario, November 29, 2017
PRESENT: The
Honourable Mr. Justice Diner
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BETWEEN:
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DOUGAL & CO
INC
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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 for judicial review
[Application] under section 18.1 of the Federal Courts Act, RSC, 1985, c
F-7, of a refusal [Decision] by the Minister of National Revenue
[Minister] to reduce or cancel interest and penalties under section 281.1 of the
Excise Tax Act, RSC, 1985, c E-15 [ETA]. By order dated February
1, 2017, Prothonotary Milczynski granted the Applicant leave to be represented
in these proceedings by its sole director and shareholder, Dougal Bichan.
[2]
The Applicant now seeks relief from the payment
of interest and penalties levied against it by Canada Revenue Agency [CRA]
between 2004 and 2011, submitting that the Decision does not address all the
facts, including the circumstances of Mr. Bichan’s marriage breakdown and
attendant psychological distress.
[3]
I appreciate that the Applicant company is
essentially self-represented by its principal, Mr. Bichan, and as such is not
knowledgeable about the role of this Court on an application for judicial
review. Nevertheless, the Applicant cannot advance in this Application a
position relating to Mr. Bichan’s marriage breakdown or mental state, because
this argument was available to the Applicant but not relied upon in its
requests to CRA.
[4]
For the reasons that follow, and on the basis of
the record properly before this Court, I find that the Decision was reasonable.
The Application is accordingly dismissed. I have declined, however, to award
the costs requested by the Respondent.
II.
Background
[5]
By request dated February 10, 2014, the
Applicant sought relief from penalties and interest on its GST/HST account
levied between 2004 and 2011 [First Request]. The First Request was based
solely on “financial hardship/inability to pay”.
By follow up letter received by CRA on March 4, 2015, the Applicant sent further
supporting materials at the request of a Taxpayer Relief Officer [TRO]
reviewing the file, including bank statements, invoices, and profit loss and
balance sheets. The TRO recommended that the First Request be refused. This
recommendation was accepted by a Senior TRO and Team Leader. The Team Leader then
refused the First Request [First Refusal] on behalf of the Minister by letter
dated March 30, 2015.
[6]
The First Refusal was based on the following
reasons: the Applicant had (i) a history of non-compliance with its tax
obligations, (ii) knowingly allowed a balance to exist upon which interest had
accrued, (iii) not exercised reasonable care, and (iv) not acted quickly to
remedy delays or omissions. In the First Refusal, the Team Leader also noted
CRA’s definition of financial hardship as being a situation where the
corporation’s continuity of business operations would be jeopardized without
the requested relief.
[7]
On or around May 4, 2015, the Applicant
requested that the First Refusal be administratively reviewed [Second Request],
arguing that the First Refusal failed to refer to evidence or offer support for
its conclusions.
[8]
A different TRO reviewed the Second Request and
again recommended its refusal. This recommendation was accepted by a Senior TRO
and another Team Leader, who then refused the Second Request on behalf of the
Minister [Second Refusal], by letter dated October 29, 2015.
[9]
In the Second Refusal, the Team Leader noted
that, in determining financial hardship, the Applicant’s “operational continuity” had been considered, and
particularly whether it was able to continue employing its employees. The Team
Leader concluded that the Applicant was still operational and had never had
employees, meaning it was not suffering “financial
hardship” as defined by the CRA. It was also noted that the Applicant’s
financials indicated a surplus in 2014, showing an ability to pay the penalties
and interest owed.
[10]
The Applicant sought judicial review of the
Second Refusal, which the parties settled by agreement to refer the matter for
reconsideration [Third Request]. A Senior TRO conducted the reconsideration and
recommended refusal. Another Senior TRO and Team Leader agreed with the
recommendation.
[11]
The Decision refusing the Third Request was
ultimately communicated to the Applicant by letter dated October 31, 2016 by
the Regional Chief of Appeals for the CRA’s Atlantic Region. The negative
Decision (which is the subject of this Application) indicated that taxpayer
relief under section 281.1 of the ETA was discretionary, and would
ordinarily not be granted absent circumstances beyond the registrant’s control,
or circumstances relating to the actions of the CRA, the registrant’s inability
to pay, or financial hardship. The Decision set out that the Applicant’s
explanations provided in previous relief requests, financial information, and
history of compliance, had all been considered.
[12]
While it was accepted that the Applicant
experienced a drop in revenue from the tax year ending in March 2003 to March
2004, the Decision noted that compliance issues began prior to 2004 and
continued until 2011 (including late filing of returns). It was found that the
Applicant had provided no reason that would permit a finding that the Applicant
was prevented from filing its returns by the required dates. As such, relief
from the penalties relating to the Applicant’s late remittances was not
granted.
[13]
The Decision further noted that, although any
amounts which the Applicant collected from its clients were deemed to be held
in trust until sent to the Receiver General, the Applicant had admitted to
using such trust monies to fund its business operations. Further, payments had
been made by the Applicant to CRA since 2012 through a “requirement
to pay” (a collections mechanism issued to one of the Applicant’s
receivables, roughly equivalent to a garnishment), and the Applicant’s business
operations had not been jeopardized. To the contrary, the Applicant had turned
a profit in 2013, 2014, and 2015.
III.
Issues and Standard of Review
[14]
The standard of review of a discretionary
decision under section 281.1 of the ETA is reasonableness (Price v Canada
(National Revenue), 2016 FC 906 at para 11). This Court should intervene
only if the Decision was unreasonable, such that it was unjustified,
unintelligible or lacked transparency, or fell outside of the “range of possible, acceptable outcomes” (Dunsmuir
v New Brunswick, 2008 SCC 9 at para 47).
[15]
Furthermore, as explained to Mr. Bichan during
the hearing, the Court cannot put itself into the Minister’s shoes and consider
the Applicant’s request anew (North Vancouver Airlines Ltd v Canada (Minister
of National Revenue), 2006 FC 531 at para 41 [North Vancouver]). The
Applicant must demonstrate a reviewable error in the Decision justifying this
Court’s interference.
IV.
Analysis
[16]
In Gordon v Canada (Attorney General),
2016 FC 643, Justice Mactavish summarized the Minister’s discretion under
section 281.1 of the ETA as follows:
[14] Subsection 280(1) of the Excise
Tax Act imposes liability for penalties and interest on amounts owing to
the Receiver General in accordance with the Act. However, subsection 281.1(1)
of the Act provides the Minister and his Delegates with a broad discretionary
power to waive or cancel interest owed by a taxpayer: Guerra v. Canada
Revenue Agency, 2009 FC 459 at para. 17, 348 F.T.R. 1.
[15] The Act is silent, however,
regarding the manner in which the Minister should make this decision, as well
as the appropriate criteria the Minister should apply in doing so. As a result,
the CRA has developed a number of guidelines to assist the Minister when
considering a taxpayer’s request for relief.
[17]
At all material times during the course of this
matter, Information Circular IC07-1 provided guidance to the Minister with
respect to section 281.1 of the ETA. The Information Circular indicates,
for example, that financial hardship, inability to pay or extraordinary
circumstances beyond an applicant’s control may justify taxpayer relief. In
making such a determination, the Minister’s delegates may consider the
taxpayer’s history of non-compliance, whether a balance was knowingly allowed
to exist, whether the taxpayer was careless or negligent in conducting its
affairs, and whether the taxpayer acted quickly to remedy delays or omissions.
[18]
The Respondent also relies upon the affidavit of
the Senior TRO who reviewed the Third Request and recommended its refusal.
Ordinarily, a decision-maker is not permitted to file an affidavit in support
of either party to a judicial review; however, there are exceptions to this
general rule, including to clarify procedural elements (Girard v Canada
(Attorney General), 2007 FC 966 at paras 10-11). Here, I find that the
Senior TRO’s affidavit is admissible only to the extent that it clarifies
procedural elements of the Decision under review (see Coley v Canada (National
Revenue), 2017 FC 210 [Coley] at para 7).
[19]
The Applicant, for its part, relies upon two
affidavits sworn by Mr. Bichan and attendant exhibits. Much of the material
contained in these affidavits, however, was not before the Minister’s delegates
at the time of the Decision; for example, Mr. Bichan exhibits a letter written
after the Applicant received the Decision, as well as materials and arguments
relating to the breakdown of Mr. Bichan’s marriage.
[20]
The Applicant’s Requests for taxpayer relief
were made on the sole basis of financial hardship and inability to pay. The
Applicant raised circumstances relating to Mr. Bichan’s marriage breakdown for
the first time in its letter to the Chief of Appeals post-dating the Decision.
It continues to advance these arguments in this Application, and Mr. Bichan
addressed them in his oral arguments to the Court.
[21]
I find that the evidence submitted by the
Applicant relating to the purported “extraordinary
circumstances” of Mr. Bichan’s marriage breakdown is not admissible. The
information was simply not before the Minister’s delegates at the time of the
Decision — or at the time of the First and Second Refusals (Coley at
para 11). Neither does the evidence relate to a breach of procedural fairness (Gauthier
v Canada (Attorney General), 2017 FC 697 at para 13).
[22]
Mr. Dougal effectively admitted to this late
disclosure of what he considers to be material facts, when he deposed for the
purposes of this Application that he only recently turned his mind to his
marriage breakdown and mental distress as the true cause of his non-compliance
with his tax obligations.
[23]
I agree with the Respondent that the burden lies
with the Applicant to provide the Minister, in taxpayer relief applications,
with all necessary evidence prior to the rendering of a decision (3651541
Canada Inc v Canada (Attorney General), 2007 FC 1255 at paragraph 20; Coley
at para 37).
[24]
The Applicant cannot now, on judicial review,
advance arguments and lead evidence relating to the breakdown of Mr. Bichan’s
marriage or his mental condition, because these arguments were available to the
Applicant but not pursued before the Minister’s delegates (Formosi v Canada
Revenue Agency, 2010 FC 326 at para 3).
[25]
Given the foregoing, the key question, and
indeed the only legal issue before me now, is whether the Decision under review
is reasonable, based on the evidence before the Minister’s delegates at the
time the Decision was made.
[26]
In that regard, the Applicant submits that the
Minister’s delegates unreasonably judged its financial situation based on the
same criteria as the Minister would a large corporation, which it submits to be
unrealistic and unfair.
[27]
Furthermore, Mr. Bichan deposes that he was told
by a CRA representative that the financial situation of a company’s director is
not considered in assessing the financial health of a company, which the
Applicant argues does not make sense in the context of a closely-held
corporation with a single shareholder and employee. The Applicant also takes
issue with the Minister’s delegates’ inference that a company that is operating
cannot therefore be experiencing financial difficulties. It submits that a
small company’s ability to turn a profit may vary considerably from year to
year.
[28]
I cannot agree with the Applicant’s position. This
Court has recognized that sections 281.1(1) and (2) of the ETA confer a
broad discretion upon the Minister to waive or cancel interest, and that the
scope of judicial intervention is limited (North Vancouver at para 42).
I do not find that the Decision was unreasonable for the any of the reasons
advanced by the Applicant.
[29]
To the contrary, I find that the Decision was
rendered after an extensive review of the Applicant’s circumstances (Coley at
para 37). I find it was reasonable for the Minister’s delegates to separate Mr.
Bichan’s personal financial hardship from that of the Applicant (North
Vancouver at para 59).
[30]
A court must respect the legal relationships
created by a taxpayer and not inquire into underlying “economic
realities” (Meredith v Canada (Attorney General), 2002 FCA 258 at
para 12, cited in Caine v Canada Revenue Agency, 2011 FC 11 at para 67 [Caine]).
Caine also invoked Wishing Star Fishing Co v “BC
Baron” (The) (1987), 45 DLR (4th) 321 (FCA) as follows:
14 [It is] tempting ... to disregard
separate corporate existence and to analyze an act in terms of the individual.
In the day-to-day business affairs of a corporation, that way of proceeding may
create no difficulty. The same cannot be said, however, as a matter of strict
law. The individual and the corporation are separate and distinct legal persons
(Salomon v. Salomon & Co., [1897] A.C. 22 (H.L.)), and any failure to
appreciate that distinction can only lead to confusion and to unforeseen legal
consequences.
[Excerpted in Caine at para 68]
[31]
Although in Caine the Court reviewed a
CRA decision made under different taxpayer relief provisions (under the Income
Tax Act, RSC, 1985, c 1 (5th Supp)), I find that Justice Russell’s
reasoning applies equally to the arguments made by the Applicant in this
Application:
70 In the instant case, the Applicant
established a corporation for the benefits it would provide him. Later, when
the burdens outweighed the benefits, he chose to disregard the corporate
structure, believing that, given the economic realities of his dilemma, his
actions were justified. He asks this Court to recognize these economic
realities and find in his favour. […] The Applicant has provided no authority
for doing so. He must take the burdens with the benefits. Based on my review of
the jurisprudence, the CRA Decision falls within the acceptable range as
defined by Dunsmuir.
[32]
I am also unpersuaded by the Applicant’s
argument that the Decision unreasonably assessed the Applicant’s financial
circumstances by the same criteria as a large corporation. The Minister’s
delegates reasonably found that the Applicant was continuing to operate
throughout and after a period of financial difficulty, and even when the “requirement to pay” was put in place. From this, the
Minister’s delegates reasonably inferred that the Applicant was not
experiencing the type of “financial hardship”
that would justify taxpayer relief. Indeed, the Applicant’s initial request to
CRA merely sought “whatever relief [was] possible”,
stating that the Applicant would “continue working to
clear” any remaining amounts owed.
[33]
As was made clear to the Applicant in its
correspondence with the Minister’s delegates, the CRA considers “financial hardship” to be a state where business
operations will be jeopardized without taxpayer relief. The Applicant continued
to operate through the period in question and to the time of the Decision,
during which it whittled down its debt. It was thus reasonable for the
Minister’s delegates to conclude that a state of “financial
hardship”, in the legally relevant sense, did not exist, either between
2004 and 2011 or at the time of the Decision.
[34]
The Minister’s delegates’ refusal to grant
relief with respect to penalties arising from the Applicant’s late returns is
also reasonable. There was nothing before the Minister’s delegates explaining
why the returns were not filed on time. It is one thing not to remit payments
with returns. It is quite another to fail to file returns on time. Mr. Bichan deposed
that the Applicant’s issues with compliance were more directly related to his
emotional and psychological distresses than to the Applicant’s financial
troubles. But as that evidence is not properly before me, Mr. Bichan’s alleged
psychological state does not assist the Applicant on this point either.
V.
Conclusion
[35]
Despite the difficult financial situation that
the Applicant evidently endured, and despite Mr. Bichan’s admirable efforts to
advocate on behalf of the Applicant, I nonetheless find the Decision to be
reasonable. The Application is therefore dismissed.
[36]
The Respondent seeks costs. Having considered
Mr. Bichan’s submissions on costs, I will, on this occasion, and taking into
account all the circumstances, make no order as to costs. However, as I
explained to Mr. Bichan during the hearing, this does not mean that costs will
not be ordered against the Applicant in any future court proceedings.
[37]
Finally, I grant the Respondent’s request made
pursuant to Rule 303(2) of the Federal Courts Rules, SOR/98-106, and on
which the Applicant takes no position, to change the style of cause such that
the Respondent is the Attorney General of Canada.
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