McNabb Family Trust v. R., [1998] 3 CTC 264, 98 DTC 6385

Muldoon J.:

This is a contested application to set aside a decision of the Minister of National Revenue dated February 9, 1996 and affirmed orally on April 4, 1996 in which the applicant’s request for an extension of time to file its preferred beneficiary election in respect of the applicant’s 1994 taxation year.

The facts are not in dispute. The applicant is an inter vivos trust and its taxation year ended on December 31, 1994. The applicant was required to file its income tax return for the 1994 year within 90 days of the end of the year. Therefore, the last day for filing the 1994 return was March 31, 1995.

Under the Income Tax Act, a trust and a preferred beneficiary under the trust may elect jointly to have all or part of the preferred beneficiary’s share in the trust’s income included in computing the income of the preferred beneficiary for that year. For such to be valid, the preferred beneficiary must file an election under subsection 104(14) of the Act within 90 days from the end of the trust’s taxation year, in this case March 31, 1995.

On March 29, 1995, the applicant’s accountant, Mr. Ball delivered the applicant’s 1994 income tax return to Gary McNabb, the trustee for the applicant with instructions that the return be signed by him and mailed to the Department of National Revenue by March 31, 1995.

On March 30, 1995, Mr. McNabb signed the return and he gave the documents to Roxanne Armstrong and told her to mail them to the Department. The Minister of National Revenue assessed the applicant by notice of assessment dated July 17, 1995 on the basis that the preferred beneficiary election was invalid as it was not filed within the time limit prescribed.

By letter dated July 26, 1995, Mr. Ball asked the Department to advise him with respect to the date that the return was received and the postal mark on the envelope. On September 13, 1995, Mr. Ball was informed that the envelope was postmarked April 10, 1995, ten days later than required under the Act.

Subsection 220(3.2) of the Act permits the Minister, on application by the taxpayer to extend the time for making the preferred beneficiary election. This subsection states:

Where:

(a) an election by a taxpayer or partnership under a provision of this Act or a regulation that is a prescribed provision was not made on or before the day on or before which the election was otherwise was required to be made, ..; the Minister may, on application by the taxpayer or the partnership, extend the time for making the election referred to in (a)...

By letter dated December 15, 1995, Mr. McNabb made a request for relief under subsection 220(3.2) for the 1994 preferred beneficiary election which was received late by Revenue Canada. In support of his request, Mr. McNabb submitted that (page 40 applicant’s record):

The returns were delivered to my office on March 29, 1995 for my signing and mailing. My recollection is that I signed the forms and gave them to my office staff for mailing.

Returns have not previously been filed late, and every effort has been made in the past to exercise reasonable care in attending to the required filings.

An officer in the Sudbury Taxation Centre reviewed the applicant’s file and prepared a recommendation that the extension of time not be granted. This recommendation was approved by Mr. Rutkowski, the coordinator for estate returns processing.

On February 7, 1996, the assistant director of individual and estate returns, Mr. Savage reviewed the recommendation and decided not to excuse the late filling.

By letter dated February 9, 1996, Mr. Savage advised Mr. McNabb that the applicant’s request for an extension of time was denied. The denial letter reads in part (page 42, applicant’s record):

My review of your account reveals that you were not prevented from filing the preferred beneficiary election on time, therefore I have concluded that this is not a case in which it would be appropriate to allow the late filed beneficiary election.

By letter dated March 5, 1996 addressed to Mr. Baronette, the director of Sudbury Taxation Centre, Mr. Ball requested a review of the decision to permit late filing. Mr. Savage prepared a memorandum for Mr. Baronette for his review and action. In his memorandum, Mr. Savage reiterated the position taken in the first refusal.

On April 1, 1996, Mr. Baronette reviewed the memorandum and decided not to accept the late filing. On April 4, 1996, Mr. Rutkowski contacted Mr. Ball by telephone and advised him of the decision. The affidavit sworn by Mr. Savage indicated that the reason for the refusal was due to the fact that “the circumstances did not fall within the fairness guidelines”. The guidelines are just that, an internal guidance code for officials of the Department of National Revenue: they are not true law.

The guideline referred to (IC-92-1) states the following:

9 Each request will be considered on its own particular merits.

10 A request may be accepted in the following situations:

(a) There may have been tax consequences not intended by the taxpayer and there is evidence that the taxpayer took reasonable steps to comply with the law. This could include, for example, the situation where the taxpayer obtained a bona fide valuation for a property, but the Department’s review [of] the valuation was found to be incorrect.

(b) The request arises from circumstances that are beyond the taxpayer’s control. Such extraordinary circumstances could include natural or manmade disasters such as flood or fire, civil disturbances or disruptions in service, such as a postal strike, a serious illness or accident or serious emotional or mental distress such as death in the immediate family.

The technical notes to paragraph 220(3.2) of the law provide that:

The purpose of this subsection is to give the Minister discretion to allow a taxpayer or partnership to make a late election where the taxpayer or partnership can demonstrate that the failure to elect on time was inadvertent or that the election would have been made on time if the: taxpayer or partnership had been aware of the election. Permission may also be granted to make a late election where it can be demonstrated that the election was not filed on time because of circumstances beyond the control of the taxpayer or partnership.

The technical notes are not true law because not included in the statute enacted by Parliament.

The applicant relies on a number of cases in support of the argument that the Minister erred in law in refusing to exercise his discretion: Tic Toc Tours Ltd. v. Minister of National Revenue (1982), 82 D.T.C. 6231 (Fed. C.A.), Tweedie v. Minister of National Revenue (1983), 83 D.T.C. 668 (T.C.C.), Hrovat v. Minister of National Revenue (1983), 83 D.T.C. 590 (T.C.C.) and Thody v. Minister of National Revenue (1983), 83 D.T.C. 641 (T.C.C.). In each of these cases, the Court granted extensions of time to file appeals on the basis that the taxpayers had essentially complied with the procedural requirements of filing appeals, but due to the inadvertence of the taxpayers’ accountants the appeals had not been filed within the time prescribed by the Act. The applicant argues that these cases demonstrate that the courts will grant an extension of time for filing an appeal where the taxpayer fulfils its obligations under the Income Tax Act and the failure to file the relevant documents arises from an error of the agent of the taxpayer. Thus, the applicant asserts that it complied with all of the requirements of the Act and the failure to file the preferred beneficiary election rests with the trustee’s employee; not the trustee. Accordingly, the applicant states it should not be held accountable for the actions of its agent.

However, in all of the cases pointed to by the applicant, at issue was whether an extension of time to file a notice of objection or an appeal ought to be granted by the Court; not whether the discretion exercised solely by the Minister ought to be distorted. The legislation governing the extension of time referred to in the cases adduced by the applicant provided that:

167.(1) Where no objection to an assessment under section 165 or appeal to the

Tax Court of Canada [Tax Review Board] under section 169 has been made or instituted within the time limited by section 165 or 169, as the case may be for doing so, an application may be made to the Tax Court of Canada for an order extending the time within which a notice of objection may be served or an appeal instituted and the Court may, if in its opinion the circumstances of the case are such that it would be just and equitable to do so, make an order extending the time for objecting or appealing and may impose such terms as it deems just. [Emphasis not in original]

167.(5) No order shall be made under subsection (1) or (4)

(c) unless the [Board or Court] Tax Court of Canada or Federal Court is satisfied that

[(i)] but for the circumstances mentioned in subsection (1) or (4), as the case may be, an objection [or] appeal or request would have been made or taken within the time otherwise limited by this Act for [so] doing.

There are no such terms imposed on the exercise of the Minister’s discretion contained in subsection 220(3.2). Rather, the words of Mr. Justice McIntyre of Supreme Court of Canada in Maple Lodge Farms Ltd. v. Canada, [1982] 2 S.C.R. 2 (S.C.C.), are clear as to when the exercise of a Minister’s discretion should be reviewed. At page 7 to 8 he stated:

It is, as well, a clearly-established rule that the courts should not interfere with the exercise of a discretion by a statutory authority merely because the court might have exercised the discretion in a different manner had it been charged with that responsibility. Where the statutory discretion has been exercised in good faith, and, where required, in accordance with the principles of natural justice, and where reliance has not been placed upon considerations irrelevant or extraneous to the statutory purpose, the courts should not interfere.

Similarly, Mr. Justice Pratte in Barron v. Minister of National Revenue (1997), 97 D.T.C. 5121 (Fed. C.A.) confirmed at 5122 that:

...subsection 152(4.2) of the Income Tax Act confers a discretion on the Minister and that, when an application for judicial review is directed against a decision made in the exercise of a discretion, the reviewing court is not called upon to exercise the discretion conferred on the person who made the decision. The court may intervene and set aside the discretionary decision under review only if that decision was made in bad faith, if the statutory delegate clearly ignored some relevant facts or took into consideration irrelevant facts or if the decision is contrary to the law.

There is no suggestion that the decision was made in bad faith.

The applicant’s argument is that the Minister ignored relevant facts; in particular that the reason for the delay in filing rests with the applicant’s agent, not the applicant as in the reasoning of the cases mentioned above. These cases cannot be used to limit the Minister’s discretion as they are merely examples of where, in the Court’s opinion, the circumstances of the case are such that it would be just and equitable to allow the extension of time; not whether, in the Minister's opinion the late filing should be accepted.

Moreover, there is a huge flaw, a lacuna, in the applicant’s case. The applicant presents no affidavit by Roxanne Armstrong. How can the Court ever be expected to determine whether the lateness of filing were “inadvertent”, without evidence on that score from her on whose alleged failure the applicant relies to beg the Minister’s mercy? The applicant’s counsel intimated that the applicant could not obtain Ms. Armstrong’s deposition because she was, not to put too fine a point on it, no longer employed by the trustee. The Court inferred that she received no mercy. In any event she was more of an employee than an agent.

The question of Roxanne Armstrong’s version of events was canvassed with the applicant’s counsel at the hearing. He averred that “obviously” she did not do what the trustee asked her to do.

HIS LORDSHIP: Has she made some explanation before us?

MR. STARKMAN: She does not.

HIS LORDSHIP: No? Isn’t that a grave omission from your case? She could tell us why.

MR. STARKMAN: Well, I don’t believe that she is in the employ of Mr. McNabb, but in any event...

HIS LORDSHIP: So he got angry with her, of course.

MR. STARKMAN: I suspect he is not too happy with the way things have turned out. Your Honour.

HIS LORDSHIP: But, you know...

MR. STARKMAN: But it was obviously, I would suggest, an honest or an inadvertent error on her part, but those things happen, and the respondent hasn’t...

HIS LORDSHIP: You see, it is unexplained error on her part. What you need, preeminently, and look at what Justice Pratte says, or the Court of Appeal says, what you need preeminently is a full explanation of why the return was filed late, and if ... you don’t have any affidavit of Roxanne Armstrong, then?

MR. STARKMAN: No, we don’t. Your Honour.

HIS LORDSHIP: She might have had some explanation which would have thrown some light on the matter. After all, it was committed to her. That is the last thing we know of its departure from Mr. McNabb, and the next tiling we know is that it is postmarked April 10th, and there is no explanation for the intervening period.

MR. STARKMAN: No. Your Honour, if we were able to obtain that information, we would have put it before you. All we can say is that she was asked ... and this is uncontroverted, she was asked to put it in the mail. Now, had she put it on the mail on the 30th or the 31st, it would be deemed to have been filed under Section 248(7) of the Act. (Transcript: pp. 7 and 8)

The affidavit, sworn November 19, 1997 (Application Record, document 2), by the applicant’s trustee, Gary McNabb, is as notable for what it does not allege, as for what it does allege. He swears that one of the causes for late filing is his belief “that this likely occurred because the end of March and beginning of April is [sic] a busy time in our office as we prepare for the spring season.” (paragraph 13.)

In paragraph 4, Mr. McNabb alleged:

I signed the Trust’s 1994 Tax Return and preferred beneficiary elections on March 30, 1995. I gave the Trust’s 1994 tax return to Roxanne Armstrong who was responsible for posting the mail and told her to mail it to Revenue Canada. Attached hereto as Exhibit “A” is a copy of the Trust’s 1994 Tax Return and Preferred Beneficiary Elections dated March 30, 1995.

What is not alleged by Mr. McNabb is “I gave the trust’s 1994 tax return to Roxanne Armstrong who was responsible for posting the mail and told her to mail it to Revenue Canada on March 30, and no later than March 31”. Missing from the record is that which Ms. Armstrong remembers of what, if anything, Mr. McNabb told her about any urgency. No one herein can account for each day of delay. In 1995, March 30 was a Thursday, and March 31 was a Friday. There was, and possibly still is, although too late, one person who could corroborate or contradict the trustee’s version of the crucial events, but the trustee has rendered her unavailable.

The trustee avers that he did all he could, by signing and handing over the signed document to Ms. Armstrong with instruction on March 30, to mail it presumably before close of business on March 31. That is not true. Important a person as the trustee may be, to do all he could, he could personally have mailed the document, himself, on March 30 or 31. It was, after all, his responsibility.

The applicant’s second argument is that the Minister fettered his discretion by refusing the application since the Minister strictly followed the guidelines without considering the circumstances at hand. The applicant argues that the guideline may be considered but cannot be treated as binding and it cannot exclude other relevant considerations. In the case at hand, the applicant argues that the Minister required that there be “extraordinary” circumstances or that it was “impossible” for the applicant to file a document within the required time. The applicant points to the decision of Tic Toe Tours Ltd, v. Minister of National Revenue (1982), 82 D.T.C. 6231 (Fed. C.A.) in which this Court granted a taxpayer an extension of time to file its notice of objection. The Tax Review Board initially dismissed the applicant’s application on the basis that the applicant had not demonstrated that it was impossible for the applicant to serve the notice of objection within the time limits prescribed. In allowing the judicial review, Mr. Justice Pratte stated page 6231 that:

This decision is, in my view, founded on an error of law and must, for that reason, be set aside. The circumstances in which the Board is authorized, subject to the requirements of subsection 167(5), to exercise its discretion to extend the time within which a notice of objection may be served are described in 167(1) which does not require that it should have been impossible for the taxpayer to serve the notice within the time limit.

Again, this decision is based on the exercise of discretion by the Court or the Tax Review Board where the reasons for exercising discretion are set out in the governing legislation. That is not the situation here.

The policy clearly states that each request will be considered on its own merits, but that the Minister may (not will) accept a request where the reason for the late filing stems from circumstances beyond the applicant’s control. In this case, the Minister was not convinced that the circumstances were beyond the applicant’s control and accordingly the refusal letter issued. There is no evidence that the Minister did not consider all of the circumstances at hand and there is no evidence that the Minister required only impossible circumstances to exist. As such, there is no reason to disturb this decision.

For the above reasons, this application for judicial review is dismissed.

Another unrelated and easily remedied - but never remedied - cause of dismissal resides in the facts that the Crown may be sued, but is not amenable to judicial review.

Application dismissed.