Braceland v. Revenue Canada Fairness Group Appeals, [1999] 3 CTC 343, 99 DTC 5189

Teitelbaum J.:

Introduction

By this application for judicial review, the applicant seeks an order quashing the decision of Mr. Harvey Beaulac, Director of the Ottawa Tax Services Office, Department of National Revenue, dated December 9, 1997, which cancelled the interest accumulated subsequent to the reassessments of July 21, 1997 in the amount of $314.40 and declined to cancel the remainder of interest payable by the applicant.

Facts

As stated in Mr. McKenzie’s affidavit for the respondent (Respondent’s Application Record, tab. I), the applicant’s returns for 1994, 1995 and 1996 were respectively assessed on June 8, 1995, June 17, 1996 and May 29, 1997, by the Minister of National Revenue (the Minister). By Notices of reassessment dated July 21, 1997, the Minister disallowed the capital cost allowance claimed with respect to rental properties which created or increased a loss for the years 1994, 1995 and 1996.

By letter dated July 23, 1997, the applicant requested a cancellation of interest on tax owing for the 1994, 1995 and 1996 taxation years pursuant to subsection 220.(3.1) of the Income Tax Act (the Act). Mr. McKenzie of the Ottawa Tax Services Office, Department of National Revenue, reviewed the request and made a recommendation to Mr. Malhotra. By letter dated November 6, 1997, Mr. Malhotra advised the applicant that this was not an appropriate case for cancellation of interest.

By letter dated November 17, 1997, the applicant filed a second request for cancellation of interest. Mr. Young reviewed the request and made a recommendation to Mr. Beaulac, Director of the Ottawa Tax Services Office, Department of National Revenue. By letter dated December 9, 1997, Mr. Beaulac advised the applicant that the interest arrears which accumulated subsequent to the reassessments of July 21, 1997 in the amount of $314.40 were cancelled, but that the remainder of interest was still owing as the applicant’s circumstances were not appropriate to justify the cancellation or waiver of interest.

Submissions

Applicant’s submissions

The applicant, who is representing himself, argues essentially that the Minister erred in applying the criteria set out in paragraphs 5 and 6 of the Information Circular 92-2 (IC 92-2) and failed to consider all the information submitted by the applicant in making a determination under subsection 220.(3.1) of the Income tax Act. The applicant’s submissions can be divided into three subcategories:

1 ) The interest resulted from circumstances beyond his control. It

is argued that the applicant has always complied in a timely manner with Revenue Canada’s requests, namely, the filing of income tax returns and payment in full for the taxation years 1994, 1995 and 1996.

2) Processing delays resulted in the applicant not being informed within a reasonable time that an amount was owing. It is submitted that the applicant was not informed of the balance owing until July 21, 1997 even though tax returns were filed on time, i.e. April 30, 1994, 1995 and 1996. From March 25, 1997, the applicant had difficulty in contacting the tax officer from the Audit Division which resulted in further delay leading to Mr. Beaulac’s decision dated December 9, 1997.

3) Material available to the public contained errors which led the applicant to file returns or make payments based on incorrect information.

a) The applicant submits that Mr. Beaulac’s letter dated December 9, 1997 indicating that capital cost allowance to increase a rental loss is not permitted on rental units qualified as multiple unit residential buildings (MURBS) contradicts information received earlier by letter dated June 27, 1997 stating that the applicant’s buildings were reclassified as Class 3 pursuant to schedule 11 of the Income Tax Regulations and that capital cost allowance was only available to reduce a net rental income to nil.

b) It is also submitted that, contrary to information available to the public, Revenue Canada disallowed external painting as a current expense; repairs as capital expenditures where it is a condition of sale; deduction of legal fees, financial services and expenses used in preparation of tax returns from the proceeds of disposition; costs of landscaping around rental property; use of the calendar year for claiming capital cost allowance on rental properties; the necessity to provide a tax shelter identification number only after August 1, 1989; post- ponement or deferral of a capital gain; recapture of capital cost allowance; the undepreciated capital cost (UCC); as well as the calculation of capital gain and capital loss.

Respondent’s submissions

The respondent raises preliminary issues. It is submitted that the applicant improperly named “Revenue Canada Fairness Group Appeals” as the respondent and that the style of cause should be amended to identify the Minister of National Revenue given that the decision was made by the Minister’s delegate, pursuant to paragraph 900(2)(b) of the Income Tax regulations. Also, it is submitted that the applicant has improperly included unsworn facts in his memorandum of points to be argued with respect to the judicial review application and the information is improperly before this Court.

With respect to jurisdiction, the respondent submits that the Federal Court of Canada does not have jurisdiction to vary or vacate the notices of reassessment of income dated July 21, 1997 and that the only issue for determination is whether the Minister discharged his duty to act fairly in declining to exercise his discretion to cancel the interest owed by the applicant pursuant to subsection 220.(3.1) of the Act.

The Minister submits that the purpose of subsection 220.(3.1) of the Act is to allow Revenue Canada to administer the tax system more fairly in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, are unable to meet the deadlines or comply with tax legislation. In this context, the minister’s duty to act fairly requires that the Minister give the person the opportunity to make submissions and that all evidence presented be considered. In coming to a determination with respect to the cancellation of the interest, Mr. Beaulac considered the criteria set out in IC 92-2, as well as the fact that the respondent did not give erroneous directions to the applicant, that the accumulation of interest was not due to the negligence, fault or misrepresentation of the respondent, and that the applicant did not demonstrate undue financial hardship justifying the cancellation of interest. Furthermore, the assessment of the applicant’s tax returns for 1994, 1995 and 1996 were done in the normal reassessment period and the accumulation of interest does not arise from the Minister’s actions.

Thus, it is submitted that the Court should not intervene with the decision of the Minister’s delegate given that all relevant considerations upon which to base a decision to exercise or not his discretion in favour of the applicant were before the Minister’s delegate and that he acted in accordance with principles of natural justice in declining to cancel or waive the outstanding interest under subsection 220.(3.1) of the Act.

Issues

This application for judicial review raises the following issues:

1) What is the scope of the Court’s jurisdiction to quash the decision of December 9, 1997, or to vary or amend Revenue Canada’s determination with respect to interest owed by the applicant?

2) Whether the Minister’s delegate committed a reviewable error to justify the intervention of this Court?

Analysis

Jurisdiction of the Court

In a judicial review application of the Minister’s decision pursuant to subsection 220.(3.1) of the Income Tax Act, the Federal Court is concerned with the legality of the decision under review which includes compliance with principles of natural justice and fairness. It is clearly established that the Court is not competent to vary or amend Revenue Canada’s assessment of interest payable by the applicant: Floyd Estate v. Minister of National Revenue (1993), 68 F.T.R. 157 (Fed. T.D.). In Floyd supra, which was cited with approval in Bourgeois v, Revenue Canada (1996), 96 D.T.C. 6304 (Fed. T.D.) Justice Dubé states at page 159:

At the outset, I should point out that it is not for the Court to decide whether the interest otherwise payable by the taxpayer ought to be waived or cancelled. It is within the discretion of the Minister. The function of the Court in this judicial review, as I understand it, is to determine whether or not the Minister failed to observe procedural fairness or erred in law in making his decision, as outlined under subsection 18.1(4) of the Federal Court Act.

Minister’s decision

The decision under review was made pursuant to subsection 220.(3.1) of the Income Tax Act, which reads as follows:

220.(3.1) The Minister may at any time waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by a taxpayer or partnership and, not withstanding subsections 152(4) to (5), such assessment of the interest and penalties payable by the taxpayer or partnership shall be made as is necessary to take into account the cancellation of the penalty or interest.

Pursuant to subsection 900(2)(b) of the Income Tax Regulations, the Minister’s powers and duties may be exercised by the Director of Taxation in a District Office of the Department of National Revenue.

It is clearly established that the Minister’s decision under subsection 220.(3.1) of the Income Tax Act is discretionary and as such gives rise to a narrow scope of review. The standard of review for the Minister’s decision pursuant to subsection 220.(3.1) of the Act is discussed in Kaiser v. Minister of National Revenue (1995), 93 F.T.R. 66 (Fed. T.D.), where Justice Rouleau states at page 68:

The purpose of this legislative provision is to allow Revenue Canada, Taxation, to administer the tax system more fairly, by allowing for the application of common sense in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, are unable to meet deadlines or comply with rules under the tax system. The language used in the section bestows a wide discretion on the Minister to waive or cancel interest at any time. To assist in the exercise of that discretion, policy guidelines have been formulated and are set out in Information Circular 92-2.

The jurisprudence has established the standard to be employed by the Courts when called upon to review the exercise of a discretionary power such as the one in question here. In Re Maple Lodge Farms Ltd. and Government of Canada et al. (1982), 137 D.L.R. (3d) 558 (S.C.C.), McIntyre J. stated at p. 562:

In construing statutes such as those under consideration in this appeal, which provide for far-reaching and frequently complicated administrative schemes, the judicial approach should be to endeavour within the scope of the legislation to give effect to its provisions so that the administrative agencies created may function effectively, as the legislation intended. In my view, in dealing with legislation of this nature, the courts should, wherever possible, avoid a narrow, technical construction, and endeavour to make effective the legislative intent as applied to the administrative scheme involved. It is, as well, a clearly-established rule that 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.

The guidelines set out in the IC 92-2 were adopted by the Minister to assist in making a determination with respect to requests for cancellation or waiver of interest pursuant to subsection 220.(3.1) of the Act. The relevant portion of IC 92-2 for the purpose of this proceeding are sections 5, 6 and 10:

5. Penalties and interest may be waived or cancelled in whole or in part where they result in circumstances beyond a taxpayer’s or employer’s control. For example, one of the following extraordinary circumstances may have prevented a taxpayer, a taxpayer’s agent, the executor of an estate, or an employer from making a payment when due, or otherwise complying with the Income Tax Act:

(a) natural or human-made disasters such as, flood or fire:

(b) civil disturbances or disruptions in services such as, a postal strike;

(c) serious emotional or mental distress such as, death in the immediate family.

6. Cancelling or waiving interest or penalties may also be appropriate if the interest or penalty arose primarily because of actions of the Department, such as:

(a) processing delays which result in the taxpayer not being informed, within a reasonable time, that an amount was owing;

(b) material available to the public contained errors which led the taxpayers to file returns or make payments based on incorrect information.

(c) a taxpayer or employer receives incorrect advice such as in the case where the Department wrongly advises a taxpayer that no instalment payments will be required for the current year;

(d) errors in processing; or

(e) delays in providing information such as the case where the taxpayer could not make the appropriate instalment or arrears payments because the necessary information was not available.

10. The following factors will be considered when determining whether or not the Department will cancel or waive interest or penalties:

(a) whether or not the taxpayer or employer has a history of compliance with tax obligations;

(b) whether or not the taxpayer or employer has knowingly allowed a balance to exist upon which arrear interest has accrued;

(c) whether or not the taxpayer or employer has exercised a reasonable amount of care and has not been negligent or careless in conducting their affairs under the self-assessment system;

(d) whether or not the taxpayer or employer has acted quickly to remedy any delay or omission;

In the present case, Mr. Beaulac, Director of the Ottawa Tax Services Office, Department of National Revenue, stated in his affidavit (Respondent’s Application Record, tab 4) that, in making this decision, he considered the following facts:

(a) the request made by the Applicant in his letter dated November 17, 1997;

(b) the file in respect of the Applicant’s applications for waiver of interest;

(c) the accumulation of interest in respect of the period prior to the Notices of Reassessments dated July 21, 1997 was not due to the negligence, fault or misrepresentation of the Department neither was it a result of circumstances beyond the control of the Applicant;

(d) there was insufficient information to establish financial hardship justifying a waiver of interest;

(e) the guidelines established in Information Circular No. 92-2 were not met in this case; and

(f) my decision was based in part on the recommendation made by Mr. Dave Young, appeals officer, Revenue Canada.

In exercising his discretion, the Minister’s delegate properly took into consideration the non-exhaustive criteria outlines in IC 92-2 as well as the information outlined above.

In my opinion, the applicant’s argument that the Minister failed to consider all the information that was submitted must fail. The applicant’s contention seems to flow from a series of disagreements with respect to allowable deductions and expenses, for example, the applicant argues that exterior paint claimed as a current expense was not allowed because the revised detailed expense statement submitted by the applicant was not accepted by Revenue Canada. It appears that the applicant’s argument relates mostly to the assessment of his returns for the 1994, 1995 and 1996 taxation years. The assessment of the applicant’s income tax returns is not under review. I have no jurisdiction to review the respondent’s reassessment of the applicant’s tax returns in the present proceedings.

Furthermore, the applicant has not pointed to any information or document which the Minister’s delegate failed to consider in determining whether to cancel or waive the interest. In addition, I have no evidence by the applicant that the respondent considered irrelevant information or considered documents which were irrelevant and was taken into consideration by the Minister in arriving at his decision.

The applicant contends that the interest resulted from circumstances beyond his control. Examples of such circumstances can be found in the IC 92-2: human or natural disasters, civil disturbances or disruptions in services such as postal strike, and serious emotional or mental distress such as death in the immediate family. While the circumstances outlined in IC 92-2 are non-exhaustive, there is no indication that the applicant submitted to Revenue Canada evidence that he experienced such circumstances. The applicant’s contention is unsubstantiated. The circumstances invoked by the applicant, such as payment in full for the 1994, 1995 and 1996 taxation years and the delays in informing him of the amount owing, do not fall, I am satisfied, within the meaning of “circumstances beyond a taxpayer’s control” under subsection 220.(3.1) of the Act.

Secondly, the applicant argues that the interest is primarily due to processing delays which resulted in the applicant not being informed within a reasonable time that the amount was owing. The applicant submits that Revenue Canada notified him of the amounts owing in 1997 while the returns in question had been filed in a timely fashion in 1994, 1995 and 1996.

This argument must also fail. The Income Tax Act confers upon the minister authority to reassess the taxpayers’ returns within a three year period and such delay cannot be considered a processing delay within the meaning of paragraph 6 of the IC 92-2. In Floyd Estate, supra, Justice Dubé states, at page 160, that “since the whole Canadian income tax system is based on self-assessment, the officers of the Minister cannot be blamed for not having detected the taxpayer’s own mistake sooner”. All that is required by the Minister is that the steps or process undertaken commence within a reasonable time.

In the present case, there is no indication that the steps undertaken by Revenue Canada to inform the applicant of amounts remaining owing were not accomplished within reasonable time limits.

The applicant’s last argument relates to the numerous alleged discrepancies or errors between the material available to the public and the information he was given.

In the present case, the applicant has attempted to highlight numerous minor discrepancies between the information available to the public and the information he was given as well as the treatment of such information by Revenue Canada. However, the only evidence relevant to this proceeding is that which was before the Minister. Other information referred to by the applicant is not relevant for purposes of judicial review.

By letter dated July 30, 1997, the applicant submitted arguments with respect to erroneous information relied upon (Respondent’s Application Record, Tab 3, Affidavit of David Young, Exhibit C, at page 28). These arguments were considered by Mr. Young in the context of the applicant’s second request for cancellation of interest. As stated in his affidavit, Mr. David Young, Officer with the Department of National Revenue, reviewed the applicant’s letter dated July 23, 1997 and made the following recommendation to Mr. Beaulac:

-Points #1, #2 & #4 - These comments all deal with taxation year prior to 1994. However, effective with the 1994 and subsequent taxation years, an individual may no longer create or increase a loss by claiming CCA on a Class 31 or Class 32 property. This information was stated in the 1989 and 1994 Rental Guides. Photocopies of the applicable pages should be sent to the client. Therefore, it is irrelevant if the rental property was a MURBS or not as starting in 1994, he could not increase his rental loss by claiming CCA on a Class 32 property which is what he did in 1994 and 1996. In 1995, his CCA schedule indicates Class #6. The fact that this information is stated in the 1989 Rental Guide indicates that it was available to the client for at least five years prior to 1994. This information was not provided to the client during the course of the audit and Fairness review.

-The details surrounding the reassessment of October 22, 1996 indicates that the adjustment had nothing to do with the client’s rental activity. Rather, an amount of 23,350.00 was deleted from line #130 (other income) as pension income of this amount had been erroneously included twice at both lines #115 and #130. Mr. BRACELAND’s discussions concerning this matter were with a J.A. Proulx and not J.A. Delorme.

In the case of Barron v. Minister of National Revenue (1997), 97 D.T.C. 5121 (Fed. C.A.), a case very similar to the case at bar, in that it deals with a discretionary decision of the Minister, Mr. Justice Pratte states at page 5122:

Before saying why we think that these findings are wrong, it may be useful to recall 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 its author clearly ignored some relevant facts or took into consideration irrelevant facts or if the decision is contrary to law.

Conclusion

The applicant has not demonstrated that the Minister’s delegate erred in considering the evidence or failed to observe principles of natural justice.

The application for judicial review is denied with costs which I fix at the sum of $250.00.

Application dismissed.