Johnston Family 1991 Trust v. Minister of National Revenue, [1999] 4 CTC 75, 99 DTC 5508

Teitelbaum J.:

The Applicant, Johnston Family Trust (Trust), filed with the Federal Court of Canada Registry in Vancouver a Notice of Application dated September 10, 1998 for judicial review in respect of a decision by the Respondent dated September 9, 1998 (see page 2 of Notice of Application).

In the Notice of Application, Counsel for the Trust sets out what he alleges are the facts concerning the application. In speaking of what decision the Trust desires to have reviewed, the Trust states in paragraphs 28 and 29: 28. By letter dated August 26, 1998, the Respondent denied the Trust’s August 5, 1998 Fairness application.

29. In a telephone conversation on September 8, 1998, Julia Nightingale, acting director of the Surrey Taxation Centre, verbally confirmed to the Trust’s counsel the decision set out in the August 26, 1998 letter.

It would appear that the decision that the Trust desires to have reviewed is a verbal one wherein Julia Nightingale, acting director of the Surrey Taxation Centre confirmed the decision set out in a August 26, 1998 letter sent to the Trust’s legal counsel.

This letter states:

Dear Sir,

Re: 1993 T3 Return for the Johnson Family 1991 Trust

This is further to our conversation and your fax of August 24, 1998.

According to our records, the postmark on the original envelope in which the T3 return and preferred beneficiary elections were mailed was April 6, 1994.

A Notice of Objection dated December 12, 1994 was filed (of which you are aware) with the contention that the elections were filed on time. During the appeal process, a review of the postmark would have been made prior to confirming the assessment. The postmark was also reviewed by the Fairness Committee during their review process in 1994 and 1998.

The fact that a photocopy of the postmark cannot be provided at this time does not change the departments [sic] position. Accordingly, the 1993 T3 return will not be adjusted to allow the preferred beneficiary elections.

Yours truly,

JANIS OLD

T3 ESTATE AND TRUST RETURNS

c.c.: JOSEPH JOHNSON

An application for judicial review is made pursuant to Section 18.1 of the Federal Court Acd. [1] Section 18.1 states:

18.1(1) An application for judicial review may be made by the Attorney General of Canada or by anyone directly affected by the matter in respect of which relief is sought.

(2) An application for judicial review in respect of a decision or order of a federal board, commission or other tribunal shall be made within thirty days after the time the decision or order was first communicated the federal board, commission or other tribunal to the office of the Deputy Attorney General of Canada or to the party directly affected thereby, or within such further time as a judge of the Trial Division may, either before or after the expiration of those thirty days, fix or allow.

(3) On an application for judicial review, the Trial Division may,

(a) order a federal board, commission or other tribunal to do any act or thing it has unlawfully failed or refused to do or has unreasonably delayed in doing; or

(b) declare invalid or unlawful, or quash, set aside or set aside and refer back for determination in accordance with such directions as it considers to be appropriate, prohibit or restrain, a decision, order, act or proceeding of a federal board, commission or other tribunal.

(4) The Trial Division may grant relief under subsection (3) if it is satisfied that the federal board, commission or other tribunal

(a) acted without jurisdiction, acted beyond its jurisdiction or refused to exercise its jurisdiction;

(b) failed to observe a principle of natural justice, procedural fairness or other procedure that it was required by law to observe;

(c) erred in law in making a decision or an order, whether or not the error appears on the face of the record;

(d) based its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it;

(e) acted, or failed to act, by reason of fraud or perjured evidence; or

(f) acted in any other way that was contrary to law.

(5) Where the sole ground for relief established on an application for judicial review is a defect in form or a technical irregularity, the Trial Division may

(a) refuse the relief it if finds that no substantial wrong or miscarriage of justice has occurred; and

(b) in the case of a defect in form or a technical irregularity in a decision or order, make an order validating the decision or order, to have effect from such time and on such terms as it considers appropriate.

It is clear that the only reason for me to interfere with the decision of the Minister’s delegate, Julia Nightingale, would be if she acted in such a manner that her actions would fall within subsections 18.1 (4)(a) to (f).

Facts

The facts as I understand them to be can be summarized as follows. I take these facts from the application records and affidavits filed for my consideration.

The applicant is a trust established in 1991 in British Columbia. Joseph Johnston is the trustee of the Trust, with his wife Cleo and his two daughters being the beneficiaries of the Trust.

The Trust has a December 31 year end for the purposes of the Income Tax Act. For the Trust’s 1993 taxation year, the Trust’s T3 income tax return was due by March 31, 1994. Under the Income Tax Act, the Trust is taxable on all income earned by it in a year, except to the extent the Trust pays or is deemed to have paid its income to its beneficiaries by the end of the year. Under the Income Tax Act, if the Trust and a beneficiary jointly complete and file a “preferred beneficiary election” (election), the Trust is deemed to have paid to the beneficiary the amount of income designated in the election and the beneficiary is deemed to have received the income who is then to pay the income tax which may, and, usually results in a saving of income tax payable.

Under Income Tax Regulation 2800/21, for the Trust’s 1993 taxation year, an election was required to be filed on or before March 31, 1994.

There appears to be no disagreement with the above “facts” as between the parties.

In the affidavit signed by Joseph Johnston on October 26, 1998, he states that he had been on vacation in Hawaii and returned from his vacation on March 29, 1994. He states that he read through his mail, he does not say on what date he read through his mail, “that had accumulated” at his home and that one of the pieces of mail that he read was a letter dated March 14, 1998 from the Trust’s accountant Fred Masuch which contained a T3 tax return for the Trust as well as three preferred beneficiary elections. Mr. Johnston states that either on March 29 or March 30, he caused the three beneficiaries, (his wife & two children, who at the time were four and five years of age) to execute the elections. It would appear that the election was only executed by Cleo Johnston the day after returning from her holiday (see Exhibit A to affidavit of Cleo Johnston for December 22, 1998).

Therefore, Cleo Johnston’s election could not have been executed on March 29, 1994.

Mr. Johnston goes on to state in his October 28, 1998 affidavit that he placed, on March 30, 1994, the T3 Returns Form and Elections in the envelope that the Trust’s accountant had provided, took the envelope with the documents to his office in Burnaby, B.C. where, he states, that on March 30, 1994, the envelope was stamped by running it through the postal metre. He states he does not recall if he personally did this or whether he gave it to his assistant to do. He does state that “on March 30, 1994, near the end of the day, I personally took the envelope to a post box and deposited the envelope”.

Mr. Johnston goes on to state, in paragraphs 9 to 13:

9. Although Mr. Masuch’s March 14 letter did not say the T3 and Elections had to be filed by a particular date, I was aware that they had to be filed by the end of March 1994 from previous conversations with Mr. Masuch concerning prior years’ Trust returns.

10. I remember marking the date 03/30/94 on my file copy of the Trust’s T3 as a notation of the date I mailed the T3 and the Elections.

11. When Revenue Canada assessed the Trust in September 1994, on the basis that the Elections has not been filed on time, I was very surprised, because I knew I had mailed them on March 30, 1994. While I was not surprised to here [sic] that Revenue Canada might have received the Elections after March 30, 1994, that was the day I mailed them.

12. Until I retained legal counsel in August 1998 I was not aware, either personally or through Mr. Masuch, that paragraph 248(7)(a) of the Income Tax Act deems something to have been filed with Revenue Canada on the day it was mailed.

13. I understand that Revenue Canada is taking the position that the Elections were mailed on April 6, 1994. It is impossible for the Elections to have been mailed on that date, as I mailed them on March 30, 1994.

Mrs. Johnston confirms, in her affidavit of October 26, 1998, that she and her husband returned from their Hawaii holiday on March 29, 1994 and that “on returning” her husband showed her the material sent by Mr. Masuch. She goes on to state, in paragraph 4:

4. When the Trust started to have problems with Revenue Canada in September 1994, Joe told me that he had mailed the documents to Revenue Canada on the day after we returned from vacation. He has always maintained that position with me.

Mr. Fred Masuch, in his affidavit sworn on October 26, 1998, states that he is a Chartered Accountant “and as such have personal knowledge of the facts set out below”. He states in paragraph 2 of the affidavit that he has read the facts set out in paragraphs 1-11 and 17-25 in the Notice of Application “and they are true”.

Paragraph 10 in the Notice of Application states “Paragraph 249(7)(a) of the Act deems an election to have been filed the day it is mailed by first class post or its equivalent”.

With respect, I ask how this is a fact that Mr. Masuch can swear to us being true, as he appears to do in his affidavit.

Paragraphs 17 to 25 of the Notice of Applications, to which Mr. Masuch states are true State:

17. By Notice of Assessment issued to the Trust on September 20, 1994, the Respondent assessed the Trust by including in its income the $73,916.01 designated in the Elections.

18. The primary assumption made by the Respondent in assessing the Trust was that the Trust had filed the Elections on April 6, 1994 and therefore the Elections were invalid.

19. On or about December 12, 1994 the Trust filed a Notice of Objection in respect of the assessment but the Respondent confirmed the assessment by Notice of Confirmation dated August 16, 1995.

20. Under thaï Act, the Respondent has the right to accept a late-filed preferred beneficiary election. An application to the Minister to accept such an election is generally called “Fairness” application.

21. By letter dated September 22, 1994, the Trust made a Fairness application to the Respondent to accept the Elections.

22. By letter dated some time in 1994, the Respondent denied the Trust’s Fairness application.

23. By letter dated May I, 1997 the Trust made a second Fairness application to the Respondent to accept the Elections.

24. By letter dated January 2, 1998, the Respondent determined not to allow the second Fairness application, on the ground that the Trust had filed the Elections on April 6, 1994 and no reason had been shown to explain the filing delay.

25. None of the Notice of Objection, the Fairness applications, the Notice of Confirmation, the letter from the Respondent dated 1994 or the letter from the Respondent dated January 2, 1998 referred to paragraph 248(7)(a) of the Act.

Furthermore, in his affidavit sworn on October 26, 1998, Mr. Masuch states that on March 14, 1998 he sent to Mr. Johnston a letter dated March 14, 1998 with a T3 tax return enclosed for the Trust as well as election forms for the three preferred beneficiaries.

It is interesting to note that Mr. Johnston, in his affidavit sworn on October 26, 1998 states, in paragraph 9, that he was aware that the T3 and elections had to be filed by the end of March 1994 “from previous conversations with Mr. Masuch concerning prior years’ Trust returns”. Mr. Masuch states in paragraph 4 of his affidavit that in his letter of May, 1997 to Revenue Canada, he states that Mr. Johnston was unaware of the filing deadline for the Trust.

Mr. Masuch was cross-examined on his affidavit. He was asked:

Why did you not file a Notice of Appeal to the Tax Court of Canada on behalf of your client, The Johnston Family 1991 Trust, upon receiving the Notification of Confirmation by the Minister for your client’s 1993 taxation year?

His reply is that he did not recommend an appeal to the Tax Court of Canada after the Notice of Objection to the Trust’s assessment had been rejected because he believed that the matter was a Fairness matter and as such could not be appealed to the Tax Court (See Exhibit “A” of affidavit of Mr. Masuch of January 9, 1999)

In an affidavit sworn the 24 of November, 1998, Ms. Lucy Lee, employed as an Appeals Officer for the Department of National Revenue in Vancouver states that the Trust was required to file a T3 return and preferred beneficiary elections on or before March 31, 1994. By Notice of Assessment dated September 20, 1994, the Minister assessed the Trust’s tax payable for its 1993 taxation year, on the bases that the Trust had not filed the returns or the elections with the Minister before March 31, 1994, the due date.

The Trust, after receiving the Notice of Assessment of the Minister, filed a Notice of Objection dated December 12, 1994. The Trust objected on the basis that the Return and Elections “had been filed with the Minister in a timely manner”. In Exhibit “B” to the affidavit of Ms. Lee is the Notice of Objection. The reasons for the Notice of Objection to the assessment made by the Minister are:

The minister assessed the trust on the basis that preferred beneficiary elections were filed late and were therefore invalid.

The trustees contend that the elections were filed on March 30, 1994 by mail, a date which was as early as possible due to other circumstances. Therefore, the trustees contend the elections were properly filed and should be allowed.

Ms. Lee states, in her affidavit, that after reviewing the materials and the submissions and after examining the envelope in which the Return and Elections had been mailed to the Department, she saw that the envelope bore the postmark date of April 6, 1994 and, as a result, she confirmed the Trust’s tax payable, that is, she confirmed the Notice of Assessment and refused the Trust’s Notice of Objection to the Assessment. The Notice of Confirmation was sent by letter dated August 16, 1995 and it was sent “together with a copy of Form TLA7 which provides information concerning appeal procedures, to the Applicant’s representative, Fred Masuch” (paragraph 11 of affidavit).

The Trust did not file an appeal to the Tax Court of Canada from the Minister’s Notice of Confirmation which, I am satisfied should have been filed, if the Trust was of the opinion, that the T3 Return and Elections had been filed within the delay provided by the Income Tax Act.

In an affidavit dated November 25, 1998, Ms. Linda Ditto, who is Assistant Director, Individual and Estate Returns for the Respondent states:

2. 1 have carefully reviewed the records for the 1993 taxation year which relate to the Applicant’s request for relief under the provisions of the Fairness Package, and have personal knowledge of the matters herein deposed to, except where such knowledge is stated to be based on information and belief, in which case I believe them to be true.

5. Under the provisions of the legislation commonly referred to as the “Fairness Package”, in particular under subsection 220(3.2) of the Income Tax Act, the Minister may extend the time for making an election. 6. By letter dated September 22, 1994, the Applicant’s representative, Fred Masuch, wrote to the Minister and indicated that his client had been assessed on the basis that it did not file the Return and the Elections in a timely manner, and that he wished to obtain a review of his client’s situation.

7. The Applicant’s request for relief under subsection 220(3.2) of the Income Tax Act was first directed to the Estate Returns Processing team. A summary report and recommendation with respect to the Applicant’s request was prepared and then forwarded to John Brady, Manager, Estate Returns Processing.

8. In November 1994, John Brady wrote to the trustee of the Applicant, Joseph Johnston, and informed him that the request for relief had been reviewed and that it had been denied.

9. By letter dated May 1, 1997, the Applicant’s representative, Fred Masuch, wrote again to the Minister and indicated that he wished to obtain a further review of his client’s situation.

10. The Applicant’s further request for relief under subsection 220(3.2) of the Income Tax Act was first directed to the Estate Returns Processing team. A summary report and recommendation with respect to the Applicant’s request was prepared by Jean Drew and then forwarded to me.

11. In my capacity as the Assistant Director, Individual and Estate Returns, I have been delegated the authority under Regulation 900 of the Income Tax Regulations to review applications made under subsection 220(3.2) of the Income Tax Act and to issue decisions in response to such applications.

12. The summary report, the Applicant’s submissions, the previous request for review, correspondence in this matter, and the accompanying Departmental file material were all referred to me for my review and consideration. I reviewed the Applicant’s request for relief, concluded that the request did not fall within the intent and guidelines of the Fairness Package legislation, and decided that the time for making the Elections should not be extended by the Minister under subsection 220(3.2) of the Income Tax Act.

13. During the course of my review, I considered the following factors in reaching my decision that the time for making the Elections should not be extended:

a) the summary report stated that the envelope in which the Return and the Elections were mailed contained a postmark date of April 6, 1994;

b) the Applicant had filed the Return and the Elections beyond the statutory deadline date;

c) the Applicant had not filed an appeal to the Tax Court of Canada with respect to the 1993 taxation year;

d) there were no circumstances beyond the control of the Applicant which would justify granting relief in this situation;

e) the Applicant had not provided any information as to any other special circumstances which would warrant granting relief in this situation; and

f) the guidelines established in Information Circular 92-1 were not met in these circumstances.

14. By letter dated January 2, 1998, I wrote to the Applicant’s representative, Fred Masuch, and informed him that the request for relief had been reviewed and that it had been denied.

15. By letter dated January 15, 1998, Fed Masuch wrote to Revenue Canada and requested clarification of my letter dated January 2, 1998.

16. By letter dated February 15, 1998, Fred Masuch wrote to Revenue Canada and expressed his confusion regarding his client’s situation.

17. By letter dated August 26, 1998, the Technical and Resource Officer, Janis Old, replied to correspondence from the Applicant’s counsel, Joel Nitikman, and reiterated the Department’s position.

Issues

In the Applicant’s Memorandum of Fact and Law, the Applicant states what it believes is the issue to be determined:

In determining not to allow the third Fairness application under subsection 220(3.2) of the Act, did the Minister fail to observe principles of natural justice, err in law in making his determination, or base his determination on erroneous findings of facts made without regard to the material before him? In particular, did the Minister improperly fail to agree that the Trust’s T3 and Elections were mailed March 30, 1994 and hence, by paragraph 248(7)(a) of the Act, filed within the time stipulated by regulation 2800(2)?

The Applicant goes on to state “the issues in this application is whether the evidence is sufficient to allow the Court to conclude that the Minister could not reasonably have determined that the Elections were filed after March 31, 1994”.

In the Respondent’s Memorandum of Fact and Law, the Respondent lists the issues as:

23. The Respondent submits that the points in issue are:

a) whether the Minister properly exercised his discretion in not accepting preferred beneficiary elections by refusing to extend the time within which they could be filed;

b) whether the Court is entitled to decide the factual question as to whether the preferred beneficiary elections were filed on time;

and

c) whether the Applicant brought this application within the time allowed by section 18.1 of the Federal Court Act, so as to permit this Honourable Court to carry out a judicial review of the Minister’s decision.

Relevant Legislation

Section 104(14) of the Income Tax Act

104(14) Where a trust and a preferred beneficiary under the trust for a particular taxation year of the trust jointly so elect in respect of the particular year in prescribed manner, such part of the accumulating income of the trust for the particular year as is designated in the election, not exceeding the allocable amount for the preferred beneficiary in respect of the trust for the particular year, shall be included in computing the income of the preferred beneficiary for the beneficiary’s taxation year in which the particular year ended and shall not be included in computing the income of any beneficiary of the trust of a subsequent taxation year.

104(14) Lorsqu’une fiducie et son bénéficiaire privilégié pour une année d’imposition de la fiducie font un choix conjoint, pour cette année, selon les modalités réglementaires, la partie du revenu accumulé de la fiducie pour cette année qui est indiquée dans l’écrit concernant le choix et qui ne dépasse pas le montant attribuable au bénéficiaire privilégié relativement à la fiducie pour cette année est à inclure dans le calcul du revenu du bénéficiaire privilégié pour son année d’imposition au cours de laquelle l’année de la fiducie s’est terminée et n’est à inclure dans le calcul du revenu d’aucun bénéficiaire de la fiducie pour une année d’imposition postérieure.

Section 220(3,2) of the Income Tax Act

220(3.2) Where

(a) an election by a taxpayer or a 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 required to be made, or

(b) a taxpayer or partnership has made an election under a provision of this Act or a regulation that is a prescribed provision,

the Minister may, on application by the taxpayer or the partnership, extend the time for making the election referred to in paragraph (a) or grant permission to amend or revoke the election referred to in paragraph (b).

230(3.2) Sur demande d’un contribuable ou d’une société de personnes, le ministre peut:

a) lorsque le contribuable ou la société de personnes n’a pas fait, dans le délai imparti, un choix prévu par une disposition de la présente loi ou une disposition réglementaire, visée par règlement, proroger le délai pour faire le choix;

b) lorsque le contribuable ou la société de personnes a fait un choix valide en vertu d’une disposition de la présente loi ou d’une disposition réglementaire, visée par règlement, permettre que le choix soit modifié ou annulé.

Regulations 2800 of the Income Tax Regulations

2800.(1) Any election under subsection 104(14) of the Act in respect of a taxation year shall be made by filing with the Minister the following documents:

(a) a statement

(i) making the election in respect of the year,

(ii) designating the part of the accumulating income in respect of which the election is being made, and

(iii) signed by the preferred beneficiary and a trustee having the authority to make the election; and

(b) a statement signed by the trustee showing the computation of the amount of the preferred beneficiary’s share in the accumulating income of the trust for the year in accordance with paragraph 104(15)(a), (b) or (c) of the Act, as the case may be, together with such information concerning the provisions of the trust and its administration as is necessary for this purpose.

(2) The documents referred to in subsection (1) shall be filed within 90 days from the end of the trust’s taxation year in respect of which the election referred to in subsection (1) is made.

2800.(1) Tout choix fait en vertu du paragraphe 104(14) de la Loi à l’égard d’une année d’imposition s’exerce par la production auprès du Ministre des documents suivants:

a) une pièce

(i) indiquant l’exercice du choix à l’égard de l’année,

(ii) désignant la fraction du revenu accumulé à l’égard de laquelle le choix est exercé, et

(iii) portant la signature du bénéficiaire privilégié et d’un fiduciaire autorisé à exercer le choix; et

b) une pièce signée par le fiduciaire et indiquant le calcul du montant de la part revenant au bénéficiaire privilégié accumulé de la fiducie pour l’année, conformément à l’alinéa 104(15)a), b) ou c) de la Loi, selon le cas, ainsi que tout renseignement au sujet des stipulations de la fiducie et de son administration qui peut être nécessaire a cette fin.

(2) Les documents mentionnés au paragraphe (1) doivent être produits dans les 90 jours de la fin de l’année d’imposition de la fiducie à l’égard de laquelle le choix mentionné au paragraphe (1) est exercé.

Section 248(7) of the Income Tax Act

248(7) For the purposes of this Act,

(a) anything (other than a remittance or payment described in paragraph (b)) sent by first class mail or its equivalent shall be deemed to have been received by the person to whom it was sent on the day it was mailed; and

(b) the remittance or payment of an amount

(1) deducted or withheld, or

(ii) payable by a corporation,

as required by this Act or a regulation shall be deemed to have been made on the day on which it is received by the Receiver General.

248(7) Pour l’application de la présente loi:

a) tout envoi en première classe ou l’équivalent, sauf une somme remise ou payée qui est visée à l’alinéa b), est réputé reçu par le destinataire le jour de sa mise à la poste;

b) la somme déduite ou retenue, ou payable par une corporation, qui est remise ou payée conformément à la présente loi ou à ses règlements d’application est réputée remise ou payée le jour de sa réception par le receveur général.

Applicant’s Submissions

The Applicant’s submissions are, I believe, simple and straight forward. The Applicant was obliged to file the Trust’s T3 Return and Election by March 31, 1994 for the Trust’s 1993 taxation year. This, the Applicant states, it did as is evidenced by the affidavit of Mr. Johnston who states he mailed the letter containing the necessary documents to the Minister on March 30, 1994 by first class mail. The Applicant submits that pursuant to paragraph 248(7) of the Income Tax Act it is deemed the Election is made the day it is mailed by first class post or its equivalent.

Therefore, the Applicant filed, pursuant to the Act, its T3 Return and Elections within the delay required by the Act.

The Applicant’s representative submits that he was surprised to have received a Notice of Assessment issued to the Trust on September 20, 1994 in which the Respondent assessed the Trust by including in the Trust’s income the $73,916.01 designated in the Elections made by the Trust’s beneficiaries and which Elections Mr. Johnston states he mailed to the Respondent on March 30, 1994.

The Applicant submits the primary assumption made by the Respondent in assessing the Trust was that the Trust had filed the Elections on April 6, 1994 after the March 31 deadline stipulated in Regulations 2800(2) and therefore the Elections were invalid.

The Applicant goes on to state that under subsection 220(3.2) of the Act, the Respondent has a right to accept a late-filed preferred beneficiary election and that an application to the Minister to accept such an election is called a “Fairness” application.

The Applicant states in its Memorandum, the Applicant made a “Fairness” application by letter dated September 22, 1994 and a second “Fairness” application by letter dated May 1, 1999.

Both these “Fairness” applications were denied. It was by letter dated January 2, 1998, that the Respondent did not grant the “second” Fairness application. (See page 000129, Applicant’s Record)

Some six months later, the Applicant retained legal counsel who filed, on behalf of the Applicant, what he states was “a third” “Fairness” application on August the 5 alleging a new fact, that is, that pursuant to paragraph 248(7)(a) of the Income Tax Act the letter containing the T3 Return Form and Elections were in fact mailed and filed on March 30, 1994. The submission with regard to paragraph 248(7)(a) of the Act was not put before the Minister in the first two “Fairness” application.

The Applicant submits that by letter dated August 26, 1998, the Respondent denied the third applicant’s Fairness application and that in a telephone conversation on September 8, 1998, the Acting Director of the Surrey Taxation Centre verbally confirmed the decision set out in the August 26, 1998 letter and that the“Fairness” application was denied on the basis that the envelope sent to the Respondent by Mr. Johnston was post marked April 6, 1994.

I might add that the envelope and the Applicant’s tax file has been misplaced and cannot be found by the Respondent.

Respondent’s Submissions

The Respondent states that prior to the enactment of the “Fairness” legislation, Bill C-18, subsection 220(3.2) of the Act, the Minister had no authority to allow late filing of returns or elections. The new provision now gives the Minister authority to decide whether to allow or not to allow a late filing of a return.

In the present case the Minister has refused on three occasions to allow the late filing of the Applicant’s return and Elections.

The Respondent submits that the Minister has a great deal of latitude in making decisions under subsection 220(3.2) of the Act. The Respondent submits:

31. The Respondent’s position in this case is that the preferred beneficiary elections were late-filed. They were due to be filed by March 31, 1994, and the postmark on the envelope indicated they were filed on April 6, 1994.

32. The Minister’s delegates in this case based their decisions not to extend the time limit for filing the elections on several relevant factors such as:

(a) the request made by the Applicant, (b) the reasons provided, (c) the absence of any new information to verify its claim, (d) the information provided to the Applicant by the Minister, (e) the lack of an appeal to the Tax Court of Canada from the confirmation of the assessment at issue, (f) the Revenue Canada guidelines, (g) the submissions made by the Applicant, (h) the correspondence on file, (i) the postmark date on the envelope, (j) the lack of explanation given for the late-filing, and (k) the lack of reasons why a time extension would be required.

With regard to the issue of the timeliness of the Elections, the Respondent submits the Applicant offered no reasons for the late filing. The fact that the Applicant submits the Trust filed within the delays stipulated in the Income Tax Act, the proper forum for determining this factual question of the timeliness of the filing would be in the Tax Court of Canada.

The Respondent also submits that the Applicant was out of time to file an Application for Judicial Review as the Application should be filed within 30 days from the date the decision is first communicated to the taxpayer, that is, “the decision with respect to the Second Application was issued on January 2, 1998”.

The Respondent states:

There was never any third fairness application in this case, as alleged by the Applicant. No new facts were presented for the Minister’s consideration and the letter from Janis Old was written to notify the Applicant accordingly. Il does not constitute a third fairness decision, as Ms. Old has not been delegated authority under Regulation 900 to make such decisions.

Discussion

In the Notice of Application for Judicial Review, the Applicant states that the Judicial Review is in respect of a decision dated September 8, 1998. The “decision” of September 8, 1998 was made in a telephone conversation with Julia Nightingale who confirmed a decision set out in a letter of August 26, 1998.

I am satisfied from a plain reading of this August 26, 1998 letter, that this is a decision that could be subject to a judicial review application. The letter of August 26, 1998 ends with the words “Accordingly, the 1993 T3 return will not be adjusted to allow the preferred beneficiary election”.

Notwithstanding the submission of the Respondent that this is not a third “Fairness” decision because no new facts were submitted by the Applicant, I am satisfied that by the Applicant stating that the envelope containing the T3 Return and the Elections was mailed on March 30, 1994, and pursuant to paragraph 248(7)(a) of the Act, this mailing means a filing, this is a “new” fact not previously raised.

With regard to the submission of the Respondent that Janis Old has not been delegated authority under Regulation 900 to make such (Fairness) decisions, I am satisfied that the Applicant could consider her to have the authority to act for the Minister.

The letter of August 26, 1998 addressed to the Applicant’s counsel is signed by Janis Old “T3 Estate and Trust Returns” and speaks of “Re 1993 T3 Return for the Johnston Family 1991 Trust”. It was with Ms. Janis Old that counsel spoke to and dealt with. At no time did Ms. Old inform counsel that she had no authority to make decisions relating to “Fairness” applications.

As in the case of Burnet v. Minister of National Revenue^ [2] and the case of Doyle v. Minister of National Revenue\ [3] it was open to the Applicant to believe it was dealing with a person who had authority to make decisions regarding a “Fairness” application.

Should the Court Interfere with the Minister’s Decision

As I have stated, the Court can only grant relief under the judicial review section of the Federal Court Act if one of the grounds found in subsection 18.1(4) can be established.

I am satisfied that judicial review of the Minister’s decision of August 26, 1998 or of September 8, 1998 cannot be allowed. I am satisfied that the Minister’s decision not to allow the “third Fairness” application to be more than reasonable based on the evidence. I am also unable to find any error in law upon which the Minister based his decision.

The submission of the Applicant is that the Trust filed its T3 Return and Elections within the delay allowed by the Income Tax Act. Notwithstanding this filing, the Respondent assessed the Trust as if it did not do so. Quite properly, the Trust filed a Notice of Objection. The Notice of Objection was considered by the Minister and denied primarily because it was the Minister’s position that the Trust filed its Returns beyond the delay allowed by the Income Tax Act.

All parties agree that the filing date was to be no later than March 31, 1994 for the Trust’s 1993 taxation year. The Respondent Minister, because of the post-mark on the envelope showing April 6, 1994, concluded that the letter containing the Returns and Elections were not filed prior to March 31, 1994.

Therefore, as I have stated, the Minister disallowed the Notice of Objection and confirmed the assessment on August 16, 1995. After the assessment was confirmed, the Trust, if it in fact had filed its T3 Return and Elections within the legal delay, should have appealed the Notice of Confirmation to the Tax Court of Canada. It did not do so because the representative of the Trust concluded that the Return and Elections were filed outside of the delays provided by the Income Tax Act.

Therefore, the representative of the Trust filed, on September 22, 1994, a “Fairness” application pursuant to subsection 220(3.2) of the Income Tax Act. This section of the Income Tax Act permits the Minister to extend the time to a trust for making an Election.

I am satisfied that subsection 220(3.2) of the Act only permits the Minister to extend the time for making an Election. Therefore, the Minister may only extend the time to make an Election, if, in fact, an Election was not made within the delays stipulated by the Income Tax Act.

In any event, the first request pursuant to subsection 220(3.2) was denied in November 1994. A second “Fairness” application made by letter dated May I, 1997 was also denied.

I am satisfied that the Minister in denying the Applicant’s “third” “Fairness” application did not breach the grounds as found in Section 18.1 of the Federal Court Act.

The purpose of subsection 220(3.2) of the Income Tax Act is to permit the Minister, when exceptional circumstances exist, to permit the “late” filing of a T3 Return and Election for a trust. This subsection is not intended to permit the Minister to use his discretion to allow a Trust who should of appealed a Notice of Confirmation to the Tax Court of Canada, and did not, to apply to be permitted to file its Returns outside the delays contained in the Income Tax Act.

In reading the affidavit of Linda Ditto, I am satisfied that the Applicant was not, at any time, denied an opportunity to present whatever evidence it desired to present.

In paragraph 13 of Ms. Linda Ditto’s affidavit, she states, as I have already said, what she considered in reaching her decision that the time for making the Elections should not be extended:

13. During the course of my review, I considered the following factors in reaching my decision that the time for making the Elections should not be extended:

a) the summary report stated that the envelope in which the Return and the Elections were mailed contained a postmark date of April 6, 1994;

b) the Applicant had filed the Return and the Elections beyond the statutory deadline date;

C) the Applicant had not filed an appeal to the Tax Court of Canada with respect to the 1993 taxation year;

d) there were no circumstances beyond the control of the Applicant which would justify granting relief in this situation:

e) the Applicant had not provided any information as to any other special circumstances which would warrant granting relief in this situation; and

f) the guidelines established in Information Circular 92-1 were not met in these circumstances.

At this time, (the second “Fairness” application) it was the Applicant’s opinion that the Elections were late filed.

Assuming the T3 Returns and Elections were late filed which the Applicant denies, I am satisfied that based on the evidence presented to the Minister, it was reasonable for the Minister to refuse to extend the time to file the T3 Return and Elections.

No special and extraordinary circumstances were presented to the Minister for the late filing. It was reasonable for the Minister to conclude, based on the post-mark on the envelope, that the T3 Return and Elections were filed after the 31 of March, 1994.

If, in fact, the Applicant is correct in its interpretation of paragraph 248(7)(a) of the Income Tax Act, that is, that when the envelope was mailed by Mr. Johnston on March 30 or 31, 1994, it is deemed as being filed with the Respondent, than it was for the Applicant to have contested the Notice of Confirmation of the Minister by means of an appeal to the Tax Court of Canada in respect to the 1993 taxation year.

The decision of the Minister under review is reasonable.

The application for judicial review is denied with costs.

Application dismissed.