TDX Exploration & Mining Ltd. v. R., [1999] 4 CTC 148, 99 DTC 5405

Reed J. (orally):

This is an application for an order setting aside a decision of Michael Jackstien, the Director of Revenue Canada’s Taxation Centre in Surrey, B.C., which decision refused to waive the interest and penalty imposed on the applicant as a result of the late filing of its 1995 and 1996 tax returns.

The 1995 T2 return was due to be filed on March 31, 1996 and the 1996 T2 was due to be filed on March 31, 1997. These returns were not filed until March 5, 1998, at which time all outstanding taxes were paid.

The Minister of National Revenue has authority pursuant to section 220(3.1) of the Income Tax Act to waive or cancel any portion of any penalty or interest due under the Act. This is sometimes referred to as the “fairness provision”. Guidance as to when such a waiver will be given is set out in Information Circular 92-2. The Circular states that the information contained therein is not exhaustive:

3. These are only guidelines. They are not intended to be exhaustive, and are not meant to restrict the spirit or intent of the legislation...

The most relevant provision of the Circular for present purposes refers to “circumstances beyond a taxpayer’s control” and to “extraordinary circumstances” that prevent a taxpayer from making a payment when due:

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) a serious illness or accident; or

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

The guidelines also indicate the factors that will be considered when determining whether or not there will be waiver or cancellation:

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 arrears 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.

Paragraph 14 of the Information Circular discusses procedure. It states:

If taxpayers or employees believe that the Department has not exercised its discretion in a fair and reasonable manner, then they may request, in writing, that the director of a district office or taxation centre review the situation.

It is pursuant to this provision that Mr. Jackstien made his decision.

Mr. Justice Rouleau commented on the “fairness provision” in Kaiser v. Minister of National Revenue (1995), 95 D.T.C. 5187 (Fed. T.D.), at 5188:

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 [underlining added]

In Orsini Family Trust v. Revenue Canada (Customs, Excise & Taxation) (1996), 96 D.T.C. 6347 (Fed. T.D.), Mr. Justice Cullen stated that:

A decision made under the “fairness legislation” is discretionary. It is not a case where a decision-maker must arrive at a certain outcome; rather, the decisionmaker, after considering all the circumstances, may come to a certain conclusion. Discretionary decisions cannot be made arbitrarily or in bad faith and, like other decisions, are subject to judicial review. The scope of judicial review, however, is quite narrow. This Court should not substitute its decision for that of the Minister’s statutory delegate. Rather, the Court must determine whether the decision was made fairly, not arbitrarily or in bad faith. So long as the evidence in the record supports the decision, this Court should not interfere. [underlining added]

The application for an order to set aside the Director’s decision is, of course, brought pursuant to section 18.1 of the Federal Court Act. Subsection 18.1(4) sets out the relevant grounds:

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.

Counsel for the applicant sought to bring the decision under review within the terms of one or more of the paragraphs of subsection 18.1(4). I will consider those arguments.

With respect to the argument that the Director took into account extraneous considerations when he considered the compliance history of not only the applicant but its sole director and shareholder, Mr. von Einsiedel, as well as that of the related company RAM, I cannot conclude that these are extraneous considerations. It is true that the guidelines only refer to the compliance history of the taxpayer, but the guidelines are not and do not purport to be limiting. Compliance history is relevant to two factors: the knowledge of the taxpayer of the need for timely filing; the assessment of whether the non-compliance is part of a pattern of careless conduct or a one time extraordinary event. In that regard, the conduct of Mr. von Einsiedel, in both his personal capacity and with respect to the related company, RAM, is relevant.

With respect to the argument that the decision-maker ignored evidence because he ignored the fact that the applicant was a corporation with only one shareholder (Mr. von Einsiedel) and that the corporation’s business meant that Mr. von Einsiedel was away for long periods of time (especially from April to November each year) in remote locations, I cannot conclude from the record that these factors were ignored. The record makes it very clear that these factors were before the decision-maker and the decisionmaker was quite aware of them. The decision-maker simply made a different decision in relation to them than Mr. von Einsiedel would have liked. Also, I do not think it can be seriously argued that the decision-maker considered the person who was assisting Mr. von Einsiedel with the tax returns as an employee of the applicant. The reference in the record is in identical terms to those used by Mr. von Einsiedel, she was referred to as his assistant.

With respect to the argument that the decision-maker failed to consider all the evidence because he did not refer in his affidavit to the guidelines as being among the matters he considered, that argument is without merit. Paragraph 12 of Mr. Jackstien’s affidavit states that he considered and weighed all of the “information” contained in the documents that are thereafter listed. The “information” is the factual underpinning of the applicant’s waiver request and the information set out in the departmental response thereto. The guidelines do not contain this type of information. It would be unreasonable to conclude that because the affidavit does not specifically refer to the guidelines that Mr. Jackstien did not understand that the guidelines were relevant and make his decision within that context. The fact that the affiant in Towers v. R. (1993), 94 D.T.C. 6118 (Fed. T.D.) is reported, at 6121, as having included in his affidavit a reference to the guidelines does not mean that a failure to do so signals a failure by the decision-maker to consider them.

With respect to the argument that the decision by Mr. Jackstien was not an independent one because Ms. Nightingale made a recommendation to him that the applicant’s request for a waiver be denied, and she had also made what I will call the first level decision refusing the waiver, I do not accept that argument. I have been referred to no jurisprudence that requires the separation between the initial decision-maker and submissions placed before a reviewing decision-maker that counsel argues is necessary to ensure an independent second level review. In fact the pattern is a very common one in administrative decision making.

I have considered whether the respondent might have forgiven part of the interest and penalties that were assessed. Mr. von Einsiedel missed the March 31, 1996 deadline, he states, in part, because he had been stranded in Labrador until mid-January 1996 and needed several weeks thereafter in which to recuperate. As I read the material on the record, it seems likely that had he filed the return shortly thereafter, a waiver might have been agreed to, but the return was not filed until almost two years later. Even accepting that he went to Africa in August - September 1997 and contracted cerebral malaria, which made it impossible for him to attend to tax matters for some time thereafter, a satisfactory explanation was not provided for the whole period of time during which, first the 1995 T2 return, and then the 1996 T2 return was not filed. I am not persuaded that it was an improper exercise of discretion for the decision-maker to refuse in those circumstances to forgive part of the penalties and interest.

For the reasons given the application is dismissed.

Application dismissed.