Date: 20121105
Docket: T-964-11
Citation: 2012 FC 1290
[UNREVISED
ENGLISH CERTIFIED TRANSLATION]
Ottawa, Ontario, November 5, 2012
PRESENT: The Honourable Mr. Justice
Scott
BETWEEN:
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3563537 CANADA INC
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Applicant
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and
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CANADA REVENUE AGENCY
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Respondent
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REASONS FOR JUDGMENT AND JUDGMENT
I. Introduction
[1]
This is an
application for judicial review made by 3563537 Canada Inc. (the applicant) of
a decision made by a delegate of the Minister of National Revenue (the delegate)
on May 12, 2011, under subsection 220(3.1) of the Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA].
[2]
For the following reasons, the Court allows the applicant’s
application for judicial review.
II. Facts
[3]
The
applicant is a holding company held by its president, Peter Ouimet (Mr. Ouimet),
who owns a majority of the voting shares.
[4]
The
applicant’s assets were managed by Dundee Securities Corporation, a Canadian
brokerage firm (Dundee), under a brokerage contract.
[5]
The
applicant, through Mr. Ouimet, dealt directly with Patrick David O’Neill (Mr. O’Neill),
a registered representative at Dundee’s Pointe-Claire branch who traded
securities and provided investment advice for the applicant.
[6]
Mr. Ouimet
has known Mr. O’Neill for many years. He trusted him completely because
they were good friends.
[7]
From
2006 to 2008, the applicant was the victim of a major act of fraud committed by
Mr. O’Neill, who had convinced the applicant to open a special account.
This gave him complete control over the applicant’s assets.
[8]
Mr. O’Neill
also took charge of hiring resource persons for filling out and submitting the
financial statements and tax returns for Mr. Ouimet and the applicant. Mr. Ouimet
therefore gave Mr. O’Neill all the documents not related to investments
with Dundee, which are indispensable for preparing the applicant’s financial
statements and tax returns.
[9]
In
February 2008, Mr. O’Neill himself retained the services of the firm Andrews
& Ass. (Andrews) to prepare the applicant’s financial statements and tax
returns for the year 2007 (T2‑2007). At that time, Mr. O’Neill did
not provide Andrews with any information or documentation.
[10]
Despite
Andrews’ constant requests, Mr. O’Neill evaded providing indispensable
information in his possession that was needed to complete the applicant’s
financial statements. These financial statements were essential for filing the
tax returns.
[11]
In
the years 2007 and 2008, the applicant periodically received Excel spreadsheets
prepared by Mr. O’Neill; these spreadsheets misrepresented the applicant’s
true financial situation and the transactions made on its behalf.
[12]
The
applicant was therefore unable to file its T2-2007 return before the deadline
of June 30, 2008.
[13]
Andrews
persisted in demanding that Mr. O’Neill provide the documents needed to
file the tax returns.
[14]
On
September 22, 2008, Mr. Ouimet made a telephone call to Andrews,
asking for an account statement for the work carried out to date. During this
telephone conversation, Weilu Yu informed Mr. Ouimet that his file was
incomplete and that Andrews still had yet to receive the necessary information
from Mr. O’Neill.
[15]
Richard
W. Kennish, C.A. (Mr. Kennish), an employee of Andrews, discovered Mr. O’Neill’s
fraud in December 2008.
[16]
On
December 18, 2008, Mr. Ouimet and Mr. Kennish met for the first
time at a meeting at the offices of Andrews. It was at this time that Mr. Kennish
told Mr. Ouimet about the fraud and scams in which Mr. O’Neill was
suspected of engaging. They compared the financial statements they had
respectively received from Mr. O’Neill and noticed major discrepancies.
[17]
Mr. Ouimet
immediately took steps with Dundee to obtain the necessary information and
documents for preparing the financial statements and tax returns, including the
T2-2007, for the applicant.
[18]
On
December 27, 2008, Mr. Ouimet asked Andrews to cease all work on his
file until he received directly from Dundee the necessary information and
documents for the 2006 and 2007 taxation years.
[19]
On
January 30, 2009, Andrews received the necessary documents from Dundee.
[20]
On
February 4, 2009, the respondent, the Canada Revenue Agency [CRA], sent
the applicant a formal demand to produce the T2-2007 no later than
March 6, 2009. The CRA subsequently granted an extension to April 30,
2009.
[21]
The
CRA’s demand letter dated February 4, 2009, stated that the applicant faced
having a penalty imposed against it under section 162 of the ITA (see
Respondent’s Record, Exhibit B, page 26).
[22]
On
March 31, 2009, the applicant received its financial statements and reconfirmed
with Andrews the details of its mandate to prepare the tax returns for the
fiscal year ending December 31, 2007.
[23]
On
April 30, 2009, Mr. Kennish submitted the applicant’s T2-2007 to the
CRA.
[24]
On May 20, 2009, the CRA assessed the applicant and imposed a penalty
of $73,689.56 plus $27,094.15 in interest for failing to file the T2-2007
within the required time for the fiscal year ending December 31, 2007, as
provided in subsection 162(2) of the ITA.
[25]
On
June 5, 2009, Mr. Ouimet paid the full amount owed by the applicant,
including the penalty and interest.
[26]
On
October 15, 2009, September 16, 2010, and January 7, 2011, the
applicant filed requests for taxpayer relief under subsection 220(3.1) of
the ITA.
[27]
On
July 22, 2010, the CRA agreed to cancel the interest accrued between
February 29, 2009, and January 30, 2009, the date the applicant
received the documentation from Dundee.
[28]
In
its decisions dated July 22, 2010, November 24, 2010, and
May 12, 2011, the CRA refused to cancel the interest accrued from
January 30, 2009, to April 30, 2009, and the $73,689.56 late-filing
penalty.
[29]
On
November 11, 2010, the Investment Industry Regulatory Organization of
Canada [IIROC] rendered its decision on the fraud committed by Mr. O’Neill
(see: O’Neill (Re), 2010 IIROC 51). IIROC ruled that Mr. O’Neill
had committed fraud against the applicant and Mr. Ouimet, for which Dundee
paid $7,000,000.00 in compensation.
III. Legislation
[30]
The applicable provisions of the Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA], and Income Tax
Information Circular IC07-1 are reproduced in an appendix to this decision.
IV. Issue and
standard of review
A.
Issue
[31]
This
application for judicial review raises one issue:
Is the delegate's decision to refuse the
request for taxpayer relief reasonable?
B. Standard of review
[32]
In Dunsmuir
v New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 at paragraph 62 [Dunsmuir],
the Supreme Court of Canada describes the two steps to follow to determine the
applicable standard of review in an application for judicial review:
[62] In summary, the process of judicial review
involves two steps. First, courts ascertain whether the jurisprudence has
already determined in a satisfactory manner the degree of deference to be
accorded with regard to a particular category of question. Second, where the
first inquiry proves unfruitful, courts must proceed to an analysis of the
factors making it possible to identify the proper standard of review.
[33]
The standard of review applicable to a decision of the Minister of
National Revenue under subsection 220(3.1) of the ITA is already
well-established by the case law. In Leonard Asper Holdings Inc v Canada (Attorney
General), 2010 FC 894 at paragraph 20, Justice Mandamin refers to
Lanno v Canada (Customs
and Revenue Agency),
2005 FCA 153, which states that the standard of review that normally applies to the
Minister of National Revenue’s exercise of discretion is reasonableness (see also Telfer v
Canada Revenue Agency, 2009 FCA 23 at paragraph 2, and Hoffman v
Canada (Attorney General), 2010 FCA 310 at paragraph 5).
V. Positions of the parties
A. Position of the applicant
[34]
The
applicant submits that the decision of the CRA dated May 12, 2011, is
unreasonable. It raises three errors made by the Minister’s delegate that
should, in its view, lead the Court to conclude that (1) the Minister’s
delegate made an error of law; (2) the Minister’s delegate breached her duty to
comply with one of the principles of natural justice, since the decision did
not set out sufficient reasons; and (3) the Minister’s delegate based her
decision on erroneous findings of fact, without taking into account evidence
presented by the applicant.
[35]
The
applicant notes the following passage in the CRA’s decision dated
November 24, 2010, and more specifically the decision dated May 12,
2011 (see Applicant’s Record, Tab Q and Respondent’s Record, Exhibit L,
page 92):
Your account has been thoroughly reviewed and your submission carefully
considered in relation to the applicable legislation.
[36]
The
applicant argues that the Minister’s delegate made an error in her decision
dated May 12, 2011, when she claimed to have considered the applicant’s arguments and “the applicable legislation”. The
phrase “the applicable legislation” may imply that the delegate considered the
contents of Information Circular IC07-1 to be “binding” whereas they are merely
a set of guidelines. The applicant relies on paragraph 23 of the decision
of Justice O’Keefe in Spence v Canada Revenue Agency, 2010 FC 52 at paragraph 23 [Spence], which analyzes a
decision in which the Minister’s delegate had used the same phrase:
[23] . . . The nature of the error is the decision maker’s
apparent opinion that the taxpayer relief provisions, contained in Income Tax
Information Circular No. IC07-1, were binding law. The ministerial representative’s
reference to them as “Taxpayer Relief Legislation” is also indicative of her
apparent belief that the guidelines were law.
[37]
The
applicant notes that Justice O’Keefe allowed the application for judicial
review on the basis that the delegate had made an error of law by equating the
guidelines with a piece of legislation. The applicant submits that the
Minister’s delegate, Ms. Dessureault, made the same error in her decision
dated May 12, 2011.
[38]
The
applicant argues that the decision of the Minister’s delegate gives no reasons
and makes no reference whatsoever to the arguments made by the applicant. Consequently,
the decision breaches one of the fundamental principles of natural justice,
namely, the duty to give reasons.
[39]
The
applicant cites the decision in Robertson v Canada (Minister of National Revenue),
2003 FCT 16, [2002] FCJ No 1828 at paragraph 15 [Robertson],
in which the Honourable Mr. Justice Layden-Stevenson found that the
decision of the Minister’s delegate was “patently unreasonable” because it did
not adequately explain the director’s position, particularly with regard to the
late filing of the returns. Here is the relevant excerpt from the decision of
the Minister’s delegate:
“I have fully considered all the information submitted in your letter. I
have also reviewed the information contained in the original request. The
Canada Customs and Revenue Agency, CCRA, has the discretion to cancel or waive
all or part of properly assessed penalty and interest. Discretion will
generally be exercised if the client has not complied with the Income Tax
Act due to extraordinary circumstances beyond his control. Extraordinary
circumstances include natural or human made disasters, civil disturbances or
disruptions in service, serious illness or accident or serious emotional or
mental distress due to errors or delays by the CCRA or when there is an
inability to pay amounts owing. As your correspondence does not indicate that
you were prevented from filing the returns on time, I regret to inform you that
this is not a case in which it would be appropriate to cancel the late filing
penalties. In addition, our records indicate that you had accumulated
additional consumer debt in December, 2000. In such situations, the
cancellation of interest charges is not usually granted.” (see Robertson
at paragraph 1)
[40]
The
applicant also relies on this passage from Leonard Asper Holdings Inc v
Canada (Attorney General), 2010 FC 894 at paragraph 37, where
Justice Mandamin states as follows:
[37] The Minister’s discretion in section 220(3.1) must lead to
a reasonable outcome, the reasons for which must be justified, transparent and
intelligible and “. . . within a range of possible, acceptable
outcomes which are defensible in respect of the facts and law” as provided in Dunsmuir.
[41]
The
applicant is of the view that the delegate either did not understand or ignored
the particular circumstances that prevailed when it filed its T2-2007. Accordingly,
the decision is not reasonable.
[42]
The
applicant refers in particular to the following passage in the initial decision
dated July 22, 2010:
. . . You should have filed the 2007 Tax Return with the
available information and then should have requested an adjustment once the
information from “Dundee Securities” had been received . . . .
[43]
The applicant
argues that this remark clearly shows that the delegate did not understand the
facts that the applicant presented to her in its letter dated October 15,
2009.
[44]
On
June 30, 2008, all the information required to complete the applicant’s
return was in Mr. O’Neill’s possession. The delegate was therefore unaware
of the basic facts of the case. The applicant is of the view that the
delegate’s finding is patently unreasonable because it is based on a certain
lack of understanding of the factual evidence.
[45]
The
applicant notes that the statement to the effect that the applicant should have
filed its returns on the basis of incomplete documents is repeated in the three
decisions made by the Minister’s delegates and, more specifically, in the
decision dated May 12, 2011. The applicant submits that it is unreasonable
for the CRA to require this despite a detailed description of Mr. O’Neill’s
acts of fraud and the resulting impact on the applicant, particularly in terms
of its ability to file its tax returns within the time prescribed by the Act.
[46]
The
applicant further submits that this requirement to file amounts to an
invitation to knowingly make a false statement or omission, an act that is
prohibited by the ITA and subject to a penalty under subsection 163(2) of
that Act. The applicant also quotes the Honourable Mr. Justice Zinn, who, in
Nedza Enterprises Ltd v
Canada (Revenue Agency),
2010 FC 435 at paragraph 27 [Nedza], states as follows:
The Minister’s mention of the applicant’s failure to file an uncertified
estimated return raises a question as there appears to be no statutory
authority for such a procedure . . . .
[47]
Regarding
the final decision dated May 12, 2011, the applicant raises two errors
made by the CRA. The first
concerns the passage in which the Minister’s delegate states as follows:
[A]ll facts included in the fax received were already considered in our
decision dated November 24, 2010 further to the second request for taxpayer
relief.
[48]
The applicant is of
the view that the delegate could not possibly have read the IIROC decision for
her second review (November 24, 2010), since the report of the facts was
not completed until November 10, 2010, contrary to what she wrote (Applicant’s
Memorandum of Fact and Law, page 136).
[49]
The second error,
according to the applicant, stems from the delegate’s failure to analyze the
situation as it was on the statutory filing date (June 30, 2008) to
determine whether or not the applicant failed to file its T2-2007 for reasons [translation] “beyond its control”. It argues that the delegate is placing too much
importance on facts that arose after the filing deadline. She criticizes the
applicant for failing to act more diligently after September 22, when the applicant
learned of the problems Andrews was having in obtaining the information from Mr. O’Neill.
[50]
Finally, the
applicant alleges that the delegate based her findings on erroneous facts and
that it has no way of verifying whether all of the evidence presented by its
two representatives was indeed considered. Citing Elwell v Canada (Minister of
National Revenue), 2004 FC 943 at paragraph 13, it notes
that the Honourable Mr. Justice Rouleau held
that such a lack of transparency is a breach of procedural fairness:
. . . I cannot ascertain from the decision of Ms. Shields,
who reconsidered the request and upheld the previous fairness decision, that
she took any of the applicant’s explanations into account. Her decision of
November 14, 2003, simply reiterates and relies upon the applicant’s
compliance history as grounds for denying her relief.
B. Position of the CRA
[51]
The
CRA argues that its decision complies with the principles of natural justice. It
relies on Kindler v Canada (Minister of Justice), [1987] 2 FC 145
at paragraph 24, in which the Honourable Mr. Justice Rouleau writes
as follows:
[24] In this case the petitioner complains about the reasons given by
the respondent because they did not delve into the evidence in sufficiently
exhaustive detail. However, I am satisfied that the Minister’s reasons
demonstrate a grasp of the pertinent issues and of the relevant evidence. It is
not necessary for the reasons to list every conceivable factor which may have
influenced the decision and I am not persuaded by the petitioner’s argument
that the lack of reference to the psychiatric reports or the letters of the
petitioner’s parents means that they were ignored. The Minister’s decision, in
my view, represented a fair and accurate assessment of the situation; it
demonstrated a consideration of the relevant facts including the petitioner’s
age, family circumstances, his behavioural, educational and employment
background as well as the personal representations of the petitioner in his
letter to the respondent, including his allegations of innocence for the crimes
with which he was convicted. . . .
[52]
The
CRA states that its decision of May 12, 2011, takes into account all of
the facts raised by the applicant. Moreover, the CRA notes that the delegate’s
letter is based on an internal report she herself completed. This report clearly
shows that the delegate considered all of the relevant facts and that her
decision meets the applicable criteria in such cases.
[53]
In
the alternative, the CRA submits that if the Court finds that the delegate’s decision
of May 12, 2011, does not contain sufficient reasons and breaches a
principle of natural justice, the Court should not refer the decision back to
the Minister. The CRA relies on Stemijon Investments Ltd v Canada (Attorney
General), 2011 FCA 299 [Stemijon], in which
Justice Stratas, writing on behalf of the Federal Court of Appeal, points
to the discretionary nature of the decision to grant a remedy in an application
for judicial review. At paragraph 46, he states:
[46] In this case, there would be no practical end served in setting
aside the Minister’s decision and returning the matter to him for
redetermination. The excuses and justifications offered by the appellants for
the delay in filing and the grounds offered in support of relief have no merit.
The Minister could not reasonably accept them and grant relief under
subsection 230(3.1) of the Act. Returning the matter back to the Minister
would be an exercise in futility.
[54]
Since
the Minister’s delegate based her decision on the appropriate facts and
criteria, the CRA argues that referring it back to the Minister would be an
exercise in futility.
[55]
The
CRA then addressed the reasonableness of its decision, first by raising the
principle to the effect that the reviewing court applying the reasonableness
standard must treat the decisions of administrative decision-makers with
deference. It cites Dunsmuir at paragraph 47. In that paragraph,
the Supreme Court states as follows:
[47] Reasonableness is a deferential standard animated by the principle
that underlies the development of the two previous standards of reasonableness:
certain questions that come before administrative tribunals do not lend
themselves to one specific, particular result. Instead, they may give rise to a
number of possible, reasonable conclusions. Tribunals have a margin of
appreciation within the range of acceptable and rational solutions. A court
conducting a review for reasonableness inquires into the qualities that make a
decision reasonable, referring both to the process of articulating the reasons
and to outcomes. In judicial review, reasonableness is concerned mostly with
the existence of justification, transparency and intelligibility within the
decision-making process. But it is also concerned with whether the decision
falls within a range of possible, acceptable outcomes which are defensible in
respect of the facts and law.
[56]
The
CRA further submits that, in light of the facts presented by the applicant, its
decision to refuse to cancel the penalties imposed in 2007 is reasonable. It
notes that the applicant received documents periodically from its financial
adviser, Mr. O’Neill, regarding its financial situation. It then concludes
that on June 30, 2008, the applicant could have prepared its T2-2007 on
the basis of that information.
[57]
According
to the CRA, the applicant could have filed a return using the documents in its
possession and then filed amended returns later. In support of this argument,
it cites Tedford v Canada (Attorney General), 2006 FC 1334 at paragraph 27:
[27] Further, while it might be technically inaccurate to say that
submissions for relief did “. . . not identify a reason why the
returns for the years 1997, 1998 and 1999 were not filed on a timely basis”,
the events advanced to justify the late filing for those years were relatively
remote. The Applicant acknowledged at hearing that he could have filed returns
for those years on a timely basis, based on the documentation and information
then available to him and, when full and complete documentation and information
became available, he could have filed amended returns, if appropriate. The
Applicant made a conscious choice not to proceed in that manner. It has proved
to be a costly choice, but perhaps the one that seemed most reasonable to him
at the time and in the then prevailing circumstances. It was, in the end, his
choice and has proved to be a substantially expensive choice.
[58]
Moreover,
according to the CRA, the following facts show that the applicant did not
exercise due diligence and remedy the delay as soon as possible:
(a)
The
applicant learned on September 22, 2008, that its T2-2007 had not been
filed on time;
(b)
Untroubled
by the situation, the applicant did nothing to remedy its failure to file;
(c)
On
December 18, 2008, the applicant instructed Dundee to send Andrews its financial
information;
(d)
On
December 27, 2008, the applicant ordered Andrews to stop all work related
to filing its tax return until it received the information from Dundee;
(e)
On
February 4, 2009, the CRA sent the applicant a formal demand to file its T2-2007
no later than March 6, 2009;
(f)
On
March 31, 2009, the applicant finally instructed Andrews to resume work
and to file its T2-2007;
(g)
On
April 4, 2009, the CRA gave the applicant an extension until
April 30, 2009, to file its tax return.
[59]
The
CRA concludes that the decision of May 12, 2011, is clearly within a range
of possible, acceptable outcomes that the CRA could have arrived at after
considering the evidence and facts in this case.
VI. Analysis
Is the delegate's
decision to refuse the request for tax relief reasonable?
[60]
For
the reasons that follow, the Court finds that the delegate’s decision to refuse
the request for tax relief is not reasonable.
[61]
The
applicant submits that the Minister’s delegate made an error of law in her
decision of May 12, 2011, in using the following expression: “Your account
has been thoroughly reviewed and your submission carefully considered in
relation to the applicable legislation”.
[62]
Indeed,
in exercising her discretion under subsection 220(3.1) of the ITA, the
Minister’s delegate could take into account the guidelines in Information
Circular IC07-1. The delegate does not have to follow these guidelines since
they are not binding law. The applicant submits that the passage above implies
that the delegate thought that these guidelines were binding.
[63]
The
applicant relies on paragraph 21 of the decision of Justice O’Keefe in
Spence, above, in which the Minister’s delegate had
used the same phrase. However, in Spence, the phrase “applicable
legislation” is used very differently from how it is used in the matter before
this Court, since it concerned the delegate’s statement to the effect that “the
taxpayer relief provisions do not allow for the cancellation of penalties in
these types of situations”.
[64]
That
passage clearly shows that the delegate in Spence, above, thought that
the provisions of Information Circular IC07-1 were binding. No such passage is
found anywhere in the decision of the delegate in the case before this Court.
[65]
Upon
reading the phrase “applicable legislation” in its context, it may readily be
inferred that the delegate did indeed understand the nature and scope of her
discretion. She therefore did not make an error of law.
[66]
Upon
reading the record and the evidence it contains, the Court does note, however,
that the Minister’s delegate did not understand certain facts presented by the
applicant. The Court must consider whether this error is so critical as to
invalidate the decision to refuse the request for taxpayer relief under subsection 220(3.1)
of the ITA.
[67]
The
delegate erred in finding that the applicant knew its T2-2007 was late before
the statutory date of June 30, 2008. The delegate relied on the response
she received to the following question:
1) Why did you not advise the 3 shareholders before
the deadline on 2008-06-30 that you had a lack of co-operation with the broker
to get [sic] the information to prepare the T2-2007 return? (Respondent’s
Record, Exhibit D)
1) The active shareholder Mr. Peter Ouimet was
aware that the 2006 financial statements and tax returns were still outstanding
so that it followed that he also new [sic] the 2007 ones were not
prepared. (Respondent’s Record, Exhibit E)
[68]
The
finding to the effect that Mr. Ouimet knew that his T2-2007 was late since
the 2006 return was also late is an assumption that is not necessarily
supported by the facts.
[69]
On
the basis of this finding, the delegate imposed the following duty on the applicant:
“[Y]ou should have filed the 2007 Tax Return with the available information” (Respondent’s
Record, Exhibit L). The delegate did not consider the fact that Mr. Ouimet
did not know that his T2-2007 had not been filed since his friend, Mr. O’Neill,
was supposed to file it.
[70]
Even
if the Court found some errors, they would have to be determinative ones. A
decision does not have to be perfect to withstand an application for judicial
review. As Justice Zinn notes in Nedza, above, at paragraph 27:
[27] The Minister’s mention of the applicant’s failure to file an uncertified
estimated return raises a question as there appears to be no statutory
authority for such a procedure. Nonetheless, even if
this statement was made in
error, I am not satisfied that it renders the entire decision unreasonable.
This factor was one of many on which the decision-maker relied. Central to the
decision-maker’s reasoning was that the extraordinary circumstances advanced by
the taxpayer did not explain why the other directors ought not to be held to
their duties and responsibilities to Nedza as directors. In my view, this
finding was reasonable and determinative of the request for relief.
[71]
A
reasonable decision must give reasons. The decision made by the Minister’s
delegate, in response to the applicant’s three requests for taxpayer relief, is
set out in the following letter:
May 12, 2011
Account Number
87855 1027 RC0001
ANNE CHAUSSEGROS DE LERY
2020-500 PLACE D’ARMES
MONTRÉAL QC H2Y 2W2
Madam:
Re: Second request for taxpayer relief for the taxation
Year ending December 31, 2007 ref: 3563537
I am replying to a correspondence dated January 7, 2011 received by fax
from your representative Mrs Anne Chaussegros de Léry, asking under the
taxpayer relief provisions of the “Income Tax Act” for a second review of your
account for the above-mentioned taxation year.
We wish to inform you that all facts included in the fax received, were
already considered in our decision dated November 24, 2010 further to the
second request for taxpayer relief.
Your account has been thoroughly reviewed and your submission carefully
considered in relation to the applicable legislation.
However, I have noted any information that would change the original
decision.
Therefore, I have decided that the late-filing penalty were [sic]
properly charged. If you do not agree with this decision, you can ask for
judicial review, within 30 days of the date you receive this letter. You may
obtain more details by consulting our web site at the following address:
http://www.fct-cf.gc.ca/index_f.html
If you have questions about this matter, you can contact Micheline
Gilbert, Taxpayer Relief Officer, she is familiar with this account and can be
reached at 1-866-779-2165 ext 3359 or by fax at 1-819-536-4486
Yours sincerely,
“France Dessureault”
France Dessureault
Manager
Corporation Returns Processing
c.c.: 3563537 CANADA INC.
(Respondent’s Record, Exhibit L, pages 92 and 93)
[72]
Upon
reading this decision, the Court notes that it does not give adequate reasons.
It makes no reference to the applicant’s evidence of Mr. O’Neill’s fraud,
apart from the remark that the Minister “empathize[s] with you about the
problems incurred” (Applicant’s Record, Tab O).
[73]
As
justification for refusing to grant the request for taxpayer relief, the
applicant was told in this decision that “[you] should have filed the 2007 Tax
return with the available information and then should have requested an adjustment
once the information from ‘Dundee Securities’ had been received”. This
completely disregards the context and the evidence presented by the applicant to
justify its inability to act. The major fraud committed against the applicant over
the years in question appears to have been ignored. The applicant raises extraordinary
circumstances, namely, Mr. O’Neill’s fraud, under paragraph 23(a) of
Information Circular IC07-1. The letter dated May 12, 2011, does not allow
us determine whether or not the delegate took into account the evidence the
applicant presented to show extraordinary circumstances.
[74]
The
respondent argues that the delegate’s recommendation report gives the reasons
for the decision made in this case and makes adequate reference to the evidence
filed by the applicant. In Société Angelo Colatosti Inc v Canada (Attorney
General), 2012 FC 124 at paragraph 31 [Colatosti], Justice Bédard
notes, referring to Stemijon, above, at paragraph 37, that “it is sometimes useful to review the record to understand the
reasons and assess the reasonableness of the decision”. At paragraph 31 of her
decision, recalling the statement of the Supreme Court in Newfoundland and
Labrador Nurses' Union v Newfoundland and Labrador (Treasury Board),
2011 SCC 62, she writes:
[31] . . . that the reasons for a
decision must be analyzed together with the outcome and that it was possible to
review the record to assess the qualities that make a decision reasonable. . . .
[75]
The
inadequacy of the delegate’s reasons is therefore not, in and of itself, enough
to invalidate her decision. The report that accompanied the decision of May 12,
2011, has a better analysis of the facts and contains several grounds for
refusal that do not appear in the decision letter. The applicant is mainly
criticized for (1) its lack of diligence after its telephone call on
September 22, 2008, with Ms. Wu from Andrews; and (2) its liability
for the actions of third parties.
[76]
In
the report supporting the decision of May 12, 2011, the delegate refers to
paragraph 35 of Information Circular IC07-1, which addresses third-party
actions. The paragraph states as follows:
35. Taxpayers are generally considered to be responsible for errors made
by third parties acting on their behalf for income tax matters. A third party
who receives a fee and gives incorrect advice, or makes arithmetic or
accounting errors, is usually regarded as being responsible to their client for
any penalty and interest charges that the client has because of the party’s
action. However, there may be exceptional situations, where it may be
appropriate to provide relief to taxpayers because of third-party errors or
delays.
The delegate found that Mr. Ouimet had wilfully
decided to retain Mr. O’Neill. He therefore could be held liable under paragraph 35
of Information Circular IC07-1. She also mentions the following fact:
Dundee Securities has recognized their responsibility (see settlement)
between Mr. Peter [sic] Ouimet/34563537 Canada and Dundee
[77]
In Colatosti,
above, at paragraph 35, Justice Bédard, faced with a similar passage,
wrote as follows:
[35] . . . Her recommendation nevertheless
suggests that she felt that the actions of a third party, in this case the
applicant’s accountant, simply could not be relied on as an extraordinary
circumstance, regardless of the circumstances surrounding this action. I
understand from her report that she objected to a fin de non-recevoir on
the grounds raised by the applicant—its accountant’s error—without it being
necessary to review the circumstances surrounding this error. Therefore, she
seems to not have reviewed whether the circumstances relied on by the applicant
could have been extraordinary circumstances warranting a request for relief.
She therefore concludes
as follows, at paragraph 37:
[37] . . . I therefore find that the
recommendation report does not add anything new to the matter and, as previous
[sic] indicated, I find that the Assistant Director’s decision was
unreasonable because it is impossible to know the extent of his review of the
circumstances relied on by the applicant.
[78]
In
the present case, the Court cannot know whether or not the delegate found that Mr. O’Neill’s
fraud could constitute “extraordinary circumstances” since there is no analysis
of this subject, even though the applicant based its request on this very fraud
and Mr. O’Neill’s schemes. In such circumstances, the delegate’s decision
is unreasonable because it lacks transparency for not addressing the central
issue raised in the request, that is, whether or not Mr. O’Neill’s fraud
constitutes extraordinary circumstances.
[79]
Paragraph 33
of Information Circular IC07-1 deals with, among other things, the failure to
act quickly. It states that this may be considered when determining whether relief
will be granted, particularly “[w]here circumstances beyond a taxpayer’s
control . . . [have] prevented the taxpayer from complying with the
Act”. The CRA criticizes the applicant for failing to act quickly on two
occasions. The first period extends from September 22, 2008, to
December 18, 2008, and the second, from December 18, 2008, to
April 30, 2009. Let us begin with the second.
[80]
A
reading of the delegate’s report dated May 12, 2011, reveals no mention of
any failure to act quickly on the part of the applicant during this period.
[81]
Regarding
the period from September 18 to December 18, 2008, the evidence shows
that on September 22, 2008, Mr. Ouimet contacted Andrews and asked
for a statement of account for the work performed to date. Weilu Yu informed
him at that time that his file was incomplete and that Andrews still had not
received the necessary information from Mr. O’Neill. Mr. Ouimet asked
Andrews to try to reach Mr. O’Neill again. Mr. Ouimet took no further
action until December 18, 2008, when he discovered Mr. O’Neill’s
fraud. The delegate criticizes Mr. Ouimet for his inaction. Is this
reasonable in the circumstances?
[82]
First,
the Court notes that the delegate, by relying on paragraph 33(d) of
Information Circular IC07-1, implicitly agrees that the delay in filing the
applicant’s return was due to circumstances beyond the taxpayer’s control (i.e.
Mr. O’Neill’s fraud). The Court further notes that Mr. Ouimet was as
yet unaware of Mr. O’Neill’s fraud on September 22 and was still
being victimized by this scam. Despite this, the delegate found that Mr. Ouimet
did not act diligently in suggesting that Andrews contact Mr. O’Neill again
to obtain the necessary information. The Court cannot agree with such a finding
which, once again, ignores essential pieces of evidence: Mr. O’Neill’s
fraud and his interest in shirking his duties to avoid being unmasked.
[83]
The
CRA submits that, on the other hand, should the Court conclude that the decision
of May 12, 2011, is unreasonable, it should nevertheless refuse to quash
the decision because it would be futile to do so. The CRA relies on paragraph 46
of Stemijon, above:
[46] In this case, there would be no practical
end served in setting aside the Minister’s decision and returning the matter to
him for redetermination. The excuses and justifications offered by the
appellants for the delay in filing and the grounds offered in support of relief
have no merit. The Minister could not reasonably accept them and grant relief
under subsection 230(3.1) of the Act. Returning the matter back to the
Minister would be an exercise in futility.
[84]
The
Court rejects this argument, as it is not disposed to conclude that the
circumstances and reasons on which the applicant relies have no merit and that
it would be futile to return the matter back to the Minister for redetermination.
This is why the Court is quashing the delegate’s decision and remitting the
matter for reconsideration.
JUDGMENT
THIS COURT’S JUDGMENT IS
that
the application for judicial review is allowed with costs.
“André F.J. Scott”
Certified true translation
Michael Palles
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