Date:
20130514
Docket:
T-1933-11
Citation:
2013 FC 502
Ottawa, Ontario, May 14, 2013
PRESENT: The Honourable Mr.
Justice Phelan
BETWEEN:
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ALICE FICEK
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Applicant
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and
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THE ATTORNEY GENERAL OF CANADA
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Respondent
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REASONS FOR
JUDGMENT AND JUDGMENT
I. INTRODUCTION
[1]
The
issue in this judicial review is whether the Minister of National Revenue
[Minister] has met the obligation to examine the Applicant’s tax return “with
all due dispatch” in circumstances where delay in examination was caused by the
policy of a local tax centre of the Canada Revenue Agency to discourage certain
types of tax shelter donations.
[2]
This
judicial review had been commenced primarily to obtain mandamus to
compel the Minister to examine the Applicant’s 2010 tax year return;
declaration was a secondary relief. After the hearing the Minister issued his
assessment of the return and asked that the judicial review be dismissed for
mootness. The Applicant had asked to expand and clarify the declaratory relief to
be as follows:
… in the alternative, a declaration that the
Minister has no authority to delay the examination of the applicant’s return,
the issuance of a corresponding tax assessment, and the ending of a notice of
that assessment for any of the following reasons:
a) to deter
or reduce taxpayer participation in a registered tax shelter (namely, in the
Global Learning Gifting Initiative); or
b) to
pursue goals other than those directly related to examining the applicant’s
return and ascertaining her tax, interest, and penalties payable under the Income
Tax Act.
[3]
The
declaration amendment was granted by Order of the Court on April 24, 2013, and
the motion to dismiss for mootness was dismissed on April 25, 2013. The reasons
for dismissal of the motion regarding mootness are found in Ficek v Canada (Attorney General), 2013 FC 430.
[4]
The
relevant section, s 152(1) of the Income Tax Act, RSC 1985 (5th Supp), c
1 [ITA], reads:
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152.
(1) The Minister shall, with all due dispatch, examine a taxpayer’s return of
income for a taxation year, assess the tax for the year, the interest and
penalties, if any, payable and determine
(a)
the amount of refund, if any, to which the taxpayer may be entitled by virtue
of section 129, 131, 132 or 133 for the year; or
(b)
the amount of tax, if any, deemed by subsection 120(2) or (2.2), 122.5(3),
122.51(2), 122.7(2) or (3), 125.4(3), 125.5(3), 127.1(1), 127.41(3) or
210.2(3) or (4) to be paid on account of the taxpayer’s tax payable under
this Part for the year.
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152.
(1) Le ministre, avec diligence, examine la déclaration de revenu d’un
contribuable pour une année d’imposition, fixe l’impôt pour l’année, ainsi
que les intérêts et les pénalités éventuels payables et détermine :
a)
le montant du remboursement éventuel auquel il a droit en vertu des articles
129, 131, 132 ou 133, pour l’année;
b)
le montant d’impôt qui est réputé, par les paragraphes 120(2) ou (2.2),
122.5(3), 122.51(2), 122.7(2) ou (3), 125.4(3), 125.5(3), 127.1(1), 127.41(3)
ou 210.2(3) ou (4), avoir été payé au titre de l’impôt payable par le
contribuable en vertu de la présente partie pour l’année.
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[5]
It
is fair to say that this case is something of a test case. There were 83
similarly delayed assessments in 2010 and a larger number for 2011.
II. BACKGROUND
[6]
The
context in which this issue arose is important. The Global Learning Gifting
Initiative [GLGI] is a tax shelter that has been registered with Canada Revenue
Agency [CRA] since 2004.
CRA audited GLGI
for each of the taxation years 2004-2008 which resulted in the denial of every
charitable donation credit claim for those years. The 2009 audit was ongoing in
mid-2011. The tax year at issue in this judicial review is 2010.
[7]
The
Respondent describes how GLGI operated in 2004-2009 as follows:
•
a
promoter signs up participants;
•
the
participants make a cash payment to a charity;
•
the
participants apply to become a beneficiary of a trust and indicate the amount
of courseware (or software) they would like to receive from the trust;
•
after
the trust approves the participant as a beneficiary, the trust makes a
distribution of the courseware to the participant who in turn purports to
donate the licences of this courseware to a charity;
•
the
participant receives two charitable donation receipts, one in respect of the
cash and one in respect of the courseware; and
•
the
charities retain less than 10% of the cash received; up to 90% of the cash paid
to the charities is ultimately paid to the promoter and IDI Strategies Inc.
[8]
Whether
the above is an accurate or fair description is not before the Court. However,
there is no evidence that in 2010 the Respondent’s perception of GLGI’s
operation or the lack of legitimacy of charitable donation had changed in 2010.
In fact, the Respondent’s officials in Winnipeg viewed the GLGI activities as a
“sham” or a fraud.
[9]
For
the 2004-2009 tax years CRA denied the charitable tax credit on the following
grounds:
•
the
participants did not make a gift to a charity as they did not have a donative
intent;
•
the
participants did not own courseware licences to donate to the charity;
•
the
trust was not valid;
•
the
GLGI arrangement was a sham; and
•
the
fair market value of the licences was substantially less than the value claimed
in the charitable donation tax receipts issued by the charities.
[10]
There
are a significant number of Notices of Objection filed disputing the denial of
the charitable donation claims. A CRA official estimated that there were
27,000-28,000 Notices of Objection being held in CRA’s Appeals Division with
respect to GLGI for the 2004-2006 tax years alone.
The Tax Court of
Canada has yet to make a determination on the deductibility of these charitable
donations.
[11]
CRA’s
long-standing policy across the country is to allow a taxpayer’s claim for
charitable donation tax credits made for a gifting tax shelter in the initial
assessment and then, after auditing the tax shelter, issue a reassessment if
necessary. This would result initially in a refund to the taxpayer and might
subsequently, following a reassessment, require repayment to the CRA by the taxpayer.
[12]
In
March 2011, the Director of CRA’s Winnipeg Tax Centre [the Centre] formed a
working group ostensibly to examine approaches aimed at improving compliance
with the ITA. There was a specific focus on verifying taxpayer claims, that is
conducting the audit, before issuing a refund [the New Policy]. GLGI was
selected as a pilot for this New Policy because it had been audited for the
2004-2009 tax years and all charitable credits had been denied.
[13]
At
the November 2012 hearing before this Court, the Respondent maintained that the
2010 tax year GLGI audit could take until June 2013 to finish. However, within
a few weeks of the judicial review hearing, the audit was completed.
[14]
The
Applicant is one of the taxpayers who made a donation in 2010 through GLGI knowing
that it was a registered tax shelter. The Applicant and her husband made a
payment to the GLGI program through their joint account and they received two
tax receipts from donations made through GLGI. The receipts were for two
amounts: $10,000 for a cash donation and $50,019.86 for the donation of
courseware licences. The tax receipts were issued in the name of the
Applicant’s husband and were claimed on his return. He transferred $35,100 of
his total donation to the Applicant. The husband was assessed in May 2011 and
was allowed his charitable tax credit.
[15]
The
Applicant, on the other hand, received a letter, as a result of the New Policy,
advising that her assessment would not be issued until the 2010 audit was
completed. A CRA Tax Alert was attached to the letter warning of an audit if
contributions were made to a gifting tax shelter.
III. ANALYSIS
[16]
The
true issue is whether the Respondent’s New Policy and the excuse for delay in
assessing is consistent with the Minister’s duty to assess “with all due
dispatch” per s 152(1) of the ITA.
A. Standard of Review
(1) Legal
Principles
[17]
The
Applicant submits that there is no specific standard of review and that the
Court is the trier of fact. In this regard, I do not agree. The Minister is
given a wide (but not unfettered) discretion in assessing and it is not
generally for the Court to second-guess the Minister’s administrative decisions
unless they are unreasonable or not compliant with the ITA.
[18]
In
this case, the issue is whether the Minister’s failure to assess is due to
irrelevant considerations or improper purpose. In that regard, the standard of
review is not particularly determinative in this case. The standard of review
is either correctness because improper purpose goes to jurisdiction or
irrelevant considerations, arbitrariness and improper purpose make a decision
unreasonable. The assessment of the facts underlying the issue is for the Court
to determine.
[19]
The
term “with all due dispatch” was thoroughly canvassed in Jolicoeur v Minister
of National Revenue, [1960] CTC 346, 60 DTC 1254 (Ex Ct). The essential
conclusions are that term is the equivalent of “with all due diligence” or
“within a reasonable time” and that there is no fixed time period for the
performance of the duty to assess.
[20]
The
basic principle governing the Minister’s performance of the duty to assess is
well- described in paragraphs 47 to 49 of Jolicoeur, above:
47 There is no doubt that the Minister is bound
by time limits when they are imposed by the statute, but, in my view, the words
“with all due dispatch” are not to be interpreted as meaning a fixed period of
time. The “with all due dispatch” time limit purports a discretion of the
Minister to be exercised, for the good administration of the Act,
with reason, justice and legal principles.
48 The subject-matter in this appeal being the
assessments, what the Court has to consider is the correctness of the
assessments in question. In Provincial Paper Ltd. v. Minister of National
Revenue, [1954] C.T.C. 367, the President of this Court stated at page 373,
... There is no standard
in the Act or elsewhere, either express or implied, fixing the essential
requirements of an assessment. It is, therefore, idle to attempt to define
what the Minister must do to make a proper assessment. It is exclusively for him
to decide how he should, in any given case, ascertain and fix the liability of
the taxpayer. The extent of the investigation that he should make, if any, is
for him to decide. Of necessity it will not be the same in all cases.
49 There is no doubt that the Minister is
required to reconsider the assessment upon receipt of a notice of
dissatisfaction in the time best suited for the accomplishment of his duty;
however, the determination in each case as to whether he has executed his
duty “with all due dispatch” is a question of fact. He may be delayed in
his determination by many reasons and factors. But as said above, it is
exclusively for him to decide how he should, in any given case, ascertain and
fix the liability of the taxpayer and the extent of his reconsideration. This
being so, how can the courts interfere and decide that an assessment becomes
null and void because notice of reconsideration was not served in the time
limit of 180 days?
(Underlining by Court)
[21]
Other
decisions such as Merlis Investments Ltd v Minister of National Revenue,
(2000), [2001] 1 CTC 57, 2000 DTC 6634 (Fed TD), and Rodmon Construction
Inc v R , [1975] CTC 73, 75 DTC 5038 (Fed TD), confirm that same basic
interpretation which provides the Minister with reasonable discretion in the
timing of assessment. However, the discretion is not unfettered, it must be
reasonable and for a proper purpose of ascertaining and fixing the liability of
the taxpayer (J Stoller Construction Ltd v Minister of National Revenue,
[1989] 1 CTC 2171, 89 DTC 134 (TCC)).
[22]
In
assessing whether the facts exhibit “all due diligence”, it is important to
bear in mind the purposes of the provision, which is to bring some certainty to
the taxpayers’ financial affairs at the earliest reasonably possible time (see J
Stoller, above; Hillier v Canada (Attorney General), 2001 FCA 197,
[2001] 3 CTC 157).
[23]
The
prompt assessment requirement has important consequences within the scheme of
the ITA. For example, the three-year limitation period on reassessment is
postponed where there is delay in the initial assessment. The taxpayer cannot
compel the refund of overpayment of taxes absent an initial Notice of
Assessment, nor can the taxpayer proceed by way of objection to the Tax Court
until an assessment is issued.
As referred to
in paragraph 28 hereof, headquarters of CRA warned of some of the adverse
consequences of the New Policy.
[24]
It
is essential, in determining whether the Minister has met this statutory
obligation, to consider the real purpose and effect of the New Policy. The true
purpose is found in the series of e‑mails and documents surrounding the
creation of the memo incorporating the New Policy. While the Director of the
Winnipeg Tax Centre tried to describe the purpose as simply verification of
donations, I conclude that its real aim was to deter taxpayers from
participating in the GLGI program.
[25]
The
Working Group admitted that it was trying to find a legitimate way to avoid
issuing refunds from participation in the GLGI program and to find a method to
prevent the refund from ever being issued. In this regard, the Winnipeg Tax
Centre was proceeding on its own policy which was distinctly different from
that in the rest of the country. Those taxpayers within the Centre’s ambit were
to be treated differently from taxpayers in the rest of the country. This is
inconsistent with the federal and national nature of the Minister’s obligation.
[26]
Even
allowing for a certain degree of hyperbole or “piling on” in internal
communications, the officials in the Centre wrote that they had GLGI
participants “over a barrel” and that “withholding refunds for even a year or
two may be sufficient to deter further participation” in GLGI.
There is no
evidence that anyone ever disavowed that this was the true purpose of the New
Policy. The manner in which officials implemented the New Policy confirms that
its true purpose is to discourage participation in tax shelters generally and
GLGI in particular.
[27]
The
method by which the Winnipeg Tax Centre thought it could achieve this purpose
was to rely on the need for an audit to give legitimacy to the delay which they
intended to use to discourage participation. However, it is apparent from the
Record that the Centre had already determined that the donations claimed were
not legitimate.
[28]
This
initial development of the New Policy was outlined in a memo which also
reflected the concerns of superiors at CRA in Ottawa:
Headquarters has cautioned that there may be
unintended effects on taxpayer rights where taxpayers may have rights to
certain benefits under the Act, such as Child Tax Benefits and Goods and
Services Tax /Harmonized Sales Tax credits, as these would be delayed until the
time of assessment of the return.
The headquarters’ concerns were
dismissed as largely irrelevant by the officials at the Winnipeg Tax Centre.
[29]
That
same memo outlined the real reason for the delay in assessment:
Withholding the refunds for even a year or two until
the audit of the tax shelter is complete may be sufficient to deter further
participation. In addition it is hoped that this approach might be adopted
nationally, resulting in a consistent and stronger message to all those who
participate in these aggressive arrangements that the CRA is taking all
reasonable measures to protect the tax base.
[30]
Subsequently
the description of the New Policy was massaged in later drafts to remove what
officials knew were troublesome words – troublesome not because they were not
accurate but troublesome because they were an accurate reflection of the reason
for delaying the assessments. These officials removed the reference to the fact
that the New Policy was an attempt to delay initial assessments, that the
withholding of refunds was aimed at deterring further participation in the GLGI
program and that CRA Headquarters had concerns about taxpayers and consequences
to their rights under the ITA.
[31]
Ultimately
a “cleansed” version of the New Policy was produced for briefing of officials.
[32]
The
intent of the New Policy – to delay and discourage – was further reinforced in
a December 4, 2011 e-mail from officials in Winnipeg that CRA was prepared to
defend the “strategy behind the Prairie Region’s decision to delay the
assessment of [GLGI-related] returns … vigorously at all levels including any
application attempting to compel the assessment of these returns”.
[33]
To
the extent that there may have been some basis for awaiting the audit, the
decision to audit is so tainted by the real reason for the New Policy that the
audit is an excuse for delay not a reason for delay.
[34]
CRA
has already determined its course of action. The GLGI structure has not
changed; all previous donations have been disallowed; and CRA views GLGI as
having been “offside for each of the last 7 years”. Officials have used the
term “fraudulent” in relation to GLGI; described donation claims as “wrong” and
refunds as “undeserved”; and that GLGI participants are not “entitled to
refunds in the first place”.
[35]
Whatever
the merits of CRA’s concerns about the legitimacy of the GLGI donation program,
that is a matter for the Tax Court.
This Court must
conclude that the delay in assessing the Applicant was not truly related to
examining her return and ascertaining her tax liability. It was for the purpose
of discouraging participation in the GLGI program. It resulted in singling out
those GLGI participants under the Winnipeg Tax Centre for treatment different
from those participants in other parts of the country for reasons which are not
unique to the Prairie Region. There are no local circumstances which justify
the marked departure from the national policy. More importantly, the Minister’s
obligation to assess remains unaffected by local policy concerns.
IV. CONCLUSION
[36]
The
Applicant is entitled to a declaration that the Minister failed to comply with
the duty to assess with all due dispatch. The Court will not make a declaration
in as broad terms as the Applicant requests. These Reasons describe the
findings that underlie the failure to meet the statutory obligations.
JUDGMENT
THIS
COURT ADJUDGES AND DECLARES that for the Reasons given, the
Respondent failed to assess the Applicant’s tax return with all due dispatch.
Costs shall be
as agreed between the parties.
“Michael L. Phelan”
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