Date: 19980218
Docket: 96-4454-IT-I
BETWEEN:
JEAN-MARC GRETILLAT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
LAMARRE PROULX, J.T.C.C.
[1] This is an appeal by the informal procedure regarding
overpayments made in 1991 into registered education savings
plans, or "RESPs", which are covered by s. 146.1
of the Income Tax Act ("the Act").
[2] Section 146.1(2)(k) of the Act provides that
the total amount which may be paid into an RESP each year is
$1,500. Section 204.91 of Part X.4 of the Act provides
that a tax equal to one percent of the excess amount is
payable for each month in which the amount is not withdrawn.
[3] The issues are whether (a) the appellant's good
faith in subscribing amounts in excess of the amount allowed by
the Act can be taken into account to reduce the tax payable under
Part X.4 of the Act; (b) this Court may order the
Minister of National Revenue ("the Minister") to waive
interest under s. 220(3.1) of the Act; and (c) whether
the Minister's assessment made pursuant to s. 152(7) of
the Act may be vacated due to the fact that it was allegedly not
made with reasonable diligence.
[4] Paragraphs 2 to 6 of the Reply to the Notice of
Appeal ("the Reply") read as follows:
[TRANSLATION]
2. In May 1991 the appellant contributed the following amounts
after administrative expenses to a registered education savings
plan ("an RESP") for his three sons:
Amount Agreement
Daniel Étienne $7,141.50 # 7383266
Marc André $7,579.80 # 7383231
Pierre Charles $7,464.00 # 7383258
3. Following the preparation of arbitrary declarations
T1E-OVP, the Minister of National Revenue ("the
Minister") assessed the appellant by notices of reassessment
dated February 15, 1995, on the excess amounts in his RESP
mentioned above in paragraph 2, with penalties for the 1991
and 1992 taxation years.
4. Following the preparation of arbitrary declarations
T1E-OVP, the Minister assessed the appellant by notices of
reassessment dated September 8, 1995, on the excess amounts
in his RESP mentioned above in paragraph 2, with penalties
for the 1993 and 1994 taxation years.
5. By notices of reassessment dated November 13, 1996 the
Minister struck out only the penalties mentioned above in
paragraphs 3 and 4 for the 1991, 1992, 1993 and 1994
taxation years.
6. In arriving at these assessments the Minister assumed a
number of facts including the following:
(a) the amounts which the appellant contributed were in excess
of $1,500 for each of his sons, as mentioned above in
paragraph 2;
(b) the appellant had still not withdrawn the excess amount
from his RESPs at December 31, 1994;
(c) within 90 days of the end of the year the appellant
had not made his declarations on the prescribed forms
(T1E-OVP) for each of the 1991, 1992, 1993 and 1994
taxation years;
(d) arbitrary declarations were made up for each of the 1991
to 1994 taxation years inclusive.
[5] The main points raised by the appellant in his Notice of
Appeal were the following:
[TRANSLATION]
In 1991 my wife and I were thinking of going to Africa as
missionaries. We decided to invest a large part of our savings in
an RESP to ensure that our three younger children would be able
to attend university. As we were thinking of leaving Canada we
decided to invest a sufficient amount all at
once . . . We made this investment in good faith
expecting that it would ensure a better future for our
children.
At no time did the Fondation Héritage company to which
we paid the money (or its representative) tell us of the tax
consequences associated with our investment, whether verbally or
in writing.
. . . . .
In October 1994 we received a letter from Daniel Tai of
Revenue Canada telling us that our RESP contributions exceeded
the allowable limit. As I was at that time leaving on a
missionary trip to Africa I asked our Fondation Héritage
representative to contact Revenue Canada for
us . . .
We were accordingly sent notices of assessment dated
February 15, 1995 . . .
Clearly an amount in excess of the allowed limit would not
have been paid to Fondation Héritage if we had known that
such a limit was imposed by the Act.
. . . . .
- the amounts paid to the RESP in 1991 in excess of the
allowed limit were paid in good faith and with no intention of
avoiding the payment of tax on the interest produced;
. . . . .
- from the time these amounts were paid and up until the
receipt of a letter from a Revenue Canada representative in
October 1994 we were not told of the tax consequences
associated with our investment and the limits imposed by the Act,
whether by representatives of Fondation Héritage or by the
federal Department of Revenue;
- if we had known of the limits imposed by the Act on
contributions to an RESP we would have observed the limit and
reinvested the excess with a minimal tax impact;
. . . . .
- a mechanical application of the Act to excess amounts paid
into an RESP seems to be unreasonable in view of the special
circumstances mentioned above;
alternatively,
. . . . .
- the long delay between the time the amounts were paid into
the RESP and the issuing of the notices of assessment caused
significant hardship to the objector in respect of the interest
claimed, and this delay was not his fault.
[6] The appellant testified for himself. Robert Levesque,
the Minister's appeal officer, testified at the request of
counsel for the respondent.
[7] The facts set out in the foregoing Reply were not disputed
by the appellant. However, in the interests of accuracy I should
say that the documents described as notices of reassessment in
paragraphs 3 and 4 of the Reply are notices of assessment,
not notices of reassessment. As we will see below, these were
assessments made by the Minister independently pursuant to
Part X.4 of the Act and s. 152(7) of the Act. The
notices of assessment filed jointly as Exhibit I-1 do
not state otherwise.
[8] In his testimony the appellant repeated that he did not
know there was any maximum amount that an individual could put
into an RESP. However, in 1991 when subscribing to an RESP the
appellant and his wife had met with three organizations which
were authorized to conclude such education savings contracts. The
appellant said he could not swear with any certainty that those
organizations had not told him there was a limit on the amount
that could be paid into such a plan, but he said this was not an
item of information that registered in his mind or that of his
wife.
[9] The Minister's appeals officer was not able to explain
to the Court in what circumstances or at what time the Minister
was informed of the excess amounts paid in by the appellant. No
question in this regard was put to him by the appellant. In fact,
no evidence was submitted by the appellant about the
Minister's diligence, apart from his reference to the dates
of the assessments.
[10] On the cancelling of the penalties, as mentioned in
paragraphs 3, 4 and 5 of the Reply, the Minister's
officer stated that this was done when the assessments were
reviewed at the Notice of Objection stage, not following an
application for exercise of the Minister's discretion
pursuant to s. 220(3.1) of the Act.
Arguments and conclusions
[11] The appellant made three arguments. He contended that in
view of his good faith he should not be subject to the full
rigour of s. 204.91 of the Act. He further maintained that
his good faith was a basis for use of the Minister's
discretionary authority under s. 220(3.1) of the Act. In
this connection he referred to Information Circular 92-2,
titled "Guidelines for the Cancellation and Waiver of
Interest and Penalties" and the Federal Court Trial Division
judgment in Bilida v. M.N.R., 97 DTC 5041. The
appellant also contended that the time taken by the Minister to
inform him that a tax was payable on the excess amounts
subscribed by him demonstrated a lack of diligence by the
Minister and that he, the taxpayer, should not have to bear the
cost of the tax charged for all those years.
[12] Counsel for the respondent argued that:
(a) s. 204.91 of Part X.4 of the Act does not
provide for any reduction of tax for any extenuating
circumstances that may exist; (b) the assessments on appeal
did not result from the application of s. 220(3.1) of the
Act; and (c) the appellant had a duty to comply with the
provisions of s. 204.92 of the Act.
[13] Section 204.91, the definition of an "excess
amount" in s. 204.9(1), ss. 204.92 and 204.93 of
Part X.4 and s. 152(7) of the Act read as follows:
204.91 Tax payable by subscribers. — Each
subscriber under a registered education savings plan shall, in
respect of each month, pay a tax under this Part equal to 1% of
the subscriber's share of each excess amount for a year at
the end of that month in respect of a beneficiary or former
beneficiary under the plan, to the extent that the amount of the
share is not withdrawn from the plan before the end of that
month.
204.9(1) In this Part, subject to
subsection (2),
"excess amount" "excess amount",
for a year at any time in respect of a beneficiary, means the
amount, if any, by which the total of all payments made after
February 20, 1990 in the year and before that time into all
registered education savings plans by or on behalf of all
subscribers in respect of the beneficiary exceeds the lesser
of
(a) $1,500, and
(b) the amount, if any, by which $31,500 exceeds the
total of all payments made into registered education savings
plans by or on behalf of all subscribers in respect of the
beneficiary in all preceding years . . .
204.92 Return and payment of tax. — Every
person who is liable to pay tax under this Part in respect of a
month in a year shall, within 90 days after the end of the
year,
(a) file with the Minister a return for the year under
this Part in prescribed form and containing prescribed
information, without notice or demand therefor;
(b) estimate in the return the amount of tax, if any,
payable under this Part by the person in respect of each month in
the year; and
(c) pay to the Receiver General the amount of tax, if
any, payable by the person under this Part in respect of each
month in the year.
204.93 Provisions applicable to Part. —
Subsections 150(2) and (3), sections 152, 158 and 159,
subsections 161(1) and (11), sections 162 to 167 and
Division J of Part I are applicable to this Part, with
such modifications as the circumstances require.
152. (7) Assessment not dependent on return or
information. — The Minister is not bound by a return
or information supplied by or on behalf of a taxpayer and, in
making an assessment, may, notwithstanding a return or
information so supplied or if no return has been filed, assess
the tax payable under this Part.
[14] The tax payable under Part X.4 of the Act by a
subscriber to an RESP on an excess amount as defined in
Part X.4 is a separate tax from the tax payable under
Part I of the Act. A subscriber who makes an overpayment is
required within 90 days of the end of the year, without
notice or warning, to file a return containing prescribed
information with the Minister in prescribed form. He must
estimate the tax payable under Part X.4 and pay the amount
to the Receiver General of Canada. The appellant did not make
such returns and the Minister prepared the returns in accordance
with the power conferred on him by s. 152(7) of the Act.
Under s. 204.93 of Part X.4 of the Act s. 152 of
Part I of the Act is a provision applicable to
Part X.4.
[15] The sections of the Act relating to the assessments on
appeal provide for no reductions in the event of good faith. I
will not make any comment on whether such good faith existed as
it is not relevant in assessing tax under Part X.4 of the
Act. The only question that is relevant in calculating the tax is
whether there was an overpayment at the end of each month, and in
the instant case that fact was not in dispute. The reassessments
no longer contain any penalties. As to interest, it is
well-settled law in this Court that the Court has no power to
reduce it without enabling legislation. Accordingly, this ground
of appeal cannot succeed.
[16] So far as the Minister's discretionary power is
concerned, ss. 220(3.1) and (3.7) and 165(1.2) of the Act
read as follows:
220. (3.1) Waiver of penalty or
interest. — The Minister may at any time waive or
cancel all or any portion of any penalty or interest otherwise
payable under this Act by a taxpayer or partnership and,
notwithstanding subsections 152(4) to (5), such assessment
of the interest and penalties payable by the taxpayer or
partnership shall be made as is necessary to take into account
the cancellation of the penalty or interest.
. . . . .
(3.7) Idem. — The provisions of
Divisions I and J of Part I apply, with such
modifications as the circumstances require, to an assessment made
under this section as though it had been made under
section 152.
165. (1.2) Limitation on objections. —
Notwithstanding subsections (1) and (1.1), no objection may
be made by a taxpayer to an assessment made under
subsection 152(4.2), 169(3) or 220(3.1) nor, for greater
certainty, in respect of an issue for which the right of
objection has been waived in writing by the taxpayer.
[17] Under s. 220(3.1) of the Act, the Minister may waive
all or any portion of the penalties or interest payable and may
make whatever assessments are necessary to take such waiver into
account. However, in view of s. 165(1.2) of the Act, such
assessments are not subject to the appeal process in this Court.
Only the Federal Court has jurisdiction to review the exercise of
the Minister's discretionary authority under s. 220(3.1)
of the Act.
[18] The assessments at issue in the instant appeals are not
assessments made as a result of the exercise by the Minister of
the authority conferred on him by s. 220(3.1) of the Act, as
the appellant made no such application under that subsection. No
specific form is provided for in the Act for making such an
application to the Minister under s. 220(3.1) of the Act.
Information Circular 92-2, referred to by the appellant,
sets out the procedure to be followed. The penalties cancelled by
the reassessments were not cancelled pursuant to s. 220(3.1)
of the Act but in the review process made at the appeals level
following a Notice of Objection. Accordingly, as regards this
argument concerning review of the Minister's discretionary
authority, it cannot succeed for the reasons given above.
[19] As to the Minister's diligence, s. 152(7) of the
Act does not specify any deadline by which the Minister's
action must have been taken. However, the subsection applies
within the deadlines provided for in s. 152(4) of the Act.
That subsection does not provide for any deadline in the case of
an initial assessment. In such cases it is s. 152(1) which
applies and which requires that the Minister act with due
dispatch following receipt of a tax return. The Act says nothing
about the situation in which there is no tax return. In the
instant case no return was made under Part X.4 of the Act.
Under the basic rules of administrative law, even though the Act
does not expressly provide that the Minister must make his
assessments with due dispatch, that surely does not mean he does
not have to exercise his duty to apply the Act with dispatch.
[20] It should be borne in mind that there was not really any
evidence from the appellant that the Minister did not act with
due dispatch, except that the appellant referred to the date of
the assessments, February 15, 1995, whereas the overpayment
was made in 1991. Even if there had been evidence of a lack of
dispatch it would not have had the effect of nullifying the
Minister's assessments. The Federal Court of Appeal dealt
with the question of the duty of dispatch which the Act imposes
on the Minister by s. 152(1) of the Act in The
Queen v. Ginsberg, 96 DTC 6372, at 6374 and
6376:
The sole issue, therefore, pertains to the legal effect of a
failure by the Minister to exercise his statutory duty to assess
"with all due dispatch".
. . . . .
Bearing in mind, however, as found by the Tax Court judge,
that the Minister was late in assessing, the only question I must
address is the nature of the sanction once there is a failure to
exercise a duty under subsection 152(1).
The respondent's argument in essence is that once the
Minister is found to have breached his statutory duty, he loses
jurisdiction to assess and the notice of assessment must be
vacated. The respondent was not ready to accept, however, that,
if found valid, the reverse of his argument would be that if a
refund was owed to the taxpayer, the Minister would, in that
situation also, lose jurisdiction to determine the refund.
I find no escape with the clear terms of
subsection 152(3), particularly the words "Liability
for the tax under this Part is not affected
by . . . the fact that no assessment has been
made". ("Le fait . . . qu'aucune
cotisation n'a été faite n'a pas
d'effet sur les responsabilités du contribuable
à l'égard de l'impôt prévu par
la présente Partie.")
Subsection 152(8) in turn says "An assessment
shall . . . be deemed to be valid and binding
notwithstanding any . . . defect or
omission . . . in any proceeding under this Act
relating thereto." (". . . une
cotisation est réputée être valide et
exécutoire malgré . . . tout vice de
forme ou toute omission . . . dans toute
procédure s'y rattachant en vertu de la
présente loi").
Section 166, in support, states that “(a)n assessment
shall not be vacated . . . by reason only of any . . . omission .
. . on the part of any person in the observation of any directory
provision of this Act”. (“Une cotisation ne peut
être annulée . . . uniquement
par suite . . . d’omission . . . de la part de qui que ce
soit dans l’observation d’une disposition simplement
directrice de la présente loi”).
This latter provision obliges me to consider whether
subsection 152(1) is directory or mandatory.
. . . . .
The distinction between a "mandatory" or a
"directory" provision is, therefore, not very helpful.
If I were to apply the rule of "inconvenient" effects,
I would say that there are, no doubt, competing interests between
the need to levy revenues for government and public expenditures,
the need to have the tax burden shared as equally as possible
among the taxpayers, and the need to protect the individual by
bringing certainty to his financial affairs at the earliest
reasonable possible time. These competing interests have been
settled in favour of the government by Parliament with the
adoption of subsections 152(3), 152(8) and
section 166.
The Judicial Committee of the Privy Council has also recently
diminished the importance of the distinction between a directory/
mandatory provision in the case of Wang v. Comr of Inland
Revenue,1 a taxation case originating in Hong
Kong. The Privy Council determined that when a question of an
alleged failure to comply with a time provision is at stake, it
is simpler and better to avoid the words "mandatory"
and "directory" and ask two questions:2
. . . The first is whether the legislature
intended the person making the determination to comply with the
time provision, whether a fixed time or a reasonable time.
Secondly, if so, did the legislature intend that a failure to
comply with such a time provision would deprive the
decision-maker of jurisdiction and render any decision which he
purported to make null and void?
The Privy Council alluded to the fact that mandamus
might be a remedy. Courts in Canada have been called upon to
decide whether mandamus should issue in such
cases.3
_______________
1 [1995] 1 All ER 367 (PC) at 373.
2 Wang v. Comr of Inland Revenue,
supra, at 377.
3 Lipsey v. M.N.R. 85 DTC 5080;
Schatten v. Canada (Minister of National Revenue -
M.N.R.), 96 DTC 6102.
[21] My understanding of that decision is that dispatch by the
Minister in making an assessment is not something which may make
the assessment void, in view of the existence of s. 152(3)
and (8) of the Act, supported by s. 166 of the Act. The
applicable remedy would be a writ of mandamus for the
purpose of obtaining a quick decision by the Minister. Needless
to say, the Ginsberg case does not in any way concern what
is referred to as the usual period of assessment, the time for
which is set by the Act in s. 152(4) and (3.1), nor the
other deadlines that may exist in the Act and which are
determined by it. The argument that the assessments are invalid
by virtue of their alleged tardiness therefore cannot succeed
either.
[22] The appeals are accordingly dismissed.
Signed at Ottawa, Canada, February 18, 1998.
Louise Lamarre Proulx
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
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