Citation: 2008TCC356
Date: June 23, 2008
Docket: 2007-4476(GST)I
BETWEEN:
AHMED Z. BASHIR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the bench on April 23, 2008, in Ottawa, Canada.)
Miller, J.
[1]
This is an appeal from
an assessment made under the Excise Tax Act (ETA) for the period January
1, 1995 to December 31, 1997. The Minister of National Revenue assessed the
Appellant as follows:
GST not remitted $10,787.00
Penalty (section 280) 9,442.41
Interest
4,438.37
Penalty (section 285) 2,697.00
$27,364.78
[2]
The Appellant does not
dispute that he failed to remit GST in the amount of $10,787 during the period
January 1, 1995 to December 31, 1997. However, he raised the following issues
in his Notice of Appeal:
a)
He had asked the
Minister of National Revenue to waive the interest and penalties. At the time
of filing his Notice of Appeal he had not received an answer from the Minister;
b) He asked for a waiver of the GST owing on
compassionate grounds.
[3]
At the hearing of this
appeal the Appellant asked for cancellation of the interest and both penalties;
he requested payment options for the GST not remitted.
[4]
The Tax Court is not a
court of equity and its jurisdiction is limited to that given in the Tax Court
of Canada Act. As well, the court cannot grant declaratory relief as that is
not within the court’s jurisdiction. (Sunil Lighting Products v. Canada,
[1993] T.C.J. No. 666) As a result, this court cannot waive the GST owing on
compassionate grounds or any other grounds. This court has no jurisdiction in
collection matters and cannot consider or order payment options for the GST not
remitted. The only jurisdiction that this court would have had with respect to
the GST not remitted would have been with respect to the amount of the
assessment. However, the Appellant stated that he agreed with the amount of the
GST assessed.
[5]
The Appellant is an
electrical engineer. During the period January 1, 1995 to December 31, 1997 he
operated a proprietorship under the name Parsec Consulting Engineers/
Ingenieurs Conseil Parsec (“Parsec”). His only customer was Computer and
Concepts Associates (“C&CA”). They were engaged as the independent
verification and validation contractor for the Canadian Space Agency dealing
with the CanadArm Robot for the International Space Station. Parsec was engaged
as one of the subcontractors for C&CA and was the software safety
specialist.
[6]
The Appellant stated
that all engineering work done by Parsec was done by him as he possessed the
skills required. The work was strenuous and technically demanding. It was also
very stressful as the Appellant knew that he was ultimately accountable for
human lives and system safety.
[7]
It was the Appellant’s
evidence that Parsec started to wind down operations in the spring of 1997 and
all activities ceased on December 31, 1997 as he was suffering from an illness.
[8]
It was also the
Appellant’s evidence that GST was charged and collected on engineering services
provided to C&CA. He also admitted that he did not remit the GST to the
Canada Revenue Agency during the years in issue.
[9]
The Appellant has been
suffering from bipolar disease since 1971. He has experienced many psychotic
manic episodes. The evidence disclosed that during these episodes, the
Appellant can exhibit the traits of being hyperactive, grandiose, erratic,
euphoric, a spendthrift and an insomniac. I gather from the evidence that this
disorder distorts moods and thoughts and incites dreadful behaviours. The
Appellant submitted into evidence a letter from his psychiatrist, Dr. Cattan.
It was his opinion that persons suffering a psychotic episode “do not have
insight and have quite impaired judgement”.
[10]
For many years the
Appellant was in denial of his illness and this was true during the years under
appeal. During the years 1995, 1996 and 1997 the Appellant was in the care of a
family doctor who would not refer him to a psychiatrist. Mrs. Bashir, the
Appellant’s spouse, testified about the Appellant’s health during this period.
As she recalled those years, she became very distressed.
SECTION 280 PENALTY and INTEREST
[11]
Section 280 provides
that where a person fails to remit GST to the Receiver General when required,
that person shall pay on the amount not remitted, a penalty and interest. Judge
Bowman (as he then was) had found in several decisions that it is possible to
raise a due diligence defence to the application of a section 280 penalty. The
Federal Court of Appeal has confirmed this interpretation in Attorney
General of Canada v. Consolidated Canadian Contractors Inc., 98 GTC 6303. At paragraph 50 of that
decision the FCA has also described the test for due diligence in these words.
By contrast, an implied due diligence defence with respect
to s. 280 places the onus on the registrant to establish that he or she had
exercised reasonable care in remitting the correct amount of GST.
[12]
It was Mrs. Bashir’s
evidence that it was she who prepared the Appellant’s GST returns and filed
them on time for the period prior to 1995. She also stated that she stopped
preparing the returns because her husband had become very ill and life in their
home was intolerable. Her husband was on very strong medication. It was only in
1998 that Mrs. Bashir and the Appellant’s brother were able to force the
Appellant into a hospital.
[13]
The Respondent has
submitted that in 1995, 1996 and 1997 the Appellant worked and earned income.
He still operated his business and he was not completely incapacitated.
[14]
According to the
evidence, in 1995, 1996 and 1997 the Appellant was suffering from a severe
manic depressive disorder that was not being treated as he was not under the
care of a psychiatrist. He had poor and impaired judgment. In the words of his present
psychiatrist, he was out of control. It is my opinion that he was incapacitated
at this time. The definition of incapacitated in the Canadian Oxford dictionary
is as follows:
“not capable of rational conduct or of managing one’s own affairs”
[15]
Both the Appellant and
his spouse stated that in 1995, 1996, 1997 and up to the time the Appellant was
hospitalized in 1998, the Appellant suffered psychotic episodes. I find that he
was not capable of managing his own affairs. He was not able to exercise any
care in remitting GST to the Minister. As he and his spouse stated, the
Appellant was living in a different world at this time.
[16]
Surely if a taxpayer
can defend the imposition of a section 280 penalty by showing due diligence,
that is, by showing that he exercised reasonable care, a taxpayer who is
suffering from a mental illness, who is experiencing psychotic episodes, who is
mentally unable to manage his own affairs, should be relieved from imposition
of the penalty.
[17]
What is the purpose of
the section 280 penalty? Is it to encourage taxpayers to comply with the law
and to file their returns on time? Is it to penalize those who are reckless, or
careless about filing their returns on time? If either or both are true, then
the Appellant should not be penalized as he was neither reckless nor careless.
The purpose of the section is not to penalize those who are too ill to file
their tax returns on time.
[18]
From all of the
evidence that I heard yesterday, it would not be just to allow the penalty to
stand.
[19]
I find that the
Appellant has made out a due diligence defence. The section 280 penalty is to
be deleted.
[20]
The court can provide
no relief for the interest imposed pursuant to section 280.
SECTION 285 PENALTY
[21]
The Respondent has the
burden of proving that penalties under section 285 should be maintained. The
Respondent must prove that the Appellant knowingly or under circumstances
amounting to gross negligence has made an omission in a return and is liable to
a penalty.
[22]
In Venne v. R., [1984]
F.C.J. No.314 (FCTD) Justice Strayer described the onus on the Respondent in
these words:
"Gross
negligence" must be taken to involve greater neglect than simply a failure
to use reasonable care. It must involve a high degree of negligence tantamount
to intentional acting, an indifference as to whether the law is complied with
or not.
[23]
The Respondent has not met its
burden. The facts in this appeal were so very sad and troubling that Mr.
Lalone, the auditor who assessed the gross negligence penalty, in answer to a
question that I posed to him, stated that if he had known all these facts he
would not have assessed the section 285 penalty.
[24]
The appeal is allowed
and both penalties are to be deleted.
Signed at Ottawa, Canada, this 23rd
day of June 2008.
“V.A. Miller”
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