Date: 20060307
Docket: T-812-04
Citation: 2006 FC 294
Ottawa, Ontario, March 7, 2006
PRESENT: The Honourable Mr. Justice Blais
BETWEEN:
JERRY G. ROSS
Applicant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1] This is an application for judicial review pursuant to section 18.1 of the Federal Courts Act R.S.1985, c. F-7 of a decision of Mr. Bruce Cook, the Director of the Winnipeg Tax Services Office of the Canada Revenue Agency (CRA), whereby the applicant's request for cancellation and waiver of penalties, arrears interest and instalment interest (fairness request) with respect to personal income tax, goods and services tax and payroll deductions pursuant to subsection 220(3.1) of the Income Tax Act R.S.C. 1985, c. 1 (5th Supplement) (the Act) was denied.
RELEVANT FACTS
[2] The applicant is a retired lawyer whose practice was collapsed in 1998 by the Law Society of Manitoba which took over all of his active files. The applicant lost his office building and the equity associated with it as well as uncollectible accounts receivable. Further, the applicant has outstanding indebtedness to the CRA that predates the collapse of his law firm.
[3] The applicant suffers from depression and takes medication for his illness. He attributes his depression with contributing to his financial difficulty and outstanding indebtedness to the CRA.
[4] On May 16, 2002, the applicant made his first fairness request to the Minister of National Revenue (the Minister) for the cancellation and waiver of penalties, arrears interest and instalment interest with respect to personal income tax, goods and services tax and payroll deductions. The request was considered by Ms. Michele Wissel, Collection Officer of CRA Collections, who subsequently prepared a fairness request report in which she recommended that the applicant's request be denied.
[5] The fairness request report was referred to the CRA fairness committee, which accepted the recommendation and on March 25, 2003, Mr. Rick Charles, Manager of CRA Collections, advised the applicant that his fairness request was denied.
[6] On October 14, 2003, the applicant made another fairness request to the Minister and a second fairness report was prepared. The latter came to the conclusion that the applicant's request should again be denied. In a letter dated January 29, 2004, the Director advised the applicant that his second fairness request was denied.
DECISION OF THE DIRECTOR OF CRA COLLECTIONS
[7] With respect to the applicant's request for relief of penalties accrued from the payroll deductions, relief was denied because:
- There was no evidence that the agency's discretion was not exercised in a reasonable manner during the first review; or
- There was no additional information submitted to demonstrate that there were circumstances beyond the applicant's control preventing him from complying with the statutory requirements under the Act.
[8] With respect to the applicant's request for relief under the criterion of "inability to pay", relief was denied because:
· There was no evidence that the agency's discretion was not exercised in a reasonable manner during the first review; or
· There was no additional information submitted to demonstrate "undue financial hardship".
ISSUE
[9] Did the Director err in the exercise of his discretion by denying the applicant relief from penalties and interest under subsection 220(3.1) of the Act?
ANALYSIS
[10] As mentioned by the respondent, the applicant's record contains documentary evidence that did not form part of the applicant's first and second requests for fairness relief submitted May 16, 2002 and October 14, 2003, respectively. The aforementioned additional evidence includes exhibits D, E, F, G, H, I and J of the applicant's affidavit.
[11] In Wood v. Canada(Attorney General) [2001] F.C.J. No. 52, Justice W. Andrew MacKay, at paragraph 34, reiterated that evidence is not admissible in this Court if it has not been presented previously to the administrative decision maker:
On judicial review, a Court can consider only evidence that was before the administrative decision-maker whose decision is being reviewed and not new evidence (see Brychka v. Canada (Attorney General), supra; Franz v. Canada (Minister of Employment and Immigration) (1994), 80 F.T.R. 79; Via Rail Canada Inc. v. Canada (Canadian Human Rights Commission) (re Mills) (August 19, 1997), Court file T-1399-96, [1997] F.C.J. No. 1089; Lemiecha v. Canada (Minister of Employment & Immigration) (1993), 72 F.T.R. 49, 24 IMM L.R. (2d) 95; Ismaili v. Canada (Minister of Citizenship and Immigration), (1995) 100 F.T.R. 139, 29 Imm L.R. (2d) 1).
[12] In light of the above, exhibits D, E, F, G, H, I and J of the applicant's affidavit will not be considered by this Court.
Did the Director err in the exercise of his discretion by denying the applicant relief from penalties and interest under subsection 220(3.1) of the Act?
[13] Under subsection 220(3.1) of the Act, the Minister has a broad discretion to waive interest and penalties:
| 220 (3.1) 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 152(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.
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220 (3.1) Le ministre peut, à tout moment, renoncer à tout ou partie de quelque pénalité ou intérêt payable par ailleurs par un contribuable ou une société de personnes en application de la présente loi, ou l'annuler en tout ou en partie. Malgré les paragraphes 152(4) à (5), le ministre établit les cotisations voulues concernant les intérêts et pénalités payables par le contribuable ou la société de personnes pour tenir compte de pareille annulation.
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[14] CRA guidelines exist in order to outline how the discretion granted by subsection 220(3.1) is to be exercised. The said guidelines are published as Information Circular 92-2 entitled "Guidelines for the Cancellation of Interest and Penalties".
[15] Upon an application for judicial review, it is the role of this Court to determine whether the discretion of the Minister and/or his or her delegate was properly exercised when making a decision pursuant to subsection 220(3.1) of the Act. Justice Sean J. Harrington, in Dort Estate v. Canada(Minister of National Revenue - M.N.R.), 2005 FC 1201, [2005] F.C.J. No. 1460, at paragraph 8, confirmed that the standard of review for a decision which refused the granting of relief from the imposition of penalties and interest pursuant to subsection 220(3.1) of the Act is reasonableness simpliciter:
In Lanno v. Canada (Customs and Revenue Agency), 2005 FCA 153, [2005] F.C.J. No. 714 (QL), the Federal Court of Appeal overruled the trial judge who had applied the standard of patent unreasonableness, and held that the appropriate standard was reasonableness. The decision under review in that case was a decision of a tax official not to exercise his discretion under section 152(4.2) of the Act so as to permit the reassessment of Mr. Lanno's returns beyond the normal reassessment period, which reassessment would have resulted in a refund. That section, like the section in question in this case, section 220(3.1), was part of the Fairness Package which was introduced in 1991. Mrs. Dort submitted that a discretionary decision with respect to the waiver of interest is likewise subject to a reasonableness standard of review. That submission is correct. The Federal Court of Appeal has just recently specifically extended Lanno, supra, to section 220(3.1) of the Income Tax Act (Comeau c. Agence des douanes et du Revenu du Canada, [2005] F.C.J. No. 1334, 2005 CAF 271).
[16] The applicant submits that the Director, in accepting the fairness committee's recommendation to deny the fairness request, failed to consider the applicant's economic hardship caused by the arrears, penalties and interest, the loss of an office building and receivables. As such, the applicant maintains that the Director's exercise of discretion to refuse to waive interest and penalties was not reasonable.
[17] The respondent submits that the first fairness report took into consideration the alleged economic hardship of the applicant because it performed an analysis on the monthly family cash surplus. The report stressed that the applicant's statement of income, expenses and net worth (the IE statement) was flawed. That is, the applicant failed to include in the statement, spousal income, RRSP's and equity of the family home. The respondent maintains that the inclusion of such factors would have demonstrated that the applicant was not enduring any economic hardship and was in fact benefiting from a monthly family cash surplus of $2,800.00. Such a finding was confirmed by the second fairness report which concluded the following at page 3:
The updated financial information does not include spousal income, and there is an increase in the expenses due to a new Car Loan (no vehicles are registered to the client), and an unexplained $642.00 expense. It is estimated that there is a minimum monthly cash surplus of $2,260.00, as well as equity in the family home of $86,000.00.
(See fairness request report - second review, respondent's record at page 26.)
[18] The respondent claims that the Director's decision to agree with the report's findings was not a reviewable error and that the latter did in fact take into consideration the alleged economic hardship of the applicant in making his decision to deny a fairness request.
[19] I disagree with the Director's decision vis-à-vis the second fairness report and the applicant's alleged economic hardship. Upon review, I find that the second fairness report's analysis regarding the applicant's statement of income to be problematic. The report criticises the fact that spousal income was not included in the statement of income. However, if spousal income is to be included, it would seem logical that spousal expenses would also be included. The report seems to disregard the extent of spousal expenses. For example, the report is critical of the inclusion of a car loan as an expense considering that there are no vehicles registered to the client. However, such an expense could be attributable to the applicant's spouse. If the report is to take into consideration spousal income, why would it not take into consideration spousal expenses in determining whether or not the applicant is experiencing economic hardship?
[20] I find the report gives little weight to the applicant's claims of family expenses. For example, the report seems to exclude any amount which could be attributable to the university expenses of the applicant's children. The report does this despite the fact that the applicant clearly explained in other documents that he was supporting his children with university related expenses and that this was contributing to his economic hardship.
[21] The report's conclusion that there exists a monthly cash surplus of $2,260.00 seems to be unjustified. The applicant is 69 years of age and has recently been in three car accidents as well as suffering through severe depression. Despite his poor health, the applicant continues to work in an attempt to reduce his debt and pay the interest owing. Suggesting that the applicant gathers a surplus of $27,120.00 per year is unrealistic. I find the second fairness report to be too limited in scope to come to the conclusion that the applicant benefits from a large monthly cash surplus. As such, in agreeing with the findings of the second fairness report regarding the lack of economic hardship, I find that the Director's decision is unreasonable. The respondent is entitled to conclude that the evidence provided by the applicant is insufficient; nevertheless I am not convinced that it is reasonable for the respondent to arrive to specific findings on income and expenses, and economic hardship based on the IE statement, which is a problematic piece of evidence.
[22] In my view, the interest of justice would be better served by a new assessment of the applicant's situation, keeping in mind that the applicant is not relieved of his onus to provide the respondent with all the information to demonstrate there existed circumstances beyond his control preventing him from complying with the statutory requirements under the Act. The applicant also has the obligation to provide the respondent with all the information to demonstrate undue financial hardship.
[23] On the other side, the respondent has the obligation to assess the information provided in a reasonable manner.
[24] Because, I've concluded that the Director's decision regarding economic hardship was unreasonable, I do not need to discuss whether or not the applicant's illness was properly addressed, nor do I have to discuss the applicant's assertion that the fairness committee failed to apply the principles of the George Radwansky case which was used to forgive debt owing to the CRA.
JUDGMENT
THIS COURT ORDERS that
· the application for judicial review be granted;
· the case shall be returned to the respondent for an assessment by another respondent's representative, in light of these reasons.
"Pierre Blais"
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