Date: 20061004
Docket: T-2237-05
Citation: 2006 FC 1175
BETWEEN:
JUDITH
CARTER-SMITH
Applicant
and
ATTORNEY
GENERAL OF CANADA
Respondent
REASONS FOR
ORDER
GIBSON J.
INTRODUCTION
[1]
These
reasons follow the hearing at Vancouver, British Columbia on September 28, 2006
of an application for judicial review of a decision of an officer (the
“Officer”) of the Canada Customs and Revenue Agency, now the Canada Revenue
Agency, on behalf of the Minister of National Revenue, denying the second-level
request for relief from penalties and interest accumulated by reason of the
late filing of the Applicant’s income tax returns for the taxation years 2000,
2001 and 2002.
[2]
At
the close of the hearing, I advised the Applicant and counsel for the
Respondent that the application for judicial review would be allowed and
outlined my reasons. I advised that these written reasons would follow.
BACKGROUND
[3]
The
Applicant first applied for relief from penalties and interest accumulated by
reason of her late filing of the relevant income tax returns by letter dated
the 11th of May, 2005. She cited the severe stress that she
suffered by reason of her role as sole family care giver for her severely ill
mother and for her adult sister who suffered from a developmental disability.
She also cited her own severe back problems which, she alleged, caused her
chronic pain and limited her mobility. She concluded her letter in the
following terms:
Regrettably, because of
the family demands and my own failing health much of my life had to be put on
hold during the period in question. Since my mother has entered the care
facility and my sister has settled down, I have been working to get caught up
on important areas of my life needing attention. You will note that I did
submit all my returns as agreed, with cheques attached for the amounts owing,
and have filed early for the 2004 taxation year. I regret not meeting the
deadlines, but the circumstances demanded all my attention and energy. I hope
this can be taken into account and that my interest and penalty charges will be
re-considered.
[4]
Under
cover of a later letter, the Applicant submitted a letter from her psychologist
attesting to the fact that the Applicant had been seen by the psychologist,
during the period in question on a by-weekly and/or monthly basis “…to help her
cope with the increasing stresses of being the sole support of an ailing mother
and an adult sister with developmental disabilities.” The Applicant also
provided a letter from her physiotherapist regarding the Applicant’s back
problems which eventually required a very serious surgical intervention.
[5]
The
Applicant’s first level request for relief was rejected by letter dated the 31st
of August, 2005.
[6]
By
letter dated the 22nd of October, 2005, the Applicant requested reconsideration
at the second level of fairness review. She cited the same bases for relief.
Once again her request for relief was denied, in this case by letter dated the
17th of November, 2005. It is this decision that is here under
review.
THE DECISION UNDER
REVIEW
[7]
The
substance of the decision under review is in the following terms:
…
Late filing penalties
may be cancelled if they were a result of circumstances beyond a taxpayer’s
control. While we can sympathize with the problems that you have encountered
with your family, most notably the health of your mother and the problems your
sister has faced over the time period in question, the fairness legislation
dictates that we look at all the facts surrounding the time period in which
your returns were to be filed. You have stated that your mother was
hospitalized in July of 2001 for four months. The tax return for 2000 was, in
fact, due prior to this.
In accordance with
sub-paragraph 10.(a) of Information Circular 92-2 we are required to consider
an applicant’s past history of compliance with the Income Tax Act. Our records
indicate that from 1989-1998 your tax returns were filed late. There was no
late filing penalty because each and every year, your tax return resulted in a
refund. One factor that we have to consider is the fact that you were capable
of self-employment during this time period. We have also considered whether
you acted quickly to remedy any delay. We issued a formal demand for the tax
year 2000 in February of 2002. You did not file that tax return until December
2004. We do note that in November of 2004 that you filed promptly, within one
month, the three tax returns outstanding after being contacted by an Office
Contact Agent.
We have considered the
above facts and have determined that the application of the late-filing
penalties against the 2000, 2001 and 2002 T1 return was correct. Therefore,
your request to have the late-filing penalty cancelled on your 2000, 2001 and
2002 T1 income tax returns is denied.
…
THE LEGISLATIVE SCHEME
[8]
The
“fairness program” under the Income Tax Act (the “Act”) is founded on
subsection 220(3.1) of the Act which reads as follows:
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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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[9]
The
discretion of the Minister under subsection 220(3.1) of the Act may be
delegated by virtue of subsection 220(2.01). It was not in dispute in this
matter that the Officer who made the decision denying the Applicant’s requests
was appropriately designated to do so on behalf of the Minister.
[10]
The
broad discretionary authority vested in the Minister under subsection 220(3.1)
of the Act is supplemented by Information Circular IC-92-2 dated March
18, 1992, and entitled “Guidelines for the Cancellation and Waiver of Interest
and Penalties”.
[11]
Sections
5, 6 and 7 of the Guidelines read as follows:
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…
5. Penalties and interest may be
waived or cancelled in whole or in part where they result in circumstances
beyond a taxpayer’s or employer’s control. For example, one of the following
extraordinary circumstances may have prevented a taxpayer, a taxpayer’s
agent, the executor of an estate, or an employer from making a payment when
due, or otherwise complying with the Income Tax Act:
(a) natural or human-made disasters
such as, flood or fire;
(b) civil disturbances or
disruptions in services such as, a postal strike;
(c) a serious illness or accident;
or
(d) serious emotional or mental
distress such as, death in the immediate family.
6. Cancelling or waiving interest
or penalties may also be appropriate if the interest or penalty arose
primarily because of actions of the Department, such as:
(a) processing delays which result
in the taxpayer not being informed, within a reasonable time, that an amount
was owing;
(b) material available to the public
contained errors which led taxpayers to file returns or make payments based
on incorrect information;
(c) a taxpayer or employer received
incorrect advise such as in the case where the Department wrongly advises a
taxpayer that no instalment payments will be required for the current year;
(d) errors in processing; or
(e) delays in providing information
such as the case where the taxpayer could not make the appropriate instalment
or arrears payments because the necessary information was not available.
7. It may be appropriate, in
circumstances where there is an inability to pay amounts owing, to consider
waiving or canceling interest in all or in part to facilitate collection. For
example,
(a) When collection has been
suspended due to an inability to pay.
(b) When a taxpayer is unable to
conclude a reasonable payment arrangement because the interest charges absorb
a significant portion of the payments. In such a case, consideration may be
given to waiving interest in all or in part for the period from when payments
commence until the amounts owing are paid provided the agreed payments are
made on time.
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…
5. Il
sera convenable d’annuler la totalité ou une partie des intérêts ou des
pénalités, ou de renoncer à ceux-ci, si ces intérêts ou ces pénalités découlent
de situations indépendantes de la volonté du contribuable ou de l’employeur.
Voici des exemples de situations extraordinaires qui pourraient empêcher un
contribuable, un agent d’un contribuable, l’exécuteur d’une succession ou un
employeur de faire u paiement dans les délais exigés ou de se conformer è
d’autres exigences de la Loi de l’impôt sur le revenu :
a) une
calamité naturelle ou une catastrophe provoquée par l’homme comme une
inondation ou un incendie;
b) des
troubles civils ou l’interruption de services comme une grève des postes.
c) une
maladie grave ou un accident grave;
d) des
troubles émotifs sérieux ou une souffrance morale grave comme un décès dans
la famille immédiate.
6. L’annulation
des intérêts ou des pénalités ou la renonciation à ceux-ci peuvent également
être justifiées si ces intérêts ou pénalités découlent principalement
d’actions attribuables au Ministère comme dans les cas suivants :
a) des
retards de traitement, ce qui a eu pour effet que le contribuable n’a pas été
informé, dans un délai raisonnable, de l’existence d’une somme en souffrance;
b) des
erreurs dans la documentation mise à la disposition du public, ce qui a amené
des contribuables à soumettre des déclarations ou à faire des paiements en se
fondant sur des renseignements erronés;
c) une
réponse erronée qu’un contribuable ou un employeur a reçue concernant une
demande de renseignements comme dans le cas où le Ministère a informé par
erreur un contribuable qu’aucun acompte provisionnel n’est nécessaire pour l’année
en cours;
d) des
erreurs de traitement;
e) des
renseignements fournis en retard comme dans le cas où un contribuable n’a pus
faire les paiements voulus d’acomptes provisionnels ou d’arriérés parce qu’il
n’avait pas les renseignements nécessaires.
7. Il
peut être convenable dans des situations où il y a incapacité de verser le
montant exigible d’examiner la possibilité de renoncer ou d’annuler la
totalité ou une partie des intérêts afin d’en faciliter le recouvrement, par
exemple dans les cas suivants :
a) lorsque
les mesures de recouvrement ont été suspendues à cause de l’incapacité de
payer;
b) lorsqu’un
contribuable ne peut conclure une entente de paiement qui serait raisonnable
parce que les frais d’intérêts comptent pour une partie considérable des
versements; dans un tel cas, il faudrait penser à renoncer à la totalité ou à
une partie des intérêts pour la période où les versements débutent jusqu’à ce
que le montant exigible soit payé pourvu que les versements convenus soient
effectués à temps.
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[12]
In
short, the Guidelines provide for waiver or cancellation of penalties and
interest where the penalties and interest have accumulated, in whole or in
part, as a result of “…circumstances beyond a taxpayer’s …control”, where
penalties and interest have accumulated “…primarily because of actions of the
Department, …” which is to say the Canada revenue Agency, or where waiver or
cancellation will “facilitate collection”.
[13]
On
the facts of this matter, the Applicant urges that the accumulated penalties and
interest should have been waived because the accumulation resulted from
circumstances beyond her control, namely, the fulfillment of her
responsibilities to her mother and adult sister and her own serious emotional
or mental distress and physical disability, all of which, she alleges, were
interrelated.
[14]
While
the Applicant, at hearing, and in her written materials, expressed concern
about difficulties in communicating with the appropriate officials at the
Canada Revenue Agency, lack of clear and effective communication of the nature,
details and process associated with the fairness program and the fact that
responsibility for the program was vested in officials whose primary
responsibility would appear to be collection of taxes, interest and penalties, thus
creating a semblance of conflict of interest on their part, these concerns were
not directly pursued as a basis for cancellation or waiving of interest or
penalties “…primarily because of actions of the Department…”.
[15]
The
issue of waiver to “facilitate collection” does not arise on the facts of this
matter.
THE ISSUES
[16]
In
the memorandum of fact and law filed by the Applicant, the points in issue are
described as “varied”. They are not well defined.
[17]
By
contrast, in addition to standard of review, the Respondent, in his memorandum
of fact and law, defines the issue in the following terms: “Did the Minister
discharge his duty to act fairly in exercising his discretion under subsection
220(3.1) of the Act to deny the Applicant’s Second Request?”
ANALYSIS
Standard of Review
[18]
I am
satisfied that the appropriate standard of review of the decision here before
the Court is reasonableness simpliciter. In Dort Estate v. Canada (Minister of National
Revenue), my colleague Justice
Sean Harrington wrote at paragraph 8 of his reasons:
In accordance with the decisions of the Supreme
Court in Dr. Q. v. College of Physicians and Surgeons of British Columbia,…and
Law Society of New Brunswick v. Ryan, …the judicial review of decisions
of administrative tribunals must be approached functionally and pragmatically.
Depending on the circumstances, the applicable standard of review is
correctness, unreasonableness or patent unreasonableness. In Lanno v. Canada (Customs and Revenue
Agency),…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,…to
section 220(3.1) of the Income Tax Act (Comeau c. Agence des douanes
et du Revenue du Canada….
[citations omitted]
[19]
The
reasonableness or reasonableness simpliciter standard provides that a
court should not interfere with the decision unless it is clearly wrong in the
sense of being based on a wrong principle or a misapprehension of the facts. An
unreasonable decision is one that, in the main, is not supported by any reasons
that can stand up to a somewhat probing examination. However, a reasonable
decision is not necessarily a correct decision, and there can be more than one
reasonable decision arising out of the application of a discretionary provision
of law to a particular fact situation.
[20]
In
amplification of the above, the Respondent’s memorandum of fact and law, at
paragraph 22, urges:
Specifically, the Court
should not interfere unless the Minister made his decision in bad faith, ignored
relevant facts, considered irrelevant facts, or decided contrary to law…. .
[emphasis
added]
For this proposition, the Respondent cites Her
Majesty the Queen v. Barron and Lanno v. Canada (Customs and
Revenue Agency).
APPLICATION OF THE
STANDARD OF REVIEW TO THE DECISION UNDER REVIEW
[21]
The
substance of the decision under review is earlier quoted. It notes that late
filing penalties, and, of course, interest as well, may be cancelled if they
were a result of circumstances beyond the taxpayer’s control. It expresses
sympathy for the problems that the Applicant encountered “…with your family,
most notably the health of your mother and the problems your sister has faced…”
but makes no mention whatsoever of the Applicant’s own emotional or mental
distress, as evidenced by the psychological support that she sought and
received or of her debilitating back ailment which was evidenced by
correspondence from her physiotherapist. The decision provides no explanation
whatsoever as to why the decision maker might have concluded that the
difficulties that the Applicant was labouring under in the period of time at
issue might be other than “circumstances beyond [her] control”.
[22]
The
decision letter quite properly focuses on other factors relevant to the
decision including the Applicant’s history of late filing and, in the case of
one demand for compliance, her slowness in responding. It provides no
explanation whatsoever as to why the latter two factors are determined to
outweigh the difficulties and burdens that the Applicant was experiencing
during the period in question.
[23]
It
is particularly worthy of note that, while a document entitled “Fairness Request
Worksheet – Second Level Review” which appears in the Respondent’s record at
pages 36 and 37 notes “emotional and mental distress” as “applicable reasons”
for the request for relief and notes the supporting documentation referred to
in the foregoing paragraph, it does not cite “serious illness”, as the
Applicant’s back trouble undoubtedly was, as an “applicable reason” and the
very brief analysis contained in that document leading to the recommendation
for denial of the fairness request minimizes the burdens that the Applicant
faced during the period at issue.
[24]
Against
a standard of review of reasonableness simpliciter, I am satisfied that
the decision under review must be set aside. It is simply not a decision that
is supported by reasons that can stand up to a “somewhat probing examination”.
Put another way, and against the Respondent’s own submissions, I simply cannot
be satisfied, on the basis of the decision itself, or even on the basis of that
decision read together with the above cited Fairness Request Worksheet that was
not provided to the Applicant as part of the decision, that the decision maker
took into account and gave due weight to all of the relevant facts that were
put before him by the Applicant. While the decision arrived at might
reasonably have been open, it simply cannot stand on the limited analysis of
all of the relevant factors that it provides.
CONCLUSION
[25]
For
the foregoing reasons, the decision under review will be set aside and the
Applicant’s application for relief from penalties and interest imposed in
respect of her 2000, 2001 and 2002 taxation years is referred back to the
Respondent for reconsideration and re-determination by a different officer.
[26]
I
am satisfied that costs should follow the event. The self-represented
Applicant is entitled to her costs, as against the Respondent, which will be
fixed in the lump sum of $200.00.
“Frederick
E. Gibson”
Ottawa, Ontario
October
4, 2006
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