Date: 20061220
Docket: T-1-06
Citation: 2006
FC 1523
Ottawa,
Ontario, December 20, 2006
Present:
The Honourable Mr. Justice Beaudry
BETWEEN:
ANDRÉ
GAGNÉ
Applicant
and
ATTORNEY
GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT AND
JUDGMENT
[1]
This
is an application for judicial review under section 18.1 of the Federal
Courts Act, R.S.C. 1985, c. F-7, of a decision by Mr. Mario Marchand,
Manager of the South Shawinigan Tax Centre of the Canada Revenue Agency (the
respondent). In this decision dated December 2, 2005, Mr. Marchand declined to
reopen certain fiscal years to accept the applicant’s business losses
under subsection 152(4.2) of the Income Tax Act, R.S.C. 1985, c. 1 (5th
Suppl.) (the Act). The applicant is representing himself.
I. Issues
[2]
Did
the respondent err in declining to exercise his discretion under subsection
152(4.2) of the Act?
[3]
For
the following reasons, the response to this question is in the negative.
Accordingly, this application for judicial review will be dismissed.
II. Factual
Background
[5]
In
1996, the applicant set up his own business as a consultant, in his words, [TRANSLATION] “under the
brand image” Force G. This business was not a legal entity. That same year, he
became a shareholder in CYBEC CANADA INC. managed by Mr. Hubert Sicard. This
second business was registered with the Registraire des Entreprises Système
CIDREQ; its registration number was 1145952348. These two S.M.B. ceased
operations two years later: Force G at the end of 1998, and CYBEC on May 9,
1998, when it was officially struck off the register. The applicant returned to
George S. May Int. Co. in January 1999.
[6]
He
filed his tax returns for the years 1996, 1997, 1998, 1999, 2000 in 2004. In June
2004, he received a notice of assessment allowing him expenses as a
self-employed person for the years 1996 to 2000, but disallowing expenses for
the home office of CYBEC CANADA INC. The applicant wanted to know why these
expenses were denied, which triggered a series of reviews of all his tax
returns, leading to the following results:
(a) letter dated
April 8, 2005, from Ms. Martine Bérubé regarding the tax returns for the years
1996 to 2000, informing him that the respondent intended to make the following correction:
to disallow the business loss of $16,592, which had been allowed in 2004 for
the years 1996 to 2000;
(b) letter dated
July 8, 2005, from Ms. Marie Josée Kroft confirming the decision to disallow
the business loss of $16,592. This letter states that it could not be
determined from the information and documents submitted by the applicant that
these expenses were incurred for the sole purpose of earning business income;
(c) notice of
assessment dated September 1, 2005, for the year 2000 did not include the
expenses claimed as business losses;
(d) review of the
file by Mr. Robert Villemure who concluded on December 1, 2005, that the
decision was reasonable and advised that it should be upheld;
(e) decision by
Mr. Marchand on December 2, 2005, confirming the refusal to accept the
applicant’s business losses. The applicant seeks judicial review of that
decision.
III. Decision
at issue
[7]
The
decision of December 2, 2005, upheld the decision of July 8, 2005, disallowing
the business losses claimed by the applicant, i.e:
1999 = $261
1998 = $103
1997 = 3,452
1996 = 6,892
[8]
The
respondent submits that the claim for the year 1996 is statute-barred since the
request was filed out of time. The respondent states that he will not exercise
his discretion under 152(4.2) because the applicant has not provided all the
documents required to support his claim.
IV. Relevant
Legislative Provisions
[9]
Subsection
152(4.2) of the Act is part of a legislative scheme known as “the fairness
package”, which gives the respondent discretion to make adjustments to returns
even though the three-year period has expired. This provision allows the
Minister to reduce the amount of tax payable or to reimburse the taxpayer where
he or she has not complied with the deadlines established by the Act. The relevant
parts of subsection 152(4.2) read as follows:
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152.
(4.2) Notwithstanding subsections 152(4), 152(4.1) and 152(5), for the
purpose of determining, at any time after the expiration of the normal
reassessment period for a taxpayer who is an individual (other than a trust)
or a testamentary trust in respect of a taxation year,
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152.
(4.2) Malgré les paragraphes (4), (4.1) et (5), pour déterminer à un
moment donné après la fin de la période normale de nouvelle cotisation
applicable à un contribuable -- particulier, autre qu’une fiducie, ou fiducie
testamentaire -- pour une année d’imposition le remboursement auquel le
contribuable a droit à ce moment pour l’année ou la réduction d’un montant
payable par le contribuable pour l’année en vertu de la présente partie, le
ministre peut, sur demande du contribuable:
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(a)
the amount of any refund to which the taxpayer is entitled at that time for
that year, or
(b)
a reduction of an amount payable under this Part by the taxpayer for that
year, the Minister may, if application therefor has been made by the
taxpayer,
(c)
reassess tax, interest or penalties payable under this Part by the taxpayer
in respect of that year, and
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a) établir de nouvelles
cotisations concernant l’impôt, les intérêts ou les pénalités payables par le
contribuable pour l’année en vertu de la présente partie;
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. . .
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[. . .]
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V. Analysis
Standard
of review
[10]
First,
the standard of review applicable to the decision at issue must be established.
An analysis of the four factors set out in Dr. Q v. College of Physicians
and Surgeons of British Columbia, [2003] 1 S.C.R. 226, will determine
whether the standard of review applicable to the impugned decision is
correctness, reasonableness simpliciter or patent unreasonableness.
(i) privative
clause/statutory right of appeal
[11]
The
Act does not contain a privative clause or a right of appeal. Thus, the
decision at issue may be the subject of judicial review by the Federal Court.
(ii) expertise
of the tribunal
[12]
Income
tax returns are based on facts that can be reviewed by the taxation
authorities. They must examine the returns based on the provisions of the Act.
With regard to the part of the Act known as the “the fairness package”,
Parliament recognizes the complexity of taxation issues and therefore gives discretion
to the Minister so that he or she has a certain degree of flexibility in
applying certain provisions. Accordingly, this requires that the Court show
great deference unless the decision raises a question of law, or a question of
mixed fact and law.
(iii) purpose
of the legislation
[13]
“The
fairness package” is intended to provide relief to taxpayers where the remedy
is statute-barred so that taxpayers can be reassessed and obtain a reduction of
tax payable or a tax refund. This objective calls for less deference.
(iv) nature
of the question
[14]
When
the question is one of pure fact, more deference must be shown to the disputed
decision. A question of mixed fact and law calls for less deference. Finally,
on a question of law, the Court making a decision on a judicial review will
accord no deference.
[15]
Following
a pragmatic and functional analysis, the Court adopts the reasonableness simpliciter
standard of review since this case essentially involves questions of mixed fact
and law. The taxation authorities are indeed called upon to analyze the
documents provided by the applicant to determine whether the conditions have
been met for the Minister to exercise his discretion. The Court will intervene
only where the decision is based on an unreasonable explanation. The Court must
assess whether the reasons for the decision are tenable (Law Society of New
Brunswick v. Ryan, [2003] 1 S.C.R. 247, paragraph 56).
[16]
In
Lanno v. Canada (Customs and Revenue Agency), [2005] F.C.J. No. 714
(C.A.) (QL), at paragraphs 3 to 7, the Federal Court of Appeal applied the
reasonableness standard of review. That case involved a tax official who had
declined to exercise his discretion under subsection 152(4.2) of the Act.
Did the respondent err
in declining to exercise his discretion under subsection 152(4.2) of the Act?
[17]
I
concur with the respondent’s submission that 1996 is the only year that is
statute-barred and could fall within the ambit of subsection 152(4.2). In fact,
it appears that the 1996 assessment was issued on March 27, 1997.
[19]
The
impugned decision is based on Mr. Villemure’s recommendation. He had all the
files before him. He also reviewed the letters from the applicant and had
telephone conversations with him. He then concluded that the applicant was not
operating businesses under the name of “Force G”, and therefore the
expenses claimed could not be allowed.
[20]
The
applicant provided numerous supporting documents that Mr. Villemure found
inappropriate because they were not originals, and many of them had no date.
[21]
Moreover,
Mr. Villemure relied on Information Circular 92-3 (IC-92-3) “Guidelines for
Refunds Beyond the Normal Three Year Period,” which states at paragraph 10 that
the taxpayer who makes a request after the three-year period must provide all
relevant documents.
[22]
Paragraph
12 of the Circular defines the relevant documents that the taxpayer must
provide and states the following:
12.To support a return or a request,
taxpayers should provide the following information, if relevant:
(a)
official
receipts or certified “true” copies of receipts (for example, tuition, RRSP,
charitable donation receipts);
(b)
copies of
information slips (for example, T3, T4, T5);
(c)
details or
calculations of specific expenses or deductions being claimed;
(d)
proof of
payment such as cancelled cheques for rental payments, letter from landlord.
[23]
With
respect to the case law, in Morrissette v. Canada, [2005] T.C.J.
No. 136, 2005 TCC 187, at paragraphs 46 and 47, Mr. Justice Tardif
of the Tax Court of Canada wrote:
46
Our tax
system relies on the principle of self-assessment to function properly.
Consequently, taxpayers play a decisive role, and the state assumes that
citizens can take on this responsibility and the obligations inherent in it.
47
To
discharge this responsibility properly, citizens, particularly business
operators, must put in place an accounting system that makes it possible to
identify exactly which revenues are taxable. This involves a thorough
accounting, not only for the sources of all income, but for the expenses as
well. Furthermore, all relevant supporting documents must be made available.
[24]
In
my view, it was entirely reasonable for the taxation authorities to deny the
applicant’s requests in the absence of relevant supporting documentation that
would have clearly distinguished the applicant’s personal expenses from his
employment expenses and from expenses claimed for the business, Force G. Furthermore,
without clear evidence such as a bank account or a registration number for the
business, Force G, it was not unreasonable for the respondent to disallow the
business losses claimed by the applicant.
[25]
The
issue here is not whether the Court would have come to a different conclusion,
but whether the decision of December 2, 2005, is supported by the evidence.
[26]
There
is insufficient justification for the Court to intervene in this case,
considering all the evidence that was before the decision-maker.
[27]
The
respondent has not insisted on costs.
JUDGMENT
THE COURT
ORDERS that the application for judicial review be dismissed without
costs.
“Michel
Beaudry”
Certified
true translation
Mary Jo Egan,
LLB
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