Docket: T-743-02
Neutral citation: 2003 FCT 585
Between:
JEANNE ELIZABETH SARSON,
Applicant,
- and -
THE ATTORNEY GENERAL OF CANADA,
Respondent.
Let the attached edited version of the transcript of my Reasons for judgment delivered orally from the bench at Halifax, Nova Scotia, on April 2, 2003, be filed to comply with Section 51 of the Federal Court Act.
[signed] Carolyn A. Layden-Stevenson
Judge
Ottawa, Ontario
May 12, 2003
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1 COURT FILE NO. T-743-02
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3 Neutral citation: 2003 FCT 585
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5
6
7 IN THE FEDERAL COURT OF CANADA
8 (TRIAL DIVISION)
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10
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12 BETWEEN:
13
14
15 JEANNE ELIZABETH SARSON
16 Applicant
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18 - and -
19
20
21 ATTORNEY GENERAL OF CANADA
22 Respondent
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24 ________________________________________________________
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27 R E A S O N S F O R J U D G M E N T
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29 ________________________________________________________
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32 HEARD BEFORE: The Honourable Madam Justice
33 Layden-Stevenson
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35 PLACE HEARD: Court Room No. 5, Halifax, Nova Scotia
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37 DATE HEARD: Wednesday, April 2, 2003
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39 COUNSEL: Ms. Jeanne E. Sarson
40 Self-represented
41
42 Mr. John J. Ashley
43 Solicitor for the Respondent
44 ________________________________________________________
45
46 Recorded By:
47 Drake Recording Services Limited
48 1592 Oxford Street
49 Halifax, N.S. B3H 3Z4
50 Per: Trish Egan, Commissioner of Oaths
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1 I N D E X O F P R O C E E D I N G S
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3 PAGE NO.
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5 LAYDEN-STEVENSON, J (Orally) . . . . . . . . . . . 3
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Wednesday, April 2, 2003 - 9:32 a.m. 3
1 LAYDEN-STEVENSON, J. (Orally): My apologies. I
2 wasn't quite as quick as I thought I could be.
3 The applicant, Jeanne E. Sarson, applies for
4 judicial review of the decision of the Minister of
5 National Revenue as determined by the ministerial
6 delegate, Director of Tax Services, Halifax Office,
7 Canada Customs and Revenue Agency, which I will refer to
8 as CCRA.
9 The decision relates to subsection 223.1 of the
10 Income Tax Act, commonly referred to as the Fairness
11 Provision.
12 The application for judicial review relates to
13 interest with respect to the applicant's tax returns for
14 the taxation years 1995, 1996, 1997, 1998, and 1999. The
15 interest charges arise from notices of reassessment
16 issued by the Minister on June 8th, 2000 for the 1995
17 through 1999 taxation years.
18 The notice of reassessment was issued following an
19 audit by CCRA. During the audit, it was discovered that
20 the applicant had been erroneously claiming what I will
21 refer to as a "bad debt" on her income tax returns.
22 Following receipt of the reassessment, Ms. Sarson,
23 by letter dated June 19th, 2001, requested waiver of
24 interest and penalties.
25 The applicant explained in her correspondence that
LAYDEN-STEVENSON, J. (Orally) 4
1 she had submitted a letter with her income tax return on
2 April 25th, 1996 wherein she informed CCRA that she was
3 claiming a bad debt for the 1995 taxation year.
4 Since CCRA did not respond to that correspondence
5 and because she did not receive notice to the contrary,
6 the applicant assumed her approach was correct, and she
7 continued to use that approach for the 1996 to 1999
8 taxation years.
9 The first request for waiver of interest and
10 penalties was reviewed and denied by the Assistant
11 Director, Verification and Enforcement Division in a
12 letter dated January 28th, 2002. That letter contained
13 the following statement:
14 "Our review shows that your letter dated April
15 25th, 1996 did not contain information that
16 resulted in inaction by the Agency, and did not
17 alter your responsibility to ensure your bad
18 debt was correctly reported."
19 By a letter dated February 17th, 2002, the applicant
20 requested the Director of the Tax Services office to
21 review the request for the cancellation of interest and
22 waiver of penalties.
23 On April 4th, 2002, a committee comprised of an
24 income tax technical advisor and an excise tax technical
25 advisor recommended denial of a waiver and cancellation
LAYDEN-STEVENSON, J. (Orally) 5
1 on the basis that the applicant's reassessment was based
2 on the applicant's accounting error.
3 The income related to bad debts expensed by the
4 applicant, but which had never been included in the
5 applicant's income.
6 The Director reviewed the file and decided not to
7 grant the waiver and cancellation sought on the basis
8 that there was no error on the part of CCRA or
9 circumstances beyond the applicant's control which would
10 have affected her ability to correctly file her income
11 tax return.
12 The reassessment was based on an accounting error of
13 expensing bad debt that had never been taken into income.
14 The applicant's letter of November 25th, 1996 did not
15 indicate the accounting treatment of the bad debt. Its
16 treatment and requisite adjustments came to light during
17 the course of an audit.
18 The Director did cancel the late filing penalty
19 because of the stressful circumstances that the applicant
20 had referred to in her request.
21 On April 5th, 2002, the Director wrote to the
22 applicant advising of his decision not to waive interest,
23 but to cancel the late filing penalties. It is this
24 decision that is the subject of this application for
25 judicial review. The relevant portions of the decision
LAYDEN-STEVENSON, J. (Orally) 6
1 of the ministerial delegate state:
2 "I have noted your comments about the interest
3 and late filing penalty, also, I have carefully
4 considered the facts of the case and your
5 submission [sic] as they relate to the
6 applicable legislation. My review reveals no
7 indication that an error on our part or
8 circumstances beyond your control would have
9 affected your ability to correctly file your
10 income tax return. Furthermore, your
11 reassessment was based on an accounting error
12 of expensing bad debt that had never been taken
13 into income. It is a principle that a bad debt
14 must first be included in income before it may
15 be subtracted from income. The Canadian income
16 tax system is one of self-assessment; every
17 taxable individual is required by law to
18 determine the taxes payable for the year.
19 After initial processing and correction of
20 obvious errors made in completing the return,
21 the return may be selected for audit and, thus,
22 subject to a detailed examination. When your
23 1996 income tax return was filed, you enclosed
24 a letter which detailed your situation and the
25 services you were providing. The letter
LAYDEN-STEVENSON, J. (Orally) 7
1 thanked us for taking the time to listen and,
2 therefore, no reply was considered warranted.
3 However, this letter did not indicate the
4 accounting treatment of the bad debt, i.e. was
5 the bad debt included in revenue previously.
6 The circumstances surrounding the accounting
7 treatment of the bad debt and the required
8 adjustments only came to light during the
9 course of our audit. As a result of my review
10 of the circumstances surrounding your
11 situation, I have concluded that the late
12 filing penalty will be cancelled, however, the
13 interest charges will remain."
14 Much of the applicant's argument turns on the
15 contents of her correspondence to CCRA dated April 25th,
16 1996. As a result, I have carefully reviewed
17 that correspondence in which the applicant describes the
18 activities of "Flight Into Freedom", a project commenced
19 by the applicant in 1993 relating to services for victims
20 of violence and ritual abuse torture.
21 Although the correspondence is fairly lengthy, it
22 relates to the activities and difficulties experienced by
23 the organization in the social sense, as opposed to the
24 financial sense. The only specific reference to bad debt
25 is contained in the first and last paragraphs which read
LAYDEN-STEVENSON, J. (Orally) 8
1 as follows:
2 "I am including this letter to explain briefly
3 the decision to claim a bad debt this year. I
4 have decided to do this following a television
5 program that suggested to the public that
6 sending a letter to explain one's changes in
7 one's personal income tax returns was a good
8 idea as it provides clarity to new situations."
9 The last paragraph:
10 "I will be starting reduced paid employment,
11 three-quarter time, this year and plans have
12 been initiated with the victims to write a
13 book. It is this bartering that has supported
14 the business decision to claim a bad debt loss
15 as it is expected "Flight Into Freedom" will
16 realize monies from the writing as well as from
17 future growth."
18 Although the applicant undoubtedly intended to be
19 specific with respect to her reasons, I do not find that
20 the correspondence contained information such that CCRA
21 would have concluded that the income tax return had been
22 filed incorrectly.
23 It is not open to me to consider evidence that is
24 not contained in the record. The court does not have
25 unlimited powers on judicial review.
LAYDEN-STEVENSON, J. (Orally) 9
1 Here, the scope of judicial review is limited to
2 reviewing whether the ministerial delegate exercised his
3 discretion with regard to relevant considerations and
4 without regard to extraneous factors. It is not open to
5 the court to substitute its opinion for that of the
6 Minister, in the absence of reviewable error.
7 The standard of review is that of patent
8 unreasonableness. See: Cheng v. Her Majesty the Queen,
9 [2001] D.T.C. 5575 (F.C.T.D.), and Sharma v. Canada
10 (Customs and Revenue Agency), [2001] D.T.C. 5360
11 (F.C.T.D.).
12 The applicant's submissions are lengthy and, in
13 large part, are comprised of statements of frustration
14 regarding her experience with CCRA, rather than legal
15 arguments.
16 From a legal perspective, the applicant makes two
17 primary arguments: first, that the respondent failed to
18 observe procedural fairness and natural justice and,
19 second, that the decision was based on an erroneous
20 finding of fact made in a perverse or capricious manner
21 or without regard to the material.
22 I summarize the applicant's submissions as follows:
23 regarding natural justice, the applicant argues that the
24 legislation must be applied justly, impartially,
25 reasonably, consistently, and transparently. She states
LAYDEN-STEVENSON, J. (Orally) 10
1 that it was not applied in that manner here because the
2 Minister's delegate failed to follow the IC-92-2
3 guidelines for the cancellation and waiver of interest
4 and penalties. Additionally, the duty of fairness
5 requires a quality of treatment that was compromised
6 here. The applicant argues that this constitutes abuse
7 of power. She alleges that procedural fairness was
8 breached when her letter was ignored. She argues that
9 due to the failure of CCRA to attend to her letter and to
10 correct her notice of assessment, a snowball effect was
11 created leading to her present interest charges.
12 Regarding the allegation that the decision was made
13 in a perverse or capricious manner without regard to the
14 material before it -- again, I am summarizing the
15 applicant's arguments -- it is alleged that it was
16 unreasonable for CCRA to disregard the fact that she had
17 sent the April 25th, 1996 letter in making its
18 determination. The failure to assess her tax in light of
19 that evidence was CCRA's inaction.
20 The applicant also submits that the failure of CCRA
21 to read her letter or to read and disregard it was an
22 error and thus, it was unreasonable to deny her request
23 on the basis that there was no error.
24 The applicant submits that the following facts,
25 which are listed in the fairness guidelines, ought to
LAYDEN-STEVENSON, J. (Orally) 11
1 have triggered a determination that granted her request
2 for interest waiver: processing delays which resulted in
3 her not being informed within a reasonable time that an
4 amount is owing; processing errors which resulted in her
5 being unaware of certain obligations, and tax
6 consequences that were not intended by her, considering
7 that she had taken reasonable steps to comply with the
8 law.
9 I have already determined that the correspondence
10 did not contain information such that CCRA would have
11 concluded that the income tax had been incorrectly filed.
12 Given the high level of deference owed to the Minister, I
13 cannot conclude that the respondent erred with respect to
14 the consideration of the applicant's April, 1996 letter.
15 The applicant also makes an argument with respect to
16 the difficulty she was having professionally. She argues
17 that these circumstances were overlooked by the
18 respondent.
19 It is correct that serious emotional or mental
20 distress is a factor listed in the fairness guidelines as
21 illustrative of a situation where waiving of interest may
22 be warranted because it resulted in circumstances that
23 were beyond the taxpayer's control. However, it is for
24 the Minister to make such a determination.
25 Here, it is clear that the Director considered all
LAYDEN-STEVENSON, J. (Orally) 12
1 the reasons provided by the applicant for the request.
2 In his affidavit, the ministerial delegate deposes that
3 he considered the following factors in deciding not to
4 cancel the interest: (a) the request made by the
5 applicant and the reasons therefore; (b) the fact that
6 the applicant had filed her income tax returns on time;
7 (c) the fact that there was no error on the part of CCRA;
8 (d) the fact that there were no circumstances beyond the
9 applicant's control, which would have affected her
10 ability to correctly file her income tax return; (e) the
11 reassessment was based on an accounting error of
12 expensing a bad debt that had never been taken into
13 income; (f) the applicant's letter of April 25th, 1996
14 did not indicate the accounting treatment of the bad
15 debt; its treatment and the required adjustments came to
16 light during the course of an audit performed in 2001
17 and, (g) the guidelines established in information
18 circular 92-2 were not met in these circumstances.
19 Having reviewed the record in its entirety, I conclude
20 that the Director's determination was open to him on a
21 standard of patent unreasonableness and my intervention
22 is not warranted. The application for judicial review is
23 therefore dismissed but, in the circumstances, without
24 costs.
25 Ms. Sarson, what will happen is that I'm going to
LAYDEN-STEVENSON, J. (Orally) 13
1 sign an Order today dismissing the application for
2 judicial review without costs. And the Court Reporter
3 will be transcribing my oral judgment within the next
4 couple of weeks, and when that is transcribed, I will
5 file the transcript in the Registry office and that will
6 be the reasons for my judgment, and they will forward a
7 copy of those reasons to you when they are ---
8 MS. SARSON
9 They mail them, do they?
10 THE COURT
11 Pardon me?
12 MS. SARSON
13 They mail them, or I have to pick them up?
14 THE REGISTRAR
15 We mail them.
16 MS. SARSON
17 They mail them?
18 THE COURT
19 They mail them.
20 THE REGISTRAR
21 This special sitting of the Federal Court of Canada
22 is now concluded. Order.
23
24 (COURT CONCLUDES)
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5 CERTIFICATE OF VERBATIM REPORTER
6
7 I, Patricia Cantle, Verbatim Reporter, hereby
8 certify that I have transcribed the foregoing and
9 that it is a true and accurate transcript of the
10 evidence given in this matter, JEANNE ELIZABETH
11 SARSON (Applicant) and THE MINISTER OF NATIONAL
12 REVENUE (Respondent) taken by way of electronic
13 recording pursuant to Section 15 of the Court
14 Reporters Act.
15
16
17 ________________________________________
18 Patricia Cantle
19 Certified Verbatim Reporter
20
21
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23 Wednesday, April 9, 2003, Halifax, Nova Scotia
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FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-743-02
STYLE OF CAUSE: Jeanne Elizabeth Sarson v.
The Attorney General of Canada
PLACE OF HEARING: Halifax, Nova Scotia
DATE OF HEARING: April 2, 2003
TRANSCRIPT OF REASONS BY: Layden-Stevenson J.
DATED: May 12, 2003
APPEARANCES:
Jeanne Elizabeth Sarson APPLICANT
John Ashley RESPONDENT
SOLICITORS OF RECORD:
Morris Rosenberg
Deputy Attorney General of Canada
Halifax, Nova Scotia FOR RESPONDENT
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