Date: 20030514
Docket: T-308-01
Citation: 2003 FCT 574
Between:
CHRISCON INVESTMENTS LTD.
Applicant
- and -
ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR ORDER
PINARD J.:
This is an application for judicial review of a decision rendered by Patrice Allard, Chief of Appeals, Montreal Tax Service Office on January 22, 2001, wherein he refused a request by the applicant to waive a portion of the interest and penalties related to an assessment issued pursuant to an audit by Revenue Canada of the applicant's books and records.
Following an audit of the applicant's books and records, an expense in the amount of $170,000.00 was refused for the 1994 fiscal year. The applicant agreed to a reassessment of its taxes which would allow it to offset the amount, now considered income, against losses sustained in the June 30th, 1995 and June 30th, 1996 year ends.
The new assessment was issued to the applicant on April 6, 1999. On August 24, 1999, the applicant applied for a First Level Fairness Review of its reassessment on the grounds that it had not been told that there would be $24,087.00 in interest payable, that the company was experiencing cash flow problems, and that it could not pay the indicated amount without difficulty.
The applicant's request to cancel the interest was denied by Francine Laporte, Fairness Programme Coordinator, in a letter dated April 12, 2000, on the ground that the applicant had not demonstrated an inability to pay.
On May 15, 2000, the applicant requested a Second Level Fairness Review of its file, restating its inability to pay and invoking section 5 and subsection 6(c) of the Guidelines for the Cancellation and Waiver of Interest and Penalties, Circular No. 92-2 dated March 18, 1992 (the "Guidelines").
Diane Bertrand, Appeals Agent, examined the applicant's file. Based on her recommendations, Mr. Allard dismissed the applicant's request to cancel the interest in a letter dated January 22, 2001.
Mr. Allard dismissed the applicant's request with the following explanation:
I have considered the Agency's position with respect to the fairness provisions and made a thorough and impartial review of the facts and representations that you have submitted to support your request. In light of the representations made, I have concluded that your request to cancel the interests should be denied. I regret that this decision could not be more favorable.
The relevant provision of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, is the following:
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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 (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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The relevant provisions of the Guidelines are the following:
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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:
[. . .]
(c) a taxpayer or employer receives incorrect advice such as in the case where the Department wrongly advises a taxpayer that no instalment payments will be required for the current year;
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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 un paiement dans les délais exigés ou de se conformer à 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 :
[. . .]
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;
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Subsection 220(3.1) of the Act vests a discretionary power in the Minister. Therefore, the Court must be satisfied that the taxpayer has been heard, and that the Minister took into consideration all of the taxpayer's submissions before reaching a decision (see, for example, Courchesne v. Ministre du Revenu national (1996), 124 F.T.R. 89). The discretionary power must be exercised in good faith and in accordance with the principles of fundamental justice (see, for example, Edwards et al. v. Canada Customs and Revenue Agency (May 31, 2002), T-1030-01, 2002 FCT 618).
On the evidence presented in this case, I am satisfied that there has been a proper exercise of the statutory discretion bestowed on the Minister by subsection 230(3.1) of the Act.
The applicant was provided with a copy of the Guidelines when it was advised by Francine Laporte that the request for the First Level Fairness Review had been denied. The applicant is now arguing that the Minister failed to consider two relevant factors in exercising its discretion, and that the discretion was exercised contrary to section 5 and subsection 6(c) of the Guidelines. The first factor is that the government auditor did not inform the applicant that the reassessment would result in interest and penalties charged that could not be offset by losses in subsequent years. Second, the auditor represented to the applicant that the inclusion of $170,000.00 in income would result in little or no income tax owed. Neither of these purported representations made by the auditor fits the descriptions in the Guidelines of circumstances under which penalties and interest may be waived or cancelled.
The applicant cannot argue that the auditor failed to inform it that interest would be payable, and that this constitutes an extraordinary circumstance beyond its control, akin to the circumstances envisioned by section 5 of the Guidelines. According to the notes prepared for the Second Level Fairness Review, the agreement signed by Mr. Socrates Goulakos on behalf of the applicant, wherein the applicant consented to the original reassessment, stated at the bottom of the page that:
The Income tax payable resulting from the proposed change will be subject to interest at the prescribed rate.
(Respondent's Record at pages 9, 20 and 26.)
Diane Bertrand, the author of the notes, also points out that the applicant benefited from the professional services of a firm of chartered accountants, Dragonas Goulakos, whose offices are situated at the same civic address as the applicant. It is not unreasonable to consider that this firm may be presumed to have an understanding of the tax implications of business decisions.
Similarly, the auditor's representation to the applicant that the agreement would result in little or no income tax being owed does not constitute a ground for judicial review. There was no incorrect advice given to the taxpayer as described in subsection 6(c). The representation made was with respect to income tax, not the interest payable. Had the applicant had concerns about the amount of interest payable, it should have raised them before signing the agreement which stated that interest would be charged.
The applicant's first and second applications under the fairness legislation were refused on the ground that it had not provided sufficient evidence of an inability to pay the outstanding interest. In fact, the applicant had failed to provide current financial statements to the respondent, despite three attempts by the latter to obtain them. On the evidence before the respondent at the time, the recommendation of the Fairness Committee and the decision by Patrice Allard were in my view entirely reasonable. The Minister did not act in bad faith, and there was no breach of the principles of fundamental justice or consideration of extraneous or irrelevant factors which would warrant this Court's intervention.
For the foregoing reasons, the application for judicial review is dismissed, with costs.
JUDGE
OTTAWA, ONTARIO
May 14, 2003
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-308-01
STYLE OF CAUSE: CHRISCON INVESTMENTS LTD. v. ATTORNEY GENERAL OF CANADA
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: April 10, 2003
REASONS FOR ORDER OF THE HONOURABLE MR. JUSTICE PINARD
DATED: May 14, 2003
APPEARANCES:
Mr. Mark Kmec FOR THE APPLICANT
Mrs. Kim Sheppard FOR THE RESPONDENT
SOLICITORS OF RECORD:
S. Marc Kmec FOR THE APPLICANT
Dorval, Quebec
Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada
Ottawa, Ontario
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