Date: 20040225
Docket: T-553-02
Citation: 2004 FC 323
Ottawa, Ontario this 25th day of February, 2004
Present: THE HONOURABLE MR. JUSTICE von FINCKENSTEIN
BETWEEN:
THE NAIL CENTRE AND ESTHETICS SALON
Applicant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR ORDER AND ORDER
[1] These are four related cases that were heard together in Toronto (T-632-02, T-633-02 and T-638-02). The respondent chose not to exercise its discretion to waive interest and penalties in respect of an outstanding GST debt for the 1991 to 1997 taxation years in respect of An-Dell Electric Ltd. (An-Dell) and The Nail Centre and Esthetics Salon (Nail Centre). It also chose not to waive the interest and penalties in respect of an outstanding Source Deductions debt for the 1991-1997 taxation years for An-Dell. Similarly, the respondent chose not to exercise its discretion to waive interest and penalties on the personal tax accounts of George and Beate Vitallero for the taxation years 1987, 1988, 1993-1997.
[2] George and Beate Vitallero are the sole owners of An-Dell and the Nail Centre. Since the fairness hearings focussed largely upon the ability of George and Beate Vitallero to pay the tax debts of themselves and their businesses, these cases were tried together. The same designated officer of CCRA, Debbie Montgomerie, provided affidavit evidence explaining the background for the fairness rulings in each case.
[3] The authority for making fairness rulings can be found in both the Excise Tax Act, R.S.C 1985 c. E-15 and the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1. Under both authorities, Guidelines have also been issued that specify how the discretion under the fairness provisions will be exercised. The relevant legislative provisions and guidelines provide as follows:
STATUTES
Excise Tax Act, R.S.C 1985 c. E-15
281.1(1) The Minister may waive or cancel interest payable by a person under section 280.
(2) The Minister may waive or cancel penalties payable by a person under section 280.
Income Tax Act, R.S.C. 1985 (5th Supp.), c.1
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.
GUIDELINES
GST Memorandum 500-3-2-1, Assessments and Penalties- Cancellation or Waiver of Penalties and Interest (March 14, 1995)
8. It may be appropriate for the Department, in circumstances where there is an inability on the part of the person to pay amounts owing, to consider cancelling or waiving penalties and interest in whole or in part to facilitate collection. For example:
(a) when collection has been suspended due to an inability to pay;
(b) when a person is unable to conclude a reasonable payment arrangement because the penalty and interest charges represent a significant portion of the payments. In such cases, consideration may be given to waiving penalties and interest in whole or in part for the period beginning on the first payment due date under the payment arrangement until the amounts owing are paid, provided the agreed payments are made on time.
9. Where an extraordinary circumstance beyond the person's control has prevented the person from complying with the Act, the following factors will be considered by the Department to determine whether or not penalties and interest will be cancelled or waived:
(a) Does the person have a satisfactory history of voluntary compliance (i.e., have previous GST returns been filed and payments made on time)?
(b) Has the person knowingly allowed an outstanding balance to exist upon which the penalties and interest have accrued?
(c) Has the person acted quickly to remedy the omission or the delay in compliance, which originally resulted in penalties and interest being charged?
(d) Is there evidence that the person exercised reasonable care and diligence (e.g., planned for anticipated disruptions) and was not negligent or careless in the conduct of its affairs? The onus is on the registrant to keep abreast of any new developments in the administration of the GST so as to ensure continuing compliance section 280.
IC92-2, Guidelines for the Cancellation and Waiver of Interest and Penalties (March 18, 1992)
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....
6. Cancelling or waiving interest or penalties may also be appropriate if the interest or penalty arose primarily because of the actions of the Department....
7. It may be appropriate, in circumstances where there is an inability to pay amounts owing to consider waiving or cancelling 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 agreement because the interest charges absorb a significant portion of payments. In such a case, consideration may be given to waiving interest in all or in part for a period from when payments commence until the amounts owing are paid provided the agreed payments are made on time.
10. The following factors will be considered when determining whether or not the Department will cancel or waive the interest and penalties:
(a) whether or not the taxpayer or employer has a history of compliance with tax obligations
(b) whether or not the taxpayer or employer has knowingly allowed a balance to exist upon which arrears interest has accrued;
(c) whether or not the taxpayer has exercised a reasonable amount of care and has not been negligent or careless in conducting their affairs under the self-assessment system;
(d) whether or not the taxpayer or employer has acted quickly to remedy any delay or omission.
[4] The issue raised by the applicants is: Did the Minister err in deciding not to exercise his discretion so as to grant the applicants a waiver?
[5] There is no overarching principle regarding the exercise of the fairness provisions under either the Excise Tax Act or the Income Tax Act. Rather, each case depends on its own facts.
[6] Thus, in Kaiser v. Canada (Minister of National Revenue) (1995), 95 D.T.C. 5187 at 5188-5189 Rouleau J. observed:
The purpose of this legislative provision is to allow Revenue Canada, Taxation, to administer the tax system more fairly, by allowing for the application of common sense in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, are unable to meet deadlines or comply with rules under the tax system. The language used in the section bestows a wide discretion on the Minister to waive or cancel interest at any time. To assist in the exercise of that discretion, policy guidelines have been formulated and are set out in Information Circular 92-2.
Every case is required to be decided on its own merit in order that circumstances unique to that individual taxpayer are taken into account ... [W]hen the Minister exercises his discretion under subsection 220(3.1), he is required to take into account considerations relevant and unique to that taxpayer alone.
(my emphasis)
[7] In this case we have three affidavits, one by the designated CCRA Officer, Debbie Montgomerie, and the other two by George and Beate Vitallero.
[8] Unfortunately these two affidavits differ in several vital respects, including:
(1) Officer Montgomerie stated that the rental income on a condominium unit owned by the couple in Oakville, Ontario was $5500 whereas Mr. Vitellaro stated that the income was $5092.
(2) Officer Montgomerie stated that this property carried a total mortgage of $292,000 whereas Mr. Vitellaro stated that the total mortgage on the property was $430,000.
(3) Officer Montgomerie stated that Mr. and Mrs. Vitellaro were partners in a fully-operating second business whereas Mr. Vitellaro stated that the family's second business after An-Dell, namely the Nail Centre, was closed in 1998 due to financial difficulties.
(4) Officer Montgomerie stated that Mr. and Mrs. Vitellaro had an unexplained monthly operating deficit of $4185 whereas Mr. and Mrs. Vitellaro stated that they had forgot to report income in the amount of $1030 gained from their investments in D & V Enterprises such that this deficit was only $3055. Further, the couple stated that this monthly deficit was covered by funds which they received from their children and other family members.
(5) Officer Montgomerie stated that the couple owned a 50% interest in another company which both Mr. and Mrs. Vitellaro deny.
(6) Officer Montgomerie stated that the couple owned four rental properties in addition to their principal residence and that no rental income for these properties appeared to have been reported in their income statements. The couple, in their affidavits, disputed the number of additional properties which they owned and stated that they had reported rental income in their income statements as "other periodic income in the amount of $2432."
[9] Neither party has been able to explain these discrepancies to the Court. Therefore, I am unable to assess whether or not Officer Montgomerie considered the relevant and correct information and made a reasonable recommendation with regards to the waiver of interest and penalties.
[10] The parties are therefore directed to provide this Court with a full and clear report as to the information necessary for an assessment of the six issues mentioned in paragraph 8. This case will be adjourned until such information is provided.
[11] As the onus is generally upon an applicant to provide full materials to support his application for a waiver to the CCRA (now CRA), the applicants in this case are directed to provide clear records and information in affidavit form with respect to the aforementioned six issues. If they are unable to do this themselves, it is incumbent upon them to hire a professional who can assist them. Such evidence shall be filed with the Court and served on the respondent no later than March 15, 2004.
[12] The respondent shall then serve the applicants and file with the Court an affidavit of one of its officers no later than April 1, 2004 advising the Court of its position regarding the fairness ruling in light of the additional information supplied by the applicants.
[13] This Court will then resume on April 5, 2004, at the Court house in Toronto, at 2:00 p.m. to consider whatever additional submissions the parties may want to make in light of the material furnished under the foregoing paragraphs 11 and 12.
ORDER
THIS COURT ORDERS that
1. The matter is adjourned to April 5, 2004, at the Court house in Toronto, 330 University Avenue, 8th floor, at 2:00 p.m.
2. The applicants are directed to serve the respondent and to file with the Court clear records and information in affidavit form by March 15th, 2004 in respect of:
a) the rental income on a condominium unit owned by the couple in Oakville, Ontario;
b) the amount of the mortgages on the properties which they own;
c) the closure and disposal of the assets of the Nail Centre;
d) the monthly operating income of George and Beate Vitellaro from all sources, including precise accounting of any contributions from family members;
e) itemization of all companies in which the Vitalleros own 50% and a valuation of such interests;
f) itemization of the rental income from four rental properties owned by George and Beate Vitallero.
3. The respondent shall file with the Court an affidavit of one of its officers no later than April 1, 2004 advising of its position regarding the fairness ruling in light of the additional information supplied by applicants.
"K. von Finckenstein"
Judge
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-553-02
STYLE OF CAUSE: THE NAIL CENTRE AND ESTHETICS SALON
and
CANADA CUSTOMS AND REVENUE AGENCY
PLACE OF HEARING: TORONTO, ONTARIO
DATE OF HEARING: FEBRUARY 18, 2004
REASONS FOR ORDER AND ORDER : von FICKENSTEIN J.
DATED: FEBRUARY 25, 2004
APPEARANCES:
George Vitellaro ON HIS OWN BEHALF
Andrea Jackett FOR RESPONDENT
SOLICITORS OF RECORD:
George Vitellaro ON HIS OWN BEHALF
Morris Rosenberg
Deputy Attorney General of Canada FOR RESPONDENT
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