Date: 20100105
Docket: T-393-09
Citation: 2010 FC 5
Ottawa, Ontario, January 5,
2010
PRESENT: The Honourable Mr. Justice Beaudry
BETWEEN:
PETER
POND HOLDINGS LTD.
Applicant
and
ATTORNEY
GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
This
is an application for judicial review of a decision rendered February 12, 2009
by the Minister of National Revenue (the Minister) where the Applicant’s
request for cancellation of a penalty assessed for failure to remit tax due on
a payment made to a non-resident was refused.
Factual Background
[2]
Peter
Pond Holdings Ltd. (the Applicant) is a provincially incorporated body carrying
on business in the province of Alberta as a family-owned
investment company. On March 1, 2005, the Applicant and its shareholders agreed
that the Applicant would repurchase the shares belonging to Wendy Levin (the shares)
for their fair market value. Both the share repurchase agreement and the resolution
of the directors left the purchase amount blank with the understanding that it
would be completed upon valuation of the shares.
[3]
The
valuation of the shares was completed by an accountant on April 20, 2005 and
was approved by the Applicant’s shareholders on May 3, 2005. As Wendy Levin is
a non-resident, the amount of the deemed dividend from the repurchase was
subject to withholding tax pursuant to subsection 212(2) of the Income Tax
Act, R.S.C. 1985 (5th Supp.), c. 1 (the Act). By letter dated May 27, 2005,
the Applicant’s counsel informed Canada Revenue Agency (CRA) of the details of
the transaction. On June 9, 2005, CRA responded in writing and assessed the
Applicant for withholding tax of $151,745.85, along with interest in the amount
of $1,604.92 and a failure to remit penalty of $15,174.59. The next day, the
full amount of the withholding tax, the interest and the penalty were paid to
CRA by a cheque dated March 11, 2005 sent with the letter dated May 27, 2005.
This cheque was signed and dated March 11, 2005; however, the dollar amount was
not inserted at that time by the Applicant.
[4]
Subsequently,
pursuant to subsection 220(3.1) of the Act, the Applicant made a request to the
Minister that the penalty be cancelled (the first fairness request). This was
refused on November 10, 2006. An application for judicial review was
commenced but was discontinued on the understanding that a second level
fairness request would be made. The Applicant’s ground for the fairness request
was essentially that the fair market value could not be established any earlier
and they did not know the amount of the payment required as it was contingent
on the share purchase price being determined. Consequently, the tax was
remitted as soon as possible given the circumstances.
[5]
On
March 27, 2007, a request was made to the Appeals Division of CRA once again
requesting that the penalty be cancelled (the second fairness request). It was
refused on February 12, 2009. The Applicant now seeks judicial review of that
decision.
Contested decision
[6]
In
her letter, the Minister’s delegate indicates that her decision is made further
to the first fairness request and subsequent meeting, correspondence and
telephone conversations.
[7]
The
Minister’s delegate identifies the following major factors as determinative in
supporting the decision:
-
The
resolution by the board of directors stated that the withholding amount was due
by April 15, 2005;
-
No
changes were made to the preliminary valuation and CRA did not share the view
that it was impossible to establish the value of the shares earlier as the
majority of the value of the corporation was derived from marketable securities
held in an investment account;
-
The
Act clearly states that the tax must be remitted "forthwith" and
administratively CRA allows until the 15th of the following month;
-
The
penalty is non-discretionary and not open to subjective determinations. It is
not reasonable in the circumstances to suggest that the accountant being too
busy justifies the late payment of the amounts;
-
The
fact that all parties wanted a legally effective date of March 7, 2005 due to
the fiscal year and the legally effective date was indeed March 7, 2005;
-
Knowing
the requirement to withhold and remit under Part XIII of the Act, the Applicant
had the choice to either remit based on an estimate of the fair market value
and apply for a refund under subsection 227(6) or other recourse under
subsection 227(7) of the Act or to establish the fair market value, gain
shareholder approval, then withhold and remit.
[8]
In
light of the choices open to the Applicant and the outlined factors, the
Minister’s delegate does not find that there are extraordinary circumstances
that prevented the taxpayer from complying with the Act and the second fairness
request is denied.
Issues
[9]
The
following three questions will be addressed:
a) Did the
Minister’s delegate fetter her discretion?
b) Did the
Minister’s delegate err by considering irrelevant facts?
c) Should the
Court determine that the decision does not meet the standard of reasonableness,
should it direct the Minister to cancel the penalty as requested by the
Applicant?
[10]
The
application for judicial review shall be dismissed for the following reasons.
Relevant legislation
[11]
The
relevant legislation is attached as Appendix A to these reasons.
Analysis
Standard of review
[12]
Both
parties submit that the decision should be held to the standard of
reasonableness. I agree, in Dunsmuir v. New Brunswick, 2008 SCC 9,
[2008] 1 S.C.R. 190, the Supreme Court of Canada held that existing
jurisprudence can be helpful in determining the appropriate standard of review
(at paragraph 57). The jurisprudence, previous and subsequent to Dunsmuir,
has established that the standard of reasonableness applied to the
Minister’s decision under subsection 220(3.1) of the Act and I am satisfied
that this continues to be the appropriate standard (see Lanno v. Canada
(Customs and Revenue Agency), 2005 FCA 153, 334 N.R. 348; Telfer v.
Canada (Revenue Agency), 2009 FCA 23, 386 N.R. 212 at paragraphs 5 and 24).
Accordingly, the Court will only intervene if the decision falls outside of the
“range of possible, acceptable outcomes which are defensible in respect of the
facts and law” (Dunsmuir, at paragraph 47).
Did the Minister’s
delegate fetter her discretion?
[13]
The
Applicant alleges that the Minister’s delegate fettered her discretion by
finding that the Applicant should have remitted the withholding tax by CRA’s
administrative filing deadline and refusing to cancel the penalty on this
ground. He holds that the Minister’s delegate was not permitted to adopt mandatory
administrative policies and was required to consider the particular facts
presented in order to determine whether to exercise her discretion. He also
submits that the statement in the decision that the penalty is
"non-discretionary and not open to subjective determinations" is
evidence that the Minister’s delegate was unwilling to consider the particular
facts of this case. Accordingly, the Applicant argues that the decision is
unreasonable as it failed to consider the merits of this particular
application.
[14]
The
Respondent contends that the Minister’s delegate did not fetter her discretion
as she did not treat the administrative policy as a general rule and considered
the merit of this particular case. The Respondent further asserts that the
Minister’s delegate considered CRA’s administrative deadline and the mandatory
nature of the penalty at the request of the Applicant’s legal counsel who
submitted that the remittance had been made within the time required by the
Act.
[15]
Moreover,
the Respondent submits that the conclusion that the penalty was properly
assessed did not govern the outcome of the Minister’s delegate’s decision and
she considered other factors, as evidenced by her letter, in exercising her
discretion. Accordingly, the consideration of the correctness of the penalty
does not render her decision unreasonable.
[16]
At
the outset, I note that throughout these proceedings the Applicant has
maintained that it met the requirement under the Act and remitted the
withholding amount "forthwith" in accordance with subsection 215(1)
and submits that this is an important factor that renders the decision
unreasonable. The parties are clearly not in agreement on this issue, however,
that is not a decision that belongs to this Court. Should the Applicant wish to
challenge the meaning of the definition of "forthwith" and the
correctness of the assessment of the penalty it must do so in the proper forum
and not through this judicial review. The Court notes that the definition of “forthwith”
was discussed in Nestlé Enterprises Limited v. Canada (Minister of National
Revenue – M.N.R.), 92
D.T.C. 1001 by the Tax Court of Canada and determined that it meant “quickly
and promptly”.
It is not for this Court to further the discussion on this issue.
[17]
Furthermore,
I do not agree with the Applicant that the Minister’s delegate fettered her
discretion and did not consider the particular facts of the case. A
decision-maker will fetter her discretion by automatically following
administrative policies and guidelines and refusing to deviate from them in
light of the particular facts of a case (Thamotharem v. Canada (Minister of
Citizenship and Immigration), 2007 FCA 198, [2008] 1 F.C.R. 385 at paragraph
62). In such a situation, the Court’s intervention would be appropriate but that
is not the case here.
[18]
Despite
the fact that the Minister’s delegate stated that she considered CRA’s
administrative guideline and the mandatory nature of the penalty as factors in
her decision, she went on to consider other factors related to the unfolding of
the share repurchase transaction and the alternative options that she believed
were open to the Applicant. She also considered the Applicant’s submission that
it was impossible for the fair market value to be determined and the
withholding amount to be remitted any earlier but disagreed with this position.
It is quite clear that the Minister’s delegate considered the facts of the case
at hand and did not follow the administrative guideline blindly. Consequently,
this ground for judicial review cannot succeed.
Did the Minister’s
delegate err by considering irrelevant facts?
[19]
The
Applicant advances that the Minister’s delegate erred by considering the
following facts: the board of director’s resolution resolved to withhold and
remit the tax due before April 15, 2005; the effective date of the agreement;
and the Applicant was aware of its obligation to remit the withholding tax. The
Applicant adds that none of these factors affected its ability to remit the tax
and thus, should not have been considered.
[20]
The
Applicant further argues that the Minister’s delegate assumed incorrectly that
the fair market value of the shares was readily ascertainable and that it could
have made the remittance based on an estimate. The Applicant alleges that
these are irrelevant considerations that are not supported by the evidence, and
as such, render the decision unreasonable. It relies on the decision in Barron
v. Canada (Minister of National Revenue) (1997), 209 N.R. 392 (F.C.A.)
where the Federal Court of Appeal stated that the “Court may intervene and set
aside the discretionary decision under review only if that decision was made in
bad faith, if its author clearly ignored some relevant facts or took into
consideration irrelevant facts or if the decision is contrary to law” (at
paragraph 5).
[21]
The
Respondent underlines that these factors demonstrate that the Minister’s
delegate weighed various aspects of the transaction in reaching her decision
and that weighing facts is at the heart of exercising discretion. Accordingly,
it will normally be difficult to persuade a court that a decision maker acted
unreasonably in according weight to a particular fact (Telfer, at paragraph
33).
[22]
In
addition, the Respondent submits that the decision overall is reasonable and that
the Minister’s delegate considered the specific circumstances of the case in
determining that the Applicant had not been subject to any extraordinary
circumstances that prevented it from complying with its remittance
obligations.
[23]
The
fairness provision under subsection 220(3.1) of the Act allows the Minister to
grant relief where it can be shown that a situation exists that justifies the
taxpayer’s inability to satisfy the requirement at issue. In this case, the
Applicant has claimed that it was impossible to determine the fair market value
of the shares and the share purchase price any earlier than was done
principally because it was a busy time for their accountant (see page 8, Applicant’s
record, affidavit of Allan Robertson, Applicant's accountant, at paragraph 10).
He claims that as a consequence of this, it could not remit the withholding
amount any earlier and the penalty should be cancelled.
[24]
In
Information Circular IC-92-2, “Guidelines for the Cancellation and Waiver of Interest
and Penalties” (March 18, 1992), it is mentioned that penalties and interest
may be waived or cancelled in whole or in part where they result in
circumstances beyond a taxpayer’s control. It gives examples of extraordinary
circumstances that may have prevented the taxpayer from making a payment when
due. The taxpayer can make a request for cancellation and must provide the
reasons why the interests or penalties levied, or to be levied, were primarily
caused by factors beyond his control. In its determination whether or not there
should be a cancellation, CRA will consider certain factors, and one of them is
whether or not the taxpayer has exercised a reasonable amount of
care and has not been negligent or careless in conducting its affairs under the
self-assessment system.
[25]
The
Court is of the opinion that the reasons provided in the answer to the second
level fairness request are clear, reasonable, justifiable and based on the
evidence. The Court's intervention is not warranted.
Should the Court
determine that the decision does not meet the standard of reasonableness,
should it direct the Minister to cancel the penalty as requested by the
Applicant?
[26]
In
light of my answers to the first two questions, it is unnecessary to analyze
the third one.
[27]
Both
parties submitted submissions on costs. In exercising its discretion, the Court
will grant costs to the Respondent by way of a lump sum for an amount of $2,000.00
inclusive of disbursements and GST.
JUDGMENT
THIS COURT
ORDERS that the application for
judicial review be dismissed. Costs are awarded to the Respondent by way of a
lump sum for an amount of $2,000.00 inclusive of disbursements and GST.
“Michel
Beaudry”
APPENDIX A
Relevant Legislation
Income
Tax Act,
R.S.C. 1985 (5th Supp.), c. 1.
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215.
(1) When a person pays, credits or provides, or is deemed to have paid,
credited or provided, an amount on which an income tax is payable under this
Part, or would be so payable if this Part were read without reference to
subsection 216.1(1), the person shall, notwithstanding any agreement or law
to the contrary, deduct or withhold from it the amount of the tax and
forthwith remit that amount to the Receiver General on behalf of the
non-resident person on account of the tax and shall submit with the
remittance a statement in prescribed form.
227. (9)
Subject to subsection 227(9.5), every person who in a calendar year has
failed to remit or pay as and when required by this Act or a regulation an
amount deducted or withheld as required by this Act or a regulation or an
amount of tax that the person is, by section 116 or by a regulation made
under subsection 215(4), required to pay is liable to a penalty of
(a)
subject to paragraph (b), if
(i)
the Receiver General receives that amount on or before the day it was due,
but that amount is not paid in the manner required, 3% of that amount,
(ii)
the Receiver General receives that amount
(A) no
more than three days after it was due, 3% of that amount,
(B)
more than three days and no more than five days after it was due, 5% of that
amount, or
(C)
more than five days and no more than seven days after it was due, 7% of that
amount, or
(iii)
that amount is not paid or remitted on or before the seventh day after it was
due, 10% of that amount; or
(b)
where at the time of the failure a penalty under this subsection was payable
by the person in respect of an amount that should have been remitted or paid
during the year and the failure was made knowingly or under circumstances
amounting to gross negligence, 20% of that amount.
220. (3.1) The
Minister may, on or before the day that is ten calendar years after the end
of a taxation year of a taxpayer (or in the case of a partnership, a fiscal
period of the partnership) or on application by the taxpayer or partnership
on or before that day, waive or cancel all or any portion of any penalty or
interest otherwise payable under this Act by the taxpayer or partnership in
respect of that taxation year or fiscal period, and notwithstanding
subsections 152(4) to (5), any assessment of the interest and penalties
payable by the taxpayer or partnership shall be made that is necessary to
take into account the cancellation of the penalty or interest.
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215.
(1) La personne qui verse, crédite ou fournit une somme sur laquelle un impôt
sur le revenu est exigible en vertu de la présente partie, ou le serait s’il
n’était pas tenu compte du paragraphe 216.1(1), ou qui est réputée avoir
versé, crédité ou fourni une telle somme, doit, malgré toute disposition
contraire d’une convention ou d’une loi, en déduire ou en retenir l’impôt
applicable et le remettre sans délai au receveur général au nom de la
personne non-résidente, à valoir sur l’impôt, et l’accompagner d’un état
selon le formulaire prescrit.
227. (9)
Sous réserve du paragraphe (9.5), toute personne qui ne remet pas ou ne paye
pas au cours d’une année civile, de la manière et dans le délai prévus à la
présente loi ou à son règlement, un montant déduit ou retenu conformément à
la présente loi ou à son règlement ou un montant d’impôt qu’elle doit payer
conformément à l’article 116 ou à une disposition réglementaire prise en
application du paragraphe 215(4) est passible d’une pénalité :
a)
soit, sous réserve de l’alinéa b) :
(i) si
le receveur général reçoit ce montant au plus tard à la date où il est exigible,
mais que le montant n’est pas payé de la manière prévue, de 3% du montant,
(ii)
si le receveur général reçoit ce montant :
(A) au
plus trois jours après la date où il est exigible, de 3% du montant,
(B)
plus de trois jours mais au plus cinq jours après la date où il est exigible,
de 5% du montant,
(C)
plus de cinq jours mais au plus sept jours après la date où il est exigible,
de 7% du montant,
(iii)
si ce montant n’est pas payé ou remis au plus tard le septième jour suivant
la date où il est exigible, de 10% du montant;
b)
soit de 20 % du montant qui aurait dû être remis ou payé au cours de l’année
si, au moment du défaut, une pénalité en application du présent paragraphe
était payable par la personne et si le défaut a été commis sciemment ou dans
des circonstances équivalant à faute lourde.
220. (3.1)
Le ministre peut, au plus tard le jour qui suit de dix années civiles la fin
de l’année d’imposition d’un contribuable ou de l’exercice d’une société de
personnes ou sur demande du contribuable ou de la société de personnes faite
au plus tard ce jour-là, renoncer à tout ou partie d’un montant de pénalité
ou d’intérêts payable par ailleurs par le contribuable ou la société de
personnes en application de la présente loi pour cette année d’imposition ou
cet exercice, 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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