Background
[2]
The
applicant, Carlyle Leblanc, was a real estate salesman who earned commission
income during the period from 1996 to 1999. The applicant’s 1996, 1997, 1998
and 1999 taxation years were arbitrarily assessed under subsection 152(7) of
the Act. The applicant appealed the assessment of his 1996 and 1997 taxation
years to the Tax Court of Canada. At the hearing on October 24, 2002, the
Minister and the applicant advised the presiding Judge that they had reached an
agreement to settle the appeal. On December 31, 2002, the agreement was
finalized, pursuant to subsection 169(3) of Act, by written consent of the
applicant to the reassessment proposed by the Minister (the Settlement
Agreement).
[3]
The
applicant sought relief under the taxpayer relief provisions of the Act five
times in respect to the 1998 and 1999 taxation years. The Minister considered
the requests pursuant to subsection
152(4.2) of the Act. The taxpayer relief decisions dated March 7, 2006 and December 1,
2006, relating to the third and fourth requests were quashed by the Federal
Court and returned to the Minister for redetermination. In both instances the
Minister brought a motion to the Court for an order allowing the judicial
review. With respect to the March 7, 2006 decision, the ground for the motion
was that a Canada Revenue Agency (CRA) officer had participated in more than
one level of the review, leading to a reasonable apprehension of bias. With
respect to December 1, 2006 decision, the ground for the motion was that the
CRA officer who signed the decision appeared to be approving his own
recommendations, which gave the appearance of a lack of procedural fairness.
[4]
The
present application for judicial review concerns the fifth and most recent
taxpayer relief decision, dated May 2, 2008. In that review, the applicant’s
request for additional deductions and an adjustment of his net commission
income for the 1998 and 1999 taxation years was granted in part (the fairness
decision).
[5]
The
applicant raises a number of grounds in his application for judicial review of
the fairness decision. At the hearing, the applicant agreed that the two main
grounds warranting the Court’s consideration were the following. First, the
applicant claims that the fairness decision does not respect the October 24,
2002 Settlement Agreement between the taxpayer and the Minister. Second, the
Applicant argues that the Minister erroneously “reused” material from the previous
taxpayer relief decisions, which were quashed on procedural fairness grounds.
[6]
The applicant
seeks the following relief: that the Minister honour the Settlement Agreement;
accept the expenses claimed by the applicant for the 1998 and 1999 taxation
years; and thereby decrease the applicant’s taxable net
commission income for those years.
[7]
In reply, the
respondent argues the decision making process in the fairness decision complied
with the principles of procedural fairness. The respondent also argues that
once the Minister determined that additional commission expenses would be
allowed, there was a wide range of possible outcomes. The amount allowed by the
Minister in the fairness decision is both reasonable and defensible.
Issues
[8]
The
issues in this application for judicial review of the Minister’s decision
pursuant to subsection 152(4.2) of the Act are as follows:
- Did
the Minister fail to observe the principles of procedural fairness by
considering the previous taxpayer relief decisions quashed by the Federal
Court?
- Is
the Minister’s decision to deny the applicant full relief reasonable? More
specifically, was the Minister bound by the terms of the Settlement
Agreement in considering the request for relief relating to the 1998 and
1999 taxation years?
Legal Framework
[9]
Subsection
152(4.2) of the Act states:
|
152
(4.2) Notwithstanding subsections (4), (4.1) and (5), for the purpose of
determining, at any time after the end of the normal reassessment period of a
taxpayer who is an individual (other than a trust) or a testamentary trust in
respect of a taxation year, the amount of any refund to which the taxpayer is
entitled at that time for the year, or a reduction of an amount payable under
this Part by the taxpayer for the year, the Minister may, if the taxpayer
makes an application for that determination on or before the day that is ten
calendar years after the end of that taxation year,
(a)
reassess tax, interest or penalties payable under this Part by the taxpayer
in respect of that year; and
(b)
redetermine the amount, if any, deemed by subsection 120(2) or (2.2),
122.5(3), 122.51(2), 122.7(2) or (3), 127.1(1), 127.41(3) or 210.2(3) or (4)
to be paid on account of the taxpayer’s tax payable under this Part for the
year or deemed by subsection 122.61(1) to be an overpayment on account of the
taxpayer’s liability under this Part for the year.
|
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, si le
contribuable demande pareille détermination au plus tard le jour qui suit de
dix années civiles la fin de cette année d’imposition, à la fois :
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;
b) déterminer de nouveau l’impôt
qui est réputé, par les paragraphes 120(2) ou (2.2), 122.5(3), 122.51(2),
122.7(2) ou (3), 127.1(1), 127.41(3) ou 210.2(3) ou (4), avoir été payé au
titre de l’impôt payable par le contribuable en vertu de la présente partie
pour l’année ou qui est réputé, par le paragraphe 122.61(1), être un paiement
en trop au titre des sommes dont le contribuable est redevable en vertu de la
présente partie pour l’année.
|
[10]
Subsection 152(4.2)
of the Act confers to the Minister the discretionary power to reassess the tax
payable by a taxpayer, on the taxpayer’s application, after the lapse of the
normally allotted time limit for reassessment.
1.
Did the Minister fail to observe the principles of procedural
fairness by considering the previous taxpayer relief decisions quashed by the
Federal Court?
Applicant’s position
[11]
The
applicant argues that the Minister erroneously “reused” material from the
previous taxpayer relief decisions, which were quashed. In oral submissions,
the applicant acknowledged that there would be no breach of procedural fairness
if the CRA officer responsible for the fairness decision “looked at” the
findings from previous decisions. However, the applicant argues that it appears
on the face of the fairness decision that the CRA officer simply adopted the
findings from the two previous decisions. The applicant contends this is a
breach of procedural fairness because these previous decisions were quashed on
procedural fairness grounds.
Respondent’s position
[12]
The
respondent argues that the decision at issue was based on following: the
applicant’s books and records; additional documents provided by the applicant;
the policy in Information Circular 07-1; the amount of expenses allowed
to the applicant for the 1996 and 1997 taxation years pursuant to the
Settlement Agreement; as well as the amount of expenses recommended in support
of the previously quashed decisions. The
respondent argues that it was proper and reasonable for the Minister to
consider the conclusions reached in the prior decisions as they formed part of
the factual record. The respondent further argues that nothing in the Act
prevents the Minister from examining previous decisions as the Act itself does
not provide specific procedural rules for applications made under subsection
152(4.2).
[13]
The
respondent contends that the Minister did not fetter his discretion by looking
at these previous quashed decisions. The respondent further contends that upon
examining the fairness decision, it does not appear that the decision-maker was
unduly influenced by the previously quashed decisions.
Analysis
[14]
As
this is an issue of procedural fairness, the standard of review is correctness.
[15]
In exercising
his discretion under subsection 152(4.2) of the Act, the Minister has a duty to
act fairly. Although his powers must be exercised according to the rules
of procedural fairness, no specific rules of procedural fairness are set out in
the Act with respect to applications for taxpayer relief brought pursuant to subsection
152(4.2) (Costabile v. Canada (Customs & Revenue Agency), 2008 FC
943, at para. 37).
[16]
The
fairness decision under review rendered on behalf of the Minister by Ken
Slawson, Director
of the Vancouver Island Tax Services Office, reads:
After careful consideration, it is agreed to
adjust your 1998 and 1999 returns to allow the additional expenses in the
Taxpayer Relief decision letter dated December 1, 2006, which have not yet been
processed, and to allow additional amounts for motor vehicle expenses under
subsection 152(4.2) and the Taxpayer relief provisions. These adjustments are
consistent with amounts that were allowed in previous years and considered
reasonable.
[17]
The fairness
decision therefore allowed the applicant the same additional expenses as the previous
decision dated December 1, 2006, quashed by the Federal Court. It also allowed additional
motor vehicle expenses which were not allowed by the previous decision. The fairness
decision was
based on the recommendations of the CRA officer, Gwen Antaya, which are found
in a report dated April 23, 2008 (the Report). The applicant does not dispute
that the CRA officer could consider the previously quashed decisions. The
applicant’s position is that the CRA officer improperly “reused” the quashed decisions
by simply adopting the findings in those decisions. For the reasons set out
below, I disagree.
[18]
In
her Report, the CRA officer describes the steps she took and the documents she
reviewed in order to make her recommendations, which are as follows:
Steps taken:
a. Analyzed the previous
entries on the Taxpayer Relief registry.
b. Reviewed the file
transfer documents, DOJ [Department of Justice] counsel letter and deposition
of the reviewer for the December 1, 2006 decision that has been set aside.
c. Contacted the DOJ
counsel to confirm that this review is based on the taxpayer’s letter dated
March 26, 2006 and only the 1998 and 1999 tax years under review.
d. Entered this review
for 1998 and 1999 on the Taxpayer Relief registry.
e. Created a date line.
- Read the previous audit and fairness reports noting
who prepared the reports and signed the decision letters as well as what
adjustments had been made and the reasons for those adjustments.
f.
Reconciled
the amounts shown on the comparative figures schedule of amounts claimed and
allowed prepared by the December 1, 2006 reviewer to audit reports for 1996,
1997 and 1998 and the previous fairness reviews for 1998 and 1999, the returns
filed by the taxpayer and the adjustments processed on the RAPI system. Made
adjustments to the schedule as required.
g. Reviewed copies of
the taxpayer’s books and records filed with the 1996 to 1999 returns and
compared the amounts claimed to the supporting documents.
h. Considered the
amounts reduced or disallowed for reasonableness.
i.
Prepared
working papers to support my recommended adjustments.
j.
Prepared
a 2nd level Fairness Report and decision letter for my Team Leader
to review and initial and for the Director to review and sign.
Documents reviewed:
k. Deposition and
exhibits of the reviewer for the December 1, 2006 Fairness decision.
l.
Audit
reports for 1996 to 1998 in the returns.
m. Appeals documents for
1996 and 1997.
n. Fairness reports
available for 1998 and 1999.
o. Books and records
provided by the taxpayer for 1998 and 1999:
i.
A
detailed expenditure listing on a day to day basis
ii.
Bank
statements
iii.
Credit
card statement
iv.
Cancelled
cheques
v.
BC
Hydro statements
vi.
BC
Tel statements
p. IC07-1 Taxpayer
Relief Provisions.
[19]
The
CRA officer considered various documents and previous assessments and
decisions, including the two decisions that were quashed by the Federal Court. The
CRA officer was clearly aware of the reasons why the latter decisions were
quashed, as this is noted in her Report. In considering the underlying reports
of the quashed decisions, the CRA officer considered who had prepared the
reports and signed the decision letter. With respect to the December 1, 2006
decision, she reviewed the counsel letter and deposition of the reviewer. In my
view, this demonstrates that the CRA officer considered the quashed decisions
and their underlying reports with appropriate caution, given that these
decisions were deemed to be procedurally unfair.
[20]
Further,
nothing in the fairness decision or in the underlying recommendations leads me
to conclude that the previous decisions were holistically applied or relied on
exclusively. For each item of deductible expenses claimed by the applicant, the
CRA officer considered numerous factors and came to her own conclusion as to
the appropriate expenses that should be allowed. This conclusion is supported
by the CRA officer’s recommendation for motor vehicle expenses. She recommended
these expenses be allowed in full, while the two previous quashed decisions had
only allowed 68% of the total motor vehicle expenses claimed by the applicant.
[21]
Based
on the above, I find that the duty to act fairly was not breached by the
Minister in rendering the fairness decision.
2. Is the Minister’s decision to deny the applicant full relief
reasonable? More specifically, was the Minister bound by the terms of the Settlement
Agreement in considering the request for relief relating to the 1998 and 1999
taxation years?
Applicant’s position
[22]
The
applicant argues that the Minister was required to respect the terms of the
Settlement Agreement in the fairness decision relating to the 1998 and 1999
taxation years. He submits that the taxation years 1998, 1999 and 2000 were captured
by the Settlement Agreement by counsel for the Ministers on October 24, 2002,
to help “close the deal.”
Respondent’s position
[23]
The
respondent argues that on the date the Settlement Agreement was negotiated, the
Applicant had not yet appealed his 1998 and 1999 taxation years, and
consequently the Settlement Agreement did not address those years. The respondent
notes that the applicant received the full details of the Settlement Agreement, which
did not provide for the 1998 and 1999 taxation years, and consented to it, as
is evidenced by the applicant’s signature on the Settlement Agreement. The
respondent therefore argues that the Minister was not required to adopt the
terms of the Settlement Agreement in the fairness decision concerning the 1998
and 1999 taxation years.
Analysis
[24]
With respect
to the standard of review, the Federal Court of Appeal in Lanno v. Canada
(CRA), 2005 FCA 153, held that the applicable standard of review of a
fairness decision of the Minister, under section 152(4.2) of the Act, was
reasonableness simpliciter. In Panchyshyn v. Canada (Revenue), 2008 FC 996, and in subsequent
cases, the Federal Court confirmed that reasonableness remained the standard of
review following the decision of Dunsmuir v. New Brunswick, 2008 SCC 9.
[25]
A decision made under subsection
152(4.2) of the Act is discretionary. It
follows that the scope of judicial review of such decisions is quite narrow. In Barron v. Canada (Minister of National Revenue –
M.N.R.), [1997] F.C.J. No. 175 (QL); [1997] 2
C.T.C. 198, at paragraph 5, the Federal Court of Appeal explained the scope of
review for such decisions:
…it may be useful to recall that subsection 152(4.2) of the Income
Tax Act confers a discretion on the Minister and that, when an application
for judicial review is directed against a decision made in the exercise of a
discretion, the reviewing court is not called upon to exercise the discretion
conferred on the person who made the decision. 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.
[26]
The
only issue raised by the applicant with respect to reasonableness of the
decision is whether the Minister was required to adopt the terms of the
Settlement Agreement.
[27]
I
have considered the Transcript of the proceedings before the Tax Court on
October 24, 2002, the Settlement Agreement, and the letter of Joanne Ralla, which
the applicant submitted. The evidence supports the Respondent’s position that
the Settlement Agreement applies only to the 1996 and 1997 taxation years. The
Settlement Agreement, signed by the applicant, details only the allowed
expenses for the 1996 and 1997 taxation years. Further, when the Settlement
Agreement was reached on October 24, 2002, the issue before the Tax Court was
the applicant’s appeal of the Minister’s assessments for the1996 and 1997
taxation years. The applicant had not yet filed his returns for the1998 and
1999 taxation years. Those taxation years were therefore not at issue. The
applicant argues that the Minister included the 1998, 1999 and 2000 taxation
years to close the deal with the applicant on October 24, 2002. Apart from his
affidavit, the applicant adduced no further evidence to support this
contention. Based on the record before me, I find that the Minister was not bound
by the terms of the Settlement Agreement in deciding the request for relief
relating to the 1998 and 1999 taxation years. In any event, the CRA officer who
prepared the recommendation for the fairness decision under review, considered
the amounts and percentages of claims allowed for the 1996 and 1997 taxation
years pursuant to the Settlement Agreement, in assessing the reasonableness of
the business expenditures at issue.
[28]
On
the basis of the above, I find the fairness decision to be reasonable. In the
result, the application for judicial review will be dismissed with costs to the
respondent.
JUDGMENT
THIS COURT
ORDERS AND ADJUDGES that the
application for judicial review is dismissed with costs to the respondent.
“Edmond P. Blanchard”
Email this Content