Date: 20110114
Docket: T-1879-09
Citation: 2011
FC 40
Ottawa, Ontario, January 14, 2011
PRESENT: The Honourable Madam Justice Heneghan
BETWEEN:
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CHARTER MACCLOY KIDZUGANE
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Applicant
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and
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THE CANADA REVENUE AGENCY
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Respondent
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REASONS FOR ORDER AND ORDER
[1]
Mr.
Charter MacCloy Kidzugane (the “Applicant”) seeks judicial review of a Second
Level Taxpayer Relief Request made pursuant to subsection 220(3.1) of the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.). In that decision dated October 23,
2009, Mr. Joseph Turgeon, Assistant Director, Revenue Collections and Client
Services, Canada Revenue Agency (“CRA”) denied the Applicant’s request to waive
interest and penalties in respect of his income tax debt. The Applicant had
sought the waiver on the basis of financial hardship.
[2]
The
Applicant is the sole director and officer of Magaga Management Inc.
(“Magaga”). At the time of his initial fairness request, in December
2008, he was the sole shareholder of that company and also of CH Health & Home
Care Services Inc. (“CH Health & Home”).
[3]
The
Applicant was audited by the CRA in 2004 and consequently, the sum of $204,766
in claimed expenses was disallowed. This sum included amounts for which the
Applicant could not provide receipts in connection with conducting business in Kenya, Uganda and South Africa, as well as personal use of a company
vehicle. The Applicant disputed the reassessment in 2005 and the matter was
resolved in 2008.
[4]
The
Applicant was ultimately assessed personal taxes for the years 2001 through
2003, totalling $27,138. Penalties and interest were assessed against the
Applicant in relation to this amount.
[5]
Between
2001 and 2008, the Applicant’s net family income ranged from $74,659 to $144,478.
In five of these years, his net family income was above $135,000. Between 2004
and 2007, the Applicant received tax refunds every year but made no payments on
the outstanding tax debt.
[6]
The
Applicant was assessed penalties for failing to declare RRSP income in 2002 and
2003. Magaga was assessed roughly $50,000 in taxes for the 2002 tax year but
this tax debt was reduced to $6.44, due to carry back of subsequent business
losses.
[7]
On
December 11, 2008, the Applicant wrote the CRA requesting a reduction of
interest and waiver of penalties for his personal income tax for years 2001 –
2003 and for Magaga for 2002, pursuant to subsection 220(3.1) of the Income
Tax Act, based on financial hardship and inability to pay. Ms. Angela
Pedley, Manager, Revenue Collections and Client Services Division, reviewed the
application and denied the request for relief in a letter dated June 11, 2009. The
Applicant failed to demonstrate financial hardship. The decision was also due,
in part, to the fact that the Applicant’s related corporations, Magaga and CH
Health & Home, have a history of late filings, including GST returns that
were outstanding at that time.
[8]
The
Applicant then began making monthly payments on the tax debt.
[9]
The
Applicant submitted a Second Level Taxpayer Relief Request on September 21,
2009. He submitted nil GST returns for the outstanding periods for Magaga.
The Applicant also asserted that he had an inability to pay based on his family
circumstances and loans he had made to Magaga and subsequent business losses of
that corporation.
[10]
The
Assistant Director reviewed the materials related to the first and second level
review requests. By letter dated October 23, 2009, he denied the Applicant’s
second level request on the grounds that the first level review adequately
addressed the appropriate factors.
[11]
The
Assistant Director also responded to the Applicant’s specific concerns about
the first level review. He concluded that the Applicant had not provided any
documentation to support his assertion of his inability to pay and financial
hardship based on his family circumstances. He determined that the tax
situation of Magaga was not material to a request for relief on interest and
penalties on his personal tax account. The Assistant Director also noted that GST
returns for CH Health & Home remained outstanding at that time.
Arguments of the Parties
[12]
The
Applicant argues that the Assistant Director failed to consider the financial
situation resulting from his loans to Magaga for business ventures that were unsuccessful.
This led to business expenses being disallowed, resulting in personal income
tax liability to him. He argues that the Assistant Director erred in his
treatment of the loss of $50,000 by Magaga and its bearing on personal
financial hardship to him.
[13]
The
Applicant further submits that the Assistant Director failed to properly
consider that Magaga did in fact submit GST returns for periods ending
September 30, 2008, March 31, 2009 and June 30, 2009 since Magaga was not
carrying on any business and therefore not liable for collecting or remitting
GST.
[14]
He further
submits that CH Health & Home did submit a GST return for the period ending
March 31, 2009, contrary to the findings of the Assistant Director.
[15]
The
Respondent takes the position that the Applicant has submitted documentary
evidence that was not before the decision-maker, and that the Court should not
consider that evidence.
[16]
The
Respondent further argues that the Assistant Director took into account a
number of relevant facts, and addressed the Applicant’s concerns with the first
level review. His decision is reasonable.
Discussion and Disposition
[17]
The
Applicant has filed an Affidavit as part of his Application Record that
includes many documents that were not submitted to the CRA, specifically
Exhibits “B” through “G”, Exhibits “N” through “X”, and Exhibits “DD” and “EE”.
These materials consist largely of bank statements, and since they were not
submitted with the fairness request and were not considered by the
decision-maker, they are not properly before the Court in this application and
will not be taken into account.
[18]
Other
materials were submitted to the CRA, but not in the course of the fairness
request, namely, Exhibits “H” through “L”. These exhibits consist of letters
and forms submitted to the CRA from the Applicant regarding GST returns for
Magaga, and other corporate tax returns. They too will not be taken into
account. Regardless, the facts of these exhibits are reflected in the CRA’s
Record and the material attached to the affidavit filed on behalf of the
Respondent.
[19]
The decision
under review is a discretionary one made pursuant to subsection 220(3.1) of the
Income Tax Act.
[20]
The first
matter to be addressed is the applicable standard of review. According to the
decision of the Supreme Court of Canada in Dunsmuir v. New Brunswick,
[2008] 1 S.C.R. 190, decisions of statutory decision-makers are reviewable on
one of two standards, that is correctness or reasonableness. The standard of
correctness applies to questions of law and issues of procedural fairness. The
standard of reasonableness applies to questions of fact, questions of mixed
fact and law and discretionary decisions. In Telfer v. Canada (Revenue Agency) (2009), 386 N.R. 212 at paragraph 24, the
Federal Court of Appeal said that this type of discretionary decision is
reviewable on the standard of reasonableness, as follows:
Unreasonableness
is the standard of review normally applicable to the exercise of discretion: New Brunswick (Board of Management) v. Dunsmuir, [2008] 1 S.C.R. 190, 2008 SCC 9
(S.C.C.), at para. 51 ("Dunsmuir"). Indeed, this Court had
previously held in Lanno v. Canada (Customs & Revenue Agency), 2005 D.T.C. 5245 (Eng.), 2005 FCA 153 (F.C.A.), that unreasonableness simpliciter
(one of the two deferential standards then applied by the courts) was the
standard of review applicable to a decision made under subsection 220(3.1).
[21]
Insofar as
the Applicant argues that the Assistant Director failed to properly consider a
number of factual issues, he raises a question of mixed fact and law.
Regardless of whether the matter is considered as a question of mixed fact and
law or a question of the proper exercise of discretion, as discussed in Maple Lodge
Farms Ltd. v. Canada, [1982] 2 S.C.R. 2, the applicable standard of review is
reasonableness.
[22]
The
Assistant Director’s discretion in this case is guided by Information Circular
IC07-1. A
copy of IC07-1 was included in the Respondent’s Application Record. Part II,
sections 19 to 44, is entitled “Taxpayer Relief Provisions”. Sections 23, 24
and 25 are relevant and provide as follows:
Circumstances Where Relief From Penalty and Interest May Be
Warranted
¶23. The
Minister may grant relief from the application of penalty and interest where
the following types of situations exist and justify a taxpayer’s inability to
satisfy a tax obligation or requirement at issue:
(a) extraordinary
circumstances
(a)
actions of the CRA
(b)
inability to pay or
financial hardship
¶24. The
Minister may also grant relief if a taxpayer’s circumstances do not fall within
the situations stated in ¶23.
Extraordinary Circumstances
¶25. Penalties
and interest may be waived or cancelled in whole or in part where they result
from circumstances beyond a taxpayer’s control. Extraordinary circumstances
that may have prevented a taxpayer from making a payment when due, filing a
return on time, or otherwise complying with an obligation under the Act
include, but are not limited to, the following examples:
(a)
natural or man-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.
[23]
The
Information Circular proceeds to identify factors to be considered in the
exercise of discretion to waive interest and penalties including the prior
history of a taxpayer in complying with the requirements of the Act:
Factors Used in Arriving at the Decision
¶33.
Where circumstances beyond a taxpayer’s control, actions of the CRA, or
inability to pay or financial hardship has prevented the taxpayer from
complying with the Act, the following factors will be considered when
determining whether or not the CRA will cancel or waive penalties and interest:
(a)
whether or not the taxpayer
has a history of compliance with tax obligations;
(b)
whether or not the
taxpayer has knowingly allowed a balance to exist on 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; and
(d)
whether or not the
taxpayer has acted quickly to remedy any delay or omission.
[24]
In
assessing the Applicant’s history of compliance, the Assistant Director considered
the late GST returns filed by the Applicant’s corporations. The Assistant
Director specifically addressed the fact that Magaga had filed GST returns
after the first level review, but that the filing for CH Health & Home
remained outstanding. The CRA Record, included as an exhibit to the Corrected
Affidavit of Joseph Lionel Wayne Turgeon as part of the Respondent’s Record,
shows a computer printout indicating that the GST remittance of CH Health &
Home for the period ending March 31, 2009 was overdue until October 26, 2009. The
computer printout, although dated October 26, that is after the negative
decision in issue, clearly relates to the decision of October 23, 2010. The
Assistant Director made no error in concluding that the GST returns for CH
Health & Home remained outstanding at the time of his decision.
[25]
The
Assistant Director accounted for a number of considerations in his assessment
of the Applicant’s assertion of financial hardship, including his net family
income and the equity in his home. In this context, the Assistant Director reasonably
concluded that Magaga’s tax situation was immaterial to the Applicant’s
personal inability to pay his own tax debt.
[26]
In the
result, I am satisfied that the conclusions of the Assistant Director meet the
standard of reasonableness.
[27]
This
judicial review is dismissed. In the exercise of my discretion, pursuant to
Rule 400 of the Federal Court Rules, SOR/98-106, I make no order as to
costs.
ORDER
THIS COURT ORDERS that the application for judicial
review is dismissed. Pursuant to Rule 400 of the Federal Courts Rules,
SOR/98-106, I make no order as to costs.
“E.
Heneghan”
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