Date: 20110211
Docket: T-2125-09
Citation: 2011 FC 165
Ottawa, Ontario, February 11,
2011
PRESENT: The Honourable Madam Justice Simpson
BETWEEN:
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LARRY BONTJE
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Applicant
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and
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FORCAP INTERNATIONAL LIMITED
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Applicant
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and
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FORCAP INTERNATIONAL INC.
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Applicant
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and
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HER MAJESTY THE QUEEN
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Respondent
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REASONS FOR JUDGMENT AND
JUDGMENT
[1]
The issue
in this case is whether Mr. Lawrence Bontje and his two companies are entitled
to benefit from the Canada Revenue Agency (CRA) Voluntary Disclosures Policy
(VDP). In a decision dated November 19, 2009 (the Decision), CRA refused
to apply the VDP to the applicants. This application is for judicial review of
that Decision.
BACKGROUND
[2]
Lawrence
Bontje (who will be described as the Applicant) is the sole director, officer
and shareholder of Forcap International Ltd. (FIL) and Forcap International
Inc. (FII). Both corporations pay all their income to the Applicant. The
Applicant has never filed tax returns for either company although they were
incorporated in 2000 and 1997 respectively.
[3]
The
Applicant filed his last personal income tax return in 1999 and did not pay the
taxes owed for either his 1998 or 1999 taxation years. He subsequently arranged
a payment schedule with CRA to cover those unpaid amounts but he defaulted on
his obligations.
[4]
CRA
maintained contact with the Applicant from 2000 until April 29, 2002 in an
effort to recover the unpaid taxes. However, after April 2002, the Applicant changed
his residence several times and did not advise CRA of his new addresses.
Accordingly, CRA lost contact with the Applicant for approximately four years.
[5]
On
March 28, 2002, CRA issued a request to the Applicant to file his return
for the 2000 taxation year. It was followed with a request dated July 12,
2002 asking for his return for 2001. Approximately two years later, on
March 30, 2004, CRA issued another request asking the Applicant to file
returns for both his 2000 and 2001 taxation years. On the same date, CRA also
sent a request to FII asking for its returns for the years 1998 to 2002. No
responses were received.
[6]
In 2003,
since no return had been filed, CRA completed and mailed to the Applicant an
arbitrary assessment for his 2000 taxation year pursuant to subsection 152(7)
of the Act. However, this assessment did not reach the Applicant because he had
moved.
[7]
The
Applicant says that he was contacted by CRA in 2004 or 2005 and that he referred
them to his trustee (the Trustee). On the other hand, CRA says that, on
February 1, 2006, it was contacted by the Trustee. He provided CRA with the
Applicant’s then current address and spoke with CRA several times between
February 1, 2006 and March 14, 2007. At that time, the Trustee
advised CRA that the Applicant was considering declaring bankruptcy.
[8]
In 2007,
CRA prepared arbitrary assessments for the Applicant’s 2001 to 2004 taxation
years. Although these were mailed to the Applicant, he says that they were not
received.
[9]
On
March 28, 2008 and May 13, 2008, further requests to file a tax
return for 2006 were sent to the Applicant. On May 8, 2008, the Applicant filed
his return for 2006 showing that nothing was owing. However, a subsequent
Notice of Assessment for 2006 dated July 28, 2008 shows that a balance of
approximately $396,350.00 was due from previous years.
[10]
CRA relied
on the affidavit of Lauraine Friskey sworn on March 10, 2010. She admitted in
her cross-examination that, when the Applicant filed his 2006 return, the
enforcement action (i.e., the request to file that return) was “complete”.
[11]
On
August 25, 2008, requests for relief under the VDP were filed for the
Applicant and his two corporations in respect of their unfiled returns. The
Applicant’s request covered the years 2000 to 2005 and 2007. The request for
FIL dealt with 2000 to 2007 and the one for FII covered 1997 to 2007.
THE INFORMATION CIRCULAR
[12]
On
October 22, 2007, CRA published an information circular No. IC00-1R2 (the
Circular) dealing with the VDP. Its introduction reminds the reader that the
program is discretionary and says that the Circular “...outlines the
administrative guidelines the CRA will follow in making a decision whether to
accept the disclosure as valid”.
[13]
Paragraph
32 of the Circular reads, in part, as follows:
32. A disclosure will not qualify as a
valid disclosure, subject to the exceptions in paragraph 34, under the
“voluntary” condition if the CRA determines:
[...]
•
Enforcement
action relating to the disclosure was initiated by the CRA or any other authority or
administration on the taxpayer, or on a person associated with, or related to
the taxpayer (this includes, but is not restricted to, corporations,
shareholders, spouses and partners), or on a third party [...]
[14]
Paragraph
33 of the Circular says that, for the purposes of the VDP, an “enforcement
action” may include, but is not limited to:
·
requests
issued by CRA relating to unfiled returns and, although the request may only relate
to one year, it will be considered an enforcement action for all taxation years
for the purposes of the VDP; and
·
direct
contact by a CRA employee for any reason relating to non-compliance.
THE DECISION
[15]
The
Decision denied VDP relief to the Applicant and to FIL and FII for the
following reasons:
(i)
According
to the Circular, the March 28, 2008 Request was an enforcement action for
all years covered by the VDP;
(ii)
As well, the
Applicant had been spoken to by a CRA Collections officer about payment on more
than one occasion and, according to the Circular, this disentitled him to the
VDP relief;
(iii)
The
arbitrary assessments of the Applicant, under subsection 152 of the Income
Tax Act, RS 1985, c 1 (5th Supp) (the Act) were also enforcement
actions;
(iv)
CRA had
made numerous attempts to contact the Applicant when he did not update his
addresses. These efforts were made by mail, phone and personal visits to his
home and office; and
(v)
Promises
to pay had been made and were broken.
THE APPLICANT’S
SUBMISSIONS
[16]
Against
this background, the Applicant says that, although the request of March 28,
2008 asking the Applicant to file his 2006 income tax return (the Request) was
an enforcement action, it expired in May 2008 once the return was filed.
Accordingly, he says that the Request cannot bar his application for VDP relief
because it was made five months later.
[17]
On this
issue, the Applicant also notes that, in the illustration provided in paragraph
33 of the Circular, the request to file which defeated the application for VDP relief
had not been complied with when the VDP application was filed. In this case, in
contrast, the Request was not outstanding when the VDP application was made in
August 2008.
[18]
The
Applicant further submits that he was not “on CRA’s radar” when he applied for
the VDP because he had complied with the Request and because, after it stopped
dealing with the Trustee in March of 2007, CRA took no action for eighteen
months to collect amounts owing pursuant to the arbitrary assessments of 2003
and 2007.
[19]
According
to the Applicant, this meant that he was not “on CRA’s radar” from March 2007
until it issued the Request on March 28, 2008 and, once the 2006 return was
filed, the Applicant was again “off CRA’s radar” when the request for VDP
relief was filed. Accordingly, it is submitted that he came forward
voluntarily.
[20]
The
Applicant also says that CRA erred in law when it treated the arbitrary
assessments as enforcement actions for the purposes of the VDP. He says that,
while such assessments create liability and can lead to collections activity,
they are not, in themselves, enforcement actions and are not described as such in
the Circular.
[21]
Further, the
Applicant says that CRA also erred in law when it treated the numerous
conversations between the Applicant and CRA Collections as enforcement actions
because those conversations all took place between 2000 and April 29, 2002 and
concerned the 1998, 1999 and 2000 taxation years. The Applicant says that there
must be a recognition that enforcement actions expire and that it is not
reasonable that they be open-ended. Accordingly, the earlier contact should be
ignored when an application for VDP relief is being considered.
[22]
Lastly,
the Applicant submits that the contacts between CRA Collections and the Trustee
are too far in the past to have been considered when the Decision was made.
Their last contact was in March 2007.
[23]
For all these
reasons, the Applicant says that his VDP applications were not prompted by
action on CRA’s part.
THE RESPONDENT’S
SUBMISSIONS
[24]
The
Respondent says that the fact that the Request was issued disqualifies the
Applicant from VDP consideration even though he complied with the Request
before applying for VDP relief. Compliance, in the Respondent’s submissions is
irrelevant. In its view, the purpose of the VDP is to give relief to taxpayers
who come forward of their own volition before any enforcement action is taken.
In other words, once the taxpayer is “on CRA’s radar”, relief under the VDP is
no longer available.
THE STANDARD OF REVIEW
[25]
In my
view, the Decision involves the exercise of extraordinary discretion. As well,
it relies on CRA’s expertise in the administration of the VDP. Accordingly, I
will consider the Decision using reasonableness as the standard of review. In
reaching this conclusion, I have been mindful of the decision of Mr. Justice
Roger Hughes in McCracken v The Queen, 2009 FC 1189, 2009 DTC 5192 in
which he was reviewing a decision under the VDP and applied the reasonableness
standard.
DISCUSSION
[26]
I have not
been persuaded by the majority of the Applicant’s submissions. First, there is
no suggestion in the Circular that, for the purpose of the VDP, enforcement
actions “expire”. The Circular says, in paragraph 32, that the “initiation” of
enforcement action precludes taxpayers from obtaining relief. Accordingly, the
issuance of the Request on March 28, 2008 was an enforcement action and it
served as a clear signal that CRA was pursuing the Applicant. In these
circumstances, his application, five months later, for VDP relief cannot be
considered voluntary.
[27]
In
reaching this conclusion, I have determined that the fact that the enforcement
action was “completed” when the 2006 return was filed is irrelevant for the
purpose of the VDP. As well, the fact that, for a time in March 2008, the CRA
considered writing off the Applicant’s tax debt is also, in my view,
irrelevant.
[28]
Second,
I do not agree with the Applicant’s submission that CRA is somehow estopped
from denying VDP relief because it took no collection action on the arbitrary
assessments of 2003 and 2007 after March of 2007, when it last spoke with the
Trustee. In my view, the enthusiasm the CRA displays for collection activity
has nothing to do with whether discretion should be exercised in favour of
allowing a taxpayer VDP relief. What is important, according to the Circular,
is enforcement activity.
[29]
Third,
since the taxpayer’s unfiled returns date back into the last century, it was
not unreasonable for CRA to rely on contact in 2000 and 2001 for the purpose of
collections and contact in 2006 and 2007 with the Trustee and the Applicant
(according to his affidavit) to defeat VDP relief. The Circular makes it clear
that even one such contract is treated as an enforcement action.
[30]
On
the other hand, I do agree with the Applicant’s submission that the arbitrary
assessments should not have been treated as enforcement actions. They simply
create liability and make it possible to start collections procedures. This
explains why they are not mentioned in the Circular. However, the
mischaracterization of the arbitrary assessments as enforcement action is not
fatal to the Decision because it was also based on other enforcement actions
that are listed in the Circular.
DISPOSITION
[31]
Having
concluded that the Decision is reasonable, the application will be dismissed
with costs.
JUDGMENT
THIS COURT’S JUDGMENT
is that, for all these reasons, the application for judicial review
is dismissed with costs to the Respondent.
“Sandra
J. Simpson”
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-2125-09
STYLE OF CAUSE: LARRY
BONTJE ET AL v. HER MAJESTY THE QUEEN
PLACE OF HEARING: Toronto,
Ontario
DATE OF HEARING: October 27, 2010
REASONS FOR JUDGMENT: SIMPSON
J.
DATED: February 11, 2011
APPEARANCES:
Yoni Moussadji
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FOR THE APPLICANT
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Darren Prevost
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FOR THE RESPONDENT
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Nancy Arnold
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FOR THE RESPONDENT
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SOLICITORS OF RECORD:
Rotfleisch & Samulovitch
Toronto, Ontario
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FOR THE APPLICANT
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Myles J. Kirvan
Deputy Attorney General of Canada
Toronto, Ontario
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FOR THE RESPONDENT
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