Date: 20070706
Docket: T-927-06
Citation: 2007 FC 723
Ottawa, Ontario, July 6,
2007
PRESENT: The Honourable Mr. Justice O'Keefe
BETWEEN:
IRENE
MCINTOSH
Applicant
and
ATTORNEY GENERAL OF CANADA and
THE FAIRNESS COMMITTEE OF
THE CANADA CUSTOMS AND REVENUE AGENCY
Respondents
REASONS FOR JUDGMENT AND JUDGMENT
O’KEEFE J.
[1]
This
is an application for judicial review of a decision of the Canada Customs and
Revenue Agency (the CCRA) dated May 12, 2006, which refused to grant the
applicant relief on the basis of financial hardship, from interest and penalty
charges assessed for taxation years 2000 to 2004, pursuant to subsection
220(3.1) of the Income Tax Act, R.S.C. 1985, (5th Supp.), c.1 (the Act).
[2]
In
her notice of application, the applicant seeks:
(i)
an
order setting aside the decision dated May 12, 2006, which denied her fairness
request;
(ii)
an
order directing a new assessment;
(iii)
in
the alternative, an order that the Court cancel or waive the penalties and
arrears of interest; and
(iv)
an
order for costs.
[3]
In
her memorandum of fact and law, the applicant asks that the interest and
penalties be cancelled. In the alternative, the applicant requests that the
interest and penalties be recalculated at seventeen percent, and that she be
given a reasonable schedule to make payments.
Background
[4]
As
of July 20, 2006, the applicant owed $81,871.92 in penalties and interest in
respect of the taxation years 2002, 2003 and 2004. The applicant wrote to the
Chief of Appeals of the CCRA on March 19, 2005, seeking relief from the interest
and penalty charges regarding the taxation years 2001 and 2002, on the basis of
special circumstances (family problems). The letter was interpreted as a
request under the fairness legislation for a waiver of interest and penalties due
to special circumstances. The request was denied by letter dated November 16,
2005, because the applicant had failed to provide evidence in support of her
claim that she had experienced family problems during the relevant period.
[5]
By
letter dated November 30, 2005, the applicant sought review of the decision to
deny her fairness request. The applicant indicated that she had both family and
financial problems which led to her inability to file her taxes promptly. The
applicant explained that she had to care for her mother, who was seriously ill,
and that her son had misappropriated a large sum of money in order to pay off
gambling debts. Her son was arrested and had allegedly been beaten by the
police. In addition, the applicant’s husband was in a car accident and was
unable to work for a year. The applicant had become depressed, experienced
stress, and her income had decreased dramatically.
[6]
The
CCRA responded by letter dated December 6, 2005, and indicated that additional
information regarding the applicant’s financial situation was required. The
applicant was asked to complete an income and expense statement and return it
to the CCRA. The applicant responded to the request by providing the CCRA with
an income and expense statement which showed that her expenses were $6,753 per month,
while her income was $5,900 per month. Information regarding properties owned
by the applicant and outstanding loans was also provided to the CCRA. By letter
dated February 10, 2006, L. Hayter (Manager, Revenue Collections) found that
there was no conclusive evidence of financial hardship and advised the
applicant that relief would not be granted in her case.
[7]
By
letter dated March 14, 2006, the applicant sought review of the decision made
by L. Hayter with respect to her fairness request. The applicant’s letter
elaborated upon the circumstances, both family and financial, which led her to
file her taxes late. The applicant appended a number of documents to her
letter, including: (1) information relating to her son’s altercation with the
police; and (2) an “instalment payment summary” indicating that she had paid
$33,606.65 to the CCRA on September 03, 2004.
Administrative Review
[8]
A
fairness review officer, L. Webster, reviewed the request and prepared a report
which noted that the applicant’s total debt was $82,559.59 ($33,307.32 in
interest and $45, 561.37 in penalties). The officer reviewed the CCRA’s
decision to deny the relief requested by the applicant and concluded:
Based on the information submitted the
request does not meet the criteria of the Fairness Legislation on the grounds
of financial hardship. The taxpayer and her spouse own their residence and two
rental properties. They also own a business which operates group homes from the
rental properties. Although the statement shows no savings or investments, the
taxpayer had interest income in 2004 of $4,785.00. The taxpayer last remitted a
payment to this debt in May 2005. The taxpayer has equity in the three
properties of $90,000.00. The taxpayer also has RRSPs of $20,000.00. This
includes two private loans of $355,000.00 towards which no payments are being
made. Full disclosure is not being made and I recommend that the request be
denied.
Decision on
Behalf of Minister by J. Jackson
[9]
J.
Jackson, Director of the Toronto West Tax Services Office, reviewed L.
Webster’s report and accepted the recommendation to deny fairness relief on
behalf of the Minister. He found that there was no conclusive evidence that
payment of the debt would cause financial hardship to the applicant. The
applicant was advised of the negative decision on May 12, 2006.
[10]
On
June 2, 2006, the CCRA affirmed its decision dated November 16, 2005, which had
denied the applicant’s fairness request on the basis of special circumstances
(family problems). The applicant’s current application for judicial review
deals with the CRRA’s finding with respect to financial hardship.
[11]
On
June 2, 2006, the applicant applied for judicial review of the decision of the
CCRA, dated May 12, 2006, which denied the applicant’s fairness request on the
basis of financial hardship. This is the judicial review of the decision to
deny the applicant’s fairness request on that basis.
Issue
[12]
The
issue in this appeal is:
Did the CCRA err in not
exercising its discretion to grant the applicant relief on the basis of
financial hardship, from the penalties and interest charged?
Applicant’s Submissions
[13]
The
applicant submitted that she should have been granted relief from the penalties
and interest assessed by the CCRA on the basis of the Guidelines for the
Cancellation and Waiver of Interest and Penalties, IC-92-2 (the
Guidelines), dated March 18, 1992.
[14]
Pursuant
to paragraph 6(a) of the Guidelines, the cancellation or waiver
of interest or penalties may be appropriate if the interest or penalty arose primarily
because of the actions of the department, such as processing delays which
result in the taxpayer not being informed, within a reasonable time, that an
amount was owing. The applicant noted that her income tax returns for taxation
years 2000, 2001 and 2002 were filed on September 9, 2004. However, the tax
returns for the years 2000 and 2001 were not assessed by the CCRA until January
17, 2005, and the tax return for the year 2002 was not assessed by the CCRA
until March 10, 2005.
[15]
Pursuant
to paragraph 6(b) of the Guidelines, penalties and interest may be waived or
cancelled where material available to the public contained errors which led
taxpayers to file returns or make payments based on incorrect information. The
same is true for errors in processing (see paragraph 6(d) of the Guidelines). The
applicant submitted that the CCRA misallocated the funds she provided in
September 2004 by crediting the wrong taxation year, which resulted in further
interest and penalties being assessed. The applicant’s accountant advised the CCRA
of the error in processing the applicant’s income tax returns on March 19,
2005, and the funds were transferred by the CCRA on June 22, 2005. The
applicant was not advised of this transfer until November 2005.
[16]
In
addition, the applicant noted that her accountant had delivered a cheque for
$33,795.78 to the CCRA in order to complete payment for taxation years 2003 and
2004. However, it was submitted that the CCRA misallocated funds, which caused
the accrual of penalties and interest on an inaccurate amount.
[17]
The
applicant noted that interest and penalties were calculated at a rate of 50%
for taxation year 2001 and 42% for taxation year 2002. It was noted that in
response to the applicant’s fairness request, the CCRA officer indicated that
if a tax return was not filed by the due date, she would be liable for a
late-filing penalty of 5% of the tax owed, plus a further penalty of 1% per
month that the return was outstanding up, to a maximum of 12%.
[18]
The
applicant noted the respondent’s submission that she had a history of late tax
filing since 1998, and that she had allegedly been sent notices. The applicant
submitted that she had no record of having received such notices, and there was
no proof of such notices in the respondent’s record. It was noted that the
applicant voluntarily filed her 2000, 2001 and 2002 taxes simultaneously,
followed by her 2003 taxes (which were delayed with explanation). She noted
that her 2004 taxes were filed on time.
[19]
Pursuant
to paragraph 5(d) of the Guidelines, penalties and interest may be waived or
cancelled where they result in circumstances beyond a taxpayer’s control, such
as serious emotional or mental distress. The applicant submitted that her son’s
psychiatric problems distracted her from her business. It was submitted that
the applicant had cared for her ill mother, which reduced the amount of time
she could devote to her business. The applicant submitted that her husband’s
car accident in September 2002 affected her ability to run the business. It was
noted that from 2001 until 2003, the applicant had suffered insomnia secondary
to anxiety. She was also treated for tension headaches in 2004.
[20]
Pursuant
to paragraph 10 (c) of the Guidelines, the factors to be considered in
determining whether or not the department will cancel or waive penalties or
interest include 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. Paragraph 10(d) of the Guidelines indicates
that whether or not the taxpayer acted quickly to remedy any delay or omission
may also be considered. The applicant noted that she had experienced misfortune
with accountants, as she had hired three different individuals. She submitted
that she had actively attempted to participate in the process of settling the
amount of taxes she owed to the CCRA.
Respondent’s
Submissions
[21]
The
respondent submitted that in an application for judicial review of the
Minister’s decision under subsection 220(3.1) of the Act, the Court may only
grant relief if it is satisfied that the Minister had:
(a)
acted without jurisdiction, acted beyond its jurisdiction or refused to
exercise its jurisdiction;
(b)
failed to observe a principle of natural justice, procedural fairness or other
procedure that it was required by law to observe;
(c)
erred in law in making a decision or an order, whether or not the error appears
on the face of the record;
(d)
based its decision or order on an erroneous finding of fact that it made in a
perverse or capricious manner or without regard for the material before it;
(e)
acted, or failed to act, by reason of fraud or perjured evidence; or
(f) acted in any other way that was contrary to law.
[22]
The
respondent submitted that the standard of review applicable to the Minister’s
decision was reasonableness (see Lanno v. Canada (Customs and
Revenue Agency) (2005), 334 N.R. 348, 2005 FCA 153). It was submitted that
the Court may set aside the decision under review if it was made in bad faith,
if the Minister ignored relevant facts, took irrelevant facts into
consideration, or if the decision was contrary to law (see Barron v. Canada
(Minister of National Revenue), [1997] 2 C.T.C. 198, (1997) 209 N.R. 392
(F.C.A.)). The respondent noted that the Guidelines which set out the factors
to be considered in exercising the discretion to waive penalties and interest,
included:
(a)
extraordinary
circumstances beyond the taxpayer’s control that prevented the taxpayer from
complying with the Act. These include a serious illness or accident and serious
emotional distress (such as death in the immediate family);
(b) whether the
penalties and interest were incurred primarily because of the actions of the
department; and
(c)
the
taxpayer’s inability to pay the amounts owing.
[23]
The
respondent submitted that in her application for judicial review, the applicant
had failed to provide any explanation for why the Minister’s decision was
unreasonable. It was noted that the applicant did not provide any financial
information in support of her request for an administrative review of the
decision to deny her fairness request. The respondent submitted that the
Minister had based his decision upon the information provided. Further, it was
submitted that the Minister had observed the principles of fairness and
had not erred in law in making the decision. The respondent submitted that
the decision was reasonable and should not be interfered with.
Analysis and Decision
Standard of Review
[24]
The
standard of review applicable to the Minister’s decision regarding whether to
provide discretionary relief under the fairness provisions of the Act is that
of reasonableness (see Lanno above).
[25]
Issue
Did the CCRA err in not
exercising its discretion to grant the applicant relief on the basis of financial
hardship, from the penalties and interest charged?
Pursuant to
section 7 of the Guidelines (IC-92-2), the Minister may grant a taxpayer relief
from penalties and interest where there is an inability to pay the amounts
owing. The applicant requested that she be granted relief on the basis of
financial hardship from the penalties and interest assessed by the CCRA. The
evidence of financial hardship provided to the CCRA by the applicant included
statements that:
-
her
son had forged her signature and misappropriated about $120,000 in order to
cover gambling losses;
-
she
had paid legal fees in order to pursue a case against the police officers who
had allegedly beaten her son;
-
her
husband was injured in a car accident, and was unable to work from September
18, 2002, until March 17, 2002;
-
she
had obtained a loan in 2004 in order to pay accounting fees and income tax,
however an error by the CCRA credited the 2000 tax year and transferred the
balance to the 2004 account, causing additional interest to be applied to the
account than would have been charged if it had been applied to the correct
year, being 2001;
-
she
had obtained loans in 2004 and 2005 in order to pay all income tax returns for
2000 to 2004, and the outstanding balance of $80,000 represented penalties and
interest;
-
due
to her focus upon family problems, the applicant’s business income had declined
by 90%; and
-
there
was an outstanding liability of $690,000 against her house and its fair market
value was only $550,000.
[26]
The
applicant provided documentary evidence which included records of her son’s
altercation with the police, and an instalment payment summary indicating that
the applicant made a payment in September 2004 that was applied toward the 2004
taxation year. The applicant also submitted information about the value of her
business and residential properties and an income and expense statement.
[27]
The
process followed in the administrative review consisted of a fairness officer reviewing
the material provided by the applicant and then preparing a report containing a
recommendation for the Minister’s representative. Officer L. Webster considered
the applicant’s request for the cancellation of interest on the basis of
financial hardship. The officer noted that both the applicant and her husband were
self-employed, that they owned properties valued at $1,050,000, and had
mortgages, lines of credit and loans totalling $960,000. It was noted that the
applicant had equity of $90,000 remaining in the properties. The officer also
noted that the applicant had interest income of $4,785 in 2004.
[28]
In
addition, the officer noted that the applicant had private loans outstanding.
The applicant had $20,000 in RRPS and a 1992 vehicle. The officer noted that
two errors by the CCRA which resulted in the applicant’s payments being
attributed to the wrong taxation years had been corrected and interest
adjustments had been made at the time of transfer. Finally, the officer noted
that the applicant had a history of filing her taxes late, and that her fairness
request on the basis of special circumstances had been denied. The officer
concluded that the applicant did not meet the criteria of the fairness
legislation on the grounds of financial hardship, and her request was denied.
[29]
This
recommendation was adopted on behalf of the Minister by Jack Johnson, Director,
Toronto West Tax Services Office, who found that there was no conclusive
evidence that paying the debt would cause financial hardship to the applicant. In
my opinion, the fairness officer’s review of the applicant’s request appears to
be reasonable and the Minister’s adoption of the recommendation to deny the
fairness request also appears to be reasonable. I would agree that the evidence
provided by the applicant did not warrant granting the fairness request on the
basis of financial hardship.
[30]
I
would note that it was proper for the Minister to treat the applicant’s request
as one under the fairness provisions, as the request concerned the waiving of
interest and penalties.
[31]
The
application for judicial review is therefore dismissed.
JUDGMENT
[32]
IT
IS ORDERED that the application for judicial review is dismissed.
“John
A. O’Keefe”
ANNEX
Relevant Statutory Provisions
The relevant statutory provisions are set
out in this section.
The Income Tax Act, R.S.C. 1985,
c.1 5th Supp., as amended:
|
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.
|
220(3.1)
Le ministre peut, à tout moment, renoncer à tout ou partie de quelque
pénalité ou intérêt payable par ailleurs par un contribuable ou une société
de personnes en application de la présente loi, 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.
|
The Federal Courts Act, R.S.C.
1985, c. F-7.:
|
18.1 . . .
(4) The
Federal Court may grant relief under subsection (3) if it is satisfied that
the federal board, commission or other tribunal
(a) acted
without jurisdiction, acted beyond its jurisdiction or refused to exercise
its jurisdiction;
(b) failed to
observe a principle of natural justice, procedural fairness or other procedure
that it was required by law to observe;
(c) erred in
law in making a decision or an order, whether or not the error appears on the
face of the record;
(d) based its
decision or order on an erroneous finding of fact that it made in a perverse
or capricious manner or without regard for the material before it;
(e) acted, or
failed to act, by reason of fraud or perjured evidence; or
(f) acted in
any other way that was contrary to law.
|
18.1
. . .
(4)
Les mesures prévues au paragraphe (3) sont prises si la Cour fédérale est
convaincue que l'office fédéral, selon le cas:
a)
a agi sans compétence, outrepassé celle-ci ou refusé de l’exercer;
b)
n’a pas observé un principe de justice naturelle ou d’équité procédurale ou
toute autre procédure qu’il était légalement tenu de respecter;
c)
a rendu une décision ou une ordonnance entachée d’une erreur de droit, que
celle-ci soit manifeste ou non au vu du dossier;
d)
a rendu une décision ou une ordonnance fondée sur une conclusion de fait
erronée, tirée de façon abusive ou arbitraire ou sans tenir compte des
éléments dont il dispose;
e)
a agi ou omis d’agir en raison d’une fraude ou de faux témoignages;
f)
a agi de toute autre façon contraire à la loi.
|
The GUIDELINES
FOR THE CANCELLATION AND WAIVER OF INTEREST AND PENALTIES (IC-92-2), March
18, 1992.:
Guidelines and examples of
circumstances where cancelling or waiving interest or penalties may be
warranted
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. For
example, one of the following extraordinary circumstances may have prevented a
taxpayer, a taxpayer’s agent, the executor of an estate, or an employer from
making a payment when due, or otherwise complying with the Income Tax Act:
…
(d)
serious emotional or mental distress such as, death in the immediate family
6.
Cancelling or waiving interest or penalties may also be appropriate if the
interest or penalty arose primarily because of actions of the Department, such
as:
(a)
processing delays which result in the taxpayer not being informed, within a
reasonable time, that an amount was owing;
(b)
material available to the public contained errors which led taxpayers to file
returns or make payments based on incorrect information;
(c)
a taxpayer or employer receives incorrect advice such as in the case where the
Department wrongly advises a taxpayer that no instalment payments will be
required for the current year;
(d)
errors in processing; or
(e)
delays in providing information such as the case where the taxpayer could not
make the appropriate instalment or arrears payments because the necessary
information was not available.
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 arrangement because
the interest charges absorb a significant portion of the payments. In such a
case, consideration may be given to waiving interest in all or in part for the
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 interest or 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 or employer 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.
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