Date:
20130430
Docket:
T-1704-12
Citation:
2013 FC 449
Ottawa, Ontario,
this 30th day of April 2013
Present: The
Honourable Mr. Justice Roy
BETWEEN:
APL PROPERTIES LIMITED
Applicant
and
ATTORNEY GENERAL OF CANADA,
on behalf of the MINISTER OF
NATIONAL REVENUE
Respondent
REASONS
FOR JUDGMENT AND JUDGMENT
[1]
This
is an application for judicial review in respect of a decision rendered on
August 13, 2012 by K. Boudreau, Chief of Appeals, Taxpayer Relief Program,
Appeals Division, Canada Revenue Agency (the “decision-maker”). The
decision-maker denied the relief sought by ALP Properties Limited (the
“applicant”) for the cancellation, or further reduction, of interest pursuant
to subsection 220(3.1) of the Income Tax Act, RSC 1985, c 1 (5th
Supp.) (the “Act”).
Facts
[2]
The
applicant sought a remedy from the Minister of National Revenue (the
“respondent”) in the form of a cancellation of the interest payable following a
reassessment conducted by the respondent.
[3]
The
applicant was audited by the Canada Revenue Agency (the “CRA”) in 2007 with
respect to the 2005 taxation year. An audit report signed on March 5, 2009
recommended the application of the General Anti-Avoidance Rule [GAAR], pursuant
to section 245 of the Act, to a transaction during the said taxation year which
had the effect of disallowing a capital loss of $14,248,233.00 incurred during
the taxation year.
[4]
It
is only on February 26, 2009 that the CRA had sent a Notice of Reassessment to
the applicant. The Notice of Reassessment was two days shy of the statutory
limitation period for reassessment. Disallowing the transaction in 2005
produced arrears in the amount of $3,564,549.57, of which $848,722.88 was
interest.
[5]
The
applicant filed its Notice of Objection to the reassessment on May 29, 2009,
exactly three months after the said reassessment had been sent.
[6]
Following
the Notice of Objection, the Canada Revenue Agency advised the applicant in
June 2009 that it would contact it within two to four months. It is not contested
that CRA did not make further contact with the applicant until a letter, dated
February 2, 2010, advised that an appeals officer had been assigned to assess
the objection. The appeals officer advised the applicant in subsequent phone
conversations that its objection would be forwarded to the appeals headquarters
in Ottawa “the following week”. The appeals officer explained that he had to
set out the respective positions for review and that the appeals headquarters
could take a few months, providing estimates that varied from between two and
five months.
[7]
On
February 8, 2010, the applicant requested a copy of the auditor’s report
(signed on March 5, 2009) along with any correspondence with the GAAR
committee. A copy of the audit report was transmitted to the applicant by CRA
on February 24, 2010.
[8]
The
applicant chose to file a Notice of Appeal to the Tax Court of Canada on
April 29, 2010. The applicant claimed that the capital losses during
taxation year 2005 that were disallowed by the respondent, pursuant to
subsection 245(2) of the Act, should have been granted. The CRA replied to the
Notice of Appeal on July 15, 2010.
[9]
The
other process involving the Notice of Reassessment continued. On June 3,
2010, a report on objection was signed by the appeals officer. That report
stated that the applicant’s objection was to be referred to the appeals
headquarters once an appeals officer reviewed the matter.
[10]
It
appears that from February 2011 onwards, the applicant and CRA engaged in
negotiations with respect to the appeal to the Tax Court of Canada. However, in
view of the fact that three cases which were similar to the applicant’s case
were being considered by the Tax Court, the parties agreed to hold the
applicant’s appeal in abeyance.
[11]
The
parties resumed negotiations following the decision of the Tax Court in the
case of Triad Gestco Ltd v R, 2011 TCC 259, on July 12, 2011.
[12]
By
letter of October 6, 2011, the applicant’s representative wrote to the CRA in
order to request the arrears interest and penalties imposed be cancelled
pursuant to subsection 220(3.1) of the Act. It appears that the request was
intended as an element in a possible settlement of the appeal. The Taxpayer
Relief Committee of the Tax and Charities Appeals Directorate wrote to the
applicant’s solicitor advising of the relief. In its Memorandum, one can read
the following:
. . . at a meeting of the TCAD Taxpayer Relief
Committee held on October 20th, 2011, it was the decision of the
Committee that interest relief would be granted for the period January 13th
2008 to January 13th 2009 for “CRA Delay” at the Audit stage.
It was the opinion of the committee, that it would have been reasonable, due to
the complexity of the issue involved that the auditor would have taken 3 or 4
months to the (sic) review the information provided by the taxpayer and
issue the proposal letter. Therefore, three months and 12 days was deducted
from the original request period of October 1, 2007 to January 13th
2009.
[13]
The
applicant requested a second review by letter of May 17, 2012. It is that
decision with respect to the May 17, 2012 letter which is the subject of the
present judicial review.
Impugned
decision
[14]
In
a four-page letter, dated August 13, 2012, the Minister’s representative, the
decision-maker, reviewed the matter and made some decisions. The decision-maker
reviewed the applicant’s contentions and confirmed some relief while denying
some other. The question before the Court is whether, on judicial review, more
relief should have been granted.
[15]
Given
the nature of the issue, it is perhaps useful to review the letter in some
detail.
[16]
After
having identified the issues raised by the applicant, the decision-maker
proceeded to examine them and make determinations. First, with respect to the
time it took to reassess the applicant, the decision-maker noted that it had
until February 28, 2009 to complete the reassessment. Relief for the period of
January 13, 2008 to January 13, 2009 had already been granted and the
decision-maker confirms that such relief is reasonable on account of CRA delay.
[17]
Second,
the decision-maker then addresses a second period of time, between May 26,
2009, the date on which the Notice of Objection was filed, and February 2, 2010
the date on which the taxpayer was notified that the file had been assigned to
a particular auditor. The decision-maker indicates that expectations were
raised by CRA, as of June 24, 2009, in that the applicant received a letter
indicating that contact would be made with the applicant within a period of two
to four months. Given that the four-month period would have expired on October
24, 2009, the applicant was granted relief for the period of October 25, 2009
to February 1, 2010 as the first contact took place on February 2,
2010.
[18]
Third,
the decision-maker then considers the period of February 2, 2010 to April 29,
2010, the date on which the applicant filed its Notice of Appeal to the Tax
Court of Canada. The decision-maker indicates that
… George Armoyan was advised of the corporation’s
right to go to the Tax Court right away or if the appeal was not resolved in
90 days, to which he responded that this was not the route he wished to
take at that time because he understood that these things take time and are
dependant on workload.
Mr. Armoyan held 100 % of
the common shares of the applicant. The decision-maker concludes that no relief
is warranted because the delay was anticipated and normal in the circumstances.
[19]
Fourth,
the decision-maker considers the period beginning in February 2011 during
which negotiations had been ongoing in order to settle the matter out of court.
In order to explain why relief is not warranted, the decision-maker states that
there was the option of paying the outstanding balance in order to avoid having
to pay interest. As is well-known, the taxpayer will be refunded with interest
if successful in its litigation. In support of that decision, the
decision-maker refers to a brochure as well as to a circular issued by CRA.
Furthermore, with respect to the agreement reached between CRA and the applicant
to keep in abeyance its appeal while a similar matter was to be decided by the
Tax Court of Canada (Triad Gestco), the decision-maker concludes that
there was never any agreement to suspend interest. To quote from the
decision-maker’s decision, “[a] choice made by the taxpayer to wait is not a
delay caused by CRA, therefore no relief will be granted for this period.”
Standard of
review
[20]
Where
the jurisprudence has already determined the standard of review applicable to a
particular issue, the reviewing court may adopt that standard (Dunsmuir v New Brunswick, [2008] 1 SCR 190 at para 57 [Dunsmuir]). Questions
pertaining to the merits of discretionary decisions of the Minister under
subsection 220(3.1) of the Act are subject to a standard of reasonableness (Phillips
v Canada (Attorney General), 2011 FC 448; Telfer
v Canada (Revenue Agency), 2009 FCA 23 at para 2, and Hoffman v Canada (Attorney General),
2010 FCA 310 at para 5). In the present case, both parties also
agreed on the applicable standard of review.
[21]
Accordingly,
the Court will consider “the existence of justification, transparency and
intelligibility within the decision-making process” and “whether the decision
falls within a range of possible, acceptable outcomes which are defensible in
respect of the facts and law” (Dunsmuir at para 47).
[22]
The
applicant further argued in writing that, on the basis of Via Rail Canada
Inc v National Transportation Agency, [2001] 2 FC 25, the adequacy of
reasons is a matter of procedural fairness which calls for a standard of
correctness.
[23]
It
was agreed at the hearing that the case of Newfoundland and Labrador
Nurses’ Union v Newfoundland and Labrador (Treasury Board), [2011] 3 SCR
708 controls. The adequacy of reasons is to be considered as part of the
assessment of the reasonableness of the decision under review. Paragraph 14
reads as follows:
[14] Read as a whole, I do not see Dunsmuir
as standing for the proposition that the “adequacy” of reasons is a stand-alone
basis for quashing a decision, or as advocating that a reviewing court
undertake two discrete analyses - one for the reasons and a separate one for
the result (Donald J. M. Brown and John M. Evans, Judicial
Review of Administrative Action in Canada (loose-leaf), at ss.12: 5330
and 12: 5510). It is a more organic exercise - the reasons must be read
together with the outcome and serve the purpose of showing whether the result
falls within a range of possible outcomes. This, it seems to me, is what the
Court was saying in Dunsmuir when it told reviewing
courts to look at “the qualities that make a decision reasonable, referring
both to the process of articulating the reasons and to outcomes” (para. 47).
[24]
I
will therefore examine the adequacy of the reasons given by the decision-maker
as part of my analysis of the reasonableness of the decision.
Arguments of the parties
[25]
The
applicant takes issue with the decision of August 13, 2012. The decision is not
generous enough and is not reasonable, especially because the reasons given are
argued to be inadequate. They provide little analysis. They do not enlighten as
to why only these two periods were chosen by the decision-maker to grant
relief.
[26]
Examining
the periods of time between events, the applicant contends that the decision is
neither transparent nor justified. The applicant challenges the decision on the
basis that it rejects arguments which fall outside cases where CRA is itself
responsible for raising expectations. While relief is granted for an audit that
took too long and for a period that goes beyond the four months indicated as
being needed in order to come in contact with the applicant in the CRA letter
of June 24, 2009, no other period is deemed as justifying relief, in spite
of how unreasonable the period is. The period after February 1, 2010 is not
worthy of relief, yet nothing meaningful occurred after that date.
[27]
The
respondent’s argument that it was available to the applicant the option to pay
the amount owed (according to CRA), with interest being repaid to the applicant
if successful in its challenge of the assessment, is met by the contention
that, if taken to its logical conclusion, that argument leads to denying relief
in every case. CRA’s discretion becomes nugatory.
[28]
Finally,
the applicant complains that the respondent never contemplated the period as a
whole, with the attendant consequence that periods of time were never
considered for possible relief. The applicant faults CRA for not having
addressed specifically the factors listed in Income Tax Information Circular
IC07-1 – Taxpayer Relief Provisions [Circular IC07-1] which is said
to provide guidance on the exercise of discretion under subsection 220(3.1) of
the Act.
[29]
The
respondent argues that the decision is reasonable and supported by adequate
reasons. Consideration was given to the request for relief and the matter was
analyzed by periods, depending on the events which took place over time.
[30]
It
is for the respondent to exercise the discretion provided by statute and the
Court must show deference to the choices that were made by the decision-maker.
The decision-maker was aware of the whole period, but did not agree with the
applicant’s view of the expediency which was needed in the circumstances.
Analysis
[31]
The
starting point is of course the provision which allows the respondent to exercise
discretion. Subsection 220(3.1) of the Act reads:
|
220.
(3.1) The Minister may, on or before the days 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.
|
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.
|
[32]
For
the purpose of this case, there is no need to examine the tax avoidance
provisions of the Act. Whether or not there has been tax avoidance as
contemplated by section 245 of the Act is not relevant to these proceedings.
[33]
On
the other hand, what is relevant is an understanding of the proper role of the
Court. As indicated above, the Newfoundland and Labrador Nurses’ Union
case controls. A measure of deference is owed to decision-makers. It is not for
the Court to substitute its view of how discretion is to be exercised. Rather,
the Court’s role is to ascertain whether, in the words of Dunsmuir, “the
decision falls within a range of possible, acceptable outcomes which are
defensible in respect of the facts and law” (at paragraph 47).
[34]
Paragraph
15 of Newfoundland and Labrador Nurses’ Union is an enlightening
articulation of the standard:
[15] In assessing whether the decision is reasonable in light of
the outcome and the reasons, courts must show “respect for the decision-making
process of adjudicative bodies with regard to both the facts and the law” (Dunsmuir, at para. 48). This means that courts should not
substitute their own reasons, but they may, if they find it necessary, look to
the record for the purpose of assessing the reasonableness of the outcome.
[35]
The
burden on the applicant is not to convince the Court that it should disagree
with the decision-maker. It must rather show in a convincing way that the
decision does not fall within a range of acceptable and rational outcomes.
[36]
The
reasons given for the decision will be considered in light of the outcome to
assess the reasonableness of the decision.
[37]
The
applicant contends that the respondent has not addressed every point raised,
including considering the period as a whole. However, such is not the
requirement on the decision-maker. Again, Newfoundland and Labrador Nurses’
Union is instructive:
[16] Reasons may not include all the arguments, statutory
provisions, jurisprudence or other details the reviewing judge would have
preferred, but that does not impugn the validity of either the reasons or the
result under a reasonableness analysis. A decision-maker is not required to
make an explicit finding on each constituent element, however subordinate,
leading to its final conclusion (Service Employees’
International Union, Local No. 333 v. Nipawin District Staff Nurses Assn.,
[1975] 1 S.C.R. 382, at p. 391). In other words, if the reasons allow the
reviewing court to understand why the tribunal made its decision and permit it
to determine whether the conclusion is within the range of acceptable outcomes,
the Dunsmuir criteria are met.
[38]
It
suffices for reasons to allow the Court to perform its task of ascertaining
whether they adequately explain why the decision falls in the realm of
acceptable solutions. “Perfection is not the standard,” to quote the Federal
Court of Appeal in Canada Post Corp v Public Service Alliance of Canada,
2010 FCA 56, at paragraph 164, and quoted with approval by the Supreme Court of
Canada in Newfoundland and Labrador Nurses’ Union.
[39]
In
the case at bar, it is clear that the applicant wanted much more. Actually, the
applicant sought relief for the whole period. It is unclear how such request
could be legitimate in the circumstances. Similarly, granting no relief
whatsoever would also seem to be inadequate in the circumstances, to the point
of being unreasonable. It cannot be that a tax matter can be dragged on at the
expense of a taxpayer. But relief has been granted. The question is rather
whether the outcome is reasonable in the sense that decision-makers must “have
a margin of appreciation within the range of acceptable and rational solutions”
(Dunsmuir, at paragraph 47).
[40]
In
spite of the able submissions of applicant’s counsel, the Court is not
convinced that the decision under consideration falls outside of the realm of
acceptable outcomes.
[41]
The
Income Tax Act provides no guidance as to how discretion should be
applied. Guidance is offered in Circular IC07-1. The applicant complains that
the respondent did not address specifically the contents of the Circular. In
particular the applicant points to paragraph 33, which reads:
|
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.
|
33. Lorsque des circonstances
indépendantes de la volonté du contribuable, des actions de l’ARC, ou
l’incapacité de payer ou les difficultés financières ont empêché le
contribuable de respecter la Loi, les facteurs suivants seront considérés
pour déterminer si l’ARC annulera ou renoncera aux pénalités et aux intérêts,
ou non :
a.
le contribuable a respecté, par le passé, ses obligations fiscales;
b.
le contribuable a, en connaissance de cause, laissé subsister un solde en
souffrance qui a engendré des intérêts sur arriérés;
c.
le contribuable a fait des efforts raisonnables et n’a pas été négligent dans
la conduite de ses affaires en vertu du régime d’autocotisation;
d.
le contribuable a agi avec diligence pour remédier à tout retard ou à toute
omission.
|
[42]
Not
only isn’t it needed to refer to all arguments, but in this case it is unclear
how a specific reference to those factors could have assisted the applicant.
The decision-maker referred to those factors in the decision letter of August
13, 2012, but the decision was considering tax avoidance (in the view of CRA)
of some significance, upwards of $14,000,000, which generated taxes owed at the
level of more than $2,700,000. Clearly factors c. and d. are not favorable to
the applicant and, at best, factors a. and b. are neutral.
[43]
Instead,
the decision-maker reviewed carefully the history of this case and concluded
that where CRA was responsible for undue delay, relief was warranted. For the
period ending on February 2, 2010, relief was granted for a full year
(January 13, 2008 to January 13, 2009) on account of CRA delay at the audit
stage in addition to three months (October 25, 2009 to February 1, 2010)
on account of failing by CRA to meet its self-imposed deadline to contact the
taxpayer. The Court fails to see how this part of the decision falls outside of
acceptable outcomes.
[44]
As
for the period starting on February 2, 2010, no relief was granted. However,
the decision-maker explains itself fully, or at least enough to satisfy the Newfoundland
and Labrador Nurses’ Union standard. Not only were the principals of the
applicant in contact with CRA, but the applicant took the matter to the Tax
Court of Canada through a notice of appeal on April 29, 2010 with the full
understanding, according to the decision, “that these things take time and are
dependant on workload.” Actually, the decision notes that the applicant agreed
to wait for the outcome of a test case already before the Tax Court. It is not
alleged that an agreement had been reached that interest would not continue to
run in the meantime.
[45]
What
is more is that the decision-maker made the point forcefully that it is
well-known that interest continues to run during disputes with CRA (reference
was made to Brochure P148, Resolving Your Dispute: Objection and Appeal Rights
Under the Income Tax Act) and that the taxpayer has the option of paying
the sums owed. In case of a decision favorable to the taxpayer, refund with
interest will follow. The decision-maker asserts that the applicant was
knowledgeable about interest paying and concludes that relief is not warranted.
[46]
Some
may think that the decision-maker could have been more generous. But such is
not the test. Did the decision meet the requirements of the law in that the
reasons explain how an acceptable outcome, out of a range of reasonable
outcomes, was reached? It seems that relief was granted where the delay was
beyond the taxpayer’s control, including because of action of CRA. It was the
burden of the applicant to show that, beyond its disagreement with the outcome,
it was unreasonable for the decision-maker to refuse to grant relief in
circumstances other than the Revenue Agency bearing the responsibility for the
delay incurred, or that the assessment of the circumstances where CRA
acknowledged bearing responsibility was unreasonable. The applicant has not
been successful in discharging its burden. As a result, the application for
judicial review must fail.
JUDGMENT
The application for
judicial review of the decision rendered on August 13, 2012 by
K. Boudreau, Chief of Appeals, Taxpayer Relief Program, Appeals Division,
Canada Revenue Agency refusing the applicant’s requested relief for the
cancellation of interest pursuant to subsection 220(3.1) of the Income Tax
Act, RSC 1985, c 1 (5th Supp.), is dismissed.
“Yvan Roy”
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