Date:
20131011
Docket: T-1668-12
T-1879-12
Citation:
2013 FC 1032
Ottawa, Ontario,
October 11, 2013
PRESENT: The
Honourable Mr. Justice Manson
BETWEEN:
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PAUL MATTHEW JOHNSON
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Applicant
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and
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HER MAJESTY THE QUEEN IN RIGHT
OF CANADA
(THE MINISTER OF NATIONAL
REVENUE)
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Respondent
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REASONS FOR JUDGMENT
AND JUDGMENT
[1]
This
is an application for judicial review of a series of decisions by the Minister
of National Revenue through officials at the Canada Revenue Agency [the CRA or
the Minister]. This application is made pursuant to section 18.1 of the Federal
Courts Act, RSC 1985, c F-7. The Applicant disputes a number of assessment
and collection decisions made by the Minister pursuant to part IX of the Excise
Tax Act, RSC 1985, c E-15 [the Act].
I. Issues
[2]
The
issues raised in the present application are as follows:
A. i) Did the Minister make an
assessment of the net tax of the Partnership I or the Applicant prior to taking
collection action?
ii)
If the Minister made a legitimate assessment of net tax of Partnership I or the
Applicant, or both, was the Requirement to Pay Reasonable Monies [RTP] authorized
by the Act and, if not, what is the appropriate remedy?
B. Did
the Minister issue the First Assessments for an improper purpose such that they
should be quashed?
C. i)
Did the Minister issue the Second Assessments for an improper purpose such
that they should be quashed?
ii) Do the
Second Assessments give rise to a reasonable apprehension of bias such that
they should be quashed?
D. Was
the Minister functus officio when he issued the Second Assessments such
that those assessments are nullities?
E. If
the Court declines to quash the First Assessments, should a stay be granted in
respect of the CRA’s collection action pending the outcome of the appeal of the
Personal NOA I in the Tax Court of Canada?
[3]
Notwithstanding
able arguments made by counsel for Mr. Johnson, I dismiss his application for
the reasons that follow.
II. Background
[4]
On
April 17, 2012, Sergeant Jay Bentham of the Royal Canadian Mounted Police
[RCMP] telephoned Terence Finlay, a CRA auditor in the Special Enforcement
Program [SEP]. The SEP is a section within the Enforcement Division of the CRA.
Its mandate is to conduct audits and undertake other civil enforcement actions
of persons known or suspected of deriving income from illegal activities.
Subsequent to this call, Sergeant Bentham emailed Mr. Finlay a four-page
document [the Synopsis] summarizing searches and surveillance undertaken by the
RCMP in relation to the Applicant and eight other individuals. The Applicant,
Danny Le and others, were alleged to be engaging in activities related to the
acquisition of cocaine and the production and the distribution of “crack”
cocaine and methamphetamine. It did not identify any activities undertaken by
Rachel Laing, Mr. Le’s spouse.
A. Partnership I
[5]
On
April 18, 2012, Mr. Finlay made a written request to open an internal account
for a goods and services tax/harmonized sales tax [GST/HST] audit of a
partnership consisting of the Applicant, Mr. Le and Ms. Laing [Partnership I]. Partnership
I was subsequently registered by the CRA. The business activity of Partnership
I was described as “cocaine distribution” and the estimated annual revenue was
$3 million. The effective date of the registration for Partnership I was January
1, 2011.
[6]
On
April 19, 2012, the Applicant was arrested by RCMP officers. His residence was
searched and approximately $13,000 in cash seized. At that time, the Applicant
was not charged with an offence. RCMP officers also arrested Mr. Le and
searched the residence of Ms. Laing. The officers seized approximately $71,000
in cash and five kilograms of cocaine.
[7]
On
April 19, 2012, Mr. Finlay and other CRA officials communicated regarding
collection action in relation to the property of Partnership I. Collections
Officer Mandeep Gill took steps the same day to create an assessment in the
name of Partnership I for the two three-month reporting periods ending
September 30, 2011, and December 31, 2011, in the amount of $292,699.63.
[8]
On
April 20, 2012, Mr. Gill prepared a RTP in respect of the Applicant, Mr. Le and
Ms. Laing. He served the RTP on the RCMP by fax. At that time, no Notice of
Assessment had been issued or mailed to Partnership I or the Applicant.
B. Issuance of Notice of
Assessments
[9]
On
April 24, 2012, the Minister mailed a Notice of Assessment for Partnership I
[Partnership I NOA] to Mr. Finlay and mailed a personal Notice of Assessment
[Personal NOA I] to the Applicant, pursuant to s. 272.1(5) of the Act, in
respect of the Applicant’s purported liability in Partnership I [the First
Assessments].
C. Collection Action
[10]
On
April 26, 2012, the Personal NOA I was registered in Federal Court and a Writ
of Seizure and Sale was obtained by the Minister.
[11]
On
May 3, 2012, CRA officers attended the RCMP’s offices and hand-delivered the
RTP prepared on April 20, 2012. They then took the Applicant’s cash that was
seized by the RCMP.
[12]
On
May 9, 2012, the CRA’s bailiffs seized vehicles belonging to Mr. Le and Ms.
Laing. On May 15, 2012, the CRA’s bailiffs seized personal property and
vehicles of Applicant. On May 24, 2012, the CRA registered a certificate of
title on the Applicant’s property with the BC Land Title Office. On May 28,
2012, a Requirement to Pay was sent to the Applicant’s bank. To date, the
assets of Mr. Le and the Applicant have not been sold by the Minister.
D. Requests for the Report to
Crown Counsel
[13]
On
October 12, 2012, and December 27, 2012, Mr. Finlay contacted the RCMP to ask
if a Report to Crown Counsel [RCC] on their investigation into the Applicant
and others was available.
E. Partnership II
[14]
On
January 23, 2013, the RCMP delivered documentation to Mr. Finlay concerning
alleged drug trafficking activities of Partnership I during the period of October
1, 2011 to March 31, 2012. This documentation included a RCC. After reviewing
the documentation, Mr. Finlay determined that Partnership I did not include Ms.
Liang.
[15]
On
February 22, 2013, Mr. Finlay sent a proposal letter regarding a partnership
between the Applicant and Mr. Le [Partnership II], copied to the Applicant,
respecting a proposed adjustment to the GST/HST liability of the Partnership
for the three-month periods ending December 31, 2011, and March 31, 2012 [the
Relevant Period].
[16]
On
April 17, 2013, Mr. Finlay advised Partnership II that the audit for the
Relevant Period was complete.
F. Vacating Assessment
[17]
On
April 19, 2013, Mr. Finlay indicated that he vacated the assessment for
Partnership I’s three-month period ending September 30, 2011.
G. Second Assessments
[18]
On
April 24, 2013, a Notice of (Re)assessment for Partnership II was issued for
the Relevant Period. Partnership II was assessed for the amount of $238,262.56
for the reporting period ending December 31, 2011, and $105,035.61 for the
period ending March 31, 2012 [the Partnership NOA II].
[19]
On
May 3, 2013, a Notice of (Re)assessment was issued to the Applicant pursuant to
subsection 272.1(5) of the Act in the amount of $253,177.91, concerning his
joint and several liability with respect to the April 24, 2013, Assessment [the
Personal NOA II], collectively with Partnership NOA II [the Second Assessments].
[20]
Relevant
provisions of the Excise Tax Act, RSC, 1985, c E-15 and the Federal
Courts Act, RSC, 1985, c F-4 are attached as Appendix “A”.
III. Analysis
[21]
As
a preliminary question that is at the root of this application, I must decide
if the issues raised are within the jurisdiction of the Federal Court, or are
within the exclusive jurisdiction of the Tax Court of Canada.
[22]
The
separate jurisdiction of the Federal Court and the Tax Court has been carefully
analyzed by the Supreme Court of Canada in Canada v Addison & Leyen Ltd,
2007 SCC 33 at paras 8 and 11. While the Court recognized that judicial review
is available to control abuses of power and wrongful conduct by tax officials,
provided the matter was not otherwise appealable, it also cautioned about the
use of judicial review:
11 Reviewing courts should be very cautious in
authorizing judicial review in such circumstances. The integrity and efficacy
of the system of tax assessments and appeals should be preserved. Parliament
has set up a complex structure to deal with a multitude of tax-related claims
and this structure relies on an independent and specialized court, the Tax
Court of Canada. Judicial review should not be used to develop a new form of
incidental litigation designed to circumvent the system of tax appeals
established by Parliament and the jurisdiction of the Tax Court. Judicial
review should remain a remedy of last resort in this context.
[23]
Equally
applicable are the Supreme Court of Canada’s comments in Canada (Attorney General) v Telezone Inc, 2010 SCC 62 at paras 24-26. In that
case, the Court reminded us that judicial review is directed at the “…legality,
reasonableness and fairness of the procedures employed and actions taken by the
government decision maters.”
[24]
Accordingly,
pursuant to section 12 of the Tax Court of Canada Act, RSC, 1985, c T-2
and section 18.5 of the Federal Courts Act, the Tax Court has
exclusive jurisdiction where a question of the validity or correctness of an assessment
of GST/HST liability by the CRA is at issue. This jurisdiction does not extend
to situations where such an assessment is made pursuant to the unlawful, tortious
or unreasonable conduct of tax officials (Ereiser v Canada, 2013 FCA 20
at para 32, citing Main Rehabilitation Co v Canada, 2004 FCA 403 at
paras 6-8; and Ereiser, at para 35).
[25]
However,
if a challenge to the CRA assessment process represents a collateral attack on
the validity or correctness of the assessment through allegations of improper
conduct of an official, then that is a matter within the exclusive jurisdiction
of the Tax Court (Roitman v Canada, 2006 FCA 266 at para 20, Smith v
Canada (Attorney General), 2006 BCCA 237).
[26]
Moreover,
the Tax Court’s jurisdiction is not merely constrained to questions of quantum
and liability for taxes to be assessed and paid, but includes questions of the
Minister’s legal authority to make such assessments and the legal efficacy of
the assessments (The Minister of National Revenue (Appellant) v A W C
Parsons and Hugh J Flemming Jr, for themselves and as Executors of the Estate
of Hugh John Flemming Sr (Respondents), [1984] 84 DTC 6345 (FCA) at p 6346,
Walker v Canada, 2005 FCA 393 at paras 11,13).
[27]
I
must therefore decide whether the conduct of the Minister, in assessing the Applicant
and the Partnerships, and issuing the RTP, is reviewable by the Federal Court,
or is properly within the exclusive jurisdiction of the Tax Court.
[28]
Given
the above, judicial review of the conduct of tax officials should be sparingly
authorized, and only when said conduct is clearly beyond the ordinary exercise
of discretion granted to them by the statutory framework at issue. A
determination of whether conduct meets this threshold should be made with attention
paid to all the allegations of the Applicant. This attention should seek to go
beyond the face value of the claims, in order to ensure that the Federal Court
is not used as a means of collateral attack on issues that are properly before
the Tax Court.
[29]
With
that legal and legislative background in mind, I turn to answer each of the
issues before me.
A. i) Did the Minister Make an Assessment of the
Net Tax of the Partnership I or the Applicant Prior to Taking Collection
Action?
[30]
The
Applicant’s position is that instead of making a proper assessment before
collection, Mr. Finlay considered the Synopsis and aimed to obtain the
Applicant’s money quickly and in advance of any provincial action pursuant to legislation
pertaining to the proceeds of crime. To accomplish this, Mr. Finlay concocted
Partnership I to collect the money before any assessment was made, and creating
a baseless assessment of prior periods in 2011, when no information concerning the
activities of Partnership I were before him, as the Synopsis related to
activities in 2012. Accordingly, the Applicant claims that there was no factual
basis on which the Minister made his assessment, pointing mainly to the
scarcity of information in the Synopsis, the seeming arbitrariness of
information used in the calculation of the assessment and the minimal steps
taken to verify this information. In short, the Applicant alleges wrongful
action on the part of Minister in creating the assessments under review, necessarily
asking this Court to conclude that the assessments were wrong in law and thus
not valid and binding.
[31]
In
my opinion, such a conclusion would constitute a collateral attack on the
validity of the assessments, a matter not within the jurisdiction of this
Court.
[32]
The
Applicant also argues that even if the Minister did have a factual basis for
the First Assessments, he did not complete the assessment process as set out in
section 300 of the Act. This argument puts at issue the “legal efficacy’ of the
notice of assessment relating to the Johnson Assessment, which is also an
improper collateral attack against the correctness of the assessment.
A. ii) If The Minister Made A Legitimate
Assessment Of Net Tax Of Partnership I Or The Applicant, Or Both, Was The RTP
Authorized By The Act And, If Not, What Is The Appropriate Remedy?
[33]
The
Applicant’s argument on this issue is that the RTP was issued prior to the
issuance of Partnership NOA I and Personal NOA I, in contravention of subsection
315(1) of the Act.
[34]
I
disagree. Firstly, this issue is also within the exclusive jurisdiction of the
Tax Court. However, even if I am wrong in this point, I find that the RTP was
authorized.
[35]
The
Act requires the Minister to first assess the tax payable by the person and
then to send to the person a notice of assessment; the assessment and notice of
assessment being two separate processes.
[36]
Subsection
315(1) of the Act provides that before collection action can ensue, an
assessment must be made. Accordingly, if a taxpayer has been assessed, any
collection action taken subsequent to that assessment is authorized by the Act.
Contrary to the Applicant’s submissions, there is no requirement that a notice
of assessment be issued before collection action can occur.
[37]
Moreover,
section 315(2) of the Act provides that if the Minister sends a notice of
assessment to a person, any amount assessed and remaining unpaid is payable
forthwith by the person. I agree with the Respondent that this suggests that
the Minister may immediately pursue collection action upon assessment and prior
to the notice of assessment having been issued, and that the individual subject
to assessment is obligated to pay forthwith the amount remaining unpaid
subsequent to the notice of assessment being issued.
[38]
I
also agree with the Respondent that the garnishment provisions of the Act, coupled
with a reading of subsections 299(3) and 313(1), suggest that the Minister was
authorized to proceed with the RTP, notwithstanding that the notice of assessment
had not yet been sent to the Applicant. Section 320 provides for the
garnishment of “moneys seized by a police office in the course of administering
or enforcing the criminal law of Canada from another person who is liable to
make a payment” under the Act. Subsection 313(1) defines “tax debts” to
mean “any amount payable or remittable by a person” under the Act. Subsection
299(3) provides that liability under the Act is not affected by the fact that
no assessment has been made.
[39]
Accordingly,
the RTP was authorized by the Act.
B. Did
The Minister Issue The First Assessments For An Improper Purpose Such That They
Should Be Quashed?
[40]
The
Applicant claims that the Minister abused his power and acted contrary to the
rule of law because the First Assessments were made for the improper purpose of
allowing the Minister to collect GST/HST under the Act without first
ascertaining the GST/HST liability of the Applicant.
[41]
Noting
that the Minister must act in good faith and accordance with principles of
natural justice (Maple Lodge Farms Ltd v Canada, [1982] 2 S.C.R. 2 at pages
7-8; Roncarelli v Duplessis, [1959] S.C.R. 121 at page 143), the Applicant
argues that he did not do so with regard to the First Assessments. The
Applicant notes that there is a statutory scheme pursuant to section 322.1 of
the Act for situations where the Minister is concerned that a subject of tax
collection will put their assets out of reach of the CRA. By failing to use
this statutory scheme, the Minister intended to circumvent the provisions of
the Act.
[42]
Again,
I find that the Minister acted prudently given the circumstances. The Minister
was concerned that the Applicant would take steps to put his assets out of
reach if it did not act in a timely manner. The Minister has a statutory duty
to assess GST/HST payable by law and the court cannot stop the Minister from
carrying out that statutory duty even if doing so might “impose unfair and
onerous obligations and financial hardships upon the taxpayer” (Tele-Mobile
Co Partnership v Canada Revenue Agency, 2011 FCA 89 at para 5).
Furthermore, collections officials are under no obligation to assess the merits
of any perspective appeal to the Tax Court (893134 Ontario Inc v Minister of
National Revenue, 2008 FC 715 at paras 15, 20-21, 27, 34).
[43]
As
well, Section 322.1 of the Act was not available on the facts of this case, as
it is only applicable to a reporting period not yet completed, not a past reporting
period. The Minister could not have used that section, as the definition for
“assessed period” pertaining to that section refers to a current reporting
period, not a past one. I find that to the extent this Court may consider this
allegation as part of a judicial review, it is not justified on the facts here.
D. i) Did The Minister Issue The Second
Assessments For An Improper Purpose, Such That They Should Be Quashed?
[44]
The
Applicant argues again on the basis of Roncarelli, above, that the
Minister exercised his authority in bad faith. In support he cites Finney v
Barreau du Quebec, 2004 SCC 36 at para 39, for the proposition that bad
faith need not be restricted to intentional conduct as in Roncarelli. It
includes recklessness, and circumstantial evidence of bad faith where a victim
is unable to present direct evidence (Enterprises Sibeca Inc v Frelighsburg
(Municipality), 2004 SCC 61 at paras 25-26).
[45]
The
Applicant states that the Second Assessments were issued for an improper
purpose: permitting the Minister to preserve his unlawful collection activity
without his conduct being subject to judicial review in the Federal Court and
appeal in the Tax Court. They were not issued for the bona fide purpose
of fixing the Applicant’s tax liability.
[46]
The
Applicant bases this claim on several points:
a) The
explanation by the Minister as to why he removed Ms. Laing from the partnership
is irrational and plainly false;
b) Special
steps taken by the Minister to alter the existing GST account and manually
issue Personal NOA II shows the Minister was trying to preserve collection
action previously taken against the Applicant;
c) The
Minister controlled the timing of the issuance of the Second Assessments;
d) Despite
claiming that Ms. Laing had been “removed” as a partner, the Minister failed to
undo the collection action taken against her;
e) The
Minister admits to creating notional assessments which act as placeholders to
collect tax without making a bona fide assessment
[47]
Contrary
to the Applicant’s assertions in (a) to (e) above, I find that the Minister
acted pursuant to the powers granted to it in the Act. In particular, subsection
288(1) grants broad power to the Minister to conduct audits related to the
enforcement or administration of the Act. Further, subsection 299(3) makes the
validity of an assessment subject to, among other things, reassessments.
[48]
While
the First Assessments were conducted on the basis of preliminary information
which was subsequently updated, it is fair for the Minister to conduct such a
preliminary assessment, given that the Minister will often not have more
fulsome information until a more comprehensive audit takes place (Ramey v
Her Majesty the Queen, [1993] TCJ No 142 at para 4).
[49]
In
this case, following the issuance of the First Assessments, the Minister
conducted an audit of the partnership to verify the GST liability that was
assessed. As a result of this audit, the Second Assessments were issued. This
was done in accordance with the Minister’s mandate under the Act.
[50]
There
is no real evidentiary basis to infer that the Minister acted improperly. The Applicant’s
arguments are speculative and would require a good deal of conjecture in order
to be accepted. The Minister’s decision to remove Ms. Laing from the
partnership, when considered with the Respondent’s version of events that the
Minister subsequently determined, following an audit, that there was
insufficient evidence to include Ms. Laing in the partnership, is reasonable
and accords with the mandate of the Minister to determine tax liability
pursuant to the Act.
[51]
Similarly,
the Applicant’s concerns regarding the manual assessment and timing of the
assessments have been explained as to why they were done in the manner by the
Minister and these explanations are reasonable.
[52]
The
Applicant’s assertion that the collection actions against Ms. Laing were not
reversed is not relevant to this proceeding, as she is not a party to the
present application.
[53]
Finally,
the Applicant’s argument that the concept of a “notional assessment” is
evidence of an improper purpose is also rebutted by the process described by
the Minister. Preliminary assessments were prepared based on available evidence
and reassessments were subsequently issued. Any dispute about the validity or
correctness of the assessment itself is a matter for the Tax Court.
C. ii) Do The Second Assessments Give Rise To A
Reasonable Apprehension Of Bias Such That They Should Be Quashed?
[54]
The
Applicant argues that Mr. Finlay had a reasonable apprehension of bias in
issuing the Second Assessments, owing to his role in the issuance of the First
Assessments and as a witness in the first proceedings (Baker v Canada
(Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817).
[55]
The
Applicant argues that one can assume that animosity exists between Mr. Finlay
and the Applicant in view of the serious allegations raised in the judicial
review proceedings, including allegations pertaining to Mr. Finlay’s
credibility. As well, the Applicant argues that Mr. Finlay has shown bias towards
the result of the judicial review proceedings, as he admitted in cross
examination to being interested in the outcome.
[56]
I
do not agree that the alleged bias is shown here. Turning to the test for bias,
as re-stated in Patry v Canada (Attorney General), 2011 FC 1032 at para
21, there is no evidence by which a reasonable person would conclude that it is
more likely than not that Mr. Finlay, either consciously or unconsciously,
decided the matter unfairly. Instead, the Applicant’s arguments are based on
suspicion and conjecture.
[57]
While
it is possible for animosity to build up during the course of litigation, such
that an individual would be biased, there is no reasonable evidence that this
occurred in the case of Mr. Finlay. The Applicant’s argument is based on
conjecture and would require inferences based on suspicion and insinuation in
order to be accepted. This is insufficient to meet the reasonable apprehension
of bias test as described in Patry, above.
D. Was
The Minister Functus Officio When He Issued The Second Assessments Such That
Those Assessments Are Nullities?
[58]
The
Applicant submits the Second Assessments must be quashed because after
exercising his discretion in issuing the First Assessments, the Minister was
prohibited from changing his mind and again exercising his discretion in
respect of the same matter, differently (Chandler v Alberta Association of
Architects, [1989] 2 S.C.R. 848).
[59]
In
the tax context, the doctrine of functus officio has been held to mean
that in the absence of new arguments or facts, the Minister cannot re-exercise
his discretion in issuing an assessment (Quintette Coal Ltd v British
Columbia (Commissioner of Social Service Tax), [1993] 26 BCAC 314 (CA)).
[60]
The
Applicant argues that the Minister was aware of the existence of the
information that would subsequently underpin the RCC, but chose not to compel
that information from the RCMP. As such, the Minister exhausted its discretion.
[61]
The
Minister is not functus officio in reassessing a taxpayer. The Minister
can reassess a taxpayer under the Act more than once, so long as various
statutory conditions are met (Agazarian v Canada, 2004 FCA 32 at paras
27-29, 33 and 47). Any allegation as to whether various statutory conditions
are not met is a matter for the Tax Court.
E.
If The Court Declines To Quash The First Assessments, Should A Stay Be
Granted In Respect Of The CRA’s Collection Action Pending The Outcome Of The
Appeal Of The Personal NOA I In The Tax Court Of Canada?
[62]
The
Applicant argues that based on the tri-partite test in RJR MacDonald v Canada (Attorney General), [1994] 1 S.C.R. 311, a stay should be granted pending the
outcome of his appeal to the Tax Court. The Applicant argues that the issues
raised in this proceeding clearly demonstrate that there is a serious issue to
be tried with respect to whether the First Assessments are valid under the Act.
With respect to irreparable harm, the Applicant argues that if the Minister’s
actions are found to be unlawful then his Charter rights will have likely been
infringed for which an award of monetary damages could not compensate him.
Finally, given that an injunction would prevent further collection action
against the Applicant and there is no evidence that there is any risk of loss
to the Minister if a stay were granted, the balance of convenience favours the
Applicant.
[63]
The
Applicant has not established irreparable harm. In particular, the Applicant’s
allegation that his Charter rights will be violated is vague and speculative (Burkes
v Canada Revenue Agency and Sheppard, 2010 ONSC 3485). As a result, the
Applicant has not established that he could not be compensated in damages for
any harm suffered.
JUDGMENT
THIS
COURT’S JUDGMENT is that:
1. This Application is
dismissed;
2. Costs to the Respondent.
"Michael D.
Manson"
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