Docket: T-1571-13
Citation: 2014 FC 367
Ottawa, Ontario, April 16, 2014
PRESENT: The
Honourable Mr. Justice Manson
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BETWEEN:
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MIROSLAW DRAG
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Applicant
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and
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CANADA REVENUE AGENCY
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Respondent
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REASONS FOR JUDGMENT AND JUDGMENT
[1]
This is an application for judicial review of
the decision of a Manager in the Appeals Division of the Canada Revenue Agency
[the Manager], pursuant to section 18.1 of the Federal Courts Act, RSC
1985, c F-7. The Manager denied the Applicant’s request to have Goods and
Services Tax [GST] owing, various penalties and interest accrued on GST owing
cancelled.
I.
Issues
[2]
The issues in the present application are as
follows:
A.
Was the Manager correct in finding she had no
jurisdiction to waive the GST owed by the Applicant?
B. Was the Manager’s decision not to grant additional relief from
interest and penalties reasonable?
II.
Background
[3]
The Applicant started a massage therapy business
in 1999 or 2000. On May 25, 2000, the Applicant’s GST account was opened by the
Canada Revenue Agency [the CRA].
[4]
On July 16, 2001, the CRA sent the Applicant a
letter, notifying him of his failure to file a GST return.
[5]
On July 23 and 24, 2001, the Applicant spoke to
a representative of the CRA. According to notes of these interactions in the
CRA’s logs, the Applicant stated that he did not collect GST from his clients
because he was unaware that it was required for the services he provided as a
massage therapist. The CRA logs also indicate that the Applicant stated that he
would be speaking to his accountant to determine the extent of his GST
liability. The CRA representative advised the Applicant to request a ruling to
determine whether his business was taxable, and provided contact information
for GST Rulings. GST Rulings is a branch of the CRA that issues rulings which
determine whether an individual’s business activities attract GST liability.
[6]
According to the Applicant, the CRA
representative that he spoke to on July 23 and 24, 2001, informed him that his
massage therapy services were not subject to GST liability. Consequently, the
Applicant requested his GST account be cancelled.
[7]
On July 27, 2001, the CRA discontinued the
Applicant’s GST account.
[8]
On May 27, 2009, a review by the CRA resulted in
the reactivation of the Applicant’s GST account.
[9]
On December 23, 2009, the Applicant was issued a
notice of re-assessment from the CRA which stated that he owed a total of
$19,317.47. Of this, $423.86 resulted from failure to file penalties, $158.74
from late remitting penalties, $91.21 from instalment penalties, and $2,197.06
from arrears interest. The remainder was for GST owing.
[10]
In a Request for Taxpayer Relief dated August
14, 2010, the Applicant requested that the CRA cancel the outstanding interest
and penalties assessed against him, on the basis that the penalties and
interest arose solely because of the misinformation provided by the CRA
representative whom he contacted in 2001.
[11]
On June 6, 2011, a representative of the CRA
spoke with the Applicant. According to the CRA’s logs, the Applicant advised
the representative of his belief that his massage therapy business was exempt
from GST taxation. The representative declined to cancel the Applicant’s
account, and advised him to obtain a GST Ruling. There is nothing in the CRA’s
records that show the Applicant ever sought a GST ruling.
[12]
In a decision dated June 10, 2011, the CRA
allowed the Applicant’s Request for Taxpayer Relief in part. It agreed to
cancel the arrears interest owing until June 3, 2009, on the basis that the
Applicant never had the GST owing available for his personal use, as it was
uncollected. However, the CRA declined to cancel any of the penalties assessed
against the Applicant.
[13]
The Applicant requested an administrative review
of this decision in a second-level Request for Taxpayer Relief dated November
25, 2011. In this Request, the Applicant argued that he should not be obligated
to pay the GST owing from December 31, 2005, to December 31, 2008, as he was
told he was not obliged to collect GST by the CRA representative in 2001.
[14]
In a letter dated June 7, 2013, the Manager
noted that she has no jurisdiction to cancel the GST owed by the Applicant.
[15]
With regard to the penalties and interest, the
Manager was satisfied that the partial relief of interest arrears of $2,144.06
was sufficient. The Manager noted that the CRA had twice recommended that the
Applicant obtain a GST Ruling, but there was no evidence that the Applicant did
so. Given this, the Applicant’s self-assessment obligations, and the fact that
massage therapy is not normally exempt from GST liability, the Manager
determined that no further reduction in interest or penalties was appropriate.
III.
Standard of Review
[16]
The standard of review with regard to whether
the Manager had no jurisdiction to waive the GST owed is correctness (Dunsmuir
v New Brunswick, 2008 SCC 9 at para 50). The standard of review is reasonableness
for the issue of whether the Manager’s decision not to grant relief from
interest and penalties was reasonable (Quastal v Canada (Revenue Agency),
2011 FC 143 at para 21).
IV.
Analysis
[17]
The Applicant seeks full waiver of the
uncollected GST tax, on the basis that he does not have the ability to
retroactively collect it from his clients, as well as any outstanding interest
and penalties assessed against him.
[18]
However, subsection 281.1 of the Excise Tax
Act, RSC 1985, cE-15 [the ETA] only grants the manager power to waive
interest and penalties, not the authority to nullify underlying tax
obligations.
[19]
To dispute his tax liability, the Applicant
should have filed a Notice of Objection, pursuant to subsection 301(1.1) of the
ETA, and, if necessary, filed a Notice of Appeal to the Tax Court of Canada (Canada (Minister of National Revenue) v JP Morgan Asset Management (Canada) Inc,
2013 FCA 250).
[20]
The Manager’s decision that she lacked
jurisdiction to cancel the GST owing was correct.
[21]
I also agree that the Manager was reasonable in
declining to grant the Applicant relief from the $726.81 in late penalties and
remaining interest accrual. As a recipient of supply, the Applicant is
obligated to collect the GST/HST payable pursuant to subsection 221(1) of the
ETA. The notations in the CRA’s logs show that the Applicant was twice advised
that he should obtain a GST Ruling to determine his tax liability. There is no
evidence that he did so. In view of the deference owed to the Manager by this
Court, I find his decision to be reasonable.
[22]
Given the circumstances of this matter, there
will be no order of costs.
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