Docket: T-451-16
Citation:
2016 FC 1145
Ottawa, Ontario, October 14, 2016
PRESENT: The
Honourable Madam Justice Simpson
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BETWEEN:
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STUART MORRISON
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Applicant
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and
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THE MINISTER OF
NATIONAL REVENUE
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Respondent
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JUDGMENT AND REASONS
I.
The Proceeding
[1]
Stuart Morrison [the Applicant] has applied for
judicial review of a decision of the Minister of National Revenue [the
Minister] dated February 16, 2016 [the Decision] in which, following a
reconsideration, the Minister denied the Applicant’s second level request for
relief from all the interest he had been charged pursuant to subsection
220(3.1) of the Income Tax Act, RSC, 1985, c 1 (5th Supp) [the Act]. The
Applicant requested relief for his 1997 and 1998 tax years on the basis of
financial hardship, error and delay on the part of the Canada Revenue Agency [the
CRA] and extraordinary circumstances.
II.
Background
[2]
In 1997 and 1998, the Applicant purchased art at
wholesale prices as part of a tax shelter arrangement. His cash outlays were
$22,334.00 in 1997 and $24,408.00 in 1998. He then donated the art to a
registered charity and was given a charitable receipt for the retail value of
the art. He then claimed deductions for charitable donations of $71,208.00 in
1997 and $85,642.00 in 1998.
[3]
The Applicant was audited and the deductions
were not accepted. In 2001, the Applicant was reassessed for 1997 and 1998. It
was found that he owed approximately $140,000.00 in principal, interest and
penalties. In response, the Applicant filed Notices of Objection [the Objections].
[4]
Shortly thereafter, in a letter dated October
16, 2001, the Minister notified the Applicant that his Objections would be held
in abeyance pending the outcome of two test cases involving similar tax
shelters. They were Klotz v R, 2004 TCC 147, aff’d 2005 FCA 158, leave
to appeal to SCC refused, [2005] SCCA No 286 (SCC) and Nash v R, 2004
TCC 651, rev’d 2005 FCA 386, leave to appeal to SCC refused, [2006] SCCA No 20
(SCC) [the Test Cases]. The Applicant was also advised that, notwithstanding
the fact that his Objections were being held in abeyance, interest would
continue to accumulate on his tax debt until it was paid.
[5]
The final decision in the Test Cases was made on
April 20, 2006, when the Supreme Court of Canada denied leave to appeal. As a
result of this litigation, the tax shelters were found to be fraudulent. The
Minister therefore denied the Objections and issued new Notices of Reassessment
on May 20, 2008.
[6]
After the reassessment in 2008, the Applicant
made first and second level requests for taxpayer relief in respect of the
period when his Objections were held in abeyance (October 16, 2001 to May 20,
2008). In response to the Applicant’s submissions, interest charges for 1998
were forgiven for the following periods due to CRA’s delay: October 27, 2008 to
January 22, 2010; July 23, 2010 to September 15, 2010; and January 7, 2011
to May 16, 2011. Interest relief was also granted on May 20, 2008 but the
extent is unknown. As well, the Applicant was given relief from all penalties
which amounted to $16,904.50 for 1997 and $19,830.85 for 1998.
[7]
The CRA made settlement offers in 2002 and 2006,
while the Objections were held in abeyance. Neither suggested any interest
relief. The first offer was written on a “Without
Prejudice” basis. The second offer was not styled “Without Prejudice”. However, in the absence of a
notification that “Without Prejudice” no longer
applied, it is my view that it continued to govern.
[8]
The Applicant refused both offers and also
refused to sign a waiver needed to implement the second suggested settlement.
[9]
In May of 2014, the Applicant sold a house that he
had renovated. Because the Respondent had placed a lien on the property, all
amounts owing for 1997 and 1998 were paid.
III.
The Decision
[10]
On August 13, 2013, after the parties agreed
that a reconsideration would be undertaken, the Applicant made a second, second
level request for interest relief. As had been the case with his earlier
requests, no documents were provided to substantiate the alleged hardship and
no specifics were provided about the alleged delays. This request led to the
Decision under review.
[11]
The following three reasons were given to
support the Applicant’s request for interest relief:
•
the extraordinary circumstances; namely, the
complex and elaborate tax shelter fraud which caused the tax debt and which
allegedly took the CRA and the courts years to unravel and understand;
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severe financial hardship over the years which had
precluded payment of the tax debt; and
•
delay caused by CRA which the Applicant said was
the entire period when the Objections were being held in abeyance awaiting the
outcome of the Test Cases.
[12]
The Decision forgave interest charges for 1997
as they had earlier been forgiven for 1998 (see para 6 above) but no further
relief was given for reasons which included the following:
•
supporting documentation showing financial
hardship was not provided;
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no effort was made to make voluntary payments or
a payment arrangement;
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tax returns were late or not filed;
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requests for information were not responded to
in a timely manner (it took the Applicant nine months to report what he
actually paid for the art);
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the Applicant ignored letters from the audit section;
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credit reports showed that his home was mortgage
free; therefore, he had the resources needed to make payments;
•
he was told interest would accrue while the
Objections were held in abeyance; and
•
there were no further delays attributable to the
Appeals Division or arising from changes in the personnel who handled his file.
[13]
The Decision also states several times that the
Applicant’s refusal to accept CRA’s offers to settle was a factor in the rejection
of his request for interest relief.
IV.
Discussion and Conclusion
[14]
Given that the settlement offers were made on a “Without Prejudice” basis, the Applicant was entitled
to have his request for interest relief considered without regard for the
outcome of the settlement discussions. In my view, the Respondent’s repeated reliance
on his refusals to settle breached his right to procedural fairness.
[15]
Since no deference is owed in these
circumstances, the application for judicial review will be allowed.
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