The appellant (“Elfe”) had been advised by its auditors (MNP) that it was not required to charge QST on supplies by it to another company having the same joint ownership as a result of a joint election that was available to them. The ARQ assessed Elfe for failure to collect and remit tax on such supplies but, given that the other company was entitled to full credits for such tax, limited its assessment of interest to the 4% limitation set out in its Interpretation Bulletin applicable to wash-trading transactions (LMR. 94.1-1/R7, at para. 24).
The ARQ then denied Elfe’s request for cancellation of this interest, noting that it would be inequitable to treat Elfe’s file differently than others.
Before annulling this decision of the ARQ and returning the file to the ARQ for a fresh decision, Moore JCS stated (at paras. 28-29, 31-35, TaxInterpretations translation):
Section 94.1 of the Tax Administration Act gives the Agency broad discretion and allows it to cancel up to 100% of the interest charged on late payment of amounts owing: "The Minister may … cancel, in whole or in part, any interest, penalty or charge exigible under a fiscal law.”
On the other hand, the Interpretation Bulletin, written to guide the exercise of the discretion described in section 94.1, only provides for the cancellation of a portion of the interest charged in the context of a wash transaction. …
The second page of the Agency's August 17, 2015 letter reads:
"Revenu Québec acknowledges that [the associated corporation] could have claimed inputs earlier if it had been invoiced at the right time and that no loss to Revenu Québec resulted. That is why we waived, when issuing notices of assessment, interest exceeding the 4%. rate [...]
[…] The interest limited to 4% imposed on you is applicable to this type of transaction for all mandataries. ... It would ... be inequitable to treat your file differently."
These two paragraphs clearly show that the Agency felt unable to cancel more than the interest portion indicated in paragraph 24 of the Interpretation Bulletin of 4% of the uncollected sales tax.
Based on the Interpretation Bulletin, the Agency has placed itself at odds with this direction from Stemijon: "A policy can help or guide the exercise of discretion under a statute, but it cannot compulsorily dictate how this discretion is exercised."
The Agency did not consider the possibility of limiting the interest to 3%, 2% or 1% of the uncollected sales tax, or of cancelling it completely, as authorized by section 94.1 of the Tax Administration Act.
This decision is not an acceptable outcome that can be justified on the facts and the law and is unreasonable. The Court annuls that decision.
In also rejecting Elfe’s submission that the Court should simply annul the interest itself, he noted that the ARQ had not even considered whether it was appropriate in the particular circumstances to annul interest below the 4% level, and had not been informed of the MNP advice, and stated (at para. 40):
Given the breadth of issues that could be considered by the Agency and its jurisdiction in this matter, the Court will not exercise the discretionary power of the Agency.
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