Docket: T-63-17
Citation:
2018 FC 53
Ottawa, Ontario, January 19, 2018
PRESENT: The
Honourable Mr. Justice Ahmed
BETWEEN:
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MATTHEW BOADI
PROFESSIONAL CORPORATION
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Applicant
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and
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THE ATTORNEY
GENERAL OF CANADA
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Respondent
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JUDGMENT AND REASONS
I.
Overview
[1]
This is a judicial review of a decision (“Decision”) by a delegate of the Minister of National
Revenue (“Minister’s Delegate”) denying Matthew
Boadi Professional Corporation’s (the “Applicant”)
request for relief from penalties and interest under the Canada Revenue
Agency’s Voluntary Disclosure Program (“VDP”).
The Minister’s Delegate refused to exercise the discretion provided in ss.
220(3.1) of the Income Tax Act RSC, 1985, c 1 (5th Supp.) (the “Act”) to cancel or waive some or all of a
penalty or interest otherwise payable under the Act. The Minister’s
Delegate found that the Applicant’s disclosure did not qualify for the VDP as
it was not voluntary.
II.
Background
[2]
The Applicant is a Canadian corporation that
owns property in Ghana worth over $100,000 Canadian dollars. The Act
requires specific Canadian entities (referred to as reporting entities) owning
certain foreign property valued at over $100,000 to file a tax return in the
prescribed form. In this case, the prescribed form is a T1135 Foreign Income
Verification Statement (“T1135 return”). The
Applicant is a reporting entity and was required to file T1135 returns for the
2005-2013 tax years, but failed to do so. The Applicant is subject to a penalty
of $2500 per return, plus interest at the prescribed rate (currently 5%) for
its late filing of these returns.
[3]
The Minister’s Delegate has broad discretion
under ss. 220(3.1) of the Act to waive or cancel penalties that are
otherwise payable under the Act. Encompassed within the Minister’s
Delegate’s discretion is the VDP. The VDP was created to encourage taxpayers to
correct inaccurate or incomplete information and to disclose previously
unreported information to the Canada Revenue Agency (“CRA”).
The VDP, as it existed at the time of the Decision, is described in Information
Circular IC00-1R4 and sets out four conditions that a taxpayer’s disclosure
must meet in order for the Minister’s Delegate to cancel or waive penalties
under the program. The disclosure must be:
1.
Voluntary
- Complete
- Involve a penalty
- Include
information that is at least one year past due
[4]
The Applicant states that it became aware of the
T1135 filing obligation for 2005-2013 in January 2015. On March 17, 2015 the
Applicant submitted its 2005-2013 T1135 returns for consideration under the
VDP. By letter dated June 2, 2015 the Minister’s Delegate denied the
Applicant’s disclosure on the grounds that it was not voluntary because the
Applicant was subject to ongoing enforcement action which would have likely
uncovered the Applicant’s T1135 disclosure obligations.
[5]
This enforcement action was the result of the
Applicant’s history of filing its annual T2 Corporate Income Tax Returns (“T2 returns”) late. As a result, the CRA issued a
number of demand letters for the Applicant to file its T2 returns, and CRA
agents placed two phone calls to request the Applicant’s T2 returns for
2011-2013. At the date of the VDP disclosure, the Applicant’s 2005-2010 T2s had
been filed and assessed, while its 2011-2013 T2 returns had been filed, but not
yet assessed.
[6]
The Applicant requested a review and
reconsideration of its VDP application on July 17, 2015. The second review was
denied on March 18, 2016, again on the grounds that the Applicant’s disclosure
was not voluntary. On March 24, 2016, the Applicant filed an application with
the Federal Court for judicial review of the Minister’s decision.
[7]
On May 20, 2016 the Applicant proposed to the
Department of Justice (“DOJ”) counsel, Mr.
Whittaker, that the judicial review be settled on the basis that the 2005-2010
T1135 returns were voluntary and thus would qualify for the program, while the
2011-2013 T1135 returns would be subject to the statutory penalties. Mr.
Whittaker responded by suggesting they settle the matter by discontinuing the
judicial review and referring the application back to a new decision-maker for
a reconsideration. He added that the DOJ would advise the new decision-maker
that, in the DOJ’s opinion, it was unlikely that the 2005-2010 information
returns would have been uncovered by the CRA’s enforcement action. On the basis
of this proposal, the Applicant discontinued its judicial review and the
decision was sent back for reconsideration. On reconsideration, the Minister’s
Delegate once again concluded that the Applicant’s disclosure was not voluntary.
The latter Decision is the subject of this judicial review.
III.
Issues
[8]
This matter raises the following issue: was the
Minister’s Delegate’s Decision reasonable?
[9]
The applicable provisions of the Act are as
follows:
Waiver of penalty or interest
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Renonciation aux pénalités et aux
intérêts
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220(3.1)
The Minister may, on or before the day 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.
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Information Return
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Déclaration de renseignements
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233(1)
Every person shall, on written demand from the Minister served personally or
otherwise, whether or not the person has filed an information return as
required by this Act or the regulations, file with the Minister, within such
reasonable time as is stipulated in the demand, the information return if it
has not been filed or such information as is designated in the demand.
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233(1)
Toute personne est tenue de fournir au ministre, sur demande écrite de
celui-ci signifiée à personne ou autrement et dans le délai raisonnable qui y
est fixé, qu’elle ait produit ou non, ou présenté ou non, une déclaration de
renseignements en application de la présente loi ou du Règlement de l’impôt
sur le revenu, les renseignements exigés dans la demande ou la déclaration de
renseignements si elle n’a pas été produite ou présentée.
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IV.
Analysis
A.
Standard of review
[10]
The standard of review to be applied to
questions of fact, as well as the review of the Minister’s Delegate’s Decision,
is reasonableness. In Easton v Canada (Revenue Agency), 2017 FC 113 at
paragraph 41, 275 ACWS (3d) 664, this Court set out the standard of review as
follows:
[41] A decision under subsection
220(3.1) of the Act is of a discretionary nature and the Court must thus show
deference to the Minister’s Delegate (Tomaszewski v Canada (Minister of
Finance), 2010 FC 145 at para 17). Hence, the decision rendered by the
Minister’s Delegate under the taxpayer relief provisions must be assessed
against the reasonableness standard (Lanno v Canada (Customs and Revenue
Agency), 2005 FCA 153; Amoroso v Canada (Attorney General), 2013 FC
157 at para 50; Christie Estate v Canada (Attorney General), 2007 FC
1014 at para 11).
B.
The Parties’ Submissions
(1)
Applicant
[11]
The Applicant submits the Minister’s Delegate
relied on three facts when concluding that the CRA would likely have uncovered
the Applicant’s T1135 filing obligations: 1) the Minister requested that the
Applicant file its outstanding T2 income tax returns at various times from
2002-2014; 2) at the time of the Applicant’s 2005-2013 T1135 disclosure, its
outstanding T2 returns had not yet been assessed; and 3) the Applicant’s
2011-2013 T2 returns indicated that it owned foreign property valued over
$100,000.
[12]
The Applicant submits the first and second facts
are incorrect, as its 2005-2010 T2 returns had already been assessed at the
date of disclosure, and thus there was no enforcement action outstanding
regarding the Applicant’s 2005-2010 taxation years.
[13]
The Applicant submits the third fact is
accurate, but is insufficient on its own to support the Minister’s Delegate’s
finding that it was likely the CRA would uncover the Applicant’s 2005-2010 and
2011-2013 T1135 filing obligation. The Applicant filed an access to information
request with the CRA asking if it had records of any practice in 2011, 2012, or
2013 of investigating or following up with taxpayers who submit T2 return and
check “yes” to box 259 indicating that the
corporation owns foreign property valued at over $100,000, but who failed to
attach a T1135 return. The Applicant received a response that no records were
located.
[14]
The Applicant submits that the requirement to
file T1135 returns exists in ss. 233.3(3) of the Act and, as such, it is
separate and apart from the requirement to file a T2 return under ss.150(1) of
the Act. The Applicant submits that, while line 259 of the T2 return
asks whether a T1135 information return should be filed, there is no
requirement in the Act that a T1135 information return be filed
alongside the T2 return. The Applicant further submits that there is nothing in
a filed T1135 return that discloses a requirement to file a T1135 return for
prior years.
[15]
Based on the above, the Applicant submits that
the Minister’s Delegate’s finding that enforcement action against it would
likely have uncovered its T1135 filing obligations was pure conjecture, of the
type rejected by this Court in Amour International Mines d'Or Ltée v. Canada
(Attorney General), 2010 FC 1070 and Worsfold v Canada (National
Revenue), 2012 FC 644.
[16]
The Applicant further submits that there is
nothing in the record that was before the Minister’s Delegate that would have
made her finding reasonable. The Applicant submits that a tax service office
(TSO) review of the Applicant (as referenced in the Minster’s February 9, 2015
diary notes) is unlikely to have uncovered the Applicant’s T1135 filing
obligations. The Applicant further submits that the CRA agents who telephoned
the Applicant focused on the 2011-2013 T2 returns, and not T1135 information
returns.
(2)
Respondent
[17]
The Respondent submits that the Minister
reasonably concluded that the CRA’s enforcement action would likely have
uncovered the Applicant’s T1135 filing obligations. It begins by noting that,
in response to a demand from the Minister, ss. 150(2) of the Act
requires a person to file income tax returns in the prescribed form and
containing the prescribed information. It further notes that the prescribed
form for a corporation is the T2 Corporate Income Tax Return, and that page 2
of the T2 return states “[f]or each yes response,
attach the schedule to the T2 return” (emphasis in original). Line 259
of the T2 asks “[d]id the corporation own specified
foreign property in the year with a cost amount over $100,000”, and the
Respondent submits that that if the taxpayer answers yes, the corresponding
T1135 return must be filed with the T2 return.
[18]
The Respondent further submits that CRA’s demand
for the Applicant to file its 2011-2013 T2s not only would have uncovered the
information that the Applicant sought to disclose, but that it did in fact
uncover this information, as line 259 on the Applicant’s returns indicated it
is a reporting entity obliged to file T1135 information returns.
[19]
The Respondent submits that having learned of
the foreign property from the demanded 2011-2013 T2 returns, having flagged the
Applicant’s compliance for further review (in part, for having assets over
$500,000), and being in possession of information that the largest asset
reported in the Applicant’s 2011-2013 returns was land valued at $1,552,500,
the CRA was likely to discover that the Applicant’s ownership of the foreign
land predated 2011. The Respondent submits that, to hold otherwise would be to
find that no one at the CRA would ask how and when the Applicant acquired
foreign land worth $1,552,500 while reporting modest net income.
[20]
The Respondent submits that the VDP’s purpose is
to encourage taxpayers to voluntarily correct their failures to fulfill tax
obligations, and that it was reasonable for the Minister’s Delegate to reject
the Applicant’s attempt to deliberately omit the required T1135 information
returns from its 2011-2013 returns and then later purport to file them
voluntarily under the VDP. The Respondent submits the VDP is not
intended to serve as a vehicle for taxpayers to intentionally avoid their legal
obligation under the Act.
C.
Voluntariness of the Disclosure
[21]
Both parties agree that the only issue in
dispute is whether the Applicant’s disclosure was voluntary. Both parties also
agree that two key issues for determining voluntariness are whether the CRA was
engaged in enforcement action involving the Applicant, and, if so, whether this
enforcement action was likely to uncover the disclosed T1135 returns.
(1)
Was enforcement action ongoing?
[22]
As stated by the Applicant, the Minister’s
Delegate’s assertion that “on the date that we received
your disclosure request, your T2 returns were not assessed,” is
partially inaccurate. The Applicant’s 2005-2010 T2 returns had, in fact, been
assessed. As the Information Circular is silent as to when enforcement action
is deemed complete, I believe that in the present circumstances (i.e. having
accepted and assessed the Applicant’s 2005-2010 T2 returns), the only
reasonable interpretation is that the CRA’s enforcement action regarding these
returns was complete. However, as the Respondent and the Decision point out,
paragraph 33 of the Information Circular states that enforcement actions
relating to any period or year is considered to be enforcement actions
for all taxation years. While the Applicant had submitted its 2011-2013
T2 returns one day prior to submitting its VDP application, these returns had
not yet been assessed. I agree with the Respondent that that this means
enforcement action was ongoing in relation to the 2011-2013 T2 returns, and
thus that enforcement action was ongoing for all years.
[23]
While it would have been preferable for the
Minister’s Delegate to draw a distinction between the enforcement actions that
had concluded and those that were ongoing, I believe nothing substantial stems
from this error.
(2)
Was enforcement action likely to uncover the
Applicant’s failure to file its T1135 returns?
[24]
The next question is whether enforcement action
was likely to uncover the Applicant’s failure to file its T1135 returns. I
agree with the Applicant that the returns should be considered in two separate
groups, 2011-2013 and 2005-2010, and thus will proceed to analyze them on this
basis.
(a)
2011–2013 Returns
[25]
I believe the Minister’s Delegate’s finding
regarding the Applicant’s 2011-2013 T1135 returns was reasonable. I agree with
the Respondent that ss. 150(1) and 150(2) of the Act require information
to be submitted in the prescribed form, and that page two of the T2 returns
directs individuals to attach the required schedules to any submitted T2
return. Thus, the Applicant is incorrect that the Act allows it to file
T1135 returns separately from its T2 returns.
[26]
The Minister’s Delegate found that, as the
Applicant’s 2011-2013 T2 returns stated that it was required to file T1135
returns, the enforcement action taken by the CRA would likely have uncovered
its obligation to file T1135 returns. This is clearly a reasonable finding. I
am not persuaded by the Applicant’s submissions concerning its access to
information request; the fact that the request failed to return any relevant
documents does not constitute proof that the CRA would not have discovered the
Applicant’s failure to file its T1135 returns. T1135 returns are one of over 50
different schedules corporations may be required to attach to their T2 returns.
I believe it was reasonable for the Minister’s Delegate to conclude that a CRA
agent would seek to follow up with the Applicant regarding its obviously
missing T1135 return.
(b)
2005–2010 Returns
[27]
I agree with the Applicant that the Minister’s
Delegate’s finding regarding the Applicant’s 2005-2010 returns was unreasonable.
The Minister’s Delegate’s reasons do not indicate that she considered the
possibility that the 2005-2010 disclosure may have been voluntary, even if the
2011-2013 disclosure was not. Although the enforcement action regarding the
Applicant’s 2011-2013 T2 returns is clearly considered by the VDP program to be
enforcement action regarding the 2005-2010 period, I do not believe the
Minister’s Delegate has provided adequate reasons to support her finding that
this enforcement action would likely have uncovered the Applicant’s 2005-2010
T1135 filing obligation.
[28]
The Respondent evokes a plausible scenario in
which a CRA agent, having discovered that a T1135 return is required for a
given year, is likely to check whether a T1135 return was required and filed
for previous years. However, the scenario the Respondent describes has no basis
in the record, nor has the Respondent provided any evidence that such an
approach is a standard practice of the CRA. Nothing in the Minister’s
Delegate’s reasons, or the materials before her, suggest that such a scenario
was the reason that she found the Applicant’s 2005-2010 disclosure was not
voluntary. Rather, the reasons provided by the Minister’s Delegate were that
filing T1135 returns is an integral part of completing T2 returns, and that the
Applicant’s T2 returns had not yet been assessed. However, as noted above, the
Applicant’s 2005-2010 T2 returns had been assessed. Given this scenario, there
is nothing in the Decision that supports the Minister’s Delegate’s conclusion
that the CRA would likely have uncovered the Applicant’s requirement to file
T1135 returns for 2005-2010.
[29]
I also agree with the Applicant that Minister’s
Delegate’s failure to consider the 2005-2010 T1135 returns separately from the
2011-2013 T1135 returns was particularly troubling, as this distinction was the
basis upon which the first judicial review application was resolved. The
Minister’s Delegate was certainly not bound by the DOJ letter. However, it was
reasonable for the Applicant to expect that the Minister’s Delegate would at
least explain why it was departing from the advice of its own legal counsel.
[30]
The record before the Minister’s Delegate shows
the CRA officer who reviewed the two VDP decisions, and made a recommendation
to the Minister’s Delegate, was aware of the DOJ letter. The CRA officer wrote
that the “recommendation of the DOJ mentions that the
agent that reviewed the second review did not address the issue of if the
enforcement action was likely to have uncovered the information being disclosed.”
This in-and-of itself indicates an erroneous understanding the DOJ’s
recommendation letter, and the CRA officer’s notes do not show that he
considered the possibility that some, but not all, of the disclosure may have
been voluntary. Notably, the notes include the error repeated in the Minister’s
Delegate’s decision that “[a]t the time of the
Voluntary Disclosure, the T2 Returns were not assessed”. Nothing in the
decision shows that the Minister’s Delegate even considered the DOJ letter, nor
does the Decision explain why the Minister’s Delegate believed that the CRA’s
enforcement action was likely to uncover the Applicant’s 2005-2010 T1135
returns. In this regard, for these reason and based on the facts of this case,
the Decision is unreasonable.
V.
Conclusions
[31]
The application for judicial review is allowed.
The Minister’s Delegate’s Decision was based on erroneous findings of fact and
without regard for the material before her.
[32]
Moreover, the Decision failed to explain why the
CRA’s enforcement action was likely to uncover the Applicant’s 2005-2010 T1135
filing obligations, and failed to address the DOJ letter advising the same.