Catherine Miller v. Her Majesty the Queen (Informal Procedure), [1994] 2 CTC 2230

Sarchuk J.T.C.C.:—This is an appeal by Catherine Miller from an assessment of tax with respect to her 1989 taxation year. Pursuant to the provisions of section 18.1 of the Tax Court of Canada Act the appellant has elected to have the informal procedure apply.

At the conclusion of the trial I allowed the appeal from the bench. For the benefit of the parties I consider it appropriate to now express my reasons in writing.

The issue arises as follows. The Minister of National Revenue (the Minister) assessed the appellant arrears interest in the amount of $940.61. In so assessing the Minister made certain assumptions which were not challenged by the appellant. These are:

(i) the appellant’s income tax return for the 1989 taxation year was required to be filed with the Minister on or before April 30, 1990;

(ii) the appellant's income tax return for the 1989 taxation year was not filed with the Minister until January 8, 1992;

(iii) the Minister used information available to him to prepare the assessment of the tax payable for the 1989 taxation year, the notice of which was dated April 29, 1992, in accordance with subsection 152(7) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act");

(iv) the appellant was assessed a late filing penalty in respect of her income tax return for the 1988 taxation year;

(v) the federal tax payable by the appellant for the 1989 taxation year which was unpaid on April 30, 1990 amounted to $2,037.48;

(vi) prescribed interest on this amount from April 30, 1990 to the date of the assessment amounts to $940.61.

The Minister also assessed a late filing penalty of $1,018.74 pursuant to the provisions of subsection 162(2)’ [1] of the Act.

The issue before me is whether the appellant is liable to pay interest for the 1989 taxation year pursuant to subsection 161(1) of the Act and whether the late filing penalty was properly imposed.

The appellant was not represented. She testified that the late filing did not occur through any error or fault on her part since her 1989 tax return (and indeed those for the previous years) had been prepared by an accountant. He had informed her that the return had been filed (by computer) on time, a statement which she alleges he subsequently conceded was false. The appellant pleads unfamiliarity with tax return requirements and tax laws and says that her failure to understand the tax system required her to rely on the advice of her accountant. Therefore it would be fair and just to grant her relief from the interest and penalties imposed.

With respect to interest the provisions of subsection 161 (1 ) [2] of the Act are clear and unambiguous. This Court does not have jurisdiction to cancel or reduce interest properly levied in accordance with subsection 161(2). In this context reference can be made to Eyamie v. M.N.R., [1983] C.T.C. 2708, 83 D.T.C. 649, in which appeal the Court specifically dealt with the question of interest levied pursuant to this subsection as follows at pages 2708-09 (D.T.C. 650):

Even though the alleged treatment received by the appellant at the hands of the accountants may be regarded as reprehensible, this affords no grounds for excusing the appellant from paying the interest. For a number of months he continued to have the benefit of an amount of money which should have been paid to the respondent. It is in respect of that benefit that the interest is levied and in my opinion this Court has no jurisdiction in this case to interfere with the action taken by the respondent in this regard.

[Emphasis added.]

This principle is correct and must be applied in the present appeal. The appellant is entitled to no relief with respect to her liability to pay interest in the present circumstances.

I turn now to the penalty. Pursuant to the provisions of subsection 162(2), following a second or further failure to file a return when required, the penalty which may be imposed is substantially increased. This section also provides that a taxpayer may only be assessed a penalty in this manner if she has failed to file a return of income for a taxation year as required; the Minister has made a demand upon her for a return for that year; and if she, at the time of the failure, had previously been assessed a late filing penalty for any of the preceding three taxation years.

In this case, in assessing the penalty provided in subsection 162(2) the Minister assumed that a demand to file an income tax return for the 1989 taxation year was made upon the appellant on December 5, 1990.

In cross-examination the appellant denied receiving any request from the Minister to file a return or receiving a demand. She did admit to having received notification of a registered letter from the Minister but says by the time she attended at the post office to accept delivery it had been returned to sender. She also asserted that as a result of conversations with an employee at Revenue Canada she believed that this registered letter contained a notice of confirmation sent in response to her objection to the assessment.

Evidence on behalf of the respondent was adduced from Mr. Emil Varden (Varden), an appeals officer with Revenue Canada. His review of the appellant's file disclosed that by way of letter dated October 10, 1990 the appellant was requested to file an income tax return for the 1989 taxation year. He further stated that a demand to file a return for that year was made upon the appellant on December 5, 1990. His testimony was that the demand was sent to the appellant but there was no further indication as to the manner of service. Subsection 150(2) [3] mandates that the Minister must serve the demand personally or by registered letter.

The evidence given by the appellant with respect to her knowledge of and receipt of documents from Revenue Canada was vague and frankly less than persuasive. Nonetheless I cannot on the evidence conclude that the provisions of subsection 150(2) have been complied with by the Minister. Thus, the appellant is entitled to relief in part.

The appeal is therefore allowed and the matter is referred back to the Minister for reconsideration and reassessment on the basis that the penalty exigible is that provided for by subsection 162(1) of the Act.

Appeal allowed in part.