John Laverne Housser v. Her Majesty the Queen (Informal Procedure), [1994] 2 CTC 2233

McArthur J.T.C.C.:—This appeal was heard in London, Ontario, under the informal procedure of this Court for the appellant’s 1991 taxation year.

The respondent sets out the following assumptions of fact in the reply to notice of appeal which were not in dispute:

Instalment interest

(a) during the 1991 taxation year, the appellant’s net income was $24,991;

(b) the appellant’s chief source of income was neither farming nor fishing;

(c) during the 1991 taxation year, no amounts were deducted from the appellant's income at source;

(d) the appellant’s tax payable for the 1991 taxation year was $1,630.06;

(e) the appellant's tax payable for the year prior to 1991 taxation year was $1,083.32;

(f) the appellant was required to pay instalments of tax in respect of the 1991 taxation year in the amount of $1,233.58 and failed to so;

(g) prescribed interest in respect of instalments for the 1991 taxation year up to the date of assessment amounts to $110.20;

Arrears interest

(h) the appellant’s income tax return for the 1991 taxation year (the "1991 return") was required to be filed on April 30, 1992;

(i) the federal tax and penalty payable by the appellant for the 1991 taxation year

which was unpaid on April 30, 1992 amounted to $2,788.53 (the "excess");

(j) prescribed interest on the excess from April 30, 1992 to the date of assessment amounts to $252.90;

Penalty

(k) the appellant’s 1991 return was not filed with the Minister until April 23, 1993, being more than 11 months after the required date referred to in subparagraph (h) above;

(l) the appellant failed to file his 1991 return of income as and when required under subsection 150(1) of the Act;

(m) for the 1991 taxation year, the Minister served a demand on the appellant under subsection 150(2) of the Act;

(n) before the time of the failure referred to in subparagraph 4(m) above, a penalty was payable under subsection 163(1) of the Act or under subsection 162(2) of the Act in respect of a return of income for any of the three preceding taxation years; and

(o) the penalty for late filing the 1991 return amounts to $1,158.47.

The issue is whether the appellant is liable to pay interest and penalty for late filing for 1991 taxation year pursuant to section 161 and subsection 162(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

The appellant testified that he had suffered serious emotional and mental distress which he set out in his notice of appeal as follows:

In 1987 I became self-employed in the same line of work which I had been doing for six to seven years previous. In the spring of 1988 I went through a devastating marriage break-up under circumstances under which I had absolutely no control. In my opinion, when a spouse decides a relationship has ended and the same spouse takes your children, which you dearly love and sets you on a course of litigation and asset division and limited access to your children, the effect is far more devastating than a death of a family member who is dead and nothing you can do about. A marriage can be dead but people still alive.

In many respects, a divorce which you do not want, and the inability to secure custody of your children without going into a vicious mud-slinging situation, is devastating, worse than death and I have experienced death of a family member. Divorce is worse.

The subsequent result was business failure, substantial legal fees and support payments which could not be met from a low cash flow. The ongoing stress, pressure and distress resulted in serious emotional and mental anguish and a suicide attempt on my part, following which I secured psychological therapy for my strained emotions that resulted in working back through a great deal. During this period of time, which extended from two-and-a-half to three years, I was unable to generate sufficient income to support myself, never mind meeting my support obligations and dealing with my other financial obligations. I would be willing to provide a doctor's report as well as a report from my psychologist if that was necessary in your opinion, to gain a favourable decision on my behalf concerning this appeal.

During this period of serious emotional distress, I was not able to deal with many of my responsibilities in my life. I did, however, make the decision that I would not declare bankruptcy and I would not apply to have my support arrears reduced. I was of the opinion that I would be back on track, up and running, on stream and would be able to pick up and take care of my financial responsibilities to my creditors and to pay the moneys to my ex-spouse and my children, which they certainly could use, despite my feelings regarding the marriage break-up.

The appellant did not dispute the assessment or the quantum of the instalment and arrears interest and penalty.

The appellant’s position was that the penalties and interest should be waived having reference to Information Circular 92-2, paragraph 5(d) and subsection 220(3.1) of the Act.

The respondent's position is that the Minister of National Revenue (the "Minister") has the discretion to waive or cancel the penalty and or interest and this Court does not have jurisdiction to decide whether the interest and penalty ought to be waived or cancelled.

Subsection 220(3.1) (known as the fairness package) and Information Circular 92-2, paragraph 5(d) read as follows:

220(3.1) Waiver of penalty or interest— The Minister may at any time waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by a taxpayer or partnership and, notwithstanding subsections 152(4) to (5), such assessment of the interest and penalties payable by the taxpayer or partnership shall be made as is necessary to take into account the cancellation of the penalty or interest.

5. Penalties and interest may be waived or cancelled in whole or in part where they result in circumstances beyond a taxpayer's or employer's control. For example, one of the following extraordinary circumstances may have prevented a taxpayer a taxpayer's agent, the executor of an estate, or an employer from making a payment when due, or otherwise complying with the Income Tax Act:

(d) serious emotional or mental distress such as, death in the immediate family.

Analysis

This Court derives its powers from enabling statutes and is not a Court of equity.

The Tax Court of Canada does not have the jurisdiction to substitute its own opinion for that of the Minister in respect of the Minister’s finding pursuant to subsection 220(3.1).

The Court was referred to the case of Floyd Estate v. M.N.R., [1993] 2 C.T.C. 322, 93 D.T.C. 5499. This was an application under the Federal Court Act for judicial review. The Court stated at page 324 (D.T.C. 550):

At the outset, I should point out that it is not for the Court to decide whether the interest otherwise payable by the taxpayer ought to be waived or cancelled. It is within the discretion of the Minister. The function of the Court in this judicial review, as I understand it, is to determine whether or not the Minister failed to observe procedural fairness or erred in law in making his decision, as outlined under subsection 18.1(4) of the Federal Court Act.

The Court refused to analyze the substantive question of whether or not the decision was fair to the taxpayer.

This Court will not second guess the Minister’s decision. The decision, on the merits of the appellant’s application under subsection 220(3.1) is at the discretion of the Minister.

For these reasons, the appeal is dismissed.

Appeal dismissed.