McNabb Family Trust v. Her Majesty the Queen, [1996] 3 CTC 126, 96 DTC 6425

MacKay J.: — An application is made for an extension of time to bring an application for judicial review, pursuant to section 18.1 of the Federal Court Act, R.S.C. 1985, c. F-7, as amended, (the “Act”), concerning a decision on behalf of the Minister of National Revenue denying an exten- sion of time for the applicant to file a preferred beneficiary election under the Income Tax Act in respect of the applicant’s 1994 taxation year. There is little dispute about the basic facts, but the parties do not agree on details of a conversation on April 4th, 1996, when the decision here in question was conveyed to the applicant’s representative.

Under the Income Tax Act preferred beneficiary election forms in relation to a trust are to be filed within 90 days of the end of the trust’s taxation year for which the election was made. If the election is not made in timely fashion, accumulating income is taxed in the hands of the trust. In the case of the applicant trust its taxation year was coincidental with the calendar year, so that any preferred beneficiary election for its 1994 year ought to have been filed on or about the end of March, 1995.

The accountant for the trust prepared the tax return and preferred beneficiary forms and he left those on March 24th with one of the trustees to be signed and dispatched. The forms were signed on March 30th and the trustee gave the documents to a member of his own staff and asked that they be mailed. The Department of National Revenue assessed the trust in July, 1995 and advised that the election of preferred beneficiaries had not been filed on time, with significant results for the tax payable by the trust. Following this advice to the trustee from the Department of National Revenue in July, 1995, the accountant for the trust asked Revenue Canada to advise of the postal date on which the returns had been sent to the Department. In September he was advised, that the letter sending in the forms had been post-marked on April 10th, 1995, some ten days after the 90 day time limit for filing under the Income Tax Act. That advice, in September, also suggested that the trust might apply under the “Fairness Package”, a descriptive term which relates to particular sections of the Income Tax Act, including subsection 220(3.2) which provides in part:

220(3.2) Where

(a) an election by a taxpayer or a partnership under a provision of this Act or a regulation that is a prescribed provision was not made on or before the day on or before which the election was otherwise required to be made, or

the Minister may, on application by the taxpayer or the partnership, extend the time for making the election referred to in paragraph (a)...

Three months later by letter dated December 13th the trustee, Mr. McNabb, applied under the Fairness Package for an extension of time to file the preferred beneficiary election forms. By letter of February 9th, 1996 he was advised by the Sudbury Taxation Centre on behalf of the Minister of National Revenue, that his request was denied. The letter of advice included the following:

My review of your account reveals that you were not prevented from filing the preferred beneficiary election on time, therefore I have concluded that this is not a case in which it would be appropriate to allow the late filed preferred beneficiary election....

The accountant for the trust was advised in conversation with the taxation officer that he should reapply to the Minister under the Fairness Package, and he did so on behalf of the trust by letter dated March 5, 1996.

On April 4th, 1996 a coordinator in the Sudbury Taxation Centre telephoned the accountant and advised him that the request on behalf of the trust was denied since the reasons submitted did not fall within the guidelines of the fairness provision under the Income Tax Act. Further he advised that the appeal branch would consider a late file objection since there had been ongoing discussions about the matter prior to the expiry of the 90 day time limit. In that conversation, the taxing officer indicates, by affidavit, that he asked whether the accountant wished a written reply to his letter of March 5th, and he was told that was not necessary. There may well have been some misunderstanding because the accountant avers, by affidavit, that he believed from the telephone conversation that Revenue Canada would respond in due course by letter, and that the trust would be able to file a notice of objection within 90 days of that responding letter.

When no written response had been received from Revenue Canada, the family trust then applied for an extension of time to bring an application pursuant to section 18.1 of the Federal Court Act for judicial review of the decision to deny an extension of time for the applicant to file the preferred beneficiary election in relation its 1994 taxation year. This notice of motion was filed June 7th, 1996 more than thirty days beyond the time set by subsection 18.1(2) for filing an application for judicial review of the decision sought to be questioned, except where the Court has allowed an extension of time.

In written submissions in support of the motion counsel for the applicant trust notes that:

..the Applicant’s motion should be granted because the Applicant has demonstrated a consistent intention to challenge the Minister’s decision, has an arguable case which should be decided on the merits and there is no prejudice to the Respondent in granting this motion.

In his affidavit in support of the motion the accountant for the Trust reviews the story of the applicant’s efforts to obtain an extension of time to file the election forms late, after they were mailed late, a matter of inadvertence. The affidavit does acknowledge that he was advised by Revenue Canada that it intended to deny the request made under the Fairness Package on April 4, 1996 and that the trust could file an appeal, presumably of the assessment, by Notice of Objection. The accountant avers that there was intent to challenge the decision of the Minister but he was awaiting a written reply from the department, which was not received. Further he avers that:

12. As of the date of this affidavit, I have not received a written response from Revenue Canada to my March 5th letter. The Trust has been advised that the Minister’s decision under the Fairness Package can be challenged only by applying for judicial review and not by way of an appeal to the Tax Court.

That is the evidence before me in support of an extension of time. It may be open to debate whether it meets the requirements set out by Grewal v. Minister of Employment & Immigration, [1985] 2 F.C. 263, 63 N.R. 106 (C.A.), which both parties here rely upon for the principles for considering an application for an extension of time to commence an application under section 18.1. That case concerned section 28, as it then was, of the Federal Court Act which contained wording similar to that now found in subsection 18.1(2). In that case Thurlow, C.J. said, inter alia, (at pages 272 and 277, respectively):

The underlying consideration, however, which, as it seems to me, must be borne in mind in dealing with any application of this kind, is whether, in the circumstances presented, to do justice between the parties calls for the grant of the extension....

Among the matters to be taken into account ... is whether the applicant intended within the ... period to bring the application and had that intention continuously thereafter. Any abandonment of that intention, any laxity or failure of the applicant to pursue it as diligently as could reasonably be expected of him could but militate strongly against his case for an extension. The length of the period for which an extension is required and whether any and what prejudice to an opposing party will result from an extension being granted are also relevant....

In argument counsel for the applicant urges that there is a reasonable explanation for delay in the confusion of the accountant for the trust regarding whether the appropriate procedure for questioning the refusal to permit late filing of the election forms was by way of appeal or by way of judicial review. I am prepared to acknowledge that legal processes may be confusing, but there is no evidence by affidavit of confusion causing delay in this case. It is urged that the applicant had a continuing intention to challenge the decision of the Minister under the fairness package. It is also urged that there is no prejudice to the respondent if the extension of time sought were granted, an assessment I accept but one that does not, in my view resolve the issue.

The key factor here, in my opinion, is whether the application for judicial review, if it were to proceed, raises an arguable case, one in which there is a reasonable chance of success. (See: LeBlanc v. National Bank of Canada, [1994] 1 F.C. 81 (T.D.); Atlantic Oil Workers Union v. Canada (Director of Investigation & Research) (June 7, 1996), Doc. 96-T-13 (F.C.T.D.)).

For the applicant it is urged that application for judicial review raises an arguable case in that the decision on behalf of the Minister of National Revenue was based on an error in law, for in the letter of February 9, 1996 from the Department to the trustee, it was stated that the basis for the conclusion that it would not be appropriate to permit late filing was that “you were not prevented from filing the preferred beneficiary election on time”. That, of course, is a different decision than the one here sought to be questioned by judicial review if an extension of time were granted. Here the decision was that communicated by telephone on April 4, 1996. The affidavit of the coordinator who telephoned the accountant on April 4, 1996 avers that the “Trust’s Second request was denied as the reasons submitted did not fall within the guidelines of the Fairness provisions”.

Counsel for Trust referred to tax commentary that in turn refers to explanatory notes specifying that to obtain an extension of time under subsection 220(3.2) a tax payer must demonstrate, inter alia* that the election was not filed on time because of circumstances beyond the control of the tax payer, and counsel suggests that those circumstances are here applicable. The explanatory notes or specified guidelines are not legislation or regulations, and a determination that they are not applicable in the circumstances of this case can hardly be said to be an error in law. Moreover, a determination that the circumstances here do not fall within the scope of the explanatory notes referred to cannot be said to be so unreasonable as to warrant the Court’s intervention even if that were a standard fixed by law.

In Orsini v. R. (sub nom. Orsini Family Trust v. Revenue Canada (Customs, Excise & Taxation) [1996] 2 C.T.C. 248, 96 D.T.C. 6347 (F.C.T.D.), my colleague Mr. Justice Cullen dismissed an application for judicial review of a decision on behalf of the Minister to refuse to extend the time for the Trust there concerned to file a preferred beneficiary election, and to refuse to waive any applicable penalties and interest, pursuant to subsections 220(3.2) and (3.1) of the Income Tax Act. In reaching his decision, Cullen J. commented (at page 3-4) :

A decision made under the “fairness legislation” is discretionary. It is not a case where a decision-maker must arrive at a certain outcome; rather, the decision-maker, after considering all of the circumstances, may come to a certain conclusion. Discretionary decisions cannot be made arbitrarily or in bad faith and, like other decisions, are subject to judicial review. The scope of judicial review, however, is quite narrow. This Court should not substitute its decision for that of the Minister’s statutory delegate. Rather, the Court must determine whether the decision was made fairly, not arbitrarily or in bad faith. So long as the evidence in the record supports the decision, this Court should not interfere.

In that case Cullen J. found no basis for determining the decision was arbitrary or made in bad faith and there was no evidence of procedural unfairness in consideration of the matter.

In my opinion, the application for judicial review here sought to be pursued raises the same issues as have been determined by Cullen J. in the Orsini Family Trust case. There is no evidence the decision on behalf of the Minister sought to be questioned was arbitrary or made without reference to the submissions made on behalf of the applicant Trust on two occasions. To say that the reasons for seeking the opportunity to file late did not fall within the guidelines of the fairness provisions, as was done for the decision on April 4, 1996, does not render the decision arbitrary. Indeed, the application of guidelines seeks to minimize arbitrariness in decision making. Nor is there any suggestion the decision here was made in bad faith.

As Cullen J. noted in the Orsini case the Court might have reached a different decision in relation to the determination of the Minister not to permit late filing, but that is not the test in review of the decision sought to be questioned. Nor can it be the basis for finding an arguable case warranting an extension of time to file an application for judicial review.

In my opinion in light of the decision in Orsini, the applicant here has little or no chance of success if judicial review of the decision here questioned were permitted to proceed. In those circumstances there is no basis, and it is not in the interests of justice, to allow the application in this case.

Thus, the application for an extension of time to file an application for judicial review of the decision communicated on April 4, 1996 on behalf of the Minister of National Revenue, is dismissed.

Application was dismissed.