Young v. R., [1998] 1 CTC 196, 98 DTC 6028

Nadon J.:

The applicants seek to set aside a decision of Joanne Raila, Chief of Appeals of the Vancouver Tax Services office of Revenue Canada, rendered on March 27, 1997. By her decision, made pursuant to subsection 220(3.1) of the Income Tax Act (the “Act”), Ms. Ralla refused to waive or cancel interest levied by Revenue Canada in respect of a number of the applicants’ taxation years.

Facts:

The relevant facts can be summarized as follows. The applicants are Dr. William Young and Dr. William Young M.B. Ch. B. Inc.. Until March 16, 1990, Dr. Young, a physician and surgeon, operated a medical practice in the area of ophtalmology as a sole proprietorship. Until February 28, 1990, Skerryvore Holdings Ltd. provided management services to Dr. Young’s medical practice. As of March 16, 1990, the management company’s name was changed to Dr. William Young M.B. Ch. B. Inc. (the “Company”), the other applicant. At all material times herein, Dr. Young was the sole shareholder and director of the management company.

At all material times herein, Bill Rudd, a chartered accountant and partner with the accounting firm of Deloitte Touche, handled Dr. Young’s and the company’s accounting problems. Prior to March 16, 1990, Mr. Rudd, a hemophiliac, required frequent blood transfusions and, as a consequence thereof, he acquired the immune deficiency syndrome (“AIDS”) virus. Until his death in 1992, Mr. Rudd continued, notwithstanding his illness, to provide accounting services and advice to both Dr. Young and the company.

In 1991, Mrs. Young, Dr. Young’s and the company’s bookkeeper, suffered a heart attack. As a result, Mrs. Young was unable to properly carry out her bookkeeping duties. On September 2, 1992, Dr. Young suffered a heart attack and had to undergo a major operation. Notwithstanding his heart attack, following surgery, Dr. Young continued his medical practice and took over the bookkeeping duties which were formerly those of his wife.

In December 1995, Dr. Young was diagnosed with cancer of the prostate and underwent radiation therapy. He is apparently very ill and has been unable to carry on his medical practice.

According to the applicants, these “unfortunate medical circumstances” caused or contributed to accounting errors with respect to Dr. Young’s and the company’s business records for a number of taxation years. As a result, Revenue Canada caused a tax audit of both Dr. Young and the company. The audit was commenced in September 1993.

On December 9, 1994, Revenue Canada reassessed Dr. Young in respect of his 1990, 1991 and 1992 taxation years. On May 1, 1995, Revenue Canada issued a notice of reassessment in respect of Dr. Young’s 1993 taxation year. Finally, on December 12, 1994, Revenue Canada issued notices of reassessment in respect of the company’s 1991 and 1992 taxation years.

Notices of objection to the reassessments were filed with the Minister by Dr. Young and the company. By letter dated November 26, 1995, the applicants’ solicitors wrote to Doreen Wong, an appeal officer with Revenue Canada, requesting that the Minister exercise her discretion with regard to the interest owed by the applicants. The solicitors, in making their application under section 220(3.1) of the Act, sought relief for the interest owed pursuant to what has been described as the “fairness package legislation”.

By a letter dated March 27, 1997, Joanne Raila advised the applicants that their application for cancellation or waiver of the interest owed was refused. Ms. Raila’s letter to the applicants’ solicitors reads as follows:

I am writing in response to your request dated November 26, 1996 for cancellation of interest under the “Fairness Legislation”, subsection 220(3.1) of the Income Tax Act on behalf of the taxpayer.

I understand that, in making this request, you were aware of the guidelines in Information Circular IC 92-2.

I have reviewed your submissions as well as other information that I considered to be relevant to your request, including the guidelines in IC 92-2.

I regret to inform you that I have determined that it is not appropriate in these circumstances to cancel the interest.

There is no right under the Income Tax Act to object or to appeal this decision. However, if you have any questions regarding this, please contact the Appeals Officer at the number above.

This is the decision which the applicants seek to set aside.

Relevant Legislation:

Section 220(3.1) of the Act provides:

The Minister may at any time waiver 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.

Revenue Canada Information Circular 92-2 dated March 18, 1992 is also relevant. Paragraphs 5, 8, 9 and 10 thereof provide:

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:

(a) natural or human-made disasters such as, flood or fire;

(b) civil disturbances or disruptions in services such as, a postal strike;

(c) a serious illness or accident; or

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

8. Taxpayers and employers, or their authorized representatives, can make their requests by writing to the taxation centre where they file their returns, or by sending their requests to the district office serving their area.

9. To support a request, the following information is required:

(a) the name, address, social insurance number or account number of the taxpayer or employer;

(b) the taxation years involved;

(c) the facts and reasons why the interest or penalties levied, or to be levied, were primarily caused by factors beyond the taxpayer’s control;

(d) any relevant documents or correspondence including receipts of payment.

10. The following factors will be considered when determining whether or not the Department will cancel or waive interest or penalties:

(a) whether or not the taxpayer or employer has a history of compliance with tax obligations;

(b) whether or not the taxpayer or employer has knowingly allowed a balance to exist upon which arrears interest has accrued;

(c) whether or not the taxpayer or employer has exercised a reasonable amount of care and has not been negligent or careless in conducting their affairs under the self-assessment system;

(d) whether or not the taxpayer or employer has acted quickly to remedy any delay or omission.

The Applicants’ Submissions:

The applicants, in seeking to set aside Ms. Raila’s decision, submit that in making her decision Ms. Raila made two assumptions which, on the evidence, were not open to her. Firstly, Ms. Ralla assumed that because Dr. Young continued his medical practice during the years in issue, he “must have been competent” to handle his business and tax affairs. The second erroneous assumption made by Ms. Raila is that Mr. Rudd’s firm, Deloitte Touche, continued to handle the applicants’ accounting business even though Mr. Rudd was sick.

The applicants argue that Ms. Raila should have made them aware of her assumptions so as to allow them “an opportunity to correct or contradict her assumptions or to provide her with further information in this regard”.

The applicants further submit that Ms. Raila made her decision without regard to all of the evidence. Specifically, the applicants submit that Ms. Raila examined the applicants’ application for a waiver of interest on the basis of taxable income and interest owing under reassessments which had been under objection, notwithstanding the fact that by the time Ms. Raila made her decision, agreements had been reached between Doris Wong and the applicants’ solicitors, which resulted in the issuance of new reassessments based on these agreements. The new reassessments were highly relevant according to the applicants since the total amount of taxable income and penalties assessed were to be reduced with a corresponding overall reduction of interest owed on these amounts.

As a conclusion to their written submissions, the applicants’ solicitors, at paragraph 46, state:

46. Ms. Raila did not act in accordance with the object and spirit of the act or within the parameter and spirit of Department of National Revenue’s own policy as outlined in IC 92-2 which is to waive interest in whole or in part where interest results in circumstances beyond a taxpayer’s control. Such circumstances identified by the Minister in IC 92-2 at paragraphs 5(c) and (d) are serious illness or serious emotional or mental distress such as a death in the immediate family. These criteria are not exclusive of other criteria to be considered, such as the illness and death of Mr. Rudd or even the impact Mr. Rudd’s illness had on his colleagues and partners which may have affected the manner in which accounting services were provided to the Applicants in this case. The evidence is clear that bookkeeping and accounting errors were made by the accountants which resulted in Reassessments being issued to the Applicants. Ms. Raila made her own assumptions and conclusions that Touche Ross & Co. would have ensured that bookkeeping and accounting continued during Mr. Rudd’s illness yet did not consider that accounting errors did in fact arise or the fact that such errors were beyond the control of the Applicants.

Analysis:

I begin my analysis by setting out the request made by the applicants’ solicitors to Revenue Canada that interest should be waived. At pages 2, 3 and 4 of their letter to Doreen Wong, dated November 26, 1996, the solicitors state:

[...] Dr. and Mrs. Young encountered a series of health problems and emotional problems that were “beyond their control". For example, their long-time accountant, Mr. Bill Rudd of Touche Ross, had advised Dr. Young for many years on tax and accounting matters. Specifically, Mr. Rudd assisted Dr. Young with respect to the formation of Dr. William Young M.B. ChB. Inc. (the “Company”) and advised Dr. Young on how matters might be handled as between Dr. Young’s medical practice and the Company. However, Mr. Rudd was a haemophiliac and was receiving regular blood transfusions. Unfortunately, Mr. Rudd contacted [sic] AIDS from blood transfusions and subsequently died. Mr. Rudd’s illness and subsequent death created great business complications for Dr. and Mrs. Young and made it very difficult for them to sort out all of the accounting transactions as between Dr. Young’s medical practice and the Company. In addition, Mrs. Young suffered a heart attack. Mrs. Young worked closely with Dr. Young and assisted him in running his medical practice. Mrs. Young’s incapacity due to the heart attack created significant business and accounting problems in the office. Furthermore, Dr. Young suffered a heart attack and this made it very difficult for him to keep business and accounting matters up to date. Furthermore, Dr. Young suffered a problem with prostate cancer and he has undergone two operations and radiation treatment. Because of the prostate problem, Dr. Young has not been able to work for the past several months. The medical problems of Mr. Rudd and the serious medical problems suffered by Dr. Young and Mrs. Young have created many accounting complications that have resulted in some of the tax consequences that Dr. Young and his Company are now facing.

I wish to summarize the relevant dates:

1. From 1968 until his untimely death in August, 1991, Bill Rudd, Chartered Accountant and a Partner of Touche Ross, served as the accountant for Dr. Young.

2. Dr. William Young M.B. ChB. Inc. was incorporated in 1990. Mr. Rudd assisted Dr. Young in setting up the Company. Mr. Rudd was very sick during this period.

3. In 1991 Mrs. Young suffered a heart attack and Mrs. Young was quite ill during this period and for some time thereafter. Mrs. Young was working in her husband’s office during this period. Mrs. Young recently had a pacemaker installed.

4. Dr. Young suffered a heart attack on the 2nd day of September, 1992. He received angioplasty treatment and was very unwell during the period under review.

5. During 1991 and 1992, Dr. Young carried on his busy medical practice and attempted to keep track of the accounting questions concerning the Company. Dr. Young also served as the Chief of Surgery for Surrey Memorial Hospital from 1988 to 1993.

6. It should be noted that Dr. Young was diagnosed with cancer of the prostrate. He has received radiation therapy and he had has [sic] two operations.

In summary, due to the illness and subsequent death of their long time accountant, Bill Rudd, due to the serious illness of Mrs. Young and the serious illness of Dr. Young, it was very difficult for them to keep track of all of the accounting activities between themselves and the Company. Dr. and Mrs. Young believed that they had satisfied the shareholder’s loan that Dr. Young owed the Company when Mrs. Young transferred to her husband the credits owing to her by the Company.

I respectfully request that Revenue Canada apply the provisions of the Fairness Package legislation to waive interest on the Reassessments that will be issued against Dr. Young and Dr. William Young M.B. ChB. Inc.

This submission was before Ms. Raila when she made her decision. Paragraph 9(c) of Information Circular 92-2 makes it clear that an applicant must, in making a request for cancellation or waiver of interest, provide Revenue Canada with a statement of the facts and reasons why the interest owed was “primarily caused by factors beyond the taxpayer’s control”.

Consequently, it was up to the applicants herein to convince the Minister that the illness or medical condition of both Dr. Young and his wife and of Mr. Rudd were factors beyond their control and that the interest owed was “primarily caused” by these factors.

In paragraph 9 of her affidavit dated May 23, 1997, Ms. Raila states the factors which she considered in making her decision. They are as follows:

a) the requests made by the Applicants and the reasons therefore;

b) the guidelines in Information Circular 92-2 and internal directives. A true copy of Information Circular 92-2 is attached hereto and marked Exhibit “D”;

c) Dr. Young continued to practice medicine after his heart attack and was Chief of Surgery at Surrey Memorial Hospital from 1988 until 1993, therefore there would appear to be no lack of competence for him to take care of his business and tax affairs during the years in question;

d) Mr. Rudd was a partner in a large accounting firm, it is therefore reasonable to assume that the firm, Deloitte Touche would have ensured that bookkeeping and accounting continued for both the individual and the company during Mr. Rudd’s illness.

It is obvious that Ms. Raila relied heavily on a memorandum dated March 11, 1997 sent to her by Doreen Wong. Because the applicants’ attack of Ms. Raila’s decision is, in effect, an attack of Ms. Wong’s memorandum, I will reproduce pages 3 and 4 of her memorandum. After setting out the applicants’ reasons for requesting a waiver of interest and indicating that she had reviewed the relevant guidelines, Ms. Wong explains why she is of the view that no waiver of interest should be allowed. Her reasoning is as follows:

The taxpayer currently has an outstanding Notice of Objection dealing with the shareholder Loan between himself and his company Dr. William Young MB CHB Inc. It is currently being finalized but they would not give us their final agreement or disagreement. We were told that it will depend on the tax bill if they file to the Tax Court. In the Notice of Objection we are confirming a Shareholder Loan 15(2) adjustment in the amount of $242,997. for 1990 and $40,354. for 1991. A repayment has taken place during 1993 and 1994 with the appropriate sub section 20(1 )(j) deductions being allowed. Due to the taxpayer’s other income the deduction under 20(1 )(j) will only create a non-capital loss for the 1994 taxation year. He wants this loss to be carried back to 1991. We instructed him that it can be, but the taxpayer would still be charged on his request. It should be noted that the taxpayer’s wife had a credit balance in her shareholder loan account and we are not allowing this credit to be offset against her husbands [sic] account until 1994 when they stated in writing that she wants her balances to be credited to her husbands [sic] account. They disagree to this and want the balance to be offset against husbands [sic] on a year to year basis.

The taxpayer did not act quickly to fix the shareholder loan balance. This happened in 1990/1991 and it was not until the audit was started that they tried to correct the situation. The audit was started in October 1993 and it was not until October 11, 1994 that a letter was prepared and signed by Mrs. Young that she wanted her balances to be applied against her husbands [sic] account.

It seems unusual that an [sic] major accounting firm would have a partner that is very sick deal with a file on a 100% basis. He might have had the final say but employees of the firm would probably have done the actual work of revising the company from a management company to the Dr. Young’s incorporated practice company.

The company changed at [sic] stated above in March 1990. This was well before the Young’s [sic] took sick. Mrs. Young had a heart attack in 1991 and was quite ill but she was well enough to go to Spain with her husband on a convention in September 1991. Mrs. Young helped in her husband’s office but the actual Financial Statements and preparation was done by Touche Ross & Co. The Due to\from Shareholder account was in a debit balance on the Financial Statement as of December 31, 1990 and 1992. It was not until 1993 that a Dividend was declared to clear this debit amount. The accounting firm was well aware of the shareholder loan account being in debit balance but did not show any of the income on Dr. Young’s return for these years.

8. Having reviewed the submissions related to this request, my opinion is:

Deny request — I realize that the Youngs’ [sic] have had to deal with a stress full [sic] time in their lives with them being sick and their long time accountant passing away but I do not think that the interest charges on Dr. Young’s account should be cancelled. It appears that Touch [sic] Ross made the mistake and Revenue Canada should not have to cancel correctly applied interest when the accounting firms are in the wrong.

I also wish to reproduce the notes made by Ms. Raila when she rendered her decision. The notes are dated March 25, 1997 and provide:

[...] deny. Dr. continued his practise [sic], was Chief of Surg in Surrey from 88- 93; no lose [sic] of competence, Touche Ross would have bookkeeping continued even if Rudd sick.

These notes demonstrate, without doubt, that Ms. Raila followed the advice given to her by Doreen Wong.

The question which, in my view, Ms. Raila had to ask herself was whether the illnesses of Dr. Young, Mrs. Young and Bill Rudd were circumstances beyond the applicants’ control and, if so, whether these circumstances prevented or may have prevented the applicants, or their agent, from complying with the Income Tax Act.

It cannot be disputed that the illnesses of Dr. Young, Mrs. Young and Bill Rudd constitute circumstances beyond the control of the applicants. The question then becomes whether the illnesses prevented the applicants from complying with the Income Tax Act. That is the question which Ms. Raila had to ask herself and to answer. This leads me to now consider the applicants’ submission that Ms. Raila made assumptions which were not open to her. These assumptions are:

1. Notwithstanding his illness, Dr. Young continued his medical practice and therefore must have been able to handle his business and tax affairs;

2. Notwithstanding Mr. Rudd’s illness, Touche Ross continued to handle the applicants’ accounting business.

These allegedly erroneous assumptions appear as factors c) and d) in paragraph 9 of Ms. Raila’s affidavit of May 23, 1997. The applicants submit that these assumptions were not open to her and that, consequently, she had a duty to make them aware of her assumptions in order to allow them to respond. I cannot agree with the applicants that Ms. Raila could not make the assumptions which she made. What Ms. Raila had to decide was whether Dr. Young’s illness or that of Mrs. Young prevented the applicants or their agent from complying with the Income Tax Act. In my view, it was not sufficient for the applicants to submit that Dr. Young and Mrs. Young had been ill. The applicants had to provide Revenue Canada with information which showed that the illnesses in question prevented Dr. Young or his agent from complying with the Income Tax Act. There was no such evidence before Ms. Raila. As she had to decide the issue on the evidence before her, her assumption that notwithstanding his illness, Dr. Young was competent to handle his business and tax matters is not unreasonable.

With respect to the second assumption made by Ms. Raila, it was also the applicants’ burden to demonstrate that Mr. Rudd’s illness prevented the applicants and their agent from complying with the provisions of the Income Tax Act. In the evidence submitted to Ms. Raila, I find nothing which shows or demonstrates that Mr. Rudd’s illness prevented his firm, and thus the applicants, from complying with the Income Tax Act. There was before Ms. Raila no evidence from Deloitte Touche explaining the consequences, if any, of Mr. Rudd’s illness on their handling of the applicants’ files. Thus, on the evidence before her, it is my view that Ms. Raila’s assumption that Deloitte Touche continued to handle the applicants’ bookkeeping and accounting, notwithstanding Mr. Rudd’s illness, is not unreasonable.

In their written submissions, at paragraph 46 thereof, the applicants’ solicitors, after referring to paragraphs 5(c) and (d) of Information Circular 92-2, state the following:

[...] These criteria [serious illness or serious emotional or mental distress such as death in the immediate family] are not exclusive of other criteria to be considered, such as the illness and death of Mr. Rudd or even the impact Mr. Rudd’s illness had on his colleagues and partners which may have affected the manner in which accounting services were provided to the Applicants in this case.

I agree with the applicants that, had evidence been provided to Revenue Canada on this point, that evidence would have had to have been examined by Ms. Ralla. However, there is no evidence whatsoever concerning the impact of Mr. Rudd’s illness on his colleagues and partners “which may have affected the manner in which accounting services were provided to the applicants”.

In my view, it is because of this lack of evidence that Ms. Raila had to make an assumption regarding the services performed by Deloitte Touche. Whether Ms. Raila’s assumption is correct or not is not for me to decide. However, her assumption is not unreasonable.

Notwithstanding my conclusion that Ms. Raila did not commit an error in making her assumptions, I must now ask myself whether she asked herself the proper question and whether she provided an answer to that question? In my view, she did.

Ms. Raila appears to have come to the conclusion that it was not the illnesses of Dr. Young, Mrs. Young or of Mr. Rudd which prevented the applicants, or their agent, from complying with the Income Tax Act. Certainly, on the record before her, that conclusion was open to her. I agree with the applicants that there was no dispute that errors made by Deloitte Touche led to the issuance of reassessments of the applicants. [See para graph 46 of the applicants’ written submissions]. The issue was whether these errors resulted from the illness of Mr. Rudd. At paragraph 9 of her affidavit, Ms. Ralla dealt with that issue as follows:

[...] Mr. Rudd was a partner in a large accounting firm, it is therefore reasonable to assume that the firm, Deloitte Touche, would have ensured that bookkeeping and accounting continued for both the individual and the company during Mr. Rudd’s illness.

What I do not know and, neither did Ms. Raila, is whether, in fact, Deloitte Touche did ensure that the applicants’ bookkeeping and accounting were taken care of during Mr. Rudd’s illness. On that score, what the applicants have submitted is that, as there was a lack of evidence, Ms. Ralla should have come back to them seeking clarification. In my view, that burden did not rest on Ms. Raila.

Paragraph 9 of Information Circular 92-2 clearly places the burden of providing all relevant information to Revenue Canada on the shoulders of the applicants. For example, it would appear to me, albeit with hindsight, that the applicants ought to have obtained evidence from Deloitte Touche concerning their handling of the applicants’ files during Mr. Rudd’s illness. Had that information been obtained and provided to Revenue Canada, it might have perhaps convinced Ms. Raila that the errors which resulted in reassessments were caused by reason of Mr. Rudd’s illness. However, no such information was before Ms. Raila. As I have already indicated, on the evidence before her, it was not unreasonable for Ms. Ralla to conclude that Mr. Rudd’s illness is not what caused the errors. Again, I point out that I do not have to decide whether Ms. Raila was right or wrong but whether she fairly considered the evidence before her so as to determine if the applicants’ failure to comply with the Income Tax Act was caused by factors beyond their control.

The applicants’ last submission is that Ms. Raila made her decision without regard to all of the evidence. The applicants argue that Ms. Raila examined their request for cancellation of interest prior to the issuance of the June 2, 1996 reassessments. The applicants submit that, as a result of these reassessments, the total amount of taxable income and penalties assessed were reduced with a corresponding reduction of interest owed on these amounts.

In support of that argument, the applicants refer to Revenue Canada’s own policy, as explained by Ms. Raila in her affidavit at paragraphs 4 and 5 thereof:

4. In November, 1996, the management of the Appeals Division, Vancouver District Office decided to implement a policy, consistent with the other Divisions within the Office, to not consider applications for relief under the “Fairness Package” legislation, if the years in question for which relief was sought were under objection or appeal.

5. This policy ensures that the tax liability, upon which interest is calculated, has been correctly determined, and gives a more accurate indication of the amount of interest, if any, assessable, and therefore subject to cancellation or waiver at the Minister’s discretion.

The applicants submit that Ms. Raila disregarded the Minister’s own policies and guidelines in that she considered the applicants’ request for cancellation of interest before the Minister’s notices of reassessment dated June 2, 1997 were issued. In that regard, the applicants filed the affidavit of Les M. Little, Q.C., one of the solicitors acting on their behalf. Mr. Little prepared a document entitled “Summary of reassessments of Dr. William Young by notices of reassessments dated June 2, 1997 for the 1991 through 1994 taxation years”. That document was attached to Mr. Little’s affidavit as Exhibit “G”. For the 1991 taxation year, Mr. Little points out that Dr. Young’s net income was increased from $207,864.65 to $216,279.73. However, he points out that an error was made in issuing the notice of reassessment. Mr. Little explains that the agreement he made with Ms. Wong, and which led to the June notice of reassessment, provided that the reduction to shareholder loan would be $33,864.67. However, the officer who issued the notice of reassessment used the figure of $3,864.67 rather than the $33,864.67. In support of his assertion, Mr. Little refers to the final settlement offer dated September 26, 1996, made by Ms. Wong. In her offer, Ms. Wong states the following, at page 2 thereof:

The shareholder benefit for 1991 will be $1,015.00. The original amount of $34,880.00 was reduced by the Art Investment of $30,000.00 and the adjustment to the convention expense.

Thus, Mr. Little points out that the interest reassessed in the 1991 taxation year on the additional $30,000.00 should and will be reduced accordingly.

With respect to the 1992 taxation year, Mr. Little points out that the Minister reduced Dr. Young’s taxable income from $137,598.28 to $133,843.57. With respect to the 1993 taxation year, the Minister reduced Dr. Young’s taxable income by $106,024.00 and deleted penalties previ- ously assessed in the amount of $3,798.16. Finally, with respect to the 1994 taxation year, the Minister reduced Dr. Young’s income by $109,839.34 and assessed a non-capital loss of $64,871.62 which was applied against Dr. Young’s income for the 1991 taxation year.

That information, according to the applicants, ought to have been before Ms. Raila when she made her decision. Consequently, they submit that she made her decision without regard to all of the relevant facts.

The respondent’s answer to this submission appears at page 43 of his memorandum of points to be argued:

The Respondent submits that the amount of interest owing by the Applicants is an irrelevant consideration in the circumstances of this case, and it was not one of the primary factors considered by the Chief of Appeals in deciding to refuse the Applicants’ request. Therefore, the fact that the Chief of Appeals exercised the ministerial discretion under subsection 220(3.1) before the reassessments were issued is of no consequence. The Applicant’s request was submitted for consideration by the Appeals Officer after she had been advised by the Applicants’ counsel that no further submissions would be made and she was instructed to proceed with reassessments on the basis of the agreements reached between the parties. Thus, except for the mechanics of issuing the reassessments, the assessing process to determine the tax liability was complete. It was clear that there would be interest owing because the tax liability had been increased.

Thus, according to the respondent, the amount of interest owing by the applicants was not relevant to the determination made by Ms. Ralla and, consequently, she did not consider it in reaching her conclusion. As Ms. Raila states in her affidavit, the policy is that no request for waiver of interest shall be considered while there are outstanding objections or appeals. Ms. Ralla goes on to explain that the purpose of the policy is to give the decision-maker “a more accurate indication of the amount of interest” which he or she is being asked to cancel or waive.

In the present instance, the amount owing by the applicants was unknown to Ms. Raila as she was not aware of the specifics of the agreements made by Ms. Wong with the applicants’ solicitors and the impact of these agreements on the reassessments. On the basis of Mr. Little’s affidavit, it appears that the amount of interest owing by the applicants was decreased as a result of the June 2, 1996 reassessments.

To complete the background information on this issue, I shall refer to a memorandum to file dated December 10, 1996, written by Mr. Little following a conversation with Doreen Wong regarding his request, on behalf of the applicants, for waiver of interest under the “Fairness Package Legislation”. The memorandum reads as follows:

I talked to Doreen Wong of Revenue Canada concerning the Notice of Objection filed by Dr. Young.

Mrs. Wong referred to my letter re: the fairness package legislation. Mrs. Wong said that she had forwarded my letter to the Fairness Committee. However, the Fairness Committee told her that they will not respond to my request until all items referred to in the Notices of Objection have been finalized.

Mrs. Wong said that the Fairness Committee did not want any connection between the Fairness Committee decision and the settlement of the Notice of Objection.

I told Mrs. Wong that I thought this was unfair because it really means that we must withdraw any arguments on the Notice of Objection and wait to see if the Fairness Committee will respond favourably. I pointed out that if we do withdraw our Notice of Objection and if we are then turned down by the Fairness Committee, we will have lost everything, i.e. we will have lost all items in dispute in the Notices of Objection and will not have received the waiver of the interest that I have requested.

Mrs. Wong said that she understands my concern but she said there is nothing that she can do. She said that this was Departmental policy.

I also wish to refer to a note to file made by Mrs. Wong on January 13, 1997. The note reads as follows:

Contacted Les Little to find out what there [sic] final decision was with regards [sic] to the Young’s N/O. He stated to reassess based on our final information. I asked if agree [sic] with the decision but he would not make a comment. He stated they will have to wait until they get the reassessment notices to see what the taxes are. When asked about the Fairness Request he stated “do what you had [sic] to do”.

Mrs. Wong’s note to file is in line with the statement made by Mr. Little at paragraph 10 of his affidavit dated April 25, 1997, where he states:

On or about the middle of January, 1997 I spoke with Ms. Wong on the telephone and instructed her to process Notices of Reassessment to be issued to the Plaintiffs in accordance with the various agreements that had been reached. Ms. Wong advised me that she would process the Notices of Reassessment (the “New Reassessments”). Ms. Wong did not advise me at that time that the Minister would be considering the Application prior to the New Reassessments being issued.

Paragraph 11 of that same affidavit is also relevant:

Following my conversations with Ms. Wong on December 10, 1996 and in the middle of January, 1997, I formed the opinion that the Minister would not be considering the Application until the New Reassessments were issued given that the amount of interest assessed under the New Reassessments would be less than that assessed at the time the Application was made.

To complete the picture, I should reproduce paragraphs 24 through 27 of Doris Wong’s affidavit dated May 26, 1997:

24. I received a letter from Applicants’ counsel dated November 26, 1996 in which the Applicants sought relief from interest under the “Fairness Package”. A true copy of the letter dated November 26, 1996 is attached hereto and marked Exhibit “N”.

25. I prepared a memorandums, [sic] addressed to the Chief of Appeals, in respect of the requests for relief under the “Fairness Package” legislation of Dr. Young and the Company which I submitted together with their request to the “Fairness Committee”. A true copy of my reports dated December 3 and 5, 1996 are attached hereto and marked Exhibit “O”.

26. I was advised by R. V. Smith, acting Chief of Appeals that the Applicants’ requests for relief under the “Fairness Package” would not be considered as the files were under Objection. I subsequently advised the Applicants’ counsel by telephone that their request would not be considered until the issues under objection had been finalized.

27. On January 13, 1997, I contacted the Applicants’ counsel to find out what their final decision was with respect to Applicants’ objections. Mr. Little advised me to reassess on the basis of our final information. I understood his instructions, with respect to the request for relief under the fairness legislation, were to proceed with the application. A true copy of the notes I made of our telephone conversation on January 13, 1997 are attached hereto and marked Exhibit “P”.

In her memorandum dated March 11, 1997 to Ms. Raila, Ms. Wong states at page 3 thereof:

The taxpayer currently has an outstanding Notice of Objection dealing with the shareholder Loan between himself and his company Dr. William Young MB CHB Inc. It is currently being finalized but they would not give us their final agreement or disagreement. We were told that it will depend on the tax bill if they file to the Tax Court.

Therefore, when Ms. Raila made her decision, the Revenue Canada policy, as explained by Ms. Raila in paragraph 4 of her affidavit, was not followed since there was an outstanding dispute between the parties regarding at least one issue. Consequently, the tax liability and hence the interest on which it is calculated, had not yet been “correctly determined”.

I now turn to the submission made by the applicants. That submission is that Ms. Raila should not have dealt with the applicants’ request for waiver of interest until the June 2, 1996 reassessments had been issued. In para graph 43 of her memorandum of points to be argued, counsel for the applicants states the following:

[...] Even though the letter to Revenue Canada from Mr. Little dated November 26, 1996 specifically requested consideration under the fairness package legislation for waiver of interest which was to be reassessed, Ms. Ralla proceeded to consider the taxable income and interest owing under the Reassessments which were under objection at the time. Following the issuance of the New Reassessments and after Ms. Ralla made her Decision, the total amounts of taxable income and penalties assessed over the years in issue were reduced with a corresponding overall reduction of interest being ultimately assessed.

In the above submission, counsel for the applicants is referring to the before last paragraph of Mr. Little’s letter of November 26, 1996 where he states:

I respectfully request that Revenue Canada apply the provisions of the Fairness Package legislation to waive interest on the Reassessments that will be issued against Dr. Young and Dr. William Young M.B. ChB. Inc.

As I understand Mr. Little’s letter, he was asking the Minister to waive the interest owed by his clients “on the reassessments that will be issued”. In my view, Mr. Little was not asking the Minister to delay consideration of his request for waiver of interest until such time as the new reassessments were issued. Rather, he was simply asking the Minister to waive the interest owed on the reassessments that would be issued.

The applicants’ submission is that the specific amount of interest is relevant because, in the instant case, the amount owed as a result of the reassessments of June 2, 1997 is less than the amount that was owing under the previous reassessments. Consequently, because Ms. Raila did not have before her the reassessments of June 2, 1997, she was not aware that the interest owing by the applicants had been reduced.

I am not convinced that the specific amount of interest owed by a taxpayer is a relevant factor in deciding whether or not interest should be waived or cancelled. Information Circular 92-2 does not refer to it as a relevant factor. Further, the policy, as explained by Ms. Raila at paragraph 4 of her affidavit, is not directed at the amount of interest owed. Rather, the purpose of the policy appears to be directed at separating the issue relating to the “fairness package” from the issue concerning the taxpayer’s liability. By liability, I obviously mean the amount owing in taxes, interest and penalties. That is why, in my view, Ms. Raila states that the policy is to not consider applications for waiver of interest as long as there are outstanding objections or appeals concerning the relevant taxation years.

If I understand this policy correctly, it means that Ms. Raila should not have considered the applicants’ request for waiver of interest until such time as all questions in dispute had been determined. As I indicated earlier, there is at least one issue under dispute and possibly more. The rationale for this policy would appear to be that the Minister does not deem it advisable to consider and decide upon applications for waiver of interest when the tax liability has not yet finally been determined.

Perhaps Ms. Raila should have simply refused to consider the applicants’ request for waiver of interest. However, she agreed to consider the applicants’ request and made a decision upon that request. In my view, the applicants’ last submission must fail. I cannot conclude that Ms. Ralla disregarded relevant facts in reaching her decision since the specific amount of interest was not, in my view, a relevant factor.

Further, even if I had concluded that the specific amount of interest was a relevant factor, I would not, in any event, have concluded that there was a reviewable error in view of Ms. Raila’s conclusion that the illnesses of Dr. and Mrs. Young and that of Mr. Rudd were not factors which prevented the applicants from complying with the Income Tax Act.

For these reasons, this application for judicial review shall be dismissed.

Application dismissed.