Date: 20241206
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Docket: T-2640-23
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Citation: 2024 FC 1983
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Toronto, Ontario, December 6, 2024
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PRESENT: The Honourable Justice Battista
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BETWEEN:
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C.W. carry ltd.
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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 an application for judicial review of a decision denying the Applicant an extension of time for filing an amended application under the federal Canada Emergency Wage Subsidy (CEWS) program. For the reasons that follow, the decision is unreasonable and the application for judicial review is granted.
II. Background
[2] Like many Canadian employers, the Applicant received financial support under CEWS during the COVID-19 pandemic so that it could avoid terminating employees during the pandemic’s disruption of its business.
[3] CEWS provided funding to supplement employers’ payroll, as long as the qualifying employer could establish that its gross revenue during pandemic months fell by a certain percentage relative to the equivalent month the year prior to the pandemic (the “General Method”) or relative to the average gross revenues received in January and February 2020 (the “Alternative Method”).
[4] During a Canada Revenue Agency (CRA) audit of the benefits received by the Applicant, it was revealed that the Applicant made an erroneous choice of methods based on a transposition error made by a former employee. This erroneous choice resulted in the overpayment of CEWS benefits in the amount of $1,086,568.86 using the Alternative Method chosen by the employer. It was discovered that if the Applicant had used the General Method, the transcription error would have resulted in an overpayment of only $63,153.84.
[5] The Applicant sought a way to change the election it had made from the Alternative Method to the General Method. It would have chosen the General Method if its employee had not made the transcription error.
[6] However, the Applicant faced an obstacle in its desire to change its method of election in subsection 125.7(10) of the Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA]. Subsection 125.7(10) states:
An eligible entity may amend or revoke an election made under this section on or before the date that the application is due for the first Qualifying Period in respect of which the election is made.
[7] In the Applicant’s case, the first Qualifying Period, Q2, was April 12 to May 9, 2020. The due date of that application had already long passed by the time that the Applicant discovered the transcription error and overpayment. The goal for the Applicant, therefore, was to change the due date for its first Qualifying Period.
[8] The CRA had issued policies providing guidance for accepting late-filed amended applications, but these policies did not allow re-elections of calculation methods after the due date of the application. The requirement for amending or revoking elections is governed by subsection 125.7(10) of the ITA.
[9] The Applicant based its request to change its Q2 due date on subsection 125.7(16) of the ITA, which states:
For the purposes of determining whether an eligible entity is a qualifying entity, a qualifying recovery entity or a qualifying renter, the Minister may, at any time, extend the time for filing an application under this section.
[10] The Applicant therefore made a request for the CRA to use the combination of subsections 125.7(10) and 125.7(16) to both extend the time for filing an application for Q2 and to enable the Applicant to revoke the election of the Alternative Method and elect for the General Method.
[11] The Applicant submitted that if the CRA found that such an extension was restricted to determinations of whether an entity is a qualifying entity based on the wording of paragraph 125.7(16), this could provide a justification for the extension in the Applicant’s case, because the Applicant was not yet a qualifying entity in Q2.
III. Decision
[12] The Applicant’s request was refused in a decision dated November 16, 2023. While the decision states “your request did not contain any reason(s) for the Minister to consider an exception to late filing,”
it also indicated the following reason for refusal:
You are responsible for making sure your claims are filled out correctly and filed on time. All the information was available to you on how to accurately calculate the application(s) before the filing deadline(s).
[13] A Fact Sheet was attached to the decision containing a detailed Second Reviewer Report (Report) that addressed the Applicant’s submissions in further detail. The Report cited two CRA policies allowing for late-filed subsidy applications. The first, a general fairness provision, provided guidance on principles for accepting late-filed applications under the ITA. The second, section 26-01 of the Frequently Asked Questions (FAQ) policy, suggested that late CEWS subsidy applications could be accepted for several reasons including “an arithmetic error, transcription error, [or] transposition error….”
[14] Despite citing these policies, the Report acknowledged that the Applicant was not seeking a late filing for an upward adjustment to a closed claim due to circumstances under the fairness policy.
[15] Turning to the Applicant’s arguments, the Report found:
-Subsection 125.7(16) could not be used to extend the time for filing to determine whether the Applicant could be a qualifying entity for Q2 because based on the Applicant’s revenue it could not possibly become a qualifying entity;
-Subsection 125.7(16) provides the CRA with “the discretionary authority to accept late-filed section 125.7 applications,”
but in these situations “the due date for the claim period does not change, the CEWS claim is simply accepted after the due date.”
-Despite finding that an extension of the due date could not be made under subsection 125.7(16), and despite acknowledging that the Applicant was not requesting to file a late application for closed periods, the Report recommended against “the request to retroactively change the reference period election from the alternative approach to the general approach”
as the Applicant had not revoked its election to use the Alternative Approach on time and because “the onus is on the applicant to submit accurate original wage subsidy applications on time,”
and “the error was not caused by the CRA.”
IV. Issue
[16] The sole issue is whether the CRA’s decision is reasonable pursuant to the guidance provided by the Supreme Court of Canada in Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65 [Vavilov].
V. Analysis
[17] All three bases of the decision are unreasonable for unintelligibility, unresponsiveness to the submissions, and misinterpretation of subsection 125.7(16) of the ITA.
A. Unreasonable denial of extension based on impossibility of becoming a qualifying entity
[18] Subsection 125.7(16) allows for an extension to be granted “for the purposes of determining whether an eligible entity is a qualifying entity.”
Rather than granting the extension after the Applicant expressly stated this purpose for the request, the officer made a determination that the Applicant could not possibly be a qualifying entity for that period, then denied the request on this basis.
[19] However, the Applicant did not request this determination. It requested an extension for the purpose of establishing that it was a qualifying entity. If that purpose was established, the pre-condition for the extension under subsection 125.7(16) was established. The determination of whether the Applicant was a qualifying entity was meant to follow a determination of whether to grant the extension, not precede it.
[20] The process to be followed by the Respondent under subsection 125.7(16) was first to determine whether the purpose of the request was to determine whether the entity is a qualifying entity, then to decide whether to accede to the request and grant the extension, and then after granting the extension to determine whether the entity is a qualifying entity. The Respondent’s reason for refusing the extension was unresponsive to the Applicant’s submission and is not reasonable in light of the process described under subsection 125.7(16).
B. Unreasonable interpretation of subsection 125.7(16)
[21] The determination that subsection 125.7(16) permitted only late filing and not the movement of the due date for filing is unreasonable.
[22] The relevant text of subsection 125.7(16) states “… the Minister may, at any time, extend the time for filing an application under this section.”
These clear words indicate that “the time for filing”
—the due date for an applicant’s application—is extended, or postponed.
[23] The text of subsection 125.7(16) is distinct from the language used in the above-mentioned policies enabling late-filed applications. The relevant language used in these policies for accepting applications indicates that they are accepted late, past the due date. This distinction in language between the policies and the statute suggests a difference in outcome. The policies allow the filing of a late application, and the statute allows the extension of the due date to file an application on time.
C. Unintelligible/unreasonable reasons denying the extension
[24] The officer concluded the Report by examining justifications for the requested extension. The purpose of this analysis is not clear, given that the officer had already expressed the view that the extension could not be granted. Counsel for the Respondent indicated that these were perhaps “alternative”
reasons, but their placement in the decision actually indicates that they were conclusory in nature. It is also not clear whether the analysis was being conducted pursuant to subsection 125.7(16) or pursuant to the policies allowing for applications to be filed late. The lack of a clear basis for the analysis renders it unreasonable.
[25] Even if there was a clear indication of the purpose for the concluding analysis discussing insufficient justification for the extension, the analysis itself is not reasonable.
[26] The analysis acknowledges the Applicant’s “simple mistake,”
but denies the extension solely based on the avoidable nature of the mistake and the fact that it was not made by the CRA. This logic would result in the refusal of extensions in virtually all cases of mistake and the discretion to allow for extensions based on mistakes would be rendered meaningless.
[27] Moreover, regardless of the basis for the exercise of discretion, the principles guiding the exercise of discretion required connection to the purpose and character of the CEWS program. Discretionary does not mean arbitrary: “any exercise of discretion must accord with the purposes for which it was given”
(Vavilov at para 108). In this case, the exercise of discretion lacked an approach that accorded with its statutory context and purpose.
[28] The CEWS program was intended to provide responsive support to Canadian employers at a time of great uncertainty in the Canadian economy. It was designed to directly assist employers with one of their greatest expenditures—payroll—while avoiding widespread layoffs in the workforce.
[29] The program was characterized by immediacy and increasing flexibility to reassure and accommodate employers. Its scope expanded over time in quantum of benefits and eligibility periods, and employers were provided with the opportunity to change their initial election of eligibility calculation, within constraints, to maximize their benefits. They were also permitted to file applications late based on a wide range of reasons.
[30] Counsel for the Applicant stated that the Applicant made important business decisions based on the predictability and the amount of support it received. These decisions were made during a chaotic period under the pressure of filing applications quickly to receive necessary financial support to cover payroll costs. Conditions were rife with the possibility of a “simple mistake.”
[31] In its extension request, the Applicant stated that granting the extension would be consistent with the statute and fairness rules behind the program. However, the request was refused because the mistake was not the CRA’s fault, and the Applicant should have known better. A responsive exercise of discretion would have explained how the decision was responsive to its context, specifically, the purpose and nature of the CEWS program and the factual context described by the Applicant.
VI. Conclusion
[32] The decision made on the request for an extension is unreasonable due to its unresponsiveness to the context of the decision and the Applicant’s submissions, unintelligibility, as well as its misinterpretation of the statute.
[33] The Applicant requested relief directing the granting of the extension. However, even if this result is inevitable based on the request and the statutory context, subsection 125.7(16) authorizes only the Minister to grant an extension of the due date for an application. Therefore, the requested relief is not accessible to the Applicant from this Court. For this reason, the decision will be quashed and remitted to the CRA for redetermination.
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