Date: 20040614
Docket: T-879-02
Citation: 2004 FC 863
Ottawa, Ontario, this 14th day of June, 2004
Present: The Honourable Mr. Justice Mosley
BETWEEN:
HORST KROLL
KROLL'S AUTO SERVICE LTD.
Applicants
and
REVENUE CANADA
CUSTOMS, EXCISE & TAXATION, GST DEPARTMENT
Respondents
REASONS FOR ORDER AND ORDER
[1] This is an application for judicial review of the decision of a delegate of the Minister of National Revenue ("Minister"), dated May 9, 2002. In that decision, the Director of the Toronto East Tax Services Office of the Canada Customs and Revenue Agency ("CCRA") assessed that Mr. Kroll were not to be granted relief from penalties assessed on Goods and Services Tax ("GST") owing from January 1, 1995 to December 31, 2001. The applicants request that the matter be referred back to the respondent for reconsideration and also requests costs on a substantial indemnity basis.
BACKGROUND
[2] Mr. Horst Kroll is the primary owner and operator of Kroll's Auto Service Ltd. ("Kroll Auto"), an auto sales, service and repair shop. Mr. Kroll, together with a Mr. Dan Barnabe, described as a shareholder in the business, appeared as unrepresented litigants at the hearing of this matter.
[3] At the time the GST was introduced, Ms. Beadle, an employee of Kroll Auto, was responsible for preparing and filing the tax returns for the business. Ms. Beadle and Mr. Horst were involved in a close personal relationship. On or around April 30, 1991 Ms. Beadle filed the initial GST return for Kroll Auto, recording a credit of $13,025.80 which resulted in a refund of $9,937.32.
[4] Ms. Beadle died in a car accident on May 26, 1991. Mr. Horst has attested in his affidavit filed in this proceeding that he was devastated by the sudden death of Ms. Beadle and was overwhelmed with managing certain aspects of the business without her. Mr. Kroll did receive the $9,937.32 GST refund.
[5] Subsequent to Ms. Beadle's death, CCRA requested that the applicant provide documents to support the numbers in this GST return. Mr. Kroll did not respond to the correspondence from CCRA and due to the applicant's failure to respond, CCRA disallowed the GST credit. An accountant hired by Mr. Kroll to replace Ms. Beadle attempted to object to the disallowance but such objection was rejected by CCRA because it was late filed.
[6] In 1995, another accountant hired by Mr. Horst attempted to report the refund as an Input Tax Credit ("ITC") on the Kroll Auto return for the period ending December 31, 1995. As a result of an audit, CCRA disallowed the ITC claim. The applicant then filed an objection to this disallowance. At a meeting with the applicant's accountant, an officer of the CCRA advised that the amount ought to have been claimed as a federal sales tax rebate in a particular manner, the deadline being December 31, 1991. The CCRA confirmed the disallowance of the ITC. The matter was then referred to the "fairness committee" of the CCRA for review.
[7] By letter dated January 11, 2001 the CCRA denied the applicant any relief from the penalties and interest assessed on his GST account. The applicant then requested an administrative review of this decision, which resulted in the decision currently under review.
The Decision Under Review
[8] The "fairness" decision under review granted Mr. Kroll complete relief from interest assessed on his GST account from January 1, 1991 to December 31, 2001 and complete relief from penalties assessed on his GST account from January 1, 1991 to December 31, 1994. However, CCRA did not grant the applicant relief from the penalties assessed on his GST account for the period January 1, 1995 to December 31, 2001.
[9] CCRA determined, after reviewing a report from the GST Fairness Review Committee dated January 15, 2002, that due to the financial hardship faced by the applicant as well as the disruption, personally and to the applicant's company, caused by the death of Ms. Beadle, that the relief described above was warranted. However, since the applicant had not provided an explanation for his failure to file 17 of the 27 GST returns due from January 1, 1995 to December 31, 2001 by their applicable due dates when he had employed the services of a new accountant beginning in 1995, no adjustment was permitted for the penalties assessed from 1995 to 2001.
ISSUE
[10] Did the Minister's delegate breach any principle of procedural fairness or err in law in making the decision under review?
ANALYSIS OF PARTIES' ARGUMENTS
[11] The applicant submits that the "stream of penalties" imposed by CCRA on his GST account all flow from his original failure to make timely filings in 1991 due to the death of Ms. Beadle and that the penalties and interest from 1995 onwards are all directly related to this error. Therefore, the applicant submits that the respondent should have waived all penalties and interest pursuant to the general hardship which he has endured, being serious emotional distress resulting from the death of Ms. Beadle. He refers to an explanatory memorandum issued by the respondent department which indicates that a waiver or cancellation of interest or penalty payable would be considered by the department in circumstances where, due to extraordinary circumstances beyond a person's control, the person has been prevented from complying with the requirements to pay the GST.
[12] The respondent, however, submits that no reviewable error occurred in this case warranting the intervention of this Court. There is no indication that the Minister's delegate breached the principles of procedural fairness or erred in law in making this essentially discretionary decision. After reviewing all the material before me, I agree with the respondent.
[13] Section 281.1 of the Excise Tax Act, R.S.C. 1985, c. E-15 confers upon the Minister the discretion to waive or cancel interest and penalties owing under that Act. However, this section does not give the Minister the discretion to waive the principal amount of tax payable under the Act.:
| 281.1 (1) The Minister may waive or cancel interest payable by a person under section 280.
(2) The Minister may waive or cancel penalties payable by a person under section 280. |
|
281.1 (1) Le ministre peut annuler les intérêts payables par une personne en application de l'article 280, ou y renoncer.
(2) Le ministre peut annuler la pénalité payable par une personne en application de l'article 280, ou y renoncer.
|
[14] The jurisprudence is well-established that "fairness" decisions under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) as well as the Act currently at issue, the Excise Tax Act, are subject to the patently unreasonable standard of review: Sharma v. Canada (Customs & Revenue Agency), [2001] 3 C.T.C. 169 (F.C.T.D.), Cheng v. Canada, [2001] 4 C.T.C. 190 (F.C.T.D.), Miller v. Canada (Customs and Revenue Agency), [2004] F.C.J. No. 32 (F.C.)(QL) and Nail Centre and Esthetics Salon v. Canada (Customs and Revenue Agency), [2004] F.C.J. No. 685 (F.C.)(QL).
[15] In Kaiser v. Canada (Minister of National Revenue), [1995] F.C.J. No. 349 (T.D.)(QL), Justice Rouleau described the objective behind fairness reviews in the federal tax scheme at paragraphs 8, 10-11:
The purpose of this legislative provision is to allow Revenue Canada, Taxation, to administer the tax system more fairly, by allowing for the application of common sense in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, are unable to meet deadlines or comply with rules under the tax system. The language used in the section bestows a wide discretion on the Minister to waive or cancel interest at any time. To assist in the exercise of that discretion, policy guidelines have been formulated...
...
I am unable to conclude, based on the facts before me, that the Minister improperly exercised his discretion in the present case. The applicant was afforded the opportunity to make representations as to why the interest should be waived and the Minister had before him, by reason of the prolonged history of the matter, all the relevant facts necessary on which to base a reasoned and objective decision. ... Absent bad faith on the part of the Minister, a breach of the principles of natural justice or consideration of extraneous or irrelevant factors, there is nothing to warrant the Court's interference with the exercise of his discretion. I am unable to conclude any of these exist in the present case.
... Every case is required to be decided on its own merit in order that circumstances unique to that individual taxpayer are properly taken into account. The fact the respondent exercised its discretion in a different manner for different taxpayers is not an indication of bad faith.
While Kaiser, supra, dealt with the fairness provision under the Income Tax Act, such reasoning is equally applicable to the objective of section 281.1 of the Excise Tax Act.
[16] The record submitted before this Court includes an affidavit of the Director of the Toronto East Tax Services Office of the CCRA, the decision-maker in this case. I am satisfied that the Director exercised his discretion in good faith, considered only relevant considerations and his final decision is not patently unreasonable, being supported by the fact that the applicant continually filed a great many GST returns late after he had hired a new accountant in 1995, which was almost four years after the death of Ms. Beadle. Nor is there any allegation or indication that the CCRA breached the principles of procedural fairness in dealing with the applicant. The sequence of events is unfortunate but here is no ground for intervention by this Court.
ORDER
THIS COURT ORDERS that this application for judicial review is dismissed without costs.
"Richard G. Mosley"
F.C.J.
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-879-02
STYLE OF CAUSE: HORST KROLL
KROLL'S AUTO SERVICE LTD.
AND
REVENUE CANADA
CUSTOMS, EXCISE & TAXATION,
GST DEPARTMENT
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: June 10, 2004
REASONS FOR ORDER
AND ORDER BY : The Honourable Mr. Justice Mosley
DATED: June 14, 2004
APPEARANCES:
Horst Kroll FOR THE APPLICANTS
Dan Barnabic (Self-represented)
Suzanne Bruce FOR THE RESPONDENT
SOLICITORS OF RECORD:
HORST KROLL FOR THE APPLICANTS
DAN BARNABIC (Self-represented)
MORRIS ROSENBERG FOR THE RESPONDENT
Deputy Attorney General of Canada
Toronto, Ontario