Date: 20040706
Docket: T-2041-03
Citation: 2004 FC 961
Ottawa, Ontario, the 6th day of July 2004
PRESENT: THE HONOURABLE MR. JUSTICE BEAUDRY
BETWEEN:
WILFRID COMEAU
Applicant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR ORDER AND ORDER
[1] This is an application for judicial review from a decision by the Minister of National Revenue (the Minister) on October 7, 2003, pursuant to subsection 220(3.1) of the Income Tax Act, R.S.C. 1985 (5th Suppl.), c. 1 (the ITA), allowing in part an application by the applicant to cancel interest.
FACTS
[2] On May 12, 1993, the applicant filed his tax return for 1992. On November 1, 1995, the Canada Customs and Revenue Agency (the CCRA) assigned for internal audit the file of the mining exploration company Explorations Acabit Inc. (Acabit), a company in which the applicant had invested $50,000 in 1992 to acquire a tax shelter.
[3] Forty-five thousand dollars was deductible from the taxpayer's income and he obtained a rebate of $18,000 through another company. In March 1996, the CCRA decided to conduct a more thorough investigation of Acabit as the latter was suspected of fraud.
[4] On June 26, 1997, the applicant was sent a reassessment for 1992. The effect of this assessment was, inter alia, to significantly reduce the $45,000 deduction initially contemplated. On July 10, 1997, Mr. Comeau sent a cheque for $8,271.65 and set out the calculation of what he considered he owed the CCRA. On August 5, the applicant filed a notice of objection to the assessment of June 26, 1997.
[5] In 2000 the Quebec Superior Court found Acabit guilty of tax fraud. On September 11, 2000, a reassessment for 1992 was issued to the applicant. On October 13 of that year, he filed an initial application to cancel interest, which was disallowed on October 2, 2001. His second application to cancel interest was dated November 6, 2001, and that application was denied on November 15, 2001. Accordingly, he filed an application for judicial review in the Federal Court. In an order made on May 28, 2003 (docket T-2222-01), the Court quashed the negative decision of November 15, 2001, and referred the matter back for another decision to be made by the CCRA after considering the applicant's new written submissions.
IMPUGNED DECISION
[6] On October 7, 2003, to comply with the order made by Martineau J. and pursuant to the recommendations made by the Committee, Sylvain St-Denis, acting deputy committee member, Appeals Branch, made a decision according to which the interest on arrears was cancelled for the period from May 24, 1996 to June 9, 1997, to take into account the delay in processing the applicant's file.
POINT AT ISSUE
[7] Was the decision of October 7, 2003, patently unreasonable?
[8] For the following reasons, I would answer in the affirmative, and would accordingly allow the application for judicial review at bar in part.
ANALYSIS
[9] A decision based on the equity provision (subsection 220(3.1) of the ITA) is a decision which is discretionary in nature. The applicable standard of review is that of the patently unreasonable error (Barron v. Canada (Minister of National Revenue) (1997), 209 N.R. 392 (C.A.), [1997] F.C.J. No. 175 (QL); Cheng v. Canada (2001), 213 F.T.R. 85, 2001 FCT 1114; Laviolette v. Canada (Customs and Revenue Agency), [2004] F.C.J. No. 229 (QL), 2004 FC 176).
[10] In the applicant's submission, the decision of October 7, 2003, is not consistent with the order by Martineau J. nor with the rules applicable to the CCRA, and it indicates the CCRA's bad faith.
[11] In the respondent's submission, the decision of October 7, 2003 complies with subsection 220(3.1) of the ITA, the Guidelines for the Cancellation and Waiver of Interest and Penalties, IC-92-2 (the Guidelines) and the order by Martineau J.
[12] Subsection 220(3.1) of the ITA provides as follows:
| (3.1) 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 152(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. |
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(3.1) Le ministre peut, à tout moment, renoncer à tout ou partie de quelque pénalité ou intérêt payable par ailleurs par un contribuable ou une société de personnes en application de la présente loi, ou l'annuler en tout ou en partie. Malgré les paragraphes 152(4) à (5), le ministre établit les cotisations voulues concernant les intérêts et pénalités payables par le contribuable ou la société de personnes pour tenir compte de pareille annulation. |
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[13] The following sections of the Guidelines provide as follows:
| 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: |
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5. Il sera convenable d'annuler la totalité ou une partie des intérêts ou des pénalités, ou de renoncer à ceux-ci, si ces intérêts ou ces pénalités découlent de situations indépendantes de la volonté du contribuable ou de l'employeur. Voici des exemples de situations extraordinaires qui pourraient empêcher un contribuable, un agent d'un contribuable, l'exécuteur d'une succession ou un employeur de faire un paiement dans les délais exigés ou de se conformer à d'autres exigences de la Loi de l'impôt sur le revenu : |
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| (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. |
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a) une calamité naturelle ou une catastrophe provoquée par l'homme comme une inondation ou un incendie; b) des troubles civils ou l'interruption de services comme une grève des postes; c) une maladie grave ou un accident grave; d) des troubles émotifs sérieux ou une souffrance morale grave comme un décès dans la famille immédiate. |
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| 6. Cancelling or waiving interest or penalties may also be appropriate if the interest or penalty arose primarily because of actions of the Department, such as: |
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6. L'annulation des intérêts ou des pénalités ou la renonciation à ceux-ci peuvent également être justifiées si ces intérêts ou pénalités découlent principalement d'actions attribuables au Ministère comme dans les cas suivants : |
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| (a) processing delays which result in the taxpayer not being informed, within a reasonable time, that an amount was owing; (b) material available to the public contained errors which led taxpayers to file returns or make payments based on incorrect information; (c) a taxpayer or employer receives incorrect advice such as in the case where the Department wrongly advises a taxpayer that no instalment payments will be required for the current year; (d) errors in processing; or (e) delays in providing information such as the case where the taxpayer could not make the appropriate instalment or arrears payments because the necessary information was not available. |
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a) des retards de traitement, ce qui a eu pour effet que le contribuable n'a pas été informé, dans un délai raisonnable, de l'existence d'une somme en souffrance; b) des erreurs dans la documentation mise à la disposition du public, ce qui a amené des contribuables à soumettre des déclarations ou à faire des paiements en se fondant sur des renseignements erronés; c) une réponse erronée qu'un contribuable ou un employeur a reçue concernant une demande de renseignements comme dans le cas où le Ministère a informé par erreur un contribuable qu'aucun acompte provisionnel n'est nécessaire pour l'année en cours; d) des erreurs de traitement; e) des renseignements fournis en retard comme dans le cas où un contribuable n'a pu faire les paiements voulus d'acomptes provisionnels ou d'arriérés parce qu'il n'avait pas les renseignements nécessaires. |
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| 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. |
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10. Le Ministère tiendra compte des points suivants dans l'étude des demandes d'annulation des intérêts ou des pénalités ou de renonciation à ceux-ci : a) si le contribuable ou l'employeur a respecté, par le passé, ses obligations fiscales; b) si le contribuable ou l'employeur a, en connaissance de cause, laissé subsister un solde en souffrance qui a engendré des intérêts sur arriérés; c) si le contribuable ou l'employeur a fait des efforts raisonnables et s'il n'a pas fait preuve de négligence ni d'imprudence dans la conduite de ses affaires en vertu du régime d'autocotisation; d) si le contribuable ou l'employeur a agi avec diligence pour remédier à tout retard ou à toute omission. |
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[14] My analysis will deal with three periods.
Period prior to beginning of audit of November 1, 1995
[15] The Committee's instructions were to determine whether there were unreasonable delays between July 26, 1993, the date of the initial assessment for 1992, and September 11, 2000, the date the objection was dealt with by the issuing of a reassessment.
[16] The Committee's conclusions in this regard are contained in the transcript of September 23, 2003:
[TRANSLATION]
Cancellation of the interest for the period preceding November 24, 1995, the date the audit began, is not justified. The tax system is a system of self-assessment, and the Income Tax Act ("the Act") provides for a usual delay in reassessment so the system can be checked, monitored and maintained.
[17] I do not consider that conclusion to be patently unreasonable.
Period from beginning of audit to reassessment of June 26, 1997
[18] This is what the transcript of the Committee's meeting of September 23, 2003, established:
[TRANSLATION]
The period of 18.5 months that elapsed between November 24, 1995, the date the audit began, and June 9, 1997, the date of the assessment, is greater than the standard six months considered reasonable for conducting an audit. Mr. Comeau should not be penalized by the fact that the mining companies were the subject of an investigation and that this contributed to the delay in issuing the reassessment of June 26, 1997. Based on this six-month standard, the audit of Mr. Comeau's file should ordinarily have ended in May 1996.
. . . . .
Based on the foregoing, the Committee recommends that interest be cancelled for the period of 12.5 months that elapsed between May 24, 1996, the date on which the audit would have ended according to the six-month standard, and June 9, 1997, the date of the assessment.
[19] Looking at the chronology established by the CCRA, I note that the audit began on November 1, 1995, with the establishment of the T979 form and assignment of the Exploration Acabit case, not the beginning of the on-the-spot audit on November 24, 1995.
[20] I cannot say that the CCRA's decision regarding that period is patently unreasonable, except for the date of the start of the audit, namely November 1, 1995. Consequently, the [TRANSLATION] "usual audit period" of six months ended on May 1, 1996. This means that the interest should be cancelled from May 1, 1996 to June 9, 1997.
Period from assessment of June 26, 1997 to September 11, 2000, date of processing of objection and reassessment for 1992
[21] The transcript of the meeting states the following:
[TRANSLATION]
Mr. Comeau was told of the existence of an outstanding balance before submitting his notice of objection and he allowed that balance to stand, giving rise to interest on arrears. Consequently, the period that elapsed at the objection stage, such as awaiting the results of the proceedings against the fraudulent parties, and the period which elapsed before Mr. Comeau was certain that fraud had been committed, does not justify a cancellation of interest.
[22] The Committee took section 10(b) of the Guidelines into account in arriving at this conclusion. Accordingly, I cannot conclude that Mr. St-Denis' decision is patently unreasonable regarding the application to cancel interest after the period from June 26, 1997.
[23] The applicant alleged processing errors in his assessment of June 26, 1997. He also maintained that the CCRA considered twice as a capital gain the $18,000 rebate which he received. I agree with the respondent's submissions, that the action at bar is not appropriate. A challenge to the validity of an assessment is by the serving of an objection, and subsequently by an appeal to the Tax Court of Canada.
[24] Mr. Comeau argued that the respondent's decision was vitiated by bad faith. I do not agree, as the Committee considered Mr. Comeau's further submissions as required by the order of Martineau J. Further, before making final recommendations the Committee sought additional information on the audit and the investigation conducted into the applicant's file. It also considered the spirit and intent of subsection 220(3.1) of the Act.
[25] I cannot say that the answers by Suzanne Albert on the CCRA's behalf to the applicant's written examination demonstrated bad faith. That individual undertook on the respondent's behalf to prepare the documentation needed to review the applicant's application to cancel interest. She attended the meeting of September 23, 2003, and did not participate in the audit or investigation conducted into the applicant's file. Based on the documentation filed, it is impossible for the Court to identify any bad faith on the part of that individual.
[26] The applicant further argued that he was compelled to sign a waiver on June 5, 1996. It is clear that if the waiver had not been signed, the respondent would have issued a reassessment at once, instead of on June 26, 1997. Moreover, the applicant could have revoked his waiver pursuant to subsection 152(4) of the Act.
CONCLUSION
[27] The instant application for judicial review is allowed in part. The decision of October 7, 2003, is quashed. The case at bar is referred back to the respondent for one of her authorized representatives who did not take part in the decisions relating to the case to make a new decision consistent with the following direction by the Court.
[28] Because of the erroneous dates used in calculating the start of the audit and the notice of
reassessment in 1997, the interest should have been cancelled from May 1, 1996 to June 9, 1997 (and not from May 24, 1996 to June 9, 1997). The CCRA should therefore cancel the interest for these additional days. In view of the divided outcome, no costs will be awarded.
ORDER
THE COURT ORDERS that:
1. the instant application for judicial review is allowed in part: the decision of October 7, 2003 is quashed; the case at bar is referred back to the respondent for one of her authorized representatives who did not take part in decisions relating to the case to make a new decision consistent with the following direction by the Court;
2. because of the erroneous dates used in calculating the start of the audit and the notice of reassessment in 1997, the interest should have been cancelled from May 1, 1996 to June 9, 1997 (and not from May 24, 1996 to June 9, 1997). The CCRA should therefore cancel the interest for these additional days;
3. in view of the divided outcome, no costs will be awarded.
"Michel Beaudry"
Judge
Certified true translation
Suzanne M. Gauthier, C Tr, LLL
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-2041-03
STYLE OF CAUSE: WILFRID COMEAU v.
CANADA CUSTOMS AND REVENUE AGENCY
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: June 30, 2004
REASONS FOR ORDER AND ORDER BY: BEAUDRY J.
DATED: July 6, 2004
APPEARANCES:
Wilfrid Comeau FOR THE APPLICANT
(for himself)
Marie-Claude Landry FOR THE RESPONDENT
Maria Grazia Bittichesu
SOLICITORS OF RECORD:
Wilfrid Comeau FOR THE APPLICANT
Brossard, Quebec (for himself)
Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada
Montréal, Quebec