Date: 20040407
Docket: T-85-02
Citation: 2004 FC 542
Ottawa, Ontario, this 7th day of April, 2004
PRESENT: THE HONOURABLE MR. JUSTICE JOHN A. O'KEEFE
BETWEEN:
PAUL TYWRIWSKYI
Applicant
- and -
ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR ORDER AND ORDER
O'KEEFE J.
[1] This is an application for judicial review of the decision of Mr. Hank Koudsi, Acting Assistant Director Revenue Collections of the Canada Customs and Revenue Agency ("CCRA", as it was then named) dated December 12, 2001. Mr. Koudsi, acting as the Minister's representative, refused to exercise the discretion conferred by subsection 220 (3.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (The "Act") to grant the applicant full relief from interests and penalties on his income tax debt.
[2] The applicant requests an order:
1. reversing the decision of Mr. Koudsi; and
2. other relief as deemed just and appropriate.
Background
[3] The applicant accrued a considerable tax debt between 1990 and 1997 when he failed to pay his income tax debts as they became due. In a letter to CCRA dated October 18, 1999, the applicant requested that the Minister exercise his discretion to waive interest and penalties on his outstanding tax debt pursuant to the tax fairness provisions of the Act. At the time of his request, the applicant owed CCRA $52,570.93 in tax arrears, penalties and interest. The basis of the applicant's request for fairness relief was an inability to pay and severe emotional and mental distress following the breakdown of his common law marriage in 1994.
[4] CCRA denied the applicant's request for interest and penalty relief in a letter dated June 8, 2000.
[5] By letter dated June 21, 2000, the applicant requested a second level fairness review of his case. The applicant put forward the same grounds for his request, namely financial hardship and emotional and mental distress caused by the breakdown of his common law relationship in 1994.
[6] CCRA acknowledged the applicant's request. Subsequently, CCRA asked for and obtained from the applicant up-dated financial information and the minutes of settlement in relation to the applicant's separation from his common-law spouse.
[7] Collections Officer Elisa McEachern with the Fairness Legislation Review Unit of CCRA, summarized the facts in this matter and made the recommendations which formed the basis of CCRA's decision to deny in part the applicant's second level fairness review request.
[8] In a letter dated December 12, 2001, Mr. Hank Koudsi, Acting Assistant Director Revenue Collections, advised the applicant of the outcome of the second level fairness review. CCRA refused to grant the applicant interest and penalty relief on the basis of financial hardship because financial information supplied by the applicant was found to be unreliable, the applicant showed a preference to payment of other creditors over CCRA, the applicant had a poor compliance and payment history and owned a rental property which could be sold to reduce his tax liability.
[9] Furthermore, Mr. Koudsi stated that the applicant's request for cancellation of penalties and interest on the basis of incapacity due to emotional and mental distress was denied because it was unsubstantiated.
[10] Although the applicant's requested grounds for forgiveness of interest and penalties were rejected, CCRA cancelled a portion of accrued interest on two other bases. First, pursuant to the guidelines stated in Information Circular 92-2, the interest that accrued during the term of two payment arrangements (March 13, 1997 to February 27, 1998 and from July 31, 2000 until October 31, 2001) was cancelled as it exceeded the payments being made. Second, in consideration of the delay in processing the applicant's fairness requests, interest was cancelled from October 18, 1999 (the date of the first request) to June 30, 2000 (the date of CCRA's decision letter) and from June 21, 2000 (the date of the second level review request) until July 30, 2000 and from November 1, 2001 until December 12, 2001 (the date of the second level decision letter excluding the period of overlap with interest relief already granted).
[11] The cancelled interest totalled approximately $16,241.70.
[12] This is the judicial review of the Minister's decision to deny the applicant full relief from accrued interest and penalties on his tax debt.
Applicant's Submissions
[13] The applicant submits that his financial disclosure establishes financial hardship, CCRA was aware of his emotional and mental distress as early as 1993 and he has made all reasonable efforts to settle his tax debt. He submits that CCRA did not make their decision with due regard for his situation.
[14] The applicant emphasizes that he has made payment arrangements with CCRA in an effort to pay down his account but has been unable to pay down the principal due to the high interest charges and has been unable to reach a settlement arrangement. The applicant states that other creditors are being paid at a minimum amount. The applicant argues that selling his rental property would have little impact on his tax debt after payment of the mortgage and applicable fees. He argues that being forced to dispose of the property would be detrimental to him.
[15] The applicant points to a number of alleged problems with how his file has been handled by CCRA. First, the applicant alleges that the long delay in processing business loss carryovers from 1994 and 1995 to other taxation years has never been explained and was not done correctly. Second, an up-dated statement of account has not been received showing any cancellation of interest. Third, although Requirements to Pay were issued in 1999 to the applicant's three tenants, rental amounts were never credited against his taxation debt. Fourthly, the applicant submits that his account should be statute-barred. Fifthly, the applicant objects to the statement in the December 12, 2001 decision letter that he provided unreliable financial information and disagrees with the definition of financial hardship that was applied by CCRA. Lastly, the applicant objects to Mr. Koudsi being the decision-maker in this case as he never spoke to or met with the applicant or to the applicant's knowledge, has any information regarding this situation.
[16] The applicant asks that the December 12, 2001 decision of Mr. Koudsi be reversed.
Respondent's Submissions
[17] The respondent submits that this Court may only interfere with a discretionary decision of the Minister made pursuant to subsection 220(3.1) of the Act where that decision is patently unreasonable.
[18] The respondent states that where, as here, the Minister's discretion has been exercised in good faith and in accordance with the principles of natural justice and where reliance has not been placed upon irrelevant or extraneous considerations, this Court should not interfere even if it would have exercised the discretion in a different manner had it been charged with that responsibility.
[19] The respondent submits that it carefully considered all available facts and the guidelines published in Information Circular 92-2 before deciding to exercise the discretion granted by subsection 220(3.1) to grant the applicant some, but not all, of the relief he was seeking.
[20] Although Information Circular 92-2 permits the waiver of penalties and interest that result from circumstances beyond a taxpayer's control such as "serious emotional or mental distress," the respondent contends the applicant failed to present any evidence regarding the nature and extent of his alleged emotional and mental distress and how such distress made the payment of his taxes as they became due beyond his control. The respondent also asks this Court to question how the breakdown of a relationship in 1994 made the payment of taxes from 1990 to 1997 beyond the applicant's control.
[21] The respondent submits its refusal to cancel interest on the basis of emotional and mental distress was not patently unreasonable as the applicant's claim was not substantiated.
[22] The respondent points out that the Minister's discretion was exercised to grant the applicant significant interest relief totalling $16,241.70. After reviewing its dealings with the applicant, interest was cancelled for three different periods between October 1999 and December 2001. The respondent also cancelled interest for an eleven month period beginning in March 1997 and a fifteen month period beginning in July 2000 when the interest accruing on the applicant's account exceeded the payments arranged with the applicant.
[23] The respondent submits it was proper to take into account the applicant's poor compliance history with tax obligations, poor payment history and the fact that he incurred significant new credit card debt at a time when he had a tax liability in making its decision not to grant the applicant further relief from interest and penalties.
[24] In sum, the respondent submits that the applicant has failed to point to any breach of the principles of natural justice or error of law that would justify this Court disturbing the decision of the Minister.
[25] The respondent asks that this application be dismissed, with costs.
Issues
[26] The key issues to be resolved in this case are:
1. What standard of review should be applied to a decision of CCRA made pursuant to subsection 220(3.1) of the Act?
2. Are there grounds to interfere with the Minister's exercise of discretion in this case?
Relevant Statutory Provisions and CCRA Publications:
[27] Subsection 220(3.1) of the Income Tax Act, supra, permits the Minister of National Revenue (or his statutory delegate) to waive penalty or interest amounts payable under the Act. Subsection 220(3.1) provides as follows:
|
220.(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. |
220.(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. |
[28] CCRA has formulated guidelines concerning the exercise of the discretion granted by subsection 220(3.1). The guidelines are published as Information Circular 92-2 entitled "Guidelines for the Cancellation of Interest and Penalties" and dated March 18, 1992:
Introduction
[...]
2. This circular outlines the guidelines that Revenue Canada, Taxation will follow when applying the legislation. It also explains how taxpayers or employers can make a request to cancel or waive interest and penalties for years dating back to 1985, and describes the information required for such requests to be considered.
[...]
The law
4. The new legislation provides for the cancelling or waiving of all or a portion of any interest or penalties. The appendices to this circular list the more common provisions
of the Income Tax Act concerning interest and penalties that can be cancelled or waived. This measure took effect on December 17, 1991, and applies to 1985 and subsequent taxation years. The term "normal reassessment period" is relevant in paragraph 13. The "normal reassessment period" is the period that ends three years after the day of mailing of a notice of an original assessment.
Guidelines and examples of circumstances where cancelling or waiving interest or penalties may be warranted
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:
[...]
(d) serious emotional or mental distress such as, death in the immediate family.
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:
(a) processing delays which result in the taxpayer not being informed, within a reasonable time, that an amount was owing;
[...]
7. It may be appropriate, in circumstances where there is an inability to pay amounts owing, to consider waiving or cancelling interest in all or in part to facilitate collection. For example,
(a) When collection has been suspended due to an inability to pay.
(b) When a taxpayer is unable to conclude a reasonable payment arrangement because the interest charges absorb a significant portion of the payments. In such a case, consideration may be given to waiving interest in all or in part for the period from when payments commence until the amounts owing are paid provided the agreed payments are made on time.
[...]
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.
[...]
Exercise of the discretion
14. If taxpayers or employers believe that the Department has not exercised its discretion in a fair and reasonable manner, then they may request, in writing, that the director of a district office or taxation centre review the situation.
[...]
Analysis and Decision
[29] The principles governing the "tax fairness" provision found in subsection 220(3.1) were enunciated by Rouleau J. in Kaiser v. Canada (Minister of National Revenue - M.N.R.) (1995), 93 F.T.R. 66 at paragraph 8:
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 and are set out in Information Circular 92-2.
[30] Issue 1
What standard of review should be applied to a decision of CCRA made pursuant to subsection 220(3.1) of the Act?
I agree with the respondent's submission that the standard of review to be applied in this case is patent unreasonableness.
[31] Many cases have considered the standard of review when the Minister's discretionary decision-making is being scrutinized by this Court. In Kaiser, supra, Rouleau J. considered the standard of review of subsection 220(3.1) decisions at and stated at paragraph 9:
The jurisprudence has established the standard to be employed by the Courts when called upon to review the exercise of a discretionary power such as the one in question here. In Re Maple Lodge Farms Ltd. and Government of Canada et al. (1982), 137 D.L.R. (3d) 558 (S.C.C.), McIntyre J. stated at p. 562:
In construing statutes such as those under consideration in this appeal, which provide for far-reaching and frequently complicated administrative schemes, the judicial approach should be to endeavour within the scope of the legislation to give effect to its provisions so that the administrative agencies created may function effectively, as the legislation intended. In my view, in dealing with legislation of this nature, the courts should, wherever possible, avoid a narrow, technical construction, and endeavour to make effective the legislative intent as applied to the administrative scheme involved. It is, as well, a clearly-established rule that courts should not interfere with the exercise of a discretion by a statutory authority merely because the court might have exercised the discretion in a different manner had it been charged with that responsibility. Where the statutory discretion has been exercised in good faith and, where required, in accordance with the principles of natural justice, and where reliance has not been placed upon considerations irrelevant or extraneous to the statutory purpose, the courts should not interfere.
[32] More recently, in Sharma v. Canada (Customs and Revenue Agency), 2001 FCT 584, [2001] F.C.J. No. 867 (QL), Pelletier J. revisited the issue of the standard of review to be applied to tax fairness decisions of the Minister, albeit pursuant to subsection 220(3.2) of the Act. Pelletier J. concluded that applying the pragmatic and functional approach of Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817 and Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982, the appropriate standard of review was patent unreasonableness.
[33] The patent unreasonableness standard of review also applies to decisions made pursuant to subsection 220(3.1), not just subsection 220(3.2). In Metro-Can Construction Ltd v. Canada, 2002 FCT 1171, [2002] F.C.J. No. 1572 (QL), Teitelbaum J. stated at paragraph 9:
Subsection 220(3.1) of the Act confers discretion on the Minister with regard to waiving or cancelling penalties or interest. The Minister is under no obligation to do so. Thus, on judicial review, the Court must determine whether the Minister, or his statutory delegate, has properly exercised his discretion. The standard of review, as articulated by Mr. Justice Pelletier in Sharma v.M.N.R., [2001] 3 C.T.C. 169 (F.C.T.D.), is patent unreasonableness. As Mr. Justice Mackay noted in Alasdair MacKay v M.N.R., [2002] F.C.J. No. 323, 2002 FCT 234 (F.C.T.D.), this standard requires a high degree of deference by the reviewing court to the exercise of discretion, especially since the discretion concerns a relieving provision under the Income Tax Act.
[34] A number of recent cases decided by this Court applied the patent unreasonableness standard to judicial review of subsection 220(3.1) discretionary decisions. These cases include:
Heeg v. Canada (Attorney General), 2003 FCT 337; Brickenden v. Canada (Customs and Revenue Agency), 2003 FC 929; Edwards v. Canada (Customs and Revenue Agency), 2002 FCT 618; Boudreault v. Canada (Customs and Revenue Agency), 2002 FCT 84 and Cheng v. Canada, 2001 FCT 1114.
[35] In order for this Court to set aside the respondent's decision, it must be found to be patently unreasonable. The applicant must show that he was denied procedural fairness, there was bad faith on the part of the respondent or reliance upon irrelevant or extraneous considerations.
[36] As stated in her report dated November 22, 2001, the basis of the Collections Officer's recommendation to deny the applicant complete fairness relief was as follows:
Recommendations
I am unable to recommend the cancellation of penalties and interest based on financial hardship and incapacity because
· The financial information has been found to be unreliable.
· The client has shown a preference to payment of other creditors.
· The client has a poor compliance and payment history.
· No evidence of incapacity as a result of emotional and mental distress was presented.
· The client owns rental property which could be sold and equity used to reduce his tax debt.
[37] The applicant has raised a number of arguments as to why he disputes the decision not to grant him complete relief.
[38] Error with Respect to American Express Payment
The applicant disputes that he provided incomplete or otherwise unreliable financial information to the respondent. The applicant states that the regularly monthly charge of $757.94 on his American Express Line of Credit was his mortgage payment, which he had disclosed on his Income and Expense ("I & E") forms as an ongoing liability.
[39] As I understand it, the applicant's argument on this issue is that the respondent relied on this "undisclosed" charge to conclude that he provided unreliable financial information. Since this assumption was wrong and the applicant had indeed disclosed this amount, the applicant argues that the respondent's fairness decision should be set aside for being based on an erroneous finding of fact.
[40] I have reviewed the filed materials, including the three I & E disclosures submitted by the applicant between October 1999 and August 2001 and conclude that the respondent's interpretation of the information submitted by the applicant was not unreasonable. In October 1999, the applicant listed his mortgage payment and property taxes as $1623.41 and $391.58, respectively. In June 2000, the amounts listed by the applicant were $1715.32 and $391.58, and finally in August 2001 the amounts were $1726.54 and $371.87. None of the listed mortgage payment amounts match the $757.94 charge, and the applicant in no way indicated to the respondent the nature of the American Express Line of Credit charge. It was not an erroneous finding of fact for the respondent to conclude, based on the totality of the information before it at the time, that the applicant had not provided a complete or reliable picture of his financial liabilities.
[41] Credit Cards Paid at a Minimum Amount
The applicant states that his credit card debts were paid at a minimum amount. I agree with the respondent that this is not supported by the credit check data collected by CCRA. It was open to the respondent to conclude that the applicant was preferring payment of credit card debt over his tax debt.
[42] Business Losses - 1994 and 1995
The applicant, in his February 13, 2002 affidavit stated:
I am of the opinion, that the carry-backs and carry-forwards were never properly applied to the proper years. Therefore, I can not possibly owe the amount of money the department is demanding.
This argument relates to the Minister's assessment of taxes owing and not the discretionary waiver of interest and penalties under subsection 220(3.1) of the Act. This Court has no jurisdiction to review or set aside assessments as that is the role of the Tax Court of Canada: Minister of National Revenue v. Parsons (1984), 61 N.R. 113 (F.C.A.); Optical Recording Co. V. Minister of National Revenue (1990), 116 N.R. 200 (F.C.A.).
[43] Up-dated Statement of Tax Account and Garnishment of Rentals
The applicant's statements that he did not receive an up-dated statement of his tax account and that garnished rental income has not been credited to his account does not relate to the soundness or legality of the respondent's decision to deny complete fairness relief. The respondent stated that a statement of account was issued to the applicant in August 2001 and that no rental payments were received from the applicant's tenants under the requirements to pay. This factual disagreement between the parties does not call into question CCRA's discretionary decision at issue in this case.
[44] Account Should be Statute Barred
The applicant stated at paragraph 1 of his memorandum of fact and law:
This matter evolves from 1990 and still is ongoing, surpassing the 5 year time frame, and should be statuted [sic] barred in full.
This argument does not assist the applicant. The taxation years in question would be statute barred to reassessment but it is the fax fairness provisions that are the subject matter of this application. The tax fairness provisions allow the taxpayer to revisit historical tax returns to attempt to persuade the Minister to forgive interest o penalties. These provisions, when implemented, favour the taxpayer.
[45] Emotional and Mental Distress
The applicant's claim of emotional and mental distress was rejected by CCRA as a ground for interest relief. It is clear from the record that the applicant experienced a breakdown of his common law relationship. However, the applicant did not provide evidence to establish emotional or mental distress experienced by him or its severity. No medical evidence was presented concerning the alleged stress nor was any link made between the alleged stress and an inability by the applicant to fulfil his tax obligations. CCRA was certainly not obliged to accept the applicant's statements at face value in the absence of medical evidence or other corroboration.
[46] In support of his stress claim, the applicant submitted a photocopy of a November 1993 calendar with the 16th of the month circled with the words "contacted Revenue Canada" written next to the date. This is not sufficient evidence to support a claim for relief on the basis of emotional and mental distress.
[47] The record discloses that the applicant was given an opportunity to present evidence on this issue by CCRA and he did not do so. CCRA's ACSES Diary Notes relating to the applicant make reference to a conversation between the applicant and a CCRA officer on July 19, 2001, during the time period when the second level fairness review of the applicant's case was being conducted. The notes state:
...Cl[ient] admits has no info from doctor re emotional/mental stress of breackup [sic] and so advised him would be unable to review that portion of claim....
I am of the view that it was not patently unreasonable for the respondent to reject the applicant's claim with respect to serious emotional or mental distress.
[48] Was Mr. Koudsi an Appropriate Decision-Maker?
Contrary to the applicant's contention, there is no requirement that the decision-maker meet personally with him before refusing tax fairness relief. The record shows that Mr. Koudsi was fully informed before making his decision. Subsection 220(2.01) allows the Minister to delegate duties to various officers. I find that Mr. Koudsi was a proper decision-maker under the Act.
[49] Material from Motion to Extend Time for Service
Earlier in the procedural history of this case, the respondent made a motion for an extension of time to file its application record. The applicant filed an affidavit (filed July 2, 2002) in response to that motion, that he relied on extensively during the oral argument of the main application before me. The respondent objected, stating that the July 2, 2002 affidavit was not included in the applicant's application record, meaning that the respondent was deprived of the opportunity to cross-examine the applicant on the affidavit in preparation for the hearing of this matter.
[50] I am sympathetic to the concerns of the respondent, and agree that the applicant's affidavit filed July 2, 2002, strictly speaking, does not form part of the main application's supporting materials. I would note, however, that even if the affidavit were properly before me, it does not provide any basis on which the applicant's case could succeed as this evidence was not before CCRA.
[51] The applicant must establish that the Minister's decision was patently unreasonable in order to succeed. I am of the opinion that the decision to refuse the applicant full tax fairness relief was not patently unreasonable based on the evidence that was before the Minister. There was no denial of procedural fairness, no bad faith on the part of the Minister in reaching the decision, and no reliance on irrelevant or extraneous considerations.
[52] The applicant's application for judicial review is therefore dismissed.
ORDER
[53] IT IS ORDERED that the applicant's application for judicial review is dismissed.
"John A. O'Keefe"
J.F.C.
Ottawa, Ontario
April 7, 2004
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-85-02
STYLE OF CAUSE: PAUL TYWRIWSKYI
- and -
ATTORNEY GENERAL OF CANADA
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: October 7, 2003
REASONS FOR ORDER AND ORDER OF O'KEEFE J.
APPEARANCES:
Mr. Paul Tywriwskyi, Self-Represented
FOR APPLICANT
Mr. Kevin Dias
FOR RESPONDENT
SOLICITORS OF RECORD:
Paul Tywriwskyi
Barrie, Ontario
FOR APPLICANT
Kevin Dias
Department of Justice
Toronto, Ontario
FOR RESPONDENT