Date: 20020531
Docket: T-1030-01
Neutral Citation: 2002 FCT 618
Between:
GRACE EDWARDS AND KENNETH EDWARDS
Applicants
- and -
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR ORDER
PINARD, J.:
The applicants seek judicial review of a decision under section 18.1 of the Federal Court Act, R.S.C. 1985, c. F-1, to review and set aside a decision of Mr. Kevin J. Ritcey, Director, Southern Interior Tax Services Office, Canada Customs and Revenue Agency (the "CCRA") dated March 25, 2001, not cancelling or waiving all or part of any interest or penalty payable pursuant to subsection 220(3.1) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the "Act") as well as Information Circular #92-2 of the Guidelines for the Cancellation and Waiver of Interest and Penalties (the "Guidelines").
The applicant, Grace Edwards appealed assessments in respect to her 1991 and 1992 taxation years, in which claimed business losses had been disallowed. Kenneth Edwards appealed assessments with respect to his 1992, 1993 and 1994 taxation years, in which the Minister had disallowed claimed business losses and also added to income proceeds from the sale of logs. Those appeals proceeded to the Federal Court of Appeal, which upheld, on June 15, 2000, the decision of the Tax Court of Canada to dismiss the appeals.
Significant amounts of interest have accrued during the appeal process. As of May 17, 2001, the applicants owed $148,798.08.
The applicants first applied by letter dated July 27, 2000 for cancellation or waiver of interest under the Fairness provisions of the Income Tax Act to the First Level Fairness Committee.
A report was prepared by Heather Campbell and forwarded to the First Level Fairness Committee for review. Mr. Ricketts, Assistant Director, Revenue Collections, denied the applicants' request for cancellation or waiver of interest by letter dated January 23, 2001.
The applicants responded to the denial of their request for cancellation or waiver of interest by letter dated March 5, 2001. The Minister considered this to be the applicants' request for cancellation or waiver of interest to the Second Level Fairness Review.
On May 25, 2001, the applicants' request for cancellation or waiver of interest was denied. This decision is now the subject of this judicial review application.
In dismissing the applicants' application, Kevin J. Ritcey observed:
[. . .]
As mentioned in the Fairness correspondence of January 23, 2001, and in Information Circular #92-2, provisions were legislated in 1991 that give the Minister discretion to cancel or waive all or part of any interest or penalty payable, if there is an inability to pay. The reasons for denial of your request were provided.
In response to your recent letter, on March 14, 2001 our Collections Department forwarded a letter to you outlining the additional information required in order to consider a further review of the above-noted accounts under Fairness, and my conversation with you on March 23, 2001, re-iterated the CCRA's policy regarding this matter. To date, I have not received a response from you.
Accordingly, while I appreciate your position, I must confirm the decision previously reached. I find that inability to pay or rearrange your finances to address this debt has not been substantiated in this case. Additionally, a mutually satisfactory payment arrangement has not been concluded on the above noted tax accounts and this is a requirement for consideration of Fairness under financial hardship. I have, therefore, concluded that this is not a situation in which it would be appropriate to cancel any interest.
[. . .]
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The relevant provisions of the Income Tax Act and of the applicable Guidelines read as follows:
Income Tax Act:
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 (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.
Guidelines for the Cancellation and Waiver of Interest and Penalties, #92-2:
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.
7. Il peut être convenable dans des situations où il y a incapacité de verser le montant exigible d'examiner la possibilité de renoncer ou d'annuler la totalité ou une partie des intérêts afin d'en faciliter le recouvrement, par exemple dans les cas suivants :
a) lorsque les mesures de recouvrement ont été suspendues à cause de l'incapacité de payer;
b) lorsqu'un contribuable ne peut conclure une entente de paiement qui serait raisonnable parce que les frais d'intérêts comptent pour une partie considérable des versements; dans un tel cas, il faudrait penser à renoncer à la totalité ou à une partie des intérêts pour la période où les versements débutent jusqu'à ce que le montant exigible soit payé pourvu que les versements convenus soient effectués à temps.
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 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.
10. Le Ministère tiendra compte des points suivants dans l'étude de 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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[10] In Boudreault v. Canada (C.C.R.A.), [2002] F.C.J. No. 126 (T.D.)(QL), Justice Blais confirmed the standard of review established by Justice Rouleau in Kaiser v. Minister of National Revenue (1995), 93 F.T.R. 66, when the Courts are called upon to review the exercise of a discretionary power such as the one in question here. The following was stated at page 68:
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.
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] 2 S.C.R. 2; 44 N.R. 354; 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."
[11] The jurisprudence on the standard of review that has emerged since Maple Lodge Farms, supra, was considered by Justice Pelletier in Sharma v. Minister of National Revenue, 2001 DTC 5360. He refers to the "pragmatic and functional analysis" as described in Baker v. Canada (M.C.I.), [1999] 2 S.C.R. 817, and Pushpanatan v. Canada (M.C.I.), [1998] 1 S.C.R. 982, and concludes at paragraph 22:
I take it from this that the Supreme Court has subsumed the Maple Lodge Farms test into the pragmatic and functional approach so that the issue is no longer whether the decision is one which is entirely discretionary, and therefore only reviewable only on the grounds set out in Maple Lodge Farms. The inquiry must now be framed in terms of the "pragmatic and functional analysis" with a view to deciding how much deference will be shown to the decision-maker.
[12] At the hearing before me, both counsel for the parties submitted that the standard of review applicable to the discretionary decision in the case at bar is patent unreasonableness. I agree.
[13] Subsection 220(3.1) of the Act vests a discretionary power to the Minister. The courts have the responsibility to ensure that the taxpayer is heard, and that he is entitled to a decision that is the outcome of a fair process in the course of which the submissions he is raising were indeed considered (see Courchesne v. Canada (Revenue), [1996] F.C.J. No. 1469 (T.D.)(QL)).
[14] Based on the evidence here, I am satisfied that there has been a proper exercise of the statutory discretion bestowed on the Minister by subsection 220(3.1) of the Act. A discretionary power of this nature must be exercised in good faith, in accordance with the principles of natural justice, taking into account all relevant considerations and without regard to irrelevant or extraneous ones. As stated in Kaiser, supra, at page 69:
. . . 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. . . . [W]hen the Minister exercises his discretion under subsection 220(3.1), he is required to take into account considerations relevant and unique to that taxpayer alone. . . .
[15] In the present case, the record shows that the applicants were provided with a copy of the Guidelines on January 23, 2001 when they were advised by Mr. Ricketts that their request to the First Level Fairness Committee had been denied.
[16] As well, the applicants were notified by letter on two occasions indicating that the Minister was unable to accept any proposal for payment of an Income Tax Debt other than payment in full. Furthermore, they were advised that a payment plan for the tax portion of the outstanding balances of the accounts had to be submitted in order for a taxpayer's request for cancellation or waiver of interest to be considered as stated in section 7 of the Guidelines. According to the evidence on record, a response to this request was not submitted to the Minister by the applicants.
[17] Moreover, the applicant, Grace Edwards had a telephone conversation with Mr. Kevin Ritcey on March 23, 2001 where it was explained that the Minister is not in the "real estate business" and therefore could not accept the proposed settlement of June 22, 2000 from the applicants stating that they would assign to the Minister all right title and interest for three lots as well as receive in trust the amount of $5,000 to compensate for the overpayment received by way of the mentioned transfers.
[18] In my view, the Minister was not patently unreasonable in deciding to deny the applicants' request. They were informed of the grounds upon which the Minister intended to proceed and were also given the opportunity to provide information that would be considered.
[19] For the foregoing reasons, I feel there is no basis on the record to justify interference with the decision reached by the Minister's delegate. Consequently, the application for judicial review is dismissed with costs.
JUDGE
OTTAWA, ONTARIO
May 31, 2002
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1030-01
STYLE OF CAUSE: Grace Edwards and Kenneth Edwards v. Canada Customs and Revenue Agency
PLACE OF HEARING: Kamloops, British Columbia
DATE OF HEARING: May 2, 2002
REASONS FOR ORDER OF THE HONOURABLE MR. JUSTICE PINARD
DATED: May 31, 2002
APPEARANCES:
Michael O'Neill FOR THE APPLICANTS
Linda Bell FOR THE RESPONDENT
SOLICITORS OF RECORD:
Mr. Michael O'Neill FOR THE APPLICANTS
Kamloops, British Columbia
Mr. Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada
Ottawa, Ontario