Date: 20040628
Docket: T-2282-03
Citation: 2004 FC 932
Ottawa, Ontario, this 28th day of June, 2004
PRESENT: THE HONOURABLE MADAM JUSTICE SNIDER
BETWEEN:
DENIS LANNO
Applicant
- and -
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR ORDER AND ORDER
SNIDER J.
[1] Mr. Denis Lanno, the Applicant, seeks judicial review of the decision of Mr. Don Scarcello, Director of the Kitchener/Waterloo Tax Services Office of the Canada Customs and Revenue Agency (_CCRA_) wherein he decided not to exercise his discretion under subsection 152(4.2) of the Income Tax Act, R.S.C. 1985, c. 1 (5th supp.),
(ITA) to reassess the Applicant's 1993, 1994 and 1995 taxation years beyond the normal reassessment period.
Issues
[2] The one issue in this application is whether the Minister improperly exercised his discretion under subsection 152(4.2) of the ITA.
Background
[3] In 1989, Mr. Denis Lanno, was one of a number of taxpayers who invested in Cherry Lane Condominiums (the _Cherry Lane project_). This real estate investment generated a substantial loss for Mr. Lanno and other investors, which they claimed when they filed their income tax returns with the CCRA.
[4] After being informed that the CCRA was reviewing the eligibility of claimed losses, the investors in the Cherry Lane project retained BDO Dunwoody LLP (_BDO_) to assist in their dealings with the CCRA. The parties do not disagree on the facts which are sequentially as follows:
· On April 8, 1997, Mr. Lanno received a notice that he was reassessed by the CCRA for his 1993, 1994 and 1995 taxation years. His expenses and losses claimed in respect of the Cherry Lane project were disallowed on the basis of _no reasonable expectation of profit_. Rather than personally filing a Notice of Objection with the CCRA, Mr. Lanno believed that BDO would file a Notice of Objection on his behalf within the time prescribed by subsection 165(1) of the ITA.
· On February 21, 2002, BDO advised Mr. Lanno that they had no record of his reassessment notice and had, therefore, not filed a Notice of Objection on his behalf.
· On May 23, 2002, the Supreme Court of Canada in Stewart v. Canada, [2002] 2 S.C.R 645, struck down the _reasonable expectation of profit_ test to determine whether a taxpayer's activities constitute a source of income for the purpose of section 9 of the ITA.
· On December 6, 2002, Mr. Lanno, in respect of his 1993, 1994, and 1995 taxation years, requested reassessment beyond the normal period, pursuant to subsection 152(4.2) of the ITA.
· On May 29, 2003, Mr. Lanno was advised that his first level fairness request for reassessment was denied apparently on the basis that the application for refund is based solely upon a successful appeal to the Courts by a taxpayer (paragraph 4(e) of Information Circular 75-7R3, _Reassessment of a Return of Income_).
· By letter dated June 10, 2003, BDO, on behalf of Mr. Lanno, requested a review of this decision. The Designated Officer who reviewed the submissions recommended to Mr. Don Scarcello, Director of the Kitchener/Waterloo office, that Mr. Lanno's second level fairness request be denied. Mr. Lanno and BDO were informed of this decision in a letter dated July 30, 2003.
· Mr. Lanno requested, by letters dated August 2 and 7, 2003, that the second level fairness response be reconsidered. On November 4, 2003, Mr. Scarcello advised Mr. Lanno that his decision on July 30, 2003 remained unchanged.
[5] Mr. Lanno seeks judicial review of the decision of Mr. Scarcello rendered July 30, 2003 as affirmed by the letter of November 4, 2003.
Analysis
Standard of Review
[6] The decision of the Court of Appeal in Queen v. Barron, [1997] 2 C.T.C. 198 (F.C.A.) at 200 clearly establishes that, with respect to the Minister's exercise of discretion under subsection 152(4.2) of the ITA, _the court may intervene and set aside the decision only if that decision was made in bad faith, if its author clearly ignores some relevant facts or took into consideration irrelevant facts or if the decision is contrary to law_. This standard was applied to similar discretionary decisions in Sharma v. Canada Customs and Revenue Agency, [2001] 3 C.T.C. 169 at 176 (F.C.T.D.) and Cheng v. Canada, [2001] 4 C.T.C. 190 at 196 (F.C.T.D.).
Legislative Framework
[7] As a general rule, absent fraud or misrepresentation by a taxpayer, the Minister must reassess the taxpayer within the _normal reassessment period_. For an individual, this period ends three years from the date on which the taxpayer was first assessed (ss. 152(4), (3.1)). Thus, in normal circumstances, Mr. Lanno would not be able to seek reassessment in this instance since his claim was made over three years after the original assessment in 1997. However, Parliament has included Fairness Package legislation in the ITA, under which the Minister may also reassess the taxpayer outside the normal reassessment period on application by the taxpayer in order to issue a refund or to reduce tax payable to the taxpayer (ss. 152(4.2)) (the _Fairness Provision_). Parliament has given broad discretion to the CCRA, the delegate of the Minister, under the Fairness Provisions.
[8] To assist officials of the CCRA in making determinations under the Fairness Provisions, the CCRA has put into place a policy that is set out in Information Circular 75-7R3, _Reassessment of a Return of Income_. Section 4 of that Information Circular describes the circumstances in which the CCRA will agree to make a refund to a taxpayer.
| A reassessment to create a refund ordinarily will be made upon receipt of a written request by the taxpayer, even if a notice of objection has not been filed within the prescribed time, provided that
(a) the taxpayer has, within the four-year filing period required by subsection 164(1), filed the return of income;
(b) the Department is satisfied that the previous assessment or reassessment was wrong;
(c) the reassessment can be made within the four-year period or the seven-year period, as the case may be, referred to in paragraph 1 above or, if that is not possible, the taxpayer has filed a waiver in prescribed form;
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Sur réception d'une demande écrite du contribuable, le Ministère établit ordinairement une nouvelle cotisation pour donner un remboursement, même si un avis d'opposition n'a pas été produit dans le délai prescrit, pourvu:
a) que le contribuable ait produit la déclaration de revenu dans le délai de quatre ans mentionné au paragraphe 164(1);
b) que le Ministère soit convaincu que la cotisation ou nouvelle cotisation précédente était inexacte;
c) qu'il soit possible d'établir une nouvelle cotisation dans le délai de quatre ans ou de sept ans, selon le cas, dont il est fait mention au numéro 1 précédent ou, s'il n'est pas possible de remplir cette condition, que le contribuable ait produit une renonciation en la forme prescrite;
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| (d) the requested decrease in taxable income assessed is not based solely on an increased claim for capital cost allowances or other permissive deductions, where the taxpayer originally claimed less than the maximum allowable; and
(e) the application for a refund is not based solely upon a successful appeal to the Courts by a taxpayer.
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d) que la réduction du revenu imposable établi ne résulte pas uniquement d'une majoration des déductions pour amortissement ou d'autres déductions laissant une marge de manoeuvre au contribuable, lorsque ce dernier a demandé au départ une déduction inférieure au maximum déductible; et
e) que la demande de remboursement ne se fonde pas uniquement sur un appel devant les tribunaux d'un autre contribuable ayant eu gain de cause |
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Did the Minister improperly exercise its discretion under subsection 152(4.2) of the ITA?
[9] As noted, the decision of Mr. Scarcello is discretionary and will not attract intervention by this Court unless it is patently unreasonable or is made in breach of the rules of natural justice. Having reviewed the record before Mr. Scarcello, I am not persuaded that his decision should be overturned.
[10] In this case, the basis upon which Mr. Lanno's request for reassessment was refused was paragraph 4(e) of the Information Circular. Neither the officer conducting the first level fairness request nor Mr. Scarcello was satisfied that his application was not "based solely upon a successful appeal to the Courts by a taxpayer". The policy set out in paragraph 4(e) of the ITA provides certainty and finality to the reassessment process. The CCRA needs to be able to avoid a huge flood of reassessment applications every time a court decision impacts on taxpayers' liability. Thus, when a taxpayer is successful in an appeal of his tax liability to the Courts, refunds to other taxpayers who were not part of the litigation will not be paid if the successful appeal is the only reason for a refund application. The CCRA has reasonably required that the best evidence that the application is not based solely on the appeal is the filing of a Notice of Objection prior to the outcome of the appeal. As evidenced from the correspondence and decisions in respect of Mr. Lanno, the CCRA will look at the particular circumstances of each case to determine whether the affected taxpayer was prevented from filing a Notice due to circumstances beyond his control. In fact, much of Mr. Sarcello's decision deals with analyzing whether circumstances beyond Mr. Lanno's control prevented him from filing a notice.
[11] Had Mr. Lanno filed a Notice, it is possible that he would have received a refund. Other investors in the Cherry Lane project filed Notices prior to the decision in Stewart, supra, and received their refunds. Nevertheless, Mr. Lanno is not entitled to an automatic assessment because of the situation of other investors in the same project. It was up to Mr. Lanno to satisfy the CCRA that he was prevented, for reasons beyond his control, from filing a Notice. He failed to satisfy Mr. Scarcello that this was the case.
[12] Based on my review of the evidence, I am satisfied that the decision to reject Mr. Lanno's claim was reasonably open to Mr. Scarcello. In particular, I note the following:
1. Although Mr. Lanno was advised by BDO in February 2002 that no Notice had been filed on his behalf, neither he nor BDO took any action to correct this failure; and
2. BDO could have contacted Mr. Lanno when a few of the other investors, who also had also paid for BDO to represent them, sent in the necessary documents. There is no indication that such action was taken.
[13] Based on the record before him, it was open to Mr. Scarcello to review the evidence and conclude that it did not satisfy him that Mr. Lanno had an intention of pursuing his remedy prior to the court decision in Stewart,supra. Further, the decision of Mr. Scarcello demonstrated that he read and considered all of the submissions made to him.
[14] In conclusion, Mr. Lanno presented no evidence that the decision of Mr. Scarcello was made in bad faith, that Mr. Scarcello clearly ignored some relevant facts or took into consideration irrelevant facts or that the decision is contrary to law. Mr. Scarcello did not err in exercising his discretion. As unfortunate as the result is for Mr. Lanno and while I may have decided otherwise, there is no basis on which this Court may or should intervene.
ORDER
THIS COURT ORDERS THAT:
1. The application for judicial review is dismissed;
2. Costs are awarded to the Respondent.
_Judith A. Snider_
Judge
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-2282-03
STYLE OF CAUSE: DENIS LANNO v. CANADA CUSTOMS
AND REVENUE AGENCY
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: June 16, 2004
REASONS FOR ORDER
AND ORDER BY: The Honourable Justice Snider
APPEARANCES BY:
Mr. Denis Lanno FOR APPLICANT
Ms. Andrea Jacket FOR RESPONDENT
SOLICITORS OF RECORD:
Mr. Denis Lanno FOR APPLICANT
Self-Represented
Cambridge, Ontario
Morris Rosenberg FOR RESPONDENT
Deputy Attorney General of Canada