BETWEEN:
LITMAR LTD., a New Brunswick Corporation,
and ROSS E. LITTLE
and
CANADACUSTOMS AND REVENUE AGENCY,
as represented by the Minister of National Revenue
REASONS FOR JUDGMENT
GAUTHIER J.
[1] Ross E. Little and his company Litmar Ltd. seek judicial review of the decision of the Minister of National Revenue denying their request for cancellation or waiver of interest and penalties pursuant to ss. 281.1 (1) and (2) of the Excise Tax Act, R.S.C. 1985, c. E-15 (the "Act"). The relevant provisions of the Act are set out in Annexe 1.
Background
[2] It is not disputed that Litmar has an outstanding GST/HST account with Canada Customs and Revenue Agency (CCRA) with respect to amounts due since March 31, 1999 and March 31, 2001. When Litmar filed its return for those years, it did not attach the payments due. Also, for the years 1999 to 2003 Litmar was late in filing its GST/HST returns.
[3] Between July 2000 and July 2002, Litmar paid about $8,000 towards the GST/HST owing and it received statements from CCRA every four months showing receipts of payment, as well as balance owed including interest and penalties. Although it appears that Mr. Little had regular contacts with the CCRA with respect to Litmar's outstanding debt,[1] it was not until April 19, 2005 that he requested, on behalf of Litmar, a relief from interest and penalties.
[4] By that time Mr. Little, as sole director of Litmar, had received a third party notice of assessment for the amount owed by the company pursuant to section 323(1) of the Act. This section provides for the joint and several liability of the directors in place at the time the corporation was requested to remit the payment of the tax.
[5] Although this assessment is dated February 15, 2005, CCRA corresponded with Mr. Little about the application of this section since August 2004. Thus, when Mr. Little sought relief on behalf of Litmar, he also sought a similar relief with respect to the third party notice of assessment he had received.
[6] On September 12, 2005 after several months of discussion and correspondence, a final decision was made not to waive or cancel the interest and penalties assessed against both applicants. The issues that were considered in reaching these decisions are listed in Barbara Toole's affidavit at paragraphs 6 and 7 and in the exhibits attached thereto, particularly exhibit O (Summary of facts and Memorandum dated September 9, 2005).
[7] With respect to Litmar, the main reason for denying the relief was that the company was not operating and had no known assets of value. There was no possibility of obtaining payment of the principal amount and no means of resolving the debt.
[8] CCRA considered in detail Mr. Little's own request based on financial hardship. It examined his finances and his offer to pay $500.00 per month which would have enabled him to reimburse the principal amount owed in 2 years. However, it concluded that the actions taken by him in the years subsequent to Litmar incurring the GST/HST liability did not justify a waiver. Particularly, it considered that Mr. Little had knowingly allowed an outstanding balance to exist and interest to accrue on Litmar's accounts without taking quick steps to remedy this problem.
[9] According to Mr. Little, the event which explains the demise of Litmar was a business deal that went sour. This, however only happened after the co-contractant, J.D. Irving Inc., had actually paid the GST/HST to Litmar. For CCRA, the fact that Litmar was not able to get any more business after its dispute with Irving and failed to remit the tax it had collected was a business risk. It was not "a circumstance beyond the tax payer's control" contemplated in the guidelines set out in GST memorandum G500-3-2-1 dated March 14, 1994.
[10] Moreover, CCRA considered the fact that, in 2003, Mr. Little had transferred one hundred percent (100%) ownership in the family cottage to his spouse for one dollar and that, in 2004, the family house was sold and the proceeds used to pay other creditors of Mr. Little (no payment was made to CCRA for Litmar), thereby effectively moving all personal assets out of the reach of CCRA.
Issues
[11] In his application, Mr. Little appears to contest the validity of the third party assessment of February 15, 2005 on the basis that he was duly diligent. This is a defence provided for at subsection 323(3) of the Act. The respondent raises a preliminary issue with regard to this point. He submits that the Court has no jurisdiction to deal with the validity of the tax assessment issued to Mr. Little pursuant to s. 323 of the Act. Thus, the Court should only deal with the applicant's arguments relating to the decisions not to waive the interest and the penalties.
[12] With respect to the latter matters, Mr. Little argues that the Minister erred:
i. by taking into account the value of the cottage which is an asset of Mr. Little's wife and which was transferred to her well before he was personally assessed for the GST/HST owed by Litmar;
ii. when the Minister failed to properly assess the circumstances which led to the demise of Litmar and to consider that non-payment of the GST/HST arose from circumstances, that were truly beyond Mr. Little's and Litmar's control.
Analysis
[13] There is no doubt that, once the Minister issues a notice of assessment pursuant to the Act, such assessment will be deemed to be valid and binding subject only to an objection and an appeal under Part IX of the Act. The same rule applies to the assessment issued to Mr. Little under s. 323(1) of the Act (s.321(4)).
[14] The Tax Court of Canada has jurisdiction to assess the validity of Mr. Little's defence of due diligence (see two recent examples in Kern v. Canada [2005] T.C.J. No. 220; Franck v. Canada [2005] T.C.J. No. 291).
[15] The assessment of Litmar has not been the subject of an objection or an appeal to the Tax Court of Canada. It is not disputed before this Court.
[16] However, Mr. Little, who is self-represented, admits that he intended to contest at the hearing the validity of the third party assessment dated February 15, 2005 because, in his opinion, he should not be held responsible for Litmar's debt. He also said that he believes that he properly "objected" to this assessment in his letter of April 19, 2005. The respondent has undertaken to examine this issue of whether a proper objection was filed and to advise Mr. Little of his position forthwith. This will enable the applicant to regularize his situation and to seek an extension of time if necessary to pursue the remedies provided for in the Act.
[17] Be that as it may, s. 18.5 of the Federal Courts Act, R.S.C. 1985, c. F-7, is clear that this Court has no jurisdiction to judicially review decisions that can be appealed to the Tax Court of Canada, whether or not they have in fact been appealed (see also Webster v. Canada, 2003 FCA 388, [2003] F.C.J. No. 1569).
[18] Turning now to the validity of the decisions under review, the Court must first determine the standard of review that it will apply. The applicants raise no issue involving a breach of natural justice or procedural fairness or an error of law. Essentially, they argue that the Minister has not properly applied the relevant statutory criteria and that he failed to consider some relevant facts, focussing instead on the irrelevant issue of the cottage.
[19] In Lanno v. Canada Custom and Revenue Agency, 2005 FCA 153, [2005] F.C.J. No. 714, Justice Karen Sharlow proceeded with a pragmatic and functional analysis to determine the standard of review applicable to a decision of the Minister made pursuant to s. 152(4.2) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, a fairness provision similar to the one in the Act, adopted to give the tax authorities the discretion to grant relief against the operation of certain provisions. She concluded that the Minister's exercise of discretion should be reviewed using the standard of reasonableness.
[20] In Nail Centre and Esthetics Salon v. Canada, 2005 FCA 166, [2005] F.C.J. No. 798, the Federal Court of Appeal found that the same standard of review applied to a decision made under s. 281.1 of the Act because although, as mentioned above, Lanno dealt with a different discretionary provision of the fairness package in the Income Tax Act, its reasoning was equally apposite to the decision under review.
[21] Having considered the scheme of the Act and of the applicable provision under review, the relative expertise of CCRA and the Court, as well as the nature of the question (mixed fact and law), which is essentially the same as the questions arising in the two decisions referred to above, I am satisfied that I should review the present refusals using the standard of reasonableness.
[22] This means that the Court must determined if any of the reasons given are sufficient to support the CCRA's conclusion and are tenable in the sense that they can stand up to a somewhat probing examination. If a decision is supported by a tenable explanation, it cannot be set aside, even if this explanation is not one this Court finds compelling (Law Society of New Brunswick v. Ryan,[2003] 1 S.C.R. 247 at para. 55).
[23] Looking first at the memorandum GST 500-3-2-1, it is clear that those guidelines set out a non-exhaustive list of factors that will be considered in the exercise of the statutory discretion and that they are not meant to restrict the spirit or intent of the legislation.
[24] It is also clear from paragraph 9 of the said guidelines, that even if the dispute with Irving could be considered as an extraordinary circumstance beyond Litmar's or Mr. Little's control, CCRA still had to consider the actions of the applicants including whether they knowingly allowed an outstanding balance to exist upon which the penalties and interest accrued, whether they acted quickly to remedy the omissions or delays in compliance and, how they conducted their affairs during the period before and after the extraordinary event that caused the initial problem.
[25] Despite one's sympathy for Mr. Little's plight and his obvious effort to deal with a difficult financial situation, the Court cannot accept his contention that his circumstances were not fully considered by CCRA. The latter clearly looked at all his arguments but found that some of the factors which they were entitled to consider militated against the granting of a waiver in this case. This conclusion is reasonable, based on the facts presented.
[26] Mr. Little did not contend and could not contend that he was not aware that he could be personally assessed for the tax debt of Litmar. The transfer of the cottage to his wife and the fact that he used the proceeds of the sale of the house to pay his other creditors is not, in the circumstances of this case, an irrelevant consideration.
[27] With respect to Litmar, the Court notes that in HealthSmith Medical Inc. v. Canada (Minister of National Revenue), 2005 FC 239, [2005] F.C.J. No. 288, Justice Yvon Pinard concluded that the decision not to waive interest and penalties against a company which had no assets and no realistic way of paying the debt in capital was reasonable. I have no reason to come to a different conclusion here.
[28] Although Litmar is not technically in bankruptcy, there is no indication that it is still doing any business and that the payment of accrued or accruing interest would jeopardize its operations.
[29] After a somewhat probing examination, I am satisfied that the two decisions under review are reasonable.
[30] For these reasons, this application for judicial review will be dismissed.
JUDGMENT
THIS COURT ADJUDGES that:
The application for judicial review is dismissed.
ANNEXE 1
| Excise Tax 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.
323. (1) If a corporation fails to remit an amount of net tax as required under subsection 228(2) or (2.3) or to pay an amount as required under section 230.1 that was paid to, or was applied to the liability of, the corporation as a net tax refund, the directors of the corporation at the time the corporation was required to remit or pay, as the case may be, the amount are jointly and severally, or solidarily, liable, together with the corporation, to pay the amount and any interest on, or penalties relating to, the amount. (3) A director of a corporation is not liable for a failure under subsection (1) where the director exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. (4) The Minister may assess any person for any amount payable by the person under this section and, where the Minister sends a notice of assessment, sections 296 to 311 apply, with such modifications as the circumstances require.
|
Loi sur la Taxe d'accise 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. 323. (1) Les administrateurs d'une personne morale au moment où elle était tenue de verser, comme l'exigent les paragraphes 228(2) ou (2.3), un montant de taxe nette ou, comme l'exige l'article 230.1, un montant au titre d'un remboursement de taxe nette qui lui a été payé ou qui a été déduit d'une somme dont elle est redevable, sont, en cas de défaut par la personne morale, solidairement tenus, avec cette dernière, de payer le montant ainsi que les intérêts et pénalités afférents. (3) L'administrateur n'encourt pas de responsabilité s'il a agi avec autant de soin, de diligence et de compétence pour prévenir le manquement visé au paragraphe (1) que ne l'aurait fait une personne raisonnablement prudente dans les mêmes circonstances. (4) Le ministre peut établir une cotisation pour un montant payable par une personne aux termes du présent article. Les articles 296 à 311 s'appliquent, compte tenu des adaptations de circonstance, dès que le ministre envoie l'avis de cotisation applicable. |
| Federal Courts Act
18.5 Despite sections 18 and 18.1, if an Act of Parliament expressly provides for an appeal to the Federal Court, the Federal Court of Appeal, the Supreme Court of Canada, the Court Martial Appeal Court, the Tax Court of Canada, the Governor in Council or the Treasury Board from a decision or an order of a federal board, commission or other tribunal made by or in the course of proceedings before that board, commission or tribunal, that decision or order is not, to the extent that it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with, except in accordance with that Act. |
Loi sur les Cours férérales
18.5 Par dérogation aux articles 18 et 18.1, lorsqu'une loi fédérale prévoit expressément qu'il peut être interjeté appel, devant la Cour fédérale, la Cour d'appel fédérale, la Cour suprême du Canada, la Cour d'appel de la cour martiale, la Cour canadienne de l'impôt, le gouverneur en conseil ou le Conseil du Trésor, d'une décision ou d'une ordonnance d'un office fédéral, rendue à tout stade des procédures, cette décision ou cette ordonnance ne peut, dans la mesure où elle est susceptible d'un tel appel, faire l'objet de contrôle, de restriction, de prohibition, d'évocation, d'annulation ni d'aucune autre intervention, sauf en conformité avec cette loi. |
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1795-05
STYLE OF CAUSE: Litmar Ltd. a New BrunswickCorporation,
and Ross E. Little
v. Canada Customs and Revenue Agency
as represented by the Minister of National Revenue
PLACE OF HEARING: Fredericton, New Brunswick
REASONS FOR JUDGMENT: Justice Johanne Gauthier
APPEARANCES:
| Ross E. Little
|
FOR THE APPLICANTS |
| John J. Ashley
|
FOR THE RESPONDENT |
SOLICITORS OF RECORD:
| N/A
|
|
| John H, Sims, Q.C. Deputy Attorney General of Canada Ottawa, Ontario
|
[1] In May 2004, Mr. Little was still saying to CCRA that he would soon receive a commission cheque and would call with further details and payment arrangements (Respondent's record page 61).