Ottawa, Ontario, September 26, 2006
PRESENT: The Honourable Madam Justice Dawson
BETWEEN:
Applicant
and
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1] Subsection 220(3.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (Act) is one of the "fairness provisions" of the Act that vests discretion in the respondent Minister to waive or cancel some or all of a penalty or interest otherwise payable under the Act. Encompassed within that discretion is the Voluntary Disclosure Program (VDP). Information Circular 00-1R (Information Circular) describes the VDP in the following terms:
The VDP encourages clients to come forward and correct deficiencies to comply with their legal obligations. It is a fairness program that is aimed at providing clients with an opportunity to correct past omissions, thus rendering themselves compliant. By offering this opportunity for clients to self-correct, the program provides a greater level of fairness to all clients and stakeholders.
[2] The Information Circular also explains that a valid voluntary disclosure is defined by four conditions, only one of which is relevant to this proceeding. That condition is that the Canada Revenue Agency (CRA) must determine the disclosure to be voluntary. In the words of the Information Circular:
The disclosure must be voluntary. The client has to initiate the voluntary disclosure. A disclosure may not qualify as a voluntary disclosure under the above policy if it is found to have been made with the knowledge of an audit, investigation, or other enforcement action that has been initiated by the [CRA], or other authorities or administrations with which the [CRA] has information exchange agreements. [underlining added]
[3] In the present case, the applicant failed to file on a timely basis tax returns required under the Act for the taxation years from 1998 to, and including, 2003. On February 2, 2004, the applicant filed tax returns for the outstanding years and penalties for late filing applied. The applicant's accountant submitted that the returns for the 2000, 2001, and 2002 taxation years were voluntarily disclosed and the applicant sought relief from penalties under the VDP.
[4] This request was denied on the ground that the disclosure was not voluntary because “information available to the Agency indicates that enforcement actions were taken on the account for these years prior to the disclosure". The applicant's request that the Minister reconsider his decision was treated as a second level request. A Voluntary Disclosure Officer (officer) prepared a report that recommended that the CRA not accept that the disclosure had been voluntary because enforcement actions by the Non-Filer Unit of the CRA were ongoing right up to the date of disclosure. The Chief of Appeals at the Calgary Tax Services office reviewed the file and the officer’s recommendation and decided to deny the second level request. He wrote:
The circumstances of your case have been carefully considered and I regret to inform you that your request cannot be granted. Under the VDP Policy, a disclosure must be considered voluntary in order to be considered as a valid voluntary disclosure. A disclosure is considered voluntary if a client has wholly initiated the disclosure in order to ensure his or her tax records are complete. Information available to the Agency indicates that enforcement was taken on the account prior to the disclosure.
[5] This is an application for judicial review of that negative decision.
STANDARD OF REVIEW
[6] The parties agree that the standard of review to be applied to that discretionary decision is reasonableness simpliciter. In my view that is correct, as reflected in the pragmatic and functional analysis of the Federal Court of Appeal in Lanno v. Canada (Customs and Revenue Agency), 2005 FCA 153.
[7] Review on this standard requires the Court to ask after a "somewhat probing examination" whether the reasons given for the decision, when taken as a whole, support the decision. The reviewing court is not to ask what the correct decision would have been. Rather, "[a]pplying the standard of reasonableness gives effect to the legislative intention that a specialized body will have the primary responsibility of deciding the issue according to its own process and for its own reasons. The standard of reasonableness does not imply that a decision-maker is merely afforded a margin of error around what the court believes is the correct result". See: Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247 at paragraphs 47 and 50.
APPLICATION OF THE STANDARD OF REVIEW TO THE DECISION
[8] The applicant admits that at the time of the voluntary disclosure there was audit, investigative or other enforcement action initiated by the CRA in respect of the 1998 and 1999 taxation years. It is argued, however, that knowledge of enforcement activity must necessarily be considered in respect of specific taxation years. It is said that there is no evidence of any inquiry concerning the 2000-2002 tax returns so the ongoing inquiries concerning 1998 and 1999 should not prevent the returns for the 2000, 2001 and 2002 taxation years from being considered to be voluntary for the purposes of the VDP policy.
[9] In my view, it is not correct for the applicant to argue that there was no evidence before the decision-maker of any inquiries being made by the CRA concerning the taxation years from 2000 through 2002. The report prepared by the officer as a result of the second level request referenced entries in the SUDS diary. The SUDS diary is the computer diary system used by the Non-Filer Unit of the CRA. Employees working in that unit are required to record in the SUDS diary system their conversations with taxpayers and their representatives. Pertinent entries contained in the SUDS diary system related to the applicant’s account and relied upon by the officer were:
1. An entry dated February 11, 2003 which stated:
Spoke to director Arthur Wenngatz @ […] regarding o/s T2’s for yrs 98-2001. States he thought they had been done, but asked me to call his accountant Diane Olsen @ […] re o/s returns & to call him back if I needed to. LM for Diane Olsen @ […] @ 3:50 p.m.
2. An entry dated April 14, 2003 which stated:
Spoke to accountant Diane Olsen. States she has most of the information for the 98 to 2001 years & expects to have them done by the end of April 03. Advised her where they have to come to & to call me if there is a problem with getting them in by then.
[10] This is evidence of inquiry with respect to the 2000 and 2001 tax years.
[11] On this application for judicial review the applicant relies upon the affidavits of Mr. Arthur Wenngatz and Ms. Diane Olsen where, respectively, they swear that "I have never communicated with representatives of the Respondent about the Applicant's tax matters. Furthermore, I am not even authorized to discuss the Applicant's tax matters with the Respondent" and "[w]hile on February 17, 2003 a representative of the Respondent contacted me about the outstanding 1998 and 1999 tax returns of the Applicant, at no time during this communication did we discuss the Applicant's outstanding 2000 and 2001 tax returns". These affidavits were not before the decision-maker and therefore cannot be relied upon on this application for judicial review. Parenthetically, I do note that Mr. Wenngatz’ position that he did not have any conversation with a CRA employee with regard to the late filed returns and Ms. Olsen’s position that her records only reflected CRA enforcement activity with respect to the 1998 and 1999 taxation years were before the officer. As discussed below, the officer dealt with those assertions.
[12] The decision-maker swears that:
I specifically considered the Applicant’s submission that Mr. Wenngatz maintained that he did not have a conversation with a CRA employee with regard to the Applicant and that Applicant’s accountant stated that her records indicated that CRA had only initiated enforcement on the 1998 and 1999 tax returns, but not on any subsequent tax years. However, based on my review, I concluded that various employees from the CRA Non-Filer Unit had issued a TX14 to the Applicant on May 18, 1999 for the Applicant’s 1998 taxation year and a TX14 on January 27, 2000 for the Applicant’s 1999 taxation year. The TX14 is a computer-generated letter from the CRA which requests that a taxpayer file its tax returns, and I considered that the mailing of the TX14s were enforcement actions by the CRA. I also noted that, after the TX14s were sent, the Non-Filer Unit had contacted, by telephone, both Arthur Wenngatz and the Applicant’s accountant as far back as 2000 requesting the Applicant’s late returns. The Non-Filer Unit continued to make numerous and ongoing verbal requests for the Applicant’s unfiled returns, as they came due, from May of 2000 until the time of disclosure.
[13] The officer referred to relevant SUDS diary entries to conclude that they provided "evidence of continued contact by the non-filer section right up to the date of the disclosure". This was a reasonable conclusion to be drawn from the entries. The officer's decision that the disclosure was not voluntary because of the ongoing activities of the Non-Filer Unit was tenable for the reasons given and it withstands a somewhat probing analysis.
[14] With respect to the February 11, 2003 and April 14, 2003 SUDS diary entries that record communications between the CRA and Arthur Wenngatz and Diane Olsen, the applicant argues that even if such communications did occur, neither Arthur Wenngatz and Diane Olsen was a director, officer or authorized representative of the applicant. As such, it is submitted, their knowledge cannot be imputed to the applicant because such communication was unauthorized and contrary to the Act.
[15] In my respectful view, this argument cannot succeed for the following important reason.
[16] This argument was not put before the decision-maker on either the initial or the second level request. The jurisprudence of the Court is well-established that on judicial review a decision cannot be impugned on the basis of an issue not raised before the decision-maker, unless the new issue is a jurisdictional issue (which, in the present case, it is not). See, for example, Toussaint v. Canada (Labor Relations Board), [1993] F.C.J. No. 616 (C.A.) at paragraph 5; Chen v. Canada (Minister of Citizenship and Immigration), [2000] F.C.J. No. 1954 (T.D.) at paragraphs 9 through 12; Nametco Holdings Ltd. v. Canada (Minister of National Revenue-M.N.R.), 2002 FCA 149 at paragraph 2; and Armstrong v. Canada (Attorney General), 2006 F.C. 505 (F.C.) at paragraph 26.
CONCLUSION
[17] To conclude, the impugned decision that the applicant's disclosure was not voluntary because enforcement was taken on the account prior to the disclosure was supported by evidence before the decision-maker and the reasons given for the decision withstand a somewhat probing examination.
[18] The applicant cannot raise for the first time on judicial review the new issue of an alleged absence of authority for CRA representatives to speak to Arthur Wenngatz or Diane Olsen. The Court cannot, in the circumstances now before it, decide an issue not raised before the decision-maker.
COSTS
[19] I see no reason why costs should not follow the event.
[20] The Minister seeks costs fixed in the amount of $2000.00. In my view, those costs are reasonable and in oral argument the applicant did not make any submission that the amount was unreasonable. The applicant shall, therefore, forthwith pay to the Minister costs fixed in the amount of $2000.00.
JUDGMENT
THIS COURT ORDERS AND ADJUDGES THAT:
1. The application for judicial review is dismissed.
2. The applicant shall forthwith pay to the respondent costs, fixed in the amount of $2000.00, inclusive of disbursements.
“Eleanor R. Dawson
Judge
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-2182-05
STYLE OF CAUSE: 334156 ALBERTA LTD.
Applicant
and
MINISTER OF NATIONAL REVENUE
Respondents
PLACE OF HEARING: CALGARY, ALBERTA
DATE OF HEARING: AUGUST 17, 2006
APPEARANCES:
MR. BRIAN KEARL FOR THE APPLICANT
MR. ROBERT DONALD
MS. CARLA LAMASH FOR THE RESPONDENT
SOLICITORS OF RECORD:
OLSEN LEMONS LLP FOR THE APPLICANT
CALGARY, ALBERTA
JOHN H. SIMS, Q.C. FOR THE RESPONDENT
DEPUTY ATTORNEY GENERAL OF CANADA