Ottawa, Ontario, January 24, 2007
PRESENT: The Honourable Madam Justice Simpson
BETWEEN:
and
THE ATTORNEY GENERAL OF CANADA
REASONS FOR JUDGMENT AND JUDGMENT
[1] Mr. David Underwood is a self-represented applicant (the Applicant). He seeks judicial review of a Fairness Decision dated December 17, 2004 made by the Minister of National Revenue (the Minister) under section 281.1 of the Excise Tax Act, R.S. 1985, c. E-15 (the Excise Act).
BACKGROUND
[2] By letter dated May 12, 2004, the Applicant asked for a reconsideration of his Goods and Services Tax (GST) Returns under the Canada Revenue Agency’s (CRA’s) fairness regime. In response, CRA prepared a Fairness Report dated August 3, 2004 (the First Fairness Report) followed by a decision letter dated August 6, 2004 (the First Decision). In the First Decision, the Applicant was advised (i) that his 1998 and 1999 GST returns could not be reassessed because they had become statute barred and (ii) that he would be given some relief from interest and penalties because the Notices of Reassessment for GST (the GST Reassessments) had been improperly addressed and possibly not received. The relief from interest and penalties covered the period from the date of the GST Reassessments (March 18, 2002) until the Applicant was advised of his GST debt by a collections officer on August 6, 2002.
[3] Thereafter, on September 4, 2004, the Applicant requested an administrative review of the First Decision. This was followed by the preparation of another Fairness Report dated December 10, 2004 (the Second Fairness Report) and a decision letter of December 17, 2004 (the Second Decision).
[4] In the Second Decision, the Applicant’s requests for a reassessment of his GST returns for 1998 and 1999, and for further relief from interest and penalties were denied. That decision is the subject of this application.
[5] The Second Decision was made on the recommendation of Maria Paskaris, a Fairness Officer (the Fairness Officer) with the Fairness Review Unit of the Toronto East Tax Services office of the CRA. She prepared the Second Fairness Report and swore an affidavit on June 27, 2005, which describes her review of the Applicant’s file and the conclusions she reached (the Fairness Officer’s Affidavit). Her conclusion was presented to the Minister as a recommendation. It was accepted and formed the basis for the Second Decision.
PRELIMINARY MATTERS
[6] At the opening of the hearing, I dealt with the following matters which I felt required explanation because the Applicant was self-represented:
a. The Applicant was advised that an affidavit which he swore on June 24, 2005 and which contained information which was not before the Minister could not be filed.
b. The Applicant was advised that the Court did not have jurisdiction to deal with the claim for damages he filed on July 24, 2006.
c. The Applicant was advised that the Court could not order the Minister to reconsider the GST Reassessments because his GST returns had become statute barred under the Excise Act. He was further advised that if an order were to be made by the Court, it could only be one that would require the Minister to reconsider the waiver of additional interest and penalties on his GST debt.
[7] I also asked the Applicant the following questions by way of clarification. I asked if he ever received the two auditor’s letters for Income Tax and GST dated March 18, 2002. He replied in the negative saying that although, in his letter to CRA of September 4, 2002, he had acknowledged that they had been sent, he had not received them. I also asked whether he had ever received his Income Tax and GST Notices of Reassessment dated April 4, 2002 and March 18, 2002 respectively. He said that he had not. I then asked how it could be that the Notices of Objection he signed for Income Tax (IT) purposes could show the proper date for the IT notice of reassessment whilst indicating that it had not been received. He was unable to answer saying that his tax advisor, Mr. Charny, had prepared the Notices of Objection.
THE RELEVANT STATUTORY PROVISIONS
[8] Two deadlines are relevant with regard to Notices of Objection to reassessments of GST returns. First, under subsection 301(1.1) of the Excise Act, they must be filed within 90 days of a Notice of Assessment. Second, under subsection 303(7), a discretionary extension to file a Notice of Objection may be granted up to one year after the expiry of the 90 day period. In this case, the GST Reassessments were dated March 18, 2002 and the 90 day period for filing Notices of Objection ended on June 16, 2002. Thereafter, the Applicant had until June 16, 2003 to seek an extension.
[9] There is also a four year deadline with respect to the GST Returns. In this case, the Applicant’s 1998 and 1999 GST returns became statue barred on June 15, 2003 and June 15, 2004 respectively, pursuant to paragraph 298(1)(a) of the Excise Act. Once this occurred, the Minister had no jurisdiction to review the Applicant’s GST Reassessments. His jurisdiction was limited to waiving penalties and interest under section 281.1 of the Excise Act.
STANDARD OF REVIEW
[10] The Respondent submitted that “reasonableness” is the appropriate standard of review in a case such as this which involves a Minister’s discretionary decision in the context of CRA’s “fairness package”.
[11] I agree and in reaching this conclusion, I have relied on the pragmatic and functional analysis undertaken by the Federal Court of Appeal in Lanno v. Canada (Customs and Revenue Agency), 2005 D.T.C. 5245 (FCA). That case involved the application of the fairness package under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). There the Court said in paragraphs 6 and 7:
[6] The reasons in Hillier do not include the “pragmatic and functional analysis” described in Pushpanathan v. Canada (Minister of Employment and Immigration), [1998] 1 S.C.R. 982. That analysis, in the context of discretionary decisions under the “fairness package”, would require consideration of the following factors:
(1) The fairness package was enacted because Parliament recognized the need for relief from certain provisions of the Income Tax Act that can result in undue hardship because of the complexity of the tax laws and the procedural issues entailed in challenging tax assessments. The granting of relief is discretionary, and cannot be claimed as of right. This factor would point to a standard of review that is more deferential than correctness.
(2) The decision under review cannot be appealed, but it is subject to judicial review by the Federal Court, and it is not protected by a privative clause. That would point to a reasonableness standard.
(3) The decision under review combines fact finding with a consideration, and sometimes questions of law. The expertise of the decision maker is undoubtedly higher than that of the courts in relation to matters of the policy of tax administration. However, the expertise of the decision maker is not higher than that of the courts in relation to questions of law or findings of fact. That would point to a reasonableness standard.
[7] In my view, there is no relevant factor that points to a standard of review that is more deferential than reasonableness. Therefore, I must respectfully disagree with the decisions of the Federal Court in Sharma and Cheng and conclude that the standard of review in this case, as in Hillier, is reasonableness. ...
[12] In its decision in Nail Centre and Esthetics Salon v. Canada (Customs and Revenue Agency), 2005 F.C.J. No. 798, 2005 FCA 166 at paragraph 5, the Federal Court of Appeal held that the pragmatic and functional analysis in Lanno also applied to fairness decisions under the Excise Act.
THE FACTS
[13] The Applicant had tax problems of two kinds in 1998 and 1999. The first concerned his IT returns and the second involved his GST returns.
The Auditor’s Letters
[14] The Applicant met with a CRA auditor to discuss both the IT and GST problems. Thereafter, on March 18, 2002, the audits were finalized and two separate letters (one for IT and one for GST) were mailed to the Applicant. Both letters were addressed to 32 Bornholm Drive in Scarborough, Ontario (the Bornholm Address). However, the Applicant had moved eight months earlier and, as of July 2001, resided at 97 Greybeaver Trail in Scarborough, Ontario (the Greybeaver Address). The letters were improperly addressed even though five months earlier the Applicant had sent GST information to CRA’s auditor in a letter dated October 17, 2001 which showed the Greybeaver Address as the return address.
The Notices of Reassessment
[15] From this point, the procedural history of the Applicant’s IT and GST returns differs.
Re: GST
[16] On March 18, 2002, the Applicant was sent the GST Reassessments. However, in error, they were sent to an old address which predated even the Bornholm Address. The GST Log of Action Diary shows that mail was returned on April 16, 2002 and, as noted earlier, the CRA acknowledged in the First Decision the GST Reassessments had not been received and that its auditor should have updated the Applicant’s address for GST purposes in October 2001.
[17] In this regard, the First Decision said:
We also note that the registrant sent some information to the auditor regarding his 1998 and 1999 GST returns. This information was received on October 17, 2001 and the return address shown on the envelope was 97 Greybeaver Trail (Exhibit T).
...
... The auditor should have ensured that the Notice of Reassessment went to the same address as his correspondence and updated our records accordingly.
Re: IT
[18] The IT Notices of Reassessment were dated April 8, 2002 and were sent to the Bornholm Address. The Applicant says he did not receive the IT Notices of Reassessment but he must have been aware of their existence. I say this because a former CRA officer named Phil Charny, who served as the Applicant’s tax advisor, prepared two IT Objections dated June 18, 2002, which the Applicant signed, and they referred to the IT Reassessments by their correct date (April 8, 2002). However, the Objections stated on their face that the IT Notices of Reassessment were not available because they had been sent to the Applicant’s old address. The Applicant’s IT Appeals proceeded and were handled by Ms. Louie at CRA (the Appeals Officer). They were settled in April 2003.
On Going GST Issues
[19] It appears clear that the Applicant did not learn that he had an outstanding liability in connection with his GST returns for 1998 and 1999 until August 6, 2002. The auditor’s letter of March 18, 2002 went to the Bornholm Address which the Applicant had vacated in July of 2001. The GST Reassessments of the same date were sent to an even earlier address and the First Decision acknowledges that they were not received. A letter of June 5, 2002 setting out his GST debt was also sent to the outdated Bornholm Address and the Applicant says it was not received.
[20] The CRA’s GST Collections Diary (the GST Diary) shows that on August 6, 2002, the Applicant called Officer Francisco (the Collections Officer) at CRA in reply to a telephone message the Collections Officer had earlier left at his home. The GST Diary indicates that the Applicant advised the Collections Officer that he had or would have objected to GST assessments through “his taxman, Phil Charny” and asked the Collections Officer to call him. The Applicant gave the Collections Officer Mr. Charny’s telephone number and the Collections Officer did call. In response, on August 8, 2002, Mr. Charny sent the Collections Officer Notices of Objection. It is now clear that they must have been the IT Objections because GST Objections were never prepared.
[21] However, it appears that the Collections Officer believed that the IT Objections were for GST because his GST Diary entry for October 8, 2002 says “account on appeal” and shows that he did not even ask to see the file again for five months until March 2003. In my view, the Collections Officer clearly thought that he had received GST Objections and that an appeal was underway.
[22] The diary kept by the Appeals Officer (the IT Diary) is also relevant. It shows that the Applicant settled his IT issues in late April 2003. It also shows that sometime between April 22nd when the Appeals Officer closed her file and June 9th when she made her next entry, the GST Collections Officer sent the Applicant a statement of GST arrears (the “Arrears Notice”).
[23] It is noteworthy that, according to the GST Diary, at the time the Applicant received the Arrears Notice, he had not had any contact with the Collections Officer since August 6, 2002, a period of ten months.
[24] When the Applicant received the Arrears Notice, he called the Appeals Officer. Her IT Diary entries read as follows:
|
2003 June 9
|
|
Tp called and advised that he rec’d some GST billing. Wants to know why. Told him I’m not involved with the GST. Asked if her rec’d any GST reassessment notice. He said that he can’t remember. Advised him that perhaps she should talk to Phil Charney, the accountant. [my emphasis]
|
|
Jun 12 |
|
Phil Charney called. He wants to know status of file. Checked Rapid. Reassessments have not been updated yet. The file was closed around end of April. Advised him that it’s a little too soon to follow-up.
|
|
June 18 |
11:30 |
Cameron McCabe, Collections called. Explained to him the adjustments that I made. I did nothing with the GST. There was nothing mentioned about the GST. Tp must file GST objection.
|
|
Sept. 16 |
11:15 |
Cameron from Collections called. Told him that I don’t handle GST objections. While we’re discussing the IT objection, there was no mention of any GST reassessment or objection. I wasn’t aware of any GST objections filed at all. Tp called beg of June and I advised that I did not deal with the GST and that there was GST objection filed. |
[my emphasis]
[25] These entries appear to show that by the time the Applicant’s 1998 GST return became statute barred on June 15, 2003, two CRA’s Collections Officers (Francisco and McCabe) had still not determined whether a GST Objection had been filed. This fact is corroborated by the GST Diary entry of June 13, 2003 which says “... not clear if a notice of objection was filed for GST”. Further it appears from the last entry in the IT Diary that the Appeals Officer had misinformed the Applicant at the beginning of June when she said “there was GST Objection filed”.
[26] The GST Diary notes that the GST Collections Officer met with the Applicant on July 18, 2003 and again on August 5, 2003. The GST Diary shows that in the second meeting, the Collections Officer appeared to have listened to the Applicant talking about his availability for a further meeting “... once appeal’s process has been dealt with”. This could only refer to a GST appeal based on a GST Objection because, as noted above, the Applicant settled his IT appeal in April 2003.
[27] It was not until September 18, 2003 when his entry in the GST Diary read “no appeal or objection for GST account on file”, that the Collections Officer finally determined that there was no GST appeal.
[28] As I interpret it, the GST Diary entry of September 18, 2003 also shows that the Collections Officer realized that the Applicant’s 1998 GST Return had become statute barred (on June 15, 2003) and, in dismay, took it upon himself to call a colleague in “Audit/Fairness” to see if a fresh audit could be had for the years in question.
[29] On June 16, 2004, the Applicant’s 1999 GST Return became statute barred and by the date of the First Decision he was no longer entitled to a review of either of his GST Returns.
THE ISSUES
[30] The Applicant’s Memorandum of Fact and Law did not list issues so I have formulated them based on his oral submissions and my review of the file.
Issue 1 – Were the IT and GST Diaries Adequately Considered?
[31] The Second Decision and the Second Fairness Report do not assess the meaning and impact of the entries in the two diaries. The Fairness Officer’s affidavit of June 27, 2005 which describes the materials she reviewed to prepare the Second Fairness Report states that she reviewed the GST Diary but I have concluded that her review could not have been comprehensive. It appears that she only considered the entries relating to the June 5, 2002 letter and the August 6, 2002 phone call.
[32] In my view, a complete reading of the GST Diary makes it plain that the Collections Officer concluded in August 2002 that the Applicant had outstanding GST Objections and appeals. Further, by his failure to contact the Applicant for ten months, he led the Applicant to the same conclusions.
[33] In May/June 2003, when the Applicant received the Arrears Notice and realized that his IT settlement had not resolved his GST issues, he still thought he had an outstanding GST appeal and an opportunity to settle the GST reassessments. The Appeals Officer’s Diary entry of September 16, 2003 shows that she told the Applicant at the beginning of June 2003 that there was a GST Objection and in the meeting on August 5, 2003, when the Applicant said the appeals process was ongoing, the Collections Officer did not disabuse him of his understanding that a GST appeal was underway.
[34] The Collections Officers’ failure to appreciate, until September 2003, that they did not have GST Objections on file and that no GST appeal was underway was highly prejudicial to the Applicant. By then, he had lost his right to appeal (it expired on June 16, 2002), his right to seek an extension to appeal (it expired on June 16, 2003) and his 1998 GST Return had become statute barred (on June 15, 2003).
Issue 2 – Did the Minister err when he relied on June 2002 as the Applicant’s moving date?
[35] The Applicant says that the Second Decision is predicated on an incorrect finding about the date of his move from the Bornholm to the Greybeaver Address. The problem arose because, in his letter to the CRA of September 4, 2004 which asked for the Administrative Review of the First Decision, the Applicant incorrectly said he had moved in June 2002 when the correct date was July 2001. The Fairness Officer relied on the date in the letter but the error on the Minister’s part would have been avoided if the Fairness Officer had read the First Fairness Report. It makes it clear that the CRA had already concluded that the Applicant moved in July 2001.
[36] The material nature of this factual error can be seen when the gravamen of the Second Decision is examined. It reads as follows:
Our position is that although you may have not received the physical reassessment notices, you were, in fact, aware of the amounts assessed against your GST account. Besides the auditor’s March 18, 2002 letter informing you that the1998-1999 reassessment would be issued under separate cover, our Revenue Collections Division sent you a letter on June 5, 2002, and spoke with you about the outstanding balance on your GST account on August 6, 2002. Regardless of whether or not you received the official computer-generated Notice of (Re) assessment, you were made aware of the claim against you within the 90-day objection period and again within the one-year period during which you could have applied for an extension to file an objection. Although you had exercised your appeal rights for your personal income tax account, for whatever reason, you did not do so for your business GST account.
[37] The Minister appears to have relied on the fact that the Applicant received the Collections Officer’s letter of June 5, 2002 in time to file GST Objections, as of right, before the June 16, 2002 deadline. However, the Second Decision does not mention that the letter was sent to the Bornholm Address which the Applicant had left eleven months earlier and that the First Decision had concluded that the CRA’s GST auditor had known of the Applicant’s Greybeaver Address since October of 2001 and should have updated CRA’s records. Had he done so, the letter would have been properly addressed. In my view, it is clear that the Minister erred when he refused to further reduce interest and penalties in the Second Decision based, in part, on his understanding that the Applicant had received notice of his GST debt in time to file Objections as of right (i.e. before June 16, 2002).
[38] The Minister also relied on the Applicant’s receipt of the auditor’s letter of March 18, 2002 which advised him that a notice of GST assessment would be coming and that an appeal could be made by filing a Notice of Objection. However, the Second Decision fails to note that this letter was also improperly addressed long after the auditor should have updated CRA’s file.
[39] In my view, it was unreasonable for the Minister not to consider the fact that both letters on which he relied were sent to an outdated address and that the Applicant had disclosed his new address to the GST auditor who, according to the First Fairness Report, should have updated CRA’s records.
Issue 3 – Did the Minister misinterpret the GST Diary entry about the August 6, 2002 telephone call?
[40] The Minister also relied on the Applicant’s conversation with the Collections Officer on August 6, 2002. The Applicant says he has no recollection of the conversation but I have concluded that it did occur. The GST Diary indicates that the Applicant referred the Collections Officer to Mr. Charny and gave the Collections Officer Mr. Charny’s telephone number. It is not reasonable to assume that the Collections Officer fabricated Mr. Charny’s name and phone number. The information must have come from the Applicant.
[41] The Second Fairness Report describes the August 6th call as follows:
On August 6, 2002, the collector spoke with him about the account. The registrant advised the collector that he had objected to the audit assessment on GST through his representative Phil Charny.
[my emphasis]
[42] However, the GST Diary entry for August 6, 2002 actually reads as follows:
Aug 6 Reg called back. He said he have objected to the audit asst on GST thru his taxman Phil Charny 416 427 9991.
[my emphasis]
[43] The language “he said he have” was interpreted by the CRA to mean “he said he had objected”. From this interpretation, the Minister concluded that the Applicant knew about his GST Reassessment in 2001 in time to file an objection.
[44] However, another interpretation is possible and it was not considered. Perhaps, the Applicant said “that he would have objected...” This interpretation does not lead to the conclusion that the Applicant knew about the GST Reassessments at an earlier date. All he would have been saying was “if there was a GST Reassessment, Charny would have objected”.
[45] In the August 6, 2002 call, the Collections Officer clearly advised the Applicant that GST Reassessments had been issued but, as discussed above, when the Collections Officer failed to call the Applicant back to say that Mr. Charny had not produced a GST Objection and also failed to send him statements or make any collection efforts until May/June 2003, the Applicant would reasonably have assumed that the Collections Officer’s had received the GST Objections and that appeals were in progress.
[46] Regarding this issue, I have concluded that it was unreasonable for the Minister to fail to consider the ambiguity in language actually used in the August 6, 2002 entry in the GST Diary.
CONCLUSIONS
[47] According to the First Decision, the guidelines in GST Memorandum 500-3-2-1 provide, inter alia, that cancellation or waving interest or penalties may be appropriate if the interest or penalty arose primarily because of actions of the CRA. These actions are described as:
(a) processing delays by the Agency;
(b) errors in publications;
(c) incorrect information provided to a specific person;
(d) errors in processing; or
(e) delay in providing information necessary for the person to comply with the Act.
[48] In my view, there is reason to believe that misinformation provided to the Applicant by the Appeals and Collections Officers could justify relief under subsections (c) and (e), and the fact that the CRA’s auditor didn’t update the Applicant’s address could justify relief under subsections (a) or (d).
[49] Finally, it is worth recalling the language the Applicant used when he first asked for a fairness review. He said:
I was unaware of the claim against me. I did not have a right of appeal. I did not receive any notification from your GST department or any other.
[50] My review of the file indicates that these allegations may all have merit. By the time his right of appeal expired on June 16, 2002, he had received none of the important documents, the audit letter, the GST reassessments and the letter of June 5, 2002 because the CRA auditor had failed to update his address. Further, he may have lost his right to seek an extension of the time for appeal on June 16, 2003 at a time when he thought an appeal was pending.
[51] This is not to say that the Applicant’s conduct was perfect. He didn’t update his GST address as quickly as he ought to have done but, since the CRA decided its auditor should have done the update when the Applicant told him of the new address, it is hard to see how the Applicant can be severely faulted.
[52] As well, he incorrectly dated his move in his September 4, 2004 letter to the CRA. However, the Fairness Officer didn’t correct what would have been an obvious mistake if she had read the First Fairness Report. I am therefore not sure the Applicant should be severely faulted for his error in these circumstances.
[53] For all these reasons, I have concluded that a fresh fairness review is required.
JUDGMENT
- This application for judicial review is allowed.
- The Second Decision is hereby set aside.
- The Applicant’s request for an Administrative Review of the First Decision is to be reconsidered on the basis of a new fairness report which should address the issues raised in the above Reasons.
- The new fairness report and the decision are to be the responsibility of CRA personnel who have not previously worked on either of the Applicant’s fairness requests.
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-659-05
STYLE OF CAUSE: DAVID C. UNDERWOOD v. ATTORNEY GENERAL OF CANADA
-and-
ATTORNEY GENERAL OF CANADA
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: Tuesday, November 14, 2006
REASONS FOR JUDGMENT BY: Simpson, J.
APPEARANCES:
David Underwood FOR APPLICANT
SOLICITORS OF RECORD:
97 Greybeaver Trial
Scarborough, Ontario M1C 4V4 FOR APPLICANT
John H. Sims, Q.C.
Deputy Attorney General of Canada FOR RESPONDENT