PRESENT: The Honourable Mr. Justice de Montigny
BETWEEN:
LINCOLN DOBSON, EXECUTOR OF THE ESTATE OF HIS FATHER WAYNE DOBSON
and
THE ATTORNEY GENERAL OF CANADA
REASONS FOR ORDER AND ORDER
[1] Lincoln Dobson is applying for judicial review of a decision by the Minister of National Revenue (the Minister), pursuant to s. 18.1 of the Federal Courts Act, R.S.C. 1985, c. F-7. The Minister denied Mr. Dobson’s application under s. 220 (3.1) of the Income Tax Act, R.S.C. 1985, c.1, part of that Act’s “fairness provisions”, to have interest charges on his father’s estate cancelled for the 1985-1990 and 1992 taxation years.
BACKGROUND
[2] Wayne Dobson was Lincoln Dobson’s father. For seven of the eight taxation years between 1985 and 1992, he paid no taxes. He made no voluntary payments to the Canadian Revenue Agency (CRA) after 1990. By 1993, his tax debt had reached $51,148.00. The debt appears to consist mostly of interest, although it has never been possible to determine the precise proportion.
[3] In 1995, Wayne Dobson had a heart attack. He spent the next several years in and out of hospitals, and was completely unable to work. In 1996, the Crown suspended collection of his tax debt in recognition of his ill health, although interest continued to accrue on his outstanding balance. The Crown wrote off the balance of $51,148.00 in February 1996 “due to inability to pay”.
[4] In 1997, Wayne Dobson was diagnosed with cancer. He died in October 1998, with a used car valued at $200 and some property to his name.
[5] Accrued interest on Wayne Dobson’s unpaid tax account for the period of 1993 to 2002 amounted to $56,294.14, so the estate’s debt as of January 2002 was $101,477.46. During that year, parts of Wayne Dobson’s property were sold. The Crown seized $77,544.73 from the sale, and applied the money to amounts it had previously written off.
[6] By letter dated July 5, 2002, Mr. Dobson asked the Minister to cancel interest charges for the 1985, 1986, 1987, 1988, 1989, 1990 and 1992 taxation years. His request cited several matters for the Minister’s consideration, including Wayne Dobson’s medical condition before his death, the circumstances that led to Wayne Dobson’s failure to file returns after 1996, and compassionate matters. In the final paragraphs of the request, Mr. Dobson’s agent wrote that he had “never encountered or heard of a situation which paralleled this one where children received absolutely nothing from their father’s estate.” He requested each of Wayne Dobson’s children “be paid a minimum of $10,000 from the proceeds recovered by [the Crown] or such higher figure as you may deem fit.”
[7] When the CRA receives a fairness request, it goes through a particular procedure (Affidavit of Brian Thompson, Respondent’s Record, 41). First, a collections officer reviews the request and makes a recommendation about whether to grant it or not. The officer’s recommendation is then forwarded to a first level Fairness Request Committee, comprised of at least three team leaders in the Revenue Collections Division. The committee reviews the officer’s recommendation and makes a decision. After receiving the CRA’s decision, the taxpayer may make a written second level fairness request if he or she disagrees with its first decision. When such a request is received, the file is assigned to the collections officer who was assigned the file at the first level. The officer reviews any new information submitted and comments on its relevance in the context of the CRA’s first decision. The file is then referred to the assistant director of the Revenue Collections Division, who conducts an impartial review and makes a recommendation to the director of the Tax Services Office about whether to grant the taxpayer’s second level Fairness Request. The director reviews the fairness request and the assistant director’s recommendation, and makes a decision that is communicated in writing to the taxpayer.
[8] Following this process, the CRA sent a letter to Mr. Dobson on July 22, 2004 informing him the Minister had rejected his first fairness request. The letter said Mr. Dobson had not shown the interest charges on the estate had caused financial hardship. He also failed to persuade the Minister that the absence of an inheritance was an extraordinary circumstance under the fairness provisions.
[9] By letter dated July 29, 2004, Mr. Dobson made a second fairness request to have $56,294.14 in interest charges cancelled. The assistant director of the Revenue Collections Division reviewed the request, and recommended denial. The director found no extraordinary circumstances had been demonstrated, and any financial hardship that would have existed was alleviated by writing off Wayne Dobson’s tax debt in 1995. Based on that recommendation, Ms. Sandra Brownlee, the Acting Director of Regina’s Tax Services Office, denied Mr. Dobson’s second fairness request.
[10] On application for judicial review, Justice Danièle Tremblay-Lamer quashed that decision. Indeed, the Crown had admitted the decision did not address all of the factors relevant to a fairness request. Accordingly, the second request was referred back to the Minister for reconsideration forthwith at the second level of review.
[11] In his capacity as Chief of Appeals of the Regina Tax Services Office, Brian Thompson instructed that office’s Appeals Division to conduct an independent review of Mr. Dobson’s second fairness request. The Appeals Division prepared a statement of facts summarizing its review of the request. Upon reconsideration at the second level of review, pursuant to Justice Tremblay-Lamer’s order in this Court, Brian Thompson denied the second request. By letter dated September 1, 2005, he advised Mr. Dobson of the Minister’s decision. On September 13, 2005, Mr. Dobson applied for judicial review of Mr. Thompson’s decision.
THE IMPUGNED DECISION
[12] Mr. Thompson’s decision lists all the factors Mr. Dobson asked the CRA to consider in his fairness request. He acknowledged there had been some delay by the CRA, but found the delay had not impacted Mr. Dobson’s ability to pay the interest owing. He focused on the situation of Wayne Dobson’s estate – not of Wayne Dobson when his tax debt was suspended, or of his children. Thus, while Wayne Dobson was ill before he died, it was the estate’s circumstances at the time of the fairness request that were relevant. There was money in the estate to pay the interest owing, and it was not unusual for the CRA to collect such debts by seizing money years later when assets were sold.
[13] Mr. Dobson had also argued that the interest charges absorbed a significant portion of the payments. Mr. Thompson rejected this argument because neither Mr. Dobson nor his father’s estate made any voluntary payments after October 1, 1990. According to Mr. Thompson, the CRA will only consider waiving all or part of a taxpayer’s interest when the taxpayer is unable to conclude a reasonable payment arrangement, because the interest charges are too high. Similarly, he found that just because CRA employees had informed Mr. Dobson of the fairness provisions, that could not be understood as encouragement to apply for a fairness request, let alone recognition that Mr. Dobson’s request had merit. Finally, Mr. Thompson dismissed the allegation that all or part of the CRA’s claim was statute-barred, as there were no limitations on collecting tax debts prior to March 4, 2004, when the Act was amended to impose a ten-year limitation.
[14] After reviewing all the points Mr. Dobson had raised in support of his request, Mr. Thompson stated:
Our latitude for considering fairness requests is characterized in three broad categories. We can grant fairness based on an inability to pay, certain extraordinary circumstances, or where a taxpayer was prevented from complying due to an error made by the Agency.
When I consider these three categories I cannot conclude that the payment of the interest charges caused financial hardship for the estate, and there were no extraordinary circumstances that prevented the estate from complying with the Income Tax Act.
In conclusion, I am of the view that the decision to deny the fairness request was correct and consistent with Agency policy.
ISSUES
[15] This application for judicial review raises three issues. First, the Court must determine the appropriate standard of review. Second, Mr. Dobson argues the impugned decision was not made independently, because it closely mirrors the previous decision that Justice Tremblay-Lamer quashed. Third, the Court must consider whether Mr. Thompson’s decision was reasonable, from a substantive point of view.
RELEVANT LEGISLATIVE PROVISIONS
[16] Section 220(3.1) of the Income Tax Act is part of what are commonly called the “fairness provisions”. These provisions were enacted to administer the tax system more fairly, to use the words of Justice Paul Rouleau in Kaiser v. Minister of National Revenue (1995), 95 DTC 5187 at page 5188, “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.” It reads like this:
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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 152(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.
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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. |
[17] Information Circular 92-2 provides taxpayers with information and guidelines about how the CRA will apply the fairness provisions. Its relevant provisions are sections 5, 6 and 7, which state:
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5. Penalties and interest may be waived or cancelled in whole or in part where they result in circumstances beyond a taxpayer's or employer's control. For example, one of the following extraordinary circumstances may have prevented a taxpayer, a taxpayer's agent, the executor of an estate, or an employer from making a payment when due, or otherwise complying with the Income Tax Act: (a) natural or human-made disasters such as, flood or fire; (b) civil disturbances or disruptions in services such as, a postal strike; (c) a serious illness or accident; or (d) serious emotional or mental distress such as, death in the immediate family. 6. Cancelling or waiving interest or penalties may also be appropriate if the interest or penalty arose primarily because of actions of the Department, such as: (a) processing delays which result in the taxpayer not being informed, within a reasonable time, that an amount was owing; (b) material available to the public contained errors which led taxpayers to file returns or make payments based on incorrect information; (c) a taxpayer or employer receives incorrect advice such as in the case where the Department wrongly advises a taxpayer that no instalment payments will be required for the current year; (d) errors in processing; or (e) delays in providing information such as the case where the taxpayer could not make the appropriate instalment or arrears payments because the necessary information was not available. 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.
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5. Il sera convenable d'annuler la totalité ou une partie des intérêts ou des pénalités, ou de renoncer à ceux-ci, si ces intérêts ou ces pénalités découlent de situations indépendantes de la volonté du contribuable ou de l'employeur. Voici des exemples de situations extraordinaires qui pourraient empêcher un contribuable, un agent d'un contribuable, l'exécuteur d'une succession ou un employeur de faire un paiement dans les délais exigés ou de se conformer à d'autres exigences de la Loi de l'impôt sur le revenu: a) une calamité naturelle ou une catastrophe provoquée par l'homme comme une inondation ou un incendie; b) des troubles civils ou l'interruption de services comme une grève des postes; c) une maladie grave ou un accident grave; d) des troubles émotifs sérieux ou une souffrance morale grave comme un décès dans la famille immédiate. 6. L'annulation des intérêts ou des pénalités ou la renonciation à ceux-ci peuvent également être justifiées si ces intérêts ou pénalités découlent principalement d'actions attribuables au Ministère comme dans les cas suivants: a) des retards de traitement, ce qui a eu pour effet que le contribuable n'a pas été informé, dans un délai raisonnable, de l'existence d'une somme en souffrance; b) des erreurs dans la documentation mise à la disposition du public, ce qui a amené des contribuables à soumettre des déclarations ou à faire des paiements en se fondant sur des renseignements erronés; c) une réponse erronée qu'un contribuable ou un employeur a reçue concernant une demande de renseignements comme dans le cas où le Ministère a informé par erreur un contribuable qu'aucun acompte provisionnel n'est nécessaire pour l'année en cours; d) des erreurs de traitement; e) des renseignements fournis en retard comme dans le cas où un contribuable n'a pu faire les paiements voulus d'acomptes provisionnels ou d'arriérés parce qu'il n'avait pas les renseignements nécessaires. 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. |
ANALYSIS
[18] There is no dispute between the parties on standard of review. In Lanno v. Canada (Customs and Revenue Agency), 2005 FCA 153, the Federal Court of Appeal adopted reasonableness as the standard to be applied in reviewing decisions made under the fairness provisions. Judges subsequently adopted reasonableness as the standard of review in the following cases after Lanno: Nail Centre and Esthetics Salon v. Canada (Customs and Revenue Agency), 2005 FCA 166; Dort Estate v. Canada (Minister of National Revenue), 2005 FC 1201; North Vancouver Airlines Ltd. v. Canada (Minister of National Revenue), 2006 FC 531; Litmar Ltd. v. Canada (Customs and Revenue Agency), 2006 FC 635.
[19] That being said, issues of bias and procedural fairness do not engage a standard of review analysis. These issues must always be reviewed on the standard of correctness. If the decision-maker has breached his duties through the manner in which he made his decision, it must be set aside (Canada (Attorney General) v. Sketchley, 2005 FCA 404).
[20] Before dealing with Mr. Dobson’s arguments, a few preliminary matters must be disposed of. First of all, I agree with the Crown that the Reconsidered Second Decision is the only decision subject to judicial review. The decision in question is the Minister’s decision, conveyed by Mr. Thompson in his letter dated September 1, 2005. Although Mr. Dobson takes issue with various aspects of the first decision and the initial second decision, neither of those decisions are the subject of judicial review in this case. The first decision was in respect of Mr. Dobson’s first fairness request. That decision was the subject of a further administrative review when Mr. Dobson made a second fairness request. The second decision was set aside by Justice Tremblay-Lamer in an order dated May 11, 2005.
[21] I also agree with the Crown that Mr. Dobson has incorrectly taken issue with the frame of reference the Minister applied in analyzing his request for interest relief. Throughout his exchanges of correspondence with Mr. Dobson, the Minister has maintained that the appropriate frame of reference in analyzing Mr. Dobson’s case is the circumstances of the estate as taxpayer, and not the circumstances of the beneficiaries of his father’s estate. Mr. Dobson, on the other hand, has consistently drawn from the circumstances of both Wayne Dobson and his descendents in support of his request.
[22] Mr. Dobson wants the CRA to refund interest to his father’s estate, which would ultimately result in a distribution of funds to the estate’s beneficiaries. But the appropriate frame of reference for the Minister is the circumstances of the estate. Wayne Dobson accrued a significant tax debt well prior to becoming seriously ill in 1995. He made no voluntary payments toward his tax debt after 1990. He made no application for interest relief during his lifetime. He held property that was sold for the benefit of creditors after his death. Although the sale of Wayne Dobson’s property may have had an impact on his children’s inheritance, it also makes clear that Wayne Dobson, through the administration of his estate, was able to retire a significant portion of his tax debt.
[23] That being said, I am nevertheless of the view that the impugned decision should be quashed. When Justice Tremblay-Lamer granted the application for judicial review of the Minister’s initial decision, she ordered that Mr. Dobson’s request be referred back to the Minister for “reconsideration” at the second level of review. She did not qualify this order in any way, and certainly did not send the request back to the Minister for the sole purpose of assessing the grounds left unaddressed in the first decision. Yet, it seems Mr. Thompson literally transposed the quashed decision by Ms. Brownlee into his own, cutting and pasting the various paragraphs under the appropriate headings.
[24] If the similarities between Mr. Thompson and Ms. Brownlee’s findings were limited to their respective affidavits, I would agree Mr. Dobson’s allegations are unfounded. However, this is not the situation. A careful reading of the two letters sent to Mr. Dobson reveals the only thing distinguishing Mr. Thompson’s decision from Ms. Brownlee’s are the headings inserted in the body of the letter, along with a few paragraphs addressing the factors that had not been looked at in the first decision. This was certainly not a fresh reconsideration.
[25] When a discretionary decision is quashed on judicial review and the file is referred back to the decision-maker for a fresh redetermination, one is entitled to expect that second decision will be reached with an open mind, based on an entirely new assessment of the case and its merits. That the second decision-maker may come to the same conclusion as the first is not, in and of itself, problematic, provided the second decision is consistent with the reasons given for quashing the first decision and is based on a truly independent new appraisal. In the present case, it is impossible to have that assurance considering the disturbing similarity between the two decisions, not just in their content but also in their wording.
[26] On this basis alone, I would therefore grant the application for judicial review and refer Mr. Dobson’s request for the cancellation of interest for the 1985, 1986, 1987, 1988, 1989, 1990 and 1992 taxation years back to the Minister of National Revenue for a genuine reconsideration.
ORDER
THIS COURT ORDERS that the application for judicial review is allowed. Mr. Dobson’s request for the cancellation of interest for the 1985, 1986, 1987, 1988, 1989, 1990 and 1992 taxation years is referred back to the Minister of National Revenue for a genuine reconsideration.
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-1559-05
STYLE OF CAUSE: Lincoln Dobson, Executor of the Estate of his
father Wayne Dobson
v.
The Attorney General of Canada
PLACE OF HEARING: REGINA, Saskatchewan
AND ORDER BY: JUSTICE DE MONTIGNY
APPEARANCES:
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Mr. Donald Alaistair Kenneth MacLean |
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Ms. Brooke Sittler |
SOLICITORS OF RECORD:
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Mr. Donald Alaistair Kenneth MacLean Regina, SK
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John H. Sims, Q.C. Deputy Attorney General of Canada
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FOR THE RESPONDENT |