Date: 20090706

Docket: T-655-08

Citation: 2009 FC 698

Ottawa, Ontario, July 6, 2009

PRESENT: The Honourable Max M. Teitelbaum 

 

BETWEEN:

SERGE CÔTÉ FAMILY TRUST

Applicant

and

 

ATTORNEY GENERAL OF CANADA

Respondent

 

REASONS FOR JUDGMENT AND JUDGMENT

 

INTRODUCTION

[1]               The applicant requested the cancellation of a penalty imposed by the Canada Revenue Agency for late filing of Form T2062. The Assistant Director of the Audit Division at the Eastern Quebec Tax Services Office refused the request. The applicant is now seeking judicial review of that decision.

 

THE FACTS

[2]               The applicant is a foreign trust established in Florida on May 23, 2000, by Serge Côté, its sole trustee. Through a transaction performed on January 31, 2005, it disposed of assets by rollover to 6287182 Canada Inc., a Canadian company incorporated by Mr. Côté in September 2004. That corporation is taxable within the meaning of the Income Tax Act. The transaction was related to a $625,000 debt as well as 710 class "A" shares of a third party.

 

[3]               On March 6, 2006, relative to that transaction, the applicant filed with the CRA Form T2057 entitled "Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation" along with the rollover contract that it had signed with the numbered company. However, it failed to file Form T2062 entitled "Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property". That was what caused the complications now before the Court.

 

[4]               Pursuant to subsection 116(3) of the Income Tax Act, every non-resident person who disposes of any taxable Canadian property must send to the Minister, within ten days following the disposition, a notice containing certain prescribed information, including Form T2062. In case of failure to produce the information prescribed by the Act, penalties are imposed under subsection 162(7) of the Act. Those provisions read as follows:

 

Income Tax Act, R.S.C. 1985, c.1 (5th Supp.)

 

 

 

 

[5]               In October 2006, a CRA auditor noticed that the applicant still had not filed Form T2062 regarding the transaction of January 31, 2005, and requested that the form be filed. The applicant followed up and submitted a duly completed Form T2062 to the CRA on November 2, 2006.

 

[6]               On August 30, 2007, that is, almost a year later, the applicant received from the CRA a Notice of Assessment requesting that it pay a $2,500.00 penalty and interest for failing to file Form T2062 within the prescribed time limit, in accordance with subsection 162(7) of the Act.

 

[7]               The applicant then submitted a request for cancellation of the penalty alleging confusion in regard to the obligation to file the form in question. In a letter addressed to the CRA, dated August 30, 2007, counsel for the applicant claimed that [Translation] "upon reading Interpretation Bulletin 72-17R4, we had understood that filing the form was not obligatory and that the only consequence of not filing it was that the purchaser became responsible for the tax resulting from the transaction. Since no tax resulted from the rollover transaction of January 31, 2005, that consequence did not apply to us at all, so we did not file Form T2062". He added that it was not until March 2005, that is, after the transaction in question, that the CRA revised its Interpretation Bulletin to say that penalties set out in subsection 162(7) of the Act will be imposed in case of failure to file Form T2062 on time.

 

[8]               The CRA first replied to the request for cancellation with a letter dated February 13, 2008, as follows:

 

[Translation]

Subsection 220(3.1) of the Income Tax Act gives the Minister the discretion to cancel all or part of the penalties and interest payable in a case where the taxpayer was prevented from complying with a requirement of the Income Tax Act as a result of extraordinary circumstances beyond the taxpayer's control (flood, fire, postal strike, serious illness or accident, serious mental distress such as death in the immediate family).

[9]               Unsatisfied with that response, the applicant sought to have its request reassessed. Pierre Boutin, Assistant Director of the Audit Division, proceeded to reassess the applicant's circumstances and allegations. In a letter dated March 27, 2008, he confirmed the refusal to cancel the penalty and repeated that the CRA was unable to note [Translation] "any extraordinary circumstances beyond your representative's control or any actions of the Canada Revenue Agency that would have prevented you from fulfilling that obligation or from complying with a requirement of the Act".  The reasonableness of that decision is at issue here.

 

ISSUES AND SUBMISSIONS OF THE PARTIES

[10]           In support of its application for judicial review, the applicant submits that [Translation] "for unknown reasons, the Minister of National Revenue based his decision on extraordinary circumstances, thus exercising his discretion erroneously and unreasonably" and that [Translation] "the Minister erred in finding that the applicant's request for relief was inadmissible". The applicant refers to Information Circular IC 07-1, which states that one of the times that relief from a penalty may be granted is when the CRA's actions caused the taxpayer not to file a form as part of an obligation to report and argues that the CRA should not have analyzed its request based on "extraordinary circumstances", but rather on "actions of the CRA" and the publication of administrative material containing errors. The applicant submits that it was in fact misled by the information in Information Circular 72-17R4. According to the applicant, the Circular led it to believe that it was acceptable to provide documentation equivalent to Form T2062, which it did on March 6, 2006, by submitting a copy of the assignment agreement dated January 31, 2005, along with Form T2057. It also claimed that the Circular in question suggested that the taxpayer was required to file Form T2062 only when the underlying transaction produced taxable income, which was not so in this case, because the transfer of the applicant's assets was done by rollover pursuant to subsection 85(1) of the Act. In these circumstances, the applicant submits that its request for cancellation of the penalty at issue was admissible and repeats that it should have been analyzed based on "actions of the CRA" and not "extraordinary circumstances".

 

[11]           In its argument, the applicant also submitted that, in order to decide whether a penalty should be imposed on it, the respondent should consider whether he had suffered any type of prejudice.

 

[12]           After hearing the submissions of the parties to the litigation, I am satisfied that the respondent suffered no prejudice and that Form T2062 was filed. It is clear that the applicant owed no taxes after filing the form.

 

[13]           The respondent submits that the document entitled [Translation] "Analysis of the Application" reproduced at pages 45-47 of its file showed that the Minister's delegate had considered all the facts relevant to the request, including the clarity of the requirements in subsections 116(3) and 162(7) of the Act as well as the fact that Information Circular 72-17R4 explicitly stated that non-resident vendors are required to notify the Minister within ten days after they dispose of taxable Canadian property. According to the respondent, it follows that the Assistant Director's decision is reasonable with respect to administrative law and should not be set aside.

 

CONSIDERATIONS

[14]           In regard to situations like this one, we must recall that it is not the role of a reviewing court to reweigh the evidence. In this case, it is clear from reading the report prepared by the CRA after the applicant's second request for relief (pages 39–42 of the respondent's file) that all of the arguments presented before the Court today, except for the fact that the respondent suffered no prejudice, were duly analyzed and considered by the CRA at the time of the second request for relief. Therefore, the applicant's claim that its application was not analyzed based on the "actions of the CRA" is without merit.  In fact, the author of the report recommended that the penalty be upheld precisely because the applicant's explanations that it was led astray by Circular 72-17R4 were found unsatisfactory.

 

[15]           Having reviewed Circular 72-17R4, I agree with the author of the report that nothing in that document could reasonably lead a taxpayer in the applicant's situation to conclude that it was not necessary to comply with the requirement set out in subsection 116(3) of the Act. The fact that the consequence of failure to comply with that provision is not explicitly stated in the Circular does not justify the applicant's actions, since the Income Tax Act itself was very clear on that point. The applicant's position is to equate the fact that the consequence of non-compliance with an explicit provision of the Act was not explicitly stated in an information circular with a misdirection. I cannot agree with that position.

 

[16]           For these reasons, I dismiss this application for judicial review.

 

JUDGMENT

 

THE COURT ORDERS AND ADJUDGES that the application for judicial review be dismissed without costs.

 

 

 

 

“Max M. Teitelbaum”

 

 

Certified true translation

Margarita Gorbounova, Translator

 

FEDERAL COURT

 

SOLICITORS OF RECORD

 

 

 

DOCKET:                                          T-655-08

 

STYLE OF CAUSE:                          SERGE CÔTÉ FAMILY TRUST v.

                                                            ATTORNEY GENERAL OF CANADA

 

PLACE OF HEARING:                    Montréal, Quebec

 

DATE OF HEARING:                      June 17, 2009

 

REASONS FOR JUDGMENT

AND JUDGMENT:                          TEITELBAUM D.J.

 

DATED:                                             July 6, 2009

 

 

 

APPEARANCES:

 

Serge Racine	FOR THE APPLICANT
Andrew Miller	FOR THE RESPONDENT

 

SOLICITORS OF RECORD:

 

Séguin Racine, avocats Laval, Quebec	FOR THE APPLICANT
John H. Sims, Q.C. Deputy Attorney General of Canada	FOR THE RESPONDENT