BETWEEN:
CHARLOTTETOWNBOTTLE AND METALS LIMITED
and
REASONS FOR ORDER
[1] The Applicant applied for the cancellation of arrears, interest and penalty under the Excise Tax Act ("Act"). He was denied this relief by the Respondent Minister and now seeks judicial review of that denial.
BACKGROUND
[2] The Applicant company is engaged in the scrap metals and bottles business in Charlottetown. It is owned and controlled by Mr. William Kinney.
[3] As the result of an audit, it was disclosed that the Applicant had failed to remit certain GST payments and had used those moneys for its own purposes. The company was assessed for the unremitted tax plus penalty and interest.
[4] On November 13, 2001 the parties entered into an agreement for the payment of this debt under which the Applicant would pay a lump sum plus $2,000 per month until the debt was paid off. The agreement provided that penalty and interest would continue to accrue at the prescribed rates on the unpaid balance.
[5] In a telephone conversation of January 10, 2002, the Applicant made a "fairness request" - a request for relief from making interest and penalty payments - due to the financial hardship experienced by the company. The Respondent has the discretion under s. 281.1 (1) and (2) of the Act to waive or cancel these payments. This request was denied.
[6] In October 2002, Mr. Kinney suffered a heart attack. As a result, the monthly payments fell into arrears.
[7] In March 2003, the Applicant had successfully negotiated a reduction in the monthly payment down to $1,000. There was no change to the provision regarding interest and penalties accruing.
[8] Finally, on January 28, 2004, the Applicant made a second "fairness request" again based on financial hardship due to the decline in the value of the business assets and inability to secure financing.
[9] It also took the unusual step of advising the Respondent that it would not be making its previously due monthly payments until the fairness request had been determined. It apparently did this on the basis that it was still being assessed interest and penalty, despite the clear wording in the November 21, 2001 agreement and the absence of change to that provision when the Respondent accepted the reduced monthly payment.
[10] The Respondent denied this second fairness request on September 13, 2004. The core of the Respondent's decision is contained in the following paragraph of the letter decision:
"We have carefully considered the circumstances and facts of your case as they relate to Fairness Legislation, however we do not consider that extraordinary circumstances or financial hardship existed that prevented you from filing your quarterly GST returns by the due date, remitting GST to the CRA by their due date or prevents you from paying the outstanding GST liability."
[11] In terms of specifics, the Respondent found that the scrap metal inventory valued at $60,000 could be sold to reduce the tax liability. It also considered that if the $22,000 shareholder loan to Mr. Kinney was repaid to the company, the funds could be applied to reduce the GST liability. Finally, the Respondent considered the history of late GST return filings and the history of payments including the unilateral withholding of agreed-upon payments. These factors were considered to show failure to exercise reasonable care and diligence toward the Applicant's payment responsibilities.
ANALYSIS
[12] The Applicant raises three issues in this judicial review:
· that the Respondent failed to observe a principle of natural justice or procedural fairness by failing to accord the Applicant a right to proper notice, to attend at and to be informed of the evidence used in the Minister's decision;
· that the Minister erred in law by limiting the fairness determination to "extraordinary circumstances" and by relying on irrelevant facts as to the Applicant's filing and payment history; and
· the Minister erred in fact in a perverse and capricious manner in its determination of financial hardship, particularly as it relates to the value and liquidity of inventory.
Standard of Review
[13] The standard of review in respect of a Minister's decision to grant such relief under the Income Tax Act has been held by the Court of Appeal in Lanno v. Canada Customs and Revenue Agency 2005 FCA 153, to be "reasonableness simpliciter". The relevant provisions of the Excise Tax Act and the purpose of that relief, being essentially the same as that of the Income Tax Act, I conclude that the standard of review is likewise the same.
Procedural Fairness
[14] The thrust of the Applicant's submission is that the fairness decision process is akin to a quasi-judicial process with the full trappings of notice, oral hearing, and evidentiary procedures as if there was a dispute being determined. However, the true nature of the process is a request to exercise discretion for forgiveness from otherwise mandatory provisions of the legislation for which the Applicant is liable.
[15] In Suresh v. Canada(Minister of Citizenship and Immigration), [2002] 1 S.C.R. 3, the Supreme Court outlined five factors to consider in determining the nature of procedural fairness. Applying those factors to these circumstances leads to the conclusion of minimal procedural rights because:
· in this instance, the nature of the decision and the process to be followed is not close to a judicial process, as the Court of Appeal has held in Barron v. Canada (Minister of National Revenue) [1997] F.C.J. No. 175.
· the role of the decision within the statutory structure, an exception to the general rule governing interest and penalty, suggests a lesser degree of procedural fairness.
· while the decision affects the Applicant, it is not of the same legal significance as the impact on an established right.
· there is no basis for a claim of legitimate expectation to a full hearing process.
· the decision maker has the right to choose the process to be followed and has established a relatively informal process.
[16] All these factors and this Court's decision in Case v. Canada(Attorney General), [2004] F.C.J. 1026 (F.C.T.D.) confirm that, save for the right to make representations, the procedural fairness rights are minimal. The Applicant has not established that it was unable to make full representations as to why the Minister should exercise its discretion in the Applicant's favour.
Errors of Law
[17] The Applicant argues that the Minister mistakenly limited the exercise of its discretion to "extraordinary circumstances", and failed to adequately consider other factors.
[18] S. 281.1 of the Act gives the Minister broad discretion to grant relief.
| 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. |
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. |
[19] By administrative policy set out in Guidelines, the Minister had indicated the type of matters which may lead to a favourable decision. These include extraordinary circumstances, financial hardship, and actions by CRA. While the policy may be too restrictive if it is applied slavishly such that other circumstances are precluded from consideration for relief, that is not the case before this Court.
[20] The Applicant made its case on the basis of financial hardship - inability to pay. It did not advance some other ground which the Minister refused to consider. The Applicant can hardly complain if the Minister considers the very grounds advanced. There is no basis for concluding that the Minister restricted the exercise of discretion to "extraordinary circumstances".
[21] The Applicant says that the second error of law is that the Minister took into consideration an irrelevant matter - the filing and payment history of the Applicant.
[22] In my view, how a taxpayer arrived at the circumstances relied on to plead hardship (or some other ground), whether the granting of dispensation from these payments which would otherwise be owed by other taxpayers in like circumstances, is fair in the broad context, whether a taxpayer can be expected to honour any waiver or some other "concession" accorded, are relevant matters to consider; as may be a host of other factors depending on the circumstances. To restrict the Minister to considering the fact of hardship without regard to its reasons would be to limit the Minister's discretion in the very way that the Applicant complained of earlier.
Error of Fact
[23] The Applicant says that the Minister erred in its consideration of the financial hardship, most particularly in respect to the ability to sell off inventory and call in the shareholder's loan.
[24] The Applicant says that the Minister erred in relying on the value of $60,000 of scrap metal inventory. I fail to see what is unreasonable about the Minister relying on the Applicant's own financial statements. The Applicant produced no evidence that the inventory should be written off and indeed took no steps to do so.
[25] It is evident that the Minister concluded that there was some value in the inventory. The value may not have been as high as recorded on the company's books but there was no other evidence of its proper value. As matters turned out, the Minister was correct (although that is not the standard by which to measure the decision). In Mr. Kinney's own affidavit (paragraph 27) in this matter, he admits that recently scrap metal prices have "made the business model profitable". It was not unreasonable for the Minister to take a longer term view of the value of the inventory in anticipation that metal prices might rebound or that some new purchaser might come forward.
[26] The Applicant further says that the Minister's conclusion that the shareholder loan might be repaid was unreasonable because the shareholder (Mr. Kinney) could not repay the loan.
[27] That loan was initially made to aid Mr. Kinney in the purchase of the business. It was later increased at a time when the Applicant was not remitting its GST. The Applicant made a choice not to pay the Minister but to pay moneys to the shareholder.
[28] There was evidence that the shareholder had equity from other sources including his home which could be used to retire the loan. The evidence of the credit union's refusal to lend on the basis of that equity was devoid of specifics as to the terms proposed and the reason for refusal. Indeed the Applicant refused to tell the Minister's officials about the credit union's position - advising them that it was none of their business. Without better evidence, it was not unreasonable for the Minister to conclude that the loan might be repaid in whole or in part at some later date.
[29] The Applicant cannot reasonably contend, on the evidence in this case, that the Minister did not consider Mr. Kinney's health problems. That consideration extended when he suffered his heart attack to the reduction in the monthly payments. The Minister reasonably concluded that those health issues did not justify interest and penalty forgiveness.
[30] In the end the Minister had to deal with a discretionary remedy. He concluded that there was insufficient evidence of financial hardship. Within 5-6 weeks of the Minister's decision, the Applicant made payments of $18,500 and $22,707 against the GST debt. More importantly, at the time the decision was made, the Minister reached a reasonable conclusion based on the facts presented.
CONCLUSION
[31] In all the circumstances of this case and despite the able efforts of Applicant's counsel, there is no basis for this Court to interfere with the Minister's decision.
[32] For these reasons, this judicial review will be dismissed with costs.
JUDGE
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1834-04
STYLE OF CAUSE: Charlottetown Bottle and Metals Limited
and
Minister of National Revenue
PLACE OF HEARING: Charlottetown, Prince Edward Island
DATE OF HEARING: November 23, 2005
REASONS FOR ORDER: The Honourable Mr. Justice Phelan
APPEARANCES:
| Christopher S. Montigny
|
|
| John J. Ashley
|
SOLICITORS OF RECORD:
| STEWART MCKELVEY STIRLING SCALES Barristers & Solicitors Charlottetown, P.E.I.
|
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| JOHN H. SIMS, Q.C. Deputy Attorney General of Canada Ottawa, Ontario
|