Date: 20030606
Docket: T-391-01
EDMONTON, ALBERTA, FRIDAY, THE 6TH DAY OF JUNE, 2003
Present: THE HONOURABLE MADAM JUSTICE HANSEN
BETWEEN:
BEN J. JOHNSTON
Applicant
- and -
HER MAJESTY THE QUEEN IN RIGHT OF CANADA and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR ORDER AND ORDER
HANSEN, J.:
[1] The applicant was assessed instalment interest of $130.84 for the 1999 taxation year. The applicant applied for a cancellation of the interest pursuant to subsection 220(3.1) of the Income Tax Act (the "Act"), the "fairness legislation". The "first level" request was refused. A second request for a review of the assessment of interest was also denied. This last decision is the subject of this application for judicial review.
[2] The applicant states the confusion surrounding his instalment payments for the 1999 taxation year started with Canada Customs and Revenue Agency's ("CCRA") treatment of the payment of his 1998 taxes. The applicant filed his tax return for 1998 in mid-April 1999. He states in his affidavit that the balance owing of $1,257.52 was paid by cheque on April 30, 1999. The Notice of Assessment for the 1998 taxation year, dated May 13, 1999, shows a balance owing of $1,257.70 and interest arrears of $4.04. According to a Statement of Account dated June 23, 1999, CCRA credited the applicant $4,553.82 for instalment payments he had made during 1998, and two further payments, one for $1,067.70 and one for $1,067.00. These amounts were credited to the outstanding balance for the 1998 taxation year leaving a credit of $872.96 which was transferred to the applicant's 1999 instalment account. CCRA records indicate the applicant's cheque dated April 30. 1999 for $1257.52 was received on July 8, 1999 and credited to his account on the same day.
[3] For the 1999 taxation year, the applicant states he chose the option of calculating the amount of the instalments he would have to make on the basis of what is known as the "current- year option", payment of one-quarter of the estimated taxes on each due date. In calculating the amount of the instalments, the applicant took into account an expected capital gain on the sale of shares which would be offset by capital losses carried forward. He directed his bank to remit the instalments on his behalf. The bank remitted four payments to CCRA on account of the 1999 taxation year: one payment of $1,067.70 and three payments of $1,067.00 for a total of $4,268.70.
[4] Ultimately, CCRA treated the sale of the shares as a dividend resulting in a higher amount of tax owing for 1999 than anticipated.
[5] One additional matter added to the confusion with respect to the applicant's payment of his taxes. Although he had directed his bank to make four instalment payments for 1999, one of the four payments made by the bank was remitted as a source deduction instead of as an instalment payment.
[6] The Notice of Assessment for the 1999 taxation year shows $8,712.32 tax payable for the year, income tax deducted $3895.58, instalment payments $3,201.70, payment on filing $1,615.04, and instalment interest $130.84. It also states that instalment payments totalling $4,816.72 were required and instalment interest was charged because at least one of the payments was insufficient or late.
[7] The 1999 Instalment Payment Summary shows the following payments: $872.96 on May 31, 1999; $1,257.52 on July 8, 1999; $4.22 on July 8, 1999; $1,067.00 on December 10, 1999. The total amount of instalments paid for the 1999 taxation year according to this summary is $3,201.70.
[8] The applicant applied to have the interest cancelled. In his letter requesting the fairness review, he states his belief that the payment of the instalments complied with the requirements of the legislation. He notes that because of the bank error he was charged interest on the deficient instalments. He also observes that although he expected the sale of his shares to be treated as a capital gain, it was treated as a dividend. He states he does not understand how a capital gain can be a dividend, however, his instalments would have been sufficient if the sale of the shares had been regarded as a capital gain.
[9] The request was denied. In response, the Minster's delegate observes that an instalment reminder and an explanation of instalment payment options were sent to the applicant in February 1999 requesting two payments of $1,265.00 on March 15, 1999 and June 15, 1999. A further reminder in August, 1999, requested two payments of $1,641.00 on September 15, 1999 and December 15, 1999. The letter also notes that if the applicant had chosen the "prior-year" option to calculate the amount of the instalments, four equal payments of $1,452.88 would have been required and under the "current-year" option, four equal payments of $1,204.18 ought to have been paid. With regard to the bank error, the Minister's delegate explains that if this amount had not been reported as a source deduction, the calculation using the "current-year" option would have required equal instalments of $1,470.93.
[10] Following a review of the payments made by the applicant as outlined earlier in these reasons, the Minister's delegate also explains that if the instalment payments had been made in accordance with the reminders, no interest would have been charged even if the payments were less than the total amount owing at the end of 1999. As well, where instalments are based on the "current-year" option, if the payments are late or less than the required amounts interest may be charged.
[11] Finally, the Minister's delegate states that before making the calculation of the amount of the instalments based on the assumption that the sale of the shares would be treated as a capital gain, the applicant should have sought clarification from CCRA before making the calculation.
[12] The applicant requested a second review of the fairness decision. It was also rejected. In this decision, the Minister's delegate states that the problem arising from the bank error, in itself, was not problematic since all of the taxes deducted at source during 1999 were used in the calculation of the applicant's instalment payments under the "current-year" option.
[13] The Minister's delegate notes the applicant's acknowledgment that under the "current-year" option he should have paid four instalments totalling $4816.72. On the basis of this amount combined with the applicant's source deductions of $3895.58, the applicant should have paid $8,712.32 by December 31, 1999, however, because of his miscalculation of the instalment amount he only remitted $6,897.28 resulting in the interest charge. He adds that where either the prior or current year option is chosen to calculate the amount of the instalments, interest charges will automatically apply if the instalments are insufficient or late.
[14] With respect to the applicant's submission that his estimates of income and tax payable changed due to circumstances beyond his control, the Minister's delegate observes that many taxpayers find themselves in similar circumstances for a variety of reasons, however, the resulting instalment interest charges are not unusual nor punitive.
[15] Concerning the difficulty stemming from the allocation of payments between 1998 and 1999, he states that the applicant did not ask for an alteration to the allocation. As to the cheque for $1,257.62 dated April 30, 1999 for payment of the 1998 taxes, he notes that CCRA records indicate it was not received until July 8, 1999.
[16] The only issue on this application for judicial review is whether the Minister properly exercised his discretion in deciding not to waive or cancel the instalment interest assessed to the applicant for the 1999 taxation year.
[17] The respondent relies on the following general propositions. The respondent submits that although there are no specific rules of procedural fairness in the legislation, the Minister, in the exercise of his authority under subsection 220(3.1) of the Act, must observe the rules of procedural fairness developed within the context of administrative law and has a duty to act fairly. Since the statute and the regulations are silent as to the criteria that should be considered, the only requirement is that the criteria used in reaching the decision should be relevant and used in good faith.
[18] In the present case, the respondent argues the Minister's delegate took into account relevant factors, such as, the nature of the applicant's request, the information provided by the applicant, the CCRA guidelines, the applicant's submissions, CCRA file materials, and the lack of reasons for the cancellation of the instalment interest. Further, in the exercise of his discretion, the Minister's delegate acted fairly and in a reasonable manner.
[19] Relying on Pelletier J.'s decision in Hari Chand Sharma v. The Minister for Canada Customs and Revenue Agency, [2001] F.C.J. No. 867 the respondent submits a high level of deference should be accorded to a "fairness decision" and that the decision should be upheld unless it is patently unreasonable.
[20] The applicant submits a review of his records at CCRA clearly demonstrates that he has always paid his taxes in a timely fashion; that he calculated the amount of the instalments in good faith in accordance with his understanding of the applicable provisions of the Act; that due to a bank error, CCRA incorrectly allocated a portion of his 1999 instalments to his 1998 taxes; that he has never been given an explanation for the fact his cheque of $1,257.52 was only credited to his tax account on July 8, 1999 when the payment was made on April 30, 1999; and that no explanation has been given regarding a payment credit of $4.22 he did not make.
[21] The applicant acknowledges that the amount of interest at issue is not a large amount of money. He does not dispute the amount of tax payable due to the treatment of his share transaction. However, he maintains his 1998 taxes were paid on time as set out in his affidavit filed on the application for judicial review. Further, that he made four instalments on account of his 1999 taxes. He also maintains that the bank error and CCRA's failure to credit the payment of the 1998 taxes in a timely fashion which in turn resulted in an incorrect allocation of his first two instalments for 1999 were matters beyond his control.
[22] Finally, he submits the Minister's delegate's assertion that he should have sought clarification before calculating the amount of the instalments is unreasonable having regard to the reasonableness of his assumption that the sale of securities would be treated as a capital gain, and the costs associated with obtaining such a ruling.
[23] I accept the respondent's submission that the issue is whether the decision is patently unreasonable. In this respect, it is not for this Court to interfere with the decision-maker's weighing of the various factors. However, where the decision is based on a misapprehension of the facts the Court may interfere.
[24] The Minister's delegate based his calculation of the amount the applicant should have paid by December 31, 1999 on an acknowledgment by the applicant that under the "current-year" option he should have made instalment payments of $4816.72. This is incorrect. This interpretation appears to be based on a review of the file by one of the respondent's officers for the purpose of making a recommendation to the Minister's delegate. In fact, this is the amount put forward by the Minister's delegate at the time of the first level review. In the letter requesting the second level review, the applicant takes issue with the installment calculation options set out in the first decision. While this error alone would not warrant intervention, it reflects a misunderstanding of the basis on which the applicant sought the fairness review.
[25] Of greater significance, is the statement that although the applicant should have paid $8,712.32 by December 31, 1999 on account of his 1999 taxes he only remitted $6,897.28 by that date and he was, therefore, subject to interest instalment charges. According to the record this latter amount is clearly in error. The total of the payments made by the applicant prior to December 31, 1999 was $7,097.28. In arriving at this figure, I have included both source deductions and instalments since the respondent states that both were taken into account in the calculation of the interest charge.
[26] Although in the end, the applicant was credited with all of his payments, the respondent's records indicate the applicant only paid $3,201.70 by way of instalments when according to their calculation he should have paid instalments of $4,816.72. From the respondent's perspective there was a deficiency of $1,615.02 in the instalment payments. More importantly, from the respondent's perspective the applicant had not made four instalment payments, even according to his own calculations, as required.
[27] I agree with the applicant that the confusion surrounding the payment of the 1999 instalments stems from the application of a portion of the instalments for 1999 to the amount owing for 1998 taxes which in turn was caused by the late payment of the 1998 taxes.
[28] Given that the applicant specifically addressed this issue in his request for a fairness review, in my opinion, the respondent should have made some attempt to ascertain if the date of the receipt of the payment was an error instead of relying on the assumption that the payment was late.
[29] To conclude that the misapprehension of the facts would have altered decision would be conjecture on my part. However, since they are material to the factors taken into account by the Minister's delegate in reaching his decision, the Court's intervention is warranted.
[30] For these reasons, the application for judicial review is allowed and the matter is remitted for reconsideration.
ORDER
THIS COURT ORDERS that the application for judicial review is allowed and the matter is remitted for reconsideration.
"Dolores M. Hansen"
Judge
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-391-01
STYLE OF CAUSE: Ben J. Johnston v. Her Majesty the Queen
in Right of Canada and Canada Customs
and Revenue Agency
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: June 26, 2002
REASONS FOR ORDER AND ORDER : HANSEN, J.
DATED: June 6, 2003
APPEARANCES:
Ben J. Johnston APPLICANT
Litigant in Person
Karen A. Truscott RESPONDENT
SOLICITORS OF RECORD:
Litigant in Person APPLICANT
Morris Rosenberg
Deputy Attorney General of Canada RESPONDENT