Ottawa, Ontario, March 20, 2007
PRESENT: The Honourable Mr. Justice Blais
BETWEEN:
and
as represented by CANADA REVENUE AGENCY
REASONS FOR JUDGMENT AND JUDGMENT
[1] This is an application under section 18.1 of the Federal Courts Act, R.S.C. 1985, c. F-7, for judicial review of a decision by the Director of the Winnipeg Tax Services Office, Canada Revenue Agency (hereafter the Minister), communicated to the applicant by letter dated May 25, 2006, whereby he maintained the decision to deny the applicant’s request for cancellation and waiver of penalties and interests owing under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act), with respect to personal income tax assessed for the 2002 and 2003 taxation years.
BACKGROUND
[2] The applicant filed her 2002 tax return on April 19, 2004, and her 2003 tax return on May 3, 2005, more than a year after their actual due date. Consequently, the applicant was assessed penalties and interests by the Canada Revenue Agency.
[3] In a letter dated April 28, 2005, the applicant sought a waiver of these interests and penalties, citing both financial hardship and stress resulting from a series of deaths in the family, specifically the death of her husband’s ex-wife in September 2000, the death of her mother in November 2001, the death of her brother-in-law in August 2002, and the death of her father-in-law in November 2003. She also noted the breakdown of her marriage in November 2003 as an additional source of stress.
[4] The applicant’s first request for a waiver of interests and penalties pursuant to the ‘fairness’ provision was received by the Winnipeg Tax Centre on May 27, 2005, and was denied on August 31, 2005.
[5] The applicant then requested a second level fairness review, which was received on February 27, 2006. A second level fairness report was prepared and presented to the Director of the Winnipeg Tax Services Office, who maintained the decision to deny the waiver of interests and penalties.
[6] In a letter dated May 25, 2006, the decision to once again deny the waiver was communicated to the applicant and justified on the grounds that no evidence was found that the discretion was not exercised in a reasonable manner during the first review, and that no further information had been submitted to demonstrate circumstances beyond the applicant’s control that prevented her from complying with the requirements of the Act.
ISSUE FOR CONSIDERATION
[7] The single issue for consideration in this judicial review is whether the Minister erred in the exercise of his discretion under the fairness provision, by denying the applicant’s request for a waiver of penalties and interests owing.
PERTINENT LEGISLATION
[8] The fairness provision under the Income Tax Act is found at section 220 of the Act, which sets out the discretion of the Minister to waive or cancel any penalty or interest as follows:
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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.
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[9] More details are also provided in Information Circular IC-92-2, “Guidelines for the Cancellation and Waiver of Interest and Penalties”. These Guidelines are non-binding and are not intended to be exhaustive or to restrict the spirit or intent of the legislation. These Guidelines set out circumstances where it may be appropriate to waive interests and penalties where these result primarily from the actions of the Department (section 6 of the Guidelines), or where there is an inability to pay (section 7 of the Guidelines). Finally, section 5 provides examples of ‘extraordinary circumstances’ beyond a taxpayer’s control that may justify a waiver. Section 5 reads as follows:
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.
[10] Additionally, the Guidelines list factors that will be considered when deciding whether or not to waive interests and penalties in a given case:
10. The following factors will be considered when determining whether or not the Department will cancel or waive interest or penalties:
(a) whether or not the taxpayer or employer has a history of compliance with tax obligations;
(b) whether or not the taxpayer or employer has knowingly allowed a balance to exist upon which arrears interest has accrued;
(c) whether or not the taxpayer or employer has exercised a reasonable amount of care and has not been negligent or careless in conducting their affairs under the self-assessment system;
(d) whether or not the taxpayer or employer has acted quickly to remedy any delay or omission.
STANDARD OF REVIEW
[11] The Federal Court of Appeal in Lanno v. Canada (Customs and Revenue Agency), [2005] F.C.J. No. 714 (QL), 2005 FCA 153, found that a discretionary decision made under the ‘fairness package’ of the Income Tax Act should be subject to a standard of reasonableness. In reaching this conclusion, the Court engaged in a pragmatic and functional analysis and considered the following factors at paragraph 6:
(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 of the policy of tax administration, 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.
[12] As stated by Justice Frank Iacobucci in Canada (Director of Investigation and Research) v. Southam, [1997] 1 S.C.R. 748 at paragraph 56, “[a]n unreasonable decision is one that, in the main, is not supported by any reasons that can stand up to a somewhat probing examination”. Thus, the Court will only grant this judicial review if it can find no rational basis for the decision of the Minister.
ANALYSIS
[13] In reviewing the decision in this case, it is important to keep in mind that the power of the Minister, as set out in subsection 220(3.1) of the Act, is a discretionary power and as such, there is no obligation on the part of the Minister to reach any given conclusion. Furthermore, the liability of a taxpayer to pay penalties and interests for the late filing of income tax returns results from the application of the Act itself, not from any discretionary decision of the Minister to impose such penalties and interests. Therefore, the discretionary power of the Minister is limited to providing exceptional relief from the operation of the Act, where the Minister believes such relief to be warranted.
[14] The evidence in the present case shows that the applicant’s request for a waiver of interests and penalties was considered under both the criteria of inability to pay as set out in section 7 of the Guidelines, and the criterion of extraordinary circumstances as per section 5 of the Guidelines.
[15] The applicant does not challenge the Minister’s finding that she failed to demonstrate an inability to pay, but argues that the Minister erred in denying her request under extraordinary circumstances, since the events recounted in her letters showed that she had been under great stress and emotional distress as a result of a divorce and of a series of deaths in the family.
[16] Having carefully reviewed the Minister’s decision as set out in the May 25, 2006 letter, I must agree with the respondent that the reasons provided to support the Minister’s conclusion that the exercise of discretion was not warranted in this particular case, are adequate and should not be disturbed.
[17] While the Minister did acknowledge the occurrence of a number of unfortunate events in the life of the applicant, it was also noted that the majority of these events occurred more than eight months before her 2002 tax return was due, and thus more than one year and eight months before it was actually filed. The same analysis was applied to her 2003 tax return, as the breakdown of her marriage occurred almost six months before her 2003 tax return was due, and thus one year and a half before it was filed. Furthermore, it was noted in the decision that her 2004 tax return was filed before her 2003 tax return, and that her claim to have been unable to organize the necessary information to file her 2002 and 2003 tax returns in time was rejected on the basis that these returns could have been filed on time and amended at a later date, once the missing information was located.
[18] There is no question in my mind that such reasons can stand up to a “somewhat probing examination”, particularly in light of the factors listed under section 10 of the Guidelines. It is clear from reading the decision of the Minister that the timing of the difficulties encountered by the applicant led him to the conclusion that such events could not account for her failure to comply with her tax obligations. It is also clear that the Minister was unconvinced that the applicant exercised due care under the self-assessment system, or acted quickly to remedy any omission.
[19] Additionally, the applicant noted that her ex-husband was granted relief under the fairness provision, even though the extraordinary circumstances he relied on in support of his request were ‘substantially the same’ as those submitted in her own request. Therefore, she argues that the fairness provisions are being applied in an arbitrary and discriminatory manner by the Minister.
[20] Leaving aside the question of whether the Court should even consider this argument given that the evidence concerning her ex-husband was not part of the applicant’s request for fairness relief, it is clear from reading this evidence that the situation of her ex-husband was not identical to her own, and thus could justify a different conclusion from the Minister. Moreover, the applicant’s ex-husband was granted relief for the arrears interest charged for the 2002, 2003 and 2004 taxation assessments in light of his ‘financial circumstances’, not as a result of serious emotional or mental distress. The deaths in the family were submitted as evidence of extraordinary circumstances, but were rejected by the Minister as a justification for waiving the late filing penalties for the years 2002 and 2003, as these events were too far removed in time.
[21] Therefore, one must conclude from this evidence that the Minister was not in fact applying the fairness provisions in an arbitrary and discriminatory manner as argued by the applicant, but was being quite consistent in the exercise of his discretion.
[22] Considering all of the above, I must conclude that the decision of the Minister to deny the waiver of penalties and interests was reasonable. Therefore, the application for judicial review is denied.
JUDGMENT
- The application for judicial review is denied
- Costs established to $800 in favour of the respondent.
“Pierre Blais”
Judge
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-1103-06
STYLE OF CAUSE:
DEBRA JENKINS
Applicant
and
HER MAJESTY THE QUEEN
as represented by CANADA REVENUE AGENCY
Respondent
PLACE OF HEARING: Winnipeg, Manitoba
DATE OF HEARING: March 14, 2007
REASONS FOR JUDGMENT AND JUDGMENT: BLAIS J.
APPEARANCES:
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Mrs. Debra Jenkins, on her own behalf
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Mrs. Penny L. Piper
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SOLICITORS OF RECORD:
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N/A
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John H. Sims, Q.C. Deputy Attorney General of Canada
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