Date: 19980218
Docket: 96-4454-IT-I
BETWEEN:
JEAN-MARC GRETILLAT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
LAMARRE PROULX, J.T.C.C.
[1] This is an appeal by the informal procedure regarding overpayments made in 1991 into registered education savings plans, or "RESPs", which are covered by s. 146.1 of the Income Tax Act ("the Act").
[2] Section 146.1(2)(k) of the Act provides that the total amount which may be paid into an RESP each year is $1,500. Section 204.91 of Part X.4 of the Act provides that a tax equal to one percent of the excess amount is payable for each month in which the amount is not withdrawn.
[3] The issues are whether (a) the appellant's good faith in subscribing amounts in excess of the amount allowed by the Act can be taken into account to reduce the tax payable under Part X.4 of the Act; (b) this Court may order the Minister of National Revenue ("the Minister") to waive interest under s. 220(3.1) of the Act; and (c) whether the Minister's assessment made pursuant to s. 152(7) of the Act may be vacated due to the fact that it was allegedly not made with reasonable diligence.
[4] Paragraphs 2 to 6 of the Reply to the Notice of Appeal ("the Reply") read as follows:
[TRANSLATION]
2. In May 1991 the appellant contributed the following amounts after administrative expenses to a registered education savings plan ("an RESP") for his three sons:
Amount Agreement
Daniel Étienne $7,141.50 # 7383266
Marc André $7,579.80 # 7383231
Pierre Charles $7,464.00 # 7383258
3. Following the preparation of arbitrary declarations T1E-OVP, the Minister of National Revenue ("the Minister") assessed the appellant by notices of reassessment dated February 15, 1995, on the excess amounts in his RESP mentioned above in paragraph 2, with penalties for the 1991 and 1992 taxation years.
4. Following the preparation of arbitrary declarations T1E-OVP, the Minister assessed the appellant by notices of reassessment dated September 8, 1995, on the excess amounts in his RESP mentioned above in paragraph 2, with penalties for the 1993 and 1994 taxation years.
5. By notices of reassessment dated November 13, 1996 the Minister struck out only the penalties mentioned above in paragraphs 3 and 4 for the 1991, 1992, 1993 and 1994 taxation years.
6. In arriving at these assessments the Minister assumed a number of facts including the following:
(a) the amounts which the appellant contributed were in excess of $1,500 for each of his sons, as mentioned above in paragraph 2;
(b) the appellant had still not withdrawn the excess amount from his RESPs at December 31, 1994;
(c) within 90 days of the end of the year the appellant had not made his declarations on the prescribed forms (T1E-OVP) for each of the 1991, 1992, 1993 and 1994 taxation years;
(d) arbitrary declarations were made up for each of the 1991 to 1994 taxation years inclusive.
[5] The main points raised by the appellant in his Notice of Appeal were the following:
[TRANSLATION]
In 1991 my wife and I were thinking of going to Africa as missionaries. We decided to invest a large part of our savings in an RESP to ensure that our three younger children would be able to attend university. As we were thinking of leaving Canada we decided to invest a sufficient amount all at once . . . We made this investment in good faith expecting that it would ensure a better future for our children.
At no time did the Fondation Héritage company to which we paid the money (or its representative) tell us of the tax consequences associated with our investment, whether verbally or in writing.
. . . . .
In October 1994 we received a letter from Daniel Tai of Revenue Canada telling us that our RESP contributions exceeded the allowable limit. As I was at that time leaving on a missionary trip to Africa I asked our Fondation Héritage representative to contact Revenue Canada for us . . .
We were accordingly sent notices of assessment dated February 15, 1995 . . .
Clearly an amount in excess of the allowed limit would not have been paid to Fondation Héritage if we had known that such a limit was imposed by the Act.
. . . . .
- the amounts paid to the RESP in 1991 in excess of the allowed limit were paid in good faith and with no intention of avoiding the payment of tax on the interest produced;
. . . . .
- from the time these amounts were paid and up until the receipt of a letter from a Revenue Canada representative in October 1994 we were not told of the tax consequences associated with our investment and the limits imposed by the Act, whether by representatives of Fondation Héritage or by the federal Department of Revenue;
- if we had known of the limits imposed by the Act on contributions to an RESP we would have observed the limit and reinvested the excess with a minimal tax impact;
. . . . .
- a mechanical application of the Act to excess amounts paid into an RESP seems to be unreasonable in view of the special circumstances mentioned above;
alternatively,
. . . . .
- the long delay between the time the amounts were paid into the RESP and the issuing of the notices of assessment caused significant hardship to the objector in respect of the interest claimed, and this delay was not his fault.
[6] The appellant testified for himself. Robert Levesque, the Minister's appeal officer, testified at the request of counsel for the respondent.
[7] The facts set out in the foregoing Reply were not disputed by the appellant. However, in the interests of accuracy I should say that the documents described as notices of reassessment in paragraphs 3 and 4 of the Reply are notices of assessment, not notices of reassessment. As we will see below, these were assessments made by the Minister independently pursuant to Part X.4 of the Act and s. 152(7) of the Act. The notices of assessment filed jointly as Exhibit I-1 do not state otherwise.
[8] In his testimony the appellant repeated that he did not know there was any maximum amount that an individual could put into an RESP. However, in 1991 when subscribing to an RESP the appellant and his wife had met with three organizations which were authorized to conclude such education savings contracts. The appellant said he could not swear with any certainty that those organizations had not told him there was a limit on the amount that could be paid into such a plan, but he said this was not an item of information that registered in his mind or that of his wife.
[9] The Minister's appeals officer was not able to explain to the Court in what circumstances or at what time the Minister was informed of the excess amounts paid in by the appellant. No question in this regard was put to him by the appellant. In fact, no evidence was submitted by the appellant about the Minister's diligence, apart from his reference to the dates of the assessments.
[10] On the cancelling of the penalties, as mentioned in paragraphs 3, 4 and 5 of the Reply, the Minister's officer stated that this was done when the assessments were reviewed at the Notice of Objection stage, not following an application for exercise of the Minister's discretion pursuant to s. 220(3.1) of the Act.
Arguments and conclusions
[11] The appellant made three arguments. He contended that in view of his good faith he should not be subject to the full rigour of s. 204.91 of the Act. He further maintained that his good faith was a basis for use of the Minister's discretionary authority under s. 220(3.1) of the Act. In this connection he referred to Information Circular 92-2, titled "Guidelines for the Cancellation and Waiver of Interest and Penalties" and the Federal Court Trial Division judgment in Bilida v. M.N.R., 97 DTC 5041. The appellant also contended that the time taken by the Minister to inform him that a tax was payable on the excess amounts subscribed by him demonstrated a lack of diligence by the Minister and that he, the taxpayer, should not have to bear the cost of the tax charged for all those years.
[12] Counsel for the respondent argued that: (a) s. 204.91 of Part X.4 of the Act does not provide for any reduction of tax for any extenuating circumstances that may exist; (b) the assessments on appeal did not result from the application of s. 220(3.1) of the Act; and (c) the appellant had a duty to comply with the provisions of s. 204.92 of the Act.
[13] Section 204.91, the definition of an "excess amount" in s. 204.9(1), ss. 204.92 and 204.93 of Part X.4 and s. 152(7) of the Act read as follows:
204.91 Tax payable by subscribers. — Each subscriber under a registered education savings plan shall, in respect of each month, pay a tax under this Part equal to 1% of the subscriber's share of each excess amount for a year at the end of that month in respect of a beneficiary or former beneficiary under the plan, to the extent that the amount of the share is not withdrawn from the plan before the end of that month.
204.9(1) In this Part, subject to subsection (2),
"excess amount" "excess amount", for a year at any time in respect of a beneficiary, means the amount, if any, by which the total of all payments made after February 20, 1990 in the year and before that time into all registered education savings plans by or on behalf of all subscribers in respect of the beneficiary exceeds the lesser of
(a) $1,500, and
(b) the amount, if any, by which $31,500 exceeds the total of all payments made into registered education savings plans by or on behalf of all subscribers in respect of the beneficiary in all preceding years . . .
204.92 Return and payment of tax. — Every person who is liable to pay tax under this Part in respect of a month in a year shall, within 90 days after the end of the year,
(a) file with the Minister a return for the year under this Part in prescribed form and containing prescribed information, without notice or demand therefor;
(b) estimate in the return the amount of tax, if any, payable under this Part by the person in respect of each month in the year; and
(c) pay to the Receiver General the amount of tax, if any, payable by the person under this Part in respect of each month in the year.
204.93 Provisions applicable to Part. — Subsections 150(2) and (3), sections 152, 158 and 159, subsections 161(1) and (11), sections 162 to 167 and Division J of Part I are applicable to this Part, with such modifications as the circumstances require.
152. (7) Assessment not dependent on return or information. — The Minister is not bound by a return or information supplied by or on behalf of a taxpayer and, in making an assessment, may, notwithstanding a return or information so supplied or if no return has been filed, assess the tax payable under this Part.
[14] The tax payable under Part X.4 of the Act by a subscriber to an RESP on an excess amount as defined in Part X.4 is a separate tax from the tax payable under Part I of the Act. A subscriber who makes an overpayment is required within 90 days of the end of the year, without notice or warning, to file a return containing prescribed information with the Minister in prescribed form. He must estimate the tax payable under Part X.4 and pay the amount to the Receiver General of Canada. The appellant did not make such returns and the Minister prepared the returns in accordance with the power conferred on him by s. 152(7) of the Act. Under s. 204.93 of Part X.4 of the Act s. 152 of Part I of the Act is a provision applicable to Part X.4.
[15] The sections of the Act relating to the assessments on appeal provide for no reductions in the event of good faith. I will not make any comment on whether such good faith existed as it is not relevant in assessing tax under Part X.4 of the Act. The only question that is relevant in calculating the tax is whether there was an overpayment at the end of each month, and in the instant case that fact was not in dispute. The reassessments no longer contain any penalties. As to interest, it is well-settled law in this Court that the Court has no power to reduce it without enabling legislation. Accordingly, this ground of appeal cannot succeed.
[16] So far as the Minister's discretionary power is concerned, ss. 220(3.1) and (3.7) and 165(1.2) of the Act read as follows:
220. (3.1) Waiver of penalty or interest. — 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 (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.
. . . . .
(3.7) Idem. — The provisions of Divisions I and J of Part I apply, with such modifications as the circumstances require, to an assessment made under this section as though it had been made under section 152.
165. (1.2) Limitation on objections. — Notwithstanding subsections (1) and (1.1), no objection may be made by a taxpayer to an assessment made under subsection 152(4.2), 169(3) or 220(3.1) nor, for greater certainty, in respect of an issue for which the right of objection has been waived in writing by the taxpayer.
[17] Under s. 220(3.1) of the Act, the Minister may waive all or any portion of the penalties or interest payable and may make whatever assessments are necessary to take such waiver into account. However, in view of s. 165(1.2) of the Act, such assessments are not subject to the appeal process in this Court. Only the Federal Court has jurisdiction to review the exercise of the Minister's discretionary authority under s. 220(3.1) of the Act.
[18] The assessments at issue in the instant appeals are not assessments made as a result of the exercise by the Minister of the authority conferred on him by s. 220(3.1) of the Act, as the appellant made no such application under that subsection. No specific form is provided for in the Act for making such an application to the Minister under s. 220(3.1) of the Act. Information Circular 92-2, referred to by the appellant, sets out the procedure to be followed. The penalties cancelled by the reassessments were not cancelled pursuant to s. 220(3.1) of the Act but in the review process made at the appeals level following a Notice of Objection. Accordingly, as regards this argument concerning review of the Minister's discretionary authority, it cannot succeed for the reasons given above.
[19] As to the Minister's diligence, s. 152(7) of the Act does not specify any deadline by which the Minister's action must have been taken. However, the subsection applies within the deadlines provided for in s. 152(4) of the Act. That subsection does not provide for any deadline in the case of an initial assessment. In such cases it is s. 152(1) which applies and which requires that the Minister act with due dispatch following receipt of a tax return. The Act says nothing about the situation in which there is no tax return. In the instant case no return was made under Part X.4 of the Act. Under the basic rules of administrative law, even though the Act does not expressly provide that the Minister must make his assessments with due dispatch, that surely does not mean he does not have to exercise his duty to apply the Act with dispatch.
[20] It should be borne in mind that there was not really any evidence from the appellant that the Minister did not act with due dispatch, except that the appellant referred to the date of the assessments, February 15, 1995, whereas the overpayment was made in 1991. Even if there had been evidence of a lack of dispatch it would not have had the effect of nullifying the Minister's assessments. The Federal Court of Appeal dealt with the question of the duty of dispatch which the Act imposes on the Minister by s. 152(1) of the Act in The Queen v. Ginsberg, 96 DTC 6372, at 6374 and 6376:
The sole issue, therefore, pertains to the legal effect of a failure by the Minister to exercise his statutory duty to assess "with all due dispatch".
. . . . .
Bearing in mind, however, as found by the Tax Court judge, that the Minister was late in assessing, the only question I must address is the nature of the sanction once there is a failure to exercise a duty under subsection 152(1).
The respondent's argument in essence is that once the Minister is found to have breached his statutory duty, he loses jurisdiction to assess and the notice of assessment must be vacated. The respondent was not ready to accept, however, that, if found valid, the reverse of his argument would be that if a refund was owed to the taxpayer, the Minister would, in that situation also, lose jurisdiction to determine the refund.
I find no escape with the clear terms of subsection 152(3), particularly the words "Liability for the tax under this Part is not affected by . . . the fact that no assessment has been made". ("Le fait . . . qu'aucune cotisation n'a été faite n'a pas d'effet sur les responsabilités du contribuable à l'égard de l'impôt prévu par la présente Partie.")
Subsection 152(8) in turn says "An assessment shall . . . be deemed to be valid and binding notwithstanding any . . . defect or omission . . . in any proceeding under this Act relating thereto." (". . . une cotisation est réputée être valide et exécutoire malgré . . . tout vice de forme ou toute omission . . . dans toute procédure s'y rattachant en vertu de la présente loi").
Section 166, in support, states that “(a)n assessment shall not be vacated . . . by reason only of any . . . omission . . . on the part of any person in the observation of any directory provision of this Act”. (“Une cotisation ne peut être annulée . . . uniquement par suite . . . d’omission . . . de la part de qui que ce soit dans l’observation d’une disposition simplement directrice de la présente loi”).
This latter provision obliges me to consider whether subsection 152(1) is directory or mandatory.
. . . . .
The distinction between a "mandatory" or a "directory" provision is, therefore, not very helpful. If I were to apply the rule of "inconvenient" effects, I would say that there are, no doubt, competing interests between the need to levy revenues for government and public expenditures, the need to have the tax burden shared as equally as possible among the taxpayers, and the need to protect the individual by bringing certainty to his financial affairs at the earliest reasonable possible time. These competing interests have been settled in favour of the government by Parliament with the adoption of subsections 152(3), 152(8) and section 166.
The Judicial Committee of the Privy Council has also recently diminished the importance of the distinction between a directory/ mandatory provision in the case of Wang v. Comr of Inland Revenue,1 a taxation case originating in Hong Kong. The Privy Council determined that when a question of an alleged failure to comply with a time provision is at stake, it is simpler and better to avoid the words "mandatory" and "directory" and ask two questions:2
. . . The first is whether the legislature intended the person making the determination to comply with the time provision, whether a fixed time or a reasonable time. Secondly, if so, did the legislature intend that a failure to comply with such a time provision would deprive the decision-maker of jurisdiction and render any decision which he purported to make null and void?
The Privy Council alluded to the fact that mandamus might be a remedy. Courts in Canada have been called upon to decide whether mandamus should issue in such cases.3
_______________
1 [1995] 1 All ER 367 (PC) at 373.
2 Wang v. Comr of Inland Revenue, supra, at 377.
3 Lipsey v. M.N.R. 85 DTC 5080; Schatten v. Canada (Minister of National Revenue - M.N.R.), 96 DTC 6102.
[21] My understanding of that decision is that dispatch by the Minister in making an assessment is not something which may make the assessment void, in view of the existence of s. 152(3) and (8) of the Act, supported by s. 166 of the Act. The applicable remedy would be a writ of mandamus for the purpose of obtaining a quick decision by the Minister. Needless to say, the Ginsberg case does not in any way concern what is referred to as the usual period of assessment, the time for which is set by the Act in s. 152(4) and (3.1), nor the other deadlines that may exist in the Act and which are determined by it. The argument that the assessments are invalid by virtue of their alleged tardiness therefore cannot succeed either.
[22] The appeals are accordingly dismissed.
Signed at Ottawa, Canada, February 18, 1998.
Louise Lamarre Proulx
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]