Date: 20000906
Docket: T-1029-99
BETWEEN:
MR. HARJINDER S. HUNDAL
MRS. SURINDER K. HUNDAL
Applicants
- and -
THE MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR ORDER
SHARLOW J.:
[1] Mr. Harjinder S. Hundal and his wife Ms. Surinder K. Hundal seek judicial review of a negative decision under the "fairness package provisions" of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp). The provisions in question have been given that name because they permit the Minister of National Revenue or his delegated officials to grant specified discretionary relief. For ease of reference, I will sometimes use the term "Minister" to refer collectively to the various departmental officials who participated in the decision under review.
[2] The discretionary relief sought in this case relates to an election under subsection 110.6(19) of the Income Tax Act (the "capital gains election"). It appears that Mr. and Ms. Hundal acquired certain real property in 1986 which they still owned on February 22, 1994. They believe that the value of each of their interests in the property on February 22, 1994 was $262,500, against an adjusted cost base of $35,512.50. In 1994 they tried to sell the property, but the sale collapsed in early 1995.
[3] It is undisputed that because Mr. and Ms. Hundal owned the property on February 22, 1994, they could have made the capital gains election with respect to the property by filing a form T664. The deadline for making the election was April 30, 1995. If that deadline was missed, the election could have been made at any time on or before April 30, 1997, subject to the payment of a late filing penalty.
[4] A valid capital gains election would have permitted Mr. and Mrs. Hundal to trigger a deemed disposition of property in 1994 so that they could recognize a capital gain of up to $100,000. The advantage of making such an election was that 1994 was the last year in which they could claim the benefit of the $100,000 lifetime capital gains exemption. Any capital gain resulting from a valid capital gains election in respect of the property would have reduced by a like amount any capital gain realized upon a sale of the property after 1994.
[5] Mr. and Ms. Hundal sold the property in 1997, but the tax authorities have so far not accepted that a valid capital gains election was made in 1994. Thus, subject to any rights of objection or appeal Mr. and Ms. Hundal may have with respect to their 1997 returns, they have been precluded from taking advantage of the capital gains exemption.
Subsections 220(3.1) and (3.2) read as follows:
| (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 (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. (3.2) Where (a) an election by a taxpayer or a partnership under a provision of this Act or a regulation that is a prescribed provision was not made on or before the day on or before which the election was otherwise required to be made, or (b) a taxpayer or partnership has made an election under a provision of this Act or a regulation that is a prescribed provision, the Minister may, on application by the taxpayer or the partnership, extend the time for making the election referred to in paragraph (a) or grant permission to amend or revoke the election referred to in paragraph (b). |
| (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. (3.2)Sur demande d'un contribuable ou d'une société de personnes, le ministre peut: a) lorsque le contribuable ou la société de personnes n'a pas fait, dans le délai imparti, un choix prévu par une disposition de la présente loi ou une disposition réglementaire, visée par règlement, proroger le délai pour faire le choix; b) lorsque le contribuable ou la société de personnes a fait un choix valide en vertu d'une disposition de la présente loi ou d'une disposition réglementaire, visée par règlement, permettre que le choix soit modifié ou annulé. |
[6] A capital gains election is not one of the elections referred to in subsection 220(3.2)(a). Therefore, the Minister had no authority under subsection 220(3.2) to permit Mr. and Ms. Hundal to file a subsection 110.6(19) election after April 30, 1997.
[7] It is, however, open to the Minister to waive interest resulting from the 1997 tax liability that was greater than it would have been if the capital gains election had been accepted as having been filed. Mr. and Ms. Hundal argue that the Minister should have done so on the basis that they have established that in fact, they filed the elections in May of 1995. To understand this argument, it is necessary to look at the history of the submissions Mr. and Ms. Hundal have made to the Minister.
[8] On April 15, 1998, Mr. and Ms. Hundal submitted their first request for discretionary relief. That request was made at a time when the deadline for making a late capital gains election had already passed. Nevertheless, they requested that the Minister accept a late filed election. They submitted payment of the appropriate late filing penalty. Mr. and Ms. Hundal were advised by letter dated May 27, 1998 that their request was denied. The letter says, in part:
| ... we must advise you that a late capital gains election does not fall under the fairness package provisions of the Income Tax Act. As a result your late election has not been accepted. |
[9] That decision was indisputably correct.
[10] Mr. and Ms. Hundal then submitted a request for relief in the form of a waiver of interest with respect to their 1997 tax liability. Mr. Hundal states, in a letter dated August 21, 1998, that their failure to file the capital gains election in 1994 was caused by bad advice from their accountant and emotional distress in the period from 1993 to 1997. This was a reference to the fact that during that period Mr. Hundal's father was very ill and required considerable attention. Mr. and Mrs. Hundal live in Surrey and Mr. Hundal's father lived in Victoria. Until December of 1996, when Mr. Hundal's father died, they were required to travel often to Victoria to assist him. Mrs. Hundal's father died the following month.
[11] In considering this request, the Minister took into account a letter from Mr. Hundal's accountant dated April 5, 1998 which stated in part:
| The Hundal's were advised of the Election to Report a Capital Gain but it was decided that this course of action would not be necessary due to the impending sale of the land. |
[12] The Minister denied the request for a waiver of interest. That decision was communicated to Mr. and Mrs. Hundal in a letter dated September 1, 1998. That letter reads in part as follows:
| Information submitted indicates that you have disposed of your property on September 27, 1997 for $500,000.00 and have subsequently acquired a new property on October 10, 1997 at a cost of $570,000.00. An individual, exercising reasonable care, would have made arrangements for payment of the income tax liability due to the resulting taxable capital gain. Our records indicate that you did not attempt to file a 1994 capital gains election prior to your request received on April 15, 1998, subsequent to the filing deadline of April 30, 1997. In addition, information submitted indicates that you were aware of the possibility to file a capital gains election in 1994. As you chose not to exercise this option at that time, the attempt to file the capital gains election after the filing deadline is considered to be retroactive tax planning. There is no provision in the Income Tax Act to allow the filing of the 1994 capital gains election subsequent to April 30, 1997 or to provide for relief of interest charges based on these circumstances. |
| We have considered the other circumstances identified in your letter, however, due to the dates of these events, we have determined that no relevance of these events to the 1997 arrears interest charges has been demonstrated. |
[13] In my view, this decision was a reasonable one based on the information submitted to that point by Mr. Hundal.
[14] Mr. and Mrs. Hundal submitted another request for relief, leading to a further consideration of their request. In that regard Mr. Hundal met with Mr. Lianza, an official of Revenue Canada, on September 23, 1998. At that meeting Mr. Lianza told Mr. Hundal that he would consider any new information or documentation that Mr. Hundal submitted. Mr. Hundal and Mr. Lianza met again on September 28, 1998.
[15] Before dealing with the issues raised at that meeting, I should note that Mr. Hundal suggested in oral argument that Mr. Lianza displayed some impatience or anger at that meeting as a result of certain correspondence between Mr. Hundal and the Minister's office relating to Mr. Hundal's request for discretionary relief. Mr. Hundal also suggested that there was what he called "interference." It was not clear to me what kind of interference Mr. Hundal was alleging. As Mr. Hundal adverted to this point only for the first time in oral argument, the Crown was not in a position to respond. Nothing in the record suggests any bad faith or impropriety of any kind on the part of any Revenue Canada official. I have given no weight to Mr. Hundal's submissions on this issue.
[16] At the September 28, 1998 meeting Mr. Hundal asserted for the first time that he and Mrs. Hundal had in fact made capital gains elections. In support of that assertion, he provided a letter from his accountant dated September 27, 1998 which reads as follows:
| After carefully looking through all of my records I have been unable to locate a copy of the T664 and any accompanying paperwork which was completed by Mr. and Mrs. Hundal in 1995. After discussing the circumstances of the filing with Mr. Hundal it is apparent that they were given the T664 to sign after their returns were completed and delivered to Revenue Canada. Because Mr. Hundal was very difficult to get hold of at the time due to several visits to Victoria the T664 and cover letter were left for him to sign and deliver to Revenue Canada. |
| On April 6, 1998 a letter written by myself stated that no T664 was completed for Mr. Hundal. After going over the situation with Mr. Hundal we realized that a T664 was completed and delivered to Mr. Hundal after his 1994 return was filed. |
[17] Mr. Hundal told Mr. Lianza, and continues to maintain, that sometime in early 1995, probably in May, he delivered the completed election forms to a Taxation Centre after hours, depositing it in a mail slot. He suggested that the form was received by Revenue Canada and somehow was lost by them. He says that Mr. Lianza admitted that mail is sometimes lost in Revenue Canada's offices.
[18] At the hearing of this judicial review application, Mr. Hundal submitted a further letter from his accountant to Revenue Canada. That letter is dated March 18, 2000. Counsel for the Crown did not object to this letter being filed at the hearing. In my view it contains no new information. It merely confirms the assertions made by the accountant in his letter dated September 27, 1998.
[19] The third request for consideration was also unsuccessful. An internal report prepared by Mr. Lianza reads in part as follows:
| The taxpayer claims that he filed (hand-delivered to the Surrey TC rear door mail-slot) the T664 sometime in 1995. He further claims that it was filed after the filing of his 1994 T-1. |
| The taxpayer also claims that he was not made aware that the T664 election was not received by Revenue Canada until after the `filing deadline' of the election and consequently he was denied the intended benefit of the election. |
| [...] |
| The taxpayer feels he took reasonable steps to comply with the law, however due to the loss of the election within Revenue Canada (circumstances beyond his control), he was denied the corresponding benefit. |
| I have reviewed the guidelines in paragraph 11 of IC 92-1, and other factors I consider to be relevant to the consideration of this request: |
| It is reasonable to conclude that the taxpayer's request was made for the purposes of retroactive tax planning. |
| It is uncertain whether the election was ever hand-delivered by the taxpayer or received by the Department within the time frames implied by the taxpayer. The taxpayer's current request is contradictory to the one previously made by him (refer to tp's correspondence dated April 5/98 -- attached). In that correspondence, "it was decided that this course of action (i.e. the filing of the T664 election) would not be necessary due to the impending sale of the property." |
| The taxpayer's current request is contradictory to what was filed in his 1997 T1. The taxpayer did not claim the `revised' adjusted cost base in his 1997-T1's Schedule 3 to reflect the `designated proceeds of disposition' indicated in the T664 election. |
[20] Mr. Lianza concluded his report by recommending that the request for relief be denied. That recommendation was accepted by the Chief of Appeals and the Director on October 14, 1998. The negative decision was communicated to Mr. and Mrs. Hundal by letter bearing the same date.
[21] After carefully reviewing the record and considering the arguments submitted by Mr. Hundal on behalf of himself and his wife, I am unable to conclude that the Minister committed any error that would justify an order quashing the decision to refuse discretionary relief.
[22] First, I do not accept the argument of Mr. Hundal that the failure of the Chief of Appeals to complete an internal form is an error that in any way vitiates the decision. No specific procedure is mandated for "fairness" decisions, and the record makes it clear that the Chief of Appeals did in fact make the decision he purported to make.
[23] Second, it was reasonable for the Minister to conclude that the emotional distress caused by the illness and death of Mr. Hundal's father in December of 1996 and the death of his father-in-law in January of 1997 would not justify granting Mr. and Mrs. Hundal the discretionary relief they sought. The Minister saw no causal connection between those circumstances and the 1997 tax liability. That conclusion was open to him, given the information available.
[24] The principal issue raised by Mr. Hundal relates to his assertion that he filed the elections in 1995. Clearly, if the elections were filed at that time and mislaid due to an error within the offices of Revenue Canada, the case for a discretionary waiver of interest would have been quite compelling.
[25] In considering this issue, the Minister correctly took into account the accountant's letters of April 5 and September 27, 1998. He noted an apparent contradiction between Mr. Hundal's original story, that the elections had not been filed for the reasons he gave, and his subsequent story that the elections had been filed. The apparent contradiction was put to Mr. Hundal in order to elicit an explanation. His explanation, as I understand it, is that because of the distress and distraction resulting from his family circumstances from 1995 to 1997, he simply forgot that he had filed the election.
[26] The Minister did not believe Mr. Hundal's explanation and did not accept that the election was filed as he said it was. The Minister's conclusion was a reasonable one, given the information available. It follows that it was also reasonable for the Minister to deny the request for discretionary relief.
[27] For these reasons, this application for judicial review will be dismissed. As the Crown has not requested costs, none will be awarded.
Karen R. Sharlow
Judge
Ottawa, Ontario
September 6, 2000