Date: 20061004

Docket: T-238-05

Citation: 2006 FC 1180

Ottawa, Ontario, October 4, 2006

PRESENT: The Honourable Mr. Justice Lemieux 

 

BETWEEN:

André L'HEUREUX

Applicant

and

 

ATTORNEY GENERAL OF CANADA

Respondent

 

 

 

REASONS FOR JUDGMENT AND JUDGMENT

 

[1]               André L’Heureux (the applicant) through this application for judicial review is seeking to set aside the decision by the Chief of Appeals of the Tax Services Office of Montréal (the decision-maker) of the Canada Customs and Revenue Agency (the Agency) dated January 10, 2005, to the effect that his voluntary disclosure request for certain income that he failed to declare for 2002 and 2003 did not qualify under the Voluntary Disclosure Program (VDP), the guidelines for which are found in Information Circular IC00-1R dated September 30, 2002 (the Circular ).

 

[2]               The essence of the impugned decision as expressed by the decision-maker, in his letter to the applicant dated January 10, 2005, is:

 

[TRANSLATION]

The analysis of the facts and elements in the file did not enable me to identify a situation supporting the acceptance of your voluntary disclosure. In fact, to be voluntary, a disclosure must not be related to an audit or to enforcement action initiated by the Canada Customs and Revenue Agency (CCRA).

 

Your request was filed when you were aware that there would be a review of the claim for a tax credit for Scientific Research and Experimental Development (SR&ED) of the company ADL Tobacco Canada Inc. In our records, on that point, there is correspondence dated April 13, 2004. At that time, you were acting as person in charge of SR&ED with this company and attended a meeting on May 19, 2004, with CCRA representatives, for the purpose of reviewing the claim.

 

[Emphasis added.]

 

 

Facts

 

[3]               The applicant is a consultant and his business is known as Sphere Technologies (Sphere).

 

[4]               Sphere’s primary client was ADL Tobacco Canada (ADL Tobacco) where he had been in charge of SR&ED since September 2001.

 

[5]               In the beginning of 2004, ADL Tobacco claimed a tax credit under SR&ED. On April 13, 2004, Louis Tremblay from the Agency called ADL Tobacco’s outside accountants (Mallette) to inform them that ADL Tobacco [TRANSLATION] “will be subject to a financial and scientific audit regarding the SR&ED claim”. He scheduled a meeting between the officials from the Agency and from ADL Tobacco and their representatives, a meeting which was scheduled on May 19, 2004, after consultation with the applicant, inter alia.

 

[6]               On April 16, 2004, Louis Tremblay of the Agency went to Mallette to obtain the financial information regarding his SR&ED claim for ADL Tobacco.

 

[7]               On May 19, 2004, the meeting that had been scheduled took place at ADL Tobacco. In attendance were: (1) Louis Tremblay and Martin Roy from the Agency. Martin Roy was the scientist of record; (2) two representatives of ADL Tobacco’s outside accountants; (3) the applicant in his capacity as ADL Tobacco consultant in charge of SR&ED and not in a personal capacity.

 

[8]               On May 24, 2004, Louis Tremblay asked Mallette to send him all of the invoices as well as the cheques paid to the applicant as a consultant. The outside accountant in charge of the ADL Tobacco matter told Mr. Tremblay that she would communicate with ADL Tobacco and would send him the requested information by fax.

 

[9]               On May 28, 2004, the applicant’s accountant filed a voluntary disclosure request for Mr. L’Heureux.

 

[10]           On May 31, 2004, the Agency received by facsimile all of the cheques and invoices requested.

 

[11]           In June 2004, the Agency accepted the tax credit claim by ADL Tobacco.

 

[12]           In support of his application for judicial review, André L’Heureux filed a detailed affidavit on which he was not examined, the salient points are:

(a)        He recognizes that he omitted to declare for income tax purposes certain income earned in the operation of his business Sphere, i.e. fees invoiced and paid by various clients, including ADL Tobacco;

(b)        He consulted his accountant [TRANSLATION] “in the winter of 2004” in order to straighten out this situation. His accountant advised him to make a voluntary disclosure request. He stated [TRANSLATION] “I therefore mandated my accountant to prepare a voluntary disclosure file” which was filed on May 28, 2004 “through my accountant”.

(c)        At the meeting of May 19, 2004, he presented and explained the different SR&ED projects contemplated by ADL Tobacco and answered technical and scientific questions. The financial aspects were the responsibility of ADL Tobacco’s outside accountants;

(d)        He stated [TRANSLATION “I did not open a voluntary disclosure record on May 28, 2004, because I was aware that the credit claimed by ADL Tobacco was under review, but rather because for several months I had wanted to straighten out my personal income tax for the 2002 and 2003 fiscal years”[Emphasis added];

(e)        He also stated that [TRANSLATION “I never feared that the review by the CCRA of the ADL Tobacco tax credit claim would reveal the discrepancies in my personal tax file” but rather that “to the contrary, it seemed entirely normal that the credit claimed  . . . would be reviewed by CCRA before being allowed” and that “in his eyes, the analysis . . . was a completely different matter with no connection to my voluntary disclosure request”. Therefore, “it was not the meeting in May 2004 that prompted me to open a voluntary disclosure file”, that “I would have opened it . . . even if ADL Tobacco had not claimed a tax credit or even if CCRA had not conducted any review of it” [Emphasis added].

 

Analysis

i. The Act and the Circular

[13]           The legislative basis of the VDP is found at subsection 220(3.1) if the Income Tax Act (ITA), which reads:

 

[14]           The Circular elaborates the basic principles of VDP, and I refer to the relevant elements:

(A)    Purpose of the Voluntary Disclosure Program

 

The purpose of the Canada Customs and Revenue Agency's (CCRA) Voluntary Disclosures Program (VDP) is to promote voluntary compliance with the accounting and payment of duty and tax provisions under the Customs Act, Customs Tariff, Income Tax Act, and Excise Tax Act. The VDP encourages clients to come forward and correct deficiencies to comply with their legal obligations. It is a fairness program that is aimed at providing clients with an opportunity to correct past omissions, thus rendering themselves compliant. By offering this opportunity for clients to self-correct, the program provides a greater level of fairness to all clients and stakeholders.

 

(B)               Principles of the Program

 

Clients can make disclosures to correct inaccurate or incomplete information, or to disclose information not previously reported. For example, clients may not have met their tax or duty obligations if they claimed ineligible expenses, failed to remit source deductions or the GST, or did not file the correct customs accounting information. Relief is determined on a case-by-case basis if the disclosure meets the validity conditions listed below. Clients who make a valid voluntary disclosure will have to pay the taxes and duties owing, plus interest. In this situation, the CCRA can provide relief from penalties and prosecution that would otherwise be imposed under the acts listed above, and from specified interest in the case of the Customs Tariff.

 

 

(C) Conditions for a valid disclosure

 

(a)  The CCRA determines that the disclosure is voluntary.

 

The disclosure must be voluntary. The client has to initiate the voluntary disclosure. A disclosure may not qualify as a voluntary disclosure under the above policy if it is found to have been made with the knowledge of an audit, investigation, or other enforcement action that has been initiated by the CCRA, or other authorities or administrations with which the CCRA has information exchange agreements.

 

(b)  The CCRA determines that the disclosure is complete.

 

 

 

(c)  The disclosure involves a penalty.

 

...

 

(d)  The disclosure must include information.

 

…

 

 

(ii) The standard of review

[15]           With regard to the appropriate standard of review, the parties agree that the standard is that of reasonableness simpliciter. I endorse this point of view which in my opinion is consistent with the decisions of the Federal Court of Appeal in Lanno v. Canada (Canada Customs and Revenue Agency), 2005 FCA 153 and Vitellaro v. Canada Customs and Revenue Agency, 2005 FCA 166, and of this Court in Karia v. Minister of National Revenue, 2005 FC 639 and Brown v. Canada, 2005 FC 1639.

 

[16]           Karia and Brown, supra, involve the VDP and, accordingly, are of immediate application in this case. Lanno and Vitellaro contemplated other Agency programs.

 

[17]           Relying on the Supreme Court of Canada’s decision in Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247, I briefly summarize the components or the requirements of the notion of an unreasonable decision:

1. “An unreasonable decision is one that, in the main, is not supported by any reasons that can stand up to a somewhat probing examination.” (paragraph 48). The reviewing court stays close to the reasons given by the tribunal and looks to see whether any of those reasons adequately support the decision . . .

 

2.  When undertaking a correctness review, the Court may undertake its own reasoning process to arrive at the result it judges correct.  When deciding whether an administrative action was unreasonable, the Court should not at any point ask itself what the correct decision would have been.  Applying the standard of reasonableness gives effect to the legislative intention that a specialized body will have the primary responsibility of deciding the issue according to its own process and for its own reasons. The standard of reasonableness does not imply that a decision-maker is merely afforded a “margin of error” around what the court believes is the correct result (paragraph 50).

 

3. Unlike a review for correctness, there will often be no single right answer to the questions that are under review against the standard of reasonableness. . . .  even if there could be, notionally, a single best answer, it is not the Court’s role to seek this out when deciding if the decision was unreasonable (paragraph 51).

 

4. A decision will be unreasonable only if there is no line of analysis within the given reasons that could reasonably lead the tribunal from the evidence before it to the conclusion at which it arrived.  If any of the reasons that are sufficient to support the conclusion are tenable in the sense that they can stand up to a somewhat probing examination, then the decision will not be unreasonable and a reviewing court must not interfere.  This means that a decision may satisfy the reasonableness standard if it is supported by a tenable explanation even if this explanation is not one that the reviewing court finds compelling (paragraph 55).

 

This does not mean that every element of the reasoning given must independently pass a test for reasonableness.  The question is rather whether the reasons, taken as a whole, are tenable as support for the decision. “Applying a somewhat probing examination of the . . . analysis and decision . . . the reasons given . . . taken as a whole [must be] tenable, [and] grounded in the evidence . . .”(paragraph 59).

 

[Emphasis added.]

 

(iii) Findings

 

[18]           The issue before the Court is whether, in applying the standard of review of reasonableness simpliciter, the evidence before the decision-maker, assessed objectively, supported the finding that Mr. L’Heureux’s disclosure was not voluntary because it was connected to an audit by the Agency, i.e. the financial and scientific audit of the SR&ED claim of ADL Tobacco, where the applicant was acting as a scientific consultant.

 

[19]           The role of the reviewing judge is not to substitute his assessment of the evidence to that of the decision-maker, but to examine the decision with the requisite degree of deference (Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226).

 

[20]           When the standard of review is reasonableness, the reviewing judge’s role is not to posit alternate interpretations of the evidence; rather, it is to determine whether the decision-maker’s interpretation is unreasonable, i.e. whether the decision-maker’s finding on this point had some basis in the evidence (see Dr. Q., supra, paragraph 41).

 

[21]           In his memorandum of fact and law, the Attorney General of Canada acknowledges that [TRANSLATION] “the basis of the Minister’s decision is supported by the fact that the Agency’s audit of the research credit at ADL Tobacco is an “audit” within the meaning of paragraph 6(a) of the Circular”.

 

[22]           Second, Mr. L’Heureux admitted that he was aware of this financial and scientific audit, but argued that it was not an “audit or investigation, within the meaning of paragraph 6(a) of the Circular, submitting that the context and the objective contemplated by this audit were different and have too remote a connection with the voluntary disclosure request involving his personal income.

 

[23]           Furthermore, Mr. L’Heureux disputed the decision-maker’s determination to the effect that he filed his voluntary disclosure request because he was aware of this audit. He submitted that the causal link had not been examined. I would add that the decision-maker does not deny that some causal connection must exist between the disclosure and the fact that an audit is in progress.

 

 

[24]           I must dismiss the applicant’s submissions. The notion of “audit” within the meaning of paragraph 6(a) of the Circular cannot be limited to a direct and immediate review of the tax return or the financial statements of an individual, but includes audits of third parties when it is reasonable to believe, under the circumstances, that the purpose and the impact of the audit are sufficiently related to the object of the disclosure, in this case, the applicant’s income. In my opinion, that is the case in this matter.

 

[25]           The decision-maker’s finding to the effect that Mr. L’Heureux had filed his disclosure request because indeed he was aware that the ADL Tobacco audit was in progress is based on an inference reasonably drawn from the evidence before him. I cannot find that this determination by the decision-maker has no basis in the evidence.

 

[26]           Finally, I agree with the Minister that the correctness of the finding that a person’s disclosure was not voluntary because he was aware of an audit must be assessed objectively and not subjectively, i.e. according to the applicant’s intention. Assigning the Minister the burden of establishing the mens rea of the disclosure would not be consistent with the purpose of the Act (a discretionary power to waive a penalty or interest) or the objective of the program, especially since the applicant has the right to discuss his situation anonymously before proceeding (See Brown, supra).

JUDGMENT

1.  This application for judicial review is dismissed with costs.

 

“François Lemieux”

Certified true translation

 

Kelley A. Harvey, BCL, LLB

 

 

FEDERAL COURT

 

SOLICITORS OF RECORD

 

 

DOCKET:                                          T-238-05

 

 

STYLE OF CAUSE:                          André L’HEUREUX v. ATTORNEY GENERAL OF CANADA

 

PLACE OF HEARING:                    Montréal, Quebec

 

 

DATE OF HEARING:                      June 1, 2006

 

 

RASONS FOR JUDGMENT

AND JUDGMENT:                          Lemieux J.

 

 

DATE OF REASONS:                      October 4, 2006

 

 

APPEARANCES:

 

Catherine Pigeon	FOR THE APPLICANT
Yannick Landry	FOR THE RESPONDENT

 

 

SOLICITORS OF RECORD:

 

Catherine Pigeon Savard, Pigeon, avocats 50 Route Président Kennedy Suite 250 Lévis, Quebec, G6V 6W8	FOR THE APPLICANT
John H. Sims, Q.C. Deputy Attorney General of Canada	FOR THE RESPONDENT