BETWEEN:
and
THE ATTORNEY GENERAL OF CANADA
REASONS FOR ORDER
I. Introduction
[1] These reasons follow the hearing at Kamloops, British Columbia, on September 21, 2006, of a single application for judicial review of two decisions of an officer of the Canada Revenue Agency (the “Officer”) on behalf of the Minister of National Revenue, denying at the second level requests for relief from penalties and interest accumulated in respect of, in the case of Robin Young, his 1998, 1999, 2000, 2001 and 2002 taxation years and, in the case of Merrilea Young, in respect of her 1999, 2000 and 2001 taxation years.
[2] Robin and Merrilea Young are husband and wife. Their requests for relief arise out of identical fact situations. While the general rule is one decision - one application for judicial review, on the facts of this matter significant efficiency and no added complexity flowed from review of the two decisions in a single application and hearing. The Respondent took no objection.
[3] The named Respondent on this application for judicial review was originally the Canada Customs and Revenue Agency, now the Canada Revenue Agency. Counsel for the Respondent, at hearing, requested that the style of cause be amended to reflect the Attorney General of Canada as Respondent. The Applicants, who very effectively and efficiently represented themselves at the hearing, took no objection to the change in the style of cause. Thus, the requested amendment has been incorporated in these reasons.
[4] At the close of hearing, I advised the Applicants and counsel for the Respondent that the application for judicial review would be dismissed and briefly outlined my reasons. I advised that these written reasons would follow.
II. Background
[5] In 1996, the Applicants lived in Tsawwassen, British Columbia. Both worked full-time. They had two young children. They had two investment properties. The Applicants were anxious to change their lifestyle in order to be able to spend more time with their children.
[6] In December 1996, Robin Young purchased all of the shares of Adams Lake Towing Ltd. of Chase, British Columbia. Together with their children, the Applicants moved to Adams Lake and thus gave up their employments in Tsawwassen.
[7] To achieve the purchase of the shares of Adams Lake Towing Ltd., the Applicants incurred substantial debt obligations. They were able to do so with the help of Robin’s father and by using for collateral a boat that Robin operated on the Fraser River. They did not sell their investment properties.
[8] Robin took over responsibility for the day-to-day operations of Adams Lake Towing Ltd. His father became the Controller of the company. Merrilea Young undertook some bookkeeping for the company “…in the way of keeping track of the Petty Cash expenditures and sending the information to [Robin’s father] in Tsawwassen.”
[9] Robin’s parents were aging. While Robin’s father assured the Applicants that his health condition did not impair his ability to function as Controller of the company, in fact, he fell into arrears in the performance of his responsibilities. Robin found that he was required to spend substantial amounts of time commuting from Adams Lake to Tsawwassen to support his parents. In the result, he was not able to spend the amount of time that the Applicants found to be required to operate the company. In the years here at issue, the company was not profitable. Debt obligations mounted. The stress on the Applicants increased.
[10] Despite their difficulties, the Applicants continued to file their tax returns on time. They consulted with officials at the Canada Revenue Agency and were advised that, if they were unable to fulfill all of their tax obligations, they should concentrate on keeping the company current in its obligations. They accepted this advice and, while the company remained current in its obligations, the Applicants’ personal obligations, other than the regular filing of returns, fell into arrears. Thus, by the time they applied for “fairness relief”, accumulated interest and penalties totalled $27,064.28.
III. The Legislative Scheme
[11] The “fairness program” under the Income Tax Act[1] (the “Act”) is founded on subsection 220(3.1) of that Act which reads 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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[12] The discretion of the Minister under subsection 220(3.1) of the Act may be delegated by virtue of subsection 220(2.01). It was not in dispute in this matter that the Officer who made the decisions denying the Applicants’ requests was appropriately designated to do so on behalf of the Minister.
[13] The broad discretionary authority vested in the Minister under subsection 220(3.1) of the Act is supplemented by Information Circular IC-92-2 dated March 18, 1992, and entitled “Guidelines for the Cancellation and Waiver of Interest and Penalties”.
[14] Sections 5, 6 and 7 of the Guidelines read as follows:
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… 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.
6. Cancelling or waiving interest or penalties may also be appropriate if the interest or penalty arose primarily because of actions of the Department, such as:
(a) processing delays which result in the taxpayer not being informed, within a reasonable time, that an amount was owing;
(b) material available to the public contained errors which led taxpayers to file returns or make payments based on incorrect information;
(c) a taxpayer or employer received incorrect advise such as in the case where the Department wrongly advises a taxpayer that no instalment payments will be required for the current year;
(d) errors in processing; or
(e) delays in providing information such as the case where the taxpayer could not make the appropriate instalment or arrears payments because the necessary information was not available.
7. It may be appropriate, in circumstances where there is an inability to pay amounts owing, to consider waiving or canceling interest in all or in part to facilitate collection. For example,
(a) When collection has been suspended due to an inability to pay.
(b) When a taxpayer is unable to conclude a reasonable payment arrangement because the interest charges absorb a significant portion of the payments. In such a case, consideration may be given to waiving interest in all or in part for the period from when payments commence until the amounts owing are paid provided the agreed payments are made on time.
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… 5. Il sera convenable d’annuler la totalité ou une partie des intérêts ou des pénalités, ou de renoncer à ceux-ci, si ces intérêts ou ces pénalités découlent de situations indépendantes de la volonté du contribuable ou de l’employeur. Voici des exemples de situations extraordinaires qui pourraient empêcher un contribuable, un agent d’un contribuable, l’exécuteur d’une succession ou un employeur de faire u paiement dans les délais exigés ou de se conformer è d’autres exigences de la Loi de l’impôt sur le revenu :
a) une calamité naturelle ou une catastrophe provoquée par l’homme comme une inondation ou un incendie;
b) des troubles civils ou l’interruption de services comme une grève des postes.
c) une maladie grave ou un accident grave;
d) des troubles émotifs sérieux ou une souffrance morale grave comme un décès dans la famille immédiate.
6. L’annulation des intérêts ou des pénalités ou la renonciation à ceux-ci peuvent également être justifiées si ces intérêts ou pénalités découlent principalement d’actions attribuables au Ministère comme dans les cas suivants :
a) des retards de traitement, ce qui a eu pour effet que le contribuable n’a pas été informé, dans un délai raisonnable, de l’existence d’une somme en souffrance;
b) des erreurs dans la documentation mise à la disposition du public, ce qui a amené des contribuables à soumettre des déclarations ou à faire des paiements en se fondant sur des renseignements erronés;
c) une réponse erronée qu’un contribuable ou un employeur a reçue concernant une demande de renseignements comme dans le cas où le Ministère a informé par erreur un contribuable qu’aucun acompte provisionnel n’est nécessaire pour l’année en cours;
d) des erreurs de traitement;
e) des renseignements fournis en retard comme dans le cas où un contribuable n’a pus faire les paiements voulus d’acomptes provisionnels ou d’arriérés parce qu’il n’avait pas les renseignements nécessaires.
7. Il peut être convenable dans des situations où il y a incapacité de verser le montant exigible d’examiner la possibilité de renoncer ou d’annuler la totalité ou une partie des intérêts afin d’en faciliter le recouvrement, par exemple dans les cas suivants :
a) lorsque les mesures de recouvrement ont été suspendues à cause de l’incapacité de payer;
b) lorsqu’un contribuable ne peut conclure une entente de paiement qui serait raisonnable parce que les frais d’intérêts comptent pour une partie considérable des versements; dans un tel cas, il faudrait penser à renoncer à la totalité ou à une partie des intérêts pour la période où les versements débutent jusqu’à ce que le montant exigible soit payé pourvu que les versements convenus soient effectués à temps. |
[15] In short, the Guidelines provide for waiver or cancellation of penalties and interest where the penalties and interest have accumulated, in whole or in part, as a result of “…circumstances beyond the taxpayer’s …control”, where penalties and interest have accumulated “…primarily because of actions of the Department, …” which is to say the Canada revenue Agency or where waiver or cancellation will “facilitate collection”.
[16] On the facts of this matter, the Applicants urge that their accumulated penalties and interest should have been waived because the accumulation resulted from circumstances beyond their control, namely, the serious illnesses of Robin’s parents, in particular his father, and because of the serious emotional and mental distress that they were experiencing by reason of the illnesses of Robin’s parents and eventually the death of Robin’s father, as well as by reason of their efforts to manage the debt load they were experiencing. Further, the Applicants urge that they received “incorrect advice” from the Canada Revenue Agency when they were advised to give priority to the obligations of their company rather than to their personal obligations. I do not interpret this latter submission as having been strongly pursued. Certainly, the advice provided and followed worked to protect the Applicants’ principal source of income on a day-to-day basis and for the longer term.
[17] The issue of waiver to “facilitate collection” does not here arise.
IV. The Issues
[18] In the Applicants’ memorandum of fact and law, only a single issue was identified and that in the following terms:
As far as the Applicants are concerned, the only point in issue in these proceedings is whether or not Canada Customs and Revenue Agency should have exercised their discretion in favour of the Applicants under the fairness provisions found in information circular IC-92-2 to cancel penalties and interest.
[19] In the Respondent’s memorandum of fact and law, in addition to raising the issue of standard of review, counsel described the issue before the Court in the following terms:
Did the Minister discharge his duty to act fairly in exercising his discretion under subsection 220(3.1) of the Act to deny the Applicants’ Second Fairness Request?
V. Analysis
A. Standard of Review
[20] I am satisfied that the appropriate standard of review of the decisions here before the Court is reasonableness simpliciter. In Dort Estate v. Canada (Minister of National Revenue)[2], my colleague Justice Sean Harrington wrote at paragraph 8 of his reasons:
In accordance with the decisions of the Supreme Court in Dr. Q. v. College of Physicians and Surgeons of British Columbia,…and Law Society of New Brunswick v. Ryan, …the judicial review of decisions of administrative tribunals must be approached functionally and pragmatically. Depending on the circumstances, the applicable standard of review is correctness, unreasonableness or patent unreasonableness. In Lanno v. Canada (Customs and Revenue Agency),…the Federal Court of Appeal overruled the trial judge who had applied the standard of patent unreasonableness, and held that the appropriate standard was reasonableness. The decision under review in that case was a decision of a tax official not to exercise his discretion under section 152(4.2) of the Act so as to permit the reassessment of Mr. Lanno’s returns beyond the normal reassessment period, which reassessment would have resulted in a refund. That section, like the section in question in this case, section 220(3.1), was part of the Fairness Package which was introduced in 1991. Mrs. Dort submitted that a discretionary decision with respect to the waiver of interest is likewise subject to a reasonableness standard of review. That submission is correct. The Federal Court of Appeal has just recently specifically extended Lanno,…to section 220(3.1) of the Income Tax Act (Comeau c. Agence des douanes et du Revenue du Canada….
[citations omitted]
[21] The reasonableness or reasonableness simpliciter standard provides that a court should not interfere with the decision unless it is clearly wrong in the sense of being based on a wrong principle or a misapprehension of the facts. An unreasonable decision is one that, in the main, is not supported by any reasons that can stand up to a somewhat probing examination. However, a reasonable decision is not necessarily a correct decision, and there can be more than one reasonable decision arising out of the application of a discretionary provision of law to a particular fact situation[3].
B. Application of the Standard of Review to the Decisions under Review
[22] As indicated earlier in these reasons, the two decisions here under review arise out of a single factual background. The Applicants were faced with very substantial financial pressures arising out of a heavy debt load, voluntarily assumed, and personal obligations arising from the aging of Robin’s parents, associated illnesses and the eventual death of Robin’s father. I accept without question that the conjunction of these pressures could well result in serious emotional and mental distress for the Applicants. That being said, I find the following extract from paragraph 60 of the reasons of my colleague Justice James Russell in Neilans v. Canada (Attorney General)[4] to be directly on point:
Ms. Neilans finds the situation she is faced with to be a harsh one. She feels she has paid enough. But the regime under which she labours is equally applicable to all Canadian taxpayers. Her hardships are the result of decision[s] that she has freely made. She created the problem by not filing tax returns and not paying tax….
As with Ms. Neilans, the situation that the Applicants faced was a harsh one. But once again as in the case of Ms. Neilans, the Applicants’ hardship was the result of decisions freely made to change their lifestyle by acquiring a business, to support Robin’s parents in their time of need, to direct what limited resources were available to them to the payment of debts other than their personal income tax obligations, and to preserve, as long as they could, their investment properties against liquidation or refinancing until it became no longer feasible to do so.
[23] One can certainly sympathize with the Applicants in their decision to change their lifestyle. One can further admire the Applicants with their determination to support Robin’s parents in their time of need, even at the expense of being able to devote the time and attention to the affairs of their business when it cried out for their time and attention. The choice of directing resources to certain debts in priority to their tax debt obligations was a voluntary one. One can speculate that other creditors might not have waived penalty and interest obligations if the Applicants had made other choices.
[24] In effect, the Applicants chose to “borrow from Peter to pay Paul” where Peter was the Minister of National Revenue. They chose to do so under a regime equally applicable to all Canadian taxpayers.
[25] In all of the circumstances here before the Court, I am satisfied that, against a standard of review of reasonableness simpliciter, the decisions under review must stand. Put another way, the decisions under review are supported by reasons that can stand up to a somewhat probing examination. They are not decisions that are clearly wrong in the sense of being based on a wrong principle or on a misapprehension of the facts.
VI. Conclusion
[26] Based on the foregoing brief analysis, this application for judicial review will be dismissed. Notwithstanding the request on behalf of the Respondent for costs against the Applicants, I exercise my discretion in that regard to decline to provide any order as to costs.
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1122-05
STYLE OF CAUSE: ROBIN AND MERRILEA YOUNG v.
THE ATTORNEY GENERAL OF CANADA
PLACE OF HEARING: Kamloops, B.C.
DATE OF HEARING: September 21, 2006
REASONS FOR ORDER: GIBSON J.
APPEARANCES:
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Robin Young Merrilea Young
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ON THEIR OWN BEHALF
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Mr. Raj Grewal
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SOLICITORS OF RECORD:
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None
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Mr. John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, ON
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