BETWEEN:
and
REASONS FOR ORDER
[1] These reasons follow the hearing at Vancouver, British Columbia on September 28, 2006 of an application for judicial review of a decision of an officer (the “Officer”) of the Canada Customs and Revenue Agency, now the Canada Revenue Agency, on behalf of the Minister of National Revenue, denying the second-level request for relief from penalties and interest accumulated by reason of the late filing of the Applicant’s income tax returns for the taxation years 2000, 2001 and 2002.
[2] At the close of the hearing, I advised the Applicant and counsel for the Respondent that the application for judicial review would be allowed and outlined my reasons. I advised that these written reasons would follow.
BACKGROUND
[3] The Applicant first applied for relief from penalties and interest accumulated by reason of her late filing of the relevant income tax returns by letter dated the 11th of May, 2005. She cited the severe stress that she suffered by reason of her role as sole family care giver for her severely ill mother and for her adult sister who suffered from a developmental disability. She also cited her own severe back problems which, she alleged, caused her chronic pain and limited her mobility. She concluded her letter in the following terms:
Regrettably, because of the family demands and my own failing health much of my life had to be put on hold during the period in question. Since my mother has entered the care facility and my sister has settled down, I have been working to get caught up on important areas of my life needing attention. You will note that I did submit all my returns as agreed, with cheques attached for the amounts owing, and have filed early for the 2004 taxation year. I regret not meeting the deadlines, but the circumstances demanded all my attention and energy. I hope this can be taken into account and that my interest and penalty charges will be re-considered.
[4] Under cover of a later letter, the Applicant submitted a letter from her psychologist attesting to the fact that the Applicant had been seen by the psychologist, during the period in question on a by-weekly and/or monthly basis “…to help her cope with the increasing stresses of being the sole support of an ailing mother and an adult sister with developmental disabilities.” The Applicant also provided a letter from her physiotherapist regarding the Applicant’s back problems which eventually required a very serious surgical intervention.
[5] The Applicant’s first level request for relief was rejected by letter dated the 31st of August, 2005.
[6] By letter dated the 22nd of October, 2005, the Applicant requested reconsideration at the second level of fairness review. She cited the same bases for relief. Once again her request for relief was denied, in this case by letter dated the 17th of November, 2005. It is this decision that is here under review.
THE DECISION UNDER REVIEW
[7] The substance of the decision under review is in the following terms:
…
Late filing penalties may be cancelled if they were a result of circumstances beyond a taxpayer’s control. While we can sympathize with the problems that you have encountered with your family, most notably the health of your mother and the problems your sister has faced over the time period in question, the fairness legislation dictates that we look at all the facts surrounding the time period in which your returns were to be filed. You have stated that your mother was hospitalized in July of 2001 for four months. The tax return for 2000 was, in fact, due prior to this.
In accordance with sub-paragraph 10.(a) of Information Circular 92-2 we are required to consider an applicant’s past history of compliance with the Income Tax Act. Our records indicate that from 1989-1998 your tax returns were filed late. There was no late filing penalty because each and every year, your tax return resulted in a refund. One factor that we have to consider is the fact that you were capable of self-employment during this time period. We have also considered whether you acted quickly to remedy any delay. We issued a formal demand for the tax year 2000 in February of 2002. You did not file that tax return until December 2004. We do note that in November of 2004 that you filed promptly, within one month, the three tax returns outstanding after being contacted by an Office Contact Agent.
We have considered the above facts and have determined that the application of the late-filing penalties against the 2000, 2001 and 2002 T1 return was correct. Therefore, your request to have the late-filing penalty cancelled on your 2000, 2001 and 2002 T1 income tax returns is denied.
…
THE LEGISLATIVE SCHEME
[8] The “fairness program” under the Income Tax Act[1] (the “Act”) is founded on subsection 220(3.1) of the 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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[9] 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 decision denying the Applicant’s requests was appropriately designated to do so on behalf of the Minister.
[10] 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”.
[11] 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. |
[12] 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 a 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”.
[13] On the facts of this matter, the Applicant urges that the accumulated penalties and interest should have been waived because the accumulation resulted from circumstances beyond her control, namely, the fulfillment of her responsibilities to her mother and adult sister and her own serious emotional or mental distress and physical disability, all of which, she alleges, were interrelated.
[14] While the Applicant, at hearing, and in her written materials, expressed concern about difficulties in communicating with the appropriate officials at the Canada Revenue Agency, lack of clear and effective communication of the nature, details and process associated with the fairness program and the fact that responsibility for the program was vested in officials whose primary responsibility would appear to be collection of taxes, interest and penalties, thus creating a semblance of conflict of interest on their part, these concerns were not directly pursued as a basis for cancellation or waiving of interest or penalties “…primarily because of actions of the Department…”.
[15] The issue of waiver to “facilitate collection” does not arise on the facts of this matter.
THE ISSUES
[16] In the memorandum of fact and law filed by the Applicant, the points in issue are described as “varied”. They are not well defined.
[17] By contrast, in addition to standard of review, the Respondent, in his memorandum of fact and law, defines the issue 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 Applicant’s Second Request?”
ANALYSIS
Standard of Review
[18] I am satisfied that the appropriate standard of review of the decision 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]
[19] 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].
[20] In amplification of the above, the Respondent’s memorandum of fact and law, at paragraph 22, urges:
Specifically, the Court should not interfere unless the Minister made his decision in bad faith, ignored relevant facts, considered irrelevant facts, or decided contrary to law…. .
[emphasis added]
For this proposition, the Respondent cites Her Majesty the Queen v. Barron[4] and Lanno v. Canada (Customs and Revenue Agency)[5].
APPLICATION OF THE STANDARD OF REVIEW TO THE DECISION UNDER REVIEW
[21] The substance of the decision under review is earlier quoted. It notes that late filing penalties, and, of course, interest as well, may be cancelled if they were a result of circumstances beyond the taxpayer’s control. It expresses sympathy for the problems that the Applicant encountered “…with your family, most notably the health of your mother and the problems your sister has faced…” but makes no mention whatsoever of the Applicant’s own emotional or mental distress, as evidenced by the psychological support that she sought and received or of her debilitating back ailment which was evidenced by correspondence from her physiotherapist. The decision provides no explanation whatsoever as to why the decision maker might have concluded that the difficulties that the Applicant was labouring under in the period of time at issue might be other than “circumstances beyond [her] control”.
[22] The decision letter quite properly focuses on other factors relevant to the decision including the Applicant’s history of late filing and, in the case of one demand for compliance, her slowness in responding. It provides no explanation whatsoever as to why the latter two factors are determined to outweigh the difficulties and burdens that the Applicant was experiencing during the period in question.
[23] It is particularly worthy of note that, while a document entitled “Fairness Request Worksheet – Second Level Review” which appears in the Respondent’s record at pages 36 and 37 notes “emotional and mental distress” as “applicable reasons” for the request for relief and notes the supporting documentation referred to in the foregoing paragraph, it does not cite “serious illness”, as the Applicant’s back trouble undoubtedly was, as an “applicable reason” and the very brief analysis contained in that document leading to the recommendation for denial of the fairness request minimizes the burdens that the Applicant faced during the period at issue.
[24] Against a standard of review of reasonableness simpliciter, I am satisfied that the decision under review must be set aside. It is simply not a decision that is supported by reasons that can stand up to a “somewhat probing examination”. Put another way, and against the Respondent’s own submissions, I simply cannot be satisfied, on the basis of the decision itself, or even on the basis of that decision read together with the above cited Fairness Request Worksheet that was not provided to the Applicant as part of the decision, that the decision maker took into account and gave due weight to all of the relevant facts that were put before him by the Applicant. While the decision arrived at might reasonably have been open, it simply cannot stand on the limited analysis of all of the relevant factors that it provides.
CONCLUSION
[25] For the foregoing reasons, the decision under review will be set aside and the Applicant’s application for relief from penalties and interest imposed in respect of her 2000, 2001 and 2002 taxation years is referred back to the Respondent for reconsideration and re-determination by a different officer.
[26] I am satisfied that costs should follow the event. The self-represented Applicant is entitled to her costs, as against the Respondent, which will be fixed in the lump sum of $200.00.
Ottawa, Ontario
October 4, 2006
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-2237-05
STYLE OF CAUSE: JUDITH CARTER-SMITH
Applicant
and
ATTORNEY GENERAL OF CANADA
Defendant
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: September 28, 2006
APPEARANCES:
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Ms. Judith Carter-Smith
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(Self represented)
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Ms. Johanna Russell
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SOLICITORS OF RECORD:
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Ms. Judith Carter-Smith Vancouver, B.C.
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(Self represented) |
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John H. Sims, Q.C. Deputy Attorney General of Canada Vancouver, B.C.
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[1] R.S.C. 1985, C. 1 (5th Supp.).
[2] [2005] F.C.J. No. 1460 (T.D.), 2005 F.C. 1201, September 2, 2005.
[3] See: Maloshicky v. Canada (Customs and Revenue Agency), [2005] F.C.J. No. 1203, 2005 F.C. 978, July 12, 2005, at para. 10.
[4] 97 D.T.C. 5121 (F.C.A.) at 5122.
[5] 2005 D.T.C. 5245 (F.C.A.) at 5246.