Edmonton, Alberta, October 6, 2006
PRESENT: The Honourable Mr. Justice Blais
BETWEEN:
and
THE ATTORNEY GENERAL OF CANADA
REASONS FOR JUDGMENT AND JUDGMENT
[1] This is an application under section 18.1 of the Federal Court Act, R.S.C. 1985, c. F-7, for judicial review of a decision rendered by the Director of the Winnipeg Tax Centre, Canada Revenue Agency (CRA), on January 16, 2006, whereby he refused to reverse the initial decision not to waive the penalty and interest owing by the applicant under the Excise Tax Act, R.S.C. 1985, c. E-15 (the “Act”), pursuant to the fairness legislation.
BACKGROUND
[2] The applicant became self-employed in 1997, at which time he met with his accountant who determined that the applicant would not need to register for and report GST, as he did not expect to make supplies in excess of $30,000.
[3] In fact, since 1998, the applicant has reported gross income from self-employment in excess of $30,000, in T1 returns of income, for the purposes of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).
[4] In the course of an audit by the CRA’s Registrants Identification Program, it was determined that the applicant was not accounting for GST correctly and on February 24, 2005, the CRA registered the applicant for GST purposes, with an effective date of January 1, 2001.
[5] The CRA contacted the applicant on March 23, 2005, in regards to the overdue GST returns. On May 18, 2005, the applicant filed GST returns for the periods covering 2001 through 2004. The 2001 and 2003 returns were filed with an amount owing, while the 2002 and 2004 returns were filed for refunds.
[6] The applicant was then assessed for unremitted GST, with the refunds being applied to the amounts owing from the debit returns. Penalty and interest were also assessed and the applicant was informed of the amounts due.
[7] By letter dated July 14, 2005, Millar Hall Ltd., General Accountants, on behalf of the applicant, filed a request to cancel the taxes owing, or alternatively to cancel the penalty and interest owed by the applicant.
[8] The request was denied in a letter dated August 29, 2005. In this letter, the decision maker stated:
It is the responsibility of a sole proprietor to keep track of his total taxable revenues and if the revenues (before expenses) exceed $30,000.00 in a single calendar quarter or in four consecutive calendar quarters he must register for and collect GST. Not being aware of this requirement is not considered an extraordinary circumstance under the parameters of “extraordinary circumstances beyond the registrant’s control” as defined by the fairness legislation.
(Refusal letter dated August 29, 2005, included at page 24 of the Respondent’s Record)
[9] By an undated letter delivered to the CRA on November 14, 2005, the applicant filed a second request to waive interest and penalties on his GST account.
[10] By letter mistakenly dated January 16, 2005 (instead of 2006), the applicant’s second request was denied. It is this second decision that is the subject of judicial review.
ISSUES FOR CONSIDERATION
[11] The central issue for consideration is whether the decision maker committed a reviewable error in dismissing the applicant’s request under the fairness legislation. In making this determination, this Court must answer the following questions:
§ Was there a duty on the part of the Canada Revenue Agency to inform the applicant that he must register for and collect GST?
§ Did the Minister err in not waiving the penalties and interest on the applicant’s GST account?
§ Did the Minister err by not refunding interest based upon an overpayment on the part of the applicant?
§ Did the Minister err by relying on a misapprehension of a relevant fact?
STANDARD OF REVIEW
[12] The Federal Court of Appeal in Lanno v. Canada (Customs and Revenue Agency), [2005] F.C.J. No. 714, found that a discretionary decision made under the ‘fairness package’ of the Income Tax Act should be subject to a standard of reasonableness. In reaching this conclusion, the Court engaged in a pragmatic and functional analysis and considered the following factors at paragraph 6:
(1) The fairness package was enacted because Parliament recognized the need for relief from certain provisions of the Income Tax Act that can result in undue hardship because of the complexity of the tax laws and the procedural issues entailed in challenging tax assessments. The granting of relief is discretionary, and cannot be claimed as of right. This factor would point to a standard of review that is more deferential than correctness.
(2) The decision under review cannot be appealed, but it is subject to judicial review by the Federal Court, and it is not protected by a privative clause. That would point to a reasonableness standard.
(3) The decision under review combines fact finding with a consideration of the policy of tax administration, and sometimes questions of law. The expertise of the decision maker is undoubtedly higher than that of the courts in relation to matters of the policy of tax administration. However, the expertise of the decision maker is not higher than that of the courts in relation to questions of law or findings of fact. That would point to a reasonableness standard.
[13] As stated by Justice Micheal L. Phelan in Charlottetown Bottle and Metals Ltd. v. Canada (Minister of National Revenue), [2005] F.C.J. No. 2002, the relevant provisions of the Excise Tax Act as relates to the fairness legislation are essentially the same as those in the Income Tax Act, so that the standard of review should be the same, namely reasonableness.
[14] As stated by Justice Frank Iacobucci in Canada (Director of Investigation and Research) v. Southam, [1997] 1 S.C.R. 748 at paragraph 56, “[a]n unreasonable decision is one that, in the main, is not supported by any reasons that can stand up to a somewhat probing examination”.
ANALYSIS
Was there a duty on the part of the CRA to inform the applicant that he must register for and collect GST?
[15] In answering the applicant’s claim that he relied on the notices of assessment that were sent to him and that it was the responsibility of the CRA to inform him that he had to report and remit GST, the respondent notes that the duty is not upon the CRA to audit the taxpayer’s account so that the taxpayer will know whether the remittances are made properly or not. It is a self-assessing system and the duty lies upon the taxpayer to do this work. Furthermore, there is no reason to believe that an assessment of tax under one statute, equates to an assessment of tax under all statutes. The notices of assessment referred to by the applicant are assessments under the Income Tax Act and do not assess, nor refer to, the applicant’s GST liabilities under the Excise Tax Act.
[16] The respondent further argues that, if the applicant’s position were to be accepted, then no one should ever pay interest or penalty from a reassessment, since they could claim to have relied upon earlier assessments. Such reasoning would likely encourage incorrect filings and would lead to a breakdown of the self-assessing system.
[17] Having considered the matter, I find that I must concur with the respondent’s analysis. While there is no question that the tax system in Canada is complex, the responsibility still lies with the taxpayer to ensure that returns are filed properly and, in the case of a self-employed individual, that GST is properly accounted for when his business generates supplies in excess of $30,000. Furthermore, the applicant himself has acknowledged consulting with an accountant who disclosed the necessity of registering for a GST number in such circumstances. Yet, when his business began generating supplies in excess of $30,000, he did nothing. As such, this Court must agree with the respondent that the applicant clearly knew, or ought to have known, that he was not reporting GST properly.
Did the Minister err in not waiving the penalties and interest on the applicant’s GST account?
[18] In reviewing the decision in this case, it is important to keep in mind that the power of the Minister, as set out in subsection 281.1(1) of the Act, is a discretionary power, and as such, there is no obligation on the part of the Minister to reach any given conclusion. The extent of the obligation on the part of the decision maker is articulated by Justice Yvon Pinard in Edwards v. Canada, [2002] F.C.J. No. 841, at paragraph 14:
A discretionary power of this nature must be exercised in good faith, in accordance with the principles of natural justice, taking into account all relevant considerations and without regard to irrelevant or extraneous ones.
[19] Subsection 280(1) of the Act imposes a liability for penalties and interest on amounts not remitted to the Receiver General as required under the Act. As noted by the respondent, the liability of a taxpayer to pay penalties and interest results from the application of the Act itself, not from any discretionary decision of the Minister to impose such penalties and interest.
[20] Instead, the statutory provision that grants the ministerial discretion is found at subsection 281.1 (1) of the Act, and simply states that the Minister may waive or cancel penalties and interest. Any further directions as to how this discretion might be exercised are found in GST Memorandum 500-3-2-1 (the “Memorandum”). Paragraph 3 of the Memorandum states the following:
This memorandum sets out the administrative guidelines under which the cancellation or waiver of penalties and interest may be considered. The administrative guidelines are neither all encompassing nor meant to restrict the spirit or intent of the legislation. These guidelines may be adjusted in the future if the Department considers it necessary.
[21] While there is no question that such a memorandum does not have the force of legislation, the respondent does acknowledge that it reflects some of the considerations used by the Minister in his determination.
[22] The applicant argues that penalties and interest should have been waived as per paragraph 7 of the Memorandum, because these penalties and interest were incurred primarily because of the actions of the Department. In other words, the applicant argues that the omissions on his part were the result of misinformation provided by the Minister. This argument rests on the fact that he was not advised by the CRA eight years ago that he needed to obtain a GST number. The respondent argues, and I must agree, that such notification is not, as discussed above, the responsibility of the CRA and is not contemplated as a possible ground for waiver under paragraph 7. As the applicant has not submitted any evidence that would support a claim that the CRA was at fault under any of the grounds enumerated under paragraph 7, this argument cannot succeed.
[23] The applicant further submits that, pursuant to paragraph 8(b), penalties and interest should be waived when they represent a significant percentage of the amount owing. In this case, the applicant submits that penalties and interest represent 183% of the amount owing. While the respondent does not question the figure submitted by the applicant, it does point out that the applicant has failed to consider paragraph 8 in its entirety. Paragraph 8 of the Memorandum reads as follows:
It may be appropriate for the Department, in circumstances where there is an inability on the part of the person to pay amounts owing, to consider cancelling or waiving penalties and interest in whole or in part to facilitate collection. […] [emphasis added]
[24] Before looking at the specific grounds that are provided as examples under paragraph 8, the decision maker must first determine that the applicant has demonstrated an inability to pay the amount owing. In his application to the Minister for fairness review, the applicant did not provide any evidence to that effect, so that there was no need for the decision maker to proceed further.
[25] Considering all of the above, I must conclude that the decision of the Minister not to waive penalties and interest was reasonable based on the evidence before him.
Did the Minister err by not refunding interest based upon an overpayment on the part of the applicant?
[26] The applicant also submits that paragraph 13 of the Memorandum requires that interest be refunded on amounts returned and that, while he received a refund for the years 2002 and 2004, no interest was credited for those years.
[27] Beyond the basic argument that the Minister is not required to do anything subject to the Memorandum, the respondent further submits that the applicant misunderstood the ‘interest’ referred to, as those are interest on “amount refunded to the person on any reassessment that cancels all or any portion of penalties and interest previously paid”. In other words, the paragraph refers to situations where the Minister has determined it appropriate to waive interest or penalties and issues reassessments to that effect.
[28] On this issue, I must also agree with the respondent; since no determination was made to waive penalties and interest that were already paid, this paragraph does not apply to the applicant.
Did the Minister err by relying on a misapprehension of a relevant fact?
[29] The applicant finally submits that a payment on GST owing was made in May of 2005, but that it was misdirected by the CRA to his 2005 income tax liability. The applicant also alleges a number of other administrative errors on the part of the CRA, in support of which no evidence has been submitted.
[30] As stated by Justice Dolores Hansen in Johnston v. Canada, [2003] F.C.J. No. 919 at paragraph 23, where a fairness decision of the Minister is based on a misapprehension of the facts, the Court may interfere.
[31] On the issue of a misdirected GST payment, the respondent notes that no evidence has been submitted to that effect and that the respondent has been unable to substantiate the applicant’s claim. However, the respondent admits that if there was any error, it might be found in the CRA reports prepared for the Director stating that “No payments have been made on the account after numerous notices have been sent out” (Exhibit L of the Affidavit of Ian Gray, reproduced at page 47 of the Respondent’s Record). However, even if this alleged error did occur, it was immaterial to the Minister’s decision that the applicant did not qualify for a waiver under subsection 281.1(1) of the Act. As noted by the respondent, the relevant facts in this determination were: whether the applicant’s failure to file correctly was the result of misinformation provided by the Minister; whether the applicant demonstrated an inability to pay; and whether the applicant was entitled to a refund of an overpayment of interest.
[32] The fact that the applicant has already made one payment on the amount owing might show a willingness to remedy the omission, as set out in paragraph 9 of the Memorandum. However, this paragraph provides a series of factors that may be considered by the Minister once it has been established that “an extraordinary circumstance beyond the person’s control has prevented the person from complying with the Act”. Such has not been established in this case.
[33] Therefore, on this final issue, I agree with the respondent that the applicant has not demonstrated to this Court that the Minister erred by relying on a relevant misapprehension of the facts in reaching his decision to deny the waiver of penalties and interest.
JUDGMENT
The application is dismissed.
“Pierre Blais”
Judge
ANNEX A
PERTINENT LEGISLATION AND ADMINISTRATIVE GUIDELINES
The following sections from the Act are relevant to the issues raised:
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280. (1) Subject to this section and section 281, where a person fails to remit or pay an amount to the Receiver General when required under this Part, the person shall pay on the amount not remitted or paid (a) a penalty of 6% per year, and (b) interest at the prescribed rate, computed for the period beginning on the first day following the day on or before which the amount was required to be remitted or paid and ending on the day the amount is remitted or paid.
281.1 (1) The Minister may waive or cancel interest payable by a person under section 280. (2) The Minister may waive or cancel penalties payable by a person under section 280. |
280. (1) Sous réserve du présent article et de l’article 281, la personne qui ne verse pas ou ne paie pas un montant au receveur général dans le délai prévu par la présente partie est tenue de payer la pénalité et les intérêts suivants, calculés sur ce montant pour la période commençant le lendemain de l’expiration du délai et se terminant le jour du versement ou du paiement : a) une pénalité de 6 % par année; b) des intérêts au taux réglementaire.
281.1 (1) Le ministre peut annuler les intérêts payables par une personne en application de l’article 280, ou y renoncer. (2) Le ministre peut annuler la pénalité payable par une personne en application de l’article 280, ou y renoncer. |
The following paragraphs from GST Memorandum 500-3-2-1 – Assessments and Penalties Cancellation or Waiver of Penalties and Interests will also be considered:
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7. The cancellation or waiver of penalties and interest may also be appropriate in some circumstances if the penalties and interest were incurred primarily because of the actions of the Department. For example:
(a) processing delays that resulted in the person not being informed within a reasonable amount of time that an amount was owing; (b) errors in departmental publications, which led the person to file returns or make payments based on incorrect information; (c) incorrect written information provided in an interpretation or notice given to a specific person by the Department; (d) departmental errors in the processing of GST returns or information; or (e) delays in providing information necessary for the person to comply with the Act.
8. It may be appropriate for the Department, in circumstances where there is an inability on the part of the person to pay amounts owing, to consider cancelling or waiving penalties and interest in whole or in part to facilitate collection. For example:
(a) when collection has been suspended due to an inability to pay; (b) when a person is unable to conclude a reasonable payment arrangement because the penalty and interest charges represent a significant portion of the payments. In such cases, consideration may be given to waiving penalties and interest in whole or in part for the period beginning on the first payment due date under the payment arrangement until the amounts owing are paid, provided the agreed payments are made on time.
9. Where an extraordinary circumstance beyond the person's control has prevented the person from complying with the Act, the following factors will be considered by the Department to determine whether or not penalties and interest will be cancelled or waived:
(a) Does the person have a satisfactory history of voluntary compliance (i.e., have previous GST returns been filed and payments made on time)? (b) Has the person knowingly allowed an outstanding balance to exist upon which the penalties and interest have accrued? (c) Has the person acted quickly to remedy the omission or the delay in compliance, which originally resulted in penalties and interest being charged? (d) Is there evidence that the person exercised reasonable care and diligence (e.g., planned for anticipated disruptions) and was not negligent or careless in the conduct of its affairs? The onus is on the registrant to keep abreast of any new developments in the administration of the GST so as to ensure continuing compliance.
13. By virtue of subsection 296(6) of the Act, the Minister shall pay interest on any amount refunded to the person on any reassessment that cancels all or any portion of penalties and interest previously paid. Interest will be calculated beginning on the day that the amount was paid by the person and ending on the day the refund is paid by the Department.
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7. L'annulation des pénalités et des intérêts ou la renonciation à ceux-ci peuvent également être indiquées dans certains cas où ces pénalités et intérêts découlent principalement d'actions attribuables au Ministère, par exemple :
a) des retards de traitement ayant eu pour effet que la personne n'a pas été informée, dans un délai raisonnable, de l'existence d'une somme en souffrance; b) des erreurs dans les publications ministérielles, ce qui a amené la personne à produire des déclarations ou à verser des paiements en se fondant sur des renseignements erronés; c) des renseignements écrits inexacts fournis à une personne donnée dans une interprétation ou un avis du Ministère; d) des erreurs ministérielles dans le traitement des déclarations de TPS ou des renseignements; e) des retards quant à la fourniture de renseignements nécessaires pour que la personne puisse se conformer à la Loi.
8. Dans les situations où il y a incapacité de la part de la personne de verser les montants dus, il peut être indiqué pour le Ministère d'examiner la possibilité d'annuler la totalité ou une partie des pénalités et des intérêts, ou d'y renoncer, afin d'en faciliter le recouvrement, par exemple dans l'un des cas suivants :
a) lorsque les mesures de recouvrement ont été suspendues à cause de l'incapacité de payer; b) lorsqu'une personne ne peut conclure une entente de paiement qui serait raisonnable parce que les pénalités et les frais d'intérêts représentent une partie considérable des versements; dans un tel cas, il y a lieu de penser à renoncer à la totalité ou à une partie des pénalités et des intérêts pour la période allant de la date d'échéance du premier paiement en vertu de l'entente de paiement jusqu'au moment où les montants dus sont payés, pourvu que les versements convenus soient effectués à temps.
9. Lorsque des circonstances extraordinaires indépendantes de la volonté d'une personne ont empêché celle-ci de se conformer à la Loi, les facteurs suivants seront pris en considération par le Ministère pour déterminer s'il doit annuler les pénalités et les intérêts ou y renoncer :
a) La personne a-t-elle des antécédents satisfaisants d'observation volontaire (c.-à-d. les déclarations de TPS précédentes ont-elles été produites et les paiements ont-ils été versés à temps)? b) La personne a-t-elle, en connaissance de cause, laissé subsister un solde en souffrance sur lequel se sont accumulés les pénalités et les intérêts? c) La personne a-t-elle agi avec diligence pour remédier à tout retard ou à toute omission en matière d'observation qui a donné lieu à l'imposition initiale des pénalités et des intérêts? d) Y a-t-il des preuves selon lesquelles la personne a fait preuve de prudence et de diligence (p. ex. a pris des précautions en vue de troubles prévus) et n'a pas fait preuve de négligence ni d'imprudence dans la conduite de ses affaires? Il revient à l'inscrit de se tenir au courant de tout changement apporté à l'administration de la TPS de manière à assurer qu'il continue à observer la Loi.
13. En vertu du paragraphe 296(6) de la Loi, le ministre doit payer des intérêts sur tout montant remboursé à la personne relativement à toute nouvelle cotisation comportant l'annulation de la totalité ou d'une partie des pénalités et des intérêts déjà payés. Les intérêts sont calculés pour la période commençant le jour où le montant a été payé par la personne et se terminant le jour où le remboursement est payé par le Ministère.
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FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-379-06
STYLE OF CAUSE: MARVIN BOONSTRA v.
ATTORNEY GENERAL OF CANADA
PLACE OF HEARING: EDMONTON, AB
DATE OF HEARING: OCTOBER 4, 2006
REASONS FOR JUDGMENTY AND JUDGMENT: BLAIS J.
APPEARANCES:
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Mr. Marvin Boonstra
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Mr. David Besler
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SOLICITORS OF RECORD:
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Not applicable
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John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Ontario
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