Ottawa, Ontario, December 2, 2005
PRESENT: THE HONOURABLE MR. JUSTICE BLAIS
BETWEEN:
Applicant
and
CANADACUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR ORDER AND ORDER
[1] This is an application for judicial review of a decision of the Canada Customs and Revenue Agency (CCRA) dated December 13, 2004, in which the Director of the London Tax Services Office (London TSO), Mr. Mark Deakin (the Minister's delegate), determined that Mr. Roderick Evan Brown (the applicant) did not voluntarily disclose his failure to comply with the Excise Tax Act (the Act)
RELEVANT FACTS
[2] The applicant collected GST in the course of carrying on his professional activities as a barrister and solicitor. He did not remit this GST for a number of years. On July 22, 2004, Mr. Greg Atkinson, the applicant's agent, called Michelle Bricaire, a Voluntary Disclosures Program (VDP) officer with the CCRA, to inquire about a hypothetical scenario relating to an unnamed person wishing to disclose his failure to remit collected GST.
[3] On July 23, 2004, the applicant was advised by his agents, Mr. O'Rouke and Mr. Atkinson, of the procedure that should be followed to voluntarily disclose of the GST he had collected but failed to remit for a number of years.
[4] On September 1, 2004, Mr. Stephen Gow of the CCRA Verification and Enforcement Division of the London TSO sent a letter to the applicant advising him that his 2001 and 2002 income tax returns were under review. This letter was received by the applicant on September 2, 2004.
[5] On September 7, 2004, the London TSO received a letter from the applicant, dated July 23, 2004, in which the applicant expressed his wish to make a voluntary disclosure of the GST he had failed to remit over the course of several years.
[6] On December 13, 2004, the CCRA advised the applicant that his disclosure of unreported GST could not be considered voluntary.
[7] On December 16, 2004, the applicant requested that the CCRA review the December 13, 2004 decision. The Minister's delegate was in charge of this review process.
[8] On December 31, 2004, the Minister's delegate confirmed that there was no voluntary disclosure since enforcement action had commenced prior to the applicant's disclosure letter of September 7, 2004. The Minister's delegate was specifically referring to the letter the applicant received on September 2, 2004 informing him that his 2001 and 2002 income tax returns were under review.
ISSUES
1. Did the Minister's delegate err in fact in rendering his decision?
2. Did the Minister's delegate fail to observe procedural fairness in rendering his decision?
ANALYSIS
[9] The present matter deals with a decision involving the Minister's exercise of discretion. In Babin v. Canada(Customs and Revenue Agency) [2005] F.C.J. No. 1195, Justice Noël asserts that the applicable standard of review for decisions involving the Minister's exercise of discretion is reasonableness:
Where a body such as the CCRA is given a broad discretion like that accorded by s. 220(3.1) of the ITA, the deference shown to that body should be broad. The reviewing court should consider whether the discretion was "exercised in good faith and, where required, in accordance with the principles of natural justice, and where reliance has not been placed upon considerations irrelevant or extraneous to the statutory purpose" (see Re Maple Lodge Farms Ltd. v. Government of Canada, [1982] 2 S.C.R. 2 at 4 ("Maple Lodge Farms"); Barron v. Minister of National Revenue, 97 D.T.C. 5121 (F.C.A.) at 5122 ("Barron")). If these criteria are properly met, the Court should not interfere. The Court may not substitute its opinion simply because it would have come to a different conclusion (Maple Lodge Farms, supra at 4; Barron, supra at 5122).
Therefore the standard of review on this application for judicial review is that of reasonableness (Lanno v. Canada (Customs and Revenue Agency), [2005] F.C.J. No. 714, 2005 FCA 153 at para. 7; Hillier v. Canada (Attorney General) (2001), 273 N.R. 245, [2001] 3 C.T.C. 157, 2001 D.T.C. 5399 (F.C.A.).
1. Did the Minister's delegate err in fact in rendering his decision?
[10] In Karia v. Canada(Minister of National Revenue - M.N.R.), 2005 FC 639, [2005] F.C.J. No. 774. Justice Strayer outlines the statutory framework for the VDP as well as the motivation behind such an initiative:
Subsection 220(3.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th sup.) authorizes the Minister to waive or cancel all or any portions of a penalty or of interest otherwise payable under that Act. Section 281.1 of the Excise Tax Act, R.S.C. 1985, c. E-15 makes similar provision for the waiving of penalties and interest with respect to the Goods and Services Tax. This discretionary power is exercised in part by a Voluntary Disclosures Program which was described, at the time in question, by Information Circular 00-1R dated September, 2002. It states the purpose of the program to be to promote voluntary compliance with reporting and payment of taxes and "encourages clients to come forward and correct deficiencies to comply with their legal obligations".
The incentive for making voluntary disclosures of past omissions under this program is that if full disclosure is made to the satisfaction of the CCRA then the discretion of the Minister may be exercised so as to waive all or part of the penalties that otherwise could be imposed.
[11] The purpose of the VDP is to promote voluntary compliance with the payment of GST. The VDP is commonly referred to as a "fairness program" devised and administered by the CCRA. Relief under the VDP is determined on a case-by-case basis. The CCRA may provide relief from penalties and prosecution when a taxpayer voluntarily discloses omissions or deficiencies.
[12] The necessary conditions for a valid disclosure are set out in paragraph 6 of the Information Circular 00-1R, dated September 30, 2002 (the Information Circular). The CCRA must determine that the disclosure is voluntary, complete, involves a penalty and includes information that is: at least one year past due, or if less than one year past due, not initiated simply to avoid the late filing or installment penalties. In Karia (supra), Justice Strayer states that "it is common ground that the Information Circular is made available to the public and that the applicants and their legal representative proceed in their disclosures on the basis of the information provided in this circular".
[13] For the purposes of the present matter, the most important condition for a valid disclosure is its voluntary nature. Paragraph 6(a) of the Information Circular defines voluntary disclosure as follows:
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.
[14] Prior to making a voluntary disclosure of their failure to comply with their obligations under a taxing statute, taxpayers may inquire about their situations on a "no-name" basis with a VDP officer of the CCRA. The procedure enables a taxpayer to present a hypothetical scenario to the CCRA without identifying himself. At that time, the VDP officer may indicate whether such a hypothetical scenario meets the voluntary disclosure conditions, leaving the taxpayer to decide whether he wishes to make an actual disclosure.
[15] In terms of a no-name situation, the VDP Processing Guidelines (the Guidelines) indicate that either the taxpayer or his or her representative can initiate the disclosure procedure. The Guidelines state the following at paragraph 8.2.1:
Once the process has been clarified in general terms, the client can then provide details concerning the disclosure. This can be done in one of two ways
1. A client or representative can provide the necessary identification information and proceed
with the disclosure; or
2. A representative can provide details of an un-named clients situation in order to
determine whether the client would want to make the disclosure.
Form VDP-1, Client Agreement Form, is available for both these purposes and is provided in Appendix A (PDF). The client or representative may sign the form to acknowledge that they understand the VDP policy, as well as the implications of making a disclosure. In the case of a named disclosure (situation 1 above), the case should be registered on the fairness Registry.
[16] The date the taxpayer identifies himself or the date the taxpayer or his representative signs the client agreement form, whichever of the two is earliest, is the date the taxpayer is considered to have made the disclosure. As stated at paragraph 8.2.2 of the Guidelines, that date becomes the effective date of the disclosure:
8.2.1 Effective Date of Disclosure
Whether the disclosure is named or un-named, the earlier of the date the client is identified or the date the client or representative signs the Client Agreement Form is the date the client can be considered to have made a disclosure, which becomes the effective date of disclosure.
[17] The applicant claims that the VDP Guidelines at paragraph 8.1.3 indicate that if the information from a no-name disclosure proves to be in conformity with what was represented earlier, the effective date of disclosure will be deemed to be the earlier date of the no-name representation. Paragraph 8.1.3 states the following:
[...] The VDP officer can make a complete determination of whether such a hypothetical disclosure would be valid as presented. In all cases, such determinations can be provided in writing, but should always include a statement to the effect that the determination is based on the facts as presented and could change if any new details come to light during the handling of the actual disclosure.
The decision to accept a no-name disclosure must be approved by the proper designated authority under the fairness provisions. If the information provided by a client during an actual disclosure meets the four conditions for a valid VDP, the CCRA will honour any previous commitment during a "no-name" process. This means that it is imperative that the designated authority approves the conditional "no-name" determination.
[18] The applicant submits that his agent called Michelle Bricaire, a VDP officer with the CCRA on July 22, 2004, with the intent of making a no-name voluntary disclosure of non-remitted GST. As such, he claims that the effective date of disclosure occurred in July 2004 and not after knowledge of an audit proceeding commenced on September 1, 2004. As such, the disclosure must be deemed voluntary as it conforms with paragraph 6(a) of the Information Circular.
[19] The Guidelines at paragraph 8.1.3 clearly state that all no-name disclosure determinations are to be in writing. Further, because the effective date of disclosure can be deemed to occur when the no-name representations took place, it is imperative that the designated authority approves the no-name determination.
[20] In her email to Mr. Mark Deakin, Ms. Bricaire asserts that she did not discuss the no-name disclosure with the applicant's representative in July 2004. She is of the opinion that the conversation that took place was of a general nature. She submits that if the applicant's representative had made it clear that no-name disclosure was to commence at that time there would have been written correspondence indicating as much:
I do not dispute that it was the rep's intention to make a VD back in July. At that time he sought info into the number of years CRA would require for a disclosure to be considered complete. He then took this info back to his client. Unfortunately, I do not remember whether we did in fact discuss the no-name option. However, if I had, I would have indicated that we require something in writing. In such cases, I also always follow up with a letter confirming this request.
(Email to Mr. Mark Deakin from Ms. Michelle Bricaire, dated December 21, 2004, page 39 of applicant's record)
[21] In the cross-examination to his affidavit, Mr. Mark Deakin asserts that if the real intention of the applicant and his representative was to begin the no-name disclosure process with Ms. Bricaire the policy regarding such matters dictates that written correspondence is to occur. Because no written exchanges occurred between Ms. Bricaire and the applicant's representative, Mr. Deakin assumes that their conversation was of a general nature and that it was not the intention of the applicant to begin disclosure at that specific time.
Well I know what a no-name option means. It's...it's when there's...my understanding of how our policy works on that is somebody provides a no-name option and we say we want that in writing and then you have up to 30 days in which to make your declaration but there's a written exchange. There's no written exchange here so I would make the assumption that the type of conversation that went on here that I just mentioned was to generic in nature.
(Cross-examination on affidavit of Mr. Mark Deakin dated April 11, 2005, page 64 of applicant's record)
[22] Mr. Mark Deakin concluded that no-name voluntary disclosure did not occur in July 2004. I find this to be a reasonable conclusion considering that in the present matter the no-name option was not even discussed when the applicant's representative contacted the VDP officer in July 2004 and no no-name disclosure determinations were made by the VDP officer, nor approved by the designated authority (see VDP Guidelines paragraph 8.1.3). As such, the real disclosure occurred on September 7, 2004, when the London TSO received a letter from the applicant. However, that disclosure could not be considered voluntary, as required by subparagraph 6(a) of the Information Circular because on September 2, 2004, the applicant received knowledge that he was being audited. Voluntary disclosure cannot occur if it is commenced after receiving knowledge of an audit.
[23] In the case at bar I find that the Minister's delegate, Mr. Mark Deakin exercised his discretionary authority in good faith and in accordance with the Information Circular. I find that an analysis of all the evidence occurred and that Mr. Mark Deakin's decision was reasonable and not based on an erroneous finding of fact.
2. Did the Minister's delegate fail to observe procedural fairness in rendering his decision?
[24] The applicant submits that if voluntary disclosure proceedings are deemed to have been initiated on September 7, 2004 and not in July 2004, then the applicant was denied procedural fairness. The applicant contends that the terms of the VDP Guidelines create procedural entitlements and constraints which prevent the Minister's delegate's discretion being exercised as it was in the present matter by concluding that the applicant's disclosure was not voluntary. Ultimately, the applicant submits that he was denied procedural fairness because the VDP officer did not inform his representative about all the issues surrounding the no-name disclosure procedure. As such, he claims that the conversation his representative had with the VDP officer in July 2004 was not considered as being the effective date for which voluntary disclosure took place and that this constitutes a breach of procedural fairness.
[25] Before the Court, the applicant suggests that Ms. Bricaire, the VDP officer who had a telephone conversation with his agent, had a duty to offer that agent the "no-name disclosure" option and provide a form and an ID PIN number. However, the evidence provided does not suggest that there was any request on the part of the applicant's agent for the aforementioned option and items.
[26] The applicant failed to convince the Court that an obligation exists on the part of the respondent to provide all options available to a tax payer that has failed to comply with his obligation under a taxing statute. In my view, such an obligation is unlikely considering the applicant was not identified and requested information through an agent.
[27] It is common ground that the Information Circular and the Guidelines concerning the VDP are not delegated legislation and have no force of law as such. These Guidelines do not have binding force and are not binding on the Minister in the exercise of his discretionary authority. They cannot exclude all other valid or relevant reasons for which the Minister might exercise his discretionary authority or refuse to do so. This Court can only intervene if the discretion is not exercised in good faith or in accordance with the principles of natural justice (Maple Lodge Farms Ltd. v. Government of Canada, [1982] 2 S.C.R. 2).
[28] In the present matter, I am satisfied that when the applicant's representative contacted the VDP officer it was only for general enquiries and not for the commencement of the voluntary disclosure procedure. With this being the case I find it reasonable that the VDP officer did not advise the applicant's representative of all the policies surrounding the no-name option under the VDP Guidelines. Further, I find the decision of the Minister's delegate, in part based on the VDP officer's interaction with the applicant's representative, not unreasonable in concluding that the applicant did not meet the requirements of a voluntary disclosure. Because the Minister's delegate's decision was reasonable, based on the evidence placed before him, I find that there was no breach of procedural fairness.
[29] Therefore, I see no reason justifying the intervention of this Court.
ORDER
THIS COURT ORDERS THAT:
The application for judicial review be dismissed with costs in favour of the respondent.
"Pierre Blais"
Judge
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-151-05
STYLE OF CAUSE: Roderick Evan Brown v. Canada Customs and Revenue Agency
PLACE OF HEARING: London, Ontario
DATE OF HEARING: November 28, 2005
REASONS FOR ORDER AND ORDER: BLAIS J.
APPEARANCES:
| Roderick Evan Brown
|
|
| Jade Boucher
|
SOLICITORS OF RECORD:
| Roderick Evan Brown 555 Exmouth Street Sarnia, Ontario
|
|
| John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Ontario
|