Date: 20040507
Docket: T-1186-02
OTTAWA, Ontario, this 7th day of May, 2004
Present: THE HONOURABLE MR. JUSTICE KELEN
BETWEEN:
ELEONORA GALETZKA
Applicant
- and -
THE MINISTER OF
CANADA CUSTOMS AND REVENUE
Respondent
REASONS FOR ORDER AND ORDER
[1] This is an application for judicial review of a June 25, 2002 "fairness decision"of the Minister of National Revenue ("Minister") as represented by Mr. M. J. Walker, Manager of Revenue Collections at the Toronto North Tax Services Office, which denied the applicant's request to waive interest charges relating to her 1990 personal income tax return, pursuant to subsection 220(3.1) of the Income Tax Act, R.S.C. 1985, (5th Supp.), c. 1, as amended ("ITA").
FACTS
[2] The applicant, a 54 year old woman, was employed as Head Housekeeper at the Muskoka Riverside Inn, in Bracebridge, Ontario. The amount of taxes owed from her 1990 personal tax return was $8, 931.06, and the accumulated interest, as of June 13, 2003, was $13, 078.11.The applicant's income is currently, and has been garnisheed by Canada Customs and Revenue Agency ("Agency") since about 1995. She has repaid the total taxes owing plus some. She claims that she is unable to pay the accumulated interest due to financial hardship, other existing debts, and the inability to obtain a further loan to clear her debt.
[3] The applicant first applied for "fairness relief" in March 1996; her request was denied because she failed to file personal tax returns for 1991, 1992, and 1993. She reapplied in early 1997, and on February 19, 1997, a first level "fairness decision" granted her relief from future arrears interest, on the condition that she enter into, and maintain, a mutually acceptable payment arrangement with the Agency. Ultimately, the waiver of interest did not materialize since the applicant failed to enter into the required payment arrangement.
[4] By letter dated March 17, 1997, the applicant requested a second level fairness review. That review never concluded because the applicant failed to submit additional financial information, as requested by the Agency. By letter dated November 26, 2001, the applicant requested that the Minister exercise his discretion to waive the outstanding arrears interest because of financial hardship.
THE MINISTER'S DECISION
[5] In its June 25, 2002 letter, the Agency provided the following reasons for denial:
(1) the ability to borrow to pay the debt in full appears to exist;
(2) there is a poor history of voluntary payments on the account;
(3) the applicant failed to report part time income on her 1997 income tax return, even though she verbally advised the Agency that she was working two days per week;
(4) existing information indicates that the applicant failed to report income earned in 1999.
[6] The above decision was based on the May 22, 2002 recommendation of Elisa McEachern, Collections Officer at the Fairness Review Unit of the Agency ("Collections Officer"), who reviewed the applicant's file and concluded the following:
(1) there was ample evidence indicating that the applicant was not separated from her husband as she had represented;
(2) the applicant provided an Income and Expense Statement, and Net Worth Statement that did not account for her husband's estimated income, expenses, assets and liabilities;
(3) if her husband's financial information is included, the applicant's household monthly income is approximately $4,170 and the monthly expenses are approximately $2,536, leaving $1,634 of disposable income;
(4) the estimated equity in the applicant's property is $140,000, and the household income appears sufficient to support an increase in mortgage to clear the applicant's tax debt; and,
(5) no evidence of an inability to borrow was submitted with the applicant's second level fairness request.
RELEVANT LEGISLATION
[7] The relevant "fairness provision" of the ITA is subsection 220(3.1) as follows:
| Waiver of penalty or interest
(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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Renonciation aux pénalités et aux intérêts
(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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ANALYSIS
[8] The sole issue raised in this application is whether the Minister erred in refusing to exercise the discretion conferred on him by subsection 220(3.1) of the ITA. The self-represented applicant submits that the payments she has made to date far exceed the amount of her original tax debt. She submits that she is unable to pay the remaining accumulated interest because of financial hardship, and is unable to obtain a further loan, for the same reason. She submits that her health condition prevents her from obtaining further employment to pay off her outstanding debt.
[9] The respondent submits that this Court ought not to interfere with the Minister's discretionary decision because neither the Minister's decision nor the recommendation on which it is based, are patently unreasonable. The respondent submits that the applicant and her husband clearly have the financial resources to enable them pay the outstanding debt in full. The respondent submits that the applicant is the author of her own misfortune since over six years of additional interest would have been avoided, had the applicant agreed to the Agency's reasonable payment agreement in 1997. The respondent submits that the applicant cannot establish that the Minister has failed to act in good faith and in accordance with the principles of natural justice, or has relied upon extraneous factors in reaching his decision.
1. Standard of Review
[10] This Court has concluded that the standard of review applicable to a discretionary decision of the Minister under the ITA is patent unreasonableness. In Barron v. Canada (Minister of National Revenue) (1997), 209 N.R. 392, the Federal Court of Appeal held at paragraph 5, per Pratte J.A.:
Before saying why we think that these findings are wrong, it may be useful to recall that subsection 152(4.2) of the Income Tax Act confers a discretion on the Minister and that, when an application for judicial review is directed against a decision made in the exercise of a discretion, the reviewing court is not called upon to exercise the discretion conferred on the person who made the decision. The court may intervene and set aside the discretionary decision under review only if that decision was made in bad faith, if its author clearly ignored some relevant facts or took into consideration irrelevant facts or if the decision is contrary to law. [Emphasis added].
See also Sharma v. The Minister of National Revenue, [2001] D.TC. 5360 (F.C.T.D.); and Cheng v. Canada (2001), 213 F.T.R. 85 (T.D.).
2. Did the Minister err by failing to exercise his discretion?
[11] I have reviewed the Agency's "Guidelines for the Cancellation and Waiver of Interest and Penalties", appearing in the Agency's Information Circular IC 92-2, ("Guidelines"). While the Guidelines are neither exhaustive nor binding, they illustrate how "fairness legislation" is applied by the Agency. In particular, paragraph 7(b) of the Guidelines provides:
7. It may be appropriate, in circumstances where there is an inability to pay amounts owing, to consider waiving or cancelling interest in all or in part to facilitate collection: For example,
[...]
(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.
In this case, the applicant never reached a reasonable payment arrangement with the Agency because she could not borrow money from the bank or from her estranged husband.
[12] At the hearing before the Court the applicant: (1) provided a letter from the Royal Bank dated September 19, 2002 confirming that she could not borrow money to make a reasonable payment arrangement; which letter had been provided at the time to the respondent; (2) confirmed that she lives separate and apart from her husband under the same roof for economic reasons; and her estranged husband will not consent to a small mortgage loan on their jointly owned farm in order for her to make a reasonable payment arrangement; (3) stated that she works seasonally for $9 per hour, and earns $12,000 per year, as disclosed in her 2003 income tax return; (4) indicated that she could obtain a private loan to make a reasonable settlement arrangement for the outstanding interest and penalty owing from her 1990 income tax return; and, (5) confirmed her husband will not give her any money except $400 per month for groceries.
[13] This information was not properly before the Court because the applicant is not a lawyer and had not provided an adequate affidavit. However, I allowed this information to be presented because the interest of justice required that the applicant's case be before the Court. Counsel for the respondent acquiesced, i.e. did not object strenuously. Based on this information, I am satisfied that this decision is patently unreasonable and the only fair and reasonable decision is that the amount owing for interest and penalty should be waived upon the applicant paying $500 immediately as a reasonable payment arrangement.
[14] This decision is predicated upon a patently unreasonable finding of fact, viz. the applicant is not separated because she lives under the same roof as her husband and the applicant can obtain money or a mortgage with her husband's support. Sadly, the opposite is clearly the case, and the respondent at the hearing did not take issue with this fact.
ORDER
THIS COURT ORDERS THAT:
This application for judicial review is allowed, the decision of the respondent is set aside, and the matter is referred back to the respondent for redetermination with directions that the only fair and reasonable decision is that the interest and penalty be waived upon the applicant paying $500 as a reasonable payment arrangement.
"Michael A. Kelen" _______________________________
JUDGE
FEDERAL COURT OF CANADA
Names of Counsel and Solicitors of Record
DOCKET: T-1186-02
STYLE OF CAUSE: ELEONORA GALETZKA
Applicant
and
THE MINISTER OF CANADA CUSTOMS
AND REVENUE
Respondent
DATE OF HEARING: May 3, 2004
PLACE OF HEARING: Toronto, Ontario
REASONS FOR
ORDER AND ORDER BY: THE HONOURABLE MR. JUSTICE KELEN
DATED: May 7, 2004
APPEARANCES BY: Ms. Eleonora Galetzka
For the Applicant
Ms. H. Annette Evans
For the Respondent
SOLICITORS OF RECORD: Ms. Eleonora Galetzka
3410 Hwy 118 East, RR#3,
Bracebridge, Ontario
P1L 1X1
For the Applicant
Mr. Morris Rosenberg
Department of Justice, Toronto, Ontario
For the Respondent
FEDERAL COURT
Date: 20040507
Docket: T-1186-02
BETWEEN:
ELEONORA GALETZKA
Applicant
- and -
THE MINISTER OF CANADA CUSTOMS AND REVENUE
Respondent
REASONS FOR ORDER
AND ORDER