Date: 20041203
Docket: T-268-04
Citation: 2004 FC 1698
Ottawa, Ontario, December 3, 2004
Present: The Honourable Mr. Justice W. Andrew MacKay
BETWEEN:
EMMANUEL HABIB TADROSS
Applicant
and
CANADA (MINISTER OF NATIONAL REVENUE)
Respondent
REASONS FOR ORDER AND ORDER
[1] The applicant, Dr. Tadross, seeks judicial review of a decision on behalf of the Minister of National Revenue, dated January 6, 2004, declining to exercise discretion, pursuant to subsection 220(3.1) (the "fairness provision") of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the "Act"), to waive interest and penalties owed by the applicant on his income tax account for the taxation years 1992 and 1993.
[2] The applicant made an assignment in bankruptcy in 1991. He was discharged in March of 1994 and the Trustee in Bankruptcy was ultimately discharged in 1999. In May 1991 the applicant in writing directed the trustee to file any pre-bankruptcy tax return and the post bankruptcy return for the balance of the year 1991, and he directed that the trustee deal with tax authorities on his behalf. While Dr. Tadross subsequently advised tax authorities (now "CCRA" or the "agency") that he had instructed the trustee to file tax returns on his behalf for the years 1992 and 1993, those returns were not filed until 1994 by the trustee on behalf of the applicant.
[3] While Dr. Tadross was in bankruptcy and not discharged communications concerning his tax affairs were conducted between the agency and his trustee. For CCRA, communicating with the trustee of a bankrupt, and not directly with the bankrupt taxpayer himself, is a regular practice and no communication was directed to Dr. Tadross until 1994. Thus, he was not directly advised that 1992 and 1993 tax returns were not filed, until 1994. In the result penalties were assessed against him for delay in filing his return and interest was assessed under the Act. Ultimately the taxes outstanding were paid by the applicant but the penalties and interest remained in dispute.
[4] The applicant submitted a request for the Minister to exercise the discretion vested in him by subsection 220(3.1) of the Act which authorizes him to waive or cancel all or any portion of penalties and interest, in the following terms:
| 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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[5] The applicant's request made by letters of July 8 and August 14, 2003, was based on the perception that while Dr. Tadross was in bankruptcy, control of his assets and income was in the hands of his trustee and he had no control of his financial affairs. Moreover, CCRA had communicated only with the trustee, not with him and when it did communicate with him in 1994, after his discharge from bankruptcy, he had met all requirements of the agency including directing his trustee then to file the returns for 1992 and 1993. During his bankruptcy he had responded to all requests of the trustee, including those relating to his tax matters.
[6] The request for relief under the fairness provision was rejected on the ground that CCRA found no indication of extraordinary circumstances, essentially circumstances beyond the control of the taxpayer. Third party error/delay did not meet with the agency's definition of such circumstances.
[7] That decision was raised at a second level, the District Director of Taxation, with the request that the decision be reviewed and reconsidered on the ground that the circumstances of the case clearly fell within the terms of the information circular concerning the fairness provision. After consideration of the matter, the District Director, on behalf of the Minister, denied the request. That decision gives rise to this application for judicial review.
[8] When the matter came up for hearing both parties were agreed that the standard of review appropriate for this case was patent unreasonableness (see Sharma v. Canada (Customs and Revenue Agency), [2001] 3 C.T.C. 169 (F.C.T.D.); Cheng v. Canada, [2001] F.C.J. No. 1532 (T.D.)(QL)). That standard requires that the applicant demonstrate that the decision was made in bad faith, or that it was made while ignoring relevant facts or took into consideration irrelevant facts, or that the decision was contrary to law. The applicant did not argue that the decision was made in bad faith but it was urged that it was made without taking into account the relevant facts, particularly that the applicant was not responsible for his financial affairs during his bankruptcy and that he was not advised in that time about failures to file tax returns.
[9] I am not persuaded that any of those grounds are here made out. The circumstances of particular concern to the applicant were clearly considered in the decision which rejected his request. It is argued that the circumstances were within the spirit of the statutory provisions and the Income Tax Act Guidelines (IC-92-2 dated March 18, 1992) which provided information and guidelines about subsection 220.(3.1) of the Act. Those guidelines include the following:
Guidelines and examples of circumstances where cancelling or waiving interest or penalties may be warranted
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.
[10] In his decision the District Director of Taxation relied on the statutory provisions whereby the filing of an annual tax return is the responsibility of the taxpayer, that is the individual. The Income Tax Act provides that the trustee in bankruptcy is to be considered the agent of the bankrupt for all purposes of the Act, and the trustee is required to file all returns of income that the bankrupt has not filed up to the date of the assignment in bankruptcy. The Act does not direct any responsibility, other than the taxpayer's, to file post bankruptcy tax returns. In this case the written direction of Dr. Tadross to the trustee was to file the pre-bankruptcy and post bankruptcy returns for the year 1991. No other written direction was apparently made and none was known to the agency. Any actions by the trustee in relation to the bankrupt estate following bankruptcy did not affect the responsibility for filing of returns for 1992 and 1993. The applicant remained liable for debts, including tax liabilities, that arose after the date of the bankruptcy and he continued to be responsible under the Act to file the appropriate annual return.
[11] In the circumstances no case is made out that relevant facts or arguments made on behalf of Dr. Tadross were ignored, nor is a case made out that any irrelevant factors were taken into consideration. Moreover, the fact that Dr. Tadross was not directly informed until after his discharge about the failure to file returns for 1992 and 1993 cannot be deemed to be unfair where, by the Act, he was required to file those returns, whatever the arrangements between him and his trustee may have been. They did not constitute circumstances beyond the control of the taxpayer. In view of this conclusion, the Court grants the following Order:
O R D E R
IT IS ORDERED THAT the application for judicial review is dismissed, with costs in an amount the parties may agree upon, or failing agreement in the amount of $2,000.
"W. Andrew MacKay"
D.J.F.C.
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-268-04
STYLE OF CAUSE: Emmanuel Habib Tadross
and
Canada (Minister of National Revenue)
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: November 3, 2004
REASONS FOR ORDER
AND ORDER OF THE HONOURABLE MR. JUSTICE W. ANDREW MACKAY
APPEARANCES:
Mr. Nicholaus De Koning FOR APPLICANT
Ms. Surksha Nayay FOR RESPONDENT
SOLICITORS OF RECORD:
Miller Thomson LLP
700, 22 Frederick Street
P.O. Box 578
Kitchener, Ontario
N2G 4A2 FOR APPLICANT
Mr. Morris Rosenberg
Deputy Attorney General of Canada
Department of Justice
Toronto, Ontario
M5X 1K6 FOR RESPONDENT