Date: 20040518
Docket: T-1619-03
Ottawa, Ontario, this 18th day of May, 2004
Present: The Honourable Justice James Russell
BETWEEN:
BARBARA NEILANS
Applicant
and
ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR ORDER AND ORDER
[1] This is an application by Barbara Neilans ("Applicant") for judicial review of the decision(s) of the Fairness Committee, Vancouver Branch of the Canada Customs and Revenue Agency ("Committee"), in which the Committee denied the Applicant's request for fairness to waive outstanding tax, penalties and arrears interest.
BACKGROUND
[2] The Applicant is a 44-year-old citizen of Canada and is currently employed as an outside commissioned sales person in the advertising specialties industry.
[3] Her gross income for taxation year 2003 is estimated at below $25,000.
[4] The Applicant applied for Fairness at the 1st Level on September 26, 2002. She requested that her outstanding balance be reduced to nil.
[5] She received a letter requesting an addendum which included payment plans for the outstanding tax portion only of her account. This led her to believe that the Committee had agreed to waive the penalties and arrears. In a later phone conversation with the Respondent's officer, Ms. Fitzsimmons, it was pointed out that the request for payment of the tax portion only was an error and not an offer of waiver of the interest and penalties as suggested in the letter.
[6] The Applicant then arranged for a meeting with supervisor Ms. Biblow and Mrs. Fitzsimmons on October 25, 2003 to clarify the request for addendum.
[7] During the October 25, 2003 meeting, the parties discussed the Applicant's inability to pay in full the total amount of $19,000. The Applicant felt that even if she liquidated her RRSP assets, she would still not be able to clear the outstanding balance which would continue to accrue interest and penalties. It was made clear to the Applicant that "hardship" in this context means an inability to feed, clothe and house one's self.
[8] The Applicant says she was told by the officers that fairness legislation cannot cancel or waive penalties and arrears interest, although she notes that both are referenced in Circular 92-2 items 5, 6 and 7, and in the April 2002 Auditor Generals Report on CCRA Tax Administration: Write-Offs and Forgiveness report.
[9] As the Applicant had only resumed working October 15, after 5 months of unemployment, she was unable to apply for Fairness for 3 months and she hoped she might be "lucky enough" to meet the hardship requirement under the fairness legislation.
[10] She submitted an addendum to the 1st Level Fairness Request dated February 4, 2003, and requested that the tax refund for the 2002 taxation year be considered as a final payment.
[11] The 1st Level Request was denied by the Committee April 3, 2003 on the grounds that the Applicant did not meet the requirements for financial hardship pursuant to the guidelines of Circular 92-2.
[12] The Applicant applied for a 2nd level review of application for Fairness Legislation June 23, 2003, after contributing her 2002 taxation year refund of $3,826.16 to the outstanding balance due on her account.
[13] This 2nd Level Request was also denied by the Committee July 28, 2003 on the grounds that the Applicant knowingly allowed a balance to exist upon which arrears of interest had accrued. The denial also states that the Applicant did not make payments in 1996.
[14] The Applicant says she made instalment payments towards outstanding tax, arrears and interest totalling $7,000.00 in the year 1996.
[15] The Applicant has made payments totalling $43,600.00 since 1996.
[16] Her outstanding balance as of July 15, 1996 (after assessments) was $36,865.00
[17] Her outstanding balance as of May 8, 2003, is $16,026.00.
[18] The cumulative amount of the outstanding taxes only owed for years filed in arrears totals $26,000.00
[19] The Applicant says she has complied with arrangements to pay instalments as set out by the officer(s) assigned to her account from 1996 to the present.
DECISION UNDER REVIEW
[20] The Collections Officer, Linda Fitzsimmons, recommended to the Committee in February, 2003 that they cap the interest from April 29, 2002 (but not forgive the tax debt) until the Applicant had sufficient income to make payments on the tax debt.
[21] The Committee reviewed the Applicant's file, the recommendation and the guidelines. It did not accede to this recommendation but concluded that the case for financial hardship had not been made. Therefore, on April 3, 2003, Robert Allen, Manager of Revenue Collections, sent a letter to the Applicant denying her request.
[22] The Applicant made a further fairness request on June 23, 2003. After conducting an in-depth review of her financial situation, Stefan Linke, Collections Officer with the Collections Section of the Vancouver Tax Services Office of Canada customs and Revenue Agency, prepared a recommendation for the Director of Collection's office recommending that the fairness application be denied because financial hardship had not been established and the Applicant had a prior history of non-compliance with the Income Tax Act ("Act").
[23] The Assistant Director, John Upton-Noot, also reviewed the Applicant's file, the recommendations of Linda Fitzsimmons and Stefan Linke and the guidelines in the Information Circular and concluded that the case for financial hardship had not been met and that the Applicant knowingly allowed a balance to exist upon which interest had accrued. On July 28, 2003, he sent a letter to the Applicant refusing her request for fairness.
PERTINENT LEGISLATION
Overview of Subsection 220(3.1) of the Income Tax Act, 1970-71-72, c. 23, as amended
[24] The liability to pay interest arises by virtue of ss. 161(1) of the Act with regard to the amount of taxes remaining unpaid at the time such taxes are payable. The amount of interest is computed with respect to the unpaid remainder of taxes from the date such taxes are payable until the actual date of payment.
[25] In 1991 ss. 220(3.1) was added to the Act, applicable to the 1985 and subsequent taxation years, and provides as follows:
| (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 ... |
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(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. ... |
|
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|
|
[26] Prior to the enactment of ss. 220(3.1) neither the Minister of National Revenue ("Minister") nor the Courts had the authority to waive or cancel interest accrued by operation of statute with regard to unpaid amounts of taxes. This new provision gave the Minister the authority to decide whether or not to cancel or waive interest or penalties.
[27] A decision as to whether to waive or cancel the interest or penalty is thus a matter of discretion for the Minister.
[28] This discretion has been delegated to selected senior employees at the regional offices of the Respondent, including the Manager of Revenue Collections, the position occupied by Robert Allan and the Assistant Director of Revenue Collections, the position occupied by John Upton-Noot.
[29] Under ss. 220(3.1) the Minister has a wide discretion regarding whether to waive or cancel all or only part of the interest owing based on the provisions of the Act. No procedural rules are set out in the Act with respect to applications for relief pursuant to ss. 220(3.1).
[30] The relevant case law has concluded that the effect of s. 7 of the Guidelines is that the waiver or cancellation of the interest or penalty "is not a widely available option but is one limited to circumstances beyond the taxpayer's control." (Section 7, Guidelines For The Cancellation And Waiver of Interest Arid Penalties, Information Circular, No. 92-2).
ISSUES
[31] The Applicant raises the following issues:
Did the CCRA officers assist and support the Applicant in understanding the amounts accruing of interest and arrears with respect to her tax repayment and with fairness options during the periods prior to 1998?
Did the Committee(s) take into consideration the nature of the Applicant's profession and averaged variable net income during the course of the repayment period?
Did the Committee(s) of the 1st Level Fairness and the 2nd Level Fairness have similar significant influence at both levels of decision?
Has the Applicant paid sufficient interest and penalties in relation to the taxation amount owed for the years filed in arrears?
ARGUMENTS
Applicant
[1] The Applicant makes no argument in her written submissions but purports to rely upon Circular IC92-2, items 7(a) and (b) and the Report of the Auditor General of Canada to the House of Commons dated April 2002, and Chapter 2 Canada Customer and Revenue Agency - Tax Administration: Write offs and Forgiveness; items 2.29, 2.48, 2.49.
[2] She also says that she relies upon Circular IC 92-3 (item 5) and the Canada Customs and Revenue Agency 7-Point Plan for Fairness dated February 1999, and in particular "Point 4 Our Fairness Pledge".
Respondent
What Is the Role of the Appellate Court?
[3] The Respondent says the case law is clear that, even if this Court would have reached a different decision, the issue for this Court to decide is whether the decision made was reasonably open to the Minister (Her Majesty the Queen v. Barbara L. Barron and Hubert J. Barron (1997), 97 D.T.C. 5121 at 5122 (F.C.A.); Syal v. Canada (Attorney General), [1999] F.C.J. No. 1065 (T.D.); Re: Maple Lodge Farms Ltd and Government of Canada et. al. (1982) 137 DLR (3d) 558 at 562 (S.C.C.)).
[4] The Appellate Court can intervene "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" (Barron, supra at 5122; Re: Maple Lodge Farms Ltd., supra at 562).
Was the Decision Made in Bad Faith?
[5] The Respondent acknowledges that the Minister has a duty to act fairly in making a decision. He is a public body whose powers are derived from statute and those powers must be exercised according to the rules of administrative law. There is no suggestion before the Court, however, that the Minister or his delegate acted in bad faith towards the Applicant.
Were Relevant Facts Ignored?
[6] The Applicant asked for a waiver under the Guidelines. The Applicant set out her circumstances in a number of letters to the Minister and their contents were considered and a response was given.
[7] The Guidelines suggest that what should be considered are the following: whether, pursuant to s. 5, there are extraordinary circumstances; whether, pursuant to s. 6, the interest or penalty was primarily because of the actions of the Minister; or whether, pursuant to s. 7, there is an inability to pay.
[8] In addition to these considerations, s. 10 of the relevant Information Circular sets out a number of factors that will be considered when reaching a conclusion. Those factors are as follows: whether there is a history of compliance; whether the taxpayer knowingly allowed a balance to exist; whether the taxpayer has exercised a reasonable amount of care and has not been negligent; and, finally, whether the taxpayer has acted quickly to remedy any delay or omission.
[9] The Applicant provided the facts upon which she was relying in numerous letters to the Minister. It is clear from the letters to the Applicant that she was given a full opportunity to make representations and that her submissions were considered (Barron, supra, p. 5122).
[10] The Respondent points out that the Applicant had her application considered pursuant to the relevant sections of the Guidelines that relate to the exercise of the Minister's discretion.
[11] It was the decision of the Minister in the letters of April 3, 2003, and July 28, 2003, that the Applicant had not established financial hardship pursuant to s. 7 of the Guidelines.
[12] It was also the decision of the Minister in the letter of July 28, 2003 that the Applicant had knowingly allowed a balance to exist. Whether this has occurred is one of the factors to be considered as set out in s. 10 of the Guidelines when the Minister exercises his discretion. The conclusion of the Minister on the facts before him was that the Applicant had knowingly allowed a balance to exist. This was one of the factors leading to the conclusion that the second request should be denied.
Did the Minister Consider Irrelevant Facts?
[13] The Respondent says there is nothing in any of the materials before this Court that would suggest the Minister considered anything other than the facts put before him by the Applicant.
Was the Decision of the Minister Contrary to Law?
[14] The Minister considered the Guidelines and concluded that the interest would not be waived or cancelled in these circumstances. The Guidelines are not binding and cannot be imposed so as to fetter the Minister's discretion (Re: Maple Lodge Farms Ltd., supra, at 561).
[15] Even if this Court would have reached a different conclusion, the Respondent says the conclusion of the Minister is correct in law and correct in accordance with the spirit of the Guidelines.
Was the Decision Patently Unreasonable?
[16] The courts have held that "the standard of review for decisions concerning the exercise of the discretion of the Minister, or of the agency on his behalf, is patent unreasonableness, a standard based on a high degree of deference to the exercise of discretion, particularly since the discretion concerns a relieving provision under the Income Tax Act." (MacKay v. Canada (Customs and Revenue Agency, [2002] F.C.J. No. 323 (T.D.); Edwards v. Canada (Customs and Revenue Agency), [2002] F.C.J. No. 841(T.D.)).
[17] The Respondent takes the position that there is no evidence before this Court to suggest the Minister did not base his decision on the materials before him or that it was in any way unreasonable. It certainly was not patently unreasonable.
ANALYSIS
[18] Between 1992 and 1994, the Applicant did not file tax returns and did not pay taxes. By 1996, when she began to put her affairs in order and to make tax payments, a significant balance had accumulated. Since that time she has met regularly with tax officials, has made periodic payments and has looked for ways to liberate herself from the accumulating debt. Over the years she has paid a considerable sum in interest and penalties.
[19] She made a fairness application in 1996 that was partially approved. Interest was to be capped at $36,505.00 and she expected to clear the amount owing by cashing in her RRSP's and taking out a bank loan. For some reason, this did not occur and the 1996 fairness application was closed. The Applicant continued to make periodic payments but she did not clear the accumulating amount.
[20] In January, 2000 and November, 2001 the Applicant indicated that she intended to submit another fairness request but she did not follow through.
[21] In April 2002, she lost her job. This precipitated another fairness application in September 2002, in which she sought relief from taxes and interest still outstanding for the years 1995 to 1999.
[22] The Collections Officer, Ms. Linda Fitzsimmons, recommended to the Committee that the interest be capped from April 29, 2002 until the Applicant had sufficient income to make further payments.
[23] The Committee, by letter dated April 3, 2003, from Mr. Robert Allen, the Manager of the Revenue Collections Section of the Vancouver Tax Services of the Canada Customs and Revenue Agency, did not accept the recommendation of Ms. Fitzsimmons concerning interest and denied the Applicant's request for relief on the grounds that the case for financial hardship had not been made out.
[24] The Applicant then made a further fairness request on the same grounds on June 23, 2003, through Mr. Stefan Linke, a Collections Officer with the Collections Section of the Vancouver Tax Services Office of Canada Customs and Revenue Agency. Mr. Linke recommended that this second level fairness application be denied on the grounds that financial hardship had not been established.
[25] The Assistant Director, Mr. John Upton-Noot, then reviewed the Applicant's file and concluded that the case for financial hardship had not been met and informed the Applicant to this effect in a letter of July 28, 2003.
[26] The Applicant says that the decisions of Mr. Allen and Mr. Upton-Noot both contain reviewable errors. Generally speaking, her concern is that both decisions neglected to take into account all of the facts of her situation and, because of the way the decisions were made, the second decision was influenced by the first and was not a truly objective appraisal of her fairness application that took all of her submissions into account.
[27] My assessment of the Applicant from her oral presentation is that she is truly shocked by the amounts she has been required to pay by way of penalty and interest. She feels that the CCRA is harsh and excessive in this regard and that she has been dealt with unfairly.
[28] I have carefully reviewed the record before the Court and the written and oral submissions of the Applicant and the Respondent. I cannot find a reviewable error in either of the fairness decisions. The Applicant's fairness applications were fully and fairly reviewed at both levels and she was given ample opportunity and assistance to make her case. The relevant factors and the criteria set out in the Guidelines were taken into account and applied.
[29] Ms. Nielans finds the situation she is faced with to be a harsh one. She feels she has paid enough. But the regime under which she labours is equally applicable to all Canadian taxpayers. Her hardships are the result of decision that she has freely made. She created the problem by not filing tax returns and not paying tax. Since then, as Ms. Fitzsimmons, her Collections Officer, has pointed out, her "net yearly income between 1998 and 2001 averaged $71,585, providing ample funds to clear the entire debt. Instead, she paid off her vehicle and increased RSPs to $25,000."
[30] I find no basis for the Applicant's arguments that material facts were overlooked or that the decision process was sullied and not fair. She is the author of her problems. The Ministerial discretion was appropriately exercised in this case. Given the background, both decisions were entirely reasonable and certainly cannot be described as patently unreasonable.
ORDER
THIS COURT ORDERS that
1. The Application is dismissed.
2. No order is made as to costs.
"James Russell"
__________________________________________
JFC
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET:T-1619-03
STYLE OF CAUSE:BARBARA NEILANS
- and -
ATTORNEY GENERAL OF CANADA
PLACE OF HEARING:Vancouver, B.C.
DATE OF HEARING:April 13, 2004
REASONS FOR ORDER : RUSSELL, J.
APPEARANCES:
Ms. Barbara NeilansFOR APPLICANT
Ms. Patricia BabcockFOR RESPONDENT
SOLICITORS OF RECORD:
Ms. Barbara NeilansFOR APPLICANT
(appearing on her own behalf)
Department of JusticeFOR RESPONDENT
(Vancouver, B.C.)