Ottawa, Ontario, December 20, 2006
Present: The Honourable Mr. Justice Beaudry
BETWEEN:
Applicant
and
REASONS FOR JUDGMENT AND JUDGMENT
[1] This is an application for judicial review under section 18.1 of the Federal Courts Act, R.S.C. 1985, c. F-7, of a decision by Mr. Mario Marchand, Manager of the South Shawinigan Tax Centre of the Canada Revenue Agency (the respondent). In this decision dated December 2, 2005, Mr. Marchand declined to reopen certain fiscal years to accept the applicant’s business losses under subsection 152(4.2) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Suppl.) (the Act). The applicant is representing himself.
I. Issues
[2] Did the respondent err in declining to exercise his discretion under subsection 152(4.2) of the Act?
[3] For the following reasons, the response to this question is in the negative. Accordingly, this application for judicial review will be dismissed.
II. Factual Background
[4] Throughout his working life, the applicant had various jobs in his own small and medium businesses (S.M.B.) and those of his father. For example, between 1975 and 1993, the applicant worked as a consultant, administrative assistant and project manager. From 1994 to 1996, he was a consultant with George S. May Int. Co.
[5] In 1996, the applicant set up his own business as a consultant, in his words, [TRANSLATION] “under the brand image” Force G. This business was not a legal entity. That same year, he became a shareholder in CYBEC CANADA INC. managed by Mr. Hubert Sicard. This second business was registered with the Registraire des Entreprises Système CIDREQ; its registration number was 1145952348. These two S.M.B. ceased operations two years later: Force G at the end of 1998, and CYBEC on May 9, 1998, when it was officially struck off the register. The applicant returned to George S. May Int. Co. in January 1999.
[6] He filed his tax returns for the years 1996, 1997, 1998, 1999, 2000 in 2004. In June 2004, he received a notice of assessment allowing him expenses as a self-employed person for the years 1996 to 2000, but disallowing expenses for the home office of CYBEC CANADA INC. The applicant wanted to know why these expenses were denied, which triggered a series of reviews of all his tax returns, leading to the following results:
(a) letter dated April 8, 2005, from Ms. Martine Bérubé regarding the tax returns for the years 1996 to 2000, informing him that the respondent intended to make the following correction: to disallow the business loss of $16,592, which had been allowed in 2004 for the years 1996 to 2000;
(b) letter dated July 8, 2005, from Ms. Marie Josée Kroft confirming the decision to disallow the business loss of $16,592. This letter states that it could not be determined from the information and documents submitted by the applicant that these expenses were incurred for the sole purpose of earning business income;
(c) notice of assessment dated September 1, 2005, for the year 2000 did not include the expenses claimed as business losses;
(d) review of the file by Mr. Robert Villemure who concluded on December 1, 2005, that the decision was reasonable and advised that it should be upheld;
(e) decision by Mr. Marchand on December 2, 2005, confirming the refusal to accept the applicant’s business losses. The applicant seeks judicial review of that decision.
III. Decision at issue
[7] The decision of December 2, 2005, upheld the decision of July 8, 2005, disallowing the business losses claimed by the applicant, i.e:
1999 = $261
1998 = $103
1997 = 3,452
1996 = 6,892
[8] The respondent submits that the claim for the year 1996 is statute-barred since the request was filed out of time. The respondent states that he will not exercise his discretion under 152(4.2) because the applicant has not provided all the documents required to support his claim.
IV. Relevant Legislative Provisions
[9] Subsection 152(4.2) of the Act is part of a legislative scheme known as “the fairness package”, which gives the respondent discretion to make adjustments to returns even though the three-year period has expired. This provision allows the Minister to reduce the amount of tax payable or to reimburse the taxpayer where he or she has not complied with the deadlines established by the Act. The relevant parts of subsection 152(4.2) read as follows:
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152. (4.2) Notwithstanding subsections 152(4), 152(4.1) and 152(5), for the purpose of determining, at any time after the expiration of the normal reassessment period for a taxpayer who is an individual (other than a trust) or a testamentary trust in respect of a taxation year,
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152. (4.2) Malgré les paragraphes (4), (4.1) et (5), pour déterminer à un moment donné après la fin de la période normale de nouvelle cotisation applicable à un contribuable -- particulier, autre qu’une fiducie, ou fiducie testamentaire -- pour une année d’imposition le remboursement auquel le contribuable a droit à ce moment pour l’année ou la réduction d’un montant payable par le contribuable pour l’année en vertu de la présente partie, le ministre peut, sur demande du contribuable:
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(a) the amount of any refund to which the taxpayer is entitled at that time for that year, or (b) a reduction of an amount payable under this Part by the taxpayer for that year, the Minister may, if application therefor has been made by the taxpayer, (c) reassess tax, interest or penalties payable under this Part by the taxpayer in respect of that year, and
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a) établir de nouvelles cotisations concernant l’impôt, les intérêts ou les pénalités payables par le contribuable pour l’année en vertu de la présente partie;
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V. Analysis
Standard of review
[10] First, the standard of review applicable to the decision at issue must be established. An analysis of the four factors set out in Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226, will determine whether the standard of review applicable to the impugned decision is correctness, reasonableness simpliciter or patent unreasonableness.
(i) privative clause/statutory right of appeal
[11] The Act does not contain a privative clause or a right of appeal. Thus, the decision at issue may be the subject of judicial review by the Federal Court.
(ii) expertise of the tribunal
[12] Income tax returns are based on facts that can be reviewed by the taxation authorities. They must examine the returns based on the provisions of the Act. With regard to the part of the Act known as the “the fairness package”, Parliament recognizes the complexity of taxation issues and therefore gives discretion to the Minister so that he or she has a certain degree of flexibility in applying certain provisions. Accordingly, this requires that the Court show great deference unless the decision raises a question of law, or a question of mixed fact and law.
(iii) purpose of the legislation
[13] “The fairness package” is intended to provide relief to taxpayers where the remedy is statute-barred so that taxpayers can be reassessed and obtain a reduction of tax payable or a tax refund. This objective calls for less deference.
(iv) nature of the question
[14] When the question is one of pure fact, more deference must be shown to the disputed decision. A question of mixed fact and law calls for less deference. Finally, on a question of law, the Court making a decision on a judicial review will accord no deference.
[15] Following a pragmatic and functional analysis, the Court adopts the reasonableness simpliciter standard of review since this case essentially involves questions of mixed fact and law. The taxation authorities are indeed called upon to analyze the documents provided by the applicant to determine whether the conditions have been met for the Minister to exercise his discretion. The Court will intervene only where the decision is based on an unreasonable explanation. The Court must assess whether the reasons for the decision are tenable (Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247, paragraph 56).
[16] In Lanno v. Canada (Customs and Revenue Agency), [2005] F.C.J. No. 714 (C.A.) (QL), at paragraphs 3 to 7, the Federal Court of Appeal applied the reasonableness standard of review. That case involved a tax official who had declined to exercise his discretion under subsection 152(4.2) of the Act.
Did the respondent err in declining to exercise his discretion under subsection 152(4.2) of the Act?
[17] I concur with the respondent’s submission that 1996 is the only year that is statute-barred and could fall within the ambit of subsection 152(4.2). In fact, it appears that the 1996 assessment was issued on March 27, 1997.
[18] The other years, i.e. 1997, 1998 and 1999, are not the subject of this application for judicial review since the assessments were issued on August 9, 2004, and September 7, 2004, and were not statute-barred as of the date of the request. With respect to the year 2000, the applicant was within the limitation period when he filed an objection to the notice of assessment on November 23, 2005.
[19] The impugned decision is based on Mr. Villemure’s recommendation. He had all the files before him. He also reviewed the letters from the applicant and had telephone conversations with him. He then concluded that the applicant was not operating businesses under the name of “Force G”, and therefore the expenses claimed could not be allowed.
[20] The applicant provided numerous supporting documents that Mr. Villemure found inappropriate because they were not originals, and many of them had no date.
[21] Moreover, Mr. Villemure relied on Information Circular 92-3 (IC-92-3) “Guidelines for Refunds Beyond the Normal Three Year Period,” which states at paragraph 10 that the taxpayer who makes a request after the three-year period must provide all relevant documents.
[22] Paragraph 12 of the Circular defines the relevant documents that the taxpayer must provide and states the following:
12.To support a return or a request, taxpayers should provide the following information, if relevant:
(a) official receipts or certified “true” copies of receipts (for example, tuition, RRSP, charitable donation receipts);
(b) copies of information slips (for example, T3, T4, T5);
(c) details or calculations of specific expenses or deductions being claimed;
(d) proof of payment such as cancelled cheques for rental payments, letter from landlord.
[23] With respect to the case law, in Morrissette v. Canada, [2005] T.C.J. No. 136, 2005 TCC 187, at paragraphs 46 and 47, Mr. Justice Tardif of the Tax Court of Canada wrote:
46 Our tax system relies on the principle of self-assessment to function properly. Consequently, taxpayers play a decisive role, and the state assumes that citizens can take on this responsibility and the obligations inherent in it.
47 To discharge this responsibility properly, citizens, particularly business operators, must put in place an accounting system that makes it possible to identify exactly which revenues are taxable. This involves a thorough accounting, not only for the sources of all income, but for the expenses as well. Furthermore, all relevant supporting documents must be made available.
[24] In my view, it was entirely reasonable for the taxation authorities to deny the applicant’s requests in the absence of relevant supporting documentation that would have clearly distinguished the applicant’s personal expenses from his employment expenses and from expenses claimed for the business, Force G. Furthermore, without clear evidence such as a bank account or a registration number for the business, Force G, it was not unreasonable for the respondent to disallow the business losses claimed by the applicant.
[25] The issue here is not whether the Court would have come to a different conclusion, but whether the decision of December 2, 2005, is supported by the evidence.
[26] There is insufficient justification for the Court to intervene in this case, considering all the evidence that was before the decision-maker.
[27] The respondent has not insisted on costs.
JUDGMENT
THE COURT ORDERS that the application for judicial review be dismissed without costs.
Certified true translation
Mary Jo Egan, LLB
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-1-06
STYLE OF CAUSE: ANDRÉ GAGNÉ and
ATTORNEY GENERAL OF CANADA
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: November 28, 2006
AND JUDGMENT BY: The Honourable Mr. Justice Beaudry
APPEARANCES:
André Gagné FOR THE APPLICANT
(representing himself)
Kim Sheppard FOR THE RESPONDENT
SOLICITORS OF RECORD:
André Gagné FOR THE APPLICANT
(representing himself)
Montréal, Quebec
John Sims, Q.C. FOR THE RESPONDENT
Deputy Attorney General of Canada
Montréal, Quebec