Date: 20050810
Docket: A-408-04
Citation: 2005 FCA 271
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
PELLETIER J.A.
BETWEEN:
WILFRID COMEAU
Appellant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
Hearing held at Montréal, Quebec, on May 4, 2005.
Judgment rendered at Ottawa, Ontario, on August 10, 2005.
REASONS FOR JUDGMENT OF THE COURT: PELLETIER J.A.
CONCURRED IN BY: DÉCARY J.A.
LÉTOURNEAU J.A.
Date: 20050810
Docket: A-408-04
Citation: 2005 FCA 271
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
PELLETIER J.A.
BETWEEN:
WILFRID COMEAU
Appellant
and
CANADA CUSTOMS AND REVENUE AGENCY
Respondent
REASONS FOR JUDGMENT
PELLETIER J.A.
[1] The question raised by this appeal is whether there were unjustified delays in processing a notice of objection which would justify the cancellation of interest accumulated on arrears.
Facts
[2] In 1992, Mr. Comeau invested $50,000 in a tax shelter, namely flow-through shares in a mining exploration venture, Exploration Acabit. According to the advice he received at the time, this investment entitled him to a tax deduction of $45,000 and a rebate of $18,000. The tax deduction represented a proportion of the exploration expenses contracted by Exploration Acabit. In his tax return for the 1992 taxation year, Mr. Comeau claimed the $45,000 tax deduction.
[3] In 1996, the Canada Customs and Revenue Agency (the Agency) undertook an audit of Exploration Acabit and came to the conclusion that the exploration expenses it was claiming were not such expenses and that accordingly investors were not entitled to the tax deductions they had claimed. In 1997, a reassessment was issued, significantly reducing the tax deduction claimed by Mr. Comeau. He filed a notice of objection against this reassessment. On September 18, 1998, the Agency offered to settle the objection according to the following terms: he would not be entitled to any tax deduction but would be granted a capital loss of $32,000.
[4] The Agency clearly indicated in the letter containing the settlement offer that the case would be put on hold if the settlement offer were not accepted. Mr. Comeau rejected the offer because the Agency made a waiver of the right of objection and right of appeal a term of the settlement. Rightly or wrongly, he believed this would require him to give up the right to rely on equity provisions as to interest. Following the rejection of the settlement offer, the objection file was put on hold. It was not until September 11, 2000, when all the criminal proceedings had been concluded, that the Agency issued a reassessment following the terms of the settlement offered by the Agency in 1998, namely the complete cancellation of the tax deduction and the granting of a $32,000 capital loss.
[5] Mr. Comeau complied with this decision and rendered unto Caesar what was Caesar’s. At the same time, he objected to the accrued interest which significantly increased his tax debt. He said he acted at all times in good faith and with the intention of carrying out his obligations. It was not until September 2000 that he finally learned the amount of his tax debt, and he immediately paid it.
Proceedings
[6] Mr. Comeau then exercised the right conferred on him by subsection 220(3.1) of the Income Tax Act (the Act) to file an application to cancel the interest accrued on his tax debt. The Act gives the Minister the power to cancel interest, but the Minister has delegated it to the Agency. The latter rejected the application. At Mr. Comeau’s request, the decision was reviewed by another decision-maker in the Agency, who confirmed it. The Agency said it found nothing in the file showing that the interest had accumulated for reasons independent of Mr. Comeau’s will.
[7] Mr. Comeau sought judicial review of the Agency’s decision (the first decision). Martineau J. of the Federal Court ruled in his favour and referred the matter back to the Agency for a new decision, that was to take [TRANSLATION] “into account the applicant’s submissions, the guidelines [of the Agency on interest and penalties], the spirit and intent of subsection 220(3.1) of the Act, the content of this order and any other relevant factors”. The order contained certain findings by Martineau J., including the following:
. . . a significant part of the interest paid by the applicant resulted from a situation beyond his control and was primarily due to the actions of the Minister or his representatives;
. . . in the circumstances, the seven-year delay between the original assessment in 1993 and the final assessment in 2000 seems unreasonable;
. . . the result of the processing delays and errors attributable to the Minister or the respondent was that the applicant was not informed of the existence of the tax debt actually due within a reasonable time;
. . . the unfavourable decision of November 15, 2001 [the decision approving the first decision which dismissed his application to cancel interest] for which the applicant sought review and the unfavourable decision of October 2, 2001 [the first decision dismissing his application] referred to in the latter decision are patently unreasonable;
. . . the Minister’s designated representatives did not exercise the Minister’s discretionary power reasonably and fairly and arbitrarily rejected the grounds set out in the applicant’s application to reduce interest.
[8] The matter was referred back to the Agency, where a new review was conducted. The Agency divided the period which had elapsed since Mr. Comeau filed his tax return for the 1992 taxation year into three segments:
- from the filing of Mr. Comeau’s tax return on May 12, 1993 to the commencement of the Exploration Acabit audit on November 24, 1995;
- from the commencement of the Exploration Acabit audit to June 9, 1997, the date of the assessments; and
- from June 9, 1997 to the date of payment in October 2000.
[9] The Agency concluded that there was no delay in the processing of Mr. Comeau’s file in the first segment. On the other hand, it found that the second segment exceeded the six-month norm which it considered reasonable for carrying out an audit. If the norm had been followed, Mr. Comeau’s audit would have been completed on May 24, 1996, instead of June 9, 1997, as it turned out, a discrepancy of 12.5 months.
[10] As to the third segment, the Agency found that Mr. Comeau had been notified of the outstanding amount in his reassessment of 1997 and could have paid it and thus avoided the accumulation of interest.
[11] On behalf of the Agency, Mr. St. Denis notified Mr. Comeau of its decision to cancel interest on arrears for the segment from May 24, 1996 to June 9, 1997. Far from being satisfied with this result, Mr. Comeau filed a new application for judicial review alleging that the Agency had taken no account of the judgment of Martineau J.. This new application was examined by Beaudry J., who held that the standard of review was that of the patently unreasonable decision. He then examined each of the three segments analyzed and, for each of them, found nothing patently unreasonable in the reasons and findings of the Agency, except for one point which I will consider below.
[12] The judge reviewed Mr. Comeau’s allegation that the Agency’s decision was vitiated by bad faith. He noted that the Agency had considered Mr. Comeau’s supplementary submissions, as required by the order of Martineau J., and had also considered the spirit and intent of subsection 220(3.1) of the Act. The judge could not find that the Agency had acted in bad faith.
[13] However, in the judge’s opinion, there was one point on which his intervention was warranted. He felt that the Agency erred in setting the date for the commencement of the audit as of November 24, 1995 (the date on which the auditor arrived on the scene), instead of November 1, 1995 (the date on which the form T979 authorizing the audit was issued), with the result that the proper date for the termination of the audit would have been May 1, 1996, rather than May 24, 1996. The judge allowed the application for judicial review to give Mr. Comeau these 23 additional days of respite.
Parties’ arguments
[14] Before this Court, Mr. Comeau has maintained his claim that the Agency’s decision did not in any way comply with the spirit and terms of the order rendered by Martineau J.. He asked how the findings of Martineau J. could be reconciled with the second decision by the Agency granting him a cancellation of interest for barely 13 months, when the period for processing his return extended over 8 years. The Agency, for its part, filed a cross-appeal in which it denied that the judge had jurisdiction to alter the interest cancellation period in any way whatever.
Analysis
Standard of review
[15] In Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226, 2003 SCC 19, the Supreme Court of Canada defined the role of an appellate court called on to rule on the judgment of a superior court sitting in review of a decision by an administrative tribunal:
[43] . . . The role of the Court of Appeal was to determine whether the reviewing judge had chosen and applied the correct standard of review, and in the event she had not, to assess the administrative body’s decision in light of the correct standard of review, reasonableness. At this stage in the analysis, the Court of Appeal is dealing with appellate review of a subordinate court, not judicial review of an administrative decision. As such, the normal rules of appellate review of lower courts as articulated in Housen, supra, apply. The question of the right standard to select and apply is one of law and, therefore, must be answered correctly by a reviewing judge. The Court of Appeal erred by affording deference where none was due.
[16] Therefore, this Court must first determine whether the trial judge applied the standard of review that was appropriate. According to the judge, it was the standard of the patently unreasonable decision which applied. To arrive at this conclusion, he relied on Barron v. Canada (Minister of National Revenue (M.N.R.)) (1997), 209 N.R. 392 (F.C.A.), Cheng v. Canada, 2001 FCTD 1114 (Cheng) and Laviolette v. Canada (Customs and Revenue Agency), [2004] F.C.J. No. 229, 2004 FC 176. Although such was the state of the law at the date of the hearing before the judge, this had changed by the time of this hearing, before this Court: it was held in Lanno v. Canada (Customs and Revenue Agency), 2005 FCA 153, that it is the standard of the reasonable decision which applies to discretionary decisions pertaining to the equity provisions in the Act. When it so held, this Court disapproved Cheng, on which the judge had relied.
[17] As the trial judge erred on the standard of review, this Court must apply the standard which should have been applied, namely that of the reasonable decision.
Application of standard of review to facts
[18] As to the first segment ending at the beginning of the audit of November 24, 1995, it does not exceed the ordinary duration of the reassessment process, which as the Agency noted [TRANSLATION] “makes it possible to verify, check and maintain this system [of self-assessment]”. It is thus not unreasonable to find that there is no basis for cancelling the interest accumulated during this period.
[19] As to the second segment, that of the audit itself, the decision of the Agency to cancel interest for the audit period exceeding the six-month standard cannot be qualified as unreasonable.
[20] As to the third segment, from the assessment of June 1997 to the reassessment of September 11, 2000, the Agency justified its refusal to cancel the interest by the fact that, on June 26, 1997, Mr. Comeau was aware that there was an outstanding amount and that this amount remained unpaid throughout this third segment. Mr. Comeau could have paid the outstanding amount, which would have terminated the accumulation of interest, subject to being reimbursed if his objection succeeded. In other words, a taxpayer may benefit from the suspension of collection proceedings while his objection is being processed and wager on the outcome of his objection by not paying the amounts claimed by the Agency, so that interest accumulates, but if he loses his wager (when his objection is dismissed), he cannot complain that the rules of the game put him at a disadvantage. There is nothing unreasonable in the Agency’s decision.
[21] Finally, Mr. Comeau claimed that the Agency had acted in bad faith by not implementing the judgment of Martineau J., which concluded that the first decision was patently unreasonable. However, if one looks carefully at the judgment of Martineau J., it is apparent that it imposes no findings on the new decision-maker. The only directive given to the latter by Martineau J. is to make a decision [TRANSLATION] “taking into account the applicant’s submissions, the guidelines [of the Agency on interest and penalties], the spirit and intent of subsection 220(3.1) of the Act, the content of this order and any other relevant factors”. The minutes of the deliberations of the Agency committee indicate that the order by Martineau J. was in fact considered (Appeal Book, at page 99). In view of the Agency’s procedure, its reasoning and the cancellation of interest which resulted, it cannot be said that the content of the judgment was not taken into account in arriving at the second decision.
[22] For these reasons, I would dismiss the appeal with costs.
Cross-appeal
[23] As to the cross-appeal, when it was objected that Beaudry J. had exceeded his jurisdiction by extending the interest cancellation period by 23 days, I think it should be allowed. In the judge’s view, the audit period began when the form T979 was issued. The Agency explained that its calculation for the ordinary six-month period began as of the date the auditor arrived on the scene. By intervening as he did, the judge in effect applied the standard of the correct decision instead of that of the reasonable decision. There is nothing unreasonable in the Agency’s original decision that would warrant this Court’s intervention. The cross-appeal should be allowed without costs and the part of the judge’s order regarding the interest cancellation period reversed.
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“J.D. Denis Pelletier” J.A. |
I concur.
Robert Décary J.A.
I concur.
Gilles Létourneau J.A.
Certified true translation
François Brunet, LLB, BCL
FEDERAL COURT OF APPEAL
SOLICITORS OF RECORD
DOCKET: A-408-04
STYLE OF CAUSE: WILFRID COMEAU v. CANADA CUSTOMS AND REVENUE AGENCY
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: May 4, 2005
REASONS FOR JUDGMENT BY: Pelletier J.A.
CONCURRED IN BY: Décary J.A.
Létourneau J.A.
DATED: August 10, 2005
APPEARANCES:
Wilfrid Comeau THE APPELLANT ON HIS OWN BEHALF
Marie-Claude Landry FOR THE RESPONDENT
Maria-Grazia Bittichesu
SOLICITORS OF RECORD:
Wilfrid Comeau THE APPELLANT ON HIS OWN
Montréal, Quebec BEHALF
John H. Sims, Q.C. FOR THE RESPONDENT
Deputy Attorney General of Canada
Ottawa, Ontario