Section 220

"Although the Inland Revenue have a duty 'to collect and cause to be collected every part of inland revenue ... .' ... . they have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge the highest net return that is practicable having regard to staff available to them and the cost of collection." The exercise of such managerial discretion is not subject to judicial review unless what was done amounted to an abuse of power.

The decision of Revenue to set in motion a procedure for cancellation of tax advantages after having agreed with the taxpayer not to do so was reasonable having regard to the taxpayer's omission to make full disclosure to Special Investigations at the time of entering into the agreement.

The taxpayer's Federal Court motion alleged that the Minister had accepted disclosures made by it respecting the transfer prices of rock salt it sold to a related US corporation in 2004-2006 as meeting the requirements of the voluntary disclosure program. Subsequently, the Minister entered into agreements with the taxpayer to settle its income tax liability for 2004-2006, based on mutual agreement with the United States taxing authorities under Articles IX and XXVI of the Convention. The Minister subsequently informed the taxpayer that she did not consider herself bound by the agreements and reassessed the taxpayer, including for penalties under s. 247(3).

In the Federal Court the taxpayer sought a declaration that the penalty assessments were "invalid and unenforceable," and also appealed the reassessments to the Tax Court.

Sharlow JA confirmed the decision of the Federal Court to dismiss the Minister's motion to strike out the taxpayer's application. The Minister's decision not to grant relief from penalties was an exercise of discretion under s. 220(3.1), which is clearly reviewable by the Federal Court. While the Federal Court could not invalidate the reassessments as only the Tax Court had the jurisdiction to determine whether all of the statutory conditions for imposition of a penalty had been met (para. 22), the Federal Court had a range of options including "a declaration that the penalties should not have been assessed in the face of the valid voluntary disclosure" (para. 25).

Jorré J. found that the taxpayer, having no reasonable excuse for his failure to report over $40,000 in salary and severance pay, being nearly half his income for the year, was liable under s. 220(3.1) of the ITA for a penalty of 10% of the unreported income. Although technically outside the Court's jurisdiction, Jorré J. found it likely that the taxpayer was also liable for a further 10% penalty under British Columbia's Income Tax Act. The federal and provincial penalties totaled $8175. However, taxes had already been withheld from the taxpayer's unreported income. The federal and provincial treasury were, at the time of reassessment, out of pocket only $3,874, including interest.

Jorré J. recommended that the taxpayer apply for discretionary relief of penalties, and that his application be treated leniently, given that the taxpayer's penalties were over 200% of the amount of omitted tax. In other words, the taxpayer's penalties would have been considerably lower if his conduct had been more blameworthy - 50% of the omitted amount if there had been gross negligence, and between 50% and 200% if the taxpayer were charged on summary conviction.

Simpson J. found that the Minister's decision to deny relief was not given with adequate reasons, but the taxpayer could not establish that it was unreasonable. In the course of so finding, she found that the rules of procedural fairness did not entitle the taxpayer to comment on CRA's preliminary conclusions before the final decision was made (paras. 16-18).

Simpson J. granted the taxpayer's appeal for interest relief. The taxpayer, a single mother of three, had an annual income of $11,654. She was unable to afford to make the interest payments out of her income, and it was unreasonable in the circumstances for the Minister to insist that she use her proceeds from the sale of a rental property, liquidate her RRSP, or agree to a payment plan, in order to make those payments. These steps would have diverted resources that the taxpayer needed to cover necessities. Simpson J. stated (at para. 20):

Essentially, CRA thought that the Applicant should move from poverty to abject poverty and would not forgive her interest unless she [used the sale proceeds of the rental property to pay the interest rather than buy a trailer home]. This position was, in the circumstances of the case, utterly unreasonable.

The taxpayer suffered a brain injury in a vehicle collision, causing him to eventually develop paranoid delusions, including the delusion that the federal government had no right to tax. Several years after the collision, he stopped paying tax altogether. Near J. found that, while it was open to the Minister not to waive the associated interest and penalties, the delegate who made that decision had done so on a misapprehension of the facts. He wrote at para. 45:

The Respondent submits that it was for the [taxpayer] to satisfy the Minister that not only did he suffer an injury, but that the injury was the cause of his failure to file tax returns and pay tax. The Respondent relies on Formosi v. Canada (Revenue Agency), [2010 DTC 5057] 2010 FC 326 wherein a delinquent taxpayer failed to convince the Court that there was any connection between several deaths and illnesses of immediate family members and his inability to pay his taxes. This case has no relation to the present matter in which there is ample documentary evidence to support that the Applicant suffered an injury and that this was the cause of his failure to pay tax. That these events, the brain injury and the onset of delusion, are not temporally simultaneous does not negate their existence.

The Minster was ordered to assign a new delegate to reevaluate the decision.

An application for judicial review of a decision of the Minister to not waive interest and penalties on tax payable by the taxpayer as a result of an over-contribution to his RRSP in respect of which the taxpayer did not file a return until years later was dismissed. Crampton, J. noted that the taxpayer, after finding out about the over-contribution, waited several years before withdrawing his over-contribution and, as a result of undue reliance on his investment advisor, did not file his waiver request on a timely basis, and also waited rather than filing the returns reporting the over-contribution income on a timely basis. He stated (at para. 29) that:

"The law is well established that taxpayers are 'directly responsible for the actions of those persons appointed to take care of [their] financial matters'."

The CRA, after granting a previous request of the taxpayer for interest relief in respect of some of the taxation years in question, declined to grant relief in respect of interest on a gross penalty assessment (that at the time of the review was still before the courts) on the basis that the taxpayer could only reverse such interest through a successful appeal of the penalty assessment itself based on the appropriateness of the penalty.

As the CRA had thus committed an error by failing to consider that the interest on the penalty might be reversed on the basis of fairness considerations, the taxpayer's request for fairness review of such interest was returned to the Minister for reconsideration.

Hogan, J. recommended (para. 13) that the Minister waive a penalty under s. 163(1) given that the non-reporting of dividend income received by the taxpayer was attributable to her troubled state following the death of her husband and "it is a known fact that people suffering from depression have serious lapses of concentration that can prevent them from accomplishing tasks that are simple for healthy individuals".

The taxpayer lost three family members, including her husband, in the course of a few years, her tax accountant died of cancer, her son became suicidal, and she fell into a depression for which she received psychiatric treatment. Consequently, the taxpayer did not file tax returns from 2003 to 2005. The Minister did not waive interest or late penalties, on the grounds that the taxpayer "failed to act quickly to remedy the delay" in payment. Frenette J. reversed the Minister's decision and granted relief.

The trial judge had applied a standard of patent unreasonableness in reviewing a decision of the Agency not to cancel interest, whereas it was subsequently decided that the correct standard was one of reasonableness. Nonetheless, the decision of the Agency was not unreasonable.

After indicating (following Lanno v. The Queen, 2005 DTC 5245, 2005 FCA 153) that the applicable standard of review was one of reasonableness, O'Keefe J. went on to find that the relevant decision makers, in reviewing an application of the taxpayer for relief from additional late filing penalties of 1% per month in a situation where he had paid the amount of tax owing by him almost immediately after the tax filing deadline, but had not filed his tax return until five months later, had committed a reviewable error by proceeding on the basis that an amount had been outstanding until the date of filing the return. The matter was referred to a different decision-maker for re-determination.

The individual responsibility for a fairness review had done very little independent review of the evidence and had relied heavily on what was told to him by the auditor who had been alleged by the taxpayer to be biased. This error constituted a sufficient to send the matter back for re-determination on the merits.

Assessments of the taxpayer's 1987 and 1988 taxation years was delayed by the Minister because of appeal proceedings of a procedural nature respecting an adverse judicial decision for the taxpayer's 1983 taxation year.

It was not proper for the Minister to refuse to consider the taxpayer's request for waiver of interest that accrued during this delay on the basis that the court proceedings were beyond the control of the Canada Revenue Agency - even under the Minister's own guidelines, matters which were beyond the control of either the taxpayer or the Agency might still entitle the taxpayer to relief from interest. Furthermore, it was not appropriate for the Minister to cease work on the notices of objection for the 1987 and 1988 taxation years pending resolution of the 1983 tax year litigation. The procedure for appeal by the taxpayer in subsection 169(1) did not lessen the obligation of the Minister to assess with "all due dispatch".

Before dismissing an application for judicial review of a decision of the CCRA not to waive interest and penalties in respect of the failure of the taxpayer's accountant to file the taxpayer's return on time while the taxpayer was out of the country, and the omission from the return of a T-4, Noël J. stated:

"Where a body such as the CCRA is given a broad discretion like that accorded by s. 220(3.1) of the ITA, the deference shown to that body should be broad. The reviewing court should consider whether the discretion was 'exercised in good faith and, where required, in accordance with principles of natural justice, and where reliance has not been placed upon considerations irrelevant or extraneous to the statutory purpose' .... If these criteria are properly met, the Court should not interfere."

On the basis of a "no-names" disclosure on behalf of the taxpayers that they had unreported income and that the individual taxpayer had been charged by an unnamed police force with a minor fraud and that an investigating officer had mentioned to the individual that the police might notify CCRA that he had failed to report income tax, CCRA indicated that it would consider a disclosure on behalf of the taxpayers to be valid based on the facts described to CCRA. When the taxpayers then disclosed particulars including their identity, CCRA indicated that it would not consider the disclosure to be voluntary. This was based on an understanding that there was an "informal relationship" with the police force in question amounting to an unwritten agreement, so that at the time of the disclosure by the taxpayers, there was an investigation by an authority with which CCRA had an information exchange agreement, as described in paragraph 6(a) of Information Circular 00-1R.

Strayer D.J. found that the requirements of promissory estoppel existed (on the basis of a "promise" provided in the Information Circular that a disclosure will be treated as voluntary if the client initiates it, subject to it being considered involuntary if the client initiates the disclosure with the knowledge of an audit, investigation etc. by the CCRA or an authority with which CCRA had an information exchange agreement) and on the basis that the taxpayers had no knowledge that the police force was such an authority with which CCRA had an information exchange agreement (even if the informal arrangement between that police force and CCRA could be described as a qualifying agreement). The matter was referred back to the Minister with the direction that the disclosure of the taxpayers be treated as voluntary and assessed under the voluntary disclosure program on that basis.

The Minister had not acted unreasonably in refusing an application for waiver of interest and penalties on the basis of financial hardship, on the basis that the applicant [correct] had ceased operations and therefore collection would not jeopardize the continued operation of a business or the continued employment of employees.

The taxpayer lived separate and apart from her husband under the same roof for economic reasons, her estranged husband did not give her any money except $400 per month for groceries, and she earned $12,000 per year. Under these circumstances, the decision of the Minister not to waive interest on the basis that she could obtain financing from her husband was patently unreasonably. The matter was referred back to the Minister for re-determination with directions that the only fair and reasonably decision was for interest and penalty to be waived upon the taxpayer paying $500 as a reasonable payment arrangement.

Before finding that a decision of the Minister not to waive interest and penalties on unpaid GST and income tax of the taxpayers did not breach a standard of patent unreasonableness, Vaughan Finckenstein J. rejected a submission "that it would be unfair to assume that they have to mortgage or sell their house in order to pay interest and penalties on their tax debt" (p. 6365).

The Minister's decision not to waive penalties for the late filing of a return was remitted for redetermination given that such decision did not appear to take into account various relevant factors including the assertion of the taxpayer (corroborated by her accountant) that the return had been prepared and mailed on time, the indication on the return that it was prepared before the filing date, and her good compliance history up until the time in question when she was under serious emotional and mental distress.

The Minister's decision not to grant relief from interest and penalties for the late filing of returns was not patently unreasonable given that the illness of the mother of the applicant, which formed the basis for the requested relief, did not prevent the applicant from continuing to operate her music studio, and her late-filing of returns was part of a long-established pattern that continued after the death of her mother.

The decision of the Minister not to cancel interest and penalties was referred back to CCRA for reconsideration based on there having been a failure to apply ss.161(1) and (7) fairly, there having been an incorrect belief that the taxpayer was not aware of her obligation to file a 1987 return, and in light of the considerable delays of the CCRA in dealing with the taxpayer's second fairness request thereby resulting in further accruals of interest.

The decision of a committee not to grant administrative relief was based on incomplete and incorrect information, and overruled the finding of the initial review officer that relief should be granted based on a review of more correct information. The decision rejecting the request for a waiver of penalties and interest was quashed and the files were directed to be returned to the respondent for reconsideration by a different decision maker.

The taxpayer agreed to a reassessment of its taxes that disallowed a deduction of $170,000 but offset the resulting income inclusion through the carry back of losses sustained in subsequent taxation years. The taxpayer's application for waiver of a portion of the interest and penalties relating to the reassessment, based on it not having been told that there would be $24,087 in interest payable and on it experiencing cash flow problems, was dismissed. The agreement signed by the taxpayer indicated that the income tax payable resulting from the proposed change would be subject to interest at the prescribed rate, there was no incorrect advice given by an auditor that the reassessment would not result in income tax being owing, the Minister did not act in bad faith, and there was no breach of the principles of fundamental justice or consideration of extraneous or irrelevant factors.

The taxpayer's application for relief based on his being "de facto bankrupt" was rejected by a CCRA officer who did not have appropriate delegated authority. The taxpayer's application for judicial review was dismissed because "if the decision under review were set aside and referred back, the same decision would necessarily follow by reason of the reality that the concept of de facto bankruptcy is simply not recognized within the scope of the Income Tax Act in a way that would permit any relief of the nature sought by the Applicant". (p. 5327)

The taxpayer applied for waiver of a penalty for filing one of his returns a year late and of interest on the basis of the financial difficulties he had encountered as a result of the loss of his employment. The refusal of the Halifax office director to grant the waiver was remitted for consideration on the basis that he had rigidly applied the specific criteria in IC 92-2 and had misapprehended some of the facts (e.g., finding that the taxpayer had incurred additional consumer debt).

In response to an argument that there were large gaps in the timeline between the time of the initial reassessment in 1993 and the final decision not to waive interest and penalties in 2001, the Court indicated there was nothing in the record to show that the various time periods that passed were unreasonable. Further, it could be seen that the issue of undue delay was considered in the decision not to waive interest and penalties as the decision referred to the complexity of legal issues involved.

After being informed of the impact of the taxpayer's disbarment and criminal conviction on his daily living and responsibilities, the CCRA had concluded that notwithstanding these difficulties and misfortunes the taxpayer pursued a livelihood in the real estate area, and asserted his rights, in a manner that suggested that he was still in the state of mind to comply with the applicable provisions of the Act, and that his financial situation and assets were more than sufficient to at least allow reasonable payment arrangements. It was found that the evidence submitted by the taxpayer did not contradict these findings. Tremblay-Lamer J. previously had noted (at p. 7526) that:

"A considerable degree of deference is required, and the standard of review is that of patent unreasonableness."

An application for judicial review, of a decision to waive only a portion of the interest and penalties applicable to personal income tax respecting the taxpayers 1996 to 2000 taxation years, that was made on the basis that there had been a full waiver of interest and penalties in a related GST matter, was not granted. There was no requirement for the two decisions to be made on the same basis.

Gibson J. applied (at p. 5579) "a standard of review of patent unreasonableness" in dismissing an application for review of an adverse decision of the Minister under s. 220(3.1).

In considering the applicant's application for waiver of interest and penalties, the Department breached its internal guidelines by having the same individual participate both in the initial review of the request and the second-level review. The matter was referred back for reconsideration at the second level by persons not previously involved in the matter, with a direction that the applicant be given the opportunity to make a written submission to address alleged errors of fact and understanding in the previous second level review.

In dismissing an application of the taxpayers for judicial review of a decision to refuse their application for waiver of interest, Heneghan J. noted the conclusion of the relevant official that departmental delay or error did not appear to be the primary cause of the applicants' alleged lack of information about the amount of their tax liability, noted that they had made no real effort to pay the tax liability until the Department itself had taken the extreme step of attaching their assets, and quoted from the statement in the Kaiser case that "absent bad faith on the part of the Minister, a breach of the principles of natural justice or consideration of extraneous or irrelevant factors, there is nothing to warrant the Court's interference with the exercise of his discretion."

The Minister was directed to reconsider the request of the taxpayer for waiver of interest given that no consideration had been given to: her to pay the amounts in question; the delay of Revenue Canada in reassessing her return; and her history of compliance with her tax obligations.

An alleged agreement of a collections officer that interest would be waived if the taxpayer paid the taxes payable by him, would not have been binding as such officer was not authorized under Regulation 900(2)(b).

Rouleau J. declined to set aside the decision of the Minister refusing to grant relief under s. 220(3.1) given the absence of bad faith on the part of the Minister, a breach of the principles of natural justice or consideration by the Minister of extraneous or irrelevant factors. Furthermore, the "fact the respondent exercised its discretion in a different manner for different taxpayers is not an indication of bad faith".

In dismissing the taxpayer's application to set aside a decision of the Chief of Appeals to vacate part only, and not entirely, interest on the balance of tax payable by the taxpayer for three taxation years, Pinard J. stated, after referring to Information Circular No. 92-2:

"... it should be noted that such general guidelines are not to be elevated to the status of legislation, thereby limiting the decision-making authority in the exercise of the discretion conferred on it by an enabling Act ... . Having said that, the decision a quo seems to me to have been made in keeping with the spirit of the guidelines in question."

As a result of the fraud of his accountant, the taxpayer was induced to make tax shelter investments and to deduct what proved to be non-existent losses. The rejection by the Department of a request for waiver of interest following a consideration of the matter by a fairness committee, and a review of the committee's decision by the Director of the District Office in conjunction with another, did not entail a breach of the Minister's duty to act fairly or to consider relevant evidence.

In finding that the Minister had not acted unfairly in refusing to waive interest that arose as a result of a clerical error of the taxpayer, Dubé J. stated (p. 5501):

"Again, it must be borne in mind that the original error was committed by the clerk of the taxpayer not by the officers of the Minister and, since the whole Canadian income tax system is based on self-assessment, the officers of the Minister cannot be blamed for not having detected the taxpayer's own mistake sooner."