Digests

Maarsman v. Canada (Customs and Revenue Agency)

T-659-02

2003 FC 1234, Blais J.

22/10/03

27 pp.

Judicial review of decision of Canada Customs and Revenue Agency (CCRA) denying applicant's request for waiver or cancellation of assessed interest and penalties payable with respect to 1987 taxation year, pursuant to Income Tax Act, s. 220(3.1) as well as Information Circular 92-1 entitled Guidelines for Cancellation and Waiver of Interest and Penalties (Guidelines)--Applicant's spouse handling couple's affairs, securities, investments--Because of massive losses suffered in 1987, 1988 and general disarray of spouse's affairs, couple's accountant could not maintain records and quit--Applicant seeking to have all penalties and interest cancelled as due to attribution rule, fairness rules, and ability to pay rules, all applicable in present case, with costs-- Whether Minister of Finance (Minister) properly exercised discretion, pursuant to s. 220(3.1), in deciding not to waive or cancel interest assessed to applicant with respect to 1987 taxation year--Fairness provisions meant to allow taxpayer to be treated with common sense--Parliament has chosen to enact fairness provisions, and Minister has duty to ensure provisions applied fairly to taxpayer--Applicant's representative, Jacqueline Guest, made first level request for interest relief to Minister in November 1996, on grounds since carryover of losses from 1988 to 1987 completely eliminated income tax owing, interest, which had compounded from 1987 to 1995, year applicant had been informed of income tax owing, should be waived--Application denied; given information provided in first request, exercise of discretion would not have been interfered with, had judicial review been applied for then--Exercise of discretion more problematic in second level fairness review--By this time, CCRA apprised of applicant's situation, and still, Minister refuses to exercise discretion to waive interest accumulated--In 1987, applicant had never filed income tax return--Assets applicant owned with her husband entirely administered by him, and he declared in own name all income generated by these assets--In 1987 and 1988, couple suffered heavy financial losses subsequent to 1987 stock market crash--Husband did not file tax returns for those years, thinking losses meant since he did not owe Revenue Canada taxes, he did not need to file income tax return--Husband wrong, and this situation subsequently rectified by filing missing income tax returns, and paying penalty attached to not filing in time--However, no tax assessed to him for 1987 and 1988, because of losses--Audit occurred in 1995 because husband had repeatedly asked Revenue Canada for help in straightening out financial affairs--For some reason, Revenue Canada chose to assess applicant for 1987 and subsequent years, and found applicant had undeclared taxable income of $89 440 for 1987 --By 1995, when applicant informed she had been assessed for 1987, original $35 000 income tax had grown, with interest, to some $53 000--Interest alone (tax itself deducted in 1996) now stands at over $105 000--Letter sent to applicant on June 20, 1995, shows Net Business Income and Loss for years 1987-1992--Obvious 1988 losses ($460 175) can be carried back to cover 1987 income-- Absurdity of this situation is that there are no taxes for 1987, because of 1988 losses--Although 1988 return filed only in 1996, Revenue Canada knew, as soon as it did audit, that losses had been incurred--Whether Minister properly considered relevant evidence and whether Minister has taken into account considerations relevant and unique to taxpayer alone--CCRA seems to believe in 1987, applicant aware of duties to file return and pay income tax--Not supported by evidence--In 1987, applicant unaware of tax liabilities--For this reason, decision made without full consideration of all relevant factors, and reviewable on that basis--In addition, considerable delay dealing with second fairness request-- CCRA admitted file had been misplaced for a while-- Actually, it took almost five years from request for second-level fairness procedure, on July 18, 1997 to decision being made on March 18, 2002--In this case, five-year delay adds yet more accrual of interest compounding situation in which applicant found herself through no fault of her own--Surely Guidelines not meant to be interpreted strictly so as to harm taxpayer, if Guidelines to carry out fairness provisions-- Applicant has been victim of circumstances, and through no fault of her own, applicant did not know she owed income tax in 1987--That tax has since been cancelled, and only interest carries on, cut from its moorings, but casting very long shadow on her life--Accordingly, Minister's decision did not truly consider particular circumstances of this case--Judicial review allowed--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 220(3.1) (as am. by S.C. 1994, c. 7, Sch. VIII, s. 127).