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Taxpayer Relief

Robinson v Canada (National Revenue), 2018 FC 825

The FC held, on judicial review, that the Minister’s decision was reasonable.

FACTS

The Taxpayer, an independent lawyer, was erroneously issued a T4 by one of his clients. His status as an independent contractor was finally resolved by the Tax Court of Canada. However, when late filing his returns, the taxpayer included the T4 slip without an explanation as to why he was including a T4 indicating he was an employee while claiming self-employed status.

Because of some internal errors, the return was sent to general processing and not the person at the Non-filer assessment office it was directed to. This resulted in that office issuing a non-filer assessment assessment of taxes outstanding, penalties, and interest. After a service complaint, a reassessment was issued which lowered the amount of interest and penalties owing. A complaint as filed with the Ombudsman’s office who, after an investigation, stated that the issuance of the non-filer assessment was due to a mailroom error.

The taxpayer then made a request for taxpayer relief seeking cancellation of the interest and penalties applied. He relied, in part, on the errors and delays caused by the CRA. This was denied resulting in a second level review request. This was denied as well.

ANALYSIS

The Court noted that pursuant to subsection 220(3.1), the Minister, on application by the taxpayer, within a limited time-frame, may waive or cancel all or any portion of any penalty or interest otherwise payable.

The sole issue was whether the decision makers decision was reasonable given the facts and circumstances before it. A decision is reasonable where “the decision-making process exhibits justification, transparency, and intelligibility, resulting in a determination that falls within the range of possible, acceptable outcomes which are defensible on the facts and law: Dunsmuir v New Brunswick, 2008 SCC 9 at para 47. So long as the reasons, as a whole, “allow the reviewing court to understand why the tribunal made its decision and permit it to determine whether the conclusion is within the range of acceptable outcomes, the Dunsmuir criteria are met”: Newfoundland and Labrador Nurses’ Union v Newfoundland and Labrador (Treasury Board), 2011 SCC 62 at para 16.

The Court’s role, on judicial review, is not to weigh the facts, but rather to examine if the Minister’s Delegate “properly considered the evidence before him and that the decision was not based on considerations irrelevant or extraneous to the statutory purpose”: Easton v Canada (Revenue Agency), 2017 FC 113 at para 43. A decision maker is presumed to have considered all evidence before them: Smith v Canada Revenue Agency, 2009 FC 694 at paras 21-22.

With respect to errors of fact, the Court noted that “a mistake of fact has been made by a decision maker, the resulting decision is unreasonable if the decision maker misapprehended facts that were material to his or her decision: Johnston v Canada, 2003 FCT 713 at para 29.

In this case, the Court held that the decision maker was fully conversant with the taxpayer’s tax history, and noted that after the errors were detected, late filer penalties and interest were adjusted. It concluded that no delay by the CRA resulted in the non-filer penalty being applied or the interest being charged – this was within the control of the taxpayer who did not file returns on time or pay his tax due on time. The Court stated that ” It was Mr. Robinson’s personal choice not to pay the accumulated interest and penalty throughout the period of his dispute with the CRA, continuing up to and including the filing of his second request for taxpayer relief.” [para 104]. It went on to say, at paragraph 105:

By deciding that the amount of the non-filer NOA was wrong and too high to pay, Mr. Robinson alone made the choices not to pay any tax or interest or penalty, even though he could have made full or partial payment with any final surplus being refunded to him, with interest. The Decision recognized those choices, and given the discretionary nature of the requested relief, it was reasonable for the Decision Maker to determine that events were not beyond Mr. Robinson’s control and to deny the request for taxpayer relief on that basis.

The Court found the decision maker’s decision to be reasonable and noted, at paragraph 134:

When Mr. Robinson did not pay his taxes for 2008 on the date they were due, and did not file his 2008 return on time, he set in motion the very chain of events which he claims was beyond his control. When he then filed his Return over half a year after it was due, included an improperly issued T4 slip with it, and still did not pay the taxes, he exacerbated the problem.

Sas Tullo, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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Director Liability – Efficacy of Director Resignations

Canada v Chriss, 2016 FCA 236

At issue was whether two directors, being the spouses of shareholders, had effectively resigned as directors and therefore were not liable for unremitted payroll deductions and GST/HST amounts.

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FACTS

Both Appellants had indicated to their husbands (owners and executives of the corporations) that they desired to resign as directors. Resignations were drafted by solicitors but were not executed or dated.

The Tax Court of Canada had held that the draft resignations and verbal communications to the husbands of their tendering of resignations resulted in an effective resignation. Alternatively, even if not effective, a reasonable belief of resignation could be sufficient for a due diligence defence as the person would have lost control of the company.

ANALYSIS

The Federal Court of Appeal held that the TCC erred in concluding the appellants had resigned. Absent a communication of a written resignation to the corporation, a resignation is not effective. The Ontario Business Corporations Act, subsection 121(2), states that a resignation is effective at the time a written resignation is received by the corporation or at the time specified in the resignation (para 10). This is an important requirement as business decisions and legal liability depend on the identity of directors and the timing of their resignations. The status of a person as a corporate director must be capable of objective verification.

NOTE: The FCA held that unsigned resignation letters with no effective date in the solicitor’s file do not satisfy the preconditions of an effective resignation (para 15), and said at para 14 that “allowing anything less than the delivery of an executed and dated written resignation” is unacceptable. The FCA’s imposition of a signature requirement adds a non-existent element to the OBCA, held in other cases to be not to be required.

The FCA agreed that a director may rely on a reasonable belief of resignation as part of a due diligence defence. However, the standard is higher than that applied by the TCC. To be operational, a reasonable belief of resignation has to be close to the requirements of actual effective resignation. The courts cannot ignore the requirement that the resignation be received by the corporation or its solicitors.

The due diligence defence on the basis of a reasonable belief of resignation must be informed by the obligations the ITA imposes on directors. The FCA referred to the decision Canada v. Buckingham, 2011 FCA 142, in stating that the standard of care, skill, and diligence required by ITA subsection 227.1(3) is an objective standard as set out in Peoples Department Stores. The Income Tax Act is a contextual element in determining what a reasonably prudent person would have done in comparable circumstances (para 20). To succeed, a director has to convince the court that (i) s/he turned attention to the required remittances and (ii) exercised the duty of care, diligence, and skill with a view to preventing the corporation’s failure to remit the amounts. This standard is meant to discourage the appointment of passive directors so that a defence cannot be founded on inaction, indifference, or casual attitude towards duties by the director (para 21). A reasonable director would insist on being satisfied that the intention to resign has been effected (para 24).

Finally, the Appellants relied on Liddle v. Canada, 2011 FCA 159; Moriyama v. Canada, 2005 FCA 207, to argue that they had lost effective control of the corporation such that they should not be held liable. The FCA distinguished those cases by stating that those cases the directors were prevented from discharging their duties as a third party had intervened with the legal power to prevent the company from remitting funds. This was not the case at bar, the directors had the power to remit the funds in corporate hands.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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Director Liability – Efficacy of Resignations – Sas Tullo

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