Financial Administration Act

In finding no reversible error in the Federal Court’s dismissal of the appellant’s application for judicial review of a decision of the Minister of National Revenue refusing its request for remission of tax under s. 23(2) of the Financial Administration Act, Stratas JA stated (at para. 3):

[D]ecisions of this sort are relatively unconstrained: the Minister has a discretion of sweeping ambit based on wide criteria. … In practical terms, normally only a fundamental misreading or misapplication of subsection 23(2), irrationality, or bad faith on the part of the Minister will lead to relief.

In 2013, the taxpayer (Abdat) negotiated an agreement (approved by the Tax Court) with CRA to settle his appeal to the Tax Court of net worth assessments for six years (so as to substantially reduce their amount for four of those years), with CRA reassessing accordingly. In 2019, his application for cancellation of the interest that had accumulated on the reassessments since 2007 was granted by CRA. In the course of an action brought by Abdat against CRA for damages, a retired CRA collections agent (Tremblay), who had been assigned to the file after the initial objection of Abdat to his reassessments, to determine if there was a collection risk, stated on an examination under oath in 2017 that he had no doubt that the reassessments were ill-founded.

Abdat then brought this application for judicial review of the refusal (made in October 2021) of CRA to recommend remission, pursuant to s. 23 of the Financial Administration Act, of the taxes owing by Abdat pursuant to the reassessments pursuant to the settlement offer. Grammond J further noted that Abdat had been made aware of the doubts of Tremblay and his colleague in CRA Collections (Martel) before the settlement agreement. In finding that CRA’s decision was intelligible and reasonable, so that the application should be dismissed, Grammond J stated (at paras. 25, 29, TaxInterpretations translation):

Even assuming that Mr. Tremblay and Mr. Martel had discovered facts that allowed them to question the appropriateness of the assessment of Mr. Abdat, the decision-maker could reasonably rely on the fact that, as part of the 2013 settlement, Mr. Abdat's assessment was reduced to address concerns very similar to those expressed by Mr. Tremblay and Mr. Martel in their recent statements. In fact, there is every indication that the concerns of Mr. Tremblay and Mr. Martel had been known for a long time and were the basis for Mr. Abdat's efforts to have his assessments reduced. The decision-maker could also emphasize the need to protect the integrity of the appeal process … . It stands to reason that a remission order should not normally be used as an alternative avenue of appeal for a taxpayer who has failed to pursue the remedies available under the Income Tax Act, let alone as a means of overriding a settlement to which the taxpayer has agreed. …

Internal disagreement alone does not prove the outcome of the objection and appeal process to be wrong … .

The applicants (a husband and wife) exercised their employee stock options in 1997 and 1998, which lost all value later in 1998 when trading in the shares was suspended. In 2017, they unsuccessfully applied for remission of tax, interest and penalties on the basis of extreme hardship, extenuating circumstances (the shares having become worthless), and the public interest in keeping seniors in their homes. In finding that it was not unreasonable for the Director General to find that it was not in the public interest to grant the remission request, and after noting (at para. 43) the statement adopted in Twentieth Century Fox Home Entertainment Canada Ltd v Canada (Attorney General), 2012 FC 823, aff’d 2013 FCA 25 that “The granting of a remission order necessarily involves a departure, in the particular case of a taxpayer, not only from the ordinary rules of taxation, but from the principle of equality of treatment,” Southcott J stated (at paras. 41, 44):

[T]he Director General noted that the Applicants had sufficient equity in their house to pay their outstanding tax liability, the extent of their family income over the relevant years, and the fact that they had in the past refinanced their house but not used those funds to pay their tax debts. The Director General observed that the potential for a sudden decline in value after acquiring shares is a known risk. The Director General also found that the Applicants had not demonstrated that any of their health issues had rendered them incapable of meeting their tax obligations.

… While the Applicants take issue with the Directors General’s mindset, as focusing on the goal of collecting taxes, it was within the Director General’s discretion to be influenced significantly by the public interest in collection of taxes. …

The taxpayer submitted, in a January 17, 2017 application for a remission order, that:

• due to a host of personal and financial issues, he was not able to respond effectively to large CRA reassessments of his 2005 and 2006 years
• had he been able to respond effectively, he could have demonstrated the reassessments’ incorrectness
• an accountant retained by him had inexplicably failed to pursue the matter, and due to the above issues, the taxpayer failed to file a timely appeal after CRA issued a notice of confirmation in 2010

The CRA Remission Committee refused remission largely on the grounds that the taxpayer did not demonstrate that the assessments were unfounded, had not appealed to the Tax Court when that option was open to him, and was responsible for the failures of the professional to whom he entrusted his affairs.

Before setting aside the Committee’s decision and remitting it for consideration by a different decision maker, Norris J stated (at paras. 69, 72-73):

It was unreasonable for the Assistant Commissioner to reject the remission request simply on the basis that the information examined during the remission review “did not reveal that the CRA made any error at the audit stage or in reassessing the 2005 and 2006 tax years” when this was the very point in issue. …

[T]he Assistant Commissioner … [also] simply stated the principle that errors or omissions by tax professionals “are not considered extenuating circumstances for the purpose of remission” and then treated it as a complete answer to the applicant’s submission. …

Given the importance to the applicant’s request of the question of whether any errors or omissions by the tax professionals who assisted the applicant could constitute an extenuating circumstance or, more broadly, made it unreasonable or unjust to recover the 2005/2006 debt, it was essential that the Assistant Commissioner explain why he concluded that they did not. … [I]t is insufficient to simply state the rule without also explaining why an exception should not be made in this case. The failure to give this explanation leaves the decision lacking in justification, transparency and intelligibility.

When a B.C.-based company (the “applicant”) sold an RV to a U.S. customer, it could have avoided the requirement to charge HST on the sale price by delivering the RV to the customer in the U.S. (so that under ETA s. 142 the place of supply would have been outside Canada) or by shipping the RV to the customer in the U.S. on a common carrier (thereby engaging zero-rating). Instead, it delivered the RV to the customer in a parking lot just north of the border, with the customer then driving the RV across the border as the importer of record. In confirming that CRA had not acted unreasonably in declining to recommend a remission order under s. 23(2) of the Financial Administration Act, Locke JA noted that CRA had “implicitly acknowledged the general intent noted in Montecristo … that GST/HST should be limited to consumption within Canada,” but had reasonably considered that “Goods purchased by non-resident consumers are only intended to be zero-rated if they are shipped to a destination outside Canada, or they are sent by mail or courier to an address outside Canada,” and further stated (at para. 23):

The Assistant Commissioner concluded reasonably that the predicament in which Escape Trailer found itself … was caused not by any unintended results of the legislation, but rather by its failure to comply with any of the detailed conditions for zero-rating.

In affirming the decision below to deny judicial review of a decision of CRA to not recommend to the Governor in Council that taxes, penalties and interest imposed on the taxpayer be remitted pursuant to s. 23(2) of the Financial Administration Act, Boivin JA stated (at para. 4, TaxInterpretations translation):

The granting of a remission order is an exceptional measure which entails a derogation not only of the general taxation rules but also of the principle of equal treatment before the law.

The Court below (2018 FC 699), after denying relief, had added a statement to the end of its reasons entitled “Obiter” and stating:

Considering that the applicant likely doubly paid his taxes for the 2000 to 2003 taxation years, and considering the applicant’s mental health status during that period, the Court suggests that the CRA try to mitigate this taxpayer’s situation to the extent possible.

Boivin JA stated (at para. 7):

[These] remarks … were ill-considered. The tenor of the “Obiter” in leaving an impression that the appellant “likely” was doubly taxed and that the CRA should concern itself with this situation, not only contradicts the judgment but has the effect of creating expectations, which appear to us to be inopportune and unfortunate.

The taxpayer was assessed s. 7 benefits as a result of his exercising, in 2007, a warrant that had been granted to him by his employer and acquiring shares at less than their fair market value (with Mr. Fink subsequently securing a reduction in the assessed benefits based on having the fair market value of the shares being discounted to reflect blackout periods). His sale of the shares did not occur until 2011, which occurred at a substantial capital loss, which could not be carried back.

He made a request for remission of the 2007 income taxes and interest arising from the employment benefit on the basis that his circumstances were analogous to those of the SDL employees who participated in a stock purchase plan and realized losses (in Certain Former Employees of SDL Optics, Inc. Remission Order, P.C. 2007-1635, October 25, 2007 and the Certain Former Employees of SDL Optics, Inc. Remission Order No. 2, P.C. 2008-975, May 29, 2008), so that he should be granted the same relief. After CRA refused to recommend remission on the basis that the taxpayer was not in the same situation as the SDL employees because he had not participated in a stock purchase plan but rather a stock option plan, the taxpayer unsuccessfully sought judicial review of that decision.

In dismissing the taxpayer’s appeal, Dawson JA stated (at paras 6, 7, 8, 9):

In the case of SDL Optics, employees who purchased shares through a stock option plan, as opposed to a stock payment plan, were not entitled to remission. This reflects the fact that a stock option plan provides greater flexibility to employees. The appellant had the option to purchase, or not purchase, shares at a designated price for a specified period of time regardless of shifts in market value during that period. …

The appellant also argues that he was denied procedural fairness because he legitimately and reasonably expected that he would be provided the same process considerations as the successful SDL Optics employees.

… I disagree. The doctrine of legitimate expectation permits a court to grant appropriate procedural remedies – it cannot give rise to substantive rights. …

The decision-maker reasonably found that the appellant’s circumstances were not similar to employees of SDL Optics. … The decision-maker reasonably concluded that …there were no extenuating circumstances as required by the [Canada Revenue Agency Remission Guide] guidelines. … The decisions to exercise the option to purchase the ZCL shares and to hold those shares were within the appellant’s control.

The taxpayer was assessed s. 7 benefits as a result of his exercising, in 2007, a warrant that had been granted to him by his employer and acquiring shares at less than their fair market value (with Mr. Fink subsequently securing a reduction in the assessed benefits based on having the fair market value of the shares being discounted to reflect blackout periods). His sale of the hares did not occur until 2011, which occurred at a substantial capital loss, which could not be carried back.

He made a request for remission of the 2007 income taxes and interest arising from the employment benefit on the basis that his circumstances were analogous to those of the SDL employees who participated in a stock purchase plan and realized losses (in Certain Former Employees of SDL Optics, Inc. Remission Order, P.C. 2007-1635, October 25, 2007 and the Certain Former Employees of SDL Optics, Inc. Remission Order No. 2, P.C. 2008-975, May 29, 2008), so that he should be granted the same relief. After CRA refused to recommend remission on the basis that the taxpayer was not in the same situation as the SDL employees because he had not participated in a stock purchase plan but rather a stock option plan, the taxpayer unsuccessfully sought judicial review of that decision.

Roussel J below that it was reasonable for CRA to consider that the taxpayer’s stock option benefits were categorically different from the s. 7 benefits at issue in the SDL case.

After selling a fibreglass travel trailer (“RV Trailer”) to a U.S. customer and receiving advance payment, the applicant would transfer the RV to the customer in a parking lot on the Canadian side of the border, with the customer then proceeding through U.S. customs (and being recorded as the importer of record.) The applicant, after being assessed for failure to charge HST on such sales and paying the assessment (which it alleged equaled 90% of its net income for that year), requested that the Minister recommend a remission order under s. 23(2) of the Financial Administration Act. The requested grounds were three of the criteria set out in the CRA Remission Guide, namely, “financial setback coupled with extenuating factors,” “incorrect action or advice on the part of CRA officials” and “unintended results of the legislation.”

Respecting the CRA officer’s rejection of the first ground, Manson J stated (at para. 26):

The Officer reasonably concluded that for a business with average annual revenues in excess of $7 million over the years 2014 to 2016, a tax debt of less than $300,000, which had already been paid, did not constitute a financial setback which justified recommending a remission order.

He also found that the CRA officer had reasonably rejected the second ground on the basis that incorrect CRA advice had not been substantiated.

Respecting the third ground, Manson J went on to find that CRA had not been unreasonable in choosing “to follow the express language of section 142 over the broader purpose of the ETA to tax the consumption of goods or services in Canada” (para. 50), noting (at para. 51) that this was “consistent with past jurisprudence of this Court which has preferred the strict language of the ETA over its broader purpose.” However, he went on to state, obiter (at paras. 52-54):

[I]f I had [instead] applied the correctness standard to this issue, I may have come to the opposite conclusion.

…The Officer’s literal interpretation tends to frustrate both a purposive construction of section 142 and the intent of the ETA to tax consumption of goods in Canada … [and] appears to lead to a result which is at odds with the equitable underpinnings of subsection 23(2) of the FAA.

On a routine ARQ audit of the appellant (“Pay Audio”), an agent of Pay Audio incorrectly acknowledged to the auditor that (having regard to the place of supply rules for Pay Audio’s supplies of digital music services under s. 2(d) of Part III of Sched. IX of the ETA and s. 32(1) of the New Harmonized Value-added Tax System Regulations), the Telus servers respecting supplies that it made to Telus were located in Ontario, and it was assessed accordingly for its “failure” to charge Ontario HST on those Telus supplies. Pay Audio did not realize that, in fact, the place of such supplies (based on the Telus servers being in Alberta) was in Alberta until about a year later when it had unsuccessfully sought to recover such tax from Telus, at which point the time had expired for objecting from the assessments or applying for refunds under ETA s. 261.

Pay Audio sought a remission order but was refused by the Remission Committee on the basis that Pay Audio failed to review the place of supply of each server, there were no circumstances beyond the company's control that would have prevented its officials from providing correct information, Pay Audio's failure to object to the assessment within the statutory time limits could not be viewed as having led to an unintended result of the legislation, and the purpose of the remission order process was not to provide an additional avenue of appeal to replace the recourse mechanisms under the ETA. Pay Audio then applied for judicial review of this decision.

In finding that this decision was not unreasonable (i.e., it fell within the range of acceptable outcomes), Lafrenière J first referred (at para 5) to the four specific factors justifying the issuance of a positive remission recommendation that were listed in the CRA Guide (extreme hardship; financial setback coupled with extenuating factors; incorrect CRA action or advice on the part of CRA officials; and unintended legislative results) and then stated (at paras 35, 36 and 39):

…[T]he over-remittance in this case was a consequence of Pay Audio's failure to provide correct information during the audit. It had nothing to do with the effect of the legislation, which was applied as intended.

…Pay Audio had ample opportunities to correct the error but failed to act with due dispatch. "Equity aids the vigilant, not those who sleep on their rights" and the lack of attention and undue delay by Pay Audio in rectifying the error undermines its arguments for equitable relief.

Pay Audio has failed to establish that any relevant facts or circumstances were overlooked, disregarded or not properly considered by the Minister's Delegate.

The taxpayer sought judicial review of a CRA decision not to recommend a remission order to effectively permit the taxpayer to use a capital loss realized on a subsequent disposition of shares acquired under a stock option plan to offset part of the s. 7 benefit recognized on exercise of his options. De Montigny JA upheld an order below requiring the Attorney General to answer questions posed by the taxpayer respecting remission orders that had been granted to taxpayers in allegedly similar circumstances, except that those employees had been involved in an employee stock purchase plan rather than an employee stock option plan. De Montigny JA stated (at para. 8):

… While I accept that, generally speaking, the CRA’s treatment of other taxpayers is irrelevant when assessing whether to grant discretionary relief to a given individual, the Judge could reasonably infer … that the CRA’s decision not to recommend remission was premised, at least in part, on the respondent not being in similar circumstances as the SDL employees. Such being the case, the Judge’s finding that the disputed questions were formally and legally relevant and went to the very reasonableness of the CRA’s decision, was open to him.

Scott J. affirmed the Minister's decision not to remit amounts the taxpayer paid on penalties and on interest that had accumulated by the end of 2008 on her 1990 taxation year. The taxpayer's application was based chiefly on the CRA's silence on the outstanding amount between 1992 and 2009, where accumulated interest brought the amount owing from $1264.40 to $6990.22. The Minister denied the taxpayer's application on the basis that her situation did not fall within any of the categories in CRA's own remission guidelines, and "there are no other circumstances which would support remission." After reviewing the Assistant Commissioner's decision not to remit, Scott J. stated that "there is nothing to suggest that his decision was pre-determined or that the criteria found in the guidelines negated his discretion. He also stated (at paras. 56-57):

Seeing as the guidelines are used to assist officials in ensuring the transparency of the process as well as some consistency in decision-making, Assistant Commissioner McCauley could reasonably conclude that the collection of the tax and penalty was not unreasonable or unjust in this case.

In assessing the remission requests before him, the Assistant Commissioner must take into account the public interest. Remission remains an exceptional measure.