Worsfold et al. v. Minister of National Revenue, (2012) 412 F.T.R. 121 (FC)

• Judge: O'Keefe, J.
• Court: Federal Court (Canada)
• Case Date: November 29, 2011
• Jurisdiction: Canada (Federal)
• Citations: (2012), 412 F.T.R. 121 (FC);2012 FC 644

Worsfold v. MNR (2012), 412 F.T.R. 121 (FC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2012] F.T.R. TBEd. JN.098

Graham Worsfold, Stoneridge Management Services Inc., Lyn Worsfold, Jonathan Coles as Trustees for GR and LS Worsfold Life Interest Settlement Trust (applicants) v. The Minister of National Revenue (respondent)

(T-1944-10; 2012 FC 644; 2012 CF 644)

Indexed As: Worsfold et al. v. Minister of National Revenue

Federal Court

O'Keefe, J.

May 25, 2012.

Summary:

An assistant director of enforcement of the Minister of National Revenue refused to waive the penalties and interest owed by each of the applicants as a result of the late filing of their tax returns. The decisions not to exercise the discretion under s. 220(3.1) of the Income Tax Act were based on the officer's finding that the applicants' disclosures were not voluntary as they were prompted by enforcement action against a related company. In this consolidated application for judicial review, the applicants requested that the decisions be set aside and sent back for reconsideration.

The Federal Court, on the standard of review of reasonableness, allowed the application. The applicants' request for penalty and interest relief under the voluntary disclosures program were to be reconsidered by the Minister.

Income Tax - Topic 7803

Returns, assessments, payment and appeals - Interest - Waiver - [See Income Tax - Topic 9381 ].

Income Tax - Topic 7824

Returns, assessments, payment and appeals - Penalties - Waiver - [See Income Tax - Topic 9381 ].

Income Tax - Topic 9204

Enforcement - General - Fairness legislation - [See Income Tax - Topic 9381 ].

Income Tax - Topic 9381

Enforcement - Voluntary disclosure - General - The Federal Court discussed the taxpayer relief provision of the Income Tax Act, introduced as part of a "fairness package" - "The exercise of the discretion under subsection 220(3.1) of the Income Tax Act is integral to the Canada Revenue Agency (CRA)'s voluntary disclosure program (VDP). The VDP allows taxpayers to make disclosures to correct inaccurate or incomplete information, or to disclose information not previously reported. This program is intended to promote voluntary compliance. Therefore, when a valid disclosure has been made, the Minister may exercise its discretion under subsection 220(3.1) to cancel or waive associated penalties and interest." - See paragraphs 3 to 5.

Income Tax - Topic 9382

Enforcement - Voluntary disclosure - What constitutes - An assistant director of enforcement of the Minister of National Revenue refused to waive the penalties and interest owed by each of the applicants as a result of the late filing of their tax returns - The officer found that the applicants' disclosures were not voluntary as they were prompted by enforcement action against a related company (Stoneridge) - The Federal Court allowed the consolidated application for judicial review - There was no evidence that would lead to the conclusion that any of the applicants knew of the existence of the audit of Stoneridge - In addition, the facts established that the principal applicant, a director of Stoneridge, took the first step in a process that ultimately led to the voluntary disclosures - Section 8.3.5 of the Voluntary Disclosure Program Processing Guidelines provided that "Not all enforcement action is automatic cause to invalidate a disclosure"; and that "Clients should be given the benefit of the doubt" - No audit was being done on any of the applicants - The only connection seemed to be that the principal applicant was a director of Stoneridge - See paragraphs 107 to 120.

Income Tax - Topic 9382

Enforcement - Voluntary disclosure - What constitutes - An assistant director of enforcement of the Minister of National Revenue refused to waive the penalties and interest owed by each of the applicants as a result of the late filing of their tax returns - The officer found that the applicants' disclosures were not voluntary as they were prompted by enforcement action against a related company (Stoneridge) - The principal applicant was a director of Stoneridge - The Federal Court allowed the consolidated judicial review application - With respect to the principal applicant, the officer was required to decide whether it was likely that the audit of Stoneridge would have uncovered the information contained in his voluntary disclosure (Voluntary Disclosure Program Processing Guidelines, s. 8.3.5, "Impact of Enforcement Activity on Determination") - At most, the officer looked at the relationship between some of the parties - The decision was therefore unreasonable - Also, with respect to the applicants' knowledge in relation to the enforcement action, the officer's treatment of the evidence provided by the principal applicant was unreasonable - No analysis or reason was provided why it was not accepted; it was simply referred to as being "alleged" - The same reasoning applied to the other applicants, and the decisions with respect to them were therefore also unreasonable - See paragraphs 122 to 130.

Income Tax - Topic 9389

Enforcement - Voluntary disclosure - Judicial review or appeals - [See both Income Tax - Topic 9382 ].

Cases Noticed:

Bozzer v. Minister of National Revenue et al. (2011), 418 N.R. 377; 2011 FCA 186, refd to. [para. 3].

Kaiser v. Minister of National Revenue (1995), 93 F.T.R. 66 (T.D.), refd to. [para. 3].

Lanno v. Canada Customs and Revenue Agency (2005), 334 N.R. 348; 2005 FCA 153, refd to. [para. 4].

Brown v. Canada Customs and Revenue Agency (2005), 284 F.T.R. 89; 2005 FC 1639, affd. [2007] N.R. Uned. 5; 2007 FCA 26, refd to. [para. 10].

L'Heureux v. Canada (Attorney General) (2006), 300 F.T.R. 219; 2006 FC 1180, refd to. [para. 55].

Poon v. Canada Revenue Agency (2009), 374 F.T.R. 1; 2009 FC 432, refd to. [para. 57].

Amour International Mines D'Or Ltée. v. Canada (Attorney General), [2010] F.T.R. Uned. 705; 2010 FC 1070, refd to. [para. 57].

Montreal (City) v. Canadian Broadcasting Corp. and Montreal Port Authority, [2010] 1 S.C.R. 427; 400 N.R. 279; 2010 SCC 14, refd to. [para. 73].

Livaditis v. Canada Revenue Agency, [2010] F.T.R. Uned. 627; 2010 FC 950, refd to. [para. 89].

New Brunswick (Board of Management) v. Dunsmuir, [2008] 1 S.C.R. 190; 372 N.R. 1; 329 N.B.R.(2d) 1; 844 A.P.R. 1; 2008 SCC 9, refd to. [para. 103].

Charky v. Canada (Attorney General) (2010), 382 F.T.R. 73; 2010 FC 1327, refd to. [para. 104].

Palonek v. Minister of National Revenue (2006), 291 F.T.R. 15; 2006 FC 494, refd to. [para. 104].

Spence v. Canada Revenue Agency (2010), 382 F.T.R. 1; 2010 FC 52, refd to. [para. 105].

Sketchley v. Canada (Attorney General), [2006] 3 F.C.R. 392; 344 N.R. 257; 2005 FCA 404, refd to. [para. 106].

Counsel:

Robert McMechan, for the applicants;

Natalie Worsfold, for the applicants;

Hong Ky (Eric) Luu, for the respondent.

Solicitors of Record:

Robert McMechan Professional Corporation, Ottawa, Ontario, for the applicants;

Natalie Worsfold, Toronto, Ontario, for the applicants;

Myles J. Kirvan, Deputy Attorney General of Canada, Ottawa, Ontario, for the respondent.

This consolidated application for judicial review was heard at Ottawa, Ontario, on November 29, 2011, before O'Keefe, J., of the Federal Court, who delivered the following reasons for judgment and judgment, dated May 25, 2012.