Ottawa, Ontario, the 9th day of January 2006
PRESENT: THE HONOURABLE MR. JUSTICE SIMON NOËL
BETWEEN:
Applicant
and
THE MINISTER OF NATIONAL REVENUE
and
THE ATTORNEY GENERAL OF CANADA
REASONS FOR ORDER AND ORDER
[1] On January 14, 2005, the applicant Axa Canada Inc. filed an application for judicial review of a decision of the Policy and Planning Branch (Policy and Planning Branch – CRA) of the Canada Revenue Agency (CRA, formerly known as the Canada Customs and Revenue Agency – hereinafter CCRA), dated September 17, 2004, and issued to the applicant on December 14, 2004. By that decision, the CRA refused to approve a goods and services tax (GST) remission order application by the applicant. The power to make such an order ultimately belongs to the Governor General in Council, and is set out in subsection 23(2) of the Financial Administration Act, R.S.C. 1985, c. F-11 (FAA). The procedure to be followed in making such an application is explained in the document entitled Revenue Canada Guidelines for the Remission of Income Tax or GST/HST under the Financial Administration Act (the Guidelines).
[2] Other applications of the same type were made by Canadian subsidiaries of the applicant (Axa Boréal Assurances Agricoles [docket T-76-05]; Axa Insurance Canada [docket T‑77‑05]; Axa Pacifique Compagnie d’Assurance [docket T‑78‑05]; Axa Assurances Inc. [docket T‑80‑05]). On May 12, 2005, pursuant to a written motion by the applicant, Prothonotary Morneau made an order that a single record be filed by the applicant in each application. The order that follows will thus have to be filed in dockets T‑76‑05, T‑77‑05, T‑75‑05 and T‑80‑05 and the reasons in this case will be part of the order made in each of these cases.
[3] The applicant is asking the Federal Court to:
(1) order that the decision at issue in the application be quashed;
(2) return the file to the decision-maker so that the decision may be reconsidered with a direction to apply the criteria set out in the Guidelines.
ISSUES
[4] The issues are the following:
(1) What standard of review is applicable to the CRA decision?
(2) Did the CRA make an error when it refused to approve the applicant’s application for a remission order?
CONCLUSION
[5] For the reasons that follow, the application for judicial review will be dismissed.
FACTS
[6] Around February 2000, representatives of the Minister of National Revenue commenced a tax audit of the applicant and of its Canadian subsidiaries for the 1995, 1996, 1997 and 1998 taxation years. Five audit reports were prepared by Revenue Canada, one for the applicant and one for each of its Canadian subsidiaries (except for Axa Boréal Assurances Agricoles, for which no report was filed – I will refer to the reports as follows: “audit report – [(Axa Canada Inc.) or (subsidiary name)]”. The audit concluded in February 2002.
[7] The expenses which are at issue in the case at bar are the following. In 1997 and 1998, the applicant received services (referred to by the applicant as “management services”) from GIE AXA, the applicant’s parent company. It appeared from the audit report (Axa Boréal Assurances Inc., at pages 7 to 16) that the consideration for these services was paid by the applicant and its Canadian subsidiaries to the parent company for the performance of certain centralized activities (training, centralized information system and so on). Pursuant to section 218 of the Excise Tax Act, R.S.C. 1985, c. E-15 (the ETA), the applicant assessed itself for GST purposes on the value of the consideration paid for these services. That amount was paid to the Department of National Revenue.
[8] The applicant asked that, for income tax purposes, the consideration paid for management services be deducted from its net income so as to reduce its tax payable. Now, part of the deductions requested, corresponding to expenditures for management services for 1997 and 1998, was disallowed by the CRA. For 1997, the amount paid as GST for management services expenditures disallowed was $184,866. For 1998, the amount was $194,862. These amounts are taken from the GST Remission Report dated March 6, 2003 filed by the Legislation and Investigations Branch of the Ministère du Revenu du Québec (Legislation and Investigations Branch – MRQ; GST Remission Report – MRQ). It appears from the record that the total amount of GST paid on expenditures which were disallowed accordingly was about $379,728.
[9] In early 2002, negotiations took place between the applicant and CRA representatives. On February 5, 2002, Wilfrid Lefevbre, the applicant’s representative, sent Robert Ouellette, Senior Auditor, Large Files section of the CCRA, a letter confirming the agreement made between the parties in the negotiations (the Agreement). Just before the usual complimentary clause, the letter ends as follows:
[translation] If this letter reflects the Agreement made between the parties, I would be obliged if you would sign this letter and return it to me at your convenience.
This letter bears the notation [translation] “Accepted”, followed by Mr. Ouellette’s signature, and is dated February 12, 2002. In particular, the Agreement provided for the reduction of the amount of expenditures disallowed in the audit report. The negotiations which took place between the parties and which led to the Agreement are briefly described in a report dated October 7, 2004 and signed by Gilbert Deneault (Mr. Deneault was assigned to replace Mr. Ouellette in this matter following the latter’s retirement) and addressed to Ian Matthews of the CRA’s Large Business Audit section (page 146 of applicant’s record):
A full-scale audit was undertaken of the Axa Group that included primarily domestic issues and a few non-resident issues. The management fees issue was only one aspect of the overall audit. Three meetings were held to arrive at a negotiated settlement. At all times, the Senior Auditor of the Large Files section of the CCRA and the auditor were present and they negotiated in good faith with company officials and their legal representative to arrive at a reasonable settlement for both parties.
That description of the negotiations is not in dispute.
[10] Point 4 of the Agreement reads as follows:
[translation] 4. The disallowed GST amount totalling $379,728 would be recovered from the provincial authorities in the usual way and no inclusion in the calculation of the income of Axa Canada Inc. or any of its subsidiaries would have to be made regarding the receipt of this amount.
[11] In the territory of Quebec, the Ministère du Revenu du Québec (MRQ) is the agent of the CRA for the implementation of the ETA pursuant to the Agreement with respect to the Administration by Québec of Part IX of the Excise Tax Act (R.S.C. 1985, c. E-15) relating to the Goods and Services Tax (Canada-Quebec Agreement). In March 2002, the applicant and its Canadian subsidiaries asked the MRQ to reimburse the GST amounts already paid, corresponding to the expenditures, the deduction of which had been disallowed. Now, this request was made after the expiration of the deadline specified in subsection 261(3) of the ETA. The subsection provides that a reimbursement of overpaid GST cannot be requested after two years following the payment of the amount. This is the main reason why the applications were denied. It appears from the affidavit dated March 10, 2005, of Michael McGlynn, director of the Technical Publications Unit of the CRA’s Excise and GST/HST Rulings Directorate (Excise Directorate – CRA), that the applications were denied on July 23, 2002.
[12] On March 6, 2003, following these unfavourable decisions, the Legislation and Investigations Branch – MRQ recommended to the CCRA, in its GST Remission Report – MRQ, entitled [translation] “GST Remission Report for Axa Canada Inc. submitted to the GST/HST Interpretation and Rulings Branch . . . by the Ministère du Revenu du Québec”, that it make a remission order in the applicant’s favour (only the applicant – though the amount requested corresponded to the expenditures of the applicant and its Canadian subsidiaries that were disallowed) pursuant to subsection 23(2) of the FAA. This action by the Legislation and Investigations Branch – MRQ was taken following a meeting held between the applicant’s tax representative and the MRQ representatives. The reasons for the initiative were explained, at least in part, in an e‑mail to Karen Stirling of the Policy and Planning Branch – CRA. I set out below the relevant passage (at page 186 of the applicant’s record):
[translation] In processing this application, the file was sent to our Branch, attention Serge Bouchard, to ascertain whether the rebate sought could indeed be granted under the Act. This Branch concluded that the Act did not allow Revenue Quebec to approve this GST rebate application. However, considering the special nature of the file and the agreement made with the auditor of the CCRA, the Branch decided to submit a GST remission application to the CCRA. [Emphasis added.]
[13] On March 29, 2004, a Memorandum (the March 29 Memorandum – see at pages 157 to 161 of the applicant’s record) containing an analysis of the application and a recommendation was submitted to the head office Remissions Committee (the Committee) that it examine the remission reports and recommendations, as provided for in points 3 and 4 of Section 1 of the Guidelines. This Memorandum, prepared by the CRA’s Technical Publications Unit, recommended that the remission application be denied for the following reasons:
(1) at the time the negotiations began, the deadline for applying for a rebate under subsection 261(3) had already expired;
(2) the information given in paragraph 4 of the Agreement gave false expectations to the applicant but did not constitute misinformation, and the auditor’s statements did not give rise to tax consequences unfavourable to the applicant;
(3) the applicant had already received significant tax relief due to the fact that interest on the services disallowed for 1995 and 1996 was calculated for 1997 and 1998; hence, the taxpayer paid less interest;
(4) the amount of $379,728.09 cannot cause a serious financial problem to the applicant, in view of its revenues are of $1 billion.
[14] On March 31, 2004, the Committee met and refused to recommend a remission in the applicant’s favour (see meeting transcript, at pages 154 to 156 of applicant’s record, and Guidelines at pages 5 and 6). On September 17, 2004, in response to the recommendation by the MRQ of March 6, 2003, the Policy and Planning Branch – CRA sent the Legislation and Investigations Branch – MRQ a letter stating the decision made, for reasons similar in essence to those contained in the March 29 Memorandum (at page 138 of the applicant’s record). On December 14, 2004, the Business Audit Branch (Business Audit Branch – MRQ) in turn informed the applicant of the decision, adding that the MRQ could not approve the reimbursement application.
ANALYSIS
[15] This is an application for judicial review of the decision by the Policy and Planning Branch – CRA contained in the letter of September 17, 2004, issued on December 14, 2004. Under subsection 18.1(2) of the Federal Courts Act, R.S.C. 1985, c. F-7, the deadline for making an application is 30 days after the decision was first communicated:
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18.1 (2) An application for judicial review in respect of a decision or an order of a federal board, commission or other tribunal shall be made within 30 days after the time the decision or order was first communicated by the federal board, commission or other tribunal to the office of the Deputy Attorney General of Canada or to the party directly affected by it, or within any further time that a judge of the Federal Court may fix or allow before or after the end of those 30 days. |
18.1 (2) Les demandes de contrôle judiciaire sont à présenter dans les trente jours qui suivent la première communication, par l’office fédéral, de sa décision ou de son ordonnance au bureau du sous-procureur général du Canada ou à la partie concernée, ou dans le délai supplémentaire qu’un juge de la Cour fédérale peut, avant ou après l’expiration de ces trente jours, fixer ou accorder. |
This application was filed on January 14, 2005 and the respondents were agreed at the hearing that it was in fact the letter of September 17, 2004 which was the subject of the application for judicial review, and that as it was issued on December 14, 2004 and the application for judicial review was made within 30 days, prescription is not an issue herein. The Court accordingly has jurisdiction to decide this case.
1. Standard of review
(a) Identification of disputed decision
[16] The disputed decision is one made by the Minister of National Revenue, in particular the Policy and Planning Branch – CRA, not a decision by the Governor General in Council. However, under the FAA, the power to issue a GST remission order belongs to the Governor General in Council. This must be considered for the purposes of the pragmatic and functional approach.
[17] Before commencing that analysis, we must carefully examine the decision made by the Committee in this case, by explaining the administrative process which led to that unfavourable decision. It is also necessary to understand the process that would have been followed if the decision had been favourable and had ultimately led to the issuance of a GST remission order pursuant to subsection 23(2) of the FAA. That procedure is explained in part at points 3 and 4 of Section 1 of the Guidelines.
[18] The recommendation that a remission order be issued originated with the Legislation and Investigations Branch – MRQ, which made the request on the applicant’s behalf. The request was first forwarded to the Excise Branch – CRA, and then to the Technical Publications Unit, which examined it and then submitted its analysis to the Committee for decision. If the decision had been favourable, the Committee’s report would have been followed by a draft remission order and an official recommendation prepared by the CRA Legal Services. These documents would then have been sent to the Minister of National Revenue, who is responsible for deciding whether to recommend that the Governor General in Council issue a GST remission order. Ultimately, it is the Governor General in Council who is responsible for deciding whether a remission order should be issued, and the power has to be exercised in accordance with the FAA. This is in fact what is set out in the Guidelines, at point 2 of Section 1:
Under subsection 23(2) of the Financial Administration Act, the Governor in Council, on the Minister’s recommendation, may remit tax or penalty, including any related interest, where the Governor in Council considers that “the collection of the tax or the enforcement of the penalty is unreasonable or unjust or that it is otherwise in the public interest to remit the tax or penalty”.
. . .
The following guidelines are based primarily on the Department’s case experience. However, the underlying rationale for remission must also be consistent with the principles stated in the Financial Administration Act.
(b) Standard of review
[19] To determine the applicable standard of review, the two leading cases are Pushpanathan v. Canada, [1998] 1 S.C.R. 982, and Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226. In the second case, the pragmatic and functional approach was updated, so that it is now the leading authority in this area, although in Pushpanathan v. Canada, supra, the analysis is more detailed.
[20] It is appropriate to recall the factors that should be taken into account in determining the applicable standard of review. In Dr. Q v. College of Physicians and Surgeons of British Columbia, supra, at paragraph 26, Chief Justice McLachlin wrote:
In the pragmatic and functional approach, the standard of review is determined by considering four contextual factors – the presence or absence of a privative clause or statutory right of appeal; the expertise of the tribunal relative to that of the reviewing court on the issue in question; the purposes of the legislation and the provision in particular; and the nature of the question – law, fact or mixed law and fact. The factors may overlap. The overall aim is to discern legislative intent, keeping in mind the constitutional role of the courts in maintaining the rule of law . . . The virtue of the pragmatic and functional approach lies in its capacity to draw out the information that may be relevant to the issue of curial deference.
[21] The first factor concerns the control machinery provided by the Act. There is no privative clause in this case. In Pushpanathan v. Canada, supra, at paragraph 30, Mr. Justice Bastarache wrote, however, that “[t]he absence of a privative clause does not imply a high standard of scrutiny, where other factors bespeak a low standard”.
[22] The relative expertise of the decision-maker factor appears to the Court to be a very important factor here, thus suggesting great restraint with respect to the CRA decision. Indeed, the CRA has an undeniable expertise in implementing the Guidelines. In particular, the members of the Committee are CRA officials from various sectors of the Department and have considerable experience and knowledge of the facts and of the law applicable to such matters, while taking the public interest into account.
[23] It seems to the Court that the intent of Parliament (the purpose of the legislation) also requires great judicial restraint. Although the disputed decision is administrative in nature, it would seem that the purpose of subsection 23(2) FAA is to confer a broad discretion on the Governor General in Council to decide whether an amount paid should be remitted. That paragraph reads as follows:
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23. (2) The Governor in Council may, on the recommendation of the appropriate Minister, remit any tax or penalty, including any interest paid or payable thereon, where the Governor in Council considers that the collection of the tax or the enforcement of the penalty is unreasonable or unjust or that it is otherwise in the public interest to remit the tax or penalty. [My emphasis.] |
23. (2) Sur recommandation du ministre compétent, le gouverneur en conseil peut faire remise de toutes taxes ou pénalités, ainsi que des intérêts afférents, s’il estime que leur perception ou leur exécution forcée est déraisonnable ou injuste ou que, d’une façon générale, l’intérêt public justifie la remise. |
The use by Parliament of the word “considers” shows that the Governor in Council must weigh a variety of factors and thus must enjoy a broad discretion. Further, the purpose of the legislation is that the Governor General in Council shall determine whether the remission is “in the public interest”. The reference to this notion, as well as the wording of the provision, tend to indicate that Parliament intended to give the competent Minister and his officials a broad discretion. As to the Guidelines, they only serve to give officials broad limits, with supporting examples, and to explain the procedure to be followed by the person making an application for a remission order. It is well settled that, in Canadian law, internal policies or guidelines, which are administrative interpretations, are only binding if the legislation so provides (Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557, at paragraph 75; Maple Lodge Farms v. Government of Canada, [1981] 1 F.C. 500, at page 513, aff. by [1982] 2 S.C.R. 2). Accordingly, the power exercised by the Governor General in Council under subsection 23(2) FAA is discretionary in nature, and this suggests restraint. At page 699 of Pierre ISSALYS and Denis LEMIEUX, L’action gouvernementale: Précis de droit des institutions administratives, Éditions Yvon Blais, 2002, the authors write:
[translation] The possibility that the Government allows a tax debtor a remission of his or her debt represents one of the most typical applications of the discretionary power to an individual situation. Such a decision 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. (In this case, a remission of GST is at issue.)
The purpose of the legislation and the intent of Parliament thus incite the Court to exercise restraint.
[24] Finally, the nature of the question in issue in this application for judicial review also suggests a measure of restraint. The CRA must apply the Guidelines to the facts while taking into account a number of factors relating to the public interest. Accordingly, the question is a mixed one of fact and law, requiring extensive knowledge of the facts in very complex cases.
[25] The pragmatic and functional approach leads this Court to conclude that the standard of review in the case at bar is that of the patently unreasonable decision. The wording of subsection 23(2) FAA, the extent of the discretionary power and the expertise of the decision-maker have persuaded the Court that the CRA’s decision calls for considerable restraint.
2. Did CRA make an error?
[26] The Guidelines state the raison d’être of the power and the tests on which decisions are based. At point 2 of Section 1 of the Guidelines, it is stated:
Under subsection 23(2) of the Financial Administration Act, the Governor in Council, on the Minister’s recommendation, may remit tax or penalty, including any related interest, where the Governor in Council considers that “the collection of the tax or the enforcement of the penalty is unreasonable or unjust or that it is otherwise in the public interest to remit the tax or penalty”.
. . .
Our role is to prepare a recommendation for the Minister’s approval.
The following guidelines are based primarily on the Department’s case experience. However, the underlying rationale for remission must also be consistent with the principles stated in the Financial Administration Act.
[27] The Guidelines provide for four main cases warranting a remission, namely:
(1) extreme hardship;
(2) incorrect departmental action or advice;
(3) financial setback coupled with extenuating factors; or
(4) unintended results of the legislation.
[28] Essentially, the applicant argued that the CRA refused to take certain relevant facts into account and took into account irrelevant facts. The applicant relied in particular on criteria 2 and 4 in its memorandum of fact and law. To begin with, therefore, the question is whether the Minister took incorrect action affecting the applicant or gave the latter incorrect advice. Secondly, the Court must determine whether the applicant was the victim of an unintended result of the legislation. Finally, it must be seen whether the CRA took unrelated or irrelevant facts into account in making its decision.
(a) Incorrect action or advice by the Minister
[29] Point 2 of Section 3 of the Guidelines specifies the elements that must be established for a remission to be given on account of incorrect action or advice by the Minister:
- the advice given was in fact incorrect at that time;
- the person acted on the basis of the advice and accordingly paid an additional amount of tax as a result of the incorrect action or advice;
- the person had reasons to believe that the officer was acting in an official capacity; and
- for income tax purposes, another course of action within the law was open to the taxpayer that would have significantly reduced the amount of tax to be paid.
[30] In my view, the wording of the Agreement must be examined in order to determine whether incorrect advice was given to the applicant. The Agreement sets out the mutual intent of the parties and the outcome of the negotiations conducted between them. I again quote point 4 of the Agreement:
4. The disallowed GST amount totalling $379,728 would be recovered from the provincial authorities in the usual way and no inclusion in calculating the income of Axa Canada Inc. or any of its subsidiaries would have to be made regarding receipt of this amount.
Several comments need to be made in regard to the wording of this point in the Agreement.
[31] First, the drafter has used the conditional mood “may be” and “would have to be” (“serait” and “n’aurait” in the original French) instead of the future tense (“will be”). That indicates that the intent of the parties was not to ensure that the rebate application would have the result desired by the applicant.
[32] Then, there is a reference to the “usual way” of recovering the GST paid. It is clear that an application for a GST remission order by the Governor General in Council is not the “usual way” of recovering a sum of money. In fact, it is an “extraordinary measure” used in cases where it is not possible to obtain the desired result using the ETA. That is indicated at two places in the Guidelines, point 1 of Section I and point 1 of Section II:
SECTION I – GENERAL INFORMATION
1. What is a remission order?
A remission order is an extraordinary measure to provide complete or partial relief from federal income tax, the Goods and Services Tax (GST) . . . when such relief is not otherwise available to taxpayers or GST/HST registrants under the existing tax laws.
. . .
SECTION II – REMISSION PROCESS
1. When is remission appropriate?
A remission allows the government to provide relief to a person when the desired result cannot be otherwise achieved within the tax legislation, through assessing or other action.
In L’action gouvernementale: Précis de droit des institutions administratives, supra, Pierre Issalys and Denis Lemieux also describe the procedure of applying for a remission order as an exceptional measure:
[translation] Although such remissions may be granted to groups of taxpayers, they are clearly intended to remain the exception. This is indicated by the requirement that a report be made to Parliament annually: the review of public accounts allows Parliament to object if necessary to the abuse – or perhaps the unnecessarily limited use – of this highly discretionary power.
[33] In the case at bar, it is more plausible that the “usual way” referred to by the parties is the GST remission application provided for in section 261 of the ETA, not the application for a remission order provided for in subsection 23(2) FAA. I set out below the relevant paragraphs of section 261 ETA:
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261. (1) Where a person has paid an amount |
261. (1) Dans le cas où une personne paie un montant au titre de la taxe, de la taxe nette, des pénalités, des intérêts ou d’une autre obligation selon la présente partie alors qu’elle n’avait pas à le payer ou à le verser, ou paie un tel montant qui est pris en compte à ce titre, le ministre lui rembourse le montant, indépendamment du fait qu’il ait été payé par erreur ou autrement. |
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(a) as or on account of, or |
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(b) that was taken into account as, tax, net tax, penalty, interest or other obligation under this Part in circumstances where the amount was not payable or remittable by the person, whether the amount was paid by mistake or otherwise, the Minister shall, subject to subsections (2) and (3), pay a rebate of that amount to the person.
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. . .
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[...]
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(3) A rebate in respect of an amount shall not be paid under subsection (1) to a person unless the person files an application for the rebate within two years after the day the amount was paid or remitted by the person. |
(3) Le remboursement n’est versé que si la personne en fait la demande dans les deux ans suivant le paiement ou le versement du montant.
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This interpretation is consistent with the wording of the Agreement. Under the Canada-Quebec Agreement, an application for a rebate must be made to the MRQ. That explains the reference to “provincial authorities”. Indeed, the first rebate application made by the applicant following the signature of the Agreement, as indicated in the affidavit of Johanne Cassis, at paragraphs 7 and 8, was based on section 261 ETA (applicant’s record, at page 11 – see also the application and the MRQ auditor’s report rejecting the application, at pages 174 to 176). Following the signature of the Agreement, the applicant’s representative, Bruno Morin, contacted the MRQ to consult it about whether he was entitled to the rebates. This appears from the [translation] “auditor’s report” prepared by the MRQ following the refusal to grant the rebate (at page 175 of applicant’s record):
[translation] The tax expert of these agents believes he is entitled to adjustments in respect of the amounts disallowed and nevertheless consulted us before filing any application whatever in February 2002. We . . . do not see any direct connection with the federal tax existing on certain GST components, and moreover we consider that the expenditure of money was actually made, that the GST remains due on these amounts. Further, we and the agent were both facing the imminent expiration of the prescription period: the agent accordingly exercised its rights and claimed in the annual returns of the five entities in question creditor adjustments for the amounts disallowed by federal tax, while notifying us and forwarding the amounts owed to us without taking these creditor adjustments into account in order to avoid penalty charges and interest in the event of a final refusal.
All of the actions taken by the applicant following the signature of the Agreement were thus consistent with the interpretation I have given to the Agreement: it sought a rebate from the provincial authorities. As described in the March 29 Memorandum, at page 4 (at page 160 of applicant’s record), it was not until later that a remission order was sought under subsection 23(2) FAA:
In March 2002, AXA’s Canadian subsidiaries filed GST returns for the period January 1, 2001 to December 31, 2001 to adjust the GST payable on imported goods and services in the amount of $379,728.09. The returns were audited and refused by the MRQ (which was apparently unaware of the agreement negotiated by the CRA auditor) on the basis that there was no legislative authority to allow the adjustments. Subsequently, AXA Canada’s representative met with MRQ officials in Montreal, and presented the February 5, 2002 letter, signed by the CRA official, confirming the agreed terms of the negotiated settlement. At that point, the matter was referred to MRQ’s Legislation and Investigations Branch in Québec City.
[34] The GST Remission Report – MRQ sets out the same facts:
[translation] The company made a GST rebate application to the [MRQ], relying on an agreement concluded with Robert Ouellette, Canada Customs and Revenue Agency auditor.
[35] In short, it may not be inferred from the language of the Agreement that incorrect advice was given to the applicant. Thus, the latter did not act in such a way as to suggest that it believed the CRA representatives had guaranteed it would receive a rebate or advised it to make a remission order application. The Agreement did not give the applicant any right to a remission order either, a power which, in any case, is conferred on the Governor General in Council, who is never bound by the CRA. In fact, the applicant made an application under section 261 of its own volition, without having been given advice in this regard, and the application was denied as it was prescribed. In addition, the evidence as to the tenor of the negotiations conducted between the parties and the circumstances in which the Agreement was concluded reveal that no incorrect advice was given to the applicant or to its representatives at any time during the discussions. I will review this evidence in the following paragraphs.
[36] Firstly, the decision of September 17, 2004 itself states that no advice was given (at page 139 of applicant’s record):
[translation] That statement by the CRA auditor regarding GST relief did not cause the subsidiaries of AXA Canada to report tax in such a way as to produce tax consequences detrimental to their operations. His statement may actually have given false expectations to the subsidiaries, which thought they could recover the GST applied to management service fees, when there was no legal basis for doing so. In fact, the CRA auditor actually stated that the AXA Canada tax representative was fully aware of the fact that he could not attempt to recover the GST from the MRQ, and it was certainly not a fait accompli. [Emphasis added]
[37] The March 29 Memorandum, which was the basis for the Committee’s decision, also relied on this fact:
. . . the auditor’s statement [regarding the GST rebate] may have set up a false expectation with [AXA’s Canadian subsidiaries] that the GST in respect of the management fees could be recovered, when, legally, it could not (although the auditor states, unequivocally, that he did not set up a false expectation in this regard). [Emphasis added]
[38] Further, the Memorandum sent to Ian Matthews by Gilbert Deneault on October 7, 2004 notes the same fact (at page 147 of applicant’s record):
It is important to note that “serait récupéré” is written in the conditional voice, which means that it is not automatic: certain conditions have to be met before the refund may be issued. It is clear in our minds that the legal representative knew quite well that had he written the sentence in the future tense i.e. “sera récupéré” the Case Manager would have never signed the letter because no such guarantee was ever given. In addition, the sentence ends with “le processus habituel” which clearly means that there is a process to follow.
[39] The August 27, 2003 telephone notes from Gilbert Deneault to Karen Stirling are also relevant (at page 142 of applicant’s record). They set out the content of a call:
As noted in the Ogilvy Renault settlement letter, it was understood that the company would make a request for the GST paid on the disallowed management fees. We never confirmed to them during the negotiations that they were entitled to this refund because the issue was beyond our authority. In fact, I emphasized to Karen that in Quebec the GST legislation is administered by the MRQ. Therefore, in contrast to CRA auditors in other provinces our knowledge of GST law is very limited.
[40] Finally, at page 15 of the audit report – Axa Boréal Assurances Inc. (at pages 231 and 232 of applicant’s record), the negotiations are described as follows:
It must be remembered that this was a simple proposal open to negotiation in the hope of arriving at a mutual win-win agreement for both parties. In total, three meetings were held with both company officials and the legal representative of the company after our trip to Paris. After some hard negotiating, we concluded the following deal with AXA CANADA in respect of our audit of management fees . . .
. . .
7. Finally, the company will request a refund of the G.S.T. disallowed i.e. $379,728 from the respective authorities.
The audit report – Axa Pacifique Insurance Company, at pages 14 and 15, contains a similar passage (see at pages 254-255 of applicant’s record).
[41] This evidence as a whole provides a true picture of the discussions between the parties and helps to clarify the language of the Agreement, which in any case seems to the Court to be clear. It emerges from the above-cited passages that, at all times, the Department’s representatives refrained from giving any incorrect advice whatever to the applicant, who was duly represented, or at least that there is no evidence to show that such advice was given. The latter nevertheless chose to sign the Agreement, despite the fact that the deadline in subsection 261(3) ETA had expired.
[42] The applicant relied heavily on two arguments in support of its claim that it is entitled to a GST remission under the Guidelines.
[43] Firstly, the applicant argued that, at the time of signature in February 2005, the parties must have been aware that the deadline in subsection 261(3) ETA had already expired. Therefore, in the applicant’s submission, point 4 of the Agreement could only refer to applications for GST remission orders under subsection 23(2) FAA. The applicant alleged that, accordingly, it was made to understand by the respondent’s representatives that it would be entitled to the GST rebate and that is what led it to sign the Agreement. In my view, that argument must be rejected since it is patently at variance with the language of the agreement as well as the evidence in the record on the discussions surrounding the conclusion of the Agreement. It is not impossible that the applicant hoped that it could recover the amounts at issue. However, I am of the view that, in order to apply, the concept of advice must at a minimum involve words originating from the respondent. There is no evidence in the case at bar that words amounting to advice were spoken and it is not the role of CRA auditors to act as tax advisers to taxpayers, and to point out to them that the section 261 remedy is prescribed and that the remission order is an “extraordinary measure” and is discretionary, falling within the jurisdiction of the Governor General in Council.
[44] The applicant also emphasized passages from the cross-examination of Mr. McGlynn (see at pages 43 to 45 of the cross-examination, at pages 100 to 102 of applicant’s record). In these extracts Mr. McGlynn acknowledged that the applicant was given incorrect advice, but that it is wrong to say the advice involved the payment of additional tax:
A. . . . I think, I agree with even each individual point [the circumstances in which a remission order is granted under the Guidelines on the ground that incorrect advice has been given]. However, they have to be read in the context of the first sentence of that, of Section 2, Incorrect Departmental Advice: “A remission may be recommended when a person is required to pay additional tax because the Department has taken an incorrect action and provided incorrect advice” . . . Our bad advice did not involve the person being required to pay additional tax. That’s our point basically . . .
In my view, Mr. McGlynn’s statements must be read in context. They related to the effect that incorrect advice would have had, had it been given. Further, he did not personally take part in the negotiations and his opinion cannot be regarded as the opinion of the Committee as a whole (as it is composed of three other members, in addition to Mr. McGlynn – see at page 154 of applicant’s record), and it based its decision on several other factors, as appears from the March 29 Memorandum, the minutes of the meeting on March 31, 2004, the decision of September 17, 2004 and the letter communicating the decision, dated December 14, 2004.
[45] Finally, I would add that even if incorrect advice was given, this does not mean that the applicant would be entitled to a remission order, since the amount of GST paid on the management services was not paid as a result of statements that may have been made in the negotiations or as a result of the Agreement. Now, as Mr. McGlynn noted in his cross-examination, the Guidelines provide that a remission is possible only when the applicant is required to pay an additional amount of tax on account of an incorrect action or advice. The first sentence in point 2 of Section III reads as follows:
A remission may be recommended when a person is required to pay additional tax because the Department has taken an incorrect action or provided incorrect advice.
In fact, the GST amount was paid before the audit was initiated (February 2000), not as a result of discussions or the signature of the Agreement. Accordingly, the amount could not have been paid as a result of incorrect advice given during the negotiations, since it had already been paid even before the latter began.
[46] For these reasons, I consider that no incorrect advice was given to the applicant.
(b) Unintended results of legislation
[47] The applicant argued that in this case the application of ETA produced results which are contrary to the spirit of the Act. In particular, it drew the Court’s attention to comments made by Mr. Deneault in his memorandum to Ian Matthews, dated October 7, 2004. The relevant passage reads as follows:
[translation] In conclusion, the tax and GST legislations provide for different prescription periods. As a suggestion, this question of prescription should be submitted to Finance to see if they could rectify the anomaly by harmonizing the time frames under which an amended return could be filed under both the Income Tax Act and the Excise Tax Act. If you have any questions do not hesitate to call me.
[48] Point 4 of Section III explains the circumstances in which a remission may be granted on account of unintended results of the legislation:
Proper application of the legislation occasionally creates results that are clearly inequitable to a person and contrary to the intent of the law. In these situations, a remission may be recommended to correct the inequity, until a legislative solution can be achieved.
[49] The current subsection 261(3) of the ETA, which provides for a prescription period of two years, was adopted in March 1997 by Bill C‑70, An Act to amend the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the Income Tax Act, the Debt Servicing and Reduction Account Act and related Acts, 2d Sess., 35th Parl., 1997 (assented to on March 20, 1997). The new version shortened the prescription period provided for in section 261 ETA from four to two years. Section 71 of this Act reads as follows:
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71. (1) Subsection 261(3) of the Act is replaced by the following:
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71. (1) Le paragraphe 261(3) de la même loi est remplacé par ce qui suit :
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(3) A rebate in respect of an amount shall not be paid under subsection (1) to a person unless the person files an application for the rebate within two years after the day the amount was paid or remitted by the person.
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(3) Le remboursement n’est versé que si la personne en fait la demande dans les deux ans suivant le paiement ou le versement du montant.
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(2) Subsection (1) applies
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(2) Le paragraphe (1) s’applique aux montants suivants :
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(a) to amounts that, after June 1996, are paid as or on account of, or are taken into account as, tax or other amount payable or remittable under Part IX of the Act; and |
a) ceux qui, après juin 1996, sont payés ou comptabilisés au titre de la taxe ou d’un autre montant à payer ou à verser en application de la partie IX de la même loi; |
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(b) to amounts that, on or before the last day of that month, were paid as or on account of, or were taken into account as, tax or other amount payable or remittable under that Part, other than amounts that are claimed in an application under section 261 of the Act filed on or before June 30, 1998. |
b) ceux qui, avant juillet 1996, sont payés ou comptabilisés au titre de la taxe ou d’un autre montant à payer ou à verser en application de cette partie, à l’exception des montants dont le remboursement est demandé aux termes de l’article 261 de la même loi avant juillet 1998. |
[50] The applicant argued that the purpose of the amendment [translation] “was to limit the Government’s liability for claims which were often made by sales tax consultants, who made tax claims for the past for specific industries, and for which they received remuneration varying between 30% and 50% of the rebates made by the Government”.
[51] The language of section 71 is quite clear: Parliament intended that, after two years following the payment, it would no longer be possible to apply for a rebate. It is true that the reason why the Act was amended was as stated by the applicant. However, that does not mean that Parliament was not aware of the consequences of the legislative amendment adopted. Accordingly, there is no reason to think that the situation in which the applicant found itself was an unintended result of the legislation.
(c) Unrelated or irrelevant facts
[52] Finally, the applicant argued that the respondent took into account irrelevant facts, namely tax relief already given, and that this should not have been taken into consideration in making the decision as the Guidelines make no mention of such a criteria.
[53] In my opinion, there is nothing in the Guidelines to prevent the use of such a criteria. We should bear in mind that subsection 23(2) FAA provides that applications should be assessed in light of “the public interest”. Additionally, the language of the Guidelines indicates that the criteria mentioned therein are not exhaustive and that there is nothing to prevent additional criteria from being taken into account:
SECTION II – REMISSION PROCESS
. . .
5. Remission criteria
Although remission requests are considered on their own merits, deserving cases normally have common characteristics that provide objective guidelines for recommending remission. The guidelines have four principal categories . . .
. . .
SECTION III – REMISSION GUIDELINES
The following categories do not cover every circumstance for recommending a remission. However, they do provide some of the limits within which a recommendation for remission might be supported. Consideration for remission should take into account all pertinent facts and circumstances of the case, including the compliance history of the person requesting the remission. [Emphasis added.]
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[54] Where GST remission orders based on subsection 23(2) FAA are concerned, it must be proceeded on a case-by-case basis. Decisions made by the CRA are subject to the standard of patent unreasonableness, since they are made in the public interest by a decision-maker whose expertise is recognized. In this case, the evidence was that no incorrect advice was given to the taxpayer and that the decision-maker could properly take factors not specifically listed in the Guidelines into account. Moreover, taken as a whole, the decision reflected in the letter of September 17, 2004 was not patently unreasonable. It contains proper justifications taking relevant factors in such matters into account. When the decision-maker exercised his discretion in arriving at this decision, he took into account the facts in the record, the applicable law and the Guidelines. Nothing warrants the intervention of the Court.
[55] In view of my decision, costs will be awarded to the respondents.
ORDER
THE COURT ORDERS THAT:
- the application for judicial review be dismissed with costs against the applicant;
- this judgment shall be entered in cases T‑76‑05, T‑77‑05, T‑78‑05 and T‑80‑05.
“Simon Noël”
Judge
Certified true translation
François Brunet, LLB, BCL
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-79-05
STYLE OF CAUSE: AXA CANADA INC. v. THE MINISTER OF NATIONAL REVENUE and THE ATTORNEY GENERAL OF CANADA
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: December 13, 2005
REASONS FOR ORDER BY: The Honourable Mr. Justice Simon Noël
APPEARANCES:
Yves Saint-Cyr FOR THE APPLICANT
Alain-François Meunier/Gérald Danis FOR THE RESPONDENTS
SOLICITORS OF RECORD:
OGILVY, RENAULT FOR THE APPLICANT
Montréal, Quebec
VEILLETTE, LARIVIÈRE FOR THE RESPONDENTS
Montréal, Quebec