Ugro v. Canada (National Revenue)

Ugro v. Canada (National Revenue)
Court (s) Database
Federal Court Decisions
Date
2009-08-12
Neutral citation
2009 FC 826
File numbers
T-1158-08
Decision Content
Federal Court
Cour fédérale
Date: 20090812
Docket: T-1158-08
Citation: 2009 FC 826
Ottawa, Ontario, August 12, 2009
PRESENT: The Honourable Mr. Justice Russell
BETWEEN:
ANDREW UGRO
Applicant
and
THE MINISTER
OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1] This is an application for judicial review of a decision made by the Minister of National Revenue (Minister) in a letter dated June 23, 2008 (Decision) with respect to the Applicant’s request for refunds beyond the normal 3-year period and the waiver of penalties and interest.
BACKGROUND
[2] The Applicant began a home-based business offering professional services in graphic design which were billed at an hourly rate. Other services included the purchasing and reselling of finished goods relating to graphic design. From 1995 to 2001, the Applicant operated the business as a sole proprietorship and from 2002 to 2004 he operated the business in partnership with his wife, Kelly Urgo.
[3] The Applicant hired Clyde Morrison, a chartered accountant, to prepare financial statements for income tax purposes and to advise the Applicant on setting up accounts. In the spring of 1996, the Applicant met with Clyde Morrison to discuss the first set of prepared financial statements for tax purposes for the 1995 reporting period. The Applicant filed the statements of income prepared by Mr. Morrison for the 1995 reporting period. The Applicant’s wife filed her income taxes separately, as she did not generate any income from the business.
[4] Mr. Morrison prepared the 1996 and 1997 financial statements for the business which were filed for income tax purposes. In the spring of 1998, the Applicant ceased to do business with Mr. Morrison because the Applicant alleges he “never addressed [the Applicant’s] repeated attempts to make him show [the Applicant] the true profitability of [the Applicant’s business].”
[5] For the business’s 1998 income tax reporting period, the Applicant used financial statements prepared by another chartered accountant, Mr. Chris Cowland, who was given the Applicant’s previous years financial statements and other records.
[6] The Applicant had the 1999 financial statements prepared by Mr. Cowland in the spring of 2000. The Applicant says he “realized that nothing had been changed about the way in which [the Applicant’s] financial statements were being prepared for tax purposes.” He alleges that he communicated to Mr. Cowland that his first three years of business were “deliberately prepared to show positive profitability, and that the true profitability of the company had not as of yet been properly determined.” The Applicant alleges that he was “still ignorant about accounting fundamentals” and had failed to convince Mr. Cowland that “he had incorrectly prepared [the Applicant’s] accounting for income tax purposes.”
[7] The Applicant’s 1995, 1997, 1998, 1999 and 2000 tax returns were all filed on time. He filed his 1996 tax return late and was assessed a late filing penalty of $32.97. The Minister accepted as filed the amounts of income reported by the Applicant for his 1995 to 2000 taxations years. The Applicant filed his 2001 to 2005 income tax returns after the statutory deadlines and was issued assessments for those years and levied late filing penalties. The Applicant filed his 2001 to 2004 tax returns late on or about November 20, 2006, and also filed his 2005 tax return late on or about March 8, 2007.
[8] In 2001, Mr. Cowland filed the Applicant’s 2000 financial statement for income purposes, allegedly without the Applicant’s approval. During 2001-2002, the Applicant says he began to acquire a basic understanding of accounting fundamentals as they pertained to the computation of income. He alleges that he used Canada Revenue Agency’s (CRA) informational guides and other textbook accounting resources.
[9] In 2002, the Applicant re-filed his 2000 income statement himself using CRA’s T2124. Specifically, he requested that his 2000 tax return be reassessed to reduce his net business income from $43,147.00 to $7, 453.00 on the basis that the accountant who prepared his original tax return had improperly stated his business income.
[10] The Applicant was reassessed on the 2000 income statement he filed himself. He met with a CRA auditor to discuss the reduced business net income. The request to reduce his 2000 net business income was denied and the auditor concluded that the income had been properly reported.
[11] The Applicant filed a notice of objection in respect of the request to reduce his 2000 net business income. The objection was reviewed by a CRA Appeals Officer. The Applicant met with the Appeals Officer on two occasions to discuss his request but it was denied on July 23, 2002. The Appeals Officer concluded that the business income had been properly reported in 2000 by his accountant. The Applicant’s 2000 objection was allowed only with respect to the deduction of additional business expenses. The Applicant did not appeal this reassessment to the Tax Court of Canada.
First Level Fairness Request
[12] By a letter dated November 20, 2006 and received by the Minister on December 7, 2006, the Applicant requested that the Minister:
1) Accept amended income tax returns for his statute-barred taxation years of 1995 to 2000 in which he claimed to be entitled to refunds based on an accounting method that he had invented;
2) Accept late filed tax returns for his 2001 to 2004 taxations years; and
3) Cancel and waive penalties and interest.
[13] By a letter dated December 29, 2006, the CRA agreed to review the years to which penalties and interest applied. In a letter dated January 3, 2007, the CRA acknowledged the Applicant’s late-filed returns for processing but requested that he re-supply the returns using CRA’s T2124 form. The CRA stated that the failure to do so could constitute the disallowance of the Applicant’s business expenses.
[14] On January 6, 2007, the Applicant called the CRA officer who had sent the request to use the T2124 forms and mentioned that there was no requirement to use specific forms. The Applicant also informed the CRA that they have, and will accept, other types of financial statements. The Applicant was told he was incorrect and that his financial statements would not be processed in their current form.
[15] In January 2007, the Applicant re-filed all the returns as requested by the CRA using the T2124 form. On March 8, 2007, the Applicant’s 2001 to 2004 tax returns were accepted by the Minister and assessed as filed. The 2001 to 2004 tax returns were not reviewed by audit prior to being assessed as filed.
[16] The Applicant’s fairness request was denied by a letter dated May 29, 2007 from the fairness officer who found that the business income had been properly reported for those years.
Second Level Fairness Request
[17] By letter dated July 1, 2007, the Applicant made a second level fairness request. Additional submissions were received by the Minister in support of this request. In a letter dated October 9, 2007, the CRA advised that they would review the Applicant’s 1996-2000 returns in a second level fairness review. In late September 2007, the Applicant was contacted by an auditor at CRA to review his accounting for income tax purposes.
[18] As part of the second level review, the CRA auditor reviewed the previous fairness request. The auditor also met with the Applicant and had several telephone conversations with him to discuss his request to reduce the business net income for his 1995 to 2000 taxation years. The officer concluded that the Applicant’s 1995 loss claim was not supportable in fact, and was also not consistent with the provisions of the Act, Generally Accepted Accounting Principles (GAAP), tax law or general business practices. The officer concluded that the accounting method created by the Applicant in support of his 1995 to 2000 loss claims did not provide accurate net income for tax purposes, so that his loss claims for 1995 to 2000 were not correct in law and the business income had been properly reported in those years.
[19] The officer also reviewed the Applicant’s 2001 and 2004 taxation years. On April 8, 2008, the Minister issued reassessments in respect of the Applicant’s 2001 to 2004 taxation years in accordance with the officer’s audit report.
[20] An additional CRA Taxpayer Relief Coordinator reviewed the Applicant’s fairness request and considered the Applicant’s additional request to cancel interest and penalties for his 2005 taxation year. The Taxpayer Relief Coordinator prepared a report with a recommendation to deny the Applicant’s request. The Manager of the Revenue Collections division of the Vancouver Island Tax Services Office concurred with the Taxpayer Relief Coordinator’s recommendation to deny the Applicant’s request and advised the Applicant of the Minister’s Decision to deny his second level fairness request by a letter dated June 23, 2008.
DECISION UNDER REVIEW
[21] The Minister undertook a second review of the taxpayer relief decision rendered July 1, 2007. The Minister considered the Applicant’s comments and considered the circumstances of the case, including the initial request for relief under the taxpayer relief provisions. The Minister noted that the taxpayer relief provisions give the Minister the discretion to cancel or waive all or part of any penalty or interest payable and accept returns beyond the normal three-year period.
[22] The Minister noted that the Applicant’s second review request was based on the grounds that the first request was not handled in a fair or reasonable way. The second review was also based on the information the Applicant provided and the documentation on CRA’s file.
[23] The Minister commented that the CRA had completed a detailed review of the Applicant’s 1995 to 2005 tax returns and provided a conclusion on April 3, 2008, which determined if the amendments might be accepted. The Minister stated that the Applicant’s accounting method is not acceptable for taxation purposes and the figures originally submitted by the Applicant’s accountant would constitute the Applicant’s assessment for the 1995 to 2000 tax return years.
[24] The Applicant’s 2001 to 2005 tax returns were reassessed and the reassessments were issued on April 21, 2008. The Applicant was notified of the changes and that he had the right to appeal. The Minister noted that the Applicant had not provided any evidence that he had been given incorrect information by CRA and the Applicant was “quite emphatic that the information and procedures [used] were created by [the Applicant] with the help of an accounting textbook.”
[25] The Minister notes that the Applicant’s request expressed a concern that the situation had not been under the Applicant’s control. Information Circular 07-01 gives a number of examples to illustrate situations beyond a taxpayer’s control. The Minister notes that, in the Applicant’s case, he had control in the choices he made.
[26] The Minister concluded that the first fairness decision should stand. A review of all of the circumstances of the case, including recent submissions, failed to substantiate that the Applicant was prevented from complying with CRA’s filing and remitting requirements due to factors beyond the Applicant’s control. The Applicant had not demonstrated that he was entitled to the adjustments requested.
[27] The Minister felt that cancellation of the interest and penalty was not warranted because:
1) The Applicant had failed to demonstrate that, due to factors beyond his control, he had been prevented from filing his 2001 to 2005 tax returns and from remitting the amounts owing by the statutory deadlines;
2) The Applicant had failed to provide details of why the business continued to file its GST returns annually for 2001 to 2005 but the Applicant did not file his 2001 to 2005 tax returns in a timely manner;
3) The Applicant had had adequate time to acquire another accountant’s services, or to prepare his 2001 to 2005 tax returns himself, and to file these returns on time because, before they were due in or about March 2002, the Applicant had already determined that his previous accountant had allegedly incorrectly prepared his financial statements and tax returns;
4) Dissatisfaction with a previous accountant or incorrect financial statements prepared by the Applicant’s accountant were not extraordinary circumstances beyond the Applicant’s control that prevented him from filing his 2001 to 2005 tax returns and remitting the amounts owing by the statutory deadlines; and
5) A taxpayer’s choice of which accountant to consult (if any), how he keeps his accounting records, the timeliness with which he files his returns and the timeliness with which he pays the amounts owing are all factors within the taxpayer’s control.
ISSUES
[28] The Applicant submits the following issues on this application:
1) That the CRA and the Minister failed to observe the principles of natural justice, procedural fairness and other procedures in not allowing the Applicant to use a computation of income formula that is not inconsistent with the Act and the GAAP;
2) The first level fairness officer produced a decision that did not consider all of the relevant facts and was based upon irrelevant facts. The officer also failed to consider the unique circumstances and merits of the Applicant’s case and acted in bad faith in not following procedural fairness and erred in law;
3) The first level fairness officer failed to recognize relevant legislation that was fundamental to the CRA’s statutory duty with respect to procedural fairness;
4) The auditor assigned to the second level fairness review failed to consider relevant facts, observed irrelevant facts, and erred in law for tax purposes and GAAP. The review failed to consider procedural fairness by not conducting the second level review independently of the first level review;
5) Both the first and second level fairness officers failed to observe procedural fairness when addressing all the reasons that the Applicant submitted in his request;
6) The second level fairness officer failed to follow procedural fairness guidelines and acted in bad faith by not fully considering all the relevant facts and by observing irrelevant facts.
STATUTORY PROVISIONS
[29] The following provisions of the Act are applicable to these proceedings:
3. The income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer’s income for the year determined by the following rules:
(a) determine the total of all amounts each of which is the taxpayer’s income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer’s income for the year from each office, employment, business and property,
…
9. (1) Subject to this Part, a taxpayer’s income for a taxation year from a business or property is the taxpayer’s profit from that business or property for the year.
(2) Subject to section 31, a taxpayer’s loss for a taxation year from a business or property is the amount of the taxpayer’s loss, if any, for the taxation year from that source computed by applying the provisions of this Act respecting computation of income from that source with such modifications as the circumstances require.
(3) In this Act, “income from a property” does not include any capital gain from the disposition of that property and “loss from a property” does not include any capital loss from the disposition of that property.
…
10(1.01) For the purpose of computing a taxpayer’s income from a business that is an adventure or concern in the nature of trade, property described in an inventory shall be valued at the cost at which the taxpayer acquired the property.
…
12. (1) There shall be included in computing the income of a taxpayer for a taxation year as income from a business or property such of the following amounts as are applicable
Services, etc., to be rendered
(a) any amount received by the taxpayer in the year in the course of a business
(i) that is on account of services not rendered or goods not delivered before the end of the year or that, for any other reason, may be regarded as not having been earned in the year or a previous year, or
(ii) under an arrangement or understanding that it is repayable in whole or in part on the return or resale to the taxpayer of articles in or by means of which goods were delivered to a customer;
(b) any amount receivable by the taxpayer in respect of property sold or services rendered in the course of a business in the year, notwithstanding that the amount or any part thereof is not due until a subsequent year, unless the method adopted by the taxpayer for computing income from the business and accepted for the purpose of this Part does not require the taxpayer to include any amount receivable in computing the taxpayer’s income for a taxation year unless it has been received in the year, and for the purposes of this paragraph, an amount shall be deemed to have become receivable in respect of services rendered in the course of a business on the day that is the earlier of
(i) the day on which the account in respect of the services was rendered, and
(ii) the day on which the account in respect of those services would have been rendered had there been no undue delay in rendering the account in respect of the services;
…
152(4) The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, except that an assessment, reassessment or additional assessment may be made after the taxpayer’s normal reassessment period in respect of the year only if
(a) the taxpayer or person filing the return
(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or
(ii) has filed with the Minister a waiver in prescribed form within the normal reassessment period for the taxpayer in respect of the year; or
(b) the assessment, reassessment or additional assessment is made before the day that is 3 years after the end of the normal reassessment period for the taxpayer in respect of the year and
(i) is required pursuant to subsection 152(6) or would be so required if the taxpayer had claimed an amount by filing the prescribed form referred to in that subsection on or before the day referred to therein,
(ii) is made as a consequence of the assessment or reassessment pursuant to this paragraph or subsection 152(6) of tax payable by another taxpayer,
(iii) is made as a consequence of a transaction involving the taxpayer and a non-resident person with whom the taxpayer was not dealing at arm’s length,
(iii.1) is made, if the taxpayer is non-resident and carries on a business in Canada, as a consequence of
(A) an allocation by the taxpayer of revenues or expenses as amounts in respect of the Canadian business (other than revenues and expenses that relate solely to the Canadian business, that are recorded in the books of account of the Canadian business, and the documentation in support of which is kept in Canada), or
(B) a notional transaction between the taxpayer and its Canadian business, where the transaction is recognized for the purposes of the computation of an amount under this Act or an applicable tax treaty.
(iv) is made as a consequence of a payment or reimbursement of any income or profits tax to or by the government of a country other than Canada or a government of a state, province or other political subdivision of any such country,
(v) is made as a consequence of a reduction under subsection 66(12.73) of an amount purported to be renounced under section 66, or
(vi) is made in order to give effect to the application of subsection 118.1(15) or 118.1(16).
…
163.2 (1) The definitions in this subsection apply in this section.
"subordinate" , in respect of a particular person, includes any other person over whose activities the particular person has direction, supervision or control whether or not the other person is an employee of the particular person or of another person, except that, if the particular person is a member of a partnership, the other person is not a subordinate of the particular person solely because the particular person is a member of the partnership.
163(2) Every person who makes or furnishes, participates in the making of or causes another person to make or furnish a statement that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by another person (in subsections (6) and (15) referred to as the “other person”) for a purpose of this Act is liable to a penalty in respect of the false statement.
…
(8) For the purpose of applying this section (other than subsections (4) and (5)),
(a) where a person makes or furnishes, participates in the making of or causes another person to make or furnish two or more false statements, the false statements are deemed to be one false statement if the statements are made or furnished in the course of
(i) one or more planning activities that are in respect of a particular arrangement, entity, plan, property or scheme, or
(ii) a valuation activity that is in respect of a particular property or service; and
(b) for greater certainty, a particular arrangement, entity, plan, property or scheme includes an arrangement, an entity, a plan, a property or a scheme in respect of which
(i) an interest is required to have, or has, an identification number issued under section 237.1 that is the same number as the number that applies to each other interest in the property,
(ii) a selling instrument in respect of flow-through shares is required to be filed with the Minister because of subsection 66(12.68), or
(iii) one of the main purposes for a person’s participation in the arrangement, entity, plan or scheme, or a person’s acquisition of the property, is to obtain a tax benefit.
…
220. (1) The Minister shall administer and enforce this Act and the Commissioner of Revenue may exercise all the powers and perform the duties of the Minister under this Act.
(2) Such officers, clerks and employees as are necessary to administer and enforce this Act shall be appointed or employed in the manner authorized by law.
3. Pour déterminer le revenu d’un contribuable pour une année d’imposition, pour l’application de la présente partie, les calculs suivants sont à effectuer :
a) le calcul du total des sommes qui constituent chacune le revenu du contribuable pour l’année (autre qu’un gain en capital imposable résultant de la disposition d’un bien) dont la source se situe au Canada ou à l’étranger, y compris, sans que soit limitée la portée générale de ce qui précède, le revenu tiré de chaque charge, emploi, entreprise et bien;
…
9. (1) Sous réserve des autres dispositions de la présente partie, le revenu qu’un contribuable tire d’une entreprise ou d’un bien pour une année d’imposition est le bénéfice qu’il en tire pour cette année.
(2) Sous réserve de l’article 31, la perte subie par un contribuable au cours d’une année d’imposition relativement à une entreprise ou à un bien est le montant de sa perte subie au cours de l’année relativement à cette entreprise ou à ce bien, calculée par l’application, avec les adaptations nécessaires, des dispositions de la présente loi afférentes au calcul du revenu tiré de cette entreprise ou de ce bien.
(3) Dans la présente loi, le revenu tiré d’un bien exclut le gain en capital réalisé à la disposition de ce bien, et la perte résultant d’un bien exclut la perte en capital résultant de la disposition de ce bien.
…
10(1.01) Pour le calcul du revenu d’un contribuable tiré d’une entreprise qui est un projet comportant un risque ou une affaire de caractère commercial, les biens figurant à l’inventaire sont évalués à leur coût d’acquisition pour le contribuable
…
12. (1) Sont à inclure dans le calcul du revenu tiré par un contribuable d’une entreprise ou d’un bien, au cours d’une année d’imposition, celles des sommes suivantes qui sont applicables :
Services à rendre
a) les sommes reçues au cours de l’année par le contribuable dans le cours des activités d’une entreprise :
(i) soit qui sont au titre de services non rendus ou de marchandises non livrées avant la fin de l’année ou qui, pour toute autre raison, peuvent être considérées comme n’ayant pas été gagnées durant cette
année ou une année antérieure,
(ii) soit qui sont, en vertu d’un arrangement ou d’une entente, remboursables en totalité ou en partie lors du retour ou de la revente au contribuable d’articles dans lesquels ou au moyen desquels des marchandises ont été livrées à un client;
b) les sommes à recevoir par le contribuable au titre de la vente de biens ou de la fourniture de services au cours de l’année, dans le cours des activités d’une entreprise, même si les sommes, en tout ou en partie, ne sont dues qu’au cours d’une année postérieure, sauf dans le cas où la méthode adoptée par le contribuable pour le calcul du revenu tiré de son entreprise et acceptée pour l’application de la présente partie ne l’oblige pas à inclure dans le calcul de son revenu pour une année d’imposition les sommes à recevoir qui n’ont pas été effectivement reçues au cours de l’année; pour l’application du présent alinéa, une somme est réputée à recevoir pour services rendus dans le cours des activités de l’entreprise à compter du premier en date des jours suivants :
(i) le jour où a été remis le compte à l’égard des services,
(ii) le jour où aurait été remis ce compte si la remise n’avait pas subi un retard indu;
…
152(4) Le ministre peut établir une cotisation, une nouvelle cotisation ou une cotisation supplémentaire concernant l’impôt pour une année d’imposition, ainsi que les intérêts ou les pénalités, qui sont payables par un contribuable en vertu de la présente partie ou donner avis par écrit qu’aucun impôt n’est payable pour l’année à toute personne qui a produit une déclaration de revenu pour une année d’imposition. Pareille cotisation ne peut être établie après l’expiration de la période normale de nouvelle cotisation applicable au contribuable pour l’année que dans les cas suivants :
a) le contribuable ou la personne produisant la déclaration :
(i) soit a fait une présentation erronée des faits, par négligence, inattention ou omission volontaire, ou a commis quelque fraude en produisant la déclaration ou en fournissant quelque renseignement sous le régime de la présente loi,
(ii) soit a présenté au ministre une renonciation, selon le formulaire prescrit, au cours de la période normale de nouvelle cotisation applicable au contribuable pour l’année;
b) la cotisation est établie avant le jour qui suit de trois ans la fin de la période normale de nouvelle cotisation applicable au contribuable pour l’année et, selon le cas :
(i) est à établir en conformité au paragraphe (6) ou le serait si le contribuable avait déduit un montant en présentant le formulaire prescrit visé à ce paragraphe au plus tard le jour qui y est mentionné,
(ii) est établie par suite de l’établissement, en application du présent paragraphe ou du paragraphe (6), d’une cotisation ou d’une nouvelle cotisation concernant l’impôt payable par un autre contribuable,
(iii) est établie par suite de la conclusion d’une opération entre le contribuable et une personne non résidente avec laquelle il avait un lien de dépendance,
(iii.1) si le contribuable est un non-résident exploitant une entreprise au Canada, est établie par suite :
(A) soit d’une attribution, par le contribuable, de recettes ou de dépenses au titre de montants relatifs à l’entreprise canadienne (sauf des recettes et des dépenses se rapportant uniquement à l’entreprise canadienne qui sont inscrits dans les documents comptables de celle-ci et étayés de documents conservés au Canada),
(B) soit d’une opération théorique entre le contribuable et son entreprise canadienne, qui est reconnue aux fins du calcul d’un montant en vertu de la présente loi ou d’un traité fiscal applicable,
(iv) est établie par suite d’un paiement supplémentaire ou d’un remboursement d’impôt sur le revenu ou sur les bénéfices effectué au gouvernement d’un pays étranger, ou d’un état, d’une province ou autre subdivision politique d’un tel pays, ou par ce gouvernement,
(v) est établie par suite d’une réduction, opérée en application du paragraphe 66(12.73), d’un montant auquel il a été censément renoncé en vertu de l’article 66,
(vi) est établie en vue de l’application des paragraphes 118.1(15) ou (16).
…
163.2 (1) Les définitions qui suivent s’appliquent au présent article.
«activité de planification »
«subalterne » Quant à une personne donnée, s’entend notamment d’une autre personne dont les activités sont dirigées, surveillées ou contrôlées par la personne donnée, indépendamment du fait que l’autre personne soit l’employé de la personne donnée ou d’un tiers. Toutefois, l’autre personne n’est pas le subalterne de la personne donnée du seul fait que celle-ci soit l’associé d’une société de personnes.
163(2) La personne qui fait ou présente, ou qui fait faire ou présenter par une autre personne, un énoncé dont elle sait ou aurait vraisemblablement su, n’eût été de circonstances équivalant à une conduite coupable, qu’il constitue un faux énoncé qu’un tiers (appelé « autre personne » aux paragraphes (6) et (15)) pourrait utiliser à une fin quelconque de la présente loi, ou qui participe à un tel énoncé, est passible d’une pénalité relativement au faux énoncé.
…
(8) Les règles suivantes s’appliquent dans le cadre du présent article, sauf les paragraphes (4) et (5):
a) lorsqu’une personne fait ou présente, ou fait faire ou présenter par une autre personne, plusieurs faux énoncés, ou y participe, ceux-ci sont réputés être un seul faux énoncé s’ils ont été faits ou présentés dans le cadre des activités suivantes :
(i) une ou plusieurs activités de planification qui se rapportent à une entité donnée ou à un arrangement, bien, mécanisme, plan ou régime donné,
(ii) une activité d’évaluation qui se rapporte à un bien ou service donné;
b) il est entendu qu’une entité donnée ou un arrangement, bien, mécanisme, plan ou régime donné comprend une entité, un arrangement, un bien, un mécanisme, un plan ou un régime relativement auquel, selon le cas :
(i) un droit a ou doit avoir un numéro d’inscription attribué en vertu de l’article 237.1 qui est le même numéro que celui qui s’applique à chacun des autres droits dans le bien,
(ii) un avis d’émission visant des actions accréditives doit être présenté au ministre par l’effet du paragraphe 66(12.68),
(iii) l’un des principaux objets de la participation d’une personne à l’entité, à l’arrangement, au mécanisme, au plan ou au régime, ou de l’acquisition du bien par une personne, est l’obtention d’un avantage fiscal.
…
220. (1) Le ministre assure l’application et l’exécution de la présente loi. Le commissaire du revenu peut exercer les pouvoirs et fonctions conférés au ministre en vertu de la présente loi.
(2) Sont nommés ou employés de la manière autorisée par la loi les fonctionnaires, commis et préposés nécessaires à l’application et à l’exécution de la présente loi.
STANDARD OF REVIEW
[30] Generally speaking, the standard review for fairness decisions is reasonableness: Lanno v. Canada Customs and Revenue Agency 2005 FCA 153 and Nail Centre and Esthetics Salon v. Canada (Customs and Revenue Agency) 2005 FCA 166 at paragraph 5.
[31] In Dunsmuir v. New Brunswick 2008 SCC 9 (Dunsmuir), the Supreme Court of Canada recognized that, although the reasonableness simpliciter and patent unreasonableness standards are theoretically different, "the analytical problems that arise in trying to apply the different standards undercut any conceptual usefulness created by the inherently greater flexibility of having multiple standards of review": Dunsmuir at paragraph 44. Consequently, the Supreme Court of Canada held that the two reasonableness standards should be collapsed into a single form of "reasonableness" review.
[32] The Supreme Court of Canada in Dunsmuir also held that the standard of review analysis need not be conducted in every instance. Instead, where the standard of review applicable to the particular question before the court is well-settled by past jurisprudence, the reviewing court may adopt that standard of review. Only where this search proves fruitless must the reviewing court undertake a consideration of the four factors comprising the standard of review analysis.
[33] Thus, in light of the Supreme Court of Canada's decision in Dunsmuir and the previous jurisprudence of this Court, I find the standard of review applicable to the issues, with the exception of procedural fairness, bad faith and errors of law, to be reasonableness. When reviewing a decision on the standard of reasonableness, the analysis will be concerned with "the existence of justification, transparency and intelligibility within the decision-making process [and also with] whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law": Dunsmuir at paragraph 47. Put another way, the Court should only intervene if the Decision was unreasonable in the sense that it falls outside the “range of possible, acceptable outcomes which are defensible in respect of the facts and law.”
[34] The Applicant has also raised issues of procedural fairness, natural justice, and error of law issues.
[35] The standard of review for procedural fairness issues is correctness: Suresh v. Canada (Minister of Citizenship and Immigration) 2002 SCC 1. The standard of review for errors of law is correctness. See Uluk v. Canada (Minister of Citizenship and Immigration), [2009] F.C.J. No. 149 (F.C.).
ARGUMENTS
The Applicant
Profit 1 Computation of Profit
[36] The Applicant points out that expenses are not in dispute in this application. The issue is the characterization of income as a whole and the concept of “the deductibility of expense[s]” from that income as a whole. The Applicant cites and relies upon Canderel Ltd. v. Canada, [1998] S.C.J. No. 13 (Canderel) at paragraphs 30-31:
30 What, then, is the true nature of "profit" for tax purposes? While the concept has been variously expressed, perhaps the clearest and most concise articulation of the term is to be found in the oft-quoted decision of this Court in M.N.R. v. Irwin, [1964] S.C.R. 662, at p. 664, where profit in a year was taken to consist of "the difference between the receipts from the trade or business during such year ... and the expenditure laid out to earn those receipts" (emphasis in original). This definition was echoed by Jackett P. in Associated Investors of Canada Ltd. v. M.N.R., [1967] 2 Ex. C.R. 96, where he stated at p. 102:
Ordinary commercial principles dictate, according to the decisions, that the annual profit from a business must be ascertained by setting against the revenues from the business for the year, the expenses incurred in earning such revenues.
31 Accepting this fundamental definition, in Symes, supra, at pp. 722-23, the majority made the following observations about the computation of profit:
. . . the "profit" concept in s. 9(1) is inherently a net concept which presupposes business expense deductions. It is now generally accepted that it is s. 9(1) which authorizes the deduction of business expenses; the provisions of s. 18(1) are limiting provisions only. . . .
[37] The Applicant says that receipts and revenues are synonyms with profits and that they all have the same meaning. He says that the language in Canderel “confers a separation between ‘receipts’ and ‘expense’ and the terms ‘difference between’ and ‘setting against’ implies a distinct separation or independent characterization.”
[38] The Applicant also says that the meaning and intent of subsection 18(1) of the Act is to restrict a deduction, expense or outlay to only the purpose of gaining income. The inclusion of the term “gaining” is significant as it provides meaning to the word “income” within the Act. He says the meaning of a “gain” or “profit” cannot include a cost incurred or the sum of an expense. Therefore, the concept of computing income and expense separately is also incurred for the purpose of a gain.
[39] The Applicant claims that subsection 9(1) of the Act does not provide a conclusive meaning to the computation of income for tax purposes. He argues that if profit in section 9 of the Act is net profits then it could be construed that sales (or revenue or receipts), minus expenses, equal profits. However, the offsetting or difference between the concepts in Canderel would have no effect, nor would any of the terms parallel to income have that meaning assigned to them or be grammatically correct, as they would include their opposite meaning. Therefore, if section 9 of the Act is net profits, and that section confirms deductions because it presupposes them, then gross profit would still have the same general meaning of a profit or gain. If Canderel is applied, it would take the form of gross profit set against expense. The Applicant concludes in relation to sections 18 and 9 of the Act that, by using the Canderel formula, all of the terms have the same meaning as profits and gains. Income and expenses are computed separately before offsetting.
Computation of Profit
[40] The Applicant also discusses the computation of profit and relies on Wallace Realty Co. Ltd. v. Ottawa (City), [1930] S.C.R. 387 (Wallace) at paragraphs 3, 5, 7, 10, 12, 13 and 14:
In our opinion, the determination of this question rests entirely on the proper view to be taken of the definition of the word “income” in s. 1 of the Assessment Act, which reads as follows:
(e) “Income” shall mean the profit or gain
…
Mersey Docks v. Lucas, in the House of Lords [(1883) 8 App. Cas. 891.], is authority for the general principle that in ascertaining the "profits and gains" of any trade, manufacture, adventure or concern for the purpose of the Income Tax Acts, the taxpayer is entitled to deduct from the gross profits of his trade or business the expenses necessary to earn them.
…
In the Gresham case (ubi supra) [[1892] A.c. 309.] the company was held entitled to deduct the amount paid out by it for annuities in ascertaining its profits or gains for income tax purposes. Lord Herschell said, at p. 323,
Whether there be such a thing as profit or gain can only be ascertained by setting against the receipts the expenditure or obligations to which they have given rise.
…
The Privy Council, in Lawless v. Sullivan [[(1881) 6 App. Cas., 373.], dealing with a taxing Act of the Province of New Brunswick (31 V, c. 36), held that
The tax imposed by s. 4 (of the statute) upon "income" is leviable in respect of the balance of gain over loss made in the fiscal year, and where no such balance of gain has been made there is no income or fund which is capable of being assessed. There is nothing in the said section or in the context which should induce a construction of the word "income," when applied to the income of a commercial business for a year, otherwise than its natural and commonly-accepted sense, as the balance of gain over loss.
…
…So, a trader who keeps a general store may gain on some of the articles in which he deals and incur losses on others. In these cases, though the losses balanced or exceeded the gains, and consequently no