Walsh v. Canada (Attorney General)

Walsh v. Canada (Attorney General)
Court (s) Database
Federal Court Decisions
Date
2017-04-27
Neutral citation
2017 FC 411
File numbers
T-802-16
Decision Content
Date: 20170427
Docket: T-802-16
Citation: 2017 FC 411
Ottawa, Ontario, April 27, 2017
PRESENT: The Honourable Mr. Justice Russell
BETWEEN:
GLENN WALSH
Applicant
and
ATTORNEY GENERAL OF CANADA
Respondent
JUDGMENT AND REASONS
I. INTRODUCTION [1] This is an application under s 18.1 of the Federal Courts Act, RSC 1985, c F-7 [Act] for judicial review of a decision of the Minister of National Revenue [Minister], communicated October 9, 2015 [Decision], which denied the Applicant’s request for interest relief relating to his 1998 taxation year.
II. BACKGROUND A. Departure Trade Transaction [2] In 1998, the Applicant entered into a departure trade transaction with the Canadian Imperial Bank of Commerce [CIBC]. In a departure trade, an interest deduction is created to reduce the tax of an individual who is planning to emigrate from Canada. The departing taxpayer borrows money from a financial institution and incurs interest, which is deductible in part for the period prior to the departure. The borrowed money is simultaneously reinvested with the lender and the taxpayer earns interest that is not taxable because it is received after the taxpayer has terminated Canadian residence.
[3] In February 1998, the Applicant obtained a residency permit from Malta. The following June, the Applicant and CIBC each created corporations resident in the Cayman Islands, named Falcon Enterprises Inc [Falcon] and Phoenix Corporation [Phoenix], respectively. The Applicant then borrowed $694,852,318 USD from CIBC New York Agency [CIBC NY] at an interest rate of 8.74%, with the first interest payment due on December 31, 1998 and maturation of the loan occurring on January 15, 1999. The Applicant used the loan to purchase preferred shares in Falcon; Falcon then used the funds to purchase preferred shares in Phoenix. A subsequent series of transfers resulted in a return of the funds to CIBC NY.
[4] On December 29, 1998, the Applicant was to depart Canada for Malta. Then, on December 31, 1998, following the Applicant’s intended emigration, CIBC NY loaned the Applicant $47,499,148 to make the first interest payment on the original loan. In 1999, the liabilities between the parties were resolved, the Applicant’s shares in Falcon were redeemed, and Falcon and Phoenix were dissolved.
[5] In his 1998 tax return, the Applicant claimed a deduction of $47,499,149 as interest and carrying charges, offsetting income that he realized in that year through an employee profit sharing plan [EPSP] created by three corporations under his control. He reported a taxable capital gain of $7,493,510 for the deemed disposition of his shares in Falcon as a result of ceasing to be a Canadian resident, which was based on an amount of $10,000,000 as the proceeds of disposition.
B. First Personal Reassessments [6] On October 10, 2002, the Minister reassessed the Applicant’s 1998 income tax return [1998 Reassessment]. The 1998 Reassessment denied the entire amount of Interest Debenture and increased the amount of capital gain from the Falcon disposition to $48,119,646. On the same day, the Minister also reassessed the Applicant’s 1999 income tax return [1999 Reassessment], which denied the use of a loss carry-forward arising out of a loss that the Applicant had claimed in his 1998 income.
[7] In response, the Applicant filed Notices of Objection for both reassessments. Following the confirmation of both reassessments by the Minister on June 4, 2004, the Applicant filed a Notice of Appeal to the Tax Court of Canada [TCC] on June 24, 2004.
C. Corporate Reassessments [8] In the same year as the first personal reassessments, the Minister also issued reassessments to the corporations under the Applicant’s control, dated May 7, 2002; August 9, 2002; and April 15, 2002. The corporate reassessments denied the deductibility of payments made to the corporations by the EPSPs in the 1998 and 1999 taxation years, despite the inclusion of the transfers in the Applicant’s income in the first personal reassessments.
[9] The corporations filed objections to the corporate reassessments, which were confirmed by the Minister on March 29, 2004. Subsequently, the corporations filed Notices of Appeal to the TCC on June 24, 2004.
D. Second Personal Reassessments [10] In a Notice of Reassessment dated May 11, 2006 of the 1999 tax return [Second 1999 Reassessment], the Minister included $54,859,700 in income due to amounts received by the Applicant from non-resident corporations after 1998. This inclusion was based on the view that the Applicant had not ceased to be a resident of Canada in 1998, which was not the view in the prior reassessments.
[11] In response, the Applicant submitted a new Notice of Objection on August 7, 2006.
E. Litigation [12] On February 13, 2006, the TCC issued a Notice of Status Hearing and the Applicant’s appeal became subject to case management. An Order was issued requiring discoveries to be completed by the end of 2006. However, in December 2006, following the second Notice of Objection, the Crown advised that they did not wish to proceed with discovery until issues with the Applicant’s pleadings were resolved. As a result of the second objection, the Applicant had placed the 1999 Reassessment with the Canadian Revenue Agency [CRA] appeals branch, despite it also being before the TCC.
[13] At the same time, the TCC was considering a similar case containing a departure trade transaction and the Applicant’s personal Notice of Appeal was held in abeyance pending the outcome of the case. In June 2006, the TCC upheld the denial of the interest deduction on the basis that the taxpayer did not pay the interest he sought to deduct before ceasing to be a Canadian resident: Grant v the Queen, 2006 TCC 373 [Grant]. Grant was upheld by the Federal Court of Appeal in April 2007 and leave to appeal was dismissed by the Supreme Court of Canada in November 2007.
[14] On May 29, 2007, the Applicant amended his Notice of Appeal before the TCC to exclude the 1999 taxation year. The parties then agreed to complete litigation steps by October 31, 2007; however, the timeline was revised multiple times with the consent of both parties. Finally, a week-long hearing was set for April or May 2010.
F. Settlement [15] A settlement agreement between the two parties was reached on April 19, 2010. The terms of the settlement were as follows: the Applicant agreed that he would not be entitled to the interest and carrying charge deduction of $47,499,148; the CRA agreed that there would be no deemed dividend on the disposition of the Falcon shares in 1999; and the CRA agreed to reduce the 1998 income by $1,542,104. Concurrently, the Minister allowed the deductions of the EPSP payments for the corporations under the Applicant’s control.
[16] On July 7, 2010, the Minister reassessed the Applicant’s 1998 and 1999 income tax returns in accordance with the settlement agreement. The tax liabilities were reduced to $16,212,110 and nil for 1998 and 1999, respectively. The Applicant then paid the total balance owing of $38,067,818.
G. Request for Relief [17] On December 17, 2012, the Applicant submitted a request for the cancellation of interest in respect of his 1998 income tax return, with further submissions made on April 29, 2013.
[18] In response, the Minister agreed to grant interest relief in part on July 26, 2013. The Applicant requested a review of the decision on August 16, 2013, which was upheld on December 6, 2013.
[19] The Applicant then filed an application for judicial review of the December 6 decision. On November 25, 2014, the Federal Court issued an Order setting aside the decision and referred the Applicant’s request for cancellation of interest in relation to the 1998 taxation year for redetermination by individuals not previously involved in the matter.
[20] Accordingly, the Applicant submitted a new request for the cancellation of interest, which forms the subject of this judicial review.
III. DECISION UNDER REVIEW [21] In a Decision dated October 9, 2015, the Minister refused the Applicant’s request for interest relief in relation to his 1998 taxation year.
A. Legislation [22] In consideration of the request, the Minister referred to s 220(3.1) of the Income Tax Act, RSC, 1985, c 1 (5th Supp) [ITA], which provided situations under which relief could be granted. However, the Minister also acknowledged that relief could be granted for circumstances outside the situations in the ITA. Based on the legislation and the Applicant’s submissions, the Minister’s review of the request considered whether the Applicant: had a history of voluntary compliance with tax obligations; knowingly allowed a balance to exist; took reasonable care in conducting his affairs; and acted quickly to deal with any delay or omission.
B. Basis for Request and Examination of Reassessments [23] The Minister then considered the basis for the request, which was the disallowance of claimed interest in 1998. The Minister then examined the reassessments that were made, including the reasons, time frames, and amounts.
(1) Disallowance of Expensed Interest in 1998 [24] The Minister summarized the reasons for the adjustment to the Applicant’s 1998 income tax return, which was reassessed to disallow the interest claimed of $47,499,142.21. The reasons were: the transactions were a sham in that they were undertaken to create a tax deduction, had no bona fide business purpose, and were not profitable from the beginning; the interest expense was not allowed under ss 18(1)(a) and 18(1)(h) of the ITA because it was for the Applicant’s personal benefit and not incurred to earn business income; the Applicant was not entitled to claim the interest per s 20(1)(c) of the ITA because he was a resident at the time and the interest expense was not incurred to earn income; and the general anti-avoidance rule was applicable because the transactions were conducted with a primary purpose of generating an interest expense that would offset future income.
(2) Residency and Inconsistency of Reassessments [25] The Minister then reviewed the reasons for the inconsistent reassessments based on the Applicant’s residency status, which was non-resident in 1998 but resident in 1999. The 1999 Audit Report found that the Applicant had been resident of Canada from 1999 to 2002 because he did not sever all ties with Canada in that period. Accordingly, the Applicant’s 1999 tax return was reassessed and resulted in a balance owing of $45,798,555.
[26] Though inconsistent, the jurisprudence provided that when facts were in dispute, the Minister was permitted to issue inconsistent assessments pending the resolution of the dispute. As a result, the 1999 Audit Report provided two possible conclusions: if the Applicant was resident in 1998 and 1999, then the capital gain in the 1998 tax return would be reversed; however, if he was non-resident in 1998 and 1999, the adjustments would be removed from his 1999 income. Due to the inconsistency, the 1999 Audit Report also stated that the 1999 Reassessment would be amended once further information was available. The Applicant was therefore notified of the Minister’s intention to reassess the 1999 tax return, which was done on July 1, 2010.
(3) Inconsistent and Contradictory Positions in Reassessment of the Corporations [27] The Minister then reviewed the deductions claimed through the EPSP and the related reasons for reassessment. The Minister found that: no trust relationship had been established; the proposed EPSP did not qualify as it was set up for only one employee; the contributions were not reasonable expenses; the contributions were not expenses incurred for the purpose of earning income; and the contributions remained unpaid. Accordingly, reassessment was required since deductions were not allowed but income was still reported. However, this was not done at the time because it is CRA’s policy to not make downward reassessments to a related taxpayer until the issue of the upward reassessments is resolved.
[28] Next, the Minister addressed the capital gain reported on the Falcon shares. The Audit Division of the CRA had opined that the fair market value of the Falcon shares ($48,128,299) was more than the reported proceeds of disposition ($9,383,596). The 1999 Audit Report also commented that the adjustment in regards to the proceeds of disposition would be reversed if the CRA was successful in the disallowance of the carrying charges, which occurred when the 1999 tax return was reassessed on July 1, 2010.
[29] The Minister then discussed the amounts owing after subsequent reassessments and payments. In 2006, the total tax owing was determined to be $119,905,525, with $96,052,070 owing in personal tax and $23,858,454.55 owing in corporate tax. However, the settlement in April 2010 reduced the total tax owing for 1998 to $38,067,818. The Applicant’s payments on account totaled $38,568,251.
(4) Collection Action Taken [30] The Minister then reviewed the details concerning the CRA’s attempts to collect amounts owing on the Applicant’s T1 account, which included various seizures of the Applicant’s property, incoming payments, deposits, shares, and investments as well as numerous requests to various parties.
(5) Evidence of Money Transfers [31] Next, the Minister reviewed the deposits paid by the Applicant to various individuals, which included members of his family.
(6) Residency Status and Assets [32] The Minister then examined the Applicant’s residency status and assets, which included various real estate properties.
(7) Proposals to Reduce Tax Owing [33] The Minister also reviewed the correspondence and negotiations that occurred between the Applicant’s representatives and the CRA on the resolution of the accounts. This included statements that the Applicant had missed deadlines, failed to make payments as indicated, and failed to provide requested information.
(8) Reassessment and Interest Issues in the June 17, 2015 Submission [34] The Minister noted that CRA charged interest on the amounts owed from the due date of the return on April 30, 1999 to the date of the reassessment on July 1, 2010, with additional interest charged after July 7, 2010 up until the account was fully paid. However, interest relief was provided for the period in which the CRA and Applicant awaited the outcome of Grant, above, which was between April 6, 2003 and June 3, 2004. The Minister referred to correspondence from Samantha Eksal, dated November 10, 2003, that stated: “After reviewing the issues in these files, it has been determined that all of the above Notices of Objection must be held in abeyance pending the outcome of a similar issue that is currently before the Courts….”
(9) Delay Issues in the June 17, 2015 Submission [35] In response to the issue of delay due to the TCC appeals, the Minister noted that the CRA was not awaiting the resolution of the Grant decision to resolve the Applicant’s file, as the T401 Appeals Report for the 1998 T1 had been signed June 3, 2004, two years prior to the Grant decision of June 29, 2006. Additionally, Grant was resolved two and a half years prior to the April 2010 settlement. Furthermore, the term “abeyance” had not been used in any correspondence save for a letter dated April 19, 2010, which indicated that due to the settlement of April 2010, the tax returns would be held in abeyance for 60 days to enable reassessment.
(10) Reasonable Care Issues [36] The Minister noted that the Applicant was not personally liable to pay any tax, interest, or penalty that was assessed to the corporations. Additionally, the Minister acknowledged that the CRA obtained a cheque for $22 million from the Applicant’s lawyer on October 25, 2013.
C. Considerations for Requested Relief (1) History of Compliance [37] The Minister acknowledged the Applicant’s compliance with return filing deadlines, which were on time from 1992 to 1997 and mostly on time after 1998.
[38] With regards to the remittance of payments, the Minister noted that the Collections Division of the CRA was involved with the Applicant’s account from December 2, 1993 to October 22, 1997. Collection activity resumed on July 27, 1999 and reached a balance of $4.98 million by April 9, 2002. Although the Applicant’s representatives had proposed to settle the account, the proposals were insufficient to pay the entire balance. Additionally, despite the 2010 settlement, the Applicant continued to make similar insufficient proposals and never submitted a repayment plan.
[39] The Minister then noted that the Applicant did not make voluntary payments to his account until April 15, 2014, which was 12 years after the 2002 reassessment and 4 years after the 2010 settlement. Accordingly, extensive collections activity was required to ensure compliance.
[40] The Minister pointed out that had the payments been remitted in amounts larger than the amounts due, the funds would have been returned to the Applicant with interest.
(2) Knowledge [41] Next, the Minister considered whether the Applicant knowingly allowed a balance to exist upon which interest accrued amounts owing. The Minister found that the Applicant’s representative, in a memorandum dated February 6, 2008, had acknowledged awareness that the reassessments contained protective positions and that further reassessments would be made to reduce the amounts once additional information was made available. The Minister also found that the Applicant’s representatives could have considered a best or worst case scenario to determine the amounts owing, which was in fact done on July 14, 2003 and February 6, 2008. Furthermore, the February 6 memorandum demonstrated that the Applicant’s representatives were aware of the strength of CRA’s position and could have estimated taxes owing on the 1998 return due to the high probability that the interest expense claimed would be disallowed.
(3) Reasonable Care [42] The Minister then evaluated the Applicant’s claim that reasonable care was taken in conducting his affairs under the self-assessment system, including the Applicant’s consultation with tax accountants and lawyers during the trade departure transaction and reassessments. In particular, the Minister noted that the Applicant had failed to heed his former representative’s concerns regarding the departure trade transaction and, instead, switched to a different representative.
(4) Delay or Omission [43] Upon review of the file, the Minister concluded that the duration of the audit was due to the Applicant’s failure to be forthcoming with relevant information, including information related to his residency and assets owned. Additionally, the Minister found that the Applicant could have signed a waiver and thereby avoided the second reassessment for the 1999 tax return, but did not do so.
(5) Extraordinary Circumstances [44] After reviewing the examples from the Information Circular IC07-1 where extraordinary circumstances would prevent compliance, the Minister concluded there were no extraordinary circumstances in the Applicant’s situation.
(6) Summary of Decision [45] The Minister determined that interest relief was not warranted. First, there was no undue delay caused by the CRA or the Crown; rather, the delays were the fault of the Applicant’s failure to be forthcoming in a timely manner or were caused by the Applicant’s counsel. Second, the Applicant’s failure to comply with payments allowed the balance to exist and accrue interest for a period of 12 years. Third, the Applicant had not acted quickly to deal with the reassessments and had ignored advice concerning the validity of the departure trade transaction. Fourth, no extraordinary circumstances existed. And finally, there were no other reasons to conclude that relief should be granted.
IV. ISSUES [46] The Applicant submits that the following is at issue in this application:
A. Whether the Minister erred in the exercise of his discretion under s 220(3.1) of the ITA, resulting in a Decision that is contrary to law and/or unreasonable?
[47] The Respondent submits that the following is at issue in this application:
A. Whether the Minister’s Decision is reasonable and, if it is not, whether the Applicant’s request for taxpayer relief must be returned to the Minister for redetermination?
V. STANDARD OF REVIEW [48] The Supreme Court of Canada in Dunsmuir v New Brunswick, 2008 SCC 9 [Dunsmuir] held that a standard of review analysis need not be conducted in every instance. Instead, where the standard of review applicable to a particular question before the court is settled in a satisfactory manner by past jurisprudence, the reviewing court may adopt that standard of review. Only where this search proves fruitless, or where the relevant precedents appear to be inconsistent with new developments in the common law principles of judicial review, must the reviewing court undertake a consideration of the four factors comprising the standard of review analysis: Agraira v Canada (Public Safety and Emergency Preparedness), 2013 SCC 36 at para 48.
[49] Both the Applicant and Respondent agree that the standard of review should be reasonableness. The exercise of the Minister’s discretion to grant interest relief under s 220(3.1) of the ITA has been held to be reviewable under reasonableness: Canada Revenue Agency v Telfer, 2009 FCA 23 at para 2 [Telfer].
[50] 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.” See Dunsmuir, above, at para 47, and Canada (Minister of Citizenship and Immigration) v Khosa, 2009 SCC 12 at para 59. Put another way, the Court should intervene only 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.”
VI. STATUTORY PROVISIONS [51] The following provisions from the ITA are relevant in this proceeding:
Waiver of penalty or interest
Renonciation aux pénalités et aux intérêts
(3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer (or in the case of a partnership, a fiscal period of the partnership) or on application by the taxpayer or partnership on or before that day, waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by the taxpayer or partnership in respect of that taxation year or fiscal period, and notwithstanding subsections 152(4) to (5), any assessment of the interest and penalties payable by the taxpayer or partnership shall be made that is necessary to take into account the cancellation of the penalty or interest.
(3.1) Le ministre peut, au plus tard le jour qui suit de dix années civiles la fin de l’année d’imposition d’un contribuable ou de l’exercice d’une société de personnes ou sur demande du contribuable ou de la société de personnes faite au plus tard ce jour-là, renoncer à tout ou partie d’un montant de pénalité ou d’intérêts payable par ailleurs par le contribuable ou la société de personnes en application de la présente loi pour cette année d’imposition ou cet exercice, ou l’annuler en tout ou en partie. Malgré les paragraphes 152(4) à (5), le ministre établit les cotisations voulues concernant les intérêts et pénalités payables par le contribuable ou la société de personnes pour tenir compte de pareille annulation.
VII. ARGUMENT A. Applicant (1) Extraordinary Circumstances [52] The Applicant submits that the Decision is incorrect or unreasonable. The issuance of inconsistent and contradictory tax reassessments constitutes either extraordinary circumstances that prevented compliance, or circumstances beyond the Applicant’s control.
[53] While the Minister has the authority to issue inconsistent or contradictory assessments, this authority is limited to exceptional cases and should not be exercised as a general rule: Duthie Estate v Canada, [1995] FCJ No 770 at para 43; Hawks v the Queen, [1996] FCJ No 1694 at para 7. If exercised in the context of a taxpayer relief application, the central consideration is the impact of the assessments on the Applicant.
[54] The Applicant cites three inconsistent and contradictory positions taken by the Minister: the adjustment to the proceeds of disposition of the Falcon shares in the 1998 Reassessment; the determination that the Applicant was a resident of Canada in the 1999 Reassessment; and the inclusion of the Applicant’s 1998 income of EPSP amounts received while concurrently denying the deductibility of the payment of such amounts by the corporation reassessments. These inconsistent and contradictory reassessments exceeded $110 million in liabilities and left the Applicant with no choice but to wait for the Minister to take a conclusive and consistent position. The Applicant submits that the Minister failed to consider the impact of the inconsistent and contradictory assessments in the appropriate context and that it was unreasonable not to consider them to be extraordinary circumstances.
[55] In the Decision, the Minister states that the Applicant knew that only one of the positions would ultimately stand and therefore should have known that “double tax” would not result; however, this was never communicated to the Applicant by the CRA. In fact, by the time the Applicant was made aware of the CRA’s position in this regard, settlement negotiations had commenced and the information became less relevant.
[56] The Applicant argues that the Minister could have provided assurance or comfort to the Applicant around the time when the assessments were proposed or made. The absence of this assurance left the Applicant with no way of knowing how matters would ultimately be resolved.
[57] In the Decision, the Minister failed to consider the facts in the proper context; instead, the Minister took the position that the authority to issue alternative reassessments precludes the availability of relief. In other words, the Minister focused on the authority to issue the assessments, not the impact of the assessments. The refusal of interest relief is inconsistent with the spirit of taxpayer relief provisions and undermines the fairness process.
[58] The Applicant also argues that the Minister’s consideration of extraordinary circumstances was limited to the examples in the Guidelines. However, circumstances warranting relief need not be both beyond a taxpayer’s control and extraordinary: 3500772 Canada Inc v Canada (National Revenue), 2008 FC 554; Nixon v Canada (National Revenue), 2016 FC 906. The Applicant submits that the Minister erred by requiring the application to meet both branches. The existence of inconsistent and contradictory circumstances should constitute the type of circumstances beyond a taxpayer’s control, particularly given the amounts involved in the present case.
[59] The Applicant submits that the present case is distinguishable from Telfer, above, which found that taxpayers who fail to pay a tax debt pending a decision in a related case normally cannot complain that they should have to pay interest. The present case is not a normal situation due to the quantum owed.
[60] The Applicant contends that the CRA aggressively and knowingly assessed contradictory and inconsistent positions which placed the Applicant in a position where there was no realistic alternative but to wait for the outcome of the litigation, given that the liabilities exceeding $110 million.
[61] Accordingly, the Applicant submits that his request for the cancellation of interest should be reconsidered.
(2) Undue Delay [62] Alternatively, the Applicant submits that he was subject to undue delay in this matter as a result of the CRA’s actions, thereby rendering the Minister’s refusal to grant relief unreasonable.
[63] The CRA linked all of the appeals together; consequently, they could not be dealt with separately. Since the CRA does not make downward reassessments to related taxpayers until upward reassessments are resolved, in this case, the corporate reassessments could not be dealt with until after the personal reassessments, which the CRA also chose not to deal with until the Grant litigation was resolved. As a result, there was no realistic alternative but to wait for the outcome of Grant. Although the term “abeyance” was not specifically used, the appeals were effectively held in abeyance at the will of the CRA and the Applicant was prejudiced by these delays. While the delay in resolving the appeals is understandable, it should not be attributed to the Applicant so as to preclude interest relief.
[64] In the Decision, the Minister states that the Applicant was not waiting for the outcome of the Grant case because the TCC rendered the decision on June 29, 2006. The Applicant submits that this is a misunderstanding of the relevant facts and process. In 2006, the 1998 Reassessment and Corporate Reassessments were not before the Appeals Division; they were before the TCC. Additionally, the TCC decision was appealed to the Federal Court of Appeal, with leave sought to the Supreme Court of Canada. Thus, Grant was not fully resolved until November 2008. Accordingly, the Applicant could not pursue a resolution based on Grant until November 2008.
[65] Moreover, the Applicant submits that the Minister ought to have vacated the 1999 Reassessment once the Grant decision had been determined to be definitive of the 1998 and 1999 Reassessments. However, the Minister did not do so until July 2010, after the settlement was reached. The Applicant submits this delay was because the positions of the parties were not certain until the settlement agreement was reached. Consequently, the Applicant submits that the Applicant’s position was not clear and obvious in 2006.
(3) Non-Compliance [66] The Decision refers to the Applicant’s failure to comply with payments on the account and various collections activity. However, the Minister admitted in cross-examination that, while the reassessments were under objection and appeal, the Applicant had no obligation to pay the amounts. The Minister also stated that the non-payment of disputed amounts is not the same as non-compliance. The Applicant submits that the Decision does not take the aforementioned into account. Furthermore, the Applicant also notes that the Minister clarified that collection action could take place in certain circumstances, such as when a jeopardy order has been issued; however, the Applicant has never been under such an order.
[67] The Decision also clearly demonstrates that the Minister considered the timing of payments for the outstanding amount arising from the reassessments under the settlement agreement. The Applicant notes that three significant payments were made to retire the balance owing, including two that were in excess of $37 million and made shortly after the settlement agreement. The Minister appears to have failed to consider these payments.
[68] The Applicant therefore submits that his request for the cancellation of interest should be reconsidered in light of the delays which allowed the interest in question to accrue.
B. Respondent (1) Considerations of the Minister [69] The Respondent submits that the Decision is reasonable in light of the information before the Minister.
[70] Section 220(3.1) of the ITA allows the Minister a broad discretion to waive or cancel penalties and interest, which is guided by CRA guidelines. Cancellation of interest may be justified in certain circumstances, which is assessed under the following considerations: history of compliance with tax obligations; knowingly allowing interest to accrue; exercise of a reasonable amount of care in conducting affairs under the self-assessment system; and acting quickly to remedy delays or omissions.
(2) Undue Delay [71] Upon review, the Minister considered that the Crown did not cause undue delay in the litigation concerning the Applicant’s debt for the 1998 taxation year. The record does not reflect any request to the TCC for abeyance of the Applicant’s appeal prior to settlement in April 2010; if there was such an abeyance, the Applicant admits that it was on the consent of both parties.
[72] Despite the Federal Court of Appeal’s ruling against the departure trade scheme on April 30, 2007, the Applicant repeatedly requested and consented to timeline extensions before finally setting down a hearing date and offering to concede the departure trade deduction in April 2010. Throughout this process, the extensions were agreed to on the consent of both parties, and on some occasions, were required as a result of to the Applicant’s own conduct.
[73] The Respondent contends that the Crown cannot be held responsible for the Applicant’s failure to vigorously prosecute his own appeal in the face of knowledge that interest was accruing. The Applicant chose not to take steps in his appeal because he was awaiting rulings on other departure trade scheme appeals; however, this is not a delay imposed by the Crown.
[74] Moreover, the present case is not distinguishable from Telfer, above. The Applicant is not entitled to relief because of his gamble on the outcome of Grant. The existence of contradictory assessments did not prevent the Applicant from consulting with counsel, determining the likelihood that his position would succeed, and making efforts to address the situation by paying his debt, advancing litigation, or cooperating with the CRA audit to resolve confusion about his residency. Additionally, the Applicant has not submitted evidence to suggest that the quantum of reassessments prevented him from addressing his tax debts promptly at the time of reassessment, as contemplated by Telfer.
[75] Consequently, the Respondent submits that it was reasonable for the Minister to deny that no additional relief was merited due to Crown delay.
(3) Extraordinary Circumstances [76] The Respondent also submits that it was reasonable for the Minister to conclude that contradictory reassessments did not constitute an extraordinary circumstance. Extraordinary circumstances are situations beyond a taxpayer’s control that prevent them from fulfilling an obligation, such as natural disasters and civil disturbances. The contradictory reassessments were not issued until May 11, 2006; accordingly, they cannot justify failure to address the 1998 tax liabilities prior to that date. While the Applicant may have been concerned about the significance of the reassessments against the corporations he was involved with, he was not liable for the amounts and has not provided evidence that the corporate reassessments imposed financial hardship that would have impeded him from addressing his personal debt.
[77] Moreover, even after the contradictory reassessments had been issued, the Applicant could have voluntarily addressed his 1998 tax liabilities prior to the implementation of the settlement agreement on July 7, 2010. The 2006 reassessment was only raised because the Applicant declined to provide information that would have allowed the CRA to take a consistent position as to his residency, which was within his control.
[78] The uncertainties regarding the 1998 and 1999 tax liabilities could have been clarified by the Applicant’s diligent efforts to provide information to the CRA, pursuit of appeal before the TCC, or settlement. He was not prevented from doing any of those things; instead, he wagered upon the possibility that waiting to resolve the issues would be beneficial. Accordingly, the Applicant cannot now claim that the appeals process put him at a disadvantage.
[79] Finally, the existence of contradictory assessments is unconnected to the Applicant’s failure to address the obligations after the July 7, 2010 reassessment. The Applicant’s liability was certain at this point.
(4) Additional Basis for Relief [80] The Minister reviewed the Applicant’s representations and reasonably concluded the circumstances did not warrant interest relief. The Applicant’s conduct did not merit it: he failed to make payments; he knowingly allowed interest to accrue despite warnings from counsel; he engaged in a pattern of behaviour designed to frustrate the CRA by threatening bankruptcy and transferring assets to foreign jurisdictions; he failed to make voluntary payments for 12 years; and he avoided addressing his 1998 tax liabilities even after settlement.
[81] The Respondent submits that the Minister considered an exhaustive amount of material and issued a reasonable Decision that should be upheld.
VIII. ANALYSIS A. Introduction [82] This application deals with the Minister’s refusal of interest relief that the Applicant requested under s 220(3.1) of the ITA for the 1998 taxation year.
[83] The history of dealings that led to the refusal is long and convoluted and grows out of an aggressive tax planning strategy that the Minister found to be contrary to the ITA. The Applicant feels that the Minister’s refusal to deny him the requested relief is based upon the Minister’s disapproval of this strategy rather than the principles and jurisprudence that govern interest relief.
[84] In particular, the Applicant says that the Minister:
a) Failed to consider the extraordinary impact that the issuance of inconsistent and contradictory assessments had upon the Applicant in the particular circumstances of this dispute; and
b) Failed to properly consider the administrative delay in moving the matter forward, and ignored or misapprehended important underlying facts that affected the delay.
[85] There is no dispute between the parties that the standard of review applicable to the issues raised in this application is reasonableness, and the Court agrees. See, for example, Telfer, above, at para 2.
B. Inconsistent and Contradictory Reassessments [86] The Applicant says that the Minister’s issuance of inconsistent and contradictory reassessments constituted extraordinary circumstances, or circumstances beyond the Applicant’s control, for which he is entitled to interest relief.
[87] The inconsistent/contradictory assessments at issue are:
a) The adjustments to the proceeds of disposition of the Falcon shares in the 1998 Reassessment;
b) The determination that the Applicant was a resident of Canada in the second 1999 Reassessment; and
c) The inclusion of the Applicant’s 1998 income of EPSP amounts received while concurrently denying the deductibility of the payments of such amounts by the corporate taxpayers involved.
[88] The Applicant’s position is that these inconsistent/contradictory assessments (which resulted in liabilities in excess of $110 million) left the Applicant with no realistic alternative but to wait for the outcome of relevant cases that the Minister had brought before the Courts so that the Minister could take a conclusive position on the basis of which the Applicant could respond.
[89] The Applicant points out that the additional amounts assessed by the Minister were “egregiously” in excess of what was ultimately owing upon eventual settlement and should have been accepted as an “extraordinary circumstances” that entitled the Applicant to interest relief.
[90] The Applicant feels the egregious assessments should have been regarded as an extraordinary circumstance because:
a) It is simply unreasonable to not consider the inconsistent reassessments to constitute extraordinary circumstances; and
b) The Minister’s position presupposes that the Applicant knew that only one of the assessing positions would ultimately stand, with the result that any double taxation issues would be resolved.
[91] The App