Photo by Nataliya Vaitkevich
The Andertons (husband and wife) brought two applications for judicial review after the Director General of the Legislative Policy Directorate and Legislative Affairs Branch of the Canada Revenue Agency (the “Director General”) refused to recommend a remission of their tax debts (which included income taxes, interests and penalties). The Andertons argued that the Director General erred by not granting their remission requests on the basis that “collection of the amounts owing would be unreasonable, unjust, or otherwise not in the public interest.”
Going back to the applications that the Andertons sent to the CRA in 2017, they raised the following main reasons:
- Extreme hardship – The Andertons indicated that they could not afford to pay the amounts outstanding and that they could not borrow to pay the amounts. Their sole source of income was government assistance and, in the case of Mr. Anderton, the CRA had already garnished 100% of his Canada Pension Plan benefits. They argued that the only asset they had was their home, but that it would be unreasonable and unjust to force them to liquidate that asset because they would be left with insufficient resources to purchase a condominium, much less a home, in metro Vancouver.
- Extenuating circumstances – The Andertons raised as extenuating circumstances certain health issues, their age as senior citizens, as well as their financial circumstances.
- Public interest – On this last point, the Andertons argued that since there was an express public policy to keep senior citizens in their homes when possible, to force them to liquidate that last remaining asset that also provided them shelter would go against the public interest.
The Director General addressed the arguments raised by the Andertons as follows (as summarized by the Federal Court):
Extreme hardship
[15] The Director General indicated that, to support a remission decision, such hardship should exist at the time the person makes the remission request and will normally have existed from the time the original tax liability arose. He found that Mr. Anderton had, and continues to have, the means to resolve his debt, pointing out that he has owned a house in Vancouver since 1984, valued at $1,061,900 in 2017. Additionally, the Director General found that, between 1997 and 2011, Mr. Anderton’s family income was consistently above the low income cut-offs set by Statistics Canada, except for two years. The Director General concluded that, since his debt arose, Mr. Anderton has had sufficient equity in his house to pay the amounts owing in full, but he instead prioritized other payments including re-mortgaging the home in 2001 and using the funds to assist Solucorp. The Director General explained that remission is generally not considered where a taxpayer has, or had, the capacity to pay their debt at the time it arose but chose not to, even if the debt has now grown to an amount where payment would be difficult.
[16] The Director General next considered whether there had been a significant financial setback with an extenuating factor. He explained that remission may be considered if circumstances outside a taxpayer’s control prevent them from meeting their tax obligations and payment of the resulting tax debt would strain their limited financial resources. The Director General noted that Mr. Anderton submitted that it was unfair that he must pay the tax on an investment (his Solucorp stock options) that he was unable to profit from. However, the Director General found that risks of acquiring shares are commonly known, including the potential for a sudden decline in their value. If an employee makes an investment decision to exercise a stock option, they accept the financial risk associated with doing so. The Director General determined that, although the Solucorp shares declined in value, Mr. Anderton exercising his stock option in 1997 and 1998 was within his control and was not considered an extenuating circumstance for the purposes of remission. He also noted that, as Mr. Anderton is still in possession of the Solucorp shares, he could possibly benefit from his investment if the value of the shares returns. [Here, the Andertons pointed out that Solucorp’s activities had ceased, and that there was no potential for its stock price to rise in value. However, the Federal Court stated that this inaccuracy was not a fatal flaw in the Director General’s analysis of their application.]
[17] The Director General also found that a portion of Mr. Anderton’s debt was the result of his decision not to file his income tax returns or pay his properly assessed tax as required. There was a record of CRA visiting his residence in 2003 and Mr. Anderton indicating that he had no intention of paying his debts. The Director General indicated that remission generally cannot be supported in cases where a taxpayer chose to avoid their tax and payment obligations. [Emphasis added.]
Health issues
[18] With respect to Mr. Anderton’s submissions that he suffers from certain health issues, the Director General explained that in order for health problems to be considered an extenuating factor for the purposes of remission, there should be a direct correlation between the illness and a taxpayer’s inability to meet their tax obligations at the time they arose. The Director General found that Mr. Anderton did not provide any medical or other records to demonstrate how his health issues would have rendered him incapable of meeting his tax payment obligations at the time they arose. Therefore, the Director General concluded that his health issues could not be considered extenuating circumstances for the purposes of remission. [Emphasis added.]
Public interest
[19] Lastly, the Director General noted that it is generally not considered to be in the public interest to remit tax, penalties, or interest for taxation years for which taxpayers did not file an income tax return on time or pay any amounts owing as required, unless there were circumstances that rendered them incapable of doing so. [Emphasis added.]
After considering the record that was put before the Director General and that informed his decision, the Federal Court found no basis for concluding that his decision was unreasonable and therefore dismissed the Andertons’ application for judicial review on that basis. Another way to put it, the Federal Court found that the reasoning that led the Director General to his decision was intelligible and justified in relation to the relevant evidence. The Federal Court further commented:
[44] I accept that the Applicants’ submissions in support of their remission requests, including the argument that the public interest in keeping seniors in their homes militated in favour of granting remission, could have supported a different outcome. Similarly, it may have been available to the Director General to focus to a greater extent on the Applicants current financial circumstances, as opposed to their past circumstances and conduct. However, the outcome at which the Director General arrived is not outside the range of outcomes that is supportable by the relevant facts and law. Therefore, conscious of this Court’s role in judicial review, there is no basis to interfere with the Decisions. [Emphasis added.]
Remission orders are extremely hard to get. The applications are analysed in detail in order to ascertain if there is sufficient justification to allow them. In this instance, the Director General could have granted partial relief to help the couple, but instead denied both applications in totality. This could be considered harsh by certain standards, but the way the Director General looks at this is from the perspective of fairness to all taxpayers as well.
Even if the judge of the Federal Court would have rendered a different decision, it was not for him to interfere with the Director General’s exercise of his discretion. As long as the Director General’s decision is within a range of reasonable outcomes as supported by the facts and the law, the Federal Court cannot interfere.