Delegate to undertake critical analysis of evidence of best efforts

Taxpayer discovered that office administrator had not kept sufficient records to enable preparation of tax return for year-ended July 31, 2007. Taxpayer paid estimate of what was owing. New office administrator who was also incapable misled both president and accountant as to status of both historical information and information for years subsequent to July 31, 2007. Taxpayer estimated its taxes for each taxation year and remitted payment based on estimates to meet its expected tax obligation. By 2012, filing could be completed for the year-ended July 31, 2007 and then subsequent periods through July 31, 2011. Delegate disallowed request to re-appropriate statute-barred tax credits against future tax liability in amount of $185,817.71, monies remaining from garnishment after payment of outstanding taxes and penalties for late filing. Taxpayer sought judicial review. Application allowed. Decision was unreasonable. Minister’s delegate was required to state clear and supportable justification to deny re-appropriation request given large sum of money under consideration. Delegate was advised of serious problems encountered by taxpayer in re-structuring financial affairs due to issues not of taxpayer’s making. Taxpayer’s efforts were directed to meeting its responsibility, and once affairs were in order all taxes and penalties were paid without objection or request for relief. Delegate’s decision centred on compliance with requirement that taxpayers must keep adequate records and without critical analysis of evidence of best efforts to meet requirement, delegate found that subjective expectations not met. Delegate’s statement without clarification of what “sufficient action” was expected, and what “reasonable timeframe” was expected, constituted delivery of punishment to taxpayer. Inclusion of GST record of taxpayer in decision-making process without providing advance notice and opportunity for to respond was not only unfair but was extraneous consideration introduction of which, in itself, rendered decision unreasonable.

Referred Realty Inc. v. Canada (Attorney General) (2018), 2018 CarswellNat 312, 2018 CarswellNat 96, 2018 FC 59, 2018 CF 59, Douglas R. Campbell J. (F.C.).