http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/108261/index.do
Larouche v. Canada (Attorney General) (February 23, 2015 – 2015 FC 232, Gagné J.).
Précis: This case arose out the grant of 250 stock options to M. Larouche by his employer, Cinépix Film Production (Cinépix). M. Larouche had the 250 shares issued to a company he controlled , 2753-1359 Québec Inc. (2753) which, in turn, transferred them to Fiducie Christian Larouche (the Trust), a few years later. CRA assessed both 2753 and the Trust in respect of the gain on the options/shares. The assessments were appealed to the Tax Court which resulted in a settlement under which only M. Larouche was taxed, CRA was permitted to open statute-barred years (1997, 1999, 2000 and 2001) to assess him and M. Larouche was free to pursue taxpayer relief on the assessed interest. CRA had already granted him interest relief for the period from September 20, 2004, to August 30, 2006. M. Larouche took a judicial review application in the Federal Court. His basic claims were that CRA failed to communicate with him for roughly two years during the first level review and acted unreasonably in granting too little relief in the second level review.
The Federal Court dismissed the application, with costs. There was no lack of procedural fairness at the first stage and the Minister’s decision at the second stage was not unreasonable. M. Larouche had the proceeds of sale of the shares and made no move to pay any of the associated taxes. The relief granted was reasonable under the circumstances.
Decision: The case all centered on the Cinépix shares, received by 2753 at M. Larouche’s direction, transferred to the Trust and then sold (the dates of sale are not clear from the decision but sales appear to have taken place over multiple years):
[4] In 1995, the applicant’s employer, Cinépix Film Production (Cinépix), offered him 250 stock options, which he exercised that same day. At the applicant’s request, the shares were issued to his management company, 2753-1359 Québec Inc. (2753), which held them until they were sold to Fiducie Christian Larouche (the Trust), a few years later.
[5] In February 2004, the Canada Revenue Agency (CRA) issued reassessments against 2753 for 1997, 1999 and 2001, on the basis of an unreported capital gain on the disposition of the shares to the Trust, deemed to have been made at fair market value. A few months later, reassessments were also issued against the Trust. Those notices of assessments would have had the effect of dual assessments.
[6] In March 2004, 2753 filed a notice of objection to that assessment, in vain because all of the notices of assessment were ratified by the Minister in August 2007.
[7] In November 2007, 2753 and the Trust filed an appeal with the Tax Court of Canada, which resulted in an out-of-court settlement following mediation led by Justice Archambault. Under that agreement, (i) the parties acknowledged that, at all relevant periods, 2753 acted as a nominee for the applicant and that it held Cinépix’s shares for him and in his name, (ii) they agreed to the fair market value of the shares at the time of the disposition in favour of the Trust, (iii) the Minister withdrew the notices of assessment issued against 2753 and (iv) the applicant waived the prescribed limitation period to permit the Minister to issue reassessments against him beyond the three year limit set out in subsection 152(4) of the ITA. That agreement also states that [TRANSLATION] “a formal request regarding interest could be made by Christian Larouche given the relief already granted for the period from September 20, 2004, to August 30, 2006”. That partial relief was granted informally by the Minister following a written request made by the applicant to Justice Archambault, who, having no jurisdiction over the matter, transmitted it to the Minister.
M. Larouche’s position on the judicial review was straightforward:
[2] The applicant is essentially criticizing the Minister for breaching his duty of procedural fairness by not engaging in discussion with him before rendering his first level decision, and for exercising his discretion in an unreasonable manner by too narrowly applying Income Tax Information Circular IC07-1, “Taxpayer Relief Provisions”, dated May 31, 2007.
Unfortunately for M. Larouche, the Court was not impressed by his arguments. As to the issue of delay at level one:
[26] Moreover, the applicant had ample opportunity to be heard and was able to make all of his submissions. The first level decision-maker could and had to render a decision and he was under no obligation to negotiate with the applicant. Unsatisfied with the result of his request, the applicant could do exactly what he did, submit it to the second level. That argument by the applicant will therefore be rejected.
As to whether the decision at level two was reasonable:
[34] The applicant did not demonstrate that it was unreasonable for the Minister to find that there were no undue delays on the part of the CRA at any stage in which his file was processed—audit, objection, appeal and mediation— or that the accruing of interest was due to a situation beyond his control.
[35] Finally, the applicant also did not demonstrate that the Minister erred by finding that he was not prevented from acting earlier. In light of the entire record, it was reasonable for the Minister to find that the applicant could have chosen to pay, at least partially, the amount of tax on the sale of the shares that he claimed were his, knowing that he had realized a taxable gain and that the CRA was claiming an amount of tax on that gain from 2753. The applicant instead chose to pay nothing; he had to have known that he would face accrued interest on the amount assessed or on any reassessment with respect to that sale of shares and capital gain.
As a result the application was dismissed, with costs.