Morrison v. R. - FCt: Judicial review of taxpayer relief application allowed - lack of procedural fairness

Morrison v. R. - FCt:  Judicial review of taxpayer relief application allowed - lack of procedural fairness

Morrison v. Canada (National Revenue) (October 14, 2016 – 2016 FC 1145, Simpson J.).

Précis:  The taxpayer had participated in the infamous Klotz art flip program and ended up owing over $100,000 in back taxes.  His application for taxpayer relief was allowed only to the extent of some interest relief and he applied to the Federal Court for judicial review.  On the review it appeared that on a second level review the officer relied in part on without prejudice settlement offers that the taxpayer had rejected.  The application was allowed because the Court held that this amounted to a breach of the rules of procedural fairness.  The matter was referred back to the Appeals Branch for review by a different member and without regard to the settlement offers at issue.  There was no order as to costs.

Decision:   The Federal Court held that CRA was not permitted to rely on without prejudice settlement offers that had been rejected by the taxpayer:

[12]           The Decision forgave interest charges for 1997 as they had earlier been forgiven for 1998 (see para 6 above) but no further relief was given for reasons which included the following:

                     supporting documentation showing financial hardship was not provided;

                     no effort was made to make voluntary payments or a payment arrangement;

                     tax returns were late or not filed;

                     requests for information were not responded to in a timely manner (it took the Applicant nine months to report what he actually paid for the art);

                     the Applicant ignored letters from the audit section;

                     credit reports showed that his home was mortgage free; therefore, he had the resources needed to make payments;

                     he was told interest would accrue while the Objections were held in abeyance; and

                     there were no further delays attributable to the Appeals Division or arising from changes in the personnel who handled his file.

[13]           The Decision also states several times that the Applicant’s refusal to accept CRA’s offers to settle was a factor in the rejection of his request for interest relief.

IV.             Discussion and Conclusion

[14]           Given that the settlement offers were made on a “Without Prejudice” basis, the Applicant was entitled to have his request for interest relief considered without regard for the outcome of the settlement discussions. In my view, the Respondent’s repeated reliance on his refusals to settle breached his right to procedural fairness.

[15]           Since no deference is owed in these circumstances, the application for judicial review will be allowed.

There was no order as to costs.