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INCOME TAX

Penalties

Edison v. Canada

T-1056-00, T-1057-00

2001 FCT 734, Blanchard J.

3/7/01

14 pp.

Judicial review of decisions of Director of Newfoundland and Labrador Tax Services Office denying applications under Income Tax Act, s. 220(3.1) (fairness legislation) for cancellation of penalties, arrears interest with respect to 1991, 1992, 1993 taxation years--S. 220(3.1) permitting Minister to waive or cancel all or any portion of any penalty, interest at any time--Applications for relief under fairness legislation reviewed by Appeals Officer Joan Oxner--Recommending application be denied--Alan Ross, Chief of Appeals, approving recommendation--Letter informing applicants requests denied notifying them could seek administrative review of denial--Applicants requesting such review--Thereafter, documents (also prepared by Oxner) submitted to, considered by Review Committee, comprised of five Assistant Directors, including Ross--Review Committee unanimously recommended dismissal of appeals--Applicants alleging process breached duty of fairness--Applications allowed--As decision made under fairness legislation discretionary, scope of review quite narrow--Necessary to determine whether review process creating legitimate expectation appeal process would be made independently of original decision-maker--While doctrine of legitimate expectations not creating substantive rights, can create procedural rights which are governed by standard of procedural fairness--Revenue Canada issuing memorandum containing guidelines dealing with application of fairness provisions to penalty, interest in 1996--Clearly second review of negative fairness decision to be impartial, made independently of original decision-maker--As procedure to be followed in dealing with fairness legislation set by Minister, procedure must be followed if legitimate expectation by applicants such procedures will be followed--Applicants did have legitimate expectation second review would be impartial, independent of first review--Although possible case made on reasonable apprehension of bias, because officials involved in second-level review also directly involved at first level, doctrine of independence sufficient to dispose of application herein--Ross presented case to Review Committee, of which active member--Not recusing himself from Committee's deliberations--Since Committee's decisions taken on basis of unanimity, Ross necessarily played key role in eventual decisions of Committee--Ross played important part in process both at first level and at review stage--As well, Oxner's involvement in drafting original authorization and preparation of documents for second-level review lending further support to contention second-level review not independent of first--Public interest sought to be protected by doctrine of legitimate expectation is protection of individual from abuse of power--Implied undertaking non-discriminatory application of procedural norms set out by published guidelines--Second impartial review, independent of original decision-maker not conducted--Failure to follow published procedural guidelines breach of duty of fairness--Once set, such guidelines must be adhered to at least in so far as to meet legitimate expectation created by said norms--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 220(3.1) (as enacted by S.C. 1994, c. 7, Sch. VIII, s. 127).

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