CRA Taxpayer Relief Information Moved from cra.gc.ca to canada.ca

Looking for information related to the Canada Revenue Agency (CRA) Taxpayer Relief Program?

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Here is the information that matters! Link is at the bottom.

Taxpayer Relief.

Important note: A request for relief from penalty and / or interest amounts does not stop or suspend collection activity on an account or the accrual of interest.

Information you must include with your request

It is important that you provide the Canada Revenue Agency (CRA) with a complete and accurate description of the circumstances to explain why your situation merits relief.

In order to support a request, you should provide all relevant information including the following, where applicable:
• your name, address, and telephone number;
• your social insurance number (SIN), account number, partnership number, trust account number, business number (BN), or any other identification number assigned to you by the CRA;
• the tax year(s) or fiscal period(s) involved;
• the facts and reasons supporting that the interest or penalty were either mainly caused by factors beyond your control, or were the result of actions by the CRA;
• an explanation of how the circumstances affected your ability to meet your tax obligations;
• the facts and reasons supporting your inability to pay the penalties or interest assessed or charged, or to be assessed or charged;
• any relevant supporting documentation such as death certificates, doctor’s statements, or insurance statements;
• in cases involving an inability to pay or financial hardship, full financial disclosure including a statement of income, expenses, assets, and liabilities (to help individuals provide full financial disclosure);
• supporting details of incorrect information given by the CRA in the form of written answers, published information, other evidence; or when the incorrect information given by the CRA is of a verbal nature, you should give all possible details such as date, time, name of CRA official spoken to, and details of the conversation; or
• a complete history of events including any measures that have been taken, e.g., payments and payment arrangements, and when they were taken to resolve the non-compliance.

Note: You may submit photocopies of supporting documents. During the course of our review, the CRA may contact you if they need additional information or documentation, however that is not common.

Other considerations
• Indicate with your request if this is the first or second review request. A second review request is when you ask the CRA to reconsider its original decision.
You must include Form RC4288, Request for Taxpayer Relief – Cancel or Waive Penalties or Interest to make a request to cancel penalties or interest.

You can also write a letter marked “Taxpayer Relief”.

Submitting the Application

You can submit your request to cancel penalties and / or interest and all supporting documents:
• online at My Account, My Business Account, or Represent a Client, by selecting the “Submit documents” service; or
• by mail at one of the designated offices below.
For more information on the Submit Documents online service, go to Submit documents online.

Designated offices:
• British Columbia and Yukon
Vancouver Tax Services Office
9755 King George Boulevard
Surrey BC V3T 5E1
• Alberta, Saskatchewan, Manitoba, Northwest Territories, and Nunavut
Winnipeg Tax Centre
66 Stapon Road
Winnipeg MB R3C 3M2
• Ontario, New Brunswick, Nova Scotia, PEI, Newfoundland and Labrador
Prince Edward Island Tax Centre
275 Pope Road
Summerside PE C1N 6A2
• Quebec
Shawinigan-Sud Tax Centre
4695 Shawinigan-Sud Boulevard
Shawinigan QC G9P 5H9
• Non-resident or international taxpayers (individual, corporation, trust, and part XIII and non-resident withholding accounts)
International and Ottawa Tax Services Office
P.O. Box 9769, Station T
Ottawa ON K1G 3Y4
CANADA

 

Link to CRA website: 
https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc4288-request-taxpayer-relief-cancel-waive-penalties-interest.html

 

inTAXicating – Your Canadian Taxpayer Relief experts!  Don’t believe us?  Contact us and find out why!  info@inTAXicating.ca

 

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CRA: The Ten Year Rule for forgiveness on penalties and interest overturned at the court of appeal.

 

 

The Ten Year limit on Penalty and interest relief applications changed in June 2011, as a result of a decision rendered in the Federal Court of Appeal (FCA) in the case of Bozzer V. Canada.  This ruling changed the Taxpayer Relief Program and the way the Canada Revenue Agency not only reviews these submissions, but the way they handle their files.

The Change:

From the CRA website;

“10-year limitation period for interest relief requests.
This notice is to advise taxpayers of the change in policy regarding the 10–year limitation period for requesting interest relief under the taxpayer relief provisions of the Income Tax Act (ITA).  The change has been implemented as a result of the Federal Court of Appeal decision in the case of Bozzer v. Canada.

Please read IC07-1 together with the information on the Revised 10-year limitation period for interest relief.”

The CRA will be making a revised version of the Information Circular on this topic available soon.  Currently, Information circular, IC07-1, consolidates and cancels information circulars IC 92-1,Guidelines for Accepting Late, Amended or Revoked Elections, IC 92-2, Guidelines for the Cancellation and Waiver of Interest and Penalties, and IC 92-3, Guidelines for Refunds Beyond the Normal Three Year Period, all dated March 18, 1992.

This purpose of the Taxpayer Relief Program (formerly known as Fairness) is to provide the CRA the ability to administer the income tax system fairly and reasonably and to provide an avenue to assist taxpayers resolve issues that have arisen through no fault of their own.  This program allows the CRA to apply a common-sense approach in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, could not comply with a statutory requirement for income tax purposes.

Under the Taxpayer Relief Program, a taxpayer can ask for relief in accordance with the provisions of the ITA and after consideration of the provided facts and circumstances relevant to the case, a delegated official of the CRA will decide whether it is appropriate to:

  1. waive or cancel penalties and interest under subsection 220(3.1);
  2. extend the filing-due date for making certain elections or grant permission to amend or revoke certain elections under subsection 220(3.2);
  3. authorize a refund to an individual (other than a trust) or a testamentary trust under paragraph 164(1.5)(a), even though an income tax return is filed outside the normal three-year period; or
  4. authorize a reassessment or redetermination for an individual (other than a trust) or a testamentary trust beyond the three-year normal reassessment period under subsection 152(4.2), where the adjustment would result in a refund or a reduction in an amount payable.

Overturned:

As a result of the decision rendered in this court case of Bozzer v. Canada, the Federal Court of Appeal issued a decision in June 2011 that went against the CRA’s restrictive interpretation of the ten year rule (that a taxpayer can only go back 10 years when asking for penalty and / or interest relief).

Since 2004, the discretionary power of the CRA to waive or cancel interest and penalties has been limited to amounts “in respect of” the ten taxation years preceding the date of an application for relief (s. 220(3.1)).  The CRA has interpreted this ten year rule to mean they do not have the discretion to cancel interest charges in situations where the underlying tax debt occurred outside of the ten year period.

In this case, both of Mr. Bozzers applications to the Taxpayer Relief program seeking an cancellation of interest charges were denied on the grounds they were outside of the ten year period for relief.  Mr. Bozzer sought a Judicial Review of the CRA’s interpretation of the legislation, and while initially unsuccessful, he was successful in appeal when the FCA noted that the relevant section did not clearly stipulate the year of assessment as a benchmark starting point and found that the words of the section could potentially support either interpretation.  Being so, the language was declared ambiguous and the Court embarked on a “textual, contextual and purposive analysis” to find a meaning that is in alignment with the intent of the ITA.

The Court concluded that the ten year limit represented a restriction of a right previously enjoyed by the taxpayer and that any ambiguity should rightfully be resolved in favour of the taxpayer.  As such, the FCA confirmed that the ten year limit should be interpreted to allow for consideration of relief for interest that has accrued in the previous ten years without reference to the year in which the tax was originally payable.

The Minister of National Revenue does still have the discretion over the granting of relief, but the CRA can no longer use their interpretation of the law as an excuse to not grant forgiveness.

In English:  

The Canada Revenue Agency (CRA) has made a recent policy change to the administration of the 10-year limitation period under subsection 220(3.1) of the Income Tax Act for requesting interest relief for a tax year that ended more than 10 years ago.  For more information, the
CRA made available a news release, Taxpayer relief deadline is December 31, 2011.  

The change applies to interest relief requests made on or after June 2, 2011.

On June 2, 2011, the Federal Court of Appeal (FCA) rendered its decision in Bozzer v. Canada and found that the Minister has the discretion to cancel interest that accrued during the 10 calendar years preceding the year in which the request for relief is made, regardless of the tax year in which the tax debt arose.

Example:

If a request is made for interest relief in December 2011 and the request is for interest dating back to the 1998 tax year, the Minister may cancel any interest that accrued during the calendar years from 2001 to 2010.   Prior to this FCA decision, the CRA’s position was that the Minister could not cancel any interest where the request was made more than 10 calendar years after the end of the tax year in which the tax debt arose, or in this case no later than December 31st, 2008, for the 1998 tax year.

Please note that the information provided below on the revised 10-year limitation period is specific to interest relief requests.

The information on the 10-year limitation period in IC07-1 (paragraphs 12 to 16) still applies, and has not changed, for penalty relief requests; requests to accept certain late-filed, amended or revoked elections; and requests for a refund or reduction in tax payable beyond the normal three year period. For these other types of requests, a taxpayer has 10 years from the end of the relevant tax year to make a request to the CRA for relief.

Limitation period on exercising ministerial discretion and deadline to apply for interest relief

For requests made on or after June 2, 2011, the Minister may grant relief from interest that has accrued during the 10 calendar years before the year in which the request is made for any tax year (or fiscal period in the case of a partnership).  Due to this limitation period, a taxpayer has 10 years from the end of the calendar year in which the interest accrued to make a request to the CRA for relief.

The 10-year limitation period rolls forward every January 1.

Reminder that for requests that are made in the current calendar year, the Minister has no authority to cancel interest that accrued in a calendar year that ended more than 10 years before the year in which the request was made.

Example: 

An initial request made during the 2012 calendar year related to any interest that accrued during the 2002 and later calendar years, for any tax year, is eligible for relief.

Any interest that accrued during the 2001 and previous calendar years is not eligible for relief.

Example:

An initial request made during the 2013 calendar year related to any interest that accrued during the 2002 and previous calendar years, for any tax year, is not eligible for relief, since those calendar years are beyond the 10-year period. Only interest that accrued during the 2003 and later calendar years is eligible for relief.

The Minister has no authority to grant relief from the interest that accrued during the 2003 calendar year, for any tax year, unless the taxpayer has made an initial request on or before December 31, 2013.

For requests made before June 2, 2011, that were considered late-filed beyond 10 years after the end of the tax year under the previous interpretation of the limitation period, the CRA may grant relief from the interest that accrued within the last 10 calendar years effective from the 2011 year or the year in which the new request is made, whichever is later. The revised 10-year limitation period will not be applied from the 2010 or prior calendar year in which the initial late-filed request was made.

The Ruling:

Federal Court of Appeal Date: 20110602

Docket: A-97-10

Citation: 2011

FCA 186

CORAM: SHARLOW J.A. TRUDEL J.A. STRATAS J.A. BETWEEN: RONNIE LOUIS BOZZER Appellant and HER MAJESTY THE QUEEN IN RIGHT OF CANADA (as represented by the Minister of National Revenue in his capacity as Minister responsible for the Income Tax Act), CANADA REVENUE AGENCY and THE ATTORNEY GENERAL OF CANADA

Respondents Heard at Vancouver, British Columbia, on December 1, 20ten. Judgment delivered at Ottawa, Ontario, on June 2, 2011. REASONS FOR JUDGMENT BY: STRATAS J.A. CONCURRED IN BY: SHARLOW J.A. TRUDEL J.A. RONNIE LOUIS BOZZER Appellant and HER MAJESTY THE QUEEN IN RIGHT OF CANADA (as represented by the Minister of National Revenue in his capacity as Minister responsible for the Income Tax Act), CANADA REVENUE AGENCY and THE ATTORNEY GENERAL OF CANADA Respondents

REASONS FOR JUDGMENT STRATAS J.A.

[1] Subsection 220(3.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) allows the Minister to waive or cancel any portion of interest or penalties owing under the Act. It prescribes a ten year limitation period. But how is that ten year period to be determined? The answer to that question, a question of statutory interpretation, will determine the outcome of this appeal.

[2] The Federal Court judge agreed with the Minister’s view of how the ten year period is to be determined under subsection 220(3.1) of the Act:20ten FC 139 (CanLII), 20ten FC 139. The appellant, Mr. Bozzer, disagrees and, in this Court, proposes an interpretation that is more generous to taxpayers.

[3] As this is a legal issue concerning the proper interpretation of subsection 220(3.1) of the Act, the standard of review of the decision of the Federal Court judge is correctness: Redeemer Foundation v. M.N.R., 2006 FCA 325 (CanLII), 2006 FCA 325 at paragraph 24 (affirmed, without comment on this point, at2008 SCC 46 (CanLII), [2008] 2 S.C.R. 643, 2008 SCC 46).

[4] For the reasons below, I am of the view that Mr. Bozzer’s interpretation of subsection 220(3.1) is the correct one. A. Subsection 220(3.1) of the Act [5] Subsection 220(3.1) provides as follows: [5] Subsection 220(3.1) provides as follows: 220.

(3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer (or in the case of a partnership, a fiscal period of the partnership) or on application by the taxpayer or partnership on or before that day, waive or cancel all or any portion of any penalty or interestotherwise payable under this Act by the taxpayer or partnership in respect of that taxation year or fiscal period, and notwithstanding subsections 152

(4) to (5), any assessment of the interest and penalties payable by the taxpayer or partnership shall be made that is necessary to take into account the cancellation of the penalty or interest. [emphasis added] B. The basic facts

[6] On December 6, 2005, at a time when Mr. Bozzer had tax debts that arose in his 1989 and 1990 taxation years, Mr. Bozzer applied to the Minister under subsection 220(3.1) of the Act for a waiver of interest accrued on the tax debt.

[7] The Minister denied the application for the following reasons: As of January 1, 2005, the Agency’s policy with regards to fairness requests was amended to exclude debts over ten years of age from the date of submission. The ten years expired on December 31, 1999 for the 1989 taxation year and December 31, 2000 for the 1990 taxation year. For this reason we are unable to consider your request for departmental delay or error and have concluded it would not be appropriate to cancel or waive the interest.

[8] Mr. Bozzer applied to the Minister for a second-level review. The Minister denied that application as well, for the following reasons: The above legislation [subsection 220(3.1)] is applicable because you applied for interest cancellation on December 6, 2005. Therefore the Minister has no discretion under subsection 220(3.1) to waive or cancel any interest otherwise payable under the Act in respect of your 1989 and 1990 taxation years. This is because it has been more than ten calendar years since the ends of your 1989 and 1990 taxation years. In addition, you applied after 2004, which is more than ten calendar years after the ends of your 1989 and 1990 taxation years.

[9] Mr. Bozzer applied to the Federal Court for judicial review of the Minister’s decision. The Federal Court judge dismissed the application, finding (at paragraph 51 of his reasons for judgment) that “the time limit in subsection 220(3.1) of the ITA is for the ten calendar years after the relevant taxation year, namely the year of assessment.” In my view, this interpretation cannot stand, as the ten year period in subsection 220(3.1) of the Act does not start in the year of assessment. Nowhere does subsection 220(3.1) mention the year of assessment as a relevant consideration. C. The parties’ competing interpretations of subsection 220(3.1) of the Act and how they apply to the facts of this case

[10] Before this Court, the parties presented competing interpretations of subsection 220(3.1) of the Act. These competing interpretations result in drastically different results on the facts of this case.

[11] The parties’ competing interpretations of subsection 220(3.1) concern only a portion of it and relate particularly to the phrase “interest payable in respect of [a] taxation year” (« d’intérêts payable pour [une] année d’miposition »): 220. (3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer…waive or cancel all or any portion of any …interest…payable…by the taxpayer…in respect of that taxation year…. [emphasis added] (1) Mr. Bozzer’s interpretation

[12] Mr. Bozzer submits that “interest…payable…in respect of [a] taxation year” means any interest accrued in that taxation year on a tax debt. On his view of the matter, subsection 220(3.1) permits the Minister to exercise his discretion to cancel interest accrued in any taxation year ending within ten years before the taxpayer’s application for relief, regardless of when the underlying tax debt arose.

[13] Under this interpretation, Mr. Bozzer analyzes the facts of this case as follows. He had tax debts that arose in the 1989 and 1990 taxation years. Interest accrued on those debts in every subsequent taxation year. On December 6, 2005, he applied to the Minister for a cancellation of interest. On his view of the matter, subsection 220(3.1) permits the Minister to cancel any interest that accrued in the ten taxation years preceding his application, that is, from January 1, 1995 to December 31, 2004. On this analysis, the fact that the tax debt arose in 1989 and 1990 is irrelevant. (2) The Minister’s interpretation

[14] The Minister disagrees. The Minister submits that “interest…payable…in respect of [a] taxation year” means any interest accrued on a tax debt that arose in that taxation year. Therefore, the Minister may exercise his discretion to waive interest otherwise payable under the Act only if a taxpayer applies within ten calendar years of the end of the taxation year in which the underlying tax debt arose.

[15] In Mr. Bozzer’s case, the underlying tax debt arose in 1989 and 1990. On the Minister’s view of the matter, Mr. Bozzer had to apply for a waiver of interest on his 1989 tax debt by December 31, 1999 and his 1990 tax debt by December 31, 2000.

[16] Therefore, the Minister says that he has no statutory authority to consider Mr. Bozzer’s application for a waiver of interest in this case. Mr. Bozzer’s application was on December 6, 2005. On the Minister’s view of the matter, that was nearly five years too late. D. The proper approach to interpreting provisions in taxation legislation

[17] In Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 (CanLII), [2005] 2 S.C.R. 601, 2005 SCC 54 at paragraph ten, the Supreme Court of Canada set out the proper approach for interpreting taxation statutes: The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words plays a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole. The Supreme Court went on to observe (at paragraph 13) that the Act “remains an instrument dominated by explicit provisions dictating specific consequences, inviting a largely textual interpretation.” But where the text is equivocal, “greater recourse to the context and purpose of the Act may be necessary”: Placer DomeCanada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20 (CanLII), [2006] 1 S.C.R. 715 at paragraph 22. E. The interpretation of the text of subsection 220(3.1)

[18] The parties’ submissions on how the text of subsection 220(3.1) should be interpreted, summarized above, persuade me that the text is ambiguous. The words “interest…payable…in respect of a taxation year,” examined in isolation, are conceivably capable of bearing either of the meanings suggested by the parties.

[19] As part of its submissions on how the text of subsection 220(3.1) should be interpreted, the Minister submits that an earlier decision of this Court is directly on point: Montgomery v. M.N.R., 95 D.T.C. 5032; reflex, [1995] 1 C.T.C. 196.

[20] In my view, Montgomery is distinguishable. In Montgomery, this Court did not interpret the text of subsection 220(3.1) that is in issue in this appeal. Rather, this Court interpreted a transitional provision concerning subsection 220(3.1): S.C. 1993, c. 24, subsection 127(5). That transitional provision limited the application of subsection 220(3.1) to the “1985 and subsequent taxation years.” This Court simply held (at paragraph 11) that the Minister’s discretion was limited to the waiving of interest otherwise payable under the Act for a taxation year that is either the 1985 taxation year or any later taxation year. Montgomery offers no guidance on the interpretation issue before us in this appeal.

[21] Since the text in this case is equivocal, in accordance with Placer Dome, supra at paragraph 22, it will be necessary for us to have “greater recourse” to the purpose of subsection 220(3.1) and the context surrounding it. F. The purpose of subsection 220(3.1) (1) What is the purpose?

[22] Subsection 220(3.1) is one of several taxpayer relief provisions in the Act. It was introduced in 1991 as part of what was called a “fairness package.” The Minister has explained the purpose behind these provisions as follows: The legislation gives the CRA the ability to administer the income tax system fairly and reasonably by helping taxpayers to resolve issues that arise through no fault of their own, and to allow for a common-sense approach in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, could not comply with a statutory requirement for income tax purposes. See Information Circular 07-1, “Taxpayer Relief Provisions,” May 31, 2007, at paragraph 8.

[23] In law, the Information Circulars of the Canada Revenue Agency are nothing more than administrative policy statements. They are not finally determinative of the meaning of a provision of the Act.

[24] However, in this case, the plain words of subsection 220(3.1) support the description of purpose in the above passage, and there is nothing in the history behind subsection 220(3.1) or in related sections that would cast doubt on it. Indeed, in 2004 the Department of Finance confirmed it. It stated that subsection 220(3.1) permits the Minister to waive or cancel interest or penalties “in situations where factors beyond the taxpayer’s control, such as illness or a natural disaster, prevented a tax return from being filed on time”: Canada, Department of Finance, 2004 Budget, Budget Plan, March 23, 2004, annex 9, at page 347.

[25] Therefore, I am prepared to accept the description of purpose in the above passage as the purpose that subsection 220(3.1) is meant to further. (2) Testing the parties’ competing interpretations against the purpose of subsection 220(3.1)

[26] One method of testing the parties’ competing interpretations is to imagine factual scenarios in which subsection 220(3.1) might be applied, apply subsection 220(3.1) to those scenarios, examine the results, and then compare those results with the purpose that subsection 220(3.1) is meant to further.

[27] For this purpose, I shall examine two scenarios. Scenario A

[28] Suppose that a taxpayer is obliged to remit income tax instalments during taxation year X but fails to do so. He files his income tax return for taxation year X on time, but fails to pay the resulting tax debt.

[29] At some point in year X+1, the Minister assesses the tax payable for taxation year X, with accrued interest, including interest on the unpaid instalments for taxation year X. Later, the taxpayer decides to apply for a cancellation of the interest accrued on the unpaid instalments for taxation year X.

[30] In this scenario, both the Minister’s interpretation of subsection 220(3.1) and Mr. Bozzer’s interpretation of subsection 220(3.1) will lead to the conclusion that the taxpayer must submit his application within ten years of the end of taxation year X. Scenario B

[31] Suppose that this same taxpayer is about to file his income tax return for taxation year X on time. As in scenario A, the taxpayer was obliged to remit tax instalments during taxation year X but did not do so.

[32] However, in January of taxation year X+1, just before preparing the income tax return for taxation year X, the taxpayer is seriously injured in a car accident. In taxation year X+11 – after going through a coma, enduring many operations, recovering slowly, dealing with physical and mental challenges, and going through years of rehabilitation and retraining – the taxpayer finally gets around to filing his tax return for taxation year X.

[33] In taxation year X+12, the Minister assesses the tax payable for taxation year X, with accrued interest, including interest on the unpaid instalments for taxation year X. Again, the taxpayer decides to apply for a cancellation of the interest accrued on the unpaid instalments for taxation year X.

[34] On the Minister’s interpretation of subsection 220(3.1), the taxpayer would be barred from asking for any waiver of interest. The tax debt on which interest accrued was eleven years ago, past the ten year limitation period.

[35] On Mr. Bozzer’s interpretation of subsection 220(3.1), the taxpayer could apply for a waiver of interest that accrued during the ten taxation years preceding his application. Assessment of the scenarios

[36] Scenario B shows that the Minister’s interpretation of subsection 220(3.1) leads to a harsh result that is contrary to the purpose of subsection 220(3.1): to allow taxpayers to ask for relief against penalties and interest and to allow the Minister to grant such relief where, in his view of the overall fairness of the situation, it is appropriate to do so. In the words of the Information Circular, subsection 220(3.1) is one of several that are supposed to give the Minister an ability “to administer the income tax system fairly and reasonably” by “helping taxpayers to resolve issues that arise through no fault of their own.” In particular, according to the Information Circular, this subsection is one of several designed “to allow for a common-sense approach in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, could not comply with a statutory requirement for income tax purposes.”

[37] Admittedly, scenario B will not be a commonly-occurring circumstance. But it does show that the Minister’s interpretation can prevent him from addressing, in a fair and reasonable way, taxpayers’ problems that were caused by personal misfortune or circumstances during the statutory ten year period that were beyond the taxpayers’ control, contrary to the purpose of subsection 220(3.1).

[38] As scenario B demonstrates, Mr. Bozzer’s interpretation is fairer and, thus, more consistent with the purpose of subsection 220(3.1). Mr. Bozzer’s interpretation gives the Minister a greater ability to address a taxpayer’s misfortune or circumstances within the statutory ten year period that were beyond the taxpayer’s control. G. Subsection 220(3.1), viewed contextually (1) The legislative history of subsection 220(3.1)

[39] Before 2004, there was no ten year limitation period in subsection 220(3.1). At any time, a taxpayer could ask the Minister to waive interest that accrued since 1985. The pre-2004 version of subsection 220(3.1) is as follows: 220. (3.1) The Minister may at any time waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by the taxpayer or partnership and, notwithstanding subsections 152(4) to (5), such assessment of the interest and penalties payable by the taxpayer or partnership shall be made as is necessary to take into account the cancellation of the penalty or interest.

[40] In 2004, subsection 220(3.1) was amended to include a ten year limitation period: S.C. 2005, c. 19, subsections 48(1) and (2). This resulted in the version of subsection 220(3.1) in issue in this case, which is reproduced here with the amendment emphasized: 220. (3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer (or in the case of a partnership, a fiscal period of the partnership) or on application by the taxpayer or partnership on or before that day, waive or cancel all or any portion of any penalty or interestotherwise payable under this Act by the taxpayer or partnership in respect of that taxation year or fiscal period, and notwithstanding subsections 152(4) to (5), any assessment of the interest and penalties payable by the taxpayer or partnership shall be made that is necessary to take into account the cancellation of the penalty or interest. [emphasis added]

[41] The 2004 amendment represents a restriction of a right previously enjoyed by the taxpayer. In my view, in this particular situation, it was incumbent on Parliament to be clear in its language imposing the restriction and any doubt should be resolved in favour of the taxpayer. I note the following passage from the judgment of Estey J. in Morguard Properties Ltd. v. City of Winnipeg, 1983 CanLII 33 (SCC), [1983] 2 S.C.R. 493 at page 509: …[T]he courts require that, in order to adversely affect a citizen’s right, whether as a taxpayer or otherwise, the legislature must do so expressly. Truncation of such rights may be legislatively unintended or even accidental, but the courts must look for express language in the statute before concluding that these rights have been reduced.

[42] The words chosen by Parliament are ambiguous. In my view, in this particular situation, this ambiguity should be resolved in favour of the taxpayer. (2) The Minister’s Technical Notes

[43] The Minister submitted that certain Technical Notes published at the time of the 2004 amendment to subsection 220(3.1) are relevant to the interpretation of the subsection. The Minister submitted that the Technical Notes reveal that the ten year limitation period was introduced in 2004 because of a concern that “administrative problems would arise if the Minister were required to verify claims going back as far as 1985” (Minister’s memorandum of fact and law, paragraph 44).

[44] The Minister says that if Mr. Bozzer’s interpretation is adopted, the Minister might have to verify details relevant to any past taxation year, even years before 1985, as long as the interest in question had accrued within the past ten years.

[45] I do not accept this as a plausible explanation for the ten year limitation period in the case of subsection 220(3.1).

[46] It might be an explanation for other provisions that were amended to include a ten year limitation period. For example, a taxpayer might try to use subsection 152(4.2) to claim a deduction for a business expense incurred 15 years ago. In that context, the addition of a ten year limitation period to that subsection does eliminate “administrative problems.” Similarly, a taxpayer might try to use subsection 220(3.2) to file an election that he or she should have filed 15 years ago. The election goes back so many years that one might anticipate “administrative problems” for the Minister.

[47] But the ten year limitation period in subsection 220(3.1) is not needed to eliminate “administrative problems.” Under subsection 220(3.1), both before and after 2004, the Minister, in considering whether to grant relief, would only have to know the amount of the original tax debt upon which interest accrued, and what payments have been made and when. From there, the interest is determined by a mathematical calculation. There is no evidence that this poses an “administrative problem,” and the record discloses no basis upon which the existence of any such problem can be inferred.

[48] I would also note that, based on Montgomery, supra the Minister can never be obliged to look to years prior to 1985 when considering an application under subsection 220(3.1). (3) The Minister’s Voluntary Disclosures Program

[49] Mr. Bozzer pointed to the Minister’s Voluntary Disclosures Program as another reason why its interpretation should be accepted by this Court.

[50] The Voluntary Disclosures Program is a policy (Information Circular IC00-1R2) of the Canada Revenue Agency, not law. Under this policy, taxpayers can make disclosures to correct inaccurate or incomplete information, or to disclose information not previously reported. If the Canada Revenue Agency accepts a taxpayer’s disclosure as having met the terms of the policy, it will not charge the taxpayer penalties or prosecute the taxpayer regarding the matters disclosed.

[51] Mr. Bozzer submits that the Minister’s statutory authority to relieve the taxpayer of penalties in such a case is found in subsection 220(3.1) of the Act, and nowhere else. Then he points to paragraph 13 of the policy, which describes exactly what penalties can be waived under this policy: [13] For income tax submissions made on or after January 1, 2005, the Minister’s ability to grant relief is limited to any taxation year in which the submission is filed. For example: in an income tax submission made on May 1, 2007, the limitation would apply so that relief would only be available for the 1997 and subsequent taxation years. Mr. Bozzer notes that this is consistent with his interpretation and not the Minister’s interpretation of subsection 220(3.1).

[52] But policy statements are not determinative of what statutory provisions mean in law. I do not consider Mr. Bozzer’s submissions on the Voluntary Disclosures Program to be helpful on the legal issue of how subsection 220(3.1) of the Act is properly interpreted. (4) Parliament’s ability to draft sections in the Act that achieve the effects it wants

[53] The Minister would like subsection 220(3.1) to have a forward looking effect, so that the ten year period runs forward from the year in which the tax debt occurred.

[54] As I have stated above, subsection 220(3.1) does not use language that clearly suggests that it should have a forward looking effect.

[55] But Parliament certainly knows how to draft sections that have a forward looking effect. For example, Parliament has drafted another subsection in section 220, namely subsection 220(3.201), using language that clearly causes a “forward looking effect”: 220. (3.201) On application by a taxpayer, the Minister may extend the time for making an election, or grant permission to amend or revoke an election, under section 60.03 if (a) the application is made on or before the day that is three calendar years after the taxpayer’s filing-due date for the taxation year to which the election applies; and (b) the taxpayer is resident in Canada (i) if the taxpayer is deceased at the time of the application, at the time that is immediately before the taxpayer’s death, or (ii) in any other case, at the time of the application.

[56] If Parliament meant subsection 220(3.1) to have a forward looking effect, it certainly knew how to draft it. It did not do so. This is another consideration in support of Mr. Bozzer’s interpretation of the subsection. (5) Effects on other sections of the Act or the administration of the Act

[57] If this Court were to adopt Mr. Bozzer’s interpretation of subsection 220(3.1), would there be an unintended or unwelcome effect on other sections in the Act or in the administration of the Act? If there were, that might be a clue as to Parliament’s intentions concerning subsection 220(3.1). However, in his written or oral submissions, the Minister did not identify any such effects. H. Conclusion

[58] For the foregoing reasons, I agree with Mr. Bozzer’s interpretation of subsection 220(3.1) of the Act.

[59] Accordingly, the Minister has the statutory authority to cancel interest on Mr. Bozzer’s 1989 and 1990 tax debts, to the extent that it accrued during the ten taxation years preceding his application to the Minister for interest relief under subsection 220(3.1) of the Act. Mr. Bozzer’s application was made on December 6, 2005.

[60] Therefore, on the facts of this case, the interest that is the subject of Mr. Bozzer’s application is the interest accrued under the Act from January 1, 1995 to December 31, 2004. I. Proposed disposition

[61] Therefore, I would allow the appeal, set aside the judgment of the Federal Court, allow Mr. Bozzer’s application for judicial review, and refer his application for interest relief back to the Minister for reconsideration in accordance with these reasons, all with costs to Mr. Bozzer both in this Court and in the Federal Court.

“David Stratas” J.A. FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET: A-97-10

APPEAL FROM A JUDGMENT OF THE HONOURABLE MR. JUSTICE SHORE) DATED FEBRUARY 11, 20ten, NO. T-826-08 STYLE OF CAUSE: Ronnie Louis Bozzer v. Her Majesty the Queen in Right of Canada (as represented by the Minister of National Revenue in his capacity as Minister responsible for the Income Tax Act) and Canada Revenue Agency and The Attorney General of Canada

PLACE OF HEARING: Vancouver, British Columbia DATE OF HEARING: December 1, 2010

REASONS FOR JUDGMENT BY: Stratas J.A. CONCURRED IN BY: Sharlow J.A. Trudel J.A. DATED: June 2, 2011

APPEARANCES: David E. Spiro Angelo Gentile FOR MR. BOZZER Michael Taylor FOR THE RESPONDENT SOLICITORS OF RECORD: Fraser Milner Casgrain LLP Toronto, Ontario FOR MR. BOZZER Myles J. Kirvan Deputy Attorney General of Canada FOR THE RESPONDENT.

The Truth and Myths Around the CRA’s Taxpayer Relief Program

There is quite a lot of information on the Internet around the Canada Revenue Agency’s (CRA) Taxpayer Relief Program (formerly known as fairness).  Understandably, there is also a lot of misinformation around this program.  After having spent almost 11 years working in the CRA – beginning as an entry-level collector and working my way up through the division to a team leader before taking my MBA and heading into the private sector –  I have learned quite a lot about how the Taxpayer Relief program actually works.Myth vs Reality

This post will identify the key objectives of the program straight from the CRA, and then highlights some common myths about the program and the actual fact about why it makes sense to invest considerable time and effort into an application, or engage the services of someone who knows the program inside and out.

The Taxpayer Relief program was set up to allow for the Minister of National Revenue to grant relief from penalty and/or interest when the following types of situations prevent a taxpayer (individual or corporation) from meeting their tax obligations:

  • extraordinary circumstances;
  • actions of the Canada Revenue Agency (CRA);
  • inability to pay or financial hardship;
  • other circumstances

The program distinguishes between “cancelling” and “waiving” of penalties and/or interest as the CRA understands that granting relief to a taxpayer only to see them smothering in penalties and interest again is an exercise in futility.  The term “cancel” refers to a penalty or interest amount that is assessed or charged for which relief is granted, in whole or in part, by the CRA.  The term “waive” refers to a penalty or interest amount that is not yet assessed or charged for which relief is granted, in whole or in part, by the CRA.

The term “Taxpayer” includes individual, employer or payer, corporation, partnership, organization, trust, estate, goods and services tax/harmonized sales tax (GST/HST) registrant or claimant.

Now you or your client has been charged penalties and / or interest and you want to know if you qualify.  Look no further than the CRA website, and their section on Taxpayer Relief, here.

Circumstances that may warrant relief include;

Extraordinary circumstances

Penalties or interest may be cancelled or waived in whole or in part when they result from circumstances beyond a taxpayer’s control.  Extraordinary circumstances that may have prevented a taxpayer from making a payment when due, filing a return on time, or otherwise complying with a tax obligation include, but are not limited to, the following examples:

  • natural or human-made disasters, such as a flood or fire;
  • civil disturbances or disruptions in services, such as a postal strike;
  • serious illness or accident; and
  • serious emotional or mental distress, such as death in the immediate family.

Actions of the CRA

The CRA may also cancel or waive penalties or interest when they result primarily from CRA actions, including:

  • processing delays that result in taxpayers not being informed, within a reasonable time, that an amount was owing;
  • errors in CRA material which led a taxpayer to file a return or make a payment based on incorrect information;
  • incorrect information provided to a taxpayer by the CRA (usually in writing);
  • errors in processing;
  • delays in providing information, resulting in taxpayers not being able to meet their tax obligations in a timely manner; and
  • undue delays in resolving an objection or an appeal, or in completing an audit.

Inability to pay or financial hardship

The CRA may, in circumstances where there is a confirmed inability to pay amounts owing, consider waiving or cancelling interest in whole or in part to enable taxpayers to pay their account. For example, this could occur when:

  • a collection has been suspended because of an inability to pay caused by the loss of employment and the taxpayer is experiencing financial hardship;
  • a taxpayer is unable to conclude a payment arrangement because the interest charges represent a significant portion of the payments; or
  • payment of the accumulated interest would cause a prolonged inability to provide basic necessities (financial hardship) such as food, medical help, transportation, or shelter; consideration may be given to cancelling all or part of the total accumulated interest.

Consideration would not generally be given to cancelling a penalty based on an inability to pay or financial hardship unless an extraordinary circumstance prevented compliance, or an exceptional situation existed. For example, when a business is experiencing extreme financial difficulty and enforcement of such penalties would jeopardize the continuity of its operations, the jobs of the employees, and the welfare of the community as a whole, consideration may be given to providing relief of the penalties.

Other circumstances

The CRA may also grant relief if a taxpayer’s circumstances do not fall within the situations described above.

The CRA expects these guidelines to be used when applying for relief and that the requests are made within the deadlines for requesting relief, which is limited to any period that ended within 10 years before the calendar year in which a request is submitted or an income tax return is filed.   The 10-year limitation period rolls forward every January 1st.

If filed using the correct form, with sufficient supporting documentation, a response from the Taxpayer Relief Program can take anywhere from 3 months to 2 years due to the amount of requests.  In order to ensure that you are making the best claim possible, you really should engage the services of a professional, as they would be able to assess whether or not your request is sufficient, and they would ensure that you meet all the other conditions which must be in place for the CRA to review and consider your application.

At the end of the day, if you have a reasonable chance of being successful under this program, the investment made to have it written, reviewed or monitored by an expert is a worthwhile expenditure.

Now let’s have a look at some common myths around this program which are floating around the Internet.

Myths:

Myth: That the CRA’s Taxpayer Relief program is a one time program and that you had better take your best shot the time you decide to apply.

Reality: Not true,  This program is available to all Canadians who have been charged penalties and / or interest and as such, they have the right to ask for relief each and every time it is warranted.  The Taxpayer Relief Group do not maintain collection inventories and as such they review each case on the merit of its submission without any influence from the permanent collections diary or the collector assigned to the case.

Myth: That the CRA’s Taxpayer Relief Program is used in order for the CRA and a taxpayer to negotiate a deal which would resolve the taxpayer’s debt issue by settling the debt and accepting less than the actual amount owed to them.

Reality: Never, ever, ever!  The CRA does NOT settle debts outside of bankruptcy or a proposal, and they certainly do not use the taxpayer relief program for this purpose.  As a matter of fact, I can speak of a first hand experience where a collector used the word “settle” in the permanent collection diary of a corporation which had paid a principle tax debt of $650,000, because they wanted to fight the $775,000 in penalties and interest through Taxpayer Relief.  The CRA sent back the $650,000 and re-opened negotiation with the corporation because they did not want to set the precedent of settling tax debts through the Taxpayer Relief Program.

Myth: I cannot afford to pay my taxes, so I am not going to file my tax return, and then when I have a debt, I can ask for relief because I had no money?

Reality:  Failure to file a tax return is a criminal offence which can result in prosecution, so you should always file, and be clear to the CRA upfront that money is tight.  But before an application is made to the Taxpayer Relief Program, all outstanding returns must be filed up to date, and all instalments must be accounted for.  Otherwise, the application is set aside until everything is current.

Myth:  Having a disability or illness from birth qualifies me for Taxpayer Relief.

Reality: Probably not.  If you have managed to conduct your affairs for a period of time without any tax issues, but then something happens which cases the accumulation of penalties and interest, you cannot use your disability or illness when applying for relief, unless something happened during the period in which the penalties and / or interest were applied as a result of a worsening of your disability / illness.  In that case, you would need to substantiate this with supporting letters from your doctors and specialists.  

Myth:  I met with someone who is going to write a letter to the CRA asking for relief and they have sent me the letter to review.  If I sign it, and they send it off, am I now being considered for relief?

Answer:  Not any more.   Years ago, taxpayers were able to send in letters to the fairness department which contained their reasons for asking for relief and some would include supporting documentation, while others would not.  However, since the CRA revamped the Taxpayer Relief Program, they require that the form RC4288 be included in the package or the claim will be rejected.

Myth:  I need to be pre-qualified for the CRA Taxpayer Relief Program.

Reality: No.  You can determine if you may qualify, or you can seek a professional to help you determine if you have grounds for relief, but there is no pre-qualification of this program.

Myth: If my claim is rejected, then I have to pay the penalties and interest.

Reality:  You should make arrangements to pay the penalties and interest in any case in order to stop the interest clock from ticking should the claim be denied – wherever possible, however, the Taxpayer Relief Program allows for a second-level review to be performed (usually with additional information provided) and there is an option for judicial review should the second level review be unfavourable.

 

So take some time to look around when you are considering an application under the Taxpayer Relief Program and make sure that if you engage someone you do so for the right reasons.

The two certainties in life… Death and Taxes.

This post is a brief look at estate filing rewuirements with the Canada Revenue Agency (CRA) and the role and requirements of an executor in Canada.

In Canada, there is no estate or succession tax, unless you consider the taxes owing to the CRA on the estate at death.  RC4111(E) for English is what I used to do my research on this area, which can be tricky if you have no experience dealing with Estates, or with the CRA; http://www.cra-arc.gc.ca/E/pub/tg/rc4111/rc4111-e.html.

Here is what makes it complicated… Your loved one dies and there is money left in the estate and by money, I’m referring to bank accounts, some investments and maybe an asset owned in the name of the deceased, like a car, or even a house.  Before you, or the person responsible (the executor) can begin removing things from the deceased’s name into someone else’s name – usually yours – they have to first go to the CRA and find out if the deceased owed any taxes. 

Aside from information already on their systems, the CRA will know if there are taxes owing by the deceased based on what has already been filed.  But what about stuff not filed yet?  One way the CRA determines if there are any taxes owing is by having the executor complete the filing of all tax returns owing for the deceased within 60-90 days of their date of death.  Then, if there is no amount owing, the CRA provides a certificate called a clearance certificate which the executor can then present to banks, etc along with the death certificate in order to move funds and investments over to the surviving member.

If a clearance certificate is not received and funds are disbursed and the estate owes taxes, the CRA can then hold the executor liable for those funds!

The returns the CRA will be looking for include a T1 (individual tax return) for the decreased covering the period from January 1st of the year of death up to the date of death, reporting all income from employment and investments.  Report income earned after the date of death on a T3 Trust Income Tax and Information Return.  A T3 reports income from trusts for the estate (all the assets of the deceased make up the estate).

The capital gains (profit on any item bought) on their investments also have to be accounted for an added on this return.

If you file the final return late and there is a balance owing, the CRA will charge a late filing penalty (LFP).  They will also charge interest on both the balance owing and any penalty. The penalty is 5% of any balance owing, plus 1% of the balance owing for each full month that the return is late, to a maximum of 12 months – as of January 2012.  The LFP may be higher if the CRA has charged a LFP on a return for any of the three previous years.

In certain situations, the CRA may cancel the penalty and interest if you file the return late because of circumstances beyond your control.  If this happens, complete Form RC4288, Request for Taxpayer Relief, or include a letter with the return explaining why you filed the return late. For more information, go to Fairness and Taxpayer Bill of Rights or see IC07-1, Taxpayer Relief Provisions.

Here is the 2011 CRA guide for preparing returns for deceased people;

http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-e.html