Changes to the CRA’s RC59 Business Authorization Form

The Canada Revenue Agency has announced to tax preparers and representatives that if they wish to have online access to a business client’s tax information after May 15, 2017 they will have to complete the authorization request in the Represent a Client section on the CRA web site.

In order to do this, tax representatives have to log into Represent a Client and select “Review and update” from the Welcome page.  They then select “Authorization request” at the bottom of the “Manage clients” tab and follow the instructions.

Once the request is complete, tax representatives will need to print the signature page for their client to sign. Once it is signed, a scanned copy of the document may be sent to the CRA using its submit documents feature.

Using this method will allow tax professionals to gain access to their business clients’ information in five days or less instead of the 15 days it currently takes with form RC59.

If, however, you still prefer your current process, you can still use form RC59 to request access to your business clients’ information by telephone or mail.

And if you need to have authorization in less that 5 days, you should reach out to us here at inTAXicating, because with almost 11-years’ experience working in the CRA’s Collections department, we know how to get that authorization in the hands of someone in minutes!

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Why Your Tax Representation Matters

Every couple of days I receive a call from a taxpayer or corporation regarding huge sums of money they have paid to other so-called “tax solution” firms, without any apparent movement or resolution of their file.  Usually these stories involve secrecy and the requirement for additional funds in order to bring the file to a close.

Would you go to a dentist who treated you like that?

Or have your vehicle repaired at a shop where you were not even sure they had any mechanics there?

When dealing with tax-related matters there should be no secrecy.  There should be questioning whether work was done or not and there certainly should not be doubt that the job was not completed.

Unfortunately this happens more and more.

The representation you chose, when under fire by, not just by the CRA, but all areas of government, like the WSIB, RST, or CRTC, is far more important than you could possibly imagine.  Especially in light of the fact that the CRA, for example, keeps a permanent diary record of your conversations and their attempts to resolve your tax file.  They also carry forward an account summary every 6-months, so in the instance where an account has been transferred to another collector, that new collector will know within minutes how the CRA wants to treat you and / or your representative.

Lie to them.

Break promises.

Call them names, like the “taxman”.

It’s all there and its used against you… Forever.

Case in point:

A couple of years ago I met a couple of directors of a corporation who booked a 2-hour meeting with me for only $500 plus HST. They had come with the intention of having me assist them in negotiation with the Canada Revenue Agency (CRA) who were in the process of raising a Director’s Liability Assessment against them the unpaid debts of the Corporation they operated.  They could not afford to pay the balance in full and were worried the CRA would take their house.

These directors had also heard about a way to reduce penalties and / or interest and they wanted more information.

They had already met with 2 other tax solution firms and one of them had fed the CRA with a sob story which the CRA did not buy, and after failing to return calls, and have any meaningful conversation with the CRA, disappeared with their money.  The CRA kept trying to reach this representative and the directors had no idea how quickly the collections efforts had progressed and how upset the CRA had beceome.

The second firm charged them a lot of money, then set out to make a payment arrangement with the CRA, even accusing these directors of “fudging” their records in order to show less income than they actually had.

They were frustrated, had spent a lot of money and had now incurred the wrath of the CRA.

Then we sat down together to talk, and after only a few questions and a review of the notices they brought with them, I notified them of the statute of limitations the CRA must follow when raising a Director’s Liability Assessment under s.227.1 of the Income Tax Act and S323.1 of the Excise Tax Act, which was 2 years from the date the corporation ceased to operate or the date the director officially resigned from the corporation.

They said the business closed 3 years ago, and that their accountant had officially closed the corporation with the government.

We talked about the Taxpayer Relief Program and about key language to use when speaking to the CRA in order to begin to change the permanent diary record they keep on the corporation and the directors.

The meeting concluded.

I immediately pulled a corporate profile report, checked that against the date of the assessments the CRA were raising and found them to be beyond that limit.

I used the signed authorization forms to contact the CRA, and that 5-minute conversation resolved the account… Forever.

I provided the directors with a report of the meeting, including the information we discussed, the CRA’s actions to date, their likely next steps, plus recommendations about how to deal properly with the CRA going forward, and I explained to them that there was no need for a payment arrangement because the account had a zero balance.

Luck?

No.

Additional fees?

No.

Were they happy… You could say that.  After they wiped away the tears and finished squeezing the life out of me, they talked about the relief they felt knowing this matter was finally behind them, and how they had other tax matters they wanted me to handle for them.

If representative #1 or representative #2 knew anything about collections or looked beyond their huge payout, they could have helped these directors with this assessment, with the 9-month-long audit that followed or the issues with WSIB, and the CRTC so that these directors owed nothing and their files were closed and in good order.

Does representation matter?

You bet it does!

#inTAXicating

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.

June 15th Unincorporated Filing Deadline (Canada) is Fast Approaching, Plus Year-Round Tax Tips!

The chaos and stress that comes with tax filing season in Canada has ended for most of us unless you are operating a sole proprietorship or partnership because you have until June 15th, 2013 to file your income tax (T1) return.  Any amounts owing to the Canada Revenue Agency (CRA) were due to the CRA by April 30th, but you have the extra month-and-a-half to file the information return, so don’t be late.

In addition, June 15th falls on a Saturday this year, so the actual return is due in the hands of the CRA by midnight on Monday June 17th.  Mailing it on the 14th is not the best option, so if you are waiting until that weekend to complete the return, I strongly recommend that you walk it into the closest CRA Tax Services Office at get it stamped with the 17th on it, or courier it to a tax centre to ensure it arrives on the due date.

If in completing the return you now find out that you actually owe(d) the CRA money, you need to pay that amount in full.  If paying it in full is not an option, then send in the amount you can best afford, and contact the CRA to make a payment arrangement on the remainder.  If doing that is not an option or if you have been carrying a balance with the CRA and this return is going to add to that balance then you have a tax problem and you are likely going to need professional help to keep enforcement actions at bay.

The CRA charges interest daily, beginning the day after taxes were due and a late-filing penalty of 5% of your balance owing plus 1% of your balance owing for each month your tax return is late, for a maximum of 12 months.   Once you caught up in the web of CRA collections and enforcement it can be very difficult to get out.  The collectors are not going to advise you how to best handle your affairs.  For the most part, then don’t understand how businesses operate, let alone your business and all they want is full payment in order to close their file.

It is in your best interest to resolve these tax matters as soon as possible, before penalties are charged and interest accumulates.  Accepting these extra fees in hope that the Taxpayer Relief Program is going to grant you relief is not a wise bet to make.

At Intaxicating Tax Services, we have seen all types of tax problems over the 17-years we’ve been helping taxpayers resolve their tax issues with the Canada Revenue Agency.  As a former Collections officer, Enforcement officer, Complex Case Officer and Team Leader I have personally handled files with every level of complexity, and all revenue types, and have recommended the same course of action for all of them – Find someone trustworthy, who knows the way CRA collections operate and leverage that expertise to get out of this mess once and for all.

If negotiating a payment plan with the Canada Revenue Agency was easy and without risk, there would be no need for Collections staff at the CRA.  The truth is, it can be very difficult to work out a payment plan with the Canada Revenue Agency while making sure that you do not give them any collection sources that they do not already have, so they can secure their liability at your expense.

Don’t let them take advantage of your good will.

Intaxicating Tax Services can help you with this!

Here are some tax facts to keep in mind as your prepare you finances for the 2013 tax filing season.

13. Contrary to popular belief the top 10% of Canadian earners pay half of all personal income taxes, while the half of earners with the lowest income pay less than a tenth (1/10th) of the total.  These high income earners keep the economy moving by having money to spend and by actually spending it.  It is this reason why those in the highest tax brackets need (and can afford) to best lawyers, accountants and tax experts, as they are already well into planning for their tax returns for 2013 and beyond.  They DO have some choice as to how much they want to spend and how much they plan to save.  All Canadians have this choice too.  By spending less, we pay less consumption taxes (GST/HST/PST), if we downsize our homes or live outside of metropolitan areas we can reduce or pay less property taxes, if we walk, cycle or carpool more, we pay less gasoline taxes, and if we are more organized and smarter with how much money we spend in total, we pay less bank fees, late fees, interest on credit cards, etc.  Everyone, not matter their income has to be smart with their money.  Paying penalties and interest to the CRA is NOT a smart way to handle our money.

12. Regardless of where you are and what you do, you really should file a tax return.  Canadian reporting is voluntary in certain conditions, but be sure you are exempted before you pass on filing.  The CRA provides details as to when you need to file and why you should file right here.

11. You have the option to defer the paying of taxes, in some cases, when you save for retirement inside a RRSP / IRA or any other form of registered retirement savings plan.  In these plans, you defer payment of income taxes until later in life. There are taxes assessed when you withdraw the money, after you have reached a certain age but those tax rates are probably lower than you would be paying now, if you have above-average income.  If your income is below average, you may be better off to pay taxes now and save in a tax-free savings account (TFSA).  If you save for your family inside a registered education savings plan or a registered disability savings plan, there will be a deferral of taxes on interest earnings, other investment returns and government grants.  Then the child or other relative for whom the plan was set up for, will likely pay little or no taxes on those savings.

10. Before you file make sure you have all your slips – it’s best to have a place where they can go throughout the year, and periodically, you should take them out, write on them what they were for and keep them all together at time of filing.   Amending tax returns is a long, tedious process, plus having to search the house or business for these slips one day before filing deadline can be extremely stressful.

9.  Make sure the government has correct information for you – address, name, direct deposit (if you never owe money) because you want your refund and if they audit you, they might not be re-assessing you, but rather they may be looking for an additional copy of a receipt they lost in the processing of 20 million tax returns.   If they do not have a correct address and they need information or something gets lost along the way and a balance arises, they will take it from your bank account or freeze that account until they get all your information – but now you are in collections…

8.  Do not ignore government mail.  Open it and action it.

7.  File electronically – but keep your receipts handy for audit and verification purposes.  It is the quickest way to file, and you may even get your refund quicker.   As an added bonus, you are also being environmentally responsible and saving trees.

6.  If you owe money, make sure that you address it properly.  Do not write a note and attach it to your return – those notes get tossed during the mass-processing cycle – but instead, contact the government and make a payment arrangement and honor it.   Anything you attach to your return – even if it is written with a glitter pen (don’t laugh, I have received MANY letters written this way during my time at the CRA) comes into the processing centres, the processors, who are usually temporary hires to help the CRA get through the tax season, rip of cheques and process that right away, then tear off any unnecessary paperwork and send the returns to a data processing group.  Anything not a return or money gets shredded.

5.  Think before you complain.  Paying taxes means your earned more money than you had to pay out.  Good for you.  As well, a third of all income in Canada is paid in taxes, which may seem really high, but before you consider moving out of the country, consider that the Canadian tax burden is less than that of 19 other developed nations. We, as Canadians only pay more taxes than 10 developed nations.

4.  Ever wonder what the CRA does with the tax money they collect?  Well, the Minister of National Revenue uses 62% of it to pay for health care, education and social assistance, including unemployment benefits.  The other 38% goes for everything else we need, like infrastructure, social programs, etc.

3.  Not everything in Canada is taxed, and here are some prime examples; There is no tax on a winning Lottery tickets, on scholarships, inheritances, gifts, the Guaranteed Income Supplement (GIS) to the taxable Old Age Security (OAS) pension, Canada Child Tax Benefit cheques or child support payments after a divorce. You pay no tax on at least the first $9,000 of waged earnings or $40,000 of income per year if you receive only eligible corporate dividends and $18,000 if you receive only capital gains.

2.  On the flip side, there are some high-tax items, some you can make the choice to avoid, and one you might accept regardless of the amount of tax owing; The Federal income tax rate on income greater than $135,054 a year in 2012 is 29%, plus Provincial tax rates which bounce between 10%-21% based on the Province.  Taxes on cigarettes in Ontario was 63.5%; alcohol, 52.7%; and regular gasoline 39.47%.

1.  Tax relief opportunities are available, but you need to either research them or ask an expert how to qualify and what they are.  For example, there are tax breaks and benefits for those who better themselves, or the economy through getting a higher education, earning high grades, raising children, moving closer to a job, belonging to a professional group or organization, taking public transit, making charitable and political donations, investing in companies, starting a small business, and saving for retirement.   We all have the opportunity to save money, pay less tax and help ourselves and others in the future, but whatever you choose to do today, or tomorrow it’s never too late to make a change for the better.

Start today.  Stop paying the government late filing penalties, or penalties for missing installments.  Stop paying the government interest at 10% and don’t be afraid to open that brown envelope.  If you have a tax problem, we  can help.  We understand how these can spin out of control and we certainly do not judge.  With 17-years of actual tax expertise, 11 of them in the CRA, why would you trust anyone else?

Call today for a free consultation.

The Minister of National Revenue can have your tax dollars to run the country.  All Canadians thank you for that.

You don’t need to pay them penalties and interest.  You do not want to know that the CRA do with the penalties and interest money it collects!