The Fight for Fairness
How clients can apply for tax relief
by Jamie Golombek
Do you ever have clients who feel they have been unjustly charged arrears interest on income taxes owing or even penalties? If so, they may be able to apply to the Canada Revenue Agency (CRA) under the "fairness" provisions for some relief.
The fairness legislation was introduced by the federal government in 1991 and gives the CRA the discretion to cancel or waive either all or a portion of any interest or penalties (but not the actual tax) payable.
For the fairness provisions to apply, the penalties and interest must have generally resulted from circumstances beyond a taxpayer's control. The CRA has provided some examples of "extraordinary circumstances" that may result in an individual failing to make an appropriate payment when required or file a return when due:
natural disasters such as a flood or fire;
civil disturbances or disruptions, such as a postal strike;
a serious illness or accident; or
serious emotional or mental distress such as a death in the family.
Other avenues whereby interest or penalties can be waived include when the interest or penalties arose primarily due to governmental "errors", such as:
n processing delays that result in a taxpayer not being informed that an amount was owing;
CRA publications that contained errors, which led a taxpayer to file a return or make a payment based on incorrect information;
incorrect CRA advice (for example, if the CRA wrongly advises your client that no quarterly instalment payments are due, when in fact, they were required); or
actual processing errors.
A request for relief under the fairness rules needs to be made in writing by sending a letter, either to the client's taxation centre where they file their return or to the district taxation office serving their area.
The letter should contain, at a minimum:
the taxpayer's name, address and social insurance number;
the tax years involved;
any relevant receipts, documents or correspondence; and most importantly
the facts and reasons why any interest or penalties charged were primarily caused by factors beyond the taxpayer's control.
The CRA will consider a number of factors when determining whether it will waive interest and penalties, including the taxpayer's previous compliance history, whether the taxpayer has exercised a "reasonable amount of care" and whether he or she has acted quickly to respond to CRA's requests for more information or clarification.
If your client has applied for interest or penalty relief but such relief was turned down by the CRA, the taxpayer can request (in writing) that the director of the tax centre or the district office review your client's case.
If your client's request for fairness is turned down a second time, he or she can apply to the Federal Court for a judicial review. While the Federal Court does not have the discretion to directly reverse the CRA's decision, it will determine whether, in the court's opinion, the CRA has "exercised its discretion in a reasonable and fair manner". If the court finds that the CRA did not properly exercise such discretion, it will refer the request once again back to the CRA for reconsideration.
Since 1991, there have been about 120 reported cases in which taxpayers have questioned the CRA's discretion and had their cases reviewed by the Federal Court. Perhaps not surprisingly, the court usually agrees with the CRA - but not always.
A recent such case (McNaught Pontiac Buick Cadillac Ltd. v. The Queen, 2006 FC 1296) decided last fall sheds some light on the type of circumstances that might warrant the court to ask the CRA to reconsider its fairness decision.
The case involved a penalty of over $10,500 charged by the CRA to the taxpayer, a Winnipeg car dealership. The dealership improperly paid its monthly payroll tax withholdings, on time, but in person at the CRA's Winnipeg Tax Services Office, as opposed to at a financial institution, as is required for large employer's remittances under the Income Tax Act.
The reason for payment at the CRA office as opposed to the bank was because the company's employee, who was sent with a cheque to the bank to make the payroll remittance, misplaced the remittance slip on the way to the bank and, instead, went over to the CRA office with the cheque, where the payment was accepted and receipted by the CRA cashier.
The car dealership appealed to have the penalty cancelled, but the CRA refused, saying: "We are unable to approve your request for relief under the criteria of "extraordinary circumstances,' because ... human error is not considered to be an "extraordinary circumstance' as per our policies".
The court disagreed and considered the willingness of the cashier at the Tax Services Office to accept the cheque an "error in processing" and thus, within the CRA's published guidelines, as discussed above, to grant administrative relief. The court referred the matter back to the CRA for reconsideration.