If you’re planning to engage a professional to prepare your 2011 tax return, double check it before signing as you are ultimately responsible for its contents.
Take the case of Ian Spence, who last month appeared in court for the third time in an attempt to get Canada Revenue Agency to cancel more than $7,600 of penalties and interest.
Mr. Spence hired H&R Block to prepare his 2006 return and was asked to come to the office to sign it before it was sent to the CRA. In late February 2007, Mr. Spence went to H&R Block and learned his refund was just over $2,500, which was about the amount he was expecting. As a result, he did not actually review his printed return before signing and filing it, something he would soon come to regret.
The CRA reassessed his 2006 return for failing to include about $36,000 in income, along with $9,000 in taxes that were withheld at source, which resulted in Mr. Spence having to send $124 from this $2,500 refund back to the CRA, which he promptly did. But the story didn’t end there as the CRA assessed Mr. Spence penalties and interest amounting to $7,625 for his failure to report income.
Mr. Spence challenged the penalty under the “fairness provision” of the Income Tax Act, which gives the CRA the discretion to cancel or waive all or a portion of any interest or penalties payable which resulted from circumstances beyond a taxpayer’s control.
Mr. Spence argued the penalty was “disproportionately large, given that he had acted conscientiously to file his return in a timely way.” The CRA denied Mr. Spence’s request for relief on the basis that he had not shown “extraordinary circumstances.”
In 2010, Mr. Spence first appeared in Federal Court seeking judicial review of the CRA decision and was successful in that the judge sent his request for penalty and interest cancellation back to the CRA for reconsideration. The CRA turned him down a second time, finding it would be inappropriate to cancel the penalty since it was his responsibility to ensure his tax return was accurate, even if completed by a third party.
So, in April 2011, Mr. Spence found himself in Federal Court yet again seeking judicial review of the CRA’s second rejection of his relief request. He argued the CRA’s decision was “unreasonable in his circumstances, especially since he did not conceal any income or gain anything by failing to submit a fully complete tax return.” The judge was unsympathetic, writing, “I can find no basis on which to overturn the (CRA’s) decision.”
Last month, Mr. Spence took his case to the Federal Court of Appeal, emphasizing the harshness of the penalty but the court, dismissing his appeal, was unable to conclude that the CRA’s decision not to cancel the penalty was “unreasonable, particularly in light of the amount of the unreported income compared to Mr. Spence’s total income.”