While in my last few blogs I’ve focused on knowing when your will plan isn’t simple, today I’ve asked my partner, David Fox to blog on a recent development in the fairness provisions applied by Canada Revenue Agency. David is a partner in our Tax group. He brings to your attention what practitioners consider to be a welcome clarification of the fairness provisions available to taxpayers who may owe interest in respect of income taxes owing from tax years ten or more years old. What follows comes to you from David…
For several years, the Canada Revenue Agency (the “CRA”) has taken the position that it cannot consider applications for relief from interest under the “fairness” (or “taxpayer relief”) provisions of the Income Tax Act (Canada) (the “ITA”) where that interest relates to tax debts more than than ten years old. The CRA has refused to consider granting relief from interest where the delay in requesting relief from interest is due to events outside of the taxpayer’s control. For example, a taxpayer may not be aware that she could apply for relief from interest and may not have the financial resources to hire a tax professional to advise her of this option. Perhaps a taxpayer suffers a significant accident or illness, resulting in her focussing on things other than taxes for a significant period of time. Alternatively, perhaps a taxpayer disputes a reassessment of tax and resolving the dispute takes several years.
In a victory for taxpayers, in Bozzer v. Minister of National Revenue, the Federal Court of Appeal recently rejected the CRA’s interpretation of the ten year limitation in respect of applications for relief from interest, broadening the circumstances in which taxpayers can apply for relief from interest on tax debts.
Subsection 220(3.1) of the Income Tax Act (Canada) (the “Act”) provides that the Minister of National Revenue (the “Minister”) may waive or cancel all or any portion of any penalty or interest otherwise payable under the Act by a taxpayer. However, the subsection also provides that the Minister may only grant such relief “on or before the day that is ten calendar years after the end of a taxation year of a taxpayer”. Applications by taxpayers for relief from interest under subsection 220(3.1) of the Act are frequently referred to as “fairness applications” or “taxpayer relief applications”.
The CRA’s interpretation of subsection 220(3.1) of the Act has been that the Minister did not have the authority to grant a taxpayer relief from interest if the taxpayer applied for such relief more than ten years after the end of the taxation year in which the tax debt (on which the interest was accruing) arose. In Bozzer, the appellant’s tax debt arose in the 1989 and 1990 taxation years. On December 6, 2005, the appellant submitted an application requesting relief from interest which had accrued on the 1989 and 1990 tax debt. The Minister refused to consider the appellant’s application on the basis that such an application could only have been considered if it had been submitted by the appellant by December 31, 1999 (for the 1989 taxation year) and by December 31, 2000 (for the 1990 taxation year).
However, in Bozzer, the Federal Court of Appeal ruled that the ten year period stated in subsection 220(3.1) of the Act did not commence at the end of the taxation year in which the tax debt arose (1989 and 1990 in the appellant’s case). Instead, the court ruled that the Minister had the statutory authority to cancel interest on the appellant’s tax debt to the extent that it accrued in the ten taxation years preceding the appellant’s application (despite the fact that the interest was accruing on a tax debt which arose more than ten years prior to the application). This result is contrary to the CRA’s interpretation and application of subsection 220(3.1) since 2004.
It must be emphasized that relief from interest in response to taxpayer relief applications under subsection 220(3.1) of the Act remains at the discretion of the Minister. Nevertheless, the Bozzer decision broadens the circumstances in which taxpayers may apply to the Minister to request the cancellation of interest accruing in respect of tax debts.
Corina S. Weigl