Ten Year Limitation Period for CRA to Waive Penalties and Interest – Clarifications from Bozzer v. Canada (2011 FCA 186) – A Toronto Tax Lawyer Analysis – Part I
CRA Discretion to Waive or Cancel Penalties and Interest
Under the Canadian Income Tax Act the Canada Revenue Agency (the "CRA") is obligated to collect any and all legitimate taxes, penalties, and interest owing from Canadian taxpayers. Generally the CRA cannot negotiate on those amounts, meaning that it cannot reduce taxes owing. This can seem harsh and unforgiving, particularly in situations where the taxpayer may not have completely been at fault. However there is an exception to this obligation in subsection 220(3.1) of the Tax Act which gives the CRA discretion to waive or cancel all or part of any interest and penalties that have accrued on a tax debt. This means that, while the CRA cannot negotiate on the base amounts of tax debt a taxpayer owes to them, they can use their discretion to waive or cancel all or part of the interest and penalties on a tax debt. Call our experienced Toronto tax firm and ask how we can help you use the Tax Act to lower your tax debt.
CRA Taxpayer Relief Program and the Voluntary Disclosures Program
But, because the Tax Act does not specify how this discretion should be used, this broad power can itself result in unfairness or inconsistency. To facilitate this, the CRA has implemented two different programs, the Taxpayer Relief Program and the Voluntary Disclosures Program. The Taxpayer Relief Program's focus is in allowing the CRA to apply Canada's income tax system fairly and reasonably where extenuating circumstances that were outside the taxpayer's control gave rise to the penalties and interest. To this effect, the CRA has listed three grounds that they consider applicable for taxpayer relief: 1) extraordinary circumstances; 2) actions of the CRA; 3) financial hardship. For example, if a taxpayer cannot file their tax return on time because a fire destroyed their home that situation may qualify for tax relief as extraordinary circumstances. Where a taxpayer files a Notice of Objection and the CRA takes 7 years to confirm or vary the assessment the facts may qualify for tax relief based on actions of the CRA.
On the other hand, the Voluntary Disclosures Program (tax amnesty or VDP) is focused on encouraging Canadian taxpayers to comply with the income tax system. Taxpayers who have accidentally or deliberately incorrectly reported income or unreported income or have failed to declare offshore assets can come forward and correct their tax affairs, and in exchange, the CRA offers to waive all or part of the penalties and interest and not to prosecute for tax evasion. If you owe a tax debt which has accrued significant penalties or interests, speak to one of our top Toronto tax lawyers to see how we can help.
In Part II of this article our top Toronto tax lawyers will cover the ten year limitation period for the CRA to waive penalties and interest as well as the case, Bozzer v. Canada (2011 FCA 186) where the Court clarified how to determine the ten year period. As readers will see, the Court considered the positions of both Bozzer and the CRA, the effect each position would have as well as considered the legislative intent in drafting section 220(3.1).
Continue reading to Part 2.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.