The Canada Revenue Agency has operated under “fairness provisions” or “fairness legislation” since 1991.
Indeed, CRA refers to the concept of fairness when dealing with taxpayers as “a key corporate value.” The fairness provisions of the Income Tax Act allow the agency the discretion to provide certain kinds of relief to taxpayers who for one reason or another have fallen behind in their tax filings or tax payments.
One of the most common areas of relief is the request to cancel the penalty or interest on tax debt. The minister has the discretionary right to grant such relief, usually if there are mitigating circumstances beyond the taxpayer’s control, such as illness, death or other unforeseen catastrophe that has affected the taxpayer’s ability to file or pay taxes. Another frequently cited reason for relief is the taxpayer received erroneous information from CRA.
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This sounds straightforward, but CRA replaced the fairness provisions with taxpayer relief provisions May 31, 2007. Under the taxpayer relief provisions, it is made clear that they are administered at the sole discretion of CRA and decisions made are not subject to appeal outside the department.
Although there are detailed administrative guidelines on how CRA should apply the relief provisions, the name change was made to emphasize, apparently to taxpayers, that these are only guidelines and are separate from the legal rights that allow taxpayers to appeal CRA assessments.
However, taxpayers can apply to the Federal Court for a judicial review of denied taxpayer relief decisions. While the courts cannot order the CRA to provide relief, it can determine whether the CRA has “exercised its discretion in a reasonable and fair manner.”
The Federal Court heard several such cases recently after taxpayers applied for judicial review. One taxpayer had lost his house and records in a fire, which significantly affected his livelihood, income and ability to pay CRA. The taxpayer asked for relief from CRA but was denied, largely because CRA couldn’t see his catastrophic loss as qualifying for fairness treatment.
The other case related to a man who in a relatively short period experienced the death of one daughter through illness, the life-threatening illness of another daughter and the breakdown of his marriage. He also suffered serious injuries in a car accident, which left him unable to work.
Under the circumstances, it is not surprising that he developed serious emotional problems and was hospitalized in a psychiatric institution, where he eventually died. CRA could see nothing mitigating about these circumstances and denied the estate appeal for relief under the fairness provisions.
Fortunately, the Federal Court found differently and referred both decisions back to CRA for a new review on the basis that to deny the relief applications was “unreasonable” under the circumstances.
Larry Roche is a tax analyst with farm taxation and planning specialists Farm Business Consultants Inc. He can be contacted at fbc@fbc.ca or call 800-860-7011.
