Every year, taxpayers who seek relief from a tax reassessment are denied the result they deserve because of a failure to meet a statutory deadline (or limitation period). Taxpayers sometimes miss deadlines in the hopes that they will escape the notice of the tax collectors at the Canada Revenue Agency (the “CRA”). Unfortunately, like the ostrich that buries its head in the sand to escape a hyena, taxpayers who follow this approach usually discover that they have not escaped, and often make this discovery after it is too late to take protective action. While kicking sometimes works for ostriches, it never works for taxpayers.
There are generally two routes for seeking relief from a CRA reassessment. If you dispute the amount of tax assessed, you can appeal your reassessment by filing a notice of objection with the CRA. If you do not dispute the amount of tax assessed, you can file a taxpayer relief application to request that the CRA waive interest or penalties.
The filing of a notice of objection triggers an internal review of the reassessment by a CRA appeals officer. If this fails to resolve a dispute, a taxpayer is entitled to pursue an appeal to the Tax Court of Canada.
Taxpayers who wish to dispute a tax assessment are required to act relatively quickly. A notice of objection must be filed within 90 days of the date of a reassessment. If this deadline is not met, the CRA will generally reject a notice of objection. However, taxpayers can apply to late-file a notice of objection, so long as the application is made within a year of the expiry of the 90 day deadline.
The CRA accepts most late-filing applications that are made within the one year period for doing so. However, the tax legislation does not authorize the CRA to accept any late-filing applications that are made after the one year deadline. Accordingly, if this deadline is missed, a taxpayer cannot dispute a reassessment.
A taxpayer relief application is essentially a plea for mercy from the CRA. The CRA has broad discretion in deciding whether to waive penalties or interest, and it relies heavily on its policies to make these decisions. In general, it will grant relief only where penalties or interest result from events beyond a taxpayer’s control (such as a death or natural disaster), reliance on incorrect information from the CRA, delay on the part of the CRA, or substantial financial hardship.
In contrast to the tight deadline for filing notices of objection, a 10 year limitation period applies to taxpayer relief applications. For several years, the effect of this limitation period was unclear. The CRA understood the limitation period to mean that interest and penalty relief could only be provided in relation to tax debts from the 10 most recent years. This meant that if a taxpayer filed a relief application in 2010, the CRA believed that it could only provide relief for tax owed in relation to 2000 and later years. Outstanding tax debts for 1999 and earlier years did not qualify for any relief.
Fortunately, the Federal Court of Appeal recently ruled that the CRA had incorrectly interpreted the limitation period that applies to taxpayer relief applications. In Bozzer v. Minister of National Revenue, the Court held that the 10 year limitation period applies to the years in which interest accrues not the year for which tax is payable. This means that the taxpayer who applied for taxpayer relief in 2010 could receive interest relief for a 1999 tax assessment but only for the interest that accrued since 2000.
It is not yet clear whether the CRA will appeal Bozzer to the Supreme Court of Canada. If this decision is not reversed, it should substantially expand a taxpayer’s ability to obtain interest relief for old tax debts. Nevertheless, if a taxpayer waits more than 10 years to file an application for taxpayer relief, it will remain impossible to obtain a complete waiver of interest.
Filing a notice of objection or taxpayer relief application on time is only the first step in resolving a tax dispute. To be successful, a taxpayer must still persuade the CRA or a court that the facts and law support the granting of the requested relief.
While the early bird does not always get the worm in a tax dispute, an ostrich is never rewarded if its head is in the sand. When engaged in a tax dispute, a taxpayer must act promptly in seeking relief. Failure to do so can prevent the correct relief from being obtained.
By Ryan Green
The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.
