Your Business News
Asare v Canada: Some ins and outs of taxpayer relief
May 31, 2023
Authored by RSM Canada LLP
Cleo L. Melanson, CPA, CA, CMA shared this article
ARTICLE | May 31, 2023
Asare v Canada: Explaining the ‘how’, ‘why’, and ‘when’ for claiming taxpayer relief
Subsection 220(3.1) of the Income Tax Act (the Act) is a general provision that provides the Canada Revenue Agency (CRA) with the discretion to waive or cancel penalties and interest accrued during the previous ten calendar years. This provision is part of Canada’s “taxpayer relief” legislation dealing with the cancellation of penalties or interest imposed under the Act. A recent Federal Court (FC) decision, Asare v Canada (National Revenue), 2022 FC 1676 (Asare) offers a useful backdrop to review some of the key components of requesting this remedy from CRA, including how to request relief, why to request relief, and when to make an application.
How to request interest and penalty relief
Taxpayer relief is properly requested by filing an RC4288, or by sending a letter to the CRA. For requests made based on an inability to pay, taxpayers should also provide a form RC376 outlining their financial situation.
All supporting information, facts, and reasons should be included in a request for taxpayer relief. As noted by the FC in Asare, taxpayer relief is a separate recourse with distinct considerations from determining the correctness of a tax assessment. Therefore, a taxpayer should consider the reasons for its request with reference to CRA’s guidelines, and clearly explain how those reasons are causally connected to desired relief from a penalty or a specific interest amount.
Reasons to request interest and penalty relief
The CRA’s Information Circular IC07-1R1 sets out reasons that may entitle a taxpayer to CRA’s discretionary relief. Although the CRA is empowered to provide relief outside these guidelines, best practice would be to work within the CRA’s established guidelines if circumstances permit.
The situations provided by CRA include (1) extraordinary circumstances, such as death or natural disasters; (2) delay by the CRA; (3) reliance on incorrect information from CRA; or (4) inability to pay/financial hardship. In respect of the first item, a recent example of relief provided by the CRA was the automatic waiver of interest on existing income tax debts from April 1, 2020, to September 30, 2020, due to the COVID-19 pandemic.
When to request interest and penalty relief
Generally, if the taxpayer has an ongoing dispute, the CRA’s procedure is to hold a taxpayer relief application until the matter has concluded, or until a taxpayer’s right of appeal has lapsed. The FC in Asare clarified that the CRA, as the administrative decision maker, was entitled to control its process for granting relief provided that the process is procedurally fair. Therefore, generally, a final tax liability will need to be determined through the normal appeal processes before applying for relief under subsection 220(3.1). However, if a taxpayer is closing in on the ten-year deadline to apply for relief on accrued interest or a penalty; the taxpayer should apply for taxpayer relief prior to the deadline, and request that the application be held until the tax liability has been settled.
Granting taxpayer relief is discretionary
A key component of administrative discretion, including in the taxpayer relief context, is that this discretion must be exercised in a manner that is reasonable. If an exercise of discretion by the CRA is unreasonable, or the CRA refuses to exercise discretion that is required by law, a taxpayer is entitled to appeal the CRA’s decision (or lack thereof) first to a second-level review at the CRA, and then to the FC.
The Asare appeal was based on a CRA appeals officer’s failure to exercise discretion. In that case, Mr. Asare (the Taxpayer) sought a negotiated settlement related to notices of objection he filed with the CRA. The notices disputed personal and corporate income tax reassessments, including the application of gross negligence penalties (GNPs) on these amounts, pursuant to subsection 163(2) of the Act. The CRA appeals officer counter-offered to vacate the GNP imposed on the Taxpayer’s corporation income tax debt for technical reasons but refused to vacate the GNP imposed personally.
The Taxpayer was prepared to accept the CRA appeals officer’s counteroffer only if the GNP imposed personally were to be waived according to subsection 220(3.1) of the Act. The appeals officer refused to vacate the GNP applied personally and informed the Taxpayer that relief from interest and penalties on fairness grounds–distinct from the legal merits of the objection–should be applied for separately as per CRA policy.
The Taxpayer sought judicial review of the appeal officer’s reluctance to consider administrative relief. Ultimately, the FC concluded that CRA appeals officer was entitled to stand by its administrative processes, by guiding the taxpayer to apply for relief through a separate channel.
Procedure is key to a successful taxpayer relief application
The Taxpayer in Asare found that a failure to follow CRA’s procedure set out in Information Circular IC07-1R1 led to his appeal being dismissed at FC. Therefore, this judgment serves as a useful reminder to carefully review CRA’s published administrative processes before requesting a specific recourse, such as the cancellation of interest or penalties under the Act’s taxpayer relief provisions.
Call us at 1 855 363 3526 or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Elizabeth Ojesekhoba, Simon Townswend and originally appeared on 2023-05-31 RSM Canada, and is available online at https://rsmcanada.com/insights/services/business-tax-insights/asare-v-canada-some-ins-and-outs-of-taxpayer-relief.html.
The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM Canada Alliance provides its members with access to resources of RSM Canada Operations ULC, RSM Canada LLP and certain of their affiliates (“RSM Canada”). RSM Canada Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM Canada. RSM Canada LLP is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms. Members of RSM Canada Alliance have access to RSM International resources through RSM Canada but are not member firms of RSM International. Visit rsmcanada.com/aboutus for more information regarding RSM Canada and RSM International. The RSM trademark is used under license by RSM Canada. RSM Canada Alliance products and services are proprietary to RSM Canada.
FCR a proud member of RSM Canada Alliance, a premier affiliation of independent accounting and consulting firms across North America. RSM Canada Alliance provides our firm with access to resources of RSM, the leading provider of audit, tax and consulting services focused on the middle market. RSM Canada LLP is a licensed CPA firm and the Canadian member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM Canada Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.
For more information on how FCR can assist you, please call us at 1 855 363 3526