Taxpayer Relief: CRA’s Discretion is Clarified

The Canada Revenue Agency has the discretion to cancel penalties and interest assessed to a taxpayer. Applications for relief from interest and penalties are made under the taxpayer relief provisions of the Income Tax Act.

Until recently, the CRA took the position that it could only exercise its discretion where the application for relief was made by a taxpayer within 10 years of the tax year that gave rise to the tax on which the penalty and interest assessed. For example, the CRA’s position was that if a taxpayer was assessed tax and penalties in 1998, an application for relief from the penalties and any interest accumulated must be made before December 31, 2008 in order to be considered by the CRA for relief.

The CRA felt that its position was supported by the language of subsection 220(3.1) of the Income Tax Act.

On June 2, 2011 the Federal Court of Appeal clarified the proper interpretation of that subsection and concluded that the CRA’s position was wrong. The Federal Court of Appeal decision in Bozzer v. Minister of National Revenue confirms that the CRA has the discretion to grant relief from interest accrued in the most recent ten years even if the tax year that initially gave rise to the tax was more than ten years prior to the application for relief.

The Federal Court of Appeal found that this interpretation is consistent with the purpose of the legislation as articulated by the CRA in its own Information Circular:

The legislation gives the CRA the ability to administer the income tax system fairly and reasonably by helping taxpayers to resolve issues that arise through no fault of their own, and to allow for a common-sense approach in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, could not comply with a statutory requirement for income tax purposes.

If you have been assessed penalties or interest and feel that a waiver of interest or penalties would be fair and reasonable in your circumstances it is worth exploring the option of an application for relief.

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