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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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1 Comment

  1. Shane Dyck said:

    Today I was (called), labeled as an offender, a repeat offender by a CRA collections officer over the phone without being tried or convicted. I owe taxes and have filed late for past years and my only wish is to put it all behind me, move on. Collections want full disclosure of my finances in order to arrange payment for past tax owing, interest on tax, late filing penalty and interest on late filing penalties. My concern lies with the practice of past tax and penalties being lumped together and then compounded at the same interest and as it appears, the penalty is not taxable and should not accumulate interest or at the least a lower interest should apply. At this time I am considering Taxpayer relief because of financial hardship and I’m wondering if I have a leg to stand on regarding the laws with interest on past due taxes and penalties that and being labeled a repeat offender by CRA.

    posted February 9th, 2012 at 12:10 PM