Time limit on CRA's discretion

National Post


If you received your Notice of Assessment and feel that you were unjustly charged arrears interest on income taxes owing or even penalties, you have the option of applying to the Canada Revenue Agency (CRA) under the "fairness" provisions for some relief.

The CRA has the discretion to cancel or waive either all or a portion of any interest or penalties (but not the actual tax) payable if the penalties and interest resulted from circumstances beyond a taxpayer's control. But the CRA's discretion can only be exercised for the 10 previous calendar years.

If your request for relief is turned down by the CRA, you can request a review. If your request is turned down again, you can apply to the Federal Court for a judicial review. The Federal Court can determine if the CRA "exercised its discretion in a reasonable and fair manner," with the power to send it back to the CRA once again for reconsideration.

If the Federal Court finds that CRA did exercise its discretion appropriately and you still disagree, you can take your case one level higher to the Federal Court of Appeal for a review of the Federal Court's decision.

Sound like a long, drawn-out process? It is, but that's what Ronnie Bozzer had to endure to find himself before a three-judge panel of Federal Court of Appeal in Vancouver last December.

The issue in Mr. Bozzer's case was how the 10-year limit was measured. In December 2005, Mr. Bozzer applied to the CRA for interest relief on tax amounts owing for 1989 and 1990.

The CRA denied Mr. Bozzer's request, and an appeal, saying the 10year period was up.

Mr. Bozzer appeared in Federal Court, where his request for a judicial review of the CRA's decision was dismissed.

While Mr. Bozzer argued his own case in Federal Court, he was represented in the higher appellant court by tax litigator David Spiro from Fraser Milner Casgrain LLP. "The (CRA's) narrow and restrictive interpretation of the provision never made much sense to me," Mr. Spiro said.

Mr. Spiro argued that the fact that Mr. Bozzer's tax debt arose in 1989 and 1990 was irrelevant. He argued that the 10-year time limit specified in the Tax Act covers the 10 years of interest which accrued from Jan. 1, 1995 to Dec. 31, 2004, and is not in any way related to the years the tax debt arose.

The Federal Court of Appeal agreed. In a decision released last week, it concluded that the 10-year period does not actually start in the year of assessment but rather applies to interest accrued for the 10 calendars years prior to the date of the relief application. As a result, the court referred the matter back to the CRA for reconsideration.

"The court recognized that this particular provision was intended to help taxpayers obtain interest relief, not close the door on them," Mr. Spiro said.