If you're still waiting for your refund from filing your 2012 tax return, you may be wondering how long the taxman actually has to assess and issue that refund.
A recent federal court decision takes the Canada Revenue Agency to task for unduly delaying a taxpayer's assessment and corresponding refund for participating in a donation tax shelter.
Last fall, to deter Canadians from participating in donation tax shelters for the 2012 year, the CRA announced it will put on hold the assessment of any tax return in which the individual is claiming a donation credit by participating in a gifting tax-shelter scheme.
On Oct. 30, 2012, the CRA announced it would delay a taxpayer's assessment and refund until the tax shelter itself is audited, which could take up to two years. Doing so "will avoid the issuance of invalid refunds and discourage participation in these abusive schemes."
In response to this announcement, the Global Learning Gifting Initiative (GLGI), a registered tax shelter, called the CRA's delay tactics "an improper, and possibly illegal, use of CRA's assessing practices." To this end, it sponsored a court action challenging this new CRA practice.
In the GLGI test case, the taxpayer, Alice Ficek, was one of 84 taxpayers whose 2010 assessments were being delayed by the CRA due to their participation in the GLGI tax shelter. A CRA official estimated that there are currently more than 27,000 notices of objection being held in CRA's appeals division with respect to GLGI for the 2004-06 tax years alone.
Prior to the CRA's fall announcement, its long-standing assessment policy was to allow even questionable charitable donation tax credits when initially assessing an individual's tax return and then to conduct an audit and issue a reassessment to deny the credits, if it's determined that the donations were invalid.
The court referred to internal CRA communications that revealed that the true purpose of delaying the assessments was "to discourage participation in tax shelters generally and GLGI in particular." It therefore concluded that this was not a valid reason for the CRA to delay its assessment and found that the CRA did not meet its obligation under the tax act to assess within a reasonable period of time.
Sal Mirandola, a tax partner in the Toronto office of Borden Lad-ner Gervais LLP, noted that the CRA is becoming "more aggressive" in using its enforcement powers, but the courts have been stepping in to restrict these powers.
"Taxpayers need a way to even the playing field against the CRA," says Mr. Mirandola.