If there is one thing that can be learned from the tax cases that wound
through the courts in 2006, it's that sometimes, the tax man is wrong.
Two tax cases decided in the latter half of the year demonstrate that
taxpayers need to be vigilant and take an active role if they disagree with the
Canada Revenue Agency. Ultimately, final retribution for dubious deeds may only
come through the courts.
The first case involved a judicial review of the CRA's decision to deny a
taxpayer's "fairness provision" request for the cancellation of a $10,000 income
tax penalty. The fairness provisions in the Income Tax Act allow the CRA the
discretion to cancel any penalties or interest (but not tax) you may be assessed
due to extraordinary circumstances.
The taxpayer, a Winnipeg car dealership, is considered to be a large employer
and thus, is required to remit its payroll source withholding tax deductions to
the CRA through a financial institution.
On Sept. 20, 2005, McNaught Pontiac Buick Cadillac Ltd., was required to
remit $105,386 in payroll taxes. Albert Sankow, an employee at McNaught, was
responsible for delivering documents and cheques and that day, he was given a
cheque for that amount along with a remittance slip.
He went to a Royal Bank branch but discovered he had misplaced the remittance
form. He was told by a bank teller that without the remittance form, the bank
could not accept the tax payment.
As Mr. Sankow knew the urgency of this payment being made on time, he went to
the Winnipeg office of the CRA where he spoke to a cashier and explained that he
did not have the remittance form but did have the cheque. The CRA cashier
accepted the payment and Mr. Sankow was given a cheque remittance stub stamped
Sept. 20, 2005.
On Sept. 28, 2005, the CRA sent an assessment notice indicating a penalty of
$10,539, or 10% of the amount of tax owing, because the remittance had been made
directly to the CRA rather than to a financial institution as required for large
Two days later, McNaught requested to have the penalty waived. The CRA denied
the fairness request to waive the payment, stating that "human error is not
considered to be an 'extraordinary circumstance' as per our policies."
McNaught once again asked the CRA to reconsider its decision. Again, the CRA
denied the taxpayer's request for penalty relief. McNaught then requested a
judicial review of the case.
The federal court judge decided that the willingness of the cashier at the
Winnipeg tax office to accept a cheque for $105,386.05 constitutes an "error in
processing" and meets the CRA's guidelines for administrative relief.
The penalty was referred back to the CRA for reconsideration, "having regard
to whether discretion should be exercised so as to waive the penalty in whole or
The second case involved taxpayer Roger Johnston, who agreed with his CRA
reassessment but not with the interest charged on the amount owing. His wife
testified about her experience trying to get through on the CRA's general
inquiry line with questions as to how to properly prepare her husband's tax
Ms. Johnston stated that she called about 12 different people on the
toll-free information line and received different responses as to how she should
prepare the return.
She added that some people to whom she spoke were critical of the information
others had given.
The judge recommended that "in the aggravating circumstances ... the Minister
of National Revenue waive any interest that otherwise would be payable on the
tax owing under the reassessment."
- Jamie Golombek, CA, CPA, CFP, CLU, TEP is the vice-president, taxation and
estate planning, at AIM Trimark Investments in Toronto.