The 'fairness' clock is ticking

National Post


With just over six weeks remaining until yearend, there is a little-known,
but critically important, tax deadline fast approaching. Dec. 31, 2004, will be
the last day to submit an application for a tax adjustment under the "fairness
provisions" for older years' tax returns.

What are the fairness provisions? Under the Income Tax Act, the Canada
Revenue Agency has the discretion to cancel any penalties or interest (but not
tax) you may be assessed, as well as to issue tax refunds beyond the normal
three-year period. The ability to do so was granted to the CRA by the
introduction of the fairness legislation in 1991.

The fairness rules were introduced to grant leniency to taxpayers who,
because of "extraordinary circumstances" beyond their control, are unable to
meet their tax obligations. What constitutes "extraordinary circumstances?" The
CRA has provided various examples, including natural disasters such as a flood
or fire, an error in a CRA guide, a postal strike or even financial hardship.

The original rules stated that taxpayers could go back to 1985 -- a date that
has been frozen since the original fairness provisions were introduced. Earlier
this year, in the federal budget, the government announced that a new, 10-year
window would be introduced for applications under the CRA's fairness program,
explaining that "administrative problems" could arise in trying to verify claims
made for tax years going as far back as 1985.

Under the new deadline, the CRA's discretion can only be exercised for
fairness requests for the 10 previous calendar years. Thus, you have until Dec.
31, 2004, to review your records and send in any requests for adjustments under
the fairness provisions for the 1985 to 1994 tax years. Beginning Jan. 1, 2005,
you can only make a request going back to as far as 1995.

The CRA has published several information circulars that provide guidelines
as to how the fairness rules will be applied. The circulars, which are available
at any local tax services office or online at, include IC 92-2,
"Guidelines for the Cancellation and Waiver of Interest and Penalties," and IC
92-3 -- "Guidelines for Refunds beyond the Normal Three-Year Period."

The program appears to be working. For example, the auditor general found
that the CRA cancelled $185-million in interest and penalties during the
12-month period ended March 31, 2001.

But, what if the CRA, in its discretion, denies your request for fairness?
Good news -- fairness decisions can be challenged in court through an
application for judicial review, which may lead to your decision being
reconsidered by the CRA.

A recent example was a case decided this past May involving Eleonara
Galetzka. She challenged the CRA's fairness decision, which denied her request
to cancel $13,000 of interest charges relating to $9,000 of taxes owing on her
1990 tax return.

While she repaid the total taxes owing, Ms. Galetzka claimed that she was
unable to pay the accumulated interest due to financial hardship, other existing
debts, the inability to obtain a further loan to clear her debt and her health
condition, which prevented her from getting another job.

For various reasons, the CRA denied her application for interest relief. The
judge objected, concluding that the CRA's decision was "patently unreasonable
and the only fair and reasonable decision is that the amount owing for interest
and penalty should be waived upon [Ms. Galetzka] paying $500 immediately as a
reasonable payment arrangement."

To make a fairness request, contact your local CRA office and provide them
with enough information to justify why you should be entitled to relief.