7 March 1996 Income Tax Severed Letter 1996FAIR - The Application of the Fairness Provisions to Penalty and Interest

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Memorandum To

All Assistant Deputy Ministers
Directors General, Headquarters
Regional Directors, Customs Border Services
Regional Directors, Trade Administration Services
Directors, Tax Services Offices
Director, International Taxation Office
Directors, Tax Centres
Assistant Directors, Tax Services Offices
Assistant Directors, Tax Centres
Chiefs of Appeals

Subject: Fairness Policy

Enclosed is the recently developed policy paper on “The Application of the Fairness Provisions to Penalty and Interest”.

This paper addresses the concerns raised by the Auditor General and Audit and Evaluation Services Division with respect to the Department's application of the fairness provisions.

The key policy and procedural recommendations contained in this paper have been endorsed by the Deputy Minister and by Revenue Canada's Policy Sub-Committee. The procedures and guidelines have been approved by the respective operational Branch Heads.

Any questions concerning the policy paper should be referred to the applicable functional area in Headquaters.

Sous-ministre adjoint
Cotisations et recouvrements

K.M. Burpee
Assistant Deputy Minister
Assessment and Collections

Attachment

p.j.

Application of the Fairness Provisions to Interest and Penalty

Introduction

The purpose of this document is to provide enhanced guidelines and revised procedures for the administration of the following legislative provisions which allow for the discretionary cancellation or waiver of interest and penalty:
• • Subsection 220(3.1) of theIncome Tax Act, applicable in respect of the 1985 and subsequent taxation years.
• • Section 3.3 of theCustoms Act.
• • Subsections 281.1(1) and (2) of theExcise Tax Act, with respect to penalties and interest payable under Section 280 of theExcise Tax Act.

For ease of reference these authorities will be referred to in this document as the fairness provisions.

It should be noted however, that these fairness provisions represent only one of the components of the Department's fairness initiative. For instance, the Income Tax business line introduced what has been termed the fairness package legislation in December of 1991. This legislation provided for extending the time limit to file an objection for individuals and testamentary trusts, streamlining the process by which clients could make a formal objection to an assessment, refunding amounts beyond the normal reassessment period and accepting requests to late file, amend or revoke certain elections. On November 25, 1992, as part of the Eight Point Plan, the Department announced that the GST legislation would be harmonized with the fairness policies under theIncome Tax Act. As a result, theExcise Tax Actwas amended to provide for the waiver or cancellation of penalty and interest. Representations have been made to the Department of Finance to amend theExcise Tax Actto address other components of the fairness package.

This text will address the waiver or cancellation of penalty and interest only.Where applicable, this document supersedes previous directives, guidelines and instructions issued.

Background

The fairness provisions were enacted in December of 1991, June of 1992 and June of 1993, for the Taxation, Customs and GST components of the Department respectively, allowing for the cancellation, reduction or waiver on a discretionary basis, of certain penalties and interest payable.

The Auditor General (A.G.) in his 1994 report to Parliament observed that Revenue Canada had not kept records that would enable the reporting of amounts of penalty and interest forgiven under the fairness provisions of theIncome Tax Actas required by theFinancial Administration Act. The A.G. recommended that systems for compiling such data and for tracking requests and decisions granted under the fairness provisions be developed and that the level of monitoring be increased to ensure the uniformity of application. In addition, the A.G. identified a need to enhance the application guidelines regarding the cancellation of penalty and interest to ensure the consistency of application of the fairness provisions throughout the Department.

In response to these concerns and other recommendations which were raised as a result of departmental internal audits of the application of the fairness provisions in the Tax and Excise/GST business lines, departmental senior managers formed a national fairness committee to address the issues. The committee was established to harmonize and clarify policy with respect to issues identified as causing inconsistency in the application of the fairness provisions and to enhance application guidelines. In addition, the committee was tasked to oversee the development and implementation of a departmental system involving all revenue lines to track fairness decisions and facilitate the reporting of amounts of interest and penalty forgiven under the fairness provisions.

The committee, with representation from all business lines, including Headquarters and all Regions, formulated policy and procedural modifications and enhancements to facilitate consistency in the application of the fairness provisions. Its key policy and procedural recommendations, as outlined in this directive, were endorsed by Revenue Canada's Policy Sub-Committee in June of 1995.

Note:

(Note—In order to complete the review of the accuracy and relevance of directives presently in the field and public information circulars and memoranda currently outstanding, each functional area will be reviewing the revised policy, and with respect to matters germane to their specialized interests, will issue additional guidelines as required.)

Purpose and Intent of the Fairness Provisions

The purpose of the fairness provisions is to provide a proper basis for exercising limited discretion in the cancellation or waiver of penalty and interest in whole or in part, in circumstances where it would be unreasonable or unfair to apply such charges. This discretion will generally be exercised where clients have not complied with a statutory requirement or have failed to pay or remit an amount when due because of extraordinary circumstances beyond their control.

Prior to the enactment of the fairness provisions, there was little or no discretion provided for in the various statutes administered by the Department with respect to the cancellation or waiver of penalty and interest, no matter what the client's circumstances or how these charges arose. This lack of discretion to assist clients in circumstances where it was unreasonable or inequitable to enforce penalty or interest charges, created difficulty for the Department in addressing such situations and resulted in many complaints pointing out the unfairness of the system. The fairness provisions now enable the Department to be more flexible and responsive to a client's circumstances where there is reasonable cause to cancel, reduce or waive penalty and interest.

The fairness provisions were designed to permit the Department to assist clients in resolving problems that arose through no fault of their own and to allow for a common sense approach in dealing with those who because of personal misfortune or circumstances beyond their control are unable to meet the Department's guidelines or comply with the legislation it administers.

Examples of Circumstances Where Waiver or Cancellation of Penalty and Interest May Be Warranted

As outlined in the Department's public information circulars and memoranda, examples of circumstances beyond a client's control which may have prevented a payment or remittance from being made when due and compliance with the legislation we administer may be summarized as follows:
• • natural or human-made disasters such as flood or fire;
• • civil disturbances or disruptions in services such as, a postal strike;
• • a serious illness or accident; or
• • serious emotional or mental distress such as, death in the immediate family.

Cancelling or waiving interest or penalty may also be appropriate if the interest or penalty arose primarily because of actions of the Department, such as:
• • erroneous information provided by Revenue Canada in the form of incorrect written answers or errors in published information, which led the client to file returns or make payments/remittances based on incorrect information;
• • processing delays which result in the client not being informed within a reasonable time that an amount was owing; and
• • delays in providing information necessary to meet the obligation such as the case where the client could not make the appropriate payments/remittances because the necessary publications or returns were not available.

In addition, the Department may consider waiving or cancelling the 6% penalty (GST) and interest charges including those that relate to the specified rate (Customs) in whole or in part, in circumstances where there is an inability to pay amounts owing. The intent of providing relief in such circumstances is to allow a means of easing the interest/penalty rate burden for those clients who want to comply with the payment provisions of the legislation we administer but are simply unable to do so because of circumstances beyond their control.

Accordingly, it may be appropriate to consider the waiver or cancellation of the 6% penalty and interest charges, including those relating to the specified rate of interest, in the following situations:
• • Where a temporary inability to pay has been caused by circumstances beyond the client's control, such as by the unexpected loss of employment and the client is experiencing financial hardship.
• • Where the charging of compound interest and/or the compound 6% penalty in the context of a long term payment arrangement would make it difficult for the client to resolve his/her account over time without creating financial hardship, due to a marginal ability to pay outside of the client's control.Essentially, this situation would apply where a client has made or agrees to make a bona fide effort to discharge arrears over a period of time but the interest or 6% penalty charges would absorb a significant portion of each payment.Consideration would normally be given to waiving interest and/or the 6% penalty in whole or in part from the time payments commence until the debt is retired, so long as the agreed upon payments are made on time.

There may also be isolated instances where consideration could be given to the cancellation or waiver of interest and/or the 6% penalty where the inability to pay appears to be of a permanent nature. For further information on this topic and for more detailed guidelines and instructions on the application of the fairness provisions to inability to pay situations, please refer to the directive entitled Waiver or Cancellation of Penalty and Interest Based on an Inability to Pay issued by the Accounts Receivable Division.

Note:

(Note—See Page 12 for additional information on the waiver or cancellation of interest/penalty based on an inability to pay.)

General Application Guidelines

As indicated above, the discretion to waive or cancel penalty and interest will generally be exercised where clients have not complied with a statutory requirement or have failed to pay or remit an amount when due because of extraordinary circumstances beyond their control.

The Department will generally not exercise discretion in the client's favour unless the client has taken a reasonable amount of care and diligence (e.g. planned for anticipated disruptions) in attempting to comply with requirements. If possible, efforts should have been made to avoid, or at least minimize, the delay in complying, paying or remitting amounts due. Any delay or omission should be remedied within a reasonable time after the client became aware of the delay or omission.

If the delay in payment or compliance arose through neglect or lack of awareness on the part of the client, the penalty or interest should not normally be cancelled or waived.

In this regard, the following factors should be considered when determining whether interest or penalty should be cancelled or waived:
• (a) Whether or not the client has a history of compliance with the legislation the Department administers.
• (b) Whether or not the client has knowingly allowed a balance to exist upon which arrears interest or penalty has accrued.
• (c) Whether or not the client has exercised a reasonable amount of care and diligence, and has not been negligent or careless in conducting their affairs under the self-assessment system.
• (d) Whether or not the client has acted quickly to remedy any delay or omission.

Each request for the application of the fairness provisions must be evaluated on its own merits. The comments under this part represent guidelines only. They are not intended to be exhaustive or to restrict the spirit or intent of the fairness provisions.

Evaluating Fairness Requests

i) -- Substantiation

A request for the cancellation or waiver of penalty or interest should normally be made in writing, explaining why the charges should be cancelled or waived and providing sufficient information and relevant documents where applicable, to support the claim.

Note:

(Note—An example of when a written request would not necessarily be required would be where the client has attended at the Tax Services Office and provided all relevant information and documents to enable a decision to be taken.)

The burden of proof to establish the extenuating circumstances or reasonable cause to grant a waiver or cancellation is generally upon the client. Supporting documentation might include death certificates, doctor's statements, insurance statements or other objective evidence. Advising clients to submit supporting documentation with their initial request will help ensure that correct determinations are made and limit the need for follow-up requests for additional information.

It is the responsibility of the person evaluating the request to determine whether the information provided is sufficient to make a determination or if additional information is needed. Supporting documentation may not be needed in all instances. In some situations a reasonable determination can be made solely on available information. For instance, if the available information substantially supports the client's request or if we are prepared to give the client the benefit of doubt, the request could be allowed without further documentation.

When additional information is needed to make a determination the client should be asked to supply same. It is suggested that we provide a reasonable time frame (i.e. 30 days) for submitting the information and advise the client that if the information is not received in that time period, the Department would have to deny the request.

ii) -- Other Considerations

• • Each case should be carefully analyzed to determine if waiver or cancellation is warranted.
• • The merit of each case should be determined based on the events or parties involved and whether or not the client exercised a reasonable amount of care and diligence in attempting to comply with requirements.
• • The client's reason for failing to comply should be examined to determine if the dates and explanations correspond with events on which the penalties or interest are based. If they do not correspond, requesting additional information from the client may be necessary to clarify the explanation.
• • Consider the length of time between the event cited as a reason for the non-compliance and subsequent compliance. For example, if the client claims that he/she was unable to comply due to a death in the family, the length of time between the death and subsequent compliance may serve to negate all or part of the event's effect.
• • Consider whether or not the client could have anticipated the event that caused the non-compliance and to what extent the non-compliance occurrence was within the client's control.
• • Consider the time frame involved for the client to remedy any delay or omission and the extent to which it was influenced by the extraordinary circumstances. Generally, relief granted would pertain to that period of delay directly attributable to the extraordinary circumstances.
• • Consider whether the actions of the client or lack thereof reflects what a reasonable person might be expected to do under comparable circumstances.
• • In determining whether or not reasonable care and diligence were exercised review the client's compliance and penalty history. The same type of penalty or interest charges previously assessed may indicate that the client is not exercising reasonable care in meeting his/her obligations under the legislation we administer.However, it should be emphasized that a client's compliance history should not be thesolebasis on which a fairness decision is taken. It is but one factor. The purpose or intent of weighing the compliance history when deliberating on a fairness request is to ascertain the client's credibility with the Department.

Examples of Common Reasons for Requesting Fairness Relief and Appropriate Considerations

Death, Serious Illness or Accident

Reason Given—There was a death, serious illness or accident of the client or a death or serious illness in his/her immediate family which prevented compliance.

In the case of a corporation, estate, trust etc., did the death or serious illness involve an individual (or a member of such an individual's immediate family) having sole authority to execute the return, make the deposit, pay the tax or remit amounts owing to Revenue Canada?

If someone else was authorized to meet the obligation, consider the reasons why that person did not meet the obligation when evaluating the request. In the case of a business, if only one person was authorized, determine whether this was in keeping with reasonable standards of care and diligence.

Additional information to consider when evaluating such a request includes but is not limited to the following, as applicable:
• (a) Relationship of parties involved.
• (b) Date of death.
• (c) Date(s) and nature of illness or accident.
• (d) Explanation as to how the event prevented compliance.
• (e) Explanation as to whether other business obligations were impaired.

Fire, Casualty, Natural Disaster or Other Disturbance

Reason Given—A fire, other casualty, natural disaster or other disturbance destroyed books and records or prevented compliance in some other way.

Information to consider when evaluating such a request includes but is not limited to the following, as it applies:
• (a) Dates and description of event.
• (b) Explanation as to how the event prevented compliance.
• (c) Explanation as to whether other means were explored to secure needed information.
• (d) Supporting documentation such as a copy of the police, fire or insurance report.

Erroneous Verbal Information Received From the Department

Reason—The client contends that he/she relied on erroneous verbal information that he/she received from a departmental employee.

Information to consider when evaluating such a request may include but is not limited to the following:
• (a) Did the client provide the Department with accurate and complete information?
• (b) Did the client exercise reasonable care and diligence in relying on the information?
• (c) Relationship between the client's situation, the information provided and the interest and penalty assessed.
• (d) The client's prior compliance history and prior experience with meeting legislative requirements.
• (e) Whether or not the client could have relied on other Departmental information that was readily available such as forms and publications.
• (f) Supporting documentation such as a copy of the client's question, the information provided by the Department, the office and method in which the information was obtained, the date the information was provided and the name of the employee who allegedly provided such information.
• (g) Departmental records of information given to the client, where available.

Note:

Note—It would be incumbent upon the client to provide sufficient details to corroborate their claim and enable the Department to establish the fact or probability that an error had been made. These details should include the date and name of the person who allegedly provided the incorrect information.

An allegation that incorrect information had been provided verbally without substantiation would not generally allow for favourable consideration to be given to a request for the application of the fairness provisions.

General Policy Considerations

Requests Involving Third Party Error

The responsibility for meeting obligations under the legislation we administer (e.g. filing a timely and accurate return) rests with the client. Consequently,client representative error should not be the sole basis for granting fairness relief. The client should generally be responsible where the third party errs.

It is noted that granting fairness relief in cases of client representative error could undermine the voluntary assessment system. It could remove an important incentive for practitioners and clients to meet the Department's deadlines and comply with its rules. Third parties who provide erroneous advice for a fee should normally be regarded as being responsible to the client where the client has suffered certain damages such as penalty or interest charges as a result of acting upon the advice provided.

Requests Involving Third Parties and Extraordinary Circumstances

An extraordinary circumstance beyond the control of a client's representativewhich prevented the client from complying with the legislation we administer can be a basis for granting fairness relief.

Generally, in such situations fairness relief may be provided when:
• i) the extraordinary circumstances can be verified or substantiated and;
• ii) it is reasonable to conclude that the delay in complying with the law could not be avoided by the client's representative or firm because of the extraordinary circumstances.

Ignorance of the Law

Generally, ignorance of the law or client error should not be used as thesolebasis for granting relief under the fairness provisions.

Where information on a client's obligations, departmental policies, and procedures is available publicly, the onus is on our clients to avail themselves of such information and to make every reasonable effort to comply.

As previously indicated, if the delay in compliance or in making a payment/remittance arose through neglect, carelessness or lack of awareness on the part of the client, the penalty or interest should not normally be cancelled or waived.

Administrative Policies

There are certain “blanket” administrative policies in effect which are germane to particular lines of business. They provide for the waiving of penalties and/or interest for all clients in the same manner under specific circumstances. For example, system tolerance levels which permit a period of grace for receipt of payments before interest is automatically charged to our clients. Such “blanket” administrative relief policies are not accounted for under fairness and remain the responsibility of the applicable functional authorities to administer.

GST Policy for New Registrants

It is noted that the GST policy for new registrants during the start up phase of GST operations, provides for the waiver or cancellation of penalty and/or interest charges incurred during the first year of GST registration (1991/1992), where there was a lack of familiarity with specific requirements of theExcise Tax Act, because the person encountered difficulties in obtaining the information required to properly account for the GST. In considering such requests, it must be kept in mind that the registrant was obligated to make a reasonable effort to comply and that the administration of this tax has been in place for a number of years and should now be understood by our clients.

Waiver or Cancellation of Interest Relating to Amounts Held in Trust

Some field offices are reluctant to waive or cancel interest under the fairness provisions on source deduction or GST accounts with balances representing deemed trust amounts which have not been remitted, such as amounts collected or deemed deducted.

The fact that amounts are deemed to be held in trust should not be thesolebasis for denying a request under the fairness provisions. If a client meets the criteria for fairness it should be granted whether or not trust funds are involved.

For example, waiver or cancellation may be considered in cases of legitimate financial hardship, where the continuity of business operations and the continued employment of the firm's employees are unnecessarily jeopardized, because of circumstances beyond the control of the client.

Waiver or Cancellation of Accrued Penalty and Interest on Erroneous Refunds Issued

For the purpose of this paper, the term erroneous refund relates to a situation where the Department has made a mistake in issuing a cheque to a client for a greater amount than the client is entitled to without justification, foundation or rationale. For example, where a refund cheque in the amount of $1,000.00 is mistakenly issued for $10,000.00 due to a keystroke error.

The question of whether or not to waive or cancel penalty and interest that has accrued on a refund which was issued to a client in error would need to be decided based on the facts of each individual case.

The main considerations in deliberating on such requests would be:
• i) Whether the client has taken a reasonable amount of care in attempting to resolve the situation.
• ii) Whether the client acted in a timely manner to bring the matter to the Department's attention.
• ii) Whether it would have been clear to the client that an error had been made and that he/she was not entitled to the funds.

While each case must be evaluated on its own merit, the client is expected to report the occurrence to the Department within a reasonable time after becoming aware of the error, to qualify for total interest and penalty relief.

Cancellation or Waiver of Interest/Penalty to Settle Debt

The fairness provisions were not intended and should not be used to negotiate settlements of debt.

Rather, the waiver or cancellation of interest and penalty should generally be considered only in situations where:
• i) extraordinary circumstances beyond the control of the client prevented compliance or;
• ii) legitimate financial hardship prevents payment of a liability in full.

Note:

(Note—such cases are to be decided in accordance with established departmental guidelines. See below for a discussion of the waiver or cancellation of penalty where there is an inability to pay amounts owing. For further information on the application of the fairness provisions to inability to pay situations, please refer to the directive entitled Waiver or Cancellation of Penalty and Interest Based on an Inability to Pay issued by the Accounts Receivable Division.)

Cancellation or Waiver of Penalty Based on an Inability to Pay

Penalties are an important incentive to encourage voluntary compliance and to ensure the consistent treatment of clients under the self-assessment system. There are essentially two types of penalties levied by the Department. These are:
• i) On-going penalty or interest rate premiums amounting to additional interest being added to the normal or prescribed rate of interest. (e.g. the specified rate (Customs) and the penalty rate (GST)).
• ii) One time penalties which do not increase after assessment, such as percentage rate penalties (e.g. 10% late remitting penalty) or fixed dollar amount penalties.(e.g. $100.00 late filing penalty).

Note:

(Note—For GST purposes, the Excise Tax Act does not currently provide the Department with the discretion to waive or cancel this type of penalty.)

Given their nature, the specified rate (Customs) and the 6% penalty rate (GST) should be considered eligible for waiver or cancellation based on an inability to pay, in the same manner as prescribed (regular) interest charges.

On the other hand, the waiver or cancellation of one time penalties (see ii. above) should generally not be considered basedsolelyon an inability to pay. However, it is recognized that there may be very exceptional situations where it would be in the public interest for management to consider providing relief based on an inability to pay, such as:
• i) Where extreme financial hardship exists to the extent that the continuity of business operations and the continued employment of a firm's employees may be unnecessarily jeopardized by enforcement of the penalty charges; or
• ii) Where the severity of the penalty does not fit the non-compliance occurrence and threatens the continuity of business operations.
• For instance, Customs levies penalties for late accounting transactions. Each late filed transaction can attract a penalty of $100.00. If a broker were to be late in filing a batch of say 5,000 transactions, the penalty could be substantial and could conceivably jeopardize the continuity of operations.

The levy of gross negligence penalties is indicative of negligence and of the absence of care and diligence in the conduct of business affairs. Given their nature,gross negligence penalties assessed should not be waived or cancelled under the fairness provisions based solely on an inability to pay.

Cancellation or Waiver of Interest/Penalty on Amounts Held by a Third Party

There will be situations where a third party will have collected money or have held money on a person's behalf and not remitted it to the Department on a timely basis, due to extenuating circumstances beyond their control.

A third party is a person who collects taxes or duties and remits those amounts on behalf of another person. Generally, the third party is not required by law to collect and remit these amounts. For example, a third party would include a broker who collects taxes and duties from an importer and holds those amounts until they are required to be remitted by the importer, at which time the broker remits those amounts on the importer's behalf. For GST purposes, a third party does not include a person who is an agent of a principal.

While it is our practice to waive or cancel the 6% penalty in the GST business line and the specified (penalty) rate of interest in the Customs business line in such situations, there is a question of how the prescribed rate (GST) or regular rate (Customs) of interest should be treated. While every case must be evaluated on its own merit, the following guidelines are suggested:
• i) Generally,where the third party is a business that has had the use of fundscollected or has benefited from holding such funds, the prescribed rate or regular rate of interest should not be waived or cancelled.
• ii)Where the third party is an individual (not a business), the prescribed rate or basic rate of interestshould be waived or cancelledfor the period of delay directly attributable to the extraordinary circumstances.

In any case, the prescribed rate or regular rate of interest should be waived or cancelled where a departmental error or delay caused the failure to meet the obligations, such as where the third party followed incorrect written departmental information or where there was a departmental systems failure which prevented compliance.

Partial Cancellation or Waiver of Penalty and Interest

Where the delay in compliance is only partly attributable to circumstances beyond the control of the client, it is suggested that penalty or interest relief be granted for the period of delay directly attributable to the extraordinary circumstances.

Application to Years Prior to 1985 for the Income Tax Business Line

Subsection 220(3.1) of theIncome Tax Actis applicable in respect of the 1985 and subsequent taxation years only. Subsection 220(3.1) has no application to interest charged in 1985 and subsequent years, on tax debts assessed but unpaid for taxation years prior to the 1985 taxation year. For example:
• • Interest which accrued in the 1995 calendar year on a 1983 T-1 liability would not qualify for relief under the fairness provisions.
• • A late filing penalty in respect of a 1984 T-1 return, first assessed in 1986, could not be cancelled under subsection 220(3.1).

It is noted however, that requests for the waiver or cancellation of interest, penalty or tax in respect of taxation years prior to 1985 could be considered for remission by the Department pursuant to subsection 23(2) of theFinancial Administration Act.

Reinstatement of Cancelled Interest or Penalty—Tax Business Line

Once interest or penalty has been waived or cancelled, it generally cannot be reinstated as there is no provision in theIncome Tax Actwhich would allow reinstatement. Moreover, even if interest could be reinstated, in most cases it would be inappropriate to do so once the cancellation or waiver had been acceded to.

The Administrative Process

Role of Fairness Committees

The makeup and number of fairness committees in operation will continue to be at the discretion of local/regional management. Each committee should be chaired by a member of the local management team. Where a Tax Services Office has established one committee for its office or where a committee has been formed in the Revenue Collections Division, a manager from the Revenue Collections Division should be on the committee.

The use of fairness committees promotes the uniform application of the fairness provisions. However, in view of the costs of these committees in terms of time and resources and the experience gained by the Department in administering the fairness provisions, it is suggested that such committees now be used on a more selective basis to consider only the following type of items:
• • complex, precedent setting, sensitive or higher dollar requests.
• • requests for a second review of items denied at the first level of supervision (See comments below on the approval/denial process).
• • requests based on an inability to pay involving more than ***in penalty and/or interest.

To ensure there is consistency in the decisions made there should be continuity in the membership of the committee. Where more than one committee has been created in a field office, it is important that there be a dialogue between review committees. Similarly, to ensure consistency, members should liaise with their regional counterparts and local management on an ongoing basis.

Fairness committees should conduct periodic reviews of decisions made by the first level of supervision to ensure accountability, uniformity and consistency in the decision making process. It is also suggested that they be called upon to provide guidance to the first level of supervision where required.

Note:

(Note—Committees for Tax or GST would be located at Tax Services Offices or Tax Centres. Committees for Customs would be located at the offices of the Regional Director of Border Services and Director/Manager of Trade Administration Services.)

Approval/Denial Process—Original Requests

The majority of fairness requests received have been found to be straightforward and involve amounts less than $1,000.00. In view of this and given the experience gained in handling such requests it has been decided to streamline the approval/denial process by lowering the decision making level for these types of requests.

At the discretion of the local Director, approvals and denials of original requests to waive, cancel or reduce interest and penalty charges under the fairness provisions may now be approved or denied at the first level of supervision for the following items:
• i) Requests based upon departmental error, departmental delay, or extraordinary circumstances where the facts of the case are straightforward and the dollar amounts are not significant.
• ii) Requests of a non-complex nature ******
• (iii) Requests based upon an inability to pay involving less than ***in penalty and interest which are otherwise consider to be of a non-complex nature.

Note:

(Note—In the case of the $100.00 late accounting penalty for Customs, Headquarters will issue further guidelines.)

Except as indicated in point iii), it will be up to local senior management in each office to set the dollar thresholds and parameters for the approval/denial of items referred to the first level of supervision. Such dollar thresholds are to be determined based on local needs in collaboration with the Assistant Deputy Ministers—Regional Operations.

It is recognized that requests from clients may be of a sensitive or complex nature. Such requests should continue to be reviewed by a fairness committeeand be approved/denied by a member of the local management team who would act as the chair of the committee.

These requests include:
• • Complex cases of a sensitive or precedent setting nature or those which involve decisions affecting multiple jurisdictions (local, regional or national cases).
• • High dollar items. (Note—dollar thresholds are to be established by local management in collaboration with the Assistant Deputy Ministers -Regional Operations)
• • Sensitive items (regardless of dollar value). ******or; cases where a community or group of people may suffer should an unfavourable decision be taken.
• • Requests based upon an inability to pay involving more than ***in interest/penalty.

Note:

(Note—The ***signing authority level is consistent with the policy for uncollectible debt write offs in Tax Services Offices and recognizes that inability to pay situations often involve a greater degree of complexity and analysis in the decision making process.)

Approval/Denial Process—Second Reviews

For items decided at the first level of supervision, requests from a client for a second review of a fairness decision should go to a fairness committee chaired by a member of the management team and involve the Director or senior manager of the office.

However, if the client provides new information, the request may go back to the original decision maker for consideration, rather than to the committee. If the original decision maker still feels that fairness relief should not be granted, the request should go for review to a fairness committee.

All denials in respect of second review requests should be made independently of the original decision maker and be communicated under the personal signature of a member of the fairness committee empowered under theIncome Tax Regulationsor the Ministerial Delegation of Authority, to exercise the Minister's discretion.

For items previously decided by a fairness committee chaired by a member of the management team, requests from a client for a second review should go via the fairness committee to the Director of the Tax Services Office or Tax Centre to ensure his/her direct involvement with the decision. Denials at this level should be decided by the Director and communicated under his/her personal signature.

For Customs offices, requests for a second review of items previously decided by a fairness committee should go via the fairness committee to an independent and impartial senior manager within the office (Office of the Regional Director of Border Services and Office of the Director/Manager of Trade Administration Services). In offices where there is no independent manager available to decide the request, the second level review should be conducted by another office.

Communicating an Unfavourable Decision

There is no statutory right of objection or appeal from a fairness decision. However, as a matter of policy, where a client does not believe that the Department has exercised its discretion in a fair and reasonable manner a second impartial review of the decision may be requested in writing.

When a fairness request for the cancellation or waiver of interest and penalty is being denied in whole or in part the client should be advised in writing of the denial. The correspondence should include:
• (a) An indication that the decision was made after considering the request or submission, the facts of the case and the legislation involved.
• (b) The basis or reason for the denial.
• (c) An advisement that a second impartial review of the decision may be requested in writing should the client feel the Department has not exercised its discretion in the matter in a fair and reasonable manner.
• As an alternative, the written reply could refer to the Department's administrative review process outlined in paragraph 14 of I.C.and/or paragraph 15 of GST Memorandum 500-3-2-1 for the Tax and GST business lines respectively. A copy of the circular and/or memorandum can be attached to the reply.

Note:

Note—In the absence of a statutory right of objection or appeal, the intent of such an advisement is to promote openness, equity and impartiality in administering the fairness provisions.

• (d) The name, position and telephone number of the officer handling the case along with an invitation to contact him or her should the client wish to discuss the matter further.

Enclosed as exhibits A & B are examples of paragraphs that include the above mentioned points, which may be inserted with the appropriate modifications into client correspondence. Responses must of course be personalized to fit the client's particular situation.

Advising Clients of Recourse to a Judicial Review

A judicial review of any discretionary decision made by the federal government from which there is no right of appeal, may be applied for pursuant to Section 18.1 of theFederal Court Act, within 30 days from the date notification of the discretionary decision is communicated.

Essentially, the Court conducting a judicial review will not substitute its decision for that of the authorized official who exercised the discretion, even if the Court, on the facts would have exercised the discretion differently. However, the Court would be expected to focus its review on whether discretion was properly exercised. Where it is found that discretion was not properly exercised, the Court could be expected to refer the matter back to the Department for reconsideration.

Clients should be advised of possible redress from an unfavourable fairness decision through the Courts only where such information is requested following an unfavourable decision from a second review. Clients seeking information on the judicial review process should be directed to the Registrar of the Federal Court for information.

Proper Exercise of Discretion

Where a request for the application of the fairness provisions is being considered, the person exercising the Minister's discretionary authority must personally review all relevant documentation such as the client's submission, and exercise discretion in the making of a decision.

The official exercising discretion may have regard to departmental guidelines, which provide assistance as to the circumstances in which the request should be, or should not be, granted. However, the official may not refuse to consider a request on the basis that it does not fall within the guidelines. The discretion must in fact be exercised and a decision made as to whether the request constitutes an appropriate one to waive or cancel penalty and interest. ***

***Discretion must be exercised on the basis of all relevant considerations, including departmental guidelines, the specific circumstances which gave rise to the request, and submissions made by the person in the course of dealing with the request.

In this regard, when deliberating on a request it is important that:
• i) All correspondence and notes of telephone conversations with the client concerning the request, together with the client's file or a summary of the facts relative to the request, be made available to and be reviewed by the person exercising the discretion.
• ii) The person exercising the discretion read and consider the submissions of the client together with the recommendation and summary of the pertinent facts of the matter from the review committee or preparer of the recommendation.
• iii) The preparer of the recommendation be available to the person exercising the discretion to answer any questions which might arise concerning the appropriateness of the recommendation.

Delegation of Authority

***

***

***

Organizational Roles/Responsibilities

Systems Development

Requests for fairness relief may be received and actioned by many different divisions and at varying levels within the organization. Given the current lack of a tracking system, difficulties have been encountered on occasion with respect to multiple or follow up requests being forwarded by the same client to more than one office or division.

In order to address such difficulties and to meet the reporting requirements of theFinancial Administration Actfor reporting amounts forgiven under the fairness provisions, system enhancements to track fairness requests and to capture financial information for reporting annually in the Public Accounts, are scheduled to be on line for April 1, 1996. These enhancements include:
• • A single on-line registry system to track client requests for the cancellation/reduction of penalty and interest for all revenue types administered by the Excise/GST and Tax business lines.The registry will facilitate the tracking, control and operational review of fairness decisions on a local, regional and national basis throughout the Department.
• • Capturing of financial data from all of Revenue Canada's business lines to produce annual information to Public Accounts as required by theFinancial Administration Act, and to provide managers with timely information on fairness adjustments processed to client's accounts.

Note:

(Note: A separate directive explaining these enhancements will be issued to all affected areas prior to the implementation date of April 1, 1996.)

Where fairness requests are received from the same client in respect of more than one revenue type or involving more than one line of business, it is important that there be a coordinated approach to evaluating and deciding the matter, to ensure the uniform application of the fairness provisions.

It is noted that the fairness on-line registry system will enable the identification of other fairness requests received from the same client on a local, regional and national basis. This will facilitate the coordination of replies.

Role of the Appeals Branch

Appeals Divisions will be responsible for handling fairness requests that are related to an objection or appeal. All other requests received should be transferred to the applicable functional area for processing.

Requests for interest or penalty relief on the basis of an inability to pay related to an objection or appeal will be forwarded to Collections for reply. Such requests will be held in abeyance by Collections pending the outcome of the appeal process and the final determination of amounts owing. Clients should be advised that their requests will be considered once their objection or appeal has been finalized.

Role of the Collections Area

Fairness requests based solely on an inability to pay should be reviewed exclusively by the Collection areas of the organization.

Documentation

Documentation relating to the fairness decision such as a copy of the cancellation or waiver of interest authorization form (fact sheet), the clients request and the Department's response, should be retained on file in accordance with existing operating procedures for each area.

It is important that such documentation be available should a request for a judicial review of an unfavourable fairness decision be brought against the Department. Documentation relating to a previous fairness decision may also be useful in considering subsequent requests from the same client or in evaluating requests for a second review of a fairness decision.

National/Regional/Local Operational Review

Field office Directors will retain the overall responsibility for the application of the fairness provisions within their offices.

In this regard, it is suggested that field office Directors ensure that operational review plans are in place locally.

Similarly, in an on-going effort to ensure national consistency and uniformity of decisions, and to facilitate the natural evolution of policy and procedural guidelines, some Headquarters functional areas and the Regional Offices with the assistance of Internal Audit and Evaluation Services Division are developing operational review plans for implementation during the 1996/97 fiscal year.

It is noted that Headquarters operational review plans will focus on the development and evaluation of policies and procedures and national consistency in the application of the fairness provisions.

-- Example of a Denial Letter

Mr. John Doe
123 Any Street
Someplace, New Brunswick

Dear Mr. Doe:

Re: Account Number ..........

I am writing in response to your letter of September 15, 1995, concerning the penalties and interest charged to the account of ABC Company Ltd.

I have noted your comments with regard to the late filing of your returns, and carefully considered the facts of the case and your submission in relation to the applicable legislation. As your correspondence indicates that you were not prevented from filing your returns on time, I have concluded that this is not a case in which it would be appropriate to cancel penalties and interest. I regret that the decision could not be more favourable.

Enclosed for your information is a copy of Information Circular #, which outlines the guidelines that Revenue Canada follows when considering requests to waive or cancel interest and penalties. Your attention is drawn to paragraph 14 of the circular which describes the Department's administrative review process.
• or

As outlined in the Department's public Information Circular #, a person who believes the Department has not exercised its discretion in a fair and reasonable manner may request in writing that the director of a Tax Centre or Tax Services Office initiate a second independent review of the decision.

Should you have any further questions, please do not hesitate to contact Mr. .......... (state position). He is aware of our correspondence and can be reached at ...........

(signature)

Position Title
.......... Tax Services Office

-- Example of a Denial Letter

Mr. John Doe
123 Any Street
Someplace, New Brunswick

Dear Mr. Doe:

Re: Account Number ..........

I am writing in response to your letter of September 15, 1995, concerning the penalties and interest charged to the account of ABC Company Ltd.

I have noted your comments with regard to the late filing of your returns, and carefully considered the facts of the case and your submission in relation to the applicable legislation. As your correspondence indicates that you were not prevented from filing your returns on time, I have concluded that this is not a case in which it would be appropriate to cancel penalties and interest. I regret that the decision could not be more favourable.

Enclosed for your information is a copy of GST Memorandum 500-3-2-1, which outlines the guidelines that Revenue Canada follows when considering requests to waive or cancel interest and penalties. Your attention is drawn to paragraph 15 of the Memorandum which describes the Department's administrative review process.
• or

As outlined in GST Memorandum 500-3-2-1, a person who believes the Department has not exercised its discretion in a fair and reasonable manner may request in writing that the director of a local Tax Services Office or Excise/GST Office initiate a second independent review of the decision.

Should you have any further questions, please do not hesitate to contact Mr. .......... (state position). He is aware of our correspondence and can be reached at ...........

(signature)

Position Title
.......... Tax Services Office