Barrs – Federal Court of Appeal finds that disproportionate interest could be cancelled by CRA to compensate for the s. 220(3.1) 10-year limitation and produce horizontal equity

A group of taxpayers, who were the victims of a tax fraud, i.e., purported partnerships giving rise to large reported losses in the mid-1980s where, in fact, the partnerships were non-existent, ultimately had their Tax Court actions decided against them in 2014. They sought relief in 2014 (in the case, for example, of Mr. Barrs), or in 2004 (in the case of the other group of taxpayers), for interest cancellation under s. 220(3.1). CRA ultimately cancelled approximately 15 years and 63 months of accrued interest for the 2004 and 2014 applications, respectively. The lower relief for the 2014 application was considered by CRA to reflect the application to those applicants of the prohibition, after a 2005 amendment to s. 220(3.1), to going back more than 10 years with interest relief. However, in their request for interest relief, the 2014 applicants requested the grant of a larger quantum of relief regarding the interest that had accrued within the 10 year period than for the 2004 applicants so as “to ensure equitable treatment with the other taxpayers who made their requests earlier.”

In finding that the relief-request of Mr. Barrs (being a member of the 2014 application group) should be remitted for re-determination by another CRA officer, Gleason JA found that:

• There was no prohibition against granting this request to provide more generous relief to Mr. Barrs regarding the interest that had accrued during the 10-year period than for the 2004 application group in order to, in a sense, make up for the unavailability of interest relief for the prior period to Mr. Barrs’ group.
• Mr. Barrs’ submission that it was equitable to do so was plausible given that both groups had “all invested in the same scheme and had their claims for interest relief examined by the same review officers based on the same facts.”
• Furthermore:

Given that the independent third-level review officer failed to engage with the request for greater relief in the open years to ensure equitable treatment, his decision must be set aside. … Failure to engage with an important argument advanced by a party will generally render an administrative decision unreasonable [citing Vavilov] … .

Neal Armstrong. Summary of Barrs v. Canada, 2022 FCA 147 under s. 220(3.1).