Section 220

Subsection 220(1) - Minister’s duty


Canada (Attorney General) v. Collins Family Trust, 2022 SCC 26

s. 220 required the Minister to assess based on new judicial interpretation

Following the Sommerer decision, which caused a tax plan to cease to work, the Minister assessed trusts on the basis that dividends paid by corporations to trusts (which had been anticipated to be received free of tax) were taxable. In finding that the Minister was bound to take this action, Brown J stated (at paras. 25-26):

By s. 220(1) of the Act, Parliament has imposed upon the Minister a duty (“[t]he Minister shall”) to “administer and enforce” the Act. No discretion is afforded the Minister or the Minister’s agents: “They are required to follow [the Act] absolutely, just as taxpayers are also required to obey it as it stands” (Harris … .

[T]he Minister was bound to apply Parliament’s direction in the Act, as interpreted by a court of law, unless and until that interpretation is judged to be incorrect by a higher court.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Rectification & Rescission courts cannot exercise their equitable jurisdiction to reverse or alter a completed transaction to avoid unintended tax consequences 360
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) Minister required to assess based on an unexpected case law development 365

Scotia Mortgage Corporation v Gladu, 2017 BCSC 1182

no jurisdiction to declare that a vendor was a Canadian resident for s. 116 purposes

The petitioners, who as mortgagees had foreclosed on properties of non-resident debtors, petitioned by Court for a declaration that a purchaser acquiring the property from them would not thereby be acquiring the property from a non‑resident person so that for the purpose of s. 116(5), such property would not be "acquired from a non‑resident person." In this regard they relied (para. 25) on the proposition that “foreclosure law in British Columbia makes clear that upon a foreclosure, the mortgagee holds the legal estate to the land, subject only to the mortgagor's right of redemption, and so the mortgagee, not the mortgagor, is the vendor of the property to a subsequent purchaser.”

In finding that he lacked the jurisdiction to make this declaration, Macintosh J stated (at paras 9, 28):

If the requested declarations are to have any practical effect, the Petitioners intend that they would bind the Minister of National Revenue in her administration and enforcement of the ITA pursuant to s. 220(1) of that legislation.

[quoting at para. 15 from Felsen Foundation v. Jabs Construction, 98 D.T.C. 6454 (BCSC) at para. 7:] “This Court is not in the business of deciding issues solely for the purposes of instructing other courts."

… The petitions before me are directed exclusively at the interpretation of the Income Tax Act for the sole eventual purpose of determining whether there needs to be a remission to the Receiver General of the 25 per cent tax applicable to non‑residents under s. 116(5) of the ITA.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 116 - Subsection 116(5) mortgagees of foreclosed property denied declaration that they were the vendors for s. 116 purposes 135

The Queen v. Optical Recording Laboratories Inc., 90 DTC 6647, [1990] 2 CTC 524 (FCA)

The Minister has the power to enter into arrangements to give a taxpayer time for the payment of taxes which are currently due or, in this case, permitting the taxpayer to satisfy the Minister that Part VIII tax obligations of the taxpayer will be eliminated by year-end.

See Also

R. v. I.R.C., Ex parte Preston, [1984] BTC 353 (C.A.)

"Although the Inland Revenue have a duty 'to collect and cause to be collected every part of inland revenue ... .' ... . they have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge the highest net return that is practicable having regard to staff available to them and the cost of collection." The exercise of such managerial discretion is not subject to judicial review unless what was done amounted to an abuse of power.

The decision of Revenue to set in motion a procedure for cancellation of tax advantages after having agreed with the taxpayer not to do so was reasonable having regard to the taxpayer's omission to make full disclosure to Special Investigations at the time of entering into the agreement.

Subsection 220(2.1) - Waiver of filing of documents


Walsh v. Canada (Attorney General), 2018 FCA 229

denial of interest relief for a taxpayer who held off paying an assessment pending the resolution of a similar (departure trade) case

In 1998, the appellant entered into a departure trade transaction with a Canadian bank (“CIBC”), which was designed to create an interest deduction to reduce the tax payable by him under s. 128.1(4) on his emigration from Canada. He borrowed $695 million from CIBC so as to generate an interest deduction for the period prior to the departure, with the borrowed money simultaneously being reinvested with CIBC – but with the return thereon not being taxable to him prior to his departure due to the reinvestment occurring “through” intermediate Caymans companies who issued preferred shares rather than debt to him.

In 2002, his 1998 return was reassessed to deny the $47 million interest deduction claimed therein and to increase the reported capital gain arising under s. 128.1(4). In May 2006, his 1999 return was reassessed to include over $54 million in income based on the view that he had not ceased to be a Canadian resident in 1998, contrary to the s. 128.1(4) reassessment in 2002. In June 2006, the Tax Court upheld the Minister’s denial of interest deduction in another departure trade case (Grant), subsequently affirmed. In 2010, the appellant settled his claim on the basis that he was not entitled to the interest deduction (as in Grant).

The appellant requested interest relief for the period from the 1999 reassessment to either the final disposition of Grant by the Supreme Court or the date of the final settlement agreement. In affirming the decision below that the decision of the Minister’s delegate to deny such relief had not been established to be unreasonable, Near JA first stated (at para. 6)

We are unconvinced that the inconsistent reassessments were extraordinary circumstances or outside the appellant’s control. While the appellant was subject to the Canada Revenue Agency’s (CRA’s) policy of not making downward assessments until the upward assessment was resolved, this did not prevent him from beginning to address his tax debt.

He went on to note that the appellant had failed to address CRA’s request for additional information to determine whether (as reflected in the 1999 reassessment) he in fact had remained a resident of Canada.

Near JA further stated (at para. 7):

In addition, the appellant has not established that there was undue delay by the Crown or CRA. The appellant suggests that his matters were “effectively” held in abeyance pending Grant, but offers no evidence that any such agreement existed or, more importantly, would have the effect of suspending interest. … Telfer stated that a taxpayer who knowingly fails to pay a tax debt pending a decision in a related case “normally cannot complain that they should not have to pay interest” …. . [T]he appellant had a number of options available to reduce his interest exposure.

Bonnybrook Industrial Park Development Co. Ltd. v. Canada (National Revenue), 2018 FCA 136

failure of the Minister, on application for s. 220(3) relief, to consider the request for s. 220(2.1) relief

In 2015, Bonnybrook, a private corporation, disclosed unreported income under the voluntary disclosure program by filing income tax returns for its 2003 and subsequent taxation years. In assessing these returns, the Minister denied its claim for dividend refunds for the 2003 to 2011 taxation years on the basis that Bonnybrook had not filed those returns within three years as required by s. 129(1). Bonnybrook then applied for relief under s. 220(2.1) (for a waiver of the s. 129(1) requirement to file a corporate return within three years), under s. 220(3) (for an extension of this three-year deadline) and under s. 220(3.1) (for relief from penalties and interest). The Minister’s response ignored the s. 220(2.1) request and denied the s. 220(3) request for conclusory reasons.

In finding (at para 19) that the Federal Court below had erred in finding that it lacked jurisdiction to review these decisions of the Minister, Woods JA stated:

The Tax Court’s jurisdiction is limited by statute, and in income tax matters its jurisdiction is generally limited to hearing appeals concerning the correctness of assessments. Its jurisdiction does not extend to judicial review of decisions of the Minister under discretionary relief provisions of the Act … .

Respecting the failure of the Minister to consider the s. 220(2.1) request, Woods JA stated (at para. 30):

There is no evidence that the Minister gave any consideration to the request for a waiver pursuant subsection 220(2.1). In light of this, it is appropriate to remit the matter back to the Minister for consideration.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3) Minister had the discretion under s. 220(3) to extend the time for applying for a dividend refund 545
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1) CRA had discretion to extend 3-year deadline 142

Canada (National Revenue) v. ConocoPhillips Canada Resources Corp., 2017 FCA 243

CRA has no ability to use the s. 220(2.1) waiver to extend the period for filing a Notice of Objection

The taxpayer (“ConocoPhillips”) claimed that it did not learn about a reassessment of its 2000 taxation year (which nullified a previous reassessment for the same year which it had validly objected to) until more than a year after it had been mailed. Its Notice of Objection to the subsequent reassessment was rejected by the Minister on the grounds of untimeliness. In addition to other proceedings (see the FCTD summary), ConocoPhillips requested that the Minister waive, pursuant to s. 220(2.1), the requirement to file a notice of objection in respect of its 2000 taxation year, which the Minister’s delegate denied on the basis that “the Minister does not have the discretion under subsection 220(2.1)… to waive the obligation to serve a notice of objection.”

In reversing the finding of Boswell J below that the Minister indeed had such discretion, Woods JA stated (at paras 41, 42):

The Minister is prohibited by the statute from granting an extension unless the conditions specified in subsection 166.1(7) have been satisfied. …

… [T]he Minister may not extend the time under this provision unless the application has been made within one year. This condition is strict, and it could lead to unfairness, but it is clear from the detailed language of the provision that this is intentional.

Woods JA further found (at paras 47, 48 and 52):

The relief that ConocoPhillips seeks is to use the general waiver provision in subsection 220(2.1) … in order to engage the objection process without having to comply with its statutory conditions. The effect of the application of subsection 220(2.1) in this manner would give the Minister a power that the Minister has been denied in a detailed provision in subsection 166.1(7).

The general waiver provision cannot be applied in this manner to override a more specific provision. …

... Parliament did not intend that subsection 220(2.1) act as a safety value for objections. A taxpayer is intended to be either in or out of the objections regime.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 166.1 - Subsection 166.1(7) - Paragraph 166.1(7)(a) Parliament intended a strict one-year limitation 113
Tax Topics - Statutory Interpretation - Specific v. General Provisions specific time limitation rule in s. 166.1 was implied exception to the general waiver rule in s. 220(2.1) 289

ConocoPhillips Canada Resources Corp. v. Canada (National Revenue), 2016 DTC 5016 [at 6588], 2016 FC 98, 2017 FCA 243 rev'd

discretion under s. 220(2.1) to waive filing a Notice of Objection

The taxpayer (“ConocoPhillips”) claimed that it did not learn about a reassessment of its 2000 taxation year (which nullified a previous reassessment for the 2000 year which it had validly objected to) allegedly mailed on November 7, 2008 until April 14, 2010. Its Notice of Objection dated June 7, 2010 was rejected by the Minister on the grounds of untimeliness, and a decision of the Federal Court (2013 FC 1192) setting aside the decision of the Minister not to consider the objection was reversed by the Federal Court of Appeal (2014 FCA 297) on the grounds that its proper recourse was to appeal to the Tax Court under s. 169(1)(b) and demonstrate that its notice of objection was filed on a timely basis. Meanwhile, ConocoPhillips requested that the Minister, under s. 220(2.1), waive the requirement to file a notice of objection in respect of its 2000 tax year, which the Minister’s delegate denied on the basis that “the Minister does not have the discretion under subsection 220(2.1)… to waive the obligation to serve a notice of objection.”

In finding that the Minister had such discretion under s. 220(2.1), and before directing that the Minister reconsider the requested waiver, Boswell J stated (at paras. 49, 56):

The Minister’s arguments as to differences between the use of the word “file” [in s. 220(2.1)] and “serve” [in s. 165(1)] are not persuasive. The fact a notice of objection may be served should not prevent subsection 220(2.1) from applying to notices of objection. …

[T]he purpose of subsection 220(2.1) is to blunt the unfairness that sometimes arises by strict application of the filing and notice requirements in the ITA. The Minister’s discretionary power under subsection 220(2.1) should not be unduly limited or fettered through an unduly narrow interpretation which the Minister unreasonably adopted and applied in this case. …

Respecting an argument of the Minister (at paras. 57-58) that “subsection 165(3) explicitly requires a notice of objection before there can be a reassessment” and that “the discretion to waive a notice of objection under subsection 220(2.1) would be nonsensical due to lack of a remedy,” he stated (at paras. 58-59):

Subsection 165(3) does not state that without a notice of objection, the Minister shall not or cannot reconsider an assessment, and there are situations under the ITA where the Minister is explicitly given the power to reassess without a notice of objection. …

Moreover, subsection 220(2.1) specifically enables the Minister to request a document that has been waived. If the Minister does waive the requirement for a notice of objection, a notice of objection could subsequently be requested by the Minister and a reassessment could occur. …[S]hould the Minister in this case unreasonably refuse to exercise her jurisdiction and authority to waive the requirement for a notice of objection, ConocoPhillips could then challenge that refusal by way of judicial review in this Court.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 165 - Subsection 165(1) Minister can consider reassessment without Notice of Objection 216
Tax Topics - Statutory Interpretation - French and English Version ambiguity in French version resolved through English version 222

Bul River Mineral Corporation Ltd. v. Canada (Minister of National Revenue), 2006 DTC 6048, 2006 FC 41

S. 47(1) of the Income Tax Act (BC) provided that s. 220(2.1) of the Act applied for the purposes of the former Act. The Minister was not permitted to revoke a waiver given by the Calgary office to the taxpayer on the basis that the waiver should have been given by the Vancouver office.

Administrative Policy

9 July 2015 External T.I. 2013-0475421E5 - Section 94.2

potential relief from penalties where insufficient data for computing FAPI

Where s. 94.2(2) deems a non-resident unit trust whose units are majority-owned by an investment dealer, or other taxpayer subject to the mark-to-market (or specified debt obligation) rules ("FI"), to be a controlled foreign affiliate of FI, then the CFA will itself generally be deemed to be a FI, so that in computing the foreign accrual property income of the CFA, the mark-to-market and SDO rules will apply. In commenting on this situation where the FI lacked the data to do this computation properly in Canadian dollars, CRA refused to provide any comfort that it would permit the use of a "proxy" method. CRA went on to state:

… [A] failure to report income as required, and false statements or omissions, in respect of prescribed reporting requirements may result in substantial penalties under section 162 or 163. However, section 233.5 may provide some relief concerning the prescribed reporting requirements where a Canadian taxpayer may not have all the information required to fulfil the reporting requirements of subsection 233.4(4)… . Additional relief in connection with reporting requirements may be available on a case-by-case basis under subsection 220(2.1).

See summary under s. 95(2)(f.14).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 233.5 potential relief from penalties where insufficient data for computing FAPI 195
Tax Topics - Income Tax Act - Section 94.2 - Subsection 94.2(2) deemed CFA unit trust sub of a FI subject to mark-to-market rules 178
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(f.14) no stated accommodation for using proxy method where data unavailable 289

8 October 2008 Internal T.I. 2008-0269581I7 - statute-barred refund

request to extend filing deadline

The corporate taxpayer requested that CRA exercise its discretion under s. 220(2.1) or 220(3) to refund an overpayment where the taxpayer had not filed its tax return within the three year time period specified in s. 164(1). In rejecting this request, CRA stated:

[T]the Ministerial discretion contained in subsections 220(2.1) and 220(3) is only applicable to provisions such as subsection 150(1). Accordingly…subsections 220(2.1) and 220(3) have no application to subsection 164(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1.5) "may" establishes CRA discretion 128
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1) request to extend filing deadline or re-appropriate 106
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3) request to extend filing deadline 70
Tax Topics - Income Tax Act - Section 221.2 - Subsection 221.2(1) request to re-appropriate 88

Subsection 220(2.2)

Administrative Policy

22 December 2009 Internal T.I. 2009-0343331I7 F - Determination of CCPC Status

s. 220(2.2) precluded accepting a late amendment

A Quebec corporation initially filed on the basis that it was not a Canadian –controlled private corporation, and the sought to amend its SR&ED credit claims on the basis that it so qualified and, thus, was eligible for the additional refundable credit of 15%. The Directorate indicated that the enactment of s. 220(2.2) would prevent CRA from accepting late claims (i.e., more than one year after the filing due date for the year in question) to this effect.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Canadian-Controlled Private Corporation shareholder agreement affecting how the majority of directors exercised their rights was not a USA 362
Tax Topics - Income Tax Act - Section 256 - Subsection 256(5.1) de facto control given control of financing and significant influence on decisions 222

Subsection 220(3) - Extensions for returns


Osborne v. Canada (Attorney General), 2022 FC 122

CRA decision to not extend a s. 216 return filing deadline, set aside because CRA did not address the taxpayers’ arguments

The taxpayers, who were residents of Bermuda owning a Canadian rental property, filed their returns for 2018 under s. 216 nine days after the filing deadline (which was six months after the taxation year end as a result of their having given undertakings under s. 216(4).) In requesting an extension to this deadline under s. 220(3) they alleged that CRA had misapplied their withholding tax payments to their general account rather than their non-resident account, and that much of their delay in filing their returns was attributable to their holding off on filing their returns (with some encouragement from their accountants) until this error was remedied (and they also proffered an excuse of sorts for the remaining portion of the delay).

Before returning the CRA rejection of their extension request (the “Decision”) for redetermination by another decision maker on the basis that (to quote Vavilov) the Decision did not “exhibit the requisite degree of justification, intelligibility and transparency” (quoted at para. 19), Go J stated (at paras. 34, 37):

No mention was made of the Applicants’ argument about the error made by the CRA in allocating withholding tax remittances to the wrong account or the delay by CRA in remediating the problem with the remittances. It may well be the case, as the Respondent submits, that the error in the tax remittances was not made by the CRA or alternatively, notwithstanding the error made, that the Applicants could have filed the NR Returns before the filing deadline. However, that was not stated in the Decision.

… It is unclear from the Decision what, if any, factors have been considered [by the decision maker] … in this case.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 216 - Subsection 216(4) CRA failed to explain why it did not extend the return-filing deadline under s. 216(4) 252

Masson v. Canada (Attorney General), 2019 FC 887

CRA reasonably declined to grant a late s. 85 election

In 2008, the taxpayer transferred five properties to his corporation and did not report any disposition or gain in his return. Following a reassessment of these transfers by the ARQ in 2015, CRA also reassessed him in 2015. The Minister’s delegate denied the taxpayer’s request (made thereafter) to allow a late-filed s. 85 election on the basis that (para. 10):

(1) the sales contracts did not contain any clause allowing for a rollover under subsection 85(1) of the ITA; (2) the Corporation’s financial statements as of March 31, 2009, do not mention the acquisition of property for the agreed amount of the late election and there was no Schedule 8 for the depreciable property acquired; and (3) no document such as the Corporation’s minutes were provided to the ARQ auditor despite several requests to this effect.

The taxpayer acknowledged these deficiencies (as well as to there being no change to the issued share capital of the corporation) but argued that consideration should have been taken of the errors and failures of his advisor. Roussel J held (at para. 35):

Considering that no evidence was presented to show the initial intention to proceed by rollover under subsection 85(1) of the ITA and that the errors of a third party do not constitute circumstances that justify a late election, it was open to the Minister’s representative to exercise her discretion to deny Mr. Masson’s late election.

Bonnybrook Industrial Park Development Co. Ltd. v. Canada (National Revenue), 2018 FCA 136

Minister had the discretion under s. 220(3) to extend the time for applying for a dividend refund

In 2015, Bonnybrook, a private corporation, disclosed unreported income under the voluntary disclosure program by filing income tax returns for its 2003 and subsequent taxation years. In assessing these returns, the Minister denied its claim for dividend refunds for the 2003 to 2011 taxation years on the basis that Bonnybrook had not filed those returns within three years as required by s. 129(1). Bonnybrook then applied for relief under s. 220(2.1) (for a waiver of the s. 129(1) requirement to file a corporate return within three years), under s. 220(3) (for an extension of this three-year deadline) and under s. 220(3.1) (for relief from penalties and interest). The Minister’s response ignored the s. 220(2.1) request and denied the s. 220(3) request for conclusory reasons (it was the Minister’s position that s. 220(3) was not available for refund applications).

In finding (at para 19) that, contrary to the finding below, that the Federal Court had jurisdiction to review these decisions, Woods JA stated:

The Tax Court’s jurisdiction … is generally limited to hearing appeals concerning the correctness of assessments. Its jurisdiction does not extend to judicial review of decisions of the Minister under discretionary relief provisions of the Act … .

After determining to remit the s. 220(2.1) matter back to the minster for consideration, Woods JA then turned to the s. 220(3) decision and, after noting the position in 2013-0499421I7, stated (at paras. 40, 42, 45):

The CRA’s view … is that the taxpayer relief provisions cannot affect a filing requirement which restricts the issuance of a dividend refund. The problem with this reasoning is that this is exactly what the taxpayer relief provisions are intended to do — enable the Minister to provide relief from strict filing requirements.

Subsection 220(3) of the Act provides the Minister with a broad discretion to extend the time to file a “return”. …

It is also useful to note that the CRA has authorized waivers that are conditions to obtaining a benefit.

Woods JA concluded (at para 65), with Near JA concurring:

I would allow the appeal, set aside the judgment of the Federal Court, allow the application for judicial review, and set aside the Minister’s decision. I would refer the matter back to the Minister to consider Bonnybrook’s application for relief under subsections 220(2.1) and 220(3)… .

In his dissenting reasons, Stratas JA stated (at paras 72, 74, 93 and 95):

The Minister has asserted a position concerning subsection 220(3) but … has not offered meaningful or coherent reasons in support of that position….

My colleague’s response to this is to interpret subsection 220(3) herself in the course of conducting reasonableness review, in effect doing the job of statutory interpretation and reasons-writing that the Minister should have done. On this … I decline to join her.

[F]aced with a silence whose meaning cannot be understood through legitimate interpretation, who am I to grab the Minister’s pen and “supplement” her reasons?…

…I would remit [the s. 220(3) matter] to the Minister for full consideration and decision. …

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 220 - Subsection 220(2.1) failure of the Minister, on application for s. 220(3) relief, to consider the request for s. 220(2.1) relief 261
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1) CRA had discretion to extend 3-year deadline 142

Binder Capital Corp v. Canada (National Revenue), 2017 FC 642, effectively rev'd 2018 FCA 136

CRA denial of extension of 3-year deadline in s. 129(1) not subject to Federal Court review

In 1057513, Webb JA found that a corporation was ineligible for dividend refunds for various years because it did not file the returns claiming the dividend refunds within three years of the taxation year-ends in question as required under s. 129(1).

Binder Capital sought extension of the three-year deadline on the basis of extenuating circumstances explaining its delay in filing returns, and submitted that the discretion accorded to the Minister under s. 220(3) to extend a return-filing deadline impliedly accorded the Minister the discretion to extend the s. 129(1) 3-year deadline. In denying this request, CRA applied its position in 2011-0426331E5 that:

Although subsection 220(3) of the Act provides the Minister with the discretion to extend the time for making a return of income, this discretion does not extend to the filing deadline in subsection 129(1) of the Act… Subsection 220(3) does not alter or affect whether a corporation has factually filed its return of income within the period required under the Act.

In dismissing Binder Capital’s application to overturn this decision, Campbell J stated:

[W]hether the Minister’s discretion applies to s. 129 is a jurisdictional question with respect to an interpretation of the ITA which is not within this Court’s authority to decide.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1) Federal Court lacks jurisdiction to overturn CRA decision not to extend s. 129(1) refund-claim deadline 275

Kutlu v. Canada, 2013 DTC 5137 [at 6239]

discretion to extend s. 216(4) deadline

The Minister had previously accepted the taxpayers' late-filed elections under s. 216(4). The taxpayers had believed they were entitled to file late because they had no taxable income in the years in question. The Minister then rejected one of the late-filed elections, and rejected the taxpayer's application for a discretionary extension of time.

Joyal J granted the taxpayer's application to have the matter sent back to the Minister. An extension of time is not confined only to circumstances that preclude a taxpayer from complying with deadlines (i.e. extraordinary circumstances). It is therefore no answer to an extension application to say that the election was filed late, as this is merely begging the question.

See Also

Lachance v. Canada (National Revenue), 2018 FC 925

CRA could refuse an extension to a taxpayer confused by a CRA Guide

The GST/HST Guide on the new housing rebate indicated that an Ontario new housing rebate was available in circumstances where the federal rebate would have been available but for the value of the new home having been over $450,000. The taxpayer stated she was confused by the somewhat unpacked statement to this effect, and did not realize until shortly after the two year deadline for applying for the Ontario rebate that, in fact, she had earned it.

CRA denied her extension request under ETA s. 256(3)(b) (providing for an extension to any “date that the Minister may allow” on the grounds that the Guide disclosure was not inaccurate – and none of the other published grounds for taxpayer relief were met. Manson J stated (at para. 25) that he had “sympathy for the Applicant’s position that the language in the Guide could be more clearly articulated,” but nonetheless dismissed her application for review of the extension refusal, after stating (at para. 22) that the CRA conclusion “that the [Guide] language does not mislead or misinform, is reasonable.”

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 256 - Subsection 256(3) - Paragraph 256(3)(b) CRA permitted to deny extension to taxpyayer who was confused by unpacked wording in CRA Guide 338

Hughes v. The Queen, 2017 TCC 95 (Informal Procedure)

computation of penalty where extension

After finding that the Crown had failed to advance evidence that the taxpayer had filed a return within the time demanded of him by CRA, so that no penalty was payable by the taxpayer under the French version of s. 162(2), Jorré J went on to state (at para. 89):

What is also clear from the history and the technical notes I have just discussed is that the scheme of subsection 220(3) is based on the penalty being computed from the date by which the demand requires the taxpayer to file or the extended date.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(2) no penalty if return filed within period demanded 283
Tax Topics - Statutory Interpretation - French and English Version more lenient French version of the repeated-failure-to-file penalty in s. 162(2) preferred to English version 87

Administrative Policy

COVID-19 Update: Additional measures from the Canada Revenue Agency 26 March CRA News Release

return filing extensions (in addition to individuals) responding to COVID-19

The Canada Revenue Agency (CRA) understands that individuals and businesses might be dealing with difficulties filing their income and benefit returns, and could experience cash-flow challenges in the coming months. In response, the CRA is applying these additional measures:

Administrative income tax measures: In addition to the income tax filing and payment deadline extensions announced as part of the fiscal measures, unless otherwise noted, taxpayers may defer a number of other administrative tax actions required under the Income Tax Act (ITA) that are due after March 18, 2020, until June 1, 2020. These administrative income tax actions include the filing of returns, forms, elections, designations, and responses to information requests. Payment and remitting requirements are not covered by this announcement.

  • This measure also does not apply in respect of a prescribed form, receipt or document, or prescribed information, that is required to be filed with the Minister on or after the day specified, in respect of the form, receipt, document or information, in subsection 37(11) or paragraph (m) of the definition investment tax credit in subsection 127(9) of the ITA.
  • Payroll deductions and all related activities (except to the extent they relate to the reduction of remittances related to the temporary wage subsidy) must continue to be done on time.

Trusts, Partnerships and NR4 Information Returns: The deadlines for trusts, partnership and NR4 Information returns are all extended to May 1, 2020. This is due to administrative requirements in advance of the June 1st deadline for filing individual income tax and benefit returns.

16 May 2018 IFA Roundtable Q. 4, 2018-0748171C6 - Penalties for Non-Residents

a non-resident who incorrectly claimed a no-PE Treaty exemption can apply for penalty relief

A non-resident corporation files a T2 return, attaching a completed Sched. 91 (claiming a treaty-based exemption) based on a reasonable belief that it did not have a permanent establishment in Canada. If CRA subsequently disagrees, would it seek to impose late-filing penalties, such as for not timely filing T106 forms, and/or penalties for failing to complete contemporaneous documentation under s. 247 of the Act, and would it provide relief under ss. 220(3) and (3.1)?

In responding “generally, yes,” CRA indicated that where a non-resident taxpayer carries on a business in Canada through a permanent establishment, a failure to meet statutory deadlines will carry the associated statutory penalties – but that CRA will consider, on a case-by-case basis, requests under s. 223(3) and (3.1) for relief of the resulting interest and penalties.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(4) potential extension/waiver where incorrect (no PE) claim for Treaty relief 105

8 October 2008 Internal T.I. 2008-0269581I7 - statute-barred refund

request to extend filing deadline

The corporate taxpayer requested that CRA exercise its discretion under s. 220(2.1) or 220(3) to refund an overpayment where the taxpayer had not filed its tax return within the three year time period specified in s. 164(1). In rejecting this request, CRA stated:

[T]the Ministerial discretion contained in subsections 220(2.1) and 220(3) is only applicable to provisions such as subsection 150(1). Accordingly…subsections 220(2.1) and 220(3) have no application to subsection 164(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1.5) "may" establishes CRA discretion 128
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1) request to extend filing deadline or re-appropriate 106
Tax Topics - Income Tax Act - Section 220 - Subsection 220(2.1) request to extend filing deadline 70
Tax Topics - Income Tax Act - Section 221.2 - Subsection 221.2(1) request to re-appropriate 88

12 July 2013 Internal T.I. 2013-0487181I7 - Extension of the reassessment period

period runs from assessment

The corporate taxpayer failed to file a tax return and the CRA subsequently issued an "arbitrary assessment" pursuant to s. 152(7). The taxpayer then filed a tax return for that taxation year after the normal reassessment period had expired.

CRA noted that s. 220(3) does not empower the Minister to extend the reassessment for a statute-barred year because the limitations period runs from the time of the assessment or nil assessment, not from the time that a return is filed.

30 June 2010 External T.I. 2009-0327881E5 F - FFCP Délai de production T3

requirements for application to extend T3 filing deadline following s. 132.1 merger

What are the T3 filing deadlines for mutual fund trusts following a qualifying exchange where there is a continuing trust and a trust that disappears?

CRA noted that the deemed year end arising under s. 132.2(1)(b) for both trusts accelerated the return filing deadline under Reg. 204(2), except that for the trust that disappeared, Reg. 205(2) required it to file a return within 30 days of the day of the discontinuance of its business or activity. However, CRA went on to indicate that application could be made for a return-filing extension, stating:

In order to obtain this extension, the trustee or “manager” of the entities involved must prepare the request by filing the following information:

  • Reasons for the request for an extension of time to file.
  • Names of the entities involved with their identification number, the date of the consolidation, and the date the CRA can expect to receive the returns.
  • An Indication of whether the consolidation is a "qualifying exchange" as defined in subsection 132.2(2) and whether the election under paragraph (c) of that definition has been made.

In addition, the applicant must agree:

  • for each of the mutual fund trusts that is part of the consolidation, to file the T3 returns, T3 summaries, etc., on or before the date indicated in the letter granting the extension, which cannot be later than the filing date that would have been requested in the absence of the consolidation.
  • to identify each T3 return when it is filed as either the transferor trust's or the transferee trust's return.
  • to indicate whether, as a result of the consolidation, a new transferee trust has been created instead of a continuation of an existing trust.
  • to attach a copy of the letter approving the application to each of the relevant statements.
  • to provide the CRA with details of the “categories” of income and capital gains of the various underlying funds; and
  • that the granting of the extension does not, under any circumstances, create a year-end for an entity.
Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 204 - Subsection 204(2) s. 132.1 merger accelerates T3 return-filing deadline 92
Tax Topics - Income Tax Regulations - Regulation 204.1 - Subsection 204.1(2) no requirement to file with CDS if MFT is not listed 49

Subsection 220(3.1) - Waiver of penalty or interest


Christen v. Canada (Revenue Agency), 2021 CF 1440

a voluntary disclosure planned before, but made after, the audit notification could be considered non-voluntary - but CRA rejection annulled

In May 2015, the plaintiff authorized her law firm to represent her in making a voluntary disclosure of her Swiss assets, and in the summer and fall of 2015, various documents were collected and organized to this end. However, on September 25, 2015, CRA sent a letter to the plaintiff indicating that her 2005 to 2014 taxation years were under audit regarding a failure to declare foreign property. A filing made by the plaintiff on October 20, 2015 under the CRA voluntary disclosure program (VDP) was rejected by the first and second decision maker on the basis that it was not voluntary.

Walker J found that this decision did not represent an unreasonable exercise of Ministerial discretion under s. 220(3.1). She agreed (at para. 40) that it would have been “inequitable and unreasonable” for a voluntary disclosure to have been rejected as being non-voluntary if made one minute after communication of an audit, but noted that this was not the situation under review, stating (at para. 42, TaxInterpretations translation):

Plaintiff's decision to begin identifying the scope of potential disclosure is not the end of the story. … Intentions can change, as can the scope of the proposed disclosure. … The potential scope of the Disclosure could not be determined without further investigation by Plaintiff and her counsel. … I agree with the Respondent that there is an important distinction between the date information is actually disclosed under the VDP and the date the taxpayer makes the decision to investigate the making of a disclosure.

She further noted (at para. 45):

[T]he fact that Mr. Gagnon [the initial VDP contact] requested complete information for the years covered by the Disclosure does not suggest a promise on the part of Mr. Gagnon or the VDP to accept his request for disclosure. … His requests sought to complete the record.

However, the (second) decision under review was annulled given that the involvement of the first decision maker in the process for the second review decision “was not minimal” (para. 52), with regard also being had to an internal email from a CRA manager (that “We need to ensure that this VDP is denied as it should not be considered to have been voluntary but rather as a result of audit contact”) “constitute[d] unwarranted interference with the VDP's evaluation of the case” (para. 54) (although there was no evidence that this email in fact interfered with the second decision).

The decision was remitted to the Minister for a fresh determination by an authorized agent with no involvement with the previous decisions.

4053893 Canada Inc. v. Canada (National Revenue), 2021 FC 218

a disclosure by a company was reasonably treated by CRA as not voluntary given enforcement action against its sole shareholder

Both the corporate taxpayer (“405 Canada”) and its sole shareholder (“Mr. Harris”) failed to file tax returns for about a decade. In August 2016, the CRA wrote and spoke to Mr. Harris about his missing personal income tax returns. In January 2017, 405 Canada sought relief under the voluntary disclosure program (“VDP”) in respect of its unfiled returns from 2006 to 2015. This VDP request was denied in 2018, but that denial was quashed at 2019 FC 51 on the basis of a failure in the Minister’s decision to address how the enforcement action against Mr. Harris would likely have uncovered the disclosed information. On redetermination, the Minister again denied the requested relief on the basis that the non-compliance likely would have been uncovered through the CRA’s prior enforcement action since Mr. Harris, in his August 2016 telephone conversation, had confirmed that 405 Canada was active, he was told he had to file returns for 405 Canada, and his own returns showed income from 405 Canada.

In finding that this decision was reasonable, McHaffie J noted that:

  • the August 2016 letter, unlike letters sent regarding previous years’ missing returns (with no follow-up when they were not filed), was accompanied this time by a phone call;
  • that “enforcement action” resulted in Mr. Harris filing returns showing employment and dividend income from 405 Canada – and although those returns were filed after 405 Canada’s VDP application, “[i[t would be incongruous” for the 405 Canada disclosure to be rendered voluntary “simply because a related taxpayer did not file the returns that would reveal the same information until after filing a VDP application” (para. 19).
  • the possibility mentioned by CRA in its enforcement letter of arbitrarily assessing Mr. Harris (which would not have resulted in disclosure by him of the income from 405 Canada) did not establish that this would have occurred and, in fact, in the August 2016 discussion, Mr. Harris had been informed that 405 Canada should file returns.

Belchetz v. Canada, 2020 FCA 225, aff'g sub nom. Brandimarte v. Canada, 2019 FC 1034

discretion of Minister's delegate not fettered by Circular

Taxpayers who were the “innocent dupes” (para. 10) 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, and (in 2004, i.e., before the 10-year limitation on interest relief in s. 220(3.1) was introduced) sought relief for accrued interest. A large part of the delay (including CRA not assessing the taxpayers’ returns for quite some time) was attributable to CRA and Justice wanting to bring a criminal prosecution against the promoters before dealing with the taxpayers.

After three levels of review of the requested interest relief, CRA cancelled approximately 15 years of accrued interest. In appealing the decision of the Federal Court dismissing their application for judicial review (in which they sought relief for the entirety of the period between the filing deadline for each of the taxation years in issue, and the date on which they received their notices of assessment or reassessment) the applicants submitted that their cases fall squarely within 07-1R1, para. 26(a) regarding waiver of interest if it “resulted mainly because of actions of the CRA, such as processing delays that result in the taxpayer not being informed, within a reasonable time, that an amount was owing,” and that the Minister’s delegate “side-stepped” the issue of CRA delays by focusing instead on para. 25 of the Information Circular (regarding relief for “circumstances beyond a taxpayer’s control”) (para. 38).

Before rejecting these submissions, Mactavish JA noted (at para 40):

… The Minister’s discretion must … be genuinely exercised, and must not be fettered or dictated by policy statements such as Income Tax Information Circular IC 07-1R1: Stemijon Investments Ltd. v. Canada (Attorney General), 2011 FCA 299, 341 D.L.R. (4th) 710, at paras 25, 27.

She then stated (at para 42-44 and 49):

It is evident from a review of the third administrative review that all of the appellants’ submissions were taken into account by the Minister’s delegate. …

It is true that the Minister’s delegate considered whether the accrual of interest on the appellants’ unpaid taxes for the period in issue was due to circumstances that were beyond the taxpayers’ control … . [and] noted that the [CRA] intercept letters gave the appellants the option of having their tax returns assessed without the … deductions. He also noted that had the appellants accepted this offer, it would have had the effect of “stopping the clock” on the accrual of interest … . The Federal Court did not err in finding this aspect of the Minister’s delegate’s decision to be reasonable.

While no explicit reference was made to paragraph 26(a) of the Information Circular in the Minister’s delegate’s decision, a review of that decision reveals that the appellants’ submissions with respect to processing delays on the part of the CRA were carefully considered by the Minister’s delegate. He clearly turned his mind to the question of whether additional interest relief was warranted for the period between the filing deadline in each of the subject years and the date on which each appellant first received a notice of assessment or reassessment. …

…[T]he Minister’s delegate conducted a holistic review of the processing delays that had occurred … . He considered the appellants’ submissions and explained why he was not persuaded that any additional relief was warranted … . His decision was transparent, intelligible and justified.

Building Products of Canada Corp. v. Canada (Attorney General), 2020 FC 784

refusal to grant more than partial interest relief for failure of CRA to point out an ability to apply NCLs was reasonable

In 2014, CRA reassessed the taxpayer’s 2009 taxation year to deny SR&ED deductions or credits, thereby resulting in $1,510,198.00 in unpaid income taxes and interests of $331,700 on that amount. The CRA auditor did not follow the CRA Large Business Audit Manual (the “Manual”), which states that the auditor must obtain a written response from the taxpayer as to whether the taxpayer wishes to apply available non-capital losses (“NCLs”). Although, at all relevant times, the available NCLs were sufficient to eliminate the tax and interest, their specific amount was unclear until January 2015, at which time the taxpayer filed its request to have the NCLs applied so as to reduce the tax and interest due to nil. This request was denied as being filed after the end of the normal reassessment period, which ended on September 3, 2014. The taxpayer requested the Minister to exercise her discretion under s. 220(3.1) to cancel the interest accrued, on the basis that had the CRA offered to do so, the taxpayer would have applied its NCL balance. The Minister granted only partial relief on the basis that it was ultimately the taxpayer’s responsibility to decide whether it wanted to apply its NCL before the end of the normal reassessment period, which it had failed to do.

Shore J concluded that the decision was reasonable, stating (at paras 20, 21, 23, 24):

… [T]he CRA could not simply add NCLs to a specific taxation year without a request from the taxpayer. …

… [T]he Applicant simply waited for the uncertainty regarding its balance to be resolved. As such, it cannot be said that the Applicant’s situation was caused by the Minister’s fault.

… In using her discretion, the Minister could have reasonably concluded that the Applicant should receive relief under subsection 220(3.1)… . However, because the CRA is not wholly responsible for the interest accrued, the Minister concluded otherwise. This decision is just as valid and reasonable.

… [T]he Minister did in fact … provide relief for a certain portion of the interest accrued due to the CRA’s own omission.

Regarding the Minister’s alleged errors in not considering that the 2009 tax return could be reassessed beyond the normal reassessment period in accordance with s. 152(4.3), he stated (at para. 28) that “this Court does not have to consider arguments that the Applicant did not squarely put before the decision-maker (Telfer at paras 30-31).”

Shore J also concluded that the Minister did not breach procedural fairness, stating (at para 33 and 34):

… [I]f the Applicant wanted the Minister’s delegate to read the Manual prior to rendering his decision, the Applicant should have specifically mentioned the Manual.

… [T]he Minister’s delegates responsible for tax relief do not necessarily have experience in audit. This is why requesting parties are responsible for bringing forward the full extent of their grievances.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(6) failure of Minister's delegate to ask taxpayer whether it wished to reduce assessed income with NCLs 236

Grewal v. Canada (National Revenue), 2020 FC 356

disclosure of loan amounts in VDP application did not protect against penalties when CRA later concluded they were income

In disclosures made under a voluntary disclosure initiated on April 4, 2014, the taxpayer included references to a number of loans made between Panamanian corporations in which the Applicant held shares, and various individuals and entities. Some of the loan amounts were included as income, but for others, no taxable benefit was reported. The voluntary disclosure was accepted, and the taxpayer assessed accordingly.

However, the taxpayer was then audited for his 2007 to 2013 taxation years in conjunction with an audit of an online pharmaceutical company (“Solaris”), of which he was the CFO and an indirect shareholder. The audit uncovered a total of over $15 million of additional income for the taxpayer’s 2007 through 2013 taxation years. The Minister’s resulting reassessments included gross negligence penalties of over $3 million for the 2007 to 2013 taxation years, which were calculated through application only to the additional taxable benefits reassessed (based on the Minister’s position that these amounts represented taxable benefits under s. 246(1).)

In dismissing the taxpayer’s application for judicial review of the Minister’s decision to impose the penalties, Shirzad J stated (at paras 37, and 38):

… If taxpayers could re-characterize taxable income or benefits as non-taxable benefits in their applications to the VDP and thereby escape penalties from future audits for having “disclosed” the amounts in this application, it would be contrary to the purpose of the VDP and its public policy rationale, which is meant to promote compliance with Canada’s tax laws by encouraging taxpayers to voluntarily come forward and correct previous omissions in their dealings with the CRA. … [T]he potential assessment of penalties even after an acceptance to the VDP will encourage taxpayers to be more diligent in their VDP applications, and to ensure that they exercise a high degree of care when submitting their VDP applications to ensure completeness and accuracy. …

[T]o interpret the Information Circular as promising protection from penalties even on the non-taxable amounts disclosed by the taxpayer would put taxpayers applying to the VDP in a better position than the ordinary taxpayers. … Given his background, the Applicant was knowledgeable about tax matters, and it raises suspicions as to whether the Applicant may have been attempting to avoid penalties on his loans by characterizing them as non-taxable, but including them in his VDP application.

Shirzad J concluded (at para 50):

The Minister did not breach procedural fairness in making the decision to assess penalties, and the Minister was not estopped from rendering and enforcing the Penalty Decision. The Minister did not act unreasonably in rendering the Penalty Decision.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) an accepted voluntary disclosure that included loans did not stop CRA from later assessing s. 163(2) penalties for failure to include them in income 210

Loyer (Succession) v. Canada (Attorney General), 2019 FC 1528

review application for failure of CRA to consider a penalty-waiver agreement of the ARQ for the same unreported income was allowed

The applicant was the succession (i.e., estate) of an individual who was suspected of being the head of a drug trafficking ring, and who had been murdered on August 1, 2012. The ex-spouse of the deceased had been appointed by the Quebec Superior Court as sole liquidator (i.e., executor) in February 2016 after the previous liquidator had left the succession in shambles. Prior to that appointment, the ARQ had assessed the succession for undeclared income of the deceased for his 2007 to 2010 years, and CRA reassessed the succession in August 2013 for those years on the same basis. In April 2017, the succession requested CRA for relief from gross negligence penalties and interest but, on the initial review, CRA provided relief only for the interest that accrued between the date of death and September 2017. On a second level review, CRA was provided with copies of reassessments made by the ARQ in May 2016 which, pursuant to an agreement (the “Agreement”) between it and the succession, provided interest relief but also reversed all the penalties imposed by the ARQ, as well as copies of the representations that had been made in this regard to the ARQ. (The record showed that CRA had also been informed directly by the ARQ of this relief.) CRA did not respond with any penalty relief, and did not refer to the Agreement.

Before remitting the matter to another delegate for redetermination, LeBlanc J stated (at para. 40, TaxInterpretations translation):

It is not for me to determine if the Agreement should apply to the [estate], but it appears to me that it has the right to see the Agreement considered and to know why it was not applied in this case, if that was the CRA viewpoint. The failure to do neither, in the Decision itself or the recommendation which preceded it, had the effect, as it appears to me, in the particular circumstances of this case in the context of an application which is essentially an equitable one, of “depriving the process of justification, transparency and intelligibility,” to adopt the expression used in Telfer … .

Stover v. Canada (National Revenue), 2019 FC 1599

CRA required to consider waiver of interest that accrued during a three-year delay in dealing with a late-filed Objection

In 2008 the CRA contacted the taxpayer to ask him to provide supporting documents to prove commission expenses for the 2005 to 2006 taxation years, which he was unable to do as his former partner, who had also been his landlord, had destroyed the partnership documents, and his former spouse had also withheld correspondence and destroyed documents relevant to those taxation years. CRA disallowed the commission expenses by a notice of assessment dated November 24, 2008 and the taxpayer filed a notice of objection on February 2, 2010, i.e., just under one year from the deadline for filing a notice of objection and a few weeks before the one year deadline under s. 166.1(7)(a) for requesting that the Minister extend the time to serve an objection. After the Minister registered a lien against the taxpayer’s house, in April 2012 the taxpayer applied to the Tax Court, which resulted in an order dated February 26, 2013 pursuant to which the Tax Court deemed the Objection to be a valid notice of objection. The taxpayer requested relief from interest owing, but the Minister’s delegate only granted relief for a one-month period.

Favel J found that the taxpayer had implicitly requested the Minister for an extension pursuant to s. 166.1 of the time for objecting, stating (at para. 50):

Notices of Objection filed after the 90 day delay for objecting, but within the extension of time delay, have been interpreted as implicit applications to extend time … .

Favel J granted the appeal for judicial review, finding (at paras 51, 52, 54 and 56):

According to subsection 166.1(5) of the Act, when an application to extend time has been filed within the delay, “the Minister shall, with all due dispatch, consider the application and grant or refuse it, and shall thereupon notify the taxpayer in writing of the Minister’s decision.”

In this case, the Minister did not treat the Applicant’s Objection with all due dispatch. Rather, the Minister remained passive for two years … .

The Minister’s analysis of delays imputable to the CRA is limited to those incurred between the TCC order of February 26, 2013 and the assignment of the Applicant’s file to an appeal officer in November 2013, and consequently, at the initial level, cancelled interest for one month during that period (October 2013) to account for the delay. However, the Minister made no comment with respect to the delays incurred between the date the Applicant filed the Objection in 2010 and the TCC order in 2013

…The decision of the Minister’s Delegate is set aside and shall be remitted to another Delegate for redetermination of the Applicant’s entitlement to relief from interest accrued due only to delays caused by the CRA.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 166.1 - Subsection 166.1(5) CRA ordered to consider waiver of interest due to its failure to respond to late Notice of Objection with all due dispatch 272

Chen v. Canada (Attorney General), 2019 FC 1435

CRA refusal appropriate where 2nd failure to timely file T1135, not even with estimates

The applicant was assessed a penalty for late filing her T1135 return on foreign property for the preceding taxation year, but the penalty was waived. For the current year, she filed her regular return about seven weeks late after claiming to have confirmed on the CRA General Inquiries line that there would be no penalty for doing so (as no Part I taxes were owing) but filed her T1135 return with that return – and was assessed a late-filing penalty under s, 162(7) for late-filing the latter return, of $25 per day (or $1225 in total) plus interest. She stated that she filed late because she was away from Fredericton from February to May 2016, and did not have the necessary documents to file on time, and in connection with the second-level review (where her application was also rejected), noted her reliance on her telephone call.

In finding that it was reasonable for CRA not to waive the penalty, McVeigh stated (at para. 19):

Given that she had not and then applied for and received penalty relief just the year before, this should have illuminated to her the importance of filling the T1135 on time because she had the teaching moment the year before.

She also accepted (at para. 20) the CRA view (summarized at para. 9) that:

Without her documents (her being in Toronto and not Fredericton) … she could have instead filed an estimated 2015 Form T1135 and then amended it once she had her documents.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) acceptance of CRA suggestion of filing a T1135 with estimates to avoid late-filing penalty 104

Brandimarte v. Canada, 2019 FC 1034, af'd sub nom. Belchetz v. Canada, 2020 FCA 225

review of decision to partly waive interest that accrued over 35 years, and rejection of comparison to those with complete interest relief

Starting in the 1984 year, Applicants claimed losses from partnerships that in fact had no business. Ultimately, charges were laid against the promoters in 1994, and the criminal proceedings concluded in 2004. During 1987 to 1989, CRA sent “intercept” letters to the Applicants, advising them that their tax returns were being held in abeyance until completion of the CRA audit, but that they could request to have their returns assessed without the claimed deductions. The Minister ultimately disallowed all the claims.

300 of the investors appealed the assessments to the Tax Court of Canada in 1991. In 1994, CRA withdrew from a settlement agreement on Justice advice that a settlement would jeopardize the criminal proceedings. Following disposition of the Tax Court appeals in January 2014, numerous Applicants requested relief under s. 220(3.1), citing, as their main reason, CRA delay (the “2014 Applicants”). Other Applicants requested interest relief before the 2005 amendment to s. 220(3.1) denying interest relief more than 10 years after a taxation year (the “2004 Applicants”). After three levels of review, the Minister cancelled approximately 15 years and 63 months of accrued interest for the 2014 and 2004 Applicants, respectively.

Before dismissing the Applicants’ applications for judicial review, Boswell J stated (at paras 55 - 57):

… [T]he sheer quantity of the delays did not automatically warrant interest relief. … The Delegate reasonably considered the length of the delays and recognized that certain time periods were not appropriate for interest relief and others had already been accounted for in the earlier reviews. …

… [T]here were no circumstances beyond the Applicants’ control which prevented them with complying with their obligations to pay tax. Had the Applicants accepted the offer in the intercept letters … they would have received notices of assessment they could have objected to on the basis that the assessments did not include credits and deductions they genuinely believed to be valid. If they paid the taxes owing as stated in the assessments, no interest would have accumulated. …

… [F]or the 2014 Applicants … [u]nder subsection 220(3.1), the Minister no longer has discretion to cancel or waive interest beyond 10 years … .

Respecting a comparison the Applicants had submitted (para. 45) between themselves (“innocent victims of fraud”) and the “KPMG Untouchables” (who “knowingly participated in a suspect offshore tax scheme”) and “the GLGI cases where taxpayers were granted full interest relief despite their culpability in participating in the tax schemes,” Boswell J stated (at para. 59):

…[C]omparisons to the KPMG Untouchables or the GLGI donors are neither factually relevant nor legally permissible. In Ludco the Federal Court of Appeal held that evidence about other taxpayers who had benefited from an interest deduction for loans obtained in circumstances identical to those of the appellants was inadmissible… .

Polubiec v. The Queen, 2019 TCC 146

relief suggested based on harshness of s. 163(1) penalty

A retired investment dealer had, over a number of years, failed to report around 15 items of dividend or other investment income (some of them, somewhat over $10,000), which he claimed resulted from a failure of an investment dealer (“BMONB”) to send him T5 or other reporting slips for those items (although such forms had been received by CRA). In addition, in his 2014 return he had not reported approximately $700,000 which he had withdrawn from his RRSP. He claimed that he had been advised by a BMONB employee that reporting this amount was not required as it had been subject to 30% withholding on such withdrawal.

Sommerfeldt J found that the taxpayer had failed to establish a due diligence defence for any of the above failures, so that it was unnecessary to determine which of these failures were ones for which the taxpayer needed to establish due diligence. However, he went on to provide an obiter invitation to the Minister to reduce the s. 163(1) penalty, noting the magnitude of the penalty in relation to the taxpayer’s current means, and further noting (at para. 51) numerous previous judicial statements along lines that the s. 163(1) penalty was “harsh, particularly where source deductions have been withheld” and “can be disproportionate in nature,” and that “the scope of the due-diligence defence is quite limited, as it does not apply to unreasonable mistakes of fact made in good faith, to mistakes of law made in good faith, or to reasonable mistakes of law.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(1) unreasonable to rely on tax advice of an investment rep 445

1680169 Ontario Limited v. Canada (Attorney General), 2019 FC 562

CRA reasonably found that taxpayer took too long to reconstruct its financial records

Mr. Hogg, was the sole director, officer and shareholder of the appellant (“169”). Mr. Hogg noticed irregularities with 169’s tax returns for fiscal year-end 2009, leading to a breakdown in trust between him and 169’s new accountant (the “Accountant”). When requested to return the source documentation, the Accountant indicated that much of it was missing. In 2010, Mr. Hogg undertook to reconstruct fourteen years of financial statements for 169 with the assistance of a new accountant. In November 2012, Mr. Hogg called CRA to update the address on file to reflect his address, rather than the Accountant’s, but he did not officially revoke third-party representation. Ultimately, the Minister assessed “failure to file” penalties and arrears interest for 169’s 2009-2013 taxation years, as a result of those returns all being filed between January 19 and April 22, 2015.

On a first-level review of 169’s request for relief from interest and penalties, the first-level reviewer recommended cancelling arrears interest for the 2009 and 2010 taxation years, given Mr. Hogg’s unawareness until 2010 of the Accountant’s failings. In response to a request for further relief, the second-level reviewer found that there were no circumstances beyond Mr. Hogg’s control that would have affected his ability to file and remit as required.

Diner J found that there was no breach of procedural fairness, stating (at para. 22) that "there is no evidence of notification to the CRA about any change of third party representation," so that it was not unreasonable for CRA to communicate to the Accountant rather than directly with Mr. Hogg.

After stating (at para. 26) that “The content of the duty of procedural fairness in taxpayer relief applications is minimal”, Diner J found the Minister’s decision to not grant further relief reasonable, stating (at paras 35 and 38):

…[T]he Minister’s Delegate …reasonably concluded that the Applicant’s circumstances were not “beyond its control”. …[B]oth …CRA reviews [concluded] …that the Applicant did not exercise reasonable care between the time it discovered the Accountant was not properly doing his job, and the filing of its returns in 2015.

… [T]his Court has held that even when penalties were assessed as a result of accountant error, the Minister is not required to exercise her discretion … . The fact that the Applicant made attempts to remedy the situation by reconstructing financial statements which took a significant amount of time does not render the Decision unreasonable.

Prince v. Canada (National Revenue), 2019 FC 348, aff'd 2020 FCA 32

no prejudice in issuance of reassessment before completion of VDP process

Annis J found that a CRA “fairness” letter to the taxpayer setting out proposed reassessments for his 2007 to 2016 taxation years and giving him 30 days to provide additional information and representations was not a “decision” that he had the jurisdiction to review under the Federal Courts Act.

In addition, even if he had such jurisdiction, he would not have exercised it in the taxpayer’s favour. Much of the taxpayer’s complaint was that the taxpayer at the same time was advancing his position that CRA should accept a “voluntary” disclosure made by him as being within the ambit of the CRA VDP program. Annis J found that there was nothing in this that was prejudicial, stating (at paras. 29-30):

…[E]ven if the VDP application was granted after the assessment was made, the CRA would issue a new reassessment taking into account its decision.

I am also in agreement with the submission by the Respondent that if the Minister grants Mr. Prince’s second-level VDP application review, she will not charge him penalties and will not prosecute him. She may also partially relieve him of interest… . Nothing in the ITA or in the Circular prevents the Minister from granting such relief where the Minister has reassessed a taxpayer in the course of a regular audit.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Act - Section 18.1 - Subsection 18.1(3) 30-day letter was not a judicially-reviewable “decision” 328

Klopak v. Canada (Attorney General), 2019 FC 235

apparent denial of penalty relief for voluntarily disclosing a tax return error

The taxpayer (the Applicant) was a self-employed sound engineer who worked as an independent sub-contractor to the US limited partnership for a Canadian band who performed largely in the U.S. The taxpayer initially filed U.S. (US 1040NR) returns reporting income tax payable to the IRS on this income, which he paid. The taxpayer then attempted to take advantage of US/Canada Tax Treaty, and requested that the LP file adjustments with the IRS. Subsequently, the taxpayer filed Voluntary T1 Adjustments for his 2012, 2013, and 2014 taxation years on August 17, 2016. Although quite unclear from the reasons for judgment, he apparently had previously filed nil late returns for those years in which the income was treated as covered by a foreign tax credit claim for the U.S. taxes that he now considered to be refundable. The CRA responded with reassessments that included interest and penalties. A Second Level Review (the Decision) confirmed the denial of the taxpayer’s request for relief from penalties primarily on the basis of applying the test in the Information Circular IC-07 that no extraordinary circumstances justifying the late filing of the returns had been established.

The Applicant submitted (at para. 30) that as he “came forward with a voluntary disclosure in a timely fashion … it was unreasonable for the Delegate to not exercise discretion in waiving the penalties.”

In determining that the Decision was reasonable and fell well within the range of acceptable outcomes, McVeigh J stated (at paras 38, 39 and 43):

It was well within the Applicant’s control to file his past tax returns in a timely manner. …

It is not unreasonable for the Delegate to consider the Applicant’s past late filings as a negative factor in assessing whether the Applicant will be given the relief from penalties. ...

Nor does the Applicant not escape penalties because he made a voluntary disclosure. The Federal Court of Appeal in Sifto Canada Corp. v Canada (Minister of National Revenue), 2014 FCA 140 noted at paragraph 5:

[i]t is common ground that the voluntary disclosure program is a program by which taxpayers are induced to disclose past tax compliance errors in the expectation that if the disclosure is accepted as meeting certain conditions, any penalties that might have been imposed in relation to the errors will be waived.

This assumes, of course, that the voluntary disclosure is accepted to meet certain conditions. If an unfavourable response to the request is received, taxpayers may request a second administrative review. This is clearly what is occurring in this case. Therefore, the Applicant cannot rely on the voluntary disclosures program as a way to escape penalties.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(1) voluntary disclosure of FTC adjustment resulted in penalty 237

4053893 Canada Inc. v. Canada (National Revenue), 2019 FC 51

CRA could not deny VDP relief to a corporation without explaining how its shareholder audit would have exposed the corporation

In August 2016, CRA wrote the sole shareholder (Mr. Harris) of the applicant (“405”) advising him of his obligation to file personal income tax returns. In a subsequent phone call, CRA advised him that any business returns were to be filed first before any personal returns. In January 2017, 405 filed a request for relief under CRA’s Voluntary Disclosures Program (VDP), which, once the identity of 405 was revealed, was denied both initially and by a second review. The first review relied on a memo to file of a telephone conversation with Mr. Harris on August 19, 2016, in which in which Mr. Harris confirmed that 405 was still active and Mr. Harris was informed that he had to file both his personal and business tax returns but that the business returns had to be filed first – and concluded that since this conversation had taken place before 405’s disclosure, that such disclosure was not voluntary.

Before finding that the decision not to grant voluntary disclosure was unreasonable because it lacked transparency, so that the matter was to be returned to another decision maker for redetermination, Gleeson J stated (at paras 19, 22):

The failure to address how enforcement action against one taxpayer would “likely” uncover information that is the subject of voluntary disclosure by another taxpayer undermines the elements of justification, transparency, and intelligibility. …

… Neither the decision letter nor the “memo to file” engages in any analysis as to how the enforcement action against Mr. Harris would likely have uncovered the information disclosed by the applicant. The respondent’s submissions to the effect that the Delegate could reasonably conclude, based on Mr. Harris’s role as the sole owner, director, and employee of the applicant alone, that the applicant’s information would have been uncovered in the course of the enforcement action against Mr. Harris is inadequate. Simply looking at the relationship between the parties is insufficient … .

Takenaka v. Canada (Attorney General), 2018 FC 347

CRA to reconsider a penalty imposed for failure to timely file a T1135 by a taxpayer with a nil Part I tax liability

In 2014, the taxpayer filed returns for 2011, 2012 and 2013 in order to claim the Canada child tax benefit (“CCTB”), together with a T1135 form for each year reporting her interest in a Florida property (all of the income from which had been reported by her husband, the co-owner, as well as included in his timely-filed T1135 forms). CRA then assessed her penalties under s. 162(7)(a) for her failure to have filed timely T1135 forms. On a second-level review, the Delegate noted that the taxpayer was “required” to file her tax returns by the due date since she wished to qualify for the CCTB, and “[t]he fact that there was no tax due, no information withheld and the returns were filed voluntarily would not be sufficient grounds to warrant a cancellation under the Taxpayer Relief provisions of the ITA.” – although partial relief was provided by cancelling the penalty for 2012 but not 2011.

After noting that the pre-2013 version of the T1135 form states “[c]omplete and file this statement with your tax return”, which the taxpayer believed meant the filing requirement did not apply to her, because she had no taxable income in 2011 and 2012, he noted (at para. 34):

I agree with Ms. Takenaka that the pre-2013 T1135 form’s instructions are unclear, confusing, and border on misleading. …

Mosley J further found (at paras 46, 48 and 49), before remitting the matter to another CRA delegate for reconsideration of the penalty for 2011:

… She was not required to file a tax return for 2011 before the deadline in 2012. The requirement to file a return for 2011 only arose when she decided to claim the CCTB in 2014. …

… [I]t is clear the Delegate’s mistaken belief that Ms. Takenaka was required to file a timely tax return influenced his determination that she had not acted diligently. … I find the Decision lacks justification and is not intelligible. …

The Applicant’s “second-level” request for relief was based in part on her claim of hardship. However, the Decision does not address the question of hardship at all.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) CRA delegate failed to consider that, as there was no obligation to file a nil Part I tax return, it was reasonable not to timely file a T1135 194
Tax Topics - Income Tax Act - Section 150 - Subsection 150(1.1) - Paragraph 150(1.1)(b) no requirement for individual with nil Part I tax liability to timely file T1 233

Morrison v. Canada (Attorney General), 2018 FC 141

s. 163(1) penalty relief denial was reasonable where taxpayer could have reviewed his return for missing employment income

The taxpayer's return failed to report employment income of $47,770. His accountant confirmed to CRA that it had been his mistake in somehow overlooking the T4 that had been provided to him. In confirming that the Minister’s decision to deny penalty relief was reasonable, Campbell J stated (at paras. 8-9):

The ... second level review [found]:

… [T]he amount omitted … represents a large amount of his employment earnings. Since he remitted the slip information to his accountant, he was aware of this income. Consequently, this fact does not allow me to conclude that he was prevented from ensuring that all income from all his slips were reported and that he did not notice this important discrepancy in his income. [Emphasis added]

Thus, the focus of the Officer’s decision was on the Applicant’s responsibility to exercise care to ensure that all income was reported, and to supply evidence that he was prevented from doing so. ...[T]he Applicant could not establish that he was prevented from meeting his obligation ... .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(1) no relief where taxpayer could not explain not noticing missing T4 64

Gauthier v. Canada (National Revenue), 2017 FC 1173

CRA was not precluded from using information received under the VDP to reassess taxation years before the 10-year s. 220(3.1) period

The applicant transferred $300,000 to a Bahamas bank account in 1978. In order to put his affairs in order so as to not create difficulties for his heirs, he made a voluntary disclosure for his 2005 to 2014 taxation years, which was accepted by CRA on June 17, 2015, so that penalties were waived and interest relief provided for those taxation years. In August 2016, CRA on the basis of the information provided under the voluntary disclosure (but in the face of the taxpayer’s “inability to provide details or documents regarding the initial transfer of $300,000 or the management of his bank account beginning in 1978” (para. 6)) began a review of the applicant’s 1980 to 2004 taxation years with a view to including $173,460 of unreported income and assessing penalties for failure to file T1135s for those years.

The taxpayer argued that issuing any assessment in relation to these adjustment proposals respecting the 2005 years would be contrary to the agreement entered into following the voluntary disclosure, and would be contrary to the CRA’s usual practice in dealing with voluntary disclosures of taxpayers, who are not prepared to commit “tax suicide.”

After noting (at para. 9) that the applicant had not demonstrated that “the respondents in fact agreed to not raise reassessments for tax years prior to the tax years in question in the applicant’s voluntary disclosure,” and in rejecting the applicant’s application for an injunction prohibiting the Minister from issuing the proposed reassessments, Martineau J stated (at para 10):

[A]s this is a question of the possible merits of a prohibition to prevent the exercise of discretion that is clearly assigned to the Minister by the ITA — that of issuing a reassessment — it must be noted that the applicant was unable to cite any specific jurisprudence in this regard, and even less so for a motion for an interlocutory injunction aimed at suspending, to the sole benefit of the applicant, the application of a law of general application such as the ITA, the constitutionality of which is not in question.

After further noting that, under ss. 165(3) and 171, the Tax Court had the power to cancel an assessment, he stated (at para. 13):

…The public interest — i.e. the orderly application of the ITA — takes precedence here over the financial and other inconveniences that the applicant may face by having, like all taxpayers, to follow the normal challenge procedure set out in the ITA.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Act - Section 18.5 taxpayer seeking an injunction prohibiting a reassessment should follow the normal challenge process 224

Matthew Boadi Professional Corporation v. Canada (Attorney General), 2018 FC 53

CRA failed to consider whether late T1135s were filed “voluntarily” for earlier years notwithstanding subsequent years being under review

On March 17, 2015, the taxpayer, which was a Canadian corporation that had held land in Ghana at all relevant times, submitted T1135 returns for its 2005 to 2013 years under the voluntary disclosure program (VDP). Relief was denied on the basis that the taxpayer’s returns were subject to ongoing enforcement action. This was true respecting the taxpayer’s T2 returns for 2011 to 2013, which CRA had been demanding that the taxpayer file in a number of demand letters. At the time of the VDP filing, these returns had at last been filed, but had not yet been assessed. However, the taxpayer’s 2005 to 2010 T2 returns had been filed and assessed.

The taxpayer requested a judicial review, and proposed to the Department of Justice (“DOJ”) that the judicial review be settled on the basis that the 2005-2010 T1135 returns were voluntary and thus would qualify for the program, while the 2011-2013 T1135 returns would be subject to the statutory penalties. The DOJ suggested they discontinue the judicial review and refer the application back for reconsideration, and that the DOJ would advise the new decision-maker that, in the DOJ’s opinion, it was unlikely that the 2005-2010 information returns would have been uncovered by the CRA’s enforcement action. On reconsideration, the Minister’s Delegate once again concluded that the taxpayer’s disclosure was not voluntary.

Ahmed J found (at para 26) that, respecting the 2011-2013 T2 returns, “the enforcement action taken by the CRA would likely have uncovered its obligation to file T1135 returns. … I believe it was reasonable for the Minister’s Delegate to conclude that a CRA agent would seek to follow up with the Applicant regarding its obviously missing T1135 return.”

However, in allowing the application for judicial review on the basis that the Minister’s delegate had not considered the possibility that the T1135 returns for the earlier (2005 to 2010) returns were filed voluntarily, i.e., not subject to likely enforcement action, he stated (at paras 27, 30):

…Although the enforcement action regarding the Applicant’s 2011-2013 T2 returns is clearly considered by the VDP program to be enforcement action regarding the 2005-2010 period, I do not believe the Minister’s Delegate has provided adequate reasons to support her finding that this enforcement action would likely have uncovered the Applicant’s 2005-2010 T1135 filing obligation.

…[T]he CRA officer’s notes do not show that he considered the possibility that some, but not all, of the disclosure may have been voluntary. Notably, the notes include the error repeated in the Minister’s Delegate’s decision that “[a]t the time of the Voluntary Disclosure, the T2 Returns were not assessed”. Nothing in the decision shows that the Minister’s Delegate even considered the DOJ letter, nor does the Decision explain why the Minister’s Delegate believed that the CRA’s enforcement action was likely to uncover the Applicant’s 2005-2010 T1135 returns. In this regard, for these reason and based on the facts of this case, the Decision is unreasonable.

Muir v. Canada (National Revenue), 2016 FC 362

financial hardship references basic living requirements, not university tuition

In dismissing an application for judicial review of a CRA decision not to grant interest or penalty relief for an assessment of a year for which the taxpayer had not filed a tax return, and in rejecting a submission of the taxpayer (whose “returns indicate that he has consistently earned over $100,000 annually”) that garnishing $720 per month produced financial hardship in light inter alia of his children’s university tuition, Annis J stated (at paras. 14-15):

[I]n many Canadian families, children are expected to finance their own university education as an investment which would be recovered in the future by the benefits of the knowledge and skills acquired by a higher education. … In any event, I agree with the CRA’s interpretation that financial hardship for an individual is financial suffering or lack of what is needed for basic living requirements, such as food, clothing, shelter and reasonable nonessentials.

Kotel v. Canada (Attorney General), 2013 DTC 5166 [at 6421], 2013 FC 1015

reasonable assets and income, therefore no financial hardship

McVeigh found that it was reasonable for the Minister find that the taxpayer did not have financial hardship. His net worth was $295,000 (including a rental property), and his wife had income. The taxpayer was clearly able to afford basic necessities, which is incompatible with a finding of financial hardship. The taxpayer's children were in university, but university is not a basic necessity.

Suissa v. Canada (Attorney General), 2013 DTC 5158 [at 6383], 2013 FC 897

penalties on six family members were reasonable but probably unjust

The taxpayers were six family members, each of whom owned a small percentage of some properties in Canada, which were sold at a loss over two years. The Minister assessed penalties under 162(7), which amounted to $10,000 each.

Roy J upheld the Minister's rejection of the taxpayers' applications for relief. The decision to deny each of the six (essentially identical) applications was reasonable, as there were no extraordinary circumstances, there had been procedural fairness, and the decision-makers had not fettered their discretion.

Roy J nevertheless urged the Minister to consider relief, given the combined effect of all six penalties, which would have been just one $10,000 fine if the properties had been held by just one person. As the properties were sold at a loss, some measure of relief would clearly be just.

Roy J noted in particular that the situation was not analogous to the Court of Appeal's "volume discount" analysis in Stemijon, where each taxpayer independently entered the arrangement giving rise to penalties. In the present situation, five of the family members were essentially uninvolved in the decision-making (para. 41).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) penalties on six family members were reasonable but probably unjust 200

Cogesco Services Limited v. Canada (Attorney General), 2014 DTC 5026 [at 6661], 2013 FC 1238

ambiguous penalty provision

The taxpayer, which was a non-resident corporation that had no liability for tax as a result of losses, was assessed for $15,000 of penalties under s. 162(2.1) (plus interest) for its failure to file returns for its 2005 to 2010 taxation years. The taxpayer sought relief under s. 220(3.1) for $12,500 of these penalties (conceding that there should be no relief for 2010 given the Federal Court of Appeal decision in that year in establishing that a penalty of $2,500 was payable for that year under s. 162(7) (rather than under s. 162(2.1).)

The taxpayer sought relief on the basis of the conflict between the Goare and Tax Court decisions as to the application in these circumstances of s. 162(2.1), and the finding at the Federal Court of Appeal that this provision did not apply (but, rather, was supplanted by s. 162(7) (paras. 10, 20)).

CRA did not grant relief, on the basis that the Federal Court of Appeal had established that the penalty was payable. In granting the application for judicial review, Roy J stated (at para. 21) (TaxInterpretations translation) "quite simply, the reasons given for refusing the request for relief did not correspond in any way with the argument advanced by the applicant."

Canada v. Guindon, 2013 DTC 5133 [at 6117], 2013 FCA 153, aff'd supra

The taxpayer provided grossly negligent opinions on a charitable donation scheme (which unbeknownst to her was a scam) and signed charitable donation receipts in connection therewith. The Minister assessed her for penalties of $546,747 under s. 163.2(5), calculated as 50% of the purported federal tax savings of all 134 participants in this program.

After finding that the s. 163.2 assessment was valid, Stratas JA noted that, although s. 163.2 penalties were imposed on a mechanical basis, the Minister was required on any application for relief under s. 220(3.1) to take the "fairness purpose" (para. 58) of that provision into account (although here, no application for such relief had been made, per. para. 61). He further stated (at para. 59):

[T]he Federal Court may quash unreasonable exercises of discretion by the Minister – i.e., exercises of discretion that fall outside the range of the acceptable and defensible on the facts and the law: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190. Depending on the circumstances, the range available to the Minister can be quite narrow: Canada (Attorney General) v. Abraham, 2012 FCA 266 at paragraphs 37-50; and in a different context, see Canada (Attorney General) v. Canadian Human Rights Commission, 2013 FCA 75 at paragraphs 13 and 14.

NRT Technology Corp v. Canada (Attorney General), 2013 DTC 5056 [at 5816], 2013 FC 200

The taxpayer failed to withhold income tax on a bonus it paid to its president, but caught the error 11 days later without any CRA involvement. The Minister's decision not to waive penalties was based chiefly on "the company's failure to quickly remedy the error." Mandamin J stated (at para. 40):

It is not clear which "error" the Director was referring to in his decision, nor how the Applicant failed to remedy the error, regardless of whether the error was the failure to remit or to address payment of the final penalty amount. The evidence supports the Applicant's claim that it quickly remedied its failure to remit the amount due and that it took steps to address the penalty owed as a result of the assessment.

The Minister's decision therefore was not justified, transparent and intelligible, and was sent back for redetermination.

3563537 Canada inc. v. Canada Revenue Agency, 2013 DTC 5025 [at 5622], 2012 FC 1290

The taxpayer's voting shares were held mainly by a pair of business associates ("Ouimet and O'Neill"). O'Neill was responsible for preparing the taxpayer's 2007 return, but failed to provide his tax preparers with the documentation in a timely fashion. In fact, O'Neill had perpetrated a fraud on the taxpayer which eventually lead to a brokerage O'Neill worked for paying the taxpayer $7 million in compensation. The Minister denied the taxpayer's application for relief of interest and late-filing penalties for its 2007 return.

Scott J. granted the taxpayer's appeal and remitted the matter for reconsideration. The Minister's reasons had stated that the taxpayer was aware in 2007 that its return would be late, which ignored that the taxpayer had no reason in 2007 to believe that it was unreasonable to entrust O'Neill with its return. Moreover, there was no discussion of O'Neill's fraud.

T & S First Choice Renovations Limited v. Canada Revenue Agency, 2012 DTC 5152 [at 7377], 2012 FC 1146

The taxpayer appealed the Minister's decision to deny relief of interest on corporate tax, payroll deductions, and GST accounts. Phelan J. stated (at para. 11):

I can find nothing unreasonable in the Minister's decision. The factors were examined and a rational conclusion was reached on each:

  • There was no causal connection between [director] Mr Dakha's injury and the failure to meet tax obligations as there was another director capable of meeting the fiscal obligations.
  • The continuity of operations was a moot point as the corporation had ceased operations in 2008 for reasons other than pending tax liabilities.
  • The corporation had not made a meaningful attempt to address the tax portion of the debt although Mr. Dakha certainly did.
  • The corporation had not exercised reasonable care in conducting its tax affairs because it had past problems with compliance. The corporation had allowed penalties to accrue on its accounts since 2002.

Taylor v. Canada (National Revenue), 2012 DTC 5141 [at 7315], 2012 FC 994

In a previous hearing, the Federal Court ordered a redetermination of taxpayer's application for s. 220(3.1) relief. Martineau J. affirmed the Minister's decision to again deny such relief, and noted (at paras. 13-15) a number of factors that demonstrated that the review process had been fair, including that the redetermination was carried out by a different CRA office than the first, by personnel who had no prior exposure to his case, and that the taxpayer had been given a chance to comment in person on the Technical Advisor's draft report and present arguments.

Mytting v. Canada (National Revenue), 2012 DTC 5084 [at 6996], 2012 FC 465

The taxpayer had accumulated interest from a tax debt in a prior taxation year. He applied for relief from the interest on the basis that the Minister had misled him into thinking that there was no outstanding debt in the intervening years.

Barnes J. affirmed the Minister's decision to deny relief. The taxpayer's assertions about being misled lacked an air of reality, given that he had filed documents with CRA which clearly indicated that he was aware of his tax debts. Even if the taxpayer were unaware of his debts, it was not clear that there had been any detrimental reliance, i.e. that the taxpayer would have paid down his debt at all.

Spence v. Canada Revenue Agency, 2012 DTC 5061 [at 6872], 2012 FCA 58

The taxpayer reported $22,000 of income when his income was in fact $60,000. The Court affirmed that the Minister's decision not to waive the associated penalties was reasonable. Sharlow J.A. stated (at para. 8):

The amount of the penalty was approximately $7000, but the assessment that took into account the unreported income as well as the available credits resulted in less than a $200 change to Mr. Spence's net tax liability. We have no doubt that the Minister was aware of these facts. However, we are unable to say that the amount of the penalty, considered against all the relevant circumstances, is such a compelling factor in Mr. Spence's favour that it renders the Minister's decision unreasonable, particularly in light of the amount of the unreported income compared to Mr. Spence's total income.

Toastmaster Inc. v. Canada (National Revenue), 2012 DTC 5008 [at 6555], 2011 FC 1309, aff'd 2013 DTC 5017 [at 5601], 2012 FCA 317

The taxpayer was a U.S. resident which operated in Canada from 1999 to 2008, under the misapprehension that it did not have a permanent establishment in Canada and therefore presumed that it was not required to file returns. On discovering its error in 2006, the taxpayer filed returns under the Voluntary Disclosure Program "(VDP"). Because of substantial loss carry-forwards and carry-backs, its total tax owing was $42,361. The Minister waived penalties but not interest, and the interest owing for 2001 through 2003 was $346.718,.17, $125,110.24 and $142,974.35.

In the second-level review decision it was found that, because the requirement to file a T2 return does not depend on the existence of a permanent establishment, the taxpayer had not exercised reasonable care in its tax compliance; furthermore, the continuity of the taxpayers' business operations and its employees' employment would not be jeopardized because the business no longer operated. O'Reilly J. agreed with these reasons, noting that the delegate at the second level had correctly treated the guidelines as non-binding. He also stated (at para. 36):

Finally, with respect to Toastmaster's submission that the result is plainly absurd and harsh, I cannot agree. The Minister's delegates reasonably concluded that Toastmaster's situation was brought about by its own unreasonable errors. By the time it filed its final VDP submissions in 2008, its outstanding balance owing was not large, taking into account the application of eight years of loss carry-forwards and carry-backs, effectively reducing the amount of net tax owing. Much more tax would have been payable in Toastmaster's profitable years had timely filings been made. And it is on those amounts that arrears interest was applied.

Stemijon Investments Ltd. v. Canada (Attorney General), 2011 DTC 5169 [at 6250], 2011 FCA 299

rigid application of IC/no volume discount

The taxpayers had the same financial representative, who failed to file foreign property ownership form T1135 for several taxation years, even though he had done so in other years. The Court found that the Minister's decision not to grant relief on the resulting interest and penalties was unreasonable. The decision relied entirely on Information Circular 07-01 ("Taxpayer Relief Provisions") without any demonstrable understanding that an information circular is not law. The decision should have referred to s. 220(3.1), being the actual authority for the Minister's discretion.

Nevertheless, the Court affirmed the decision because it was clear that the taxpayers' application had no merit. The financial representative's belief that the T1135 forms were unnecessary (supposedly on the assumption that the Minister got the necessary information from other filings) was patently unreasonable.

The six taxpayers also argued that it was unfair that six separate penalties be levied against them for only one mistake made by their common representative. The Court dismissed this plea for a "volume discount," noting that "each [taxpayer], accepting the risk, chose... to have a representative look after the filings. That risk materialized..." (para. 51).

Bozzer v. Canada, 2011 DTC 5106 [at 5922], 2011 FCA 186

most recent 10 years' interest on old reassessments can be waived

The trial judge found that the "taxation year" referred to in s. 220(3.1) is the year of assessment of the related tax debt and not the year in which the interest accrued and, therefore, that the subsection only gives the Minister the discretion to waive interest that accrued within 10 years of the end of the taxation year in which the tax debt arose where the taxpayer applied for relief by the end of that period.

The Court of Appeal accepted the taxpayer's submission (at para. 12) that subsection 220(3.1) "permits the Minister to exercise his discretion to cancel interest accrued in any taxation year ending within ten years before the taxpayer's application for relief, regardless of when the underlying tax debt arose." Stratas J.A. stated (at para. 9) that "nowhere does subsection 220(3.1) mention the year of assessment as a relevant consideration." He noted (at para. 18) that, taken in isolation, "interest... payable... in respect of a taxation year" was ambiguous. Furthermore, the interpretation at trial was (para. 36) "contrary to the purpose of subsection 220(3.1): to allow taxpayers to ask for relief against penalties and interest and to allow the Minister to grant such relief where, in his view of the overall fairness of the situation, it is appropriate to do so."

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Vested Rights 114

Jaka Holdings Ltd. v. Canada Revenue Agency, 2011 DTC 5081 [at 5831], 2011 FC 518

Heneghan J. found that a decision from a second-level CRA review of the taxpayer's request to waive interest and penalties breached the taxpayer's procedural fairness rights, because it was substantially a copy of the first-level decision. As it was not clear what the result of an independent review would have been, the matter was referred back to be considered by a different CRA adjudicator.

Bozzer v. Canada, 2010 DTC 5025 [at 6612], 2010 FC 139, rev'd 2011 DTC 5106 [at 5922], 2011 FCA 186

The taxpayer argued that the 10-year limitation period in s. 220(3.1) commences with each year in which interest accrues, rather than the year of assessment giving rise to the interest (and therefore that the Minister can always forgive the last ten years of interest, regardless of the time since the assessment year). Shore J. rejected the argument, as it was inconsistent with the Court of Appeal's analysis in Montgomery of the meaning of "taxation year" in s. 127(5). It was irrelevant that s. 127(5) had since been repealed.

Canada Revenue Agency v. Telfer, 2009 DTC 5697, 2009 FCA 23

Following the filing of notices of objection by the taxpayer respecting the denial of the deduction of limited partnership losses, the Minister indicated that her Notices of Objection would be held in abeyance pending the outcome of litigation respecting another taxpayer, which was ultimately determined against that taxpayer. Before finding that an application for judicial review of the decision of the Minister not to waive interest should be dismissed, Evans, J.A. stated (at para. 5702):

"those who, like Ms Telfer, knowing fail to pay a tax debt pending a decision in their related case normally cannot complain that they should not have to pay interest and if they had properly paid the sum claim to be due, and were later found not liable to pay it, the Minister would have had to repay the overpayment, with interest ..."

Vitellaro v. Canada (Customs and Revenue Agency), 2005 DTC 5275, 2005 FCA 166

After the Minister refused to waive interest and penalties in an application based on financial hardship, the matter was referred back to the Minister for redetermination given that the review of CCRA of the financial position of the taxpayer took into account only the interest and penalties owing by him and not the amount of taxes owing, and treated the fair market value of a property as being equal to its purchase price in 1989, without taking into account that there would have been a decline in value subsequent to that date.

Johnston v. The Queen, 2003 DTC 5494 (FCA)

The decision of the Minister to deny an application for cancellation of interest was remitted to the Minister for reconsideration given that the decision was based on misapprehension of facts that were material in reaching the decision.

Montgomery v. MNR, 94 DTC 6367, [1994] 2 CTC 57 (FCTD), aff'd 95 DTC 5032 (FCA)

S.127(5) of S.C. 1993, c. 24, which effectively provides that s. 220(3.1) "applies to the 1985 and subsequent taxation years" indicates that s. 220(3.1) only applies to penalties and interests arising from assessments for the 1985 and subsequent taxation years, rather than giving the Minister the discretion to cancel or waive any interest payable that arises in the 1985 and subsequent taxation years (including interest referable to tax returns for 1984 or previous taxation years). Pinard J. noted (pp. 6368-6369) that "there would have been no need to include 'taxation year' or 'subsequent taxation year', if the cutoff point were to be determined by reference to the accruing of interest and not the year for which a return was filed."

Hillier v. Attorney General of Canada, 2000 DTC 6627 (FCTD)

The time taken to complete the initial reassessment of the taxpayer (from January 1994 to the spring of 1995) was not unreasonable given that the auditors had to also look at records of companies partially owned by the applicant Although nothing transpired for approximately two and one-half years after the applicant filed his notices of objection, it was to be remembered that the applicant knew the amount of taxes and interest that were payable and could eliminate accrual of interest by making a payment. O'Keefe indicated (at p. 6630) that "a high level of deference should be given to decision makers acting pursuant to subsection 220(3.1)."

See Also

Fortier v. Canada (Procureur général), 2022 CF 374

violation of procedural fairness where taxpayer not given a chance to respond

When the plaintiff’s application for the Canada emergency response (CERB) benefit was initially declined, he provided supplementary documents to CRA, which were reviewed by a second CRA agent. The agent then contracted the plaintiff’s former employer directly, and was told that the plaintiff had left employment because his contract had reached its termination date, rather than for COVID reasons. That second agent then denied the claimed benefits without contacting the plaintiff.

Before finding that the matter should be remitted to another agent for a fresh determination, St-Louis J stated (at paras. 14-15, TaxInterpretations translation):

[T[he CRA agent violated the principles of procedural fairness. …

The Federal Court of Appeal discussed the principles of procedural fairness in Canadian Pacific Railway v. Canada (Attorney General), 2018 FCA 69 at paragraph 56, stating that "[n]o matter how much deference is accorded administrative tribunals in the exercise of their discretion to make procedural choices, the ultimate question remains whether the applicant knew the case to meet and had a full and fair chance to respond. It would be problematic if an a priori decision as to whether the standard of review is correctness or reasonableness generated a different answer to what is a singular question that is fundamental to the concept of justice – was the party given a right to be heard and the opportunity to know the case against them? Procedural fairness is not sacrificed on the altar of deference.”

Sangha v. Canada (Attorney General), 2020 FC 712

delegate's decision failed to contain “a coherent assessment of the relevant law and significant facts and submissions”

Mr. Sangha entered the 2017 taxation year having made excess contributions to his TFSA, but then withdrew all the funds two months before received a CRA letter (the “June 2017 Letter”) informing him of his excess 2016 TFSA contributions and warning that if he continued to make excess contributions “in the future”, he could be subject to a monthly 1% penalty tax. However, Mr. Sangha contributed $35,000 to his TFSA in September 2017 (allegedly reflecting a misunderstanding that he was not required to wait until January 2018 to make this contribution), and maintained the resulting excess contribution for almost a year.

CRA assessed penalty tax, including on the excess monthly balances in 2017 prior to the June 2017 Letter. In response to the second request of Mr. Sangha for a penalty waiver pursuant to s. 207.06(1), the delegate’s decision relevantly only referred to the fact that Mr. Sangha had over-contributed following the warning.

Before allowing the application and returning the matter for reconsideration by another delegate, Walker J found that the letter thus had failed to address material issues including (i) the fact that the assessments effectively were retroactive to before the second overcontribution notwithstanding the wording of the June 2017 Letter (which given the emphasis of Mr. Sangha on this issue in his review application, was by itself “a determinative error” (para. 27)), and (ii) Mr. Sangha’s submission that the timing of his second overcontribution was a “reasonable error” (i.e., ignoring an issue specifically raised in s. 207.06(1).)

She concluded (at para. 34), applying Vavilov:

I find that the Decision does not reflect a coherent assessment of the relevant law and significant facts and submissions from the record and that the Minister’s refusal to exercise their discretion was not intelligible or justified.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 207.06 - Subsection 207.06(1) failure of delegate’s decision to address taxpayer’s submissions and conditions in s. 207.06(1) 481

Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65

correctness standard applied to questions of law of central importance, reasonableness standard applicable to most reviews

The standards to be applied in the judicial review of administrative decisions have been revised. Generally, administrative decisions are to be reversed if they are unreasonable. There no longer should be an inquiry as to the relative expertise of the decision maker in determining the standard of review to be applied to the decision.

The presumption that a reasonableness review should be applied can be rebutted where there is a statutory appeal mechanism in place (thereby entailing application of a standard of correctness to questions of law) – however, the Court made it clear that this did not include provisions, such as ss. 18 to 18.2, 18.4 and 28 of the Federal Courts Act – so that this aspect does not appear to apply to reviews of CRA decisions (other than assessments). Furthermore, the rule of law requires that the standard of correctness be applied to legal questions, namely constitutional questions, general questions of law of central importance to the legal system as a whole (e.g., questions of res judicata and abuse of process, or of solicitor-client privilege) and questions related to the jurisdictional boundaries between two or more administrative bodies.

The Court also made numerous comments on application of the reasonableness standard, for instance (at para. 121):

[T]he reviewing court must be able to trace the decision maker’s reasoning without encountering any fatal flaws in its overarching logic, and it must be satisfied that “there is [a] line of analysis within the given reasons that could reasonably lead the tribunal from the evidence before it to the conclusion at which it arrived” … . Reasons that “simply repeat statutory language, summarize arguments made, and then state a peremptory conclusion” will rarely assist a reviewing court in understanding the rationale underlying a decision and “are no substitute for statements of fact, analysis, inference and judgment” … .

Although the concurring reasons of Abella and Karakatsanis JJ agreed in the result (which was to reverse an unreasonable decision of the Registrar of Citizenship), they disagreed with the revised standard of review adopted by the majority, stating (at para. 195):

Presented with an opportunity to steady the ship, the majority instead dramatically reverses course — away from this generation’s deferential approach and back towards a prior generation’s more intrusive one. Rather than confirming a meaningful presumption of deference for administrative decision-makers … the majority’s reasons strip away deference from hundreds of administrative actors subject to statutory rights of appeal; rather than following the consistent path of this Court’s jurisprudence in understanding legislative intent as being the intention to leave legal questions within their mandate to specialized decision-makers with expertise, the majority removes expertise from the equation entirely and reformulates legislative intent as an overriding intention to provide — or not provide — appeal routes; and rather than clarifying the role of reasons and how to review them, the majority revives the kind of search for errors that dominated the pre-C.U.P.E. era. In other words, instead of reforming this generation’s evolutionary approach to administrative law, the majority reverses it, taking it back to the formalistic judge-centred approach this Court has spent decades dismantling.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Act - Section 18.1 - Subsection 18.1(2) correctness appellate standard for questions of law not generally applicable to s. 18.1 reviews 984
Tax Topics - General Concepts - Stare Decisis prior decisions can be departed from where this will reduce uncertainty 254
Tax Topics - Statutory Interpretation - Consistency presumption of consistent expression 138
Tax Topics - Statutory Interpretation - Ordinary Meaning administrative decisions must have regard to the provision’s text, context and purpose 222

Agence du revenu du Québec v. Schwartz, 2019 QCCA 2068

Court of Quebec lacked the jurisdiction to cancel interest attributable to its own delays

The judge cancelled part of the interest included in the ARQ assessment (and imposed under s. 28 of the Act respecting the Ministère du Revenu (the “AMR”)), namely, for the period from June 8, 2017 to January 25, 2018, on the ground that the second hearing day had been postponed to January 25, 2018 due to the illness of the judge and counsel for the ARQ.

The Court stated (at paras. 12-14, 16):

Section 94.1 AMR provides that the Minister of Revenue may waive (prospectively), in whole or in part, interest incurred with respect to a fiscal debt owed to the State, or it may cancel (retroactively), in whole or in part, the interest exigible on such a debt. …

This Court previously ruled that, given the wording of section 94.1 AMR, the Court of Québec does not have jurisdiction to cancel the interest provided for in section 28 AMR … .

In short, a taxpayer cannot appeal to the Court of Québec a decision of the Minister of Revenue made under section 94.1 AMR refusing to waive or cancel the interest on a fiscal debt. …

If the respondent wishes to have the interest cancelled, he could consider submitting an application to the Minister of Revenue. If unsuccessful, the Minister’s decision might then potentially be subject to a judicial review application in the Superior Court, in accordance with the applicable standard and grounds for review.

1092072 Ontario Inc. (carrying on business as Elfe Juvenile Products) v. ARQ, 2017 QCCS 5369

the rigid GST/QST policy of not cancelling interest below 4% on wash transactions is unlawful

The ARQ had the same published policy as CRA that it will consider cancelling the interest in excess of 4% for a failure to collect and remit sales tax (even outside a voluntary disclosure scenario) in a “wash transaction,” i.e., one where the purchaser is entitled to full input tax credits. Moore JCS annulled a decision of the ARQ to only cancel interest down to the 4% level in a wash transaction, and sent the decision back for reconsideration by the ARQ. He stated (at paras. 32-35, TaxInterpretations translation):

[T]he Agency felt unable to cancel more than the interest portion indicated in … the Interpretation Bulletin of 4% of the uncollected sales tax.

Based on the Interpretation Bulletin, the Agency has placed itself at odds with this direction from Stemijon: "A policy can help or guide the exercise of discretion under a statute, but it cannot compulsorily dictate how this discretion is exercised."

The Agency did not consider the possibility of limiting the interest to 3%, 2% or 1% of the uncollected sales tax, or of cancelling it completely, as authorized by section 94.1 of the Tax Administration Act.

This decision is … unreasonable.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 281.1 - Subsection 281.1(1) the wash-trading guidelines being too rigid, ARQ was directed to consider whether interest below 4% should be cancelled 601

Canada (National Revenue) v. Sifto Canada Corp., 2014 DTC 5083 [at 7090], 2014 FCA 140

Federal Court may declare that penalties assessed contrary to the VDP should not have been made

The taxpayer's Federal Court motion alleged that the Minister had accepted disclosures made by it respecting the transfer prices of rock salt it sold to a related US corporation in 2004-2006 as meeting the requirements of the voluntary disclosure program. Subsequently, the Minister entered into agreements with the taxpayer to settle its income tax liability for 2004-2006, based on mutual agreement with the United States taxing authorities under Articles IX and XXVI of the Convention. The Minister subsequently informed the taxpayer that she did not consider herself bound by the agreements and reassessed the taxpayer, including for penalties under s. 247(3).

In the Federal Court the taxpayer sought a declaration that the penalty assessments were "invalid and unenforceable," and also appealed the reassessments to the Tax Court.

Sharlow JA confirmed the decision of the Federal Court to dismiss the Minister's motion to strike out the taxpayer's application. The Minister's decision not to grant relief from penalties was an exercise of discretion under s. 220(3.1), which is clearly reviewable by the Federal Court. While the Federal Court could not invalidate the reassessments as only the Tax Court had the jurisdiction to determine whether all of the statutory conditions for imposition of a penalty had been met (para. 22), the Federal Court had a range of options including "a declaration that the penalties should not have been assessed in the face of the valid voluntary disclosure" (para. 25).

Knight v. The Queen, 2012 DTC 1144 [at 3300], 2012 TCC 118 (Informal Procedure)

Jorré J. found that the taxpayer, having no reasonable excuse for his failure to report over $40,000 in salary and severance pay, being nearly half his income for the year, was liable under s. 220(3.1) of the ITA for a penalty of 10% of the unreported income. Although technically outside the Court's jurisdiction, Jorré J. found it likely that the taxpayer was also liable for a further 10% penalty under British Columbia's Income Tax Act. The federal and provincial penalties totaled $8175. However, taxes had already been withheld from the taxpayer's unreported income. The federal and provincial treasury were, at the time of reassessment, out of pocket only $3,874, including interest.

Jorré J. recommended that the taxpayer apply for discretionary relief of penalties, and that his application be treated leniently, given that the taxpayer's penalties were over 200% of the amount of omitted tax. In other words, the taxpayer's penalties would have been considerably lower if his conduct had been more blameworthy - 50% of the omitted amount if there had been gross negligence, and between 50% and 200% if the taxpayer were charged on summary conviction.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(1) penalties would have been less for more blameworthy conduct 185

Sherry v. Canada (National Revenue), 2011 DTC 5168 [at 6247], 2011 FC 1208

Simpson J. found that the Minister's decision to deny relief was not given with adequate reasons, but the taxpayer could not establish that it was unreasonable. In the course of so finding, she found that the rules of procedural fairness did not entitle the taxpayer to comment on CRA's preliminary conclusions before the final decision was made (paras. 16-18).

Meier v. Canada Revenue Agency, 2011 DTC 5127 [at 6071], 2011 FC 840

Simpson J. granted the taxpayer's appeal for interest relief. The taxpayer, a single mother of three, had an annual income of $11,654. She was unable to afford to make the interest payments out of her income, and it was unreasonable in the circumstances for the Minister to insist that she use her proceeds from the sale of a rental property, liquidate her RRSP, or agree to a payment plan, in order to make those payments. These steps would have diverted resources that the taxpayer needed to cover necessities. Simpson J. stated (at para. 20):

Essentially, CRA thought that the Applicant should move from poverty to abject poverty and would not forgive her interest unless she [used the sale proceeds of the rental property to pay the interest rather than buy a trailer home]. This position was, in the circumstances of the case, utterly unreasonable.

Yachimec v. Canada (National Revenue), 2011 DTC 5014 [at 5575], 2010 FC 1333

The taxpayer suffered a brain injury in a vehicle collision, causing him to eventually develop paranoid delusions, including the delusion that the federal government had no right to tax. Several years after the collision, he stopped paying tax altogether. Near J. found that, while it was open to the Minister not to waive the associated interest and penalties, the delegate who made that decision had done so on a misapprehension of the facts. He wrote at para. 45:

The Respondent submits that it was for the [taxpayer] to satisfy the Minister that not only did he suffer an injury, but that the injury was the cause of his failure to file tax returns and pay tax. The Respondent relies on Formosi v. Canada (Revenue Agency), [2010 DTC 5057] 2010 FC 326 wherein a delinquent taxpayer failed to convince the Court that there was any connection between several deaths and illnesses of immediate family members and his inability to pay his taxes. This case has no relation to the present matter in which there is ample documentary evidence to support that the Applicant suffered an injury and that this was the cause of his failure to pay tax. That these events, the brain injury and the onset of delusion, are not temporally simultaneous does not negate their existence.

The Minster was ordered to assign a new delegate to reevaluate the decision.

Fleet v. Canada (Attorney General), 2010 DTC 5094 [at 6912], 2010 FC 609

An application for judicial review of a decision of the Minister to not waive interest and penalties on tax payable by the taxpayer as a result of an over-contribution to his RRSP in respect of which the taxpayer did not file a return until years later was dismissed. Crampton, J. noted that the taxpayer, after finding out about the over-contribution, waited several years before withdrawing his over-contribution and, as a result of undue reliance on his investment advisor, did not file his waiver request on a timely basis, and also waited rather than filing the returns reporting the over-contribution income on a timely basis. He stated (at para. 29) that:

"The law is well established that taxpayers are 'directly responsible for the actions of those persons appointed to take care of [their] financial matters'."

Cayer v. Canada Revenue Agency, 2009 DTC 5191 [at 6278], 2009 FC 1195

CRA incorrect in failing to conisder interest relief on penalty

The CRA, after granting a previous request of the taxpayer for interest relief in respect of some of the taxation years in question, declined to grant relief in respect of interest on a gross penalty assessment (that at the time of the review was still before the courts) on the basis that the taxpayer could only reverse such interest through a successful appeal of the penalty assessment itself based on the appropriateness of the penalty.

As the CRA had thus committed an error by failing to consider that the interest on the penalty might be reversed on the basis of fairness considerations, the taxpayer's request for fairness review of such interest was returned to the Minister for reconsideration.

Iszcenko v. The Queen, 2009 DTC 794, 2009 TCC 229 (Informal Procedure)

Hogan, J. recommended (para. 13) that the Minister waive a penalty under s. 163(1) given that the non-reporting of dividend income received by the taxpayer was attributable to her troubled state following the death of her husband and "it is a known fact that people suffering from depression have serious lapses of concentration that can prevent them from accomplishing tasks that are simple for healthy individuals".

Laflamme v. Canada (National Revenue), 2010 DTC 5070 [at 6794], 2008 FC 1403

The taxpayer lost three family members, including her husband, in the course of a few years, her tax accountant died of cancer, her son became suicidal, and she fell into a depression for which she received psychiatric treatment. Consequently, the taxpayer did not file tax returns from 2003 to 2005. The Minister did not waive interest or late penalties, on the grounds that the taxpayer "failed to act quickly to remedy the delay" in payment. Frenette J. reversed the Minister's decision and granted relief.

Comeau v. CCRA, 2008 DTC 6248, 2005 DTC 5489

The trial judge had applied a standard of patent unreasonableness in reviewing a decision of the Agency not to cancel interest, whereas it was subsequently decided that the correct standard was one of reasonableness. Nonetheless, the decision of the Agency was not unreasonable.

Bremer v. Canada (Attorney General), 2006 DTC 6125, 2006 FC 91

After indicating (following Lanno v. The Queen, 2005 DTC 5245, 2005 FCA 153) that the applicable standard of review was one of reasonableness, O'Keefe J. went on to find that the relevant decision makers, in reviewing an application of the taxpayer for relief from additional late filing penalties of 1% per month in a situation where he had paid the amount of tax owing by him almost immediately after the tax filing deadline, but had not filed his tax return until five months later, had committed a reviewable error by proceeding on the basis that an amount had been outstanding until the date of filing the return. The matter was referred to a different decision-maker for re-determination.

Lund v. Canada (Attorney General), 2006 DTC 6367, 2006 FC 640

The individual responsibility for a fairness review had done very little independent review of the evidence and had relied heavily on what was told to him by the auditor who had been alleged by the taxpayer to be biased. This error constituted a sufficient to send the matter back for re-determination on the merits.

Cole v. Canada (Attorney General), 2005 DTC 5667, 2005 FC 1445

Assessments of the taxpayer's 1987 and 1988 taxation years was delayed by the Minister because of appeal proceedings of a procedural nature respecting an adverse judicial decision for the taxpayer's 1983 taxation year.

It was not proper for the Minister to refuse to consider the taxpayer's request for waiver of interest that accrued during this delay on the basis that the court proceedings were beyond the control of the Canada Revenue Agency - even under the Minister's own guidelines, matters which were beyond the control of either the taxpayer or the Agency might still entitle the taxpayer to relief from interest. Furthermore, it was not appropriate for the Minister to cease work on the notices of objection for the 1987 and 1988 taxation years pending resolution of the 1983 tax year litigation. The procedure for appeal by the taxpayer in subsection 169(1) did not lessen the obligation of the Minister to assess with "all due dispatch".

Babin v. Canada (Customs and Revenue Agency), 2005 DTC 5414, 2005 FC 972

Before dismissing an application for judicial review of a decision of the CCRA not to waive interest and penalties in respect of the failure of the taxpayer's accountant to file the taxpayer's return on time while the taxpayer was out of the country, and the omission from the return of a T-4, Noël J. stated:

"Where a body such as the CCRA is given a broad discretion like that accorded by s. 220(3.1) of the ITA, the deference shown to that body should be broad. The reviewing court should consider whether the discretion was 'exercised in good faith and, where required, in accordance with principles of natural justice, and where reliance has not been placed upon considerations irrelevant or extraneous to the statutory purpose' .... If these criteria are properly met, the Court should not interfere."

Karia v. Canada (Minister of National Revenue), 2005 DTC 5282, 2005 FC 639

On the basis of a "no-names" disclosure on behalf of the taxpayers that they had unreported income and that the individual taxpayer had been charged by an unnamed police force with a minor fraud and that an investigating officer had mentioned to the individual that the police might notify CCRA that he had failed to report income tax, CCRA indicated that it would consider a disclosure on behalf of the taxpayers to be valid based on the facts described to CCRA. When the taxpayers then disclosed particulars including their identity, CCRA indicated that it would not consider the disclosure to be voluntary. This was based on an understanding that there was an "informal relationship" with the police force in question amounting to an unwritten agreement, so that at the time of the disclosure by the taxpayers, there was an investigation by an authority with which CCRA had an information exchange agreement, as described in paragraph 6(a) of Information Circular 00-1R.

Strayer D.J. found that the requirements of promissory estoppel existed (on the basis of a "promise" provided in the Information Circular that a disclosure will be treated as voluntary if the client initiates it, subject to it being considered involuntary if the client initiates the disclosure with the knowledge of an audit, investigation etc. by the CCRA or an authority with which CCRA had an information exchange agreement) and on the basis that the taxpayers had no knowledge that the police force was such an authority with which CCRA had an information exchange agreement (even if the informal arrangement between that police force and CCRA could be described as a qualifying agreement). The matter was referred back to the Minister with the direction that the disclosure of the taxpayers be treated as voluntary and assessed under the voluntary disclosure program on that basis.

HealthSmith Medical Inc. v. Canada (Minister of National Revenue), 2005 DTC 5138, 2005 FC 239

The Minister had not acted unreasonably in refusing an application for waiver of interest and penalties on the basis of financial hardship, on the basis that the applicant [correct] had ceased operations and therefore collection would not jeopardize the continued operation of a business or the continued employment of employees.

Galetzka v. Canada (Minister of Customs and Revenue), 2004 DTC 6472, 2004 FC 672

The taxpayer lived separate and apart from her husband under the same roof for economic reasons, her estranged husband did not give her any money except $400 per month for groceries, and she earned $12,000 per year. Under these circumstances, the decision of the Minister not to waive interest on the basis that she could obtain financing from her husband was patently unreasonably. The matter was referred back to the Minister for re-determination with directions that the only fair and reasonably decision was for interest and penalty to be waived upon the taxpayer paying $500 as a reasonable payment arrangement.

Vitellaro v. Canada (Customs and Revenue Agency), 2004 DTC 6362, 2004 FC 561

Before finding that a decision of the Minister not to waive interest and penalties on unpaid GST and income tax of the taxpayers did not breach a standard of patent unreasonableness, Vaughan Finckenstein J. rejected a submission "that it would be unfair to assume that they have to mortgage or sell their house in order to pay interest and penalties on their tax debt" (p. 6365).

Miller v. Canada(Customs & Revenue Agency), 2004 DTC 6057, 2004 FC 46

The Minister's decision not to waive penalties for the late filing of a return was remitted for redetermination given that such decision did not appear to take into account various relevant factors including the assertion of the taxpayer (corroborated by her accountant) that the return had been prepared and mailed on time, the indication on the return that it was prepared before the filing date, and her good compliance history up until the time in question when she was under serious emotional and mental distress.

Heels v. Canada (Attorney General), 2003 DTC 5712, 2003 FC 1346 (FCTD)

The Minister's decision not to grant relief from interest and penalties for the late filing of returns was not patently unreasonable given that the illness of the mother of the applicant, which formed the basis for the requested relief, did not prevent the applicant from continuing to operate her music studio, and her late-filing of returns was part of a long-established pattern that continued after the death of her mother.

Maarsman v. Canada (Customs and Revenue Agency), 2003 DTC 5677, 2003 FC 1234

The decision of the Minister not to cancel interest and penalties was referred back to CCRA for reconsideration based on there having been a failure to apply ss.161(1) and (7) fairly, there having been an incorrect belief that the taxpayer was not aware of her obligation to file a 1987 return, and in light of the considerable delays of the CCRA in dealing with the taxpayer's second fairness request thereby resulting in further accruals of interest.

Brickenden v. CCRA, 2003 DTC 5559 (FCTD)

The decision of a committee not to grant administrative relief was based on incomplete and incorrect information, and overruled the finding of the initial review officer that relief should be granted based on a review of more correct information. The decision rejecting the request for a waiver of penalties and interest was quashed and the files were directed to be returned to the respondent for reconsideration by a different decision maker.

Chriscon Investments Ltd. v. Attorney General of Canada, 2003 DTC 5332 (FCTD)

The taxpayer agreed to a reassessment of its taxes that disallowed a deduction of $170,000 but offset the resulting income inclusion through the carry back of losses sustained in subsequent taxation years. The taxpayer's application for waiver of a portion of the interest and penalties relating to the reassessment, based on it not having been told that there would be $24,087 in interest payable and on it experiencing cash flow problems, was dismissed. The agreement signed by the taxpayer indicated that the income tax payable resulting from the proposed change would be subject to interest at the prescribed rate, there was no incorrect advice given by an auditor that the reassessment would not result in income tax being owing, the Minister did not act in bad faith, and there was no breach of the principles of fundamental justice or consideration of extraneous or irrelevant factors.

Netupsky v. The Queen, 2003 DTC 5324 (FCTD)

The taxpayer's application for relief based on his being "de facto bankrupt" was rejected by a CCRA officer who did not have appropriate delegated authority. The taxpayer's application for judicial review was dismissed because "if the decision under review were set aside and referred back, the same decision would necessarily follow by reason of the reality that the concept of de facto bankruptcy is simply not recognized within the scope of the Income Tax Act in a way that would permit any relief of the nature sought by the Applicant". (p. 5327)

Robertson v. MNR, 2003 DTC 5068 (FCTD)

The taxpayer applied for waiver of a penalty for filing one of his returns a year late and of interest on the basis of the financial difficulties he had encountered as a result of the loss of his employment. The refusal of the Halifax office director to grant the waiver was remitted for consideration on the basis that he had rigidly applied the specific criteria in IC 92-2 and had misapprehended some of the facts (e.g., finding that the taxpayer had incurred additional consumer debt).

Metro-Can Construction Ltd. v. The Queen, 2002 DTC 7528 (FCTD)

In response to an argument that there were large gaps in the timeline between the time of the initial reassessment in 1993 and the final decision not to waive interest and penalties in 2001, the Court indicated there was nothing in the record to show that the various time periods that passed were unreasonable. Further, it could be seen that the issue of undue delay was considered in the decision not to waive interest and penalties as the decision referred to the complexity of legal issues involved.

Salomon v. Deputy Attorney General of Canada, 2002 DTC 7525 (FCTD)

After being informed of the impact of the taxpayer's disbarment and criminal conviction on his daily living and responsibilities, the CCRA had concluded that notwithstanding these difficulties and misfortunes the taxpayer pursued a livelihood in the real estate area, and asserted his rights, in a manner that suggested that he was still in the state of mind to comply with the applicable provisions of the Act, and that his financial situation and assets were more than sufficient to at least allow reasonable payment arrangements. It was found that the evidence submitted by the taxpayer did not contradict these findings. Tremblay-Lamer J. previously had noted (at p. 7526) that:

"A considerable degree of deference is required, and the standard of review is that of patent unreasonableness."

Chapman v. MNR, 2002 DTC 2148 (FCTD)

An application for judicial review, of a decision to waive only a portion of the interest and penalties applicable to personal income tax respecting the taxpayers 1996 to 2000 taxation years, that was made on the basis that there had been a full waiver of interest and penalties in a related GST matter, was not granted. There was no requirement for the two decisions to be made on the same basis.

Cheng v. The Queen, 2001 DTC 5575 (FCTD)

Gibson J. applied (at p. 5579) "a standard of review of patent unreasonableness" in dismissing an application for review of an adverse decision of the Minister under s. 220(3.1).

Robertson v. MNR, 2001 DTC 5465 (FCTD)

In considering the applicant's application for waiver of interest and penalties, the Department breached its internal guidelines by having the same individual participate both in the initial review of the request and the second-level review. The matter was referred back for reconsideration at the second level by persons not previously involved in the matter, with a direction that the applicant be given the opportunity to make a written submission to address alleged errors of fact and understanding in the previous second level review.

Moffett Estate v. MNR, 2001 DTC 5284 (FCTD)

In dismissing an application of the taxpayers for judicial review of a decision to refuse their application for waiver of interest, Heneghan J. noted the conclusion of the relevant official that departmental delay or error did not appear to be the primary cause of the applicants' alleged lack of information about the amount of their tax liability, noted that they had made no real effort to pay the tax liability until the Department itself had taken the extreme step of attaching their assets, and quoted from the statement in the Kaiser case that "absent bad faith on the part of the Minister, a breach of the principles of natural justice or consideration of extraneous or irrelevant factors, there is nothing to warrant the Court's interference with the exercise of his discretion."

Bilida v. MNR, 97 DTC 5041, [1997] 2 CTC 143 (FCTD)

The Minister was directed to reconsider the request of the taxpayer for waiver of interest given that no consideration had been given to: her to pay the amounts in question; the delay of Revenue Canada in reassessing her return; and her history of compliance with her tax obligations.

Catahan v. MNR, 95 DTC 5496 (FCTD)

An alleged agreement of a collections officer that interest would be waived if the taxpayer paid the taxes payable by him, would not have been binding as such officer was not authorized under Regulation 900(2)(b).

Kaiser v. The Queen, 95 DTC 5187 (FCTD)

Rouleau J. declined to set aside the decision of the Minister refusing to grant relief under s. 220(3.1) given the absence of bad faith on the part of the Minister, a breach of the principles of natural justice or consideration by the Minister of extraneous or irrelevant factors. Furthermore, the "fact the respondent exercised its discretion in a different manner for different taxpayers is not an indication of bad faith".

Guimont v. MNR, 94 DTC 6227, [1994] 1 CTC 353 (FCTD)

In dismissing the taxpayer's application to set aside a decision of the Chief of Appeals to vacate part only, and not entirely, interest on the balance of tax payable by the taxpayer for three taxation years, Pinard J. stated, after referring to Information Circular No. 92-2:

"... it should be noted that such general guidelines are not to be elevated to the status of legislation, thereby limiting the decision-making authority in the exercise of the discretion conferred on it by an enabling Act ... . Having said that, the decision a quo seems to me to have been made in keeping with the spirit of the guidelines in question."

Towers v. The Queen, 94 DTC 6118 (FCTD)

As a result of the fraud of his accountant, the taxpayer was induced to make tax shelter investments and to deduct what proved to be non-existent losses. The rejection by the Department of a request for waiver of interest following a consideration of the matter by a fairness committee, and a review of the committee's decision by the Director of the District Office in conjunction with another, did not entail a breach of the Minister's duty to act fairly or to consider relevant evidence.

Floyd Estate v. MNR, 93 DTC 5499, [1993] 2 CTC 322 (FCTD)

In finding that the Minister had not acted unfairly in refusing to waive interest that arose as a result of a clerical error of the taxpayer, Dubé J. stated (p. 5501):

"Again, it must be borne in mind that the original error was committed by the clerk of the taxpayer not by the officers of the Minister and, since the whole Canadian income tax system is based on self-assessment, the officers of the Minister cannot be blamed for not having detected the taxpayer's own mistake sooner."

Administrative Policy

7 October 2020 APFF Financial Strategies and Instruments Roundtable Q. 3, 2020-0848761C6 F - Réorganisations de sociétés étrangères avec dérivation admissibles

CRA may consider the delays until its approval of a s. 86.1 spin-off re s. 220(3.5) penalties

After noting that it was expanding its webpage listing “eligible distributions,” by showing the date of the distribution in addition to the subsequent date of CRA approval under s. 86.1, CRA then addressed the question as to whether it would waive the late-filing penalty under s. 220(3.5) when, due to a delay between the distribution date and the approval date, the Canadian taxpayer late-filed the election under s. 86.1(2)(f). CRA indicated (as per its summary) that:

Where the year of the approval (and the publication on CRA's website) is not the same as the year the transaction was completed, the question of whether the CRA, as a general rule, will consider the delay in receiving the corporation's approval as an important factor in its decision to waive the penalty for a late-filed section 86.1 election [which] is a case by case determination that will be made in light of all the facts and circumstances relating to a given situation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 86.1 - Subsection 86.1(2) - Paragraph 86.1(2)(f) CRA is now disclosing the transaction date for eligible distributions 108

15 December 2017 Information Circular - IC00-1R6 - Voluntary Disclosures Program

see also summary of IC 00-1R3 below

Effective March 1, 2018

2. This information circular applies to VDP applications received on or after March 1, 2018 ... . In order for a taxpayer to qualify for the VDP relief outlined in ... IC00-1R5, the CRA must have received the taxpayer’s application, including their name, on or before February 28, 2018.

No interest or penalty relief under Limited Program other than re gross negligence

6. The VDP has two tracks for income tax disclosures:

The first track is a General Program….

The second track is a Limited Program. Applications that disclose non-compliance where there is an element of intentional conduct on the part of the taxpayer or a closely related party will be processed under this Limited Program and if accepted, will receive reduced relief under the VDP. ...

11. If relief is denied, the CRA will provide the taxpayer with an explanation of the reasons for the decision. In such cases, relief of arrears interest and any penalties payable may be requested and considered in accordance with the taxpayer relief provisions as described in IC 07-1R1... .

14. Under the Limited Program, the taxpayer will not be referred for criminal prosecution with respect to the disclosure (i.e. for tax offences) and will not be charged gross negligence penalties even where the facts establish that the taxpayer is liable for such penalties. However, the taxpayer will be charged other penalties as applicable.

15. In addition to penalty relief, if a VDP application is accepted by the CRA under the General Program, the Minister may grant partial relief in the application of interest against a taxpayer in respect of assessments for years preceding the three most recent years of returns required to be filed… . Generally, this interest relief will be 50% of the applicable interest for those periods. …

16. If a VDP application is accepted into the Limited Program, no interest relief will be provided.

Factors considered re availability only of LImited Program

20. In general terms, the Limited Program provides limited relief for applications that disclose non-compliance where there is an element of intentional conduct on the part of the taxpayer or a closely related party. The following factors may be considered:

  • efforts were made to avoid detection through the use of offshore vehicles or other means,
  • the dollar amounts involved,
  • the number of years of non-compliance,
  • the sophistication of the taxpayer,
  • the disclosure is made after an official CRA statement regarding its intended specific focus of compliance (for example, the launch of a compliance project or campaign) or following broad-based CRA correspondence (for example, a letter issued to taxpayers working in a particular sector about a compliance issue).

For example, a taxpayer who opened an offshore bank account in 2010 and has been transferring undeclared business income earned in Canada to that account since that time would not normally qualify under the General Program.

21. Generally, applications by corporations with gross revenue in excess of $250 million in at least two of their last five taxation years, and any related entities, will be considered under the Limited Program.

22. The existence of a single factor will not necessarily mean that a taxpayer is eligible only for the Limited Program. For example, a sophisticated taxpayer may still correct a reasonable error under the General Program.

Transfer-pricing issues

24. Given the complexity of transfer pricing issues, applications relating to transfer pricing matters will be referred to the Transfer Pricing Review Committee for their consideration under subsection 220(3.1)

20 November 2017 CTF Annual Conference Panel on Issues in Administration and Enforcement

background on the increased discretion to be exercised under the revised VDP

Q.1 CRA explained that a major driver in its decision to make the voluntary disclosure program more stringent (along with pressure from the Finance Committee in the House of Commons) was CRA’s increasing confidence in its ability to detect high-risk taxpayers for audit.

Q.2, Q.15 The increase in CRA discretion under the revised program should be acceptable because there will be a group of three or four senior auditors whom representatives will be able to speak to on a no-names basis and who will have the judgment to give reliable guidance.

Q.8 There likely will be a delay in the implementation date for the new program until at least the summer of 2018 or perhaps October, although this decision is up to the Minister. Further major changes (or eliminating the VDP entirely) likely will not occur, if at all, for another three years.

Q.16 The revised Circular will be generally similar to the draft Circular.

22 February 2017 Government Response to the Sixth Report of the Standing Committee on Finance entitled: The Canada Revenue Agency, Tax Avoidance and Tax Evasion: Recommended Actions

summary of CRA/Finance responses to 14 Committee recommendations
Recommendation 1: rulings

CRA will complete a review of its advance tax rulings process by March 31, 2017, including of the Pre-ruling consultation service.

Recommendation 2: reportable transactions

Finance, with the support of CRA, will consider whether the current reportable transactions legislation should be expanded.

Recommendation 3: VDP/settlement

It is expected that the CRA review of the voluntary disclosures program, to be completed by March 31, 2017, “will result in some changes to tighten the criteria for acceptance into the program.” It will review its guidelines for negotiated audit settlements (which already require settlement “on a principled basis in accordance with legislation.”)

Recommendation 4: informants

CRA “will promote benefits and incentives of these [leads/informant] programs to encourage informants to come forward.”

Recommendation 5: Panama papers

CRA is auditing 60 of the taxpayers identified, and will report by June 1, 2017 on its approach and results to date.

Recommendation 6: ATP capability

CRA is hiring more resources and will “expand the coverage of high-risk taxpayers and promoters.”

Recommendation 7: tax gap

The Government will publish a further paper, on personal income tax compliance, in the spring of 2017.

Recommendation 8: tax expenditures

Finance will update Canadians in Budget 2017 on its review of federal tax expenditures (no response to the suggestion of reducing complexity).

Recommendation 9: prosecutions

CRA will increase cooperation with Justice and the Public Prosecution Service.

Recommendation 10: avoidance/evasion reporting

CRA will enhance its statistical reporting of activity re countering of avoidance and evasion.

Recommendation 11: exchange of information

Finance in consultation with CRA “will develop a plan to update any exchange relationships identified as not meeting the international standard by either the Global Forum or the Department of Finance.”

Recommendation 12: global cooperation

Canada will continue lead or engage in two global initiatives a year and will publish stats (no response to joint audit suggestion)

Recommendation 13: leading BEPS role

Continued examination of remaining BEPS recommendations.

Recommendation 14: employee code

The Post-employment Committee is tasked with implementing a plan dealing with post-employment situations.

10 June 2016 STEP Roundtable Q. 6, 2016-0641461C6 - Trust Instalment Requirements

no interest assessed for inadequate inter vivos trust instalments

After a review announced two years ago (see 2014-0526591C6), CRA indicated that its policy of not assessing penalties and interest where an inter vivos trust has failed to make sufficient instalment payments will continue.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 156 - Subsection 156(1) inter vivos trusts not assessed interest for inadequate instalment payments 71

May 2016 Alberta CPA Roundtable, Q.4

s. 163(1) penalties for 2014 and prior will not be reduced to reflect the more favourable post-2014 penalty calculation

The amended version of s. 163(1) applies to penalties assessed for the 2015 and subsequent taxation years. To what extent is CRA exercising its discretion over penalty assessments applicable to the 2014 years and prior to reduce penalties to the limits contained in revised s. 163(1)? CRA responded:

[T]he CRA will not cancel or reduce a previously assessed repeated failure to report income penalty based on the fact that the calculation of the penalty under existing law is greater than the amount that would be assessed under proposed legislation. …

[Thus] the penalties assessed for tax years prior to 2015 will not be reduced automatically or by making a taxpayer relief request to the CRA. …[T] he CRA will generally exercise the discretion under subsection 220(3.1), where the circumstances substantiate the taxpayer’s inability to satisfy the particular tax obligation or requirement under the Act.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(1) no penalty relief for pre-2015 years based on the more lenient 2015 calculation 58

May 2016 Alberta CPA Roundtable, Q.17

T1135 filings for all years required

CRA stated that in the context of a voluntary disclosure respecting failure to file T1135s, “the taxpayer would have to complete the T1135 for all years for which such filing was required.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) onus on CRA re assessing T1135 penalties outside normal statute-barring periods 57
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) penalty not an absolute liability penalty 87

May 2016 Alberta CPA Roundtable, Q.13

same (exceptional circumstances) policy applied to relief of penalties for culpable conduct as for gross negligence

The Guindon decision noted (at para. 90) that the Minister’s factum suggested that the taxpayer relief provisions of s. 220(3.1) could be available to an individual assessed with a civil penalty. What impact does this have on the circumstances where a person who has engaged in culpable conduct is eligible for relief?

Before indicating that the position in IC07-1, paras. 37-38 - respecting relief from gross negligence penalties being available only in exceptional circumstances - would also apply to culpable conduct penalties, CRA stated:

CRA policies and procedures have not changed in light of the Guindon SCC decision. The taxpayer relief provisions of subsection 220(3.1) could be available to an individual assessed a civil penalty…including a third-party penalty.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163.2 - Subsection 163.2(4) penalty relief standards for gross negligence also applicable to culpable conduct 97

May 2016 Alberta CPA Roundtable, Q.11

2nd disclosure permitted re unrelated issue (or related issue where beyond taxpayer’s control)

CRA may accept a second disclosure under the Voluntary Disclosure Program where the taxpayer’s non-compliance was due to factors beyond its control. What are examples of this? Can there be a second disclosure of an unrelated issue (GST or other tax) even where the second disclosure may also include (among other issues) a disclosure of the same issue from the first disclosure?

CRA indicated that two examples of what could be considered “beyond the taxpayer’s control” are:

  • A taxpayer makes a disclosure for their un-filed returns for the past four years. The disclosure is accepted under the VDP and the returns are processed. After they have been accepted under the VDP, the taxpayer gets an amended T4 from his employer and wishes to make a second disclosure, as the late-filing penalty would apply to this additional income.
  • An estate makes a disclosure which includes a T1135 form for foreign assets over $100,000. After the disclosure has been accepted, the executor unexpectedly receives a statement from another foreign bank.

CRA then stated that taxpayers are expected to remain compliant after using the VDP, but that “if the nature of the error or omission being disclosed in the second disclosure is different than that of the first, CRA will accept it provided all four [of the following conditions] are met:”

  • your disclosure is voluntary (made before you become aware of any compliance action taken by the CRA against you);
  • a penalty applies to it;
  • the information is at least one year overdue; and
  • the information is complete.

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 4, 2015-0588971C6 F - T1135 and voluntary disclosure

currently no waiver of T1135 penalty before 10 years previously

Where there has been a voluntary disclosure for failure of the taxpayer to file T1135s for the past, say, 15 years, the current practice of CRA is to assess the $2,500 per-year penalty for the first five years as being before the 10-year period for which CRA is permitted to waive penalties or interest under s. 220(3.1). However, the proposition that “the late-filing penalty of $2,500 under subsection 162(7) applies automatically… is currently under study.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) CRA is studying whether the $2,500 penalty for late T1135 filings applies automatically 71

14 July 2014 Internal T.I. 2014-0537701I7 F - Voluntary disclosure - T1134 and FAPI

requirements where undisclosed FAPI

Representatives of a taxpayer initiated a voluntary disclosure for a taxpayer who had not filed T1134s and who had failed to report foreign accrual property income (or related FAPL or FACL deductions). How many taxation years should be included? CRA stated:

In order for the disclosure to be considered complete…the taxpayer must provide complete and exact information and documents for all taxation years…for which there are inexact, incomplete or undisclosed particulars. In the context of a voluntary disclosure respecting the declaration of FAPI, the working papers calculating the surplus accounts of the FA also can be requested for all the affected years. … If this condition is not satisfied, the voluntary disclosure can be refused… .

The summary added that the filings should include T1134s.

After noting that a T1134 is required for each foreign affiliate for each post-1995 year, CRA indicated that a s. 162(7) assessment "must be made by the Minister before the expiration of the normal reassessment period" – but noted the exception for carelessness etc. and the potential three-year extension under s. 152(4)(b)(iii). In circumstances of gross negligence, the penalties under ss. 162(10) or (10.1), or s. 163(2.4), generally could be imposed without time limitation.

16 June 2014 STEP Roundtable, 2014-0523021C6 - Multiple assessments - STEP Q19

embedded duplicative interest in multiple assessments

CRA reassesses each transaction in a series of transactions independently of each other, resulting in larger total assessments than could be justified on any logically consistent basis and so that it is impossible for the taxpayer to pay the total tax. Would the impossibility of paying the full amount of the tax, combined with the fact that only one of the reassessments, at most, can be correct, give rise to a waiver of interest? CRA stated:

…As discussed in...IC07-1...CRA may provide interest and penalty relief in situations where a taxpayer has a confirmed inability to pay or is experiencing financial hardship related to the balance owed to the CRA.

For an individual taxpayer, financial hardship refers to the financial difficulty that the payment of arrears would cause a taxpayer in being able to provide for reasonable basic living requirements, such as food, medical, shelter or transportation. For a corporate taxpayer, financial hardship refers to situations where the continuity of business operations, the continued employment of the employees, and welfare of the community as a whole would be in jeopardy.

Interest relief may also be provided in circumstances where a taxpayer has made bona fide efforts to pay the balance owed; however, substantial additional interest charges would absorb a significant portion of their payments making it extremely difficult, if not impossible, for a taxpayer to resolve their account within a reasonable amount of time. …

16 June 2014 STEP Roundtable, 2014-0530571C6 - Voluntary Disclosures - Q13

Bozzer accepted

How is Bozzer v. The QueenI, 2011 FCA 186, affecting voluntary disclosures that exceed ten years? CRA stated:

Voluntary disclosures that cover more than ten taxation years are currently being processed by the Voluntary Disclosure Programs (VDP) offices in accordance with the Federal Court of Appeal decision in Bozzer v. Queen (2011 FCA 186); the limitation period in subsection 220(3.1) of the Income Tax Act provides the Minister with the discretion to waive or cancel interest that accrued within the last ten calendar years, from the year the request was made, notwithstanding the taxation year from which the debt arose. …

18 September 2013 Internal T.I. 2013-0487871I7 - Filing Due Date for Elections

election filed with late return

Regarding elections that are required to be filed with the taxpayer's return, CRA noted that Rezek established that "where an election is required to be filed in the taxpayer's return of income for the year, such an election would not be considered late-filed if the election was filed with a return of income for that year that was late-filed," and then stated:

[F]or the purpose of calculating the late-filing penalty under subsection 220(3.5), the date the election is required to be filed is the date that the return of income for the year was actually filed and not the filing-due date for the particular return of income for the year.

Therefore, where an election that is required to be filed in the taxpayer's return of income for the year is not filed with that return of income but rather is filed later, that election, if accepted by the Minister, is technically considered to be late-filed, even if the election is filed before the filing due date of the particular return of income.

However, as indicated in Rulings document 2012-046598, it may not be possible to make such an election in an electronically filed return of income. As such, the CRA might want to consider what form of administrative relief, if any, should be provided in such circumstances.

30 October 2012 Ontario CTF Roundtable, 2012-0462921C6 - Ontario CTF - 163(1) Penalty

The potential of s. 220(3.1) penalties to drastically and unfairly exceed s. 163 penalties (discussed in Knight, for example) has been brought to the Department of Finance's attention several times.

5 October 2012 APFF Roundtable, 2012-0453211C6 F - Formulaire T1135

criteria for waiver of penalties and interest

In the course of a general discussion of waiver of penalties and interest for failure to timely file T1135s, CRA stated:

The following four factors will be considered in the CRA's analysis to determine whether or not the penalty and interest may or may not be waived:

1. the taxpayer has, in the past, fulfilled the taxpayer’s tax obligations,
2. the taxpayer knowingly left an outstanding balance that resulted in interest on arrears,
3. the taxpayer has made reasonable efforts and has not been negligent in the taxpayer’s conduct of the taxpayer’s affairs under self-assessment regime; and
4. the taxpayer has acted diligently to remedy any delay or omission.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) CRA is not bound by Douglas 152

8 February 2012 Internal T.I. 2011-0431581I7 F - Sous-alinéa 6(1)a)(vi) proposé

no penalties if taxpayer promptly refiles after announcement that favourable amendment will not proceed

Respecting the proposed adoption of s. 6(1)(a)(vi), CRA stated:

In the event that the government announces that it will not adopt a particular amendment, it is expected that a taxpayer who has filed an income tax return based on a proposed amendment will take immediate steps to adjust the taxpayer’s affairs and, if applicable, pay all taxes due. Where taxpayers have acted reasonably in the circumstances, have taken immediate action to settle their affairs and have paid the taxes due, the CRA will waive the penalties and/or interest, if applicable.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date taxpayers can file based on proposed legislation and wait until announcement that it will not be implemented 214
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(vi) “studies” are at all levels and bursaries and tuition reimbursements potentially are included 136

3 June 2011 STEP Roundtable Q. 14, 2011-0401921C6 - 2011 STEP Conference - Q14 - Voluntary Disclosure

The questioner pointed out under the 10-year limitations period for the Voluntary Disclosure Program, a participating individual with unreported income for 15 years would be exposed to interest and penalties for the first five years. CRA stated:

There are no legislative restrictions to assessing any year if the requirements in the applicable legislation are met. As a result, the CRA will not provide assurances that they will not assess beyond 10 years. We will apply the legislation as it relates to statute-barred years and assess income in the year it was earned.

CRA also noted that its discretion is fettered by legislation.

IC00-1R3 "Voluntary Disclosures Program" March 21, 2013

Penalty Relief

11. If the CRA accepts a disclosure as having met the conditions set out in this policy, it will be considered a valid disclosure and the taxpayer will not be charged penalties or prosecuted with respect to the disclosure.

Interest Relief

¶ 12. In addition to penalty relief, if a disclosure is accepted as valid by the CRA, the Minister may grant partial relief in the application of interest against a taxpayer in respect of assessments for years or reporting periods preceding the three most recent years of returns required to be filed.

Limitation Period on Discretion for Relief of Penalties and Interest

¶ 13. For income tax submissions made on or after January 1, 2005, the Minister's ability to grant relief is limited to any taxation year (or fiscal period in the case of a partnership) that ended within the previous 10 years before the calendar year in which the submission is filed.

Conditions of a Valid Disclosure

¶ 31. A disclosure must meet the following four conditions in order to qualify as a valid disclosure:

i) Voluntary

32. A disclosure will not qualify as a valid disclosure, subject to the exceptions in paragraph 34, under the "voluntary" condition if the CRA determines:

  • the taxpayer was aware of, or had knowledge of an audit,investigation or other enforcement action set to be conducted by the CRA or any other authority or administration, with respect to the information being disclosed to the CRA, or
  • enforcement action relating to the disclosure was initiated…and
  • the enforcement action is likely to have uncovered the information being disclosed. …
ii) Complete

¶ 35. The taxpayer must provide full and accurate facts and documentation for all taxation years or reporting periods where there was previously inaccurate, incomplete or unreported information relating to any and all tax accounts with which the taxpayer is associated. While the disclosure is being evaluated by the CRA, the VDP officer may request additional specific documentation… . The taxpayer must comply with such requests within the stipulated timeframes… .

iii) Penalty

¶ 38. A disclosure must involve the application, or potential application of a penalty. … In the event a penalty does not apply, the taxpayer cannot seek relief through the VDP. …

iv) One Year Past Due

¶ 39. The disclosure must include information that is:

  • (i) at least one year past due, or
  • (ii) less than one year past due where the disclosure is to correct a previously filed return or where the disclosure contains information that also meets the condition of subparagraph (i) above.

8 October 2010 Roundtable, 2010-0373721C6 F - Divulgation volontaire

repeal of 38% rule (re tax rate on repatriated funds) in December 2008

For disclosure files opened after December 31, 2009, CRA terminated its administrative practice under the voluntary disclosure program to allow an overall tax rate of 38% to be applied to money repatriated from outside Canada. Has there been a decrease in the number of voluntary disclosures involving the repatriation of funds from abroad since the "38% rule" was abolished? CRA responded:

In December 2008, CRA - Quebec Region changed its approach in accordance with national policy. In terms of program intake, we continue to see an increase in the number of disclosures received regarding foreign-source income.


A taxpayer cannot file a notice of objection to a reassessment made pursuant to s. 220(3.1), even if such reassessment was made within the normal reassessment period.

Halifax Round Table, February 1994, Q. 14

The fairness legislation regarding the waiver or cancellation of interest and penalties is independent of whether those amounts have as yet been assessed or paid. Accordingly, interest and penalties already paid can be recouped.

IC 92-2 "Guidelines for the Cancellation and Waiver of Interest and Penalties"


Joint Committee, "Proposed Changes to the Voluntary Disclosure Program Announced June 9, 2017", 8 August 2017 Joint Committee Submission to Finance respecting the Voluntary Disclosure Program (“VDP”)

Fettering of Minister’s discretion (pp. 6-7)

In light of well-established administrative-law principles, a number of the proposed changes, such as the proposal that large corporations, or those with an inappropriate transfer price, no longer qualify for VDP relief, may amount to an impermissible fettering of the Minister’s broad discretion under s. 220(3.1).

Large corp,/ transfer-pricing exclusion (pp. 8-10)

Furthermore, errors by large corporations typically are attributable to the number and complexity of the tax-reporting issues faced by them, so that their exclusion would violate fundamental principles of fairness – as does blanket denial of relief to taxpayers respecting transfer pricing errors.

Limited program triggers (pp.11-12)

Respecting the proposed 2-tier system, the references to large dollar amounts, multiple years of noncompliance and a sophisticated taxpayer should be removed as these factors do not of themselves indicate culpable conduct.

No-Name disclosure method (pp. 14-15)

Elimination of the No-Name disclosure method would create greater uncertainty, thereby reducing the numbers of disclosures.

Disclosure of lawyer (p.18)

Indicating the name of the professional advisor could be viewed as a waiver of solicitor-client privilege.

Limitation over 1 disclosure (pp. 16-17)

It is suggested that the “beyond the taxpayer’s control” requirement for accepting a second disclosure not apply to unrelated issues.

Requirement for 1-year aging (pp. 17-18)

Eliminating the one-year requirement would eliminate the inequity of a taxpayer who delays addressing an error being treated more favourably than one who corrects it more quickly –and abuses would be addressed by declining repeated disclosures respecting the same avoidable issue.

Brooke Sittler, "Review of Penalty and Interest Relief Requests Under the Income Tax Act", 2015 CTF Annual Conference paper

General reasonableness standard (p. 42:6-7)

In general, the standard of review that the reviewing court will apply to the minister's decision on an application for taxpayer relief is reasonableness. The reviewing court can only interfere if the minister reached an outcome that is indefensible and unacceptable on the facts and the law. [fn 14: Telfer..., 2009 FCA 23 at paras 24-28...; Slau...2009 FCA 270 at para 27...; Dunsmuir v New Brunswick, 2008 SCC 9 at para 47... .] In the language of Dunsmuir, a court must examine the decision-making process, including the reasons for the decision, and determine whether the decision is justified, transparent, and intelligible and within a range of possible, acceptable outcomes that are defensible in respect of the facts and the law.

Exceptions for correctness standard (pp. 42:7-8)

...Dunsmuir confirmed that the application of a correctness standard of review is limited to jurisdictional and some other questions of law. In situations where there is a question of law that is of "central importance to the legal system...and outside the...specialized area of expertise" of the decision maker, less deference will be paid and the correctness standard will apply. Questions of central importance to the legal system are those whose "impact on the administration of justice as a whole" is such that they "require uniform and consistent answers". ...

...Alberta Teachers' Association held that "[t]rue questions of jurisdiction are narrow and will be exceptional." [fn 21: 2011 SCC 61 at para 39... .]…

In the area of taxpayer relief, there are only a handful of cases in which the courts have applied a correctness standard of review, and only two post-Dunsmuir that I am aware of in relation to subsection 220(3.1). [fn 25: Bozzer...2012 FCA 266...and to a limited extent in Cayer...2009 FC 1195... .]

Questions of natural justice are considered to be questions of law and reviewed on the same standard:…[fn 24: Waycobah First Nation...2010 FC 1188..., aff'd 2011 FCA 191... . See also Suresh...2002 SCC 1...wherein it is established that the standard of review for procedural issues is correctness.]

For questions of bias, the courts have indicated that a correctness standard will apply. [fn 26: Ugro...2009 FC 825 at para 22..., citing Uluk...2009 FC 122...and Lai...2007 FC 361... .]

The foregoing standards of review apply to the Federal Court in the context of the judicial review of a ministerial decision. Regarding the standard of review of the Federal Court's judicial review of taxpayer relief decisions, there is now strong support from the Supreme Court for the position that on an appeal from a judicial review application, the Federal Court of Appeal is free to substitute its judgment for that of the Federal Court application judge where the appellate court determines either that the wrong standard of review was selected by the application judge or that the correct standard of review was incorrectly applied by the application judge. [fn 27: Agraira...2013 SCC 36 at paras 45 to 47,…]

Examples of unreasonable decisions (pp. 42:8-9)

As to what renders a decision unreasonable, a few broad themes emerge from the case law: fettering of discretion, failure to consider relevant facts or arguments, and failure to observe other principles of procedural fairness or natural justice.

In Stemijon Investments, [fn 28: ...2011 FCA 299 at paras 31 and 58-60... .]…[t]he court concluded that…"[a] decision that is the product of a fettered discretion must per se be unreasonable." The court found that the minister fettered his discretion by not drawing upon subsection 220(3.1) to guide his discretion, but rather by looking exclusively to the information circular... .

In Laframboise, [fn 32: ...2008 FC 196 at para 12... . See also Cogesco...2013 FC 1238 at paras 18-20... and 3500722 Canada...2008 FC 554... .] the Federal Court allowed the application for judicial review on the basis that the court was unable to determine on the record whether the CRA considered certain facts that the court considered relevant: …

In the early years of the administration of subsection 220(3.1), it was more common for the Federal Court to find a lack of independence within the CRA during the process of subsequent reviews. These cases are rare today… .

Limited nature of relief (p. 42:10-11)

The Federal Court of Appeal in Slau confirmed that in allowing an application for judicial review, it is not open to the reviewing court to mandate an outcome where more than one is possible: …

The limited remedy that a reviewing court can give in taxpayer relief cases is outlined by the Federal Court in Kapil:

As a matter of law, this Court does not have the jurisdiction to order the Minister to waive taxes, penalties, and arrears interest. The jurisdiction of the Court is limited to ordering the Minister to substantively reconsider his decisions not to waive the taxes and related interest and penalties. ...[fn 38: Kapil v Canada (Revenue Agency), 201.1 FC 1373 at para 20,…]

Ryan Rabinovitch, Angelo Discepola, "Solving Sales Tax Non-compliance Through the Canadian Voluntary Disclosure Program"

CRA’s voluntary disclosure practice is to go back only to years for which there is supporting documentation, and no earlier

Although CRA can go back more than four years where there has been a neglectful misrepresentation etc., “in practice, however, the CRA will (by administrative largesse) only include reporting periods for which supporting documentation is available in the disclosure.”

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 281.1 - Subsection 281.1(1) 380

Michael H. Lubetsky, "Interest Relief under the Federal and Provincial Regimes", Tax Litigation (Federated Press), Vol. XX, No. 1, 2015, p. 1182

No federal interest relief where delayed loss carry-back (p. 1184)

. . . One particularly pernicious question relating to interest relief under the federal ITA concerns situations where a taxpayer is reassessed following an audit but has sufficient losses in subsequent taxation years to offset the reassessed amounts (…"delayed loss carryback cases"). Even though the taxpayer may owe no tax following application of the losses, subsection 161(7) provides that interest runs for the entire period up to 30 days after the latest of several possible dates; in most cases this means 30 days after the taxpayer requests the loss carryback in writing.

Since in many cases the taxpayer can hardly make such a request until an audit is concluded, there may be an assessment of interest for the (often lengthy) period in which no tax is owing. The CRA offers apparently no guidance regarding interest relief in such situations and the Federal Court jurisprudence has gone both ways. [f.n. …Maarsman v. Canada (CRA), 2003 FC 1234… recognized the "absurdity" of assessing interest during years when no taxes were owing and held in the taxpayer's favour on an application for judicial review. On the other hand…a decision denying interest relief in a delayed loss carryback situation [was upheld] in Toastmaster Inc. v. Canada (National Revenue), 2009 FCA 270. …See, also, Canada Revenue Agency v. Slau Limited, 2009 FCA 270… .]

Application to Agreeing Provinces (pp. 1184-5)

. . . The provincial income tax statutes incorporate section 220 of the Federal ITA . . .

. . . In the tax collection agreements, each Agreeing Province then:

a) undertakes to apply the same interest rate as the CRA;

b) delegates its minister's taxation powers back to the Federal Minister;

c) accepts the "assessments, decisions and other steps" taken by the CRA in the enforcement of the provincial tax statutes as "final and binding;"

d) undertakes not to demand the imposition, collection or remission of any interest payable by a taxpayer under the provincial income tax legislation; and

e) allows the CRA to retain any interest collected on provincial income tax debts "in consideration of the collection risk borne by Canada in respect of the [provincial] tax imposed." [f.n. See, for example, Tax Collection Agreement Between the Government of Canada and the Government of the Province of Saskatchewan, sections 1.4 and 4.4; Tax Collection Agreement Between the Government of Canada and the Government of the Province of Alberta, sections 1.4 and 4.4.]

The various provincial tax statutes also incorporate by reference subsection 164(3.2) of the Federal ITA, [f.n. ITA(NL), s. 60(1); ITA(PEI), s. 54(1); ITA(NS), s.62(1); ITA(NB), s. 66; ITA(ON), s. 15, 21; ITA(MB), s. 28.1(1); ITA(SK), s. 23(1); PITA(AB), s. 54(1); ITA(BC), s.40(1.1).] meaning that if a cancellation of interest results in a refund to the taxpayer, the refund bears interest starting from the 30 days after the date of the application for interest relief.

Application of federal interest relief to Agreeing Province taxpayer (p. 1185)

. . .In practice…the CRA simply applies any decision with regard to interest relief under subsection 220(3.1) to any related provincial income taxes due to an Agreeing Province. If the taxpayer seeks judicial review of a refusal by the CRA to grant interest relief, the review generally considers the CRA's decision on the total interest amount without distinguishing between the federal and provincial portions.

It seems that the CRA has never argued that the Federal Court lacks jurisdiction over the provincial portion of the interest; nor does it appear to be any standard practice for taxpayers to simultaneously initiate proceedings in both Federal Court and any applicable provincial superior court(s) when challenging CRA interest-relief decisions.

. . . In contrast, and as noted above, the Federal Court, whose powers are set out in the Federal Courts Act, has exclusive jurisdiction over any application for judicial review "against any federal board, commission or other tribunal," including the CRA, which is expressly authorized by federal legislation to administer provincial income tax as an agent of the provinces.

Jurisdiction of Federal Court to consider provincial interest relief (p. 1185)

Indeed, in Société des acadiens – a decision ultimately confirmed by the Supreme Court of Canada [2008 SCC 15, aff’g 2005 FC 1172]– it was held that judicial review proceedings against the Royal Canadian Mounted Police ("RCMP") lie in Federal Court, even in cases involving actions of the RCMP in its role as a provincial police force pursuant to contracts with a province.

Payment by Agence du revenue du Québec (“RQ”) of refund interest (p. 1186)

. . .Where RQ grants a cancellation of interest that results in a refund to the taxpayer, interest is paid by the RQ on the refund for the entire period that the refunded amounts were in the possession of the RQ. Herein lies a difference with the federal regime, where refund interest only starts to accrue 30 days after the taxpayer requests interest relief.

Differences between ITA s. 220(3.1) and Quebec Tax Administration Act (“TAA”) (p. 1187)

. . . Section 94.1 of the TAA does not specify any limit on the number of years of interest that the RQ can waive. Administratively, however, RQ adheres to the same 10-year time limit provided by the Federal ITA. [f.n. Whether RQ is legally entitled to limit its powers in this way is debatable.]

. . . The third clause of section 94.1 of the TAA – the privative clause – was added in 1996. [f.n. LQ 1996, c.31, s. 34] That change followed… Vézeau, [f.n. …1995 RDFQ 26 (C.A.), §35] which held that questions of interest relief could be raised by taxpayers in the context of a statutory appeal of an income tax assessment.

…[T]he addition of the privative clause to section 94.1 deprived the CQ [Court of Quebec] of its jurisdiction to hear challenges to the RQ interest-relief decisions.

No relief by Quebec for interest attributable to CRA delay (pp. 1188-9)

. . . While RQ's published guidance recognizes that RQ will waive interest for delays attributable to its own conduct, it does not contemplate interest relief for delays attributable to the CRA or other revenue agencies. However, when the CRA reassesses a taxpayer so as to increase its income, RQ typically usually follows suit with a consequential reassessment without further reflection. But if the CRA reassessment has been unduly delayed for reasons attributable to the CRA, and even if the CRA agrees to waive and cancel interest on the federal reassessment, RQ does not follow suit with the Quebec assessment since the delay was not its fault.

Alberta interest provisions (pp. 1189-1190)

. . . The province's Tax & Revenue Administration ("TRA") assesses and collects tax under the Alberta Corporate Tax Act.

…Unlike the guidance provided by RQ, IC CT-5R5 expressly recognizes the involvement of the CRA in tax administration and outlines circumstances when a decision from the CRA to waive interest may (or may not) incite the TRA to follow suit.

…Concerning delayed loss carryback situations, IC CT-5R5 also states categorically that interest relief is not granted in such cases (the reasonability of which seems dubious and remains to be tested by the courts).

The ACTA has no provision analogous to subsection 164(3.2) of the Federal ITA or section 30 of the TAA, and consequently, no interest is paid when the cancellation of interest results in a refund.

. . .Section 55.1 of the ACTA allows for the cancellation of interest if a taxpayer applies either (a) within the 10-year period "after the end of the taxation year to which the interest relates" or (b) within 12 months of the date when the interest is assessed. The latter option obviates the need for a remission order in cases where a taxation year more than 10 years old is reassessed – an accommodation not found in the federal regime. Concerning the former option, IC CT-5R5 articulates the CRA's pre-Bozzer position to the effect that the relevant year is the year when the underlying tax debt arose.

Potential challenge of interest-relief decision in tax appeal (p. 1190)

. . .Because the ACTA contains no privative clause akin to subsection 165(1.2) of the Federal ITA or subsection 94.1(3) of the TAA, a taxpayer should arguably be able to challenge an interest-relief decision in the context of an ordinary tax appeal rather than instituting judicial review procedures (based on the reasoning of the Vézeau decision).

Esmail Bharwani, "Voluntary Disclosures", CGA Magazine, March – April, 2014, p. 48.


No solicitor-client privilege exists between a client and a non-lawyer professional, so a non-lawyer remains exposed to CRA's demand to disclose any and all information shared by the client….

No-name Disclosures

When making a non-name disclosure, CRA permits disclosure of the taxpayer's name within 90 days. Any opinion given by CRA will be based absolutely on the information provided by the client, and although non-binding, serves as good feedback. In addition, if the final disclosure letter is any different (which often happens, as many clients provide new information, or the accountant may discover previously undisclosed material ) this will negate any benefit of the non-name option. …

Ninety-day Time Limit

The taxpayer must submit all tax returns and information to CRA within 90 days of the date intention to file was made known. The time limit of 90 days to file the complete disclosure is very strictly adhered to and extensions are rarely given….


One of the four VD conditions requires that returns filed have an applicable mandatory penalty. If a penalty is not applicable (even though the interest may be), search for any poential discretionary penalty. One of the most commonly used arguments is that CRA could have applied a gross negligence penalty…Many accountants complain that CRA has decided in many of the cases that they would not have applied a gross negligence penalty, therefore the non-filer taxpayer would not qualify. So what was supposed to have been a VD request with possible waived penalties and cancelled partial interest arrears has now become subject to regular filing, with penalties and interest.

David H. Sohmer, "Taxpayers May Be Penalized for Failing to Obtain a Second Opinion (Seriously!)", The Canadian Taxpayer, Vol. xxxiii No. 24, December 2011, p. 185: critique of Stemijon case.

Arthur Drache, "Sherman Letter To Finance Banks Case For 10-Year Rule Change", The Canadian Taxpayer, 3 March, 2009, VOL. XXXI, No. 5, p. 33.

Barbara Dombek, Shashi Fernando-Eden, "The ABCs of the VDP", CA Magazine, April 2003, p. 32: discussion of federal and provincial administrative positions on voluntary disclosure.

Landay, "How Fair is the Fairness Package?", Tax Profile, November 1994, p. 169: Includes a description of 12 successful and unsuccessful submissions that have been made under the fairness package to Revenue Canada.

Skulski, "Tax Collection in Recessionary Times", 1992 Conference Report, c.8

Beith, "Fairness Package", 1992 Conference Report, c.7.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) 0

Subsection 220(3.2) - Late, amended or revoked elections


McNabb Family Trust v. The Queen, 98 DTC 6001, [1998] 1 CTC 330 (FCA)

In reversing a refusal of the Motions Judge to extend the time for bringing an application to review a decision of the Minister not to extend the time for filing a preferred beneficiary election, Stone J.A. stated (at p. 6002):

"In our view, it is arguable that the statutory delegate erred in law by refusing to extend the time for filing a preferred beneficiary election which had been signed and passed on to the staff by the trustee for posting prior to the filing deadline."

See Also

Toronto Dominion Bank v. B.C. (Commissioner of Income Tax), 2017 BCCA 159

Commissioner improperly restricted herself to applying only the published guidelines on extending a return-filing deadline

The 2012 taxation year of the taxpayer (“TD”) ended on October 31, 2012. Under s. 24(1) of the International Business Activity Act (B.C.), it was required to file its 2012 tax return (in which it claimed a refund based on operating an international financial business in B.C.) “within 18 months after the end of the taxation year or within a later period approved by the commissioner.” TD (which had been struggling with timely filing its also-due federal returns, due to staff shortages) provided its 2012 return to a courier in Toronto on April 30, 2014, and the Commissioner denied the claimed refund on the basis that the return was not received by the Commissioner (in Victoria) until the next day, May 1, 2014 - and also refused an extension of time on the basis (set out in a somewhat related policy statement) that there were no “extraordinary circumstances that [were] beyond the claimant’s control, such as fire, flood, earthquake or a serious illness,” with the Minister of Finance confirming that determination.

Frankel JA found that TD’s return had been filed one day late. In remitting TD’s request for a one-day extension to the Commissioner for reconsideration, and in applying Stemijon, he stated (at paras. 55, 59):

While it was open to the Commissioner to have regard to Ministry of Finance policy statements, she erred in treating them as the only relevant consideration. Apposite is Maple Lodge Farms... .

It is clear … the Commissioner dealt with TD’s request on the basis that her discretion was circumscribed by the extraordinary-circumstances exception. … By doing so, she fettered the broad discretion given to her by s. 24(1) of the IBAA, and her decision is, therefore, unreasonable.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Section 27 - Subsection 27(4) filing deadline period started being counted from the day following the year end 271
Tax Topics - Income Tax Act - Section 37 - Subsection 37(11) May 1, 2014 was not within 18 months of year-end October 31, 2012 58

Administrative Policy

IC07-1R1 Taxpayer Relief Provisions 18 August 2017

Guidelines for accepting late filing or amendment

Acceptance of a late, amended, or revoked election

56. Circumstances where a request may be accepted include:

  1. There have been tax consequences not intended by the taxpayer, and there is evidence that the taxpayer took reasonable steps to comply with the law. This could include, for example, a situation where the taxpayer got a bona fide valuation for a property, but the CRA determined that the valuation was incorrect
  2. The election was not made on time due to circumstances that were beyond the taxpayer's control. Such extraordinary circumstances could include natural or human-made disasters, such as flood or fire; civil disturbances; disruptions in postal or other services; a serious illness or accident; or serious emotional or mental distress, such as death in the immediate family
  3. The taxpayer acted on incorrect information given by the CRA
  4. The request results from a mechanical error. This could include using the net book value amount when the taxpayer meant to use the undepreciated capital cost
  5. The later accounting of the transactions by all parties is as if the election was made
  6. The taxpayer can show that they did not know about the election provision, even though they took reasonable care to comply with the law and took remedial action as soon as possible

Denial of a late, amended, or revoked election

57. A request will not be accepted in the following cases:

  1. It is reasonable to conclude that the taxpayer made the request for retroactive tax planning purposes. This could include taking advantage of changes to the law enacted after the due date of the election
  2. Adequate records do not exist
  3. It is reasonable to conclude that the taxpayer had to make the request because he or she was negligent or careless to comply with the law
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 96 - Subsection 96(5.1) 137

21 April 2015 Internal T.I. 2014-0560811I7 - FACL carryback – Surplus & PAS election

no relief for late-filed Reg. 5901(2)(b) election

A Reg. 5901(2)(b) election, to have a dividend treated as paid out of pre-acquisition surplus, must be made by the filing-due date for the taxation year in question, even where CRA subsequently assesses the year in question so as to change the relevant surplus balances.

See summary under Reg. 5901(2)(b).

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 5901 - Subsection 5901(2) - Paragraph 5901(2)(b) no relief for late-filed Reg. 5901(2)(b) election 172
Tax Topics - Income Tax Regulations - Regulation 5903.1 - Subsection 5903.1(1) FACL carryback from transitional year 154
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1) - Net Earnings surplus pools are not to be retroactively adjusted for a FACL carryback 171
Tax Topics - Income Tax Regulations - Regulation 600 no relief for late-filed Reg. 5901(2)(b) election 54

27 August 2014 External T.I. 2014-0529221E5 F - Changement de méthode pour déclarer un gain

administrative policy on earnout calculation was not an election

A taxpayer proposed retroactively changing to using the cost-recovery method in accounting for a share sale on an earnout basis (apparently in a taxation year that was now beyond the normal reassessment period). Before finding that such a change was not justified for other reasons, CRA stated:

In general, the CRA does not accept the amendment, revocation or late-filing of an election if the election is not described in Regulation 600. That being said, an administrative policy is not a provision of the Act or a prescribed election. Thus, the cost recovery method, as well as subsections 12(1) and 40(1), are not part of the prescribed list of provisions, and therefore we are of the view that subsection 220(3.2) does not apply in such a situation.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g) no reassessment to retroactively adopt a different earn-out recognition 140

22 August 2014 External T.I. 2014-0541171E5 - Late 45(2) Election filed by executer

late s. 45(2) election filed by executor

Mr. A rented out his home during his final years in a nursing home. Would CRA accept from his executor a late-filed s. 45(2) election for the home made in Mr. A's final income tax return? CRA stated:

[G]enerally, the fact that an executor late-filed the subsection 45(2) election on behalf of a deceased taxpayer, would not, in and of itself, prevent the CRA from accepting the election. However, a late-filed election accepted by virtue of subsection 220(3.2) of the Act is subject to penalty as set out in subsection 220(3.5).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 45 - Subsection 45(2) late s. 45(2) election filed by executor 94

21 April 2008 External T.I. 2007-0220471E5 F - Excessive Capital Dividend and 220(3.2)

s. 220(3.2) revocation is an alternative if a s. 184(4) election cannot be made

After indicating that no s. 184(4) election was available where one of the shareholders had been dissolved subsequently to the excessive capital dividend, CRA went on to indicate that no legislative amendment appeared to be required to address this situation since “a corporation may apply to the Minister pursuant to subsection 220(3.2) to revoke its election under subsection 83(2) in respect of the dividend it has paid.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 184 - Subsection 184(4) no s. 184(4) election available where one of the shareholders was dissolved 146

18 February 1999 External T.I. 9825635 - VALIDITY OF 104(5.3) ELECTION

The comments in IT-378R, that the validity of an election may not be denied by a taxpayer once it is accepted by the Department, is applicable to other elections.

Heneghan J. found that a decision from a second-level CRA review of the registrant's request to waive interest and penalties breached the registrant's procedural fairness rights, because it was substantially a copy of the first-level decision. As it was not clear what the result of an independent review would have been, the matter was referred back to be considered by a different CRA adjudicator.

Subsection 220(3.21)

Paragraph 220(3.21)(a)

Administrative Policy

S1-F3-C2 - Principal Residence

CRA may accept late-filed principal residence designation

2.15.1 Under certain circumstances the Minister of National Revenue may accept a late-filed principal residence designation. Subsection 220(3.2) generally allows the Minister to extend the time for making an election under a prescribed provision. For the purpose of subsection 220(3.2), paragraph 220(3.21)(a.1) deems a designation under the definition of a principal residence in section 54 to be an election under a prescribed provision. Paragraph 220(3.21)(a.1) is applicable for tax years that end after October 2, 2016. For more information on late filed elections, refer to the webpage Late, amended, or revoked elections.

Subsection 220(3.5) - Penalty for late filed, amended or revoked elections

Administrative Policy

9 November 2012 CTF Atlantic Roundtable, 2012-0465981C6 - CTF Atlantic - Filing Electronically

When a tax return is filed electronically, how can the taxpayer satisfy a requirement to "elect in the return" (see s. 50(1)) or "by letter attached to the return ... elect..." (see Reg. 1101(5b.1))? CRA responded:

[E]lections, designations, agreements, waivers, and special elective returns must be submitted in paper format by the appropriate due dates... .

A taxpayer can indicate in the software that they are making an election and the software will build an Election indicator field. ... Completion of this field code does not constitute an election; it is designed only to inform us that an election form or a letter/note containing the required information is being submitted in paper format


The Minister has discretion as to how to accept elections. With respect to the election under subsection 1101(5b.1) of the Regulations, the CRA will not deny the election on the basis that it was mailed separately and not attached to the electronic return.

8 October 2010 Roundtable, 2010-0373261C6 F - Choix prévu au paragraphe 184(3)

no policy to automatically waive penalty where late s. 184(3) election, following failed appeal, is granted

After a corporation is assessed under s. 184(2) in respect of an excess dividend following an audit of the calculation of its capital dividend account, and rather than making the election within 90 days under s. 184(3) and convert the excess dividend into a taxable dividend, it files a notice of objection thereto, but is ultimately unsuccessful and the assessment previously made is maintained. Would CRA accept a late election under s. 220(3.2) to convert the excess dividend into a taxable dividend under s. 184(3) and, if so, agree to waive the penalty under s. 220(3.5)?

CRA responded:

[I]t is not the CRA's policy to automatically waive penalties or accept a request for an extension of time or a request to revoke an election by virtue of subsections 220(3.1) and (3.2). …

[A]s a matter of first impression, it cannot be assumed that a request for an extension of time under subsection 220(3.2) to file an election under subsection 184(3) would necessarily be denied in a particular situation similar to the given hypothetical situation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) permission to late-file a s. 184(3) after an objection has failed might be granted 217


6 October 2017 APFF Financial Strategies and Instruments Roundtable, Q.12

Finance “will consider situations where the application of late-filing penalties creates a disproportionate burden on low-income taxpayers”

What are the policy considerations for s. 220(3.5) penalties arising on making late elections as permitted in the Minister’s discretion under Reg. 600 and on making them more equitable, particularly for individuals? For example, an individual fails to make an election under s. 50(1), 86.1 or 45(2). The federal penalty of $100 per month (plus a further Quebec penalty) can harshly impact middle class individuals. Finance responded:

[T]he ITA requires the taxpayer to file an election with the CRA by a certain deadline to ensure the predictability of the income tax system.

…A taxpayer who has made a late election must nonetheless still pay a penalty as required by subsection 220(3.5). …[T]he penalty is $100 per month, up to a maximum of $8,000. The Minister has the discretion to cancel or waive all or part of this penalty… .

As part of the ongoing review of the ITA rules, the Department of Finance Canada will consider situations where the application of late-filing penalties creates a disproportionate burden on low-income taxpayers.

Subsection 220(4.1)

Administrative Policy

28 February 2019 CBA Roundtable, Q.10

Minister will consider other forms of security offered

ETA s. 314(2) provides that “the Minister shall accept security, in an amount and a form satisfactory to the Minister … for payment of any amount that [has been objected to].” After referring to the “Bank Letter of Guarantee or Irrevocable Standby Letter of Credit” as the normally acceptable security, CRA acknowledged:

However, if a form of security is being proposed, the Minister will review the proposed security during the course of administering the ETA, and determine whether it is advisable to accept the proposed security.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Secton 314 - Subsection 314(2) CRA will consider forms of security other than an LC for assessed taxes and interest 227

Subsection 220(4.5) - Security for departure tax

Administrative Policy

Information Circular IC98-1R8 “Tax collections policies” 24 May 2022

Requirement and acceptance of security

We may accept security instead of payment, or security combined with a payment arrangement, under some circumstances. In other circumstances, security may be required pursuant to legislation. …

We may also accept security in situations where you cannot pay your debt in full.

Acceptable forms of security

Some types of security we may accept include bank letters of guarantee, standby letters of credit, or mortgages. Bank letters of guarantee or standby letters of credit should be provided by a Schedule I or Schedule II Canadian financial institution as defined in the Bank Act. Other forms of security can be accepted in certain circumstances. Acceptability of other forms of security is determined on a case by case basis, subject to the Minister’s discretion to accept security under subsection 220(4) of the Income Tax Act.

Acceptable security must be liquid (easily convertible to cash), equivalent or near equivalent to cash, and realizable on demand without defense or claim from third parties. …

15 June 2021 STEP Roundtable Q. 1, 2021-0892681C6 - Trust Residency and Departure Tax

CRA generally requires LCs to secure exit tax

A Canadian-resident inter vivos personal trust realized gain under s. 128.1(4) as a result of its central management and control moving to outside Canada. Does its being a trust rather than an individual affect the requirements on it for the posting of security to defer the payment of the amount owing, and would the CRA consider a secured line of credit that it can draw on to be adequate security, rather than requiring the posting of a letter of Credit or a letter of guarantee?

CRA indicated that the required terms for security agreements are based on the nature of the security provided and do not typically differ for trusts and individual taxpayers, but indicated that it would not normally consider a line of credit to be adequate security given that its typical features do not provide CRA with sufficient certainty of future payment, if required.

18 October 2016 External T.I. 2015-0608051E5 F - Emigration of a trust

emigrating trust can elect to defer payment of the exit tax

May a trust that ceases to be resident in Canada make an election under s. 220(4.5) and, if so, can CRA extend the time for making such election and for furnishing and accepting security pursuant to s. 220(4.54)? After noting that under Fundy Settlement, the place of residence of a trust under Canadian tax law is the place where the central management and control of the trust is actually exercised,” and that “this place may therefore differ from the place where the trustee(s) reside,” CRA stated:

[S]ince a trust is deemed to be an individual in respect of its property, the trust would be entitled to make the election under subsection 220(4.5). … [T]he trust must elect under subsection 220(4.5) on or before the 90th day after the trust ceases to be resident in Canada.

In addition, under subsection 220(4.54), the Minister may extend the time for making an election under subsection 220(4.5) and/or the prescribed time for furnishing and accepting security under subsection 220(4.5). In our view, such potential extension also applies to emigrant trusts. However, the deeming provision in subsection 220(4.51) applies only to individuals other than trusts.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 2 - Subsection 2(1) Fundy Settlement test may differ from residence of trustees 86

5 October 2012 APFF Roundtable, 2012-0454231C6 F - Garantie pour impôt de départ

CRA may accept shares of the CCPC shares generating departure tax and looks for a minimum 2:1 FMV/tax ratio

In Scenario A the emigrating individual holds 100 Class A shares of a Canadian-controlled private corporation with a fair market value of $5M, for which the departure tax is $1M. CRA stated (TaxInterpretations translation):

[T]he practice of the CRA is to require all the Class A shares as security even if their value more than covers all of the debt.

Respecting the situation where the individual holds two classes of shares of a CCPC, and he proposes to provide only the Class B shares (with an FMV 10 times that of the departure tax) as security for the departure tax, CRA stated (TaxInterpretations translation):

[T]he practice of the CRA is to require all the shares of the two classes held by Mr. X as security. We consistently prefer and request all the shares of private corporations. If for some reason, the taxpayer can only provide the Class B shares, a valuation must then be made. If there is sufficient equity to cover the debt on a 2:1 ratio, the CRA will accept the shares as security.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 220 - Subsection 220(4.53) partial redemption may not result in demand for payment of departure tax 172

4 May 2009 External T.I. 2008-0299841E5 F - Garantie pour l'impôt de départ

posting of security for departure tax can generate refund of instalments paid in excess of regular tax

When an individual residing in Québec left Canada during 2002, the Part I tax payable for the year was $190,000, net of provincial abatement, but would have been only $100,000 if s. 128.1(4) had not applied. The individual made instalments for that year totalling $110,000. The provincial tax abatement was the only amount deemed to be tax paid for the year under element C of the formula in s. 220(4.5)(a)(i). The individual made the s. 220(4.5) election and provided sufficient security for the maximum amount permitted by the security for departure tax rules, being $90,000. What is the amount of the refund of overpaid instalments that the individual will receive? CRA stated:

[T]he provision of sufficient security does not constitute a payment. Thus, we have concerns with the technical treatment of the amount of sufficient security provided for the purposes of section 164 because of the wording of subsections 164(7) and 220(4.5) to 220(4.54). It should be noted that the presumption in paragraph 220(4.5)(b), providing in certain circumstances that the amount for which sufficient security is accepted is a paid amount, does not apply for the purposes of subsection 164(7). …

[However] in the hypothetical situation described above, the individual could benefit from a refund of overpaid instalments of $10,000 for the individual’s 2002 taxation year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(7) refund of instalments paid in excess of Part I tax for year ignoring s. 128.1(4) departure tax permitted where s. 220(4.5) security posted for such departure tax 170

Paragraph 220(4.5)(a)

Subparagraph 220(4.5)(a)(i)

Administrative Policy

29 April 2008 External T.I. 2006-0215891E5 F - Partnership Interest & Departure Tax

s. 85(1) rollover of the property triggered the s. 220(4.5) deferred tax

On his emigration from Canada, Mr. A held an interest in a real estate partnership which was capital property, and realized a taxable capital gain pursuant to s. 128.1(4)(b). However, instead of paying the resulting "Departure Tax," he made an election under s. 220(4.5). He then transferred the partnership interest on a s. 85(1) rollover basis to a corporation (Aco) of which he was the sole shareholder. CRA stated:

Mr. A having disposed of his Interest to Aco, we are of the view that Mr. A would be obliged to pay his Departure Tax.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1.1) - Paragraph 85(1.1)(b) partnership interest is eligible property 112

Subsection 220(4.51)

Administrative Policy

5 June 2017 Internal T.I. 2014-0561391I7 F - Deemed security pursuant to 220(4.51)

s. 220(4.51) exemption from providing security for deferred emigration tax on up to $100,000 of capital gains is available for larger gains

For purposes of calculating the s. 220(4.5) security, does an individual qualify for an exemption from providing security on the first $100,000 of capital gains even if such gains exceed $100,000? CRA responded that the deemed security under s. 220(4.51) (the “Deemed Security”):

is generally equal to the lesser of the total amount of those taxes that would be payable for the year by a trust resident in Canada on $100,000 of capital gains (the "Upper Limit") and the greatest amount for which the Minister is required to accept security under subsection 220(4.5) at that time in respect of the emigration year. Thus … for purposes of computing the security required under subsection 220(4.5), an individual would generally be entitled to benefit from the Deemed Security even if his or her capital gain exceeds $100,000 … .


Jenny Yu, "Departure Tax for Small Trusts", Canadian Tax Focus, Vol. 7, No. 1, February 2017, p. 8

No relief from security requirement for small trusts/emigration under s. 94(5) (p. 8)

When an individual ceases to be a resident of Canada and has a deemed disposition of certain property…[s]ecurity is automatically considered to be posted for essentially the first $16,500 ($50,000 × 33%) of federal tax (subsection 220(4.51)). However, as the CRA has confirmed (2015-0608051E5…), this deemed-security rule does not apply to trusts that cease to have a Canadian residence and have a corresponding departure tax. ...

[T]rusts may...cease to have a Canadian residence when there is no longer a resident contributor or a resident benefciary (subsection 94(5)); this provision is easy to overlook, because it is
often impractical for a trustee to track where these taxpayers reside.

Subsection 220(4.53)

Administrative Policy

5 October 2012 APFF Roundtable, 2012-0454231C6 F - Garantie pour impôt de départ

partial redemption may not result in demand for payment of departure tax

Respecting the scenario where the exit tax generated on the shares of a Canadian-controlled private corporation is secured by hypothecating those shares, and there is a subsequent partial redemption of those shares, CRA stated:

On a partial redemption, the portion of the debt that is still secured by hypothec of the shares is not consistently subject to a demand for payment in full. The shares provided as security secure only the amount in question at the time of the provision of the security. If the Minister determines that, as a result of such partial surrender, the security accepted in accordance with subsection 220(4.5) is not sufficient, the Minister may request additional security within 90 days of the partial disposition of the hypothecated shares or the full payment of the debt as provided in subsection 220(4.53). The same applies to shares traded on the stock market whose market value has fallen below a certain threshold. Where additional security is provided, the Minister is deemed to have accepted it under subsection 220(4.5).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 220 - Subsection 220(4.5) CRA may accept shares of the CCPC shares generating departure tax and looks for a minimum 2:1 FMV/tax ratio 187