Taxpayer Relief At Objection Stage: Asare v R

• Jurisdiction: Canada
• Law Firm: Gowling WLG
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Income Tax
• Author: Mr John Sorensen and Xin Jiang
• Published date: 07 March 2023

Subsection 220(3.1) of the Income Tax Act (Canada)¹ grants the Canada Revenue Agency ("CRA") the discretion to waive or cancel penalties and interest. While this provision is the legislative authority for the CRA's taxpayer relief and voluntary disclosures programs, its scope and operation are broader than the relief those programs grant pursuant to the CRA's administrative guidelines. That said, administrative guidance is generally relied upon to ensure consistent results and to assist decision-makers in considering relevant factors, although slavish adherence to administrative policy constitutes an improper fettering of discretion.

The CRA's administrative policy regarding taxpayer relief while notices of objection or appeals are pending includes certain limitations. More specifically, the CRA will review and consider relief requests on the bases of extraordinary circumstances or CRA actions while objections or appeals are in progress, and may communicate an intended relief decision informally, with a formal and final decision being rendered once the objections or appeals have been resolved or appeal rights have expired.² By way of comparison, the CRA will hold off on communicating its decision concerning a request to waive or cancel penalties and interest based on inability to pay / financial hardship until the objections or appeals have run their course.³ The practical implication of this policy is that taxpayers will not know with certainty (or at all) the total amounts payable when they are seeking to settle an objection or appeal with the CRA.

From a taxpayer perspective, the CRA's approach may artificially segregate the administration of tax disputes into discrete components, ignoring the economic reality that taxpayers primarily care about the total amount payable.⁴ This has been a known problem for some time, having been discussed at the 2011 Canadian Tax Foundation conference amongst current and former senior CRA officials.⁵ Subsequently, in 2013, the CRA announced a pilot project allowing a CRA appeals officer to consider relief from interest and penalties at an objection stage,⁶ but little is known about the results of that project.

On a recent judicial review application,⁷ the Federal Court ("Court") found that the decision of a CRA appeals officer not to grant taxpayer relief for the purposes of settling an objection was reasonable. The case confirms that:

• the CRA may reasonably refuse to entertain contemporaneously with objections or...