Information Circulars inform taxpayers and practitioners on the Canada Revenue Agency's ("CRA") interpretation and administration of the Income Tax Act ("ITA"). In that spirit, new Information Circular IC07-1R1 ("Circular"), replacing old Information Circular 07-1, provides new directions and guidance on seeking taxpayer relief from the Minister of National Revenue ("Minister"). This article selects certain revised sections for analysis of how they may impact a request for taxpayer relief.
Restrictions on Interest Relief
The Circular integrated CRA administrative policy concerning interest relief to the Federal Court of Appeal's ("FCA") decision in Bozzer v Canada, 2011 FCA 186 ("Bozzer"). In Bozzer, the FCA held that under ss. 220(3.1) the Minister has the authority to cancel interest on tax debts to the extent that the interest accrued in the ten years preceding a request for interest relief. However, the CRA purports to limit the applicability of this ruling to requests for interest relief made after June 2, 2011, the date on which the judgment in Bozzer was delivered. With respect, in our view Bozzer determined the state of the law as it always was and the CRA's interpretation on this point is therefore incorrect at law and improperly fetters the Minister's discretion.
Protective Requests for Relief
The CRA advised taxpayers to submit protective requests for potential relief in certain instances to ensure the request is made before the 10-year limitation period expires. This is a practical and helpful recognition by the CRA that many taxpayers, including taxpayers participating in group tax appeals, may have disputes that take so long to resolve that they end up including taxation years extending well beyond the time limit for relief requests. The CRA appreciates that taxpayers may not have all the documents needed to support such proactive requests and allows for supporting documents to be submitted to complete the request after the formal tax dispute process has concluded.
Pre-paying Interest
In para. 22.1, the CRA encouraged taxpayers to pre-pay their outstanding amounts owing when a taxpayer makes a request for relief. Such pre-payment avoids non-deductible interest from accruing and if relief is granted a refund would be paid. Some taxpayers, however, may prefer not to pre-pay until the CRA responds to the relief request, to enable them to continue to have use of the money while the CRA considers the request.
No Fettering the Minister's Discretion
The CRA helpfully emphasized that the Circular is only a guideline and does not have the force of law. For example, at para. 24 the CRA clarified that relief may be granted despite the taxpayer's inability to pay not arising from one of the enumerated consequences of extraordinary circumstances, actions of the CRA, inability to pay or financial hardship. The CRA's guidance is consistent with the statement in para. 6 that the Circular is only a guideline and is not intended "to restrict the spirit or intent of the legislation." These statements are, of course, consonant with well-established case law holding that the Minister may not fetter her discretion by rigidly adhering to administrative practice.
Inability to Pay or Financial Hardship
The CRA strengthened its expressed policy concerning relief requests based on inability to pay amounts owing. The CRA instituted more onerous disclosure requirements for taxpayers claiming interest relief due to financial hardship. Para. 28.1 requires taxpayers to submit to a fairly extensive CRA financial review of income and expenses, assets and liabilities, the ability to borrow funds and sell assets and actions and efforts to pay amounts owing, all with supporting documents. While this may be a deterrent from seeking relief for financial hardship, it is a reasonable demand when impecuniosity is being pleaded as grounds for relief. Taxpayers will have to consider whether submitting to such scrutiny is commensurate with the interest relief requested.
Two sensible additions to the process for requesting interest relief due to financial hardship relate to payment arrangements and outstanding tax returns. Where all or part of the interest is cancelled to enable a taxpayer to honour a payment arrangement, as a condition to getting relief it is incumbent on the taxpayer to make all of the agreed upon payments. Further, taxpayers are expressly required to file any outstanding tax returns with the CRA as a prerequisite for obtaining relief.
Termination of Pilot Project to Consider Relief Requests Simultaneously with Notices of Objection
The 2013 pilot project allowing taxpayer relief requests to be considered simultaneously with notices of objection appears to have been discontinued, with little or no information about the results of the project being communicated by the CRA. Regrettably, this ends the innovative attempt to grant taxpayers relief while adjudicating substantive tax issues. Looking forward, the CRA will now have to handle the tax dispute process in discrete components rather than holistically. This works to the disadvantage of taxpayers, for whom the overriding consideration in resolving a tax dispute is the total amount of tax, interest and penalties. Having to resolve these issues in sequence, rather than all at once, increases the time required and the costs incurred for both taxpayers and the CRA.
Conclusion
On balance, the new Circular appears to be intended to make it more difficult for taxpayers to secure relief and is consistent with the CRA's recently well publicized efforts to tighten up tax administration and enforcement.