Successful remission order application – Refund obtained despite 10 year limitation period

A taxpayer request to the Canada Revenue Agency ("CRA") for a remission order is generally considered a method of last resort, when all other available options to obtain tax relief have been exhausted. The CRA's website states that a remission order is a rare and extraordinary measure, which will only be considered in exceptional circumstances, and the decision to grant remission is fully at the CRA's discretion. The purpose of remission is to provide full or partial relief from federal tax, interest or penalties, where relief is warranted but can't be achieved under applicable tax laws, through an assessment or other actions.

Remission can be granted pursuant to subsection 23(2) of the Financial Administration Act,^[1] which provides that "The Governor in Council may, on the recommendation of the appropriate Minister, remit any tax or penalty, including any interest paid or payable thereon, where the Governor in Council considers that the collection of the tax or the enforcement of the penalty is unreasonable or unjust or that it is otherwise in the public interest to remit the tax or penalty." The CRA acknowledges that "very few requests result in remission being granted. Broad concerns must be considered in assessing whether it's in the public interest to recommend the extraordinary remedy of remission, including: maintaining the integrity of the legislative appeals process, the self-assessing nature of Canada's tax system, taxpayers' responsibility to understand and meet their tax obligations – and importantly – fairness to other Canadians."

Situations that may be considered for review include cases of extreme financial hardship, financial setbacks with an extenuating factor, such as a serious illness, mistakes made by the CRA or unintended results of the legislation.

This article discusses a recent remission order request that was accepted by the CRA, which provided a substantial refund for an individual taxpayer relating to taxation years more than 10 years back. The taxpayer, Moise Lafond, is a member of a First Nation in Northern Saskatchewan. The relevant facts begin many years back, in December, 1989, when Moise filed an application for Registration on the Indian Register under the Indian Act.^[2] Moise understood that he was entitled to have his Indian status recognized based on the entitlement of his grandparents. To demonstrate their entitlement to registration, applicants must provide evidence, including family information showing that their parents or grandparents are registered. Unfortunately, the process can be challenging depending on the records available to the applicant and potential discrepancies with the information on file with the government. This was the case for Moise, who received a rejection letter from Indian and Northern Affairs Canada in response to his first application.

Moise worked as a correctional officer for Correctional Service Canada in Saskatchewan, and his inclusion to the Register took on renewed importance in 2000 when he was asked to transfer his employment to a new healing lodge being built on a First Nation Reserve.

Section 87 of the Indian Act provides certain tax exemptions to "Indians", as that term is defined in the Indian Act. The Indian Act defines the term "Indian" as "a person who pursuant to this Act is registered as an Indian or is entitled to be registered as an Indian." Paragraph 87(1)(b) of the Indian Act exempts from taxation the personal property of an Indian situated on a reserve. Canadian courts have determined that, for the purposes of section 87 of the Indian Act, employment income is personal property. Therefore, employment income will be exempt from income tax under paragraph 81(1)(a) of the Income Tax Act^[3] and section 87 of the Indian Act if the income is situated on a reserve. The Indian Act Exemption for Employment Guidelines were developed by the CRA to describe the employment situations covered by Section 87 of the Indian Act. Guideline 1 states: "When at least 90% of the duties of an employment are performed on a reserve, all of the income of an Indian from that employment will usually be exempt from income tax."

Because Moise's employment would now be performed entirely on reserve, his income would be exempt from income tax if he was added to the Register. Moise filed a new application for registration prior to beginning his new employment in April, 2000, but this application was also denied. Moise therefore continued to pay income taxes each year.

Following his retirement in 2013, Moise continued his efforts to have his Indian status recognized. Finally, in June, 2017, merely 28 years after his first application, Moise received an acceptance letter confirming his application for band membership and registration as a Status Indian with his First Nation. His acceptance letter confirmed that his effective date of registration was December, 1989, the date of his first application.

This information was quickly submitted to the CRA, which confirmed that Moise's income was tax exempt from April, 2000, when he first started his employment on reserve, until his retirement in March, 2013. Unfortunately, the Income Tax Act only allowed the CRA to provide a refund for the previous 10 calendar years. Specifically, subsection 152(4.2) of the Income Tax Act permits the CRA to reassess an individual up to 10 years back, at the taxpayer's request. Accordingly, the CRA informed Moise that the CRA was only able to consider his request for 2007 and subsequent years. Therefore, no refund could be provided for the 2000 to 2006 taxation years.

It became evident that the only potential avenue to obtain an additional refund for the 2000 to 2006 taxation years was to request the extraordinary remedy of remission. However, in light of the unthinkable delays on the government's part in finally approving Moise's application, and given that Moise continued to pay income taxes throughout the years on income which the CRA now confirmed was exempt from income tax, Moise's case appeared to be one where remission would be seriously considered. The request for remission was filed on the basis that it would be unjust to deny the remittance of these taxes, and it was without doubt in the public interest for the Governor in Council to grant this remission.

The request was filed in January, 2020. In September, 2020, the CRA informed Moise that the request had been accepted into the Remission Program's inventory for review. Several months passed with very limited exchanges with the CRA, until May, 2022, when we were informed that Moise's remission order was accepted and had just been posted in the Canada Gazette. The explanatory note which accompanied the Order stated that "the amounts remitted represent the additional tax incurred by Mr. Lafond as a result of circumstances that were not within his control. The payment of these amounts caused an inequitable outcome for Mr. Lafond." The CRA had also contacted the province of Saskatchewan to request that they consider providing a refund of provincial taxes as well.

In the end, while the remission order process was as long as advertised, it definitely succeeded in providing its intended relief. After all, this resulted in a substantial refund for Moise, and remission was truly the only option available to him. Any preconceived notions one may have regarding remission should not outweigh its potential benefits, if the matter is appropriate for remission.