Published: November 6, 2024
Last Updated: November 6, 2024
In August 2024, the Federal Court (“FC”) delivered its judgment on Onex Corporation v. Canada, 2024 FC 1247, setting aside the decision of the Canada Revenue Agency (“CRA”), which refused the taxpayer’s request for relief under subsections 220(2.1) and 220(3) of the Income Tax Act (“ITA“) and remitting the matter back to the CRA for reconsideration. This case affirms the remedial nature of subsections 220(2.1) and 220(3) of the ITA.
Prior to 2014, the taxpayer Onex Corporation (“Onex”) put in place a complex structure to receive tax-free dividends from a foreign affiliate. In 2014, the Parliament enacted the Economic Action Plan 2014 Act (Bill C-43) that amended the foreign accrual property income (“FAPI”) regime with respect to certain business structures such as the one set up by Onex. Bill C-43 applies to taxation years after July 2013, unless a taxpayer elects to have the bill taking effect over its tax returns from January 1, 2010.
Onex believed that its business structure already allowed it to achieve the purpose under the amended FAPI regime in Bill C-43, and thus, an election under Bill C-43 would be redundant. As a result, it chose not to file the election. However, the CRA reassessed Onex’s 2012 and 2013 taxation years, resulting in an additional $200 million in taxable income.
It was not contested that had Onex filed an election under Bill C-43, the reassessment would not have happened. To correct the issue, Onex requested the CRA to waive Onex’s filing of the election under subsection 220(2.1), to which the CRA refused. Onex then requested the CRA to extend the time for Onex to file the election under subsection 220(3), which the CRA also refused.
Subsections 220(2.1) and 220(3) of the ITA Have a Remedial Nature
Subsection 220(2.1) of the ITA gives the CRA the discretion to waive the requirement in the ITA to file a prescribed form, receipt or document or to provide prescribed information. Subsection 220(3) gives the CRA the discretion to extend the time to submit a return under the ITA. The FC held that the CRA failed to consider the remedial nature of these two subsections.
The FC looked into the legislative intent of section 220 of the ITA. Section 220 was adopted by the Parliament as part of a “Fairness Package” to make the tax system simpler, easier, and fairer. The Federal Court Appeal (“FCA”) in another case has suggested that the “Fairness Package” has the effect of blunting the harsh consequences of some provisions of the ITA.
Regarding subsection 220(2.1), the Department of Justice Canadian tax litigation lawyer acting for CRA argued that the subsection allows the CRA to waive the filing requirement provided in the ITA, whereas the election in dispute was not in the ITA. The FC dismissed this argument, drawing from subsection 42(3) of the Interpretation Act which provides that an amending enactment “shall be construed as part of the enactment that it amends.” Therefore, the filing requirement under Bill C-43 must be construed as part of the ITA.
Regarding subsection 220(3), the CRA argued that the subsection allows the CRA to extend the time to file a return whereas the election under Bill C-43 was not a return and not tied to filing of a return. The FC dismissed this argument, holding that while the provision on filing the election is not textually tied to the filing of a return, in practice and in fact the election directly impacts the return and thus is part of the return.
Section 12 of the Interpretation Act Requires a Remedial Interpretation
The FC also considered the relevance of section 12 of the Interpretation Act, where it requires that “every enactment is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.” The FC held that the principle of statutory interpretation requires, when possible, the preference for a remedial interpretation.
The narrow interpretation by the CRA where there was no precedent to support such a strict application of subsections 220(2.1) and 220(3) of the ITA contradicts section 12 of the Interpretation Act.
Application of Subsections 220(2.1) and 220(3) is of the CRA’s Discretion, But the CRA Ought to Consider the Circumstances
Despite the holding that subsections 220(2.1) and 220(3) apply to the filing of an election under Bill C-43, the CRA argued that it has the discretion in the application of the subsections. According to the CRA, filing an election under Bill C-43 is not an undue burden and Onex had to accept the consequence of their own failure to file the election.
Even though the FC agreed with the CRA that filing the election does not constitute an undue burden, the CRA ought to consider the circumstances of the taxpayer’s action. Onex always had the intention to access to the same result as obtained under Bill C-43 and, in fact, already arranged its business structures for that objective. It then acted quickly to remedy the consequences.
Furthermore, had Onex filed an election under Bill C-43, the reassessment would not have happened. The CRA’s refusal to consider the specific circumstance and insistence on a harsh punishment for Onex were not reasonable. Therefore, the decision by the CRA to deny Onex’s requests must be set aside, and the matters shall be remitted for reconsideration.
Pro Tax Tip – Subsections 220(2.1) and 220(3) Provide Remedy to be Requested with Caution
Even though subsections 220(2.1) and 220(3) of the ITA provide remedy for the taxpayers to request the CRA for a waiver in the filing of a form, receipt or document or in providing information required in the ITA or for an extension in the filing of a return, the remedy is not meant to be given freely.
The CRA has the discretion in granting the waiver or the extension, considering the circumstances of the taxpayer. The taxpayer needs to make sure he or she has taken all the due steps to carrying his or her filing obligations under the ITA. Subsections 220(2.1) and 220(3) cannot save the taxpayer from his or her complete failure in filing a return or a required form without justification.
FAQ
When I fail to file something or miss the filing deadline, can I ask the CRA for a remedy under subsections 220(2.1) or 220(3)?
Even though subsections 220(2.1) and 220(3) of the ITA have a remedial nature intended to alleviate the harsh consequences resulting from strict compliance with the provisions of the ITA, their application is to be reasonable considering the taxpayer’s circumstances while still in the discretion of the CRA. If you think you suffer undue hardship from a strict compliance with the ITA, it is recommended to consult with experienced Canadian tax lawyers.
How can something not in the ITA, such as a filing requirement in a separate act, impact my rights and obligations in the ITA?
Subsection 42(3) of the Interpretation Act provides that an amending enactment “shall be construed as part of the enactment that it amends.” Hence, a provision in a separate act intended to amend certain provisions in the ITA is essentially part of the ITA, impacting the rights and obligations of the taxpayers.
As such, interpreting and understanding the ITA are not as simple as reading the textual content of the ITA, and the textual content of the ITA itself is never easy to comprehend. It is always advised to consult with experienced Canadian tax lawyers when trying to navigate the ITA.
DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
About the Author
