Gordon v. Canada (Attorney General) – Taxpayer Relief– Canadian Tax Lawyer Analysis

 

Introduction – CRA Tax Administration Policy Statements

The Canadian Income Tax Act and Excise Tax Act leave many aspects of tax administration to the discretion of the Canada Revenue Agency (the “CRA”). To help ensure predictability for Canadian taxpayers, the CRA publishes statements of its tax policy when it comes to making decisions that are left by Canadian tax legislation in the hands of the Canada Revenue Agency. While these policy statements are useful both for taxpayers seeking to comply with their tax obligations and CRA officials who make decisions in the course of tax administration, they are not tax law. This means that policy statements are not binding, and it is wrong for Canada Revenue Agency officials to “fetter their discretion” by treating policy statements as exhaustive or binding when making a decision. A recent case, Gordon v. Canada (Attorney General) 2016 FC 643, has illustrated and reinforced this point in the context of CRA decisions about granting interest relief in a taxpayer relief application (TPR). If you believe that the Canada Revenue Agency has unreasonably bound itself to one of their policy statements in your case, such as the rules regarding interest relief, contact one of our top Canadian tax lawyers for tax help.

CRA Taxpayer Relief Application for Interest Relief

As of 2016, the CRA charges 5% annual interest compounded daily on unpaid income tax and unremitted GST/HST. This means that many Canadian taxpayers owe significant amounts of money in interest to Canada Revenue Agency in addition to their underlying tax debt. Fortunately, both the Income Tax Act and the Excise Tax Act contain provisions which authorize the CRA to grant interest relief to taxpayers. Our experienced Canadian tax lawyers can help you determine if you are eligible for interest relief by submitting a taxpayer relief application.

Gordon v Canada (Attorney General) – Canadian Tax Lawyer Analysis

In Gordon v Canada (Attorney General) the taxpayer, Mr. Gordon, was importing and selling vehicles using the dealer license of a local auto dealership, Coastal Collision. Gordon and Costal Collision asked their accountants which of them should collect and remit GST/HST on the vehicle sales. The accountants told Gordon and Coastal Collision that Costal Collision was responsible for collecting and remitting the GST/HST, which Coastal Collision proceeded to do.

The Canada Revenue Agency later determined that Gordon was actually responsible for collecting and remitting GST/HST, so they refunded Coastal Collision and assessed Gordon for the GST/HST owing, including interest. A transaction where the correct amount of GST/HST is paid to the government but is remitted by the wrong entity is called a “wash transaction”. The CRA’s stated policy for interest relief in the case of wash transactions was that only interest in excess of 4% could be waived or cancelled. Gordon submitted a taxpayer relief application for full interest relief and was denied on the basis of this policy.

Gordon, through his Canadian tax lawyers, then filed a judicial review application to the Federal Court and argued that it was unfair for the Canada Revenue Agency to charge interest on funds that were always in their possession. The Federal Court quashed the CRA’s decision on the ground that they treated their policy statement as binding and unduly fettered their own discretion and sent the matter back to the Canada Revenue Agency for reconsideration. The court specifically mentioned Gordon’s history of compliance with the Canadian Excise Tax Act and his reliance on professional advice as factors that might lead an administrative decision maker to grant him full interest relief.

Conclusion – Taxpayer Relief

The policy statements published by CRA are intended to provide predictability for taxpayers and guidance for the Canada Revenue Agency’s administrative decision makers. They are not intended to function as binding rules with the force of law, as demonstrated in Gordon v Canada (Attorney General). Our Canadian tax lawyers can help you deal with CRA decision makers who unduly fetter their discretion in taxpayer relief applications or in any tax administrative process.