Taxpayer Relief

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Taxpayer Relief

Robinson v Canada (National Revenue), 2018 FC 825

The FC held, on judicial review, that the Minister’s decision was reasonable.


The Taxpayer, an independent lawyer, was erroneously issued a T4 by one of his clients.   His status as an independent contractor was finally resolved by the Tax Court of Canada.  However, when late filing his returns, the taxpayer included the T4 slip without an explanation as to why he was including a T4 indicating he was an employee while claiming self-employed status.

Because of some internal errors, the return was sent to general processing and not the person at the Non-filer assessment office it was directed to.  This resulted in that office issuing a non-filer assessment assessment of taxes outstanding, penalties, and interest.  After a service complaint, a reassessment was issued which lowered the amount of interest and penalties owing.  A complaint as filed with the Ombudsman’s office who, after an investigation, stated that the issuance of the non-filer assessment was due to a mailroom error.

The taxpayer then made a request for taxpayer relief seeking cancellation of the interest and penalties applied.  He relied, in part, on the errors and delays caused by the CRA.  This was denied resulting in a second level review request.  This was denied as well.


The Court noted that pursuant to subsection 220(3.1), the Minister, on application by the taxpayer, within a limited time-frame,  may waive or cancel all or any portion of any penalty or interest otherwise payable.

The sole issue was whether the decision makers decision was reasonable given the facts and circumstances before it.   A decision is reasonable where “the decision-making process exhibits justification, transparency, and intelligibility, resulting in a determination that falls within the range of possible, acceptable outcomes which are defensible on the facts and law: Dunsmuir v New Brunswick, 2008 SCC 9 at para 47.  So long as the reasons, as a whole, “allow the reviewing court to understand why the tribunal made its decision and permit it to determine whether the conclusion is within the range of acceptable outcomes, the Dunsmuir criteria are met”: Newfoundland and Labrador Nurses’ Union v Newfoundland and Labrador (Treasury Board), 2011 SCC 62 at para 16.

The Court’s role, on judicial review, is not to weigh the facts, but rather to examine if the Minister’s Delegate “properly considered the evidence before him and that the decision was not based on considerations irrelevant or extraneous to the statutory purpose”: Easton v Canada (Revenue Agency), 2017 FC 113 at para 43.  A decision maker is presumed to have considered all evidence before them: Smith v Canada Revenue Agency, 2009 FC 694 at paras 21-22.

With respect to errors of fact, the Court noted that “a mistake of fact has been made by a decision maker, the resulting decision is unreasonable if the decision maker misapprehended facts that were material to his or her decision: Johnston v Canada, 2003 FCT 713 at para 29.

In this case, the Court held that the decision maker was fully conversant with the taxpayer’s tax history, and noted that after the errors were detected, late filer penalties and interest were adjusted.  It concluded that no delay by the CRA resulted in the non-filer penalty being applied or the interest being charged – this was within the control of the taxpayer who did not file returns on time or pay his tax due on time.  The Court stated that ” It was Mr. Robinson’s personal choice not to pay the accumulated interest and penalty throughout the period of his dispute with the CRA, continuing up to and including the filing of his second request for taxpayer relief.” [para 104].  It went on to say, at paragraph 105:

By deciding that the amount of the non-filer NOA was wrong and too high to pay, Mr. Robinson alone made the choices not to pay any tax or interest or penalty, even though he could have made full or partial payment with any final surplus being refunded to him, with interest. The Decision recognized those choices, and given the discretionary nature of the requested relief, it was reasonable for the Decision Maker to determine that events were not beyond Mr. Robinson’s control and to deny the request for taxpayer relief on that basis.

The Court found the decision maker’s decision to be reasonable and noted, at paragraph 134:

When Mr. Robinson did not pay his taxes for 2008 on the date they were due, and did not file his 2008 return on time, he set in motion the very chain of events which he claims was beyond his control. When he then filed his Return over half a year after it was due, included an improperly issued T4 slip with it, and still did not pay the taxes, he exacerbated the problem.

Sas Tullo, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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CRA’s Access to Tax Accrual Working Papers

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CRA’s Access to Tax Accrual Working Papers

BP Canada Energy Company v MNR, 2017 FCA 61

EDITORIAL NOTE – The FCAs reasoning in this decision – that interpreting subsection 231.1(1) as giving the Minister the power to have routine access to a taxpayer’s uncertain tax positions would interfere with provincial financial disclosure laws – is unsound.  Persons are expected to abide by all laws that apply to them and it seems problematic for a court to read down one law because taxpayers may then fail to abide by other laws. Such legal-arbitrage by taxpayers should not be condoned.  It is interesting to see what the SCC will decide if this decision is appealed and how parliament will react to such a decision.  

The Federal Court of Appeal considered whether or not the Federal Court (2015 FC 714) was correct in ordering BP Canada to produce internal accounting documents (Tax Accrual Working Papers) to the Minister pursuant to subsection 231.7(1) of the Income Tax Act for purpose of assisting the Minister in conducting an ongoing audit of the taxpayer.  The Federal Court of Appeal rules that “the documents ordered to be produced, given the purpose for which they were sought, are beyond the reach of the Minister” (para 4).

Tax Accrual Working Papers are highly sensitive and often contain uncertain tax positions taken by public corporations in filing their tax returns as well as opinions as to the likely outcome should such positions be challenged by the CRA.  This information is then used to take tax positions, and to establish reserves to ensure sound and fair financial reporting.  In this case, the taxpayer refused to comply with the order, taking the position that “disclosure of its Tax Reserve Papers would not only provide the Minister with a roadmap to its uncertain tax positions, but the Minister would also gain access to the analyses behind those positions” (para 10).


The court began by outlining the type of information contained in TAWPs as:

  • papers created for independent auditors to assist with the process leading to the certification of financial statements in accordance with GAPP;
    • this is a requirement imposed under provincial securities legislation;
  • their purpose is to identify uncertain tax positions;
    • these are positions that are capable of being successfully challenged by the Minister;
    • they contain an opinion as to the likely outcome of a challenge;
  • uncertain tax positions are used to provide for reserves which will allow the independent auditors to certify that the financial statements fairly and accurately reflect the financial situation of the corporation;
    • the reserve is meant to neutralize the distortion that results from the position;

The FCA also agreed that subsection 231.7(1) could not have been drafted in broader terms, but the use of this apparently broad power must relate to the Minister’s administration or enforcement of the ITA.  In this case, the Minister wants access to the TAWPs to facilitate audits, and this appears to be an authorized purpose.

Once it is shown that the Minister is acting for an authorized purpose, the court must look for one of three demonstrations to trigger the application of 231.1(1):

  • The document being sought is part of, or is in, the books and records of the taxpayer;
  • The document being sought relates or may relate to the information that is or should be in the books and records of the taxpayer; or
  • The document being sought related or may relate to any amount payable by the taxpayer under the Act.

Although uncertain tax positions in TAWPs are not recorded by reason of an obligation arising under the ITA, they relate or may relate to information that is in the books and records of the taxpayer.  The requirement to disclose any document that relates or may relate to information that can be found in the books or records kept under the ITA must be necessity include documents other than those that are required to be kept under the ITA.  However, the FCA stated that the issue is not “whether the information revealed by BP Canada’s Tax Reserve Papers could be accessible under the Act” but rather whether subsection 231.1(1) “allows general and unrestricted access to this information” (para 67).

The auditor sought access to the details of the TAWPs after discovering that the tax at risk amounts identified by the taxpayer were significantly higher than the amounts the auditor proposed to add to the taxpayer’s income.  The documents were sought to complete the audit and make the audit more cost efficient.  The Minister took the position that the uncertain tax positions should be seen as aggressive positions given that they were risked at 100%, but the Court noted that there is “no correlation between this percentage and the soundness of the positions to which it relates”  as reserve optimization is a conservative approach to financial reporting (para 77).

The Federal Court of Appeal disagreed with the Federal Court and stated:

80]  In my view, subsection 231.1(1), properly interpreted, does not make papers such as these compellable “without restriction”. When one examines the context and purpose of subsection 231.1(1), it is clear that Parliament intended that the broad power set out in subsection 231.1(1) be used with restraint when dealing with TAWPs. It follows that the decision of the Federal Court judge must be set aside.

The FCA referred to the nature of the Canadian tax system – being a self-assessment system – and said that although taxpayers are required to self-assess, this “does not require taxpayers to tax themselves on amounts which they believe not to be taxable” (para 82).  Where an issue is reasonably up for debate, taxpayers are entitled to file their tax returns on a basis that is most favourable to them (para 82).  Auditors must be left to their own initiative in verifying amounts reported by taxpayers and, although entitled to be provided with all “reasonable assistance” (paragraphs 231.1(1)(d)), “they cannot compel taxpayers to reveal their ‘soft spots'” (para 82). To hold otherwise would be to compel the taxpayer to self-audit on an ongoing basis (para 83).

In enacting subsection 231.1(1), the FCA did not believe that it was Parliament’s intention to vest the Minister with sweeping powers that would undermine the obligations imposed by securities legislation requiring reliable financial disclosure (para 87).  The CPA, as intervener, argued that if this unrestricted access to TAWPs  is granted, then:

publicly-traded corporations would, as a direct consequence, tend to refrain from documenting issues for their external auditors and be less candid in disclosing their tax risks [and i]nducing less disclosure of tax risks to auditors is detrimental to Canadians, be they individuals, corporations or governments, as it necessarily results in less protection by reason of the decreased reliability of financial statements.

The FCA referred to two US decisions where access was granted by to TAWPs and courts stated that this would not negatively affect financial disclosure.  The Court distinguished those cases and stated that the US experience shows that general and unrestricted access to TAWPs would negatively impact financial reporting and impose an obligation on taxpayers that they do not have (para 95).  The FCA stated that the Federal and Provincial powers must be read in harmony such that the power granted pursuant to subsection 231.1(1) of the ITA cannot be used to imperil the integrity of the financial reporting system put in place by the provinces (para 98).

This means that the Minister cannot invoke subsection 231.1(1) to gain general and unrestricted access to a taxpayer’s TAWPs, and therefore cannot enlist taxpayer’s who maintain these documents to perform the core aspect of audits conducted under the ITA (para 99).  The Minister does have the power to access TAWPs, but this power cannot be used routinely (para 103).  The FCA also noted that the Minister was acting contrary to its own published policy not to seek routine access to a taxpayer’s uncertain tax positions.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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