Settlement Agreements with the CRA – Assumptions
Burg Properties Ltd v Canada, 2014 FCA 154
In this short decision, the Federal Court of Appeal identified the assumptions that will apply when interpreting a settlement agreement entered into by a taxpayer with the CRA. This case highlights the importance of exact wording and the necessity to identify amounts and items in settlement agreements.
The taxpayer has appealed from a TCC decision quashing its Notices of Appeal on the basis that the settlement agreement included a clause whereby the taxpayer waived his objection and appeal rights.
The settlement agreement did not provide final amounts but rather set out how various amounts were to be increased or decreased in the final assessment. The Appellant argued that the basis of the reassessment was to be the original and amended return filed by it, while the CRA argued that the basis was to be its reassessment.
The FCA held that:
- On appeal, the court is limited to searching for an error of fact, mixed fact and law, or law on the appropriate standards: Housen v. Nikolaisen, 2002 SCC 33;
- The phrase “we are prepared to offer the following settlement offer without prejudice with respect to the reassessments “was as expressly advising that “if accepted, the adjustments would be applied to the reassessments which resulted from the audit and which were the subject of notices of objection” (paras 10-11);
- Terms that include cancellation of gross negligence penalties (and, one would assume any penalties and interest) were seen as indicating reassessment in the settlement on the basis of the CRA’s reassessment because the “penalties were imposed in the reassessments that gave rise to the notices of objection, not in the appellant’s amended tax returns” (para 14); and
- Given that by operation of section 152 of the ITA and 299 of the ETA the Minister is not bound by a taxpayer’s return and its assessments are valid and binding (absent being vacated or reassessed), the Court felt that there “is no reason to believe that the Minister would enter into a settlement agreement that varied a non-binding tax return when she had already made a reassessment which was valid and binding on issuance” (para 15).
These findings indicate that the FCA will operate using a rebuttable presumption that a settlement agreement is meant to reassess on the basis of the CRA’s position and not the taxpayers.
– Sas Ansari, JD LLM PhD (exp)
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