No more one-chance policy

The Asper companies wrote to the CRA’s Fairness Committee, asking that the penalties and interest be waived. In September 2008, the CRA denied the companies’ request for relief from penalties and interest, claiming their situations “did not fall within the scenarios contemplated by the taxpayer-relief guidelines.”

While the CRA used to have a “one-chance policy”that applied when the taxpayer demonstrated a misunderstanding of the law and subsequently filed voluntarily, that policy is no longer in effect. And in the Asper companies’ case, even though this policy may have been in effect for the tax years in question, it was deemed only available to taxpayers who filed the forms “voluntarily.”

In July 2009, the companies once against asked the CRA to reconsider the penalties and interest charged, stating the penalties “were not fair and reasonable.”

The following month, the CRA’s Mr. McLean denied this second-level fairness request, writing: “While I can sympathize with your position, the Taxpayer Relief Provisions do not allow for cancellation of penalties and interest when a Taxpayer, or their representative, lacks knowledge or fails to meet filing deadlines.”

When the Federal Court is asked to review a decision of the CRA, the main issue is whether the CRA’s decision was “reasonable.” In this case, the Judge quoted a Supreme Court of Canada decision that commented on what reasonableness means:

“In judicial review, reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law.”

The CRA, defending its decision to assess penalties and interest, made the following points:

  • The Asper companies had made a conscious decision not to file the T1135 forms;
  • The companies used a professional accountant in the tax return preparation; and
  • The forms were only filed after the CRA notified the companies of their non-compliance.

No obligation to provide relief

The Judge agreed, concluding the CRA’s decision not to waive the penalties and interest “was within the range of possible outcomes defensible on the facts. Moreover, since (the Act) . . . does not obligate the Minister to provide relief, the decision was clearly defensible in respect of the law as well as the facts.”

Accordingly, the Judge dismissed the companies’ applications for judicial review, effectively upholding the penalties and interest charged.

These seven cases, along with similar decisions in Leclerc, Seabrook and Sandler, now bring the total to ten reported federal court cases in the past twelve months dealing with failed attempts by taxpayers to get relief from penalties and interest for late-filed T1135 forms.

With this in mind, I’d say it might just be high time this legislation was reformed to either formally introduce a one-chance policy or at least to carve out foreign securities held in Canadian brokerage accounts from the definition of “specified foreign property”required to be reported on Form T1135.

Jamie Golombek, CA, CPA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Financial Planning and Advice in Toronto.
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