The “Fairness Package” was introduced to taxpayers in 1991. At the time, it was welcomed by a large segment of the public as a forum for the downtrodden, set-upon taxpayer. The CRA would finally be legally entitled to help those whose stories begged to be heard.
For anyone who has actually made a request with the above ideals in mind, the disappointment must have been shattering. The reality is that the Fairness Package is not a route to be taken by anyone who simply feels that an injustice has been done to them, or that, by telling their story, the CRA will lend a sympathetic ear.
The Fairness Package allows the CRA to accept certain late-filed elections provided a penalty is paid, waive interest and penalties or to grant requests for refunds for statute-barred years. The gap between their willingness to help, and the average taxpayer’s expectations, however, is very wide. The fact is, the Fairness Package simply opens the door. The CRA passes through it only on their terms, and with much reluctance.
In order to ensure consistency and transparency in dealing with fairness requests, the CRA relies on their published Information Circulars 92-1, 92-2 and 92-3, which provide the guidelines they will follow in dealing with each case. Within these guidelines, however, there is much room for interpretation. For example, one factor that could lead to waiver of interest would be if a return was filed late due to “serious emotional or mental distress, such as death in the immediate family”. In the case of Brickenden v The Queen, the taxpayer suffered a heart attack, a divorce and illness in the immediate family. Despite all this personal trauma, the CRA still denied his fairness request.
In IC 92-2, the CRA states that a fairness request may be denied if there is a history of non-compliance. This too, may be interpreted in different ways. The CRA could, for example, deny a request where a taxpayer failed to report interest from a misplaced T5 slip in a year not related to the year in question.
Generally speaking, ignorance of the law is not an acceptable basis for a request. However, in the case of late-filed elections, IC 92-1 states that a request may be accepted if “the taxpayer can demonstrate that he or she was not aware of the election provision even though the taxpayer took a reasonable amount of care to comply with the law, and undertook remedial action as quickly as possible.” Here again, there is room for the CRA to judge the reasonableness of the taxpayer’s actions. Compliance with the law assumes knowledge of the law. If the taxpayer knows the law, why would he or she be unaware of the election provision? This is a Catch-22 that may be used to the CRA’s advantage.
If an initial request is denied, a second request may be made in writing to the Director of the CRA tax services office. A separate independent review of the file is made at this stage. If it is denied again, there is no recourse to the Tax Court. The only recourse is a request to the Federal Court for a judicial review of the Minister’s decision. At this stage, the court cannot overturn the Minister’s decision. All it can do is find whether the CRA acted in a patently unreasonable manner, with prejudice, or whether there was any information that the Minister failed to take into account while rendering his decision. If such a finding is made, the Court sends the file back to the CRA for reconsideration under the Court’s instructions.
In Edison v. The Queen, for example, the Federal Court asked the CRA to reconsider a case where the second request was reviewed by officials who were not independent of the first tribunal.
In Brickenden, the file showed that certain information was not taken into consideration by the CRA in rendering its decision. The Minister was ordered to reconsider the file taking this information into account.
A favourable decision by the Federal Court only refers the file back to the CRA. There is no guarantee that the original denial will be changed.
The Fairness Package was an attempt by the Department of Finance to provide a fair and transparent system to allow taxpayers with legitimate difficulties to request relief. Unfortunately, given the CRA’s ultimate power in administering this relief, the reality is that the results rarely live up to the expectations of the average taxpayer.