This is a Supreme Court of Canada case concerning the power of the CRA to garnish and intercept funds that are to be paid to the taxpayer by a third party. In this instance, a garnishment was in place that required the Canada Trustco to pay to directly to the Receiver General any funds otherwise payable to the taxpayer. A cheque payable to the taxpayer as an individual was given to Canada Trustco with instructions to deposit it to a joint bank account the taxpayer held with a business partner. The key question was who the bank became liable to make a payment to as a result of the cheque - the payee of the cheque or the holders of the joint account to which it was deposited? Interestingly, the CRA conceded that funds in a joint bank account would not fall under the garnishment of an individual taxpayer which is not an argument they give up so readily at the early stages of most collection efforts. As a result the case came down to the technicalities of the banking process and in a 4-3 split decision, the majority of the Court determined that the bank was only contractually obligated to the holders of the joint account and not to the individual to whom the cheque was initially made payable. This meant that the cheque could be deposited to the joint account without the bank having to forward the payment to the Receiver General under the garnishment.
Before taxpayers who owe money to the CRA start rushing to ask their spouses to deposit cheques for them, the practical application of this precedent is likely not as advantageous as you may think. Firstly, if there is a garnishment in place, many banks will forward funds from joint accounts without turning their mind to the legal details. Secondly, depositing funds to another person’s account or to a joint account can create issues with Section 160 or other provisions through which the CRA can hold third parties responsible for another person’s tax debt. Using someone else’s account in this fashion could cause the CRA to look at their affairs as well as your own. In addition, making such deposits is likely to only be possible as a short term solution. The CRA can easily access bank records and once they find out where the cheques are coming from, the source would likely also receive a garnishment letter so the funds can be intercepted. In effect, there would eventually be no remaining source to still be sending cheques to a taxpayer in this position.
Although the fact scenario in this case is likely to be a fairly unique situation, an extrapolation of the principles in the decision suggest that anyone wanting to avoid a garnishment could either deposit cheques to a joint account or to an account in someone else’s name. While this may not be of significance for garnishments relating to tax, as was pointed out by the minority in the case this could have significant repercussions in other areas of law such as child and spousal support.
You can read the full case on CanLII - Canada Trustco Mortgage Co. v. Canada, 2011 SCC 36
Monday, July 18, 2011
Monday, July 4, 2011
Federal Court of Appeal sides with taxpayer on interpretation of 10 year limit for penalty and interest relief applications – Bozzer v. Canada
In an interesting decision for anyone who is involved in taxpayer relief requests, the Federal Court of Appeal issued a decision in June 2011 that went against the Canada Revenue Agency’s restrictive interpretation of the 10 year rule.
Since 2004, the discretionary power of the CRA to waive or cancel interest and penalties has been limited to amounts “in respect of” the ten taxation years preceding the date of an application for relief (s. 220(3.1)). The CRA have interpreted this 10 year rule to mean they do not have the discretion to cancel interest charges in situations where the underlying tax debt occurred outside of the 10 year period (see paragraph 39 of IC07-1). This has been disputed by many taxpayers and academics who believe that because interest accrues daily under the Income Tax Act, any interest accruing in the past 10 years would fall within the legislated discretion regardless of the date of the original tax debt.
After both of his internal CRA applications to cancel interest charges were denied on the grounds they were outside of the 10 year period for relief, Mr. Bozzer sought Judicial Review of the CRA’s interpretation of the legislation. He was initially unsuccessful as the Federal Court agreed with the Minister that the 10 year period started in the year of assessment of the original debt. On appeal, the Federal Court of Appeal noted that the section did not clearly stipulate the year of assessment as a starting point and found that the words of the section could potentially support either interpretation. As such, the language was ambiguous and the Court embarked on a “textual, contextual and purposive analysis” to find a meaning that is harmonious with the Act as a whole. The Court concluded that the 10 year limit enacted in 2004 represented a restriction of a right previously enjoyed by the taxpayer and that any ambiguity should rightfully be resolved in favour of the taxpayer. As such, the Court confirmed that the 10 year limit should be interpreted to allow for consideration of relief for interest that has accrued in the previous ten years without reference to the year in which the tax was originally payable.
Although the granting of relief remains at the discretion of the Minister, this interpretation will help those taxpayers who have previously been told their situation is outside of the discretion of the CRA and will hopefully broaden the circumstances in which the CRA will be willing to grant relief. The CRA do not seem to have issued an official response to the case and leave to appeal to the Supreme Court is still possible, as is an amendment to the legislation to clarify Parliament’s intentions. The CRA may change their administrative policies but this remains to be seen. For now the situation is unclear but it would be a good time for anyone who would benefit from the extended time period to get an application to the CRA as soon as possible.
You can read the full case on CanLII and are welome to contact me if you think this affects your case.
Since 2004, the discretionary power of the CRA to waive or cancel interest and penalties has been limited to amounts “in respect of” the ten taxation years preceding the date of an application for relief (s. 220(3.1)). The CRA have interpreted this 10 year rule to mean they do not have the discretion to cancel interest charges in situations where the underlying tax debt occurred outside of the 10 year period (see paragraph 39 of IC07-1). This has been disputed by many taxpayers and academics who believe that because interest accrues daily under the Income Tax Act, any interest accruing in the past 10 years would fall within the legislated discretion regardless of the date of the original tax debt.
After both of his internal CRA applications to cancel interest charges were denied on the grounds they were outside of the 10 year period for relief, Mr. Bozzer sought Judicial Review of the CRA’s interpretation of the legislation. He was initially unsuccessful as the Federal Court agreed with the Minister that the 10 year period started in the year of assessment of the original debt. On appeal, the Federal Court of Appeal noted that the section did not clearly stipulate the year of assessment as a starting point and found that the words of the section could potentially support either interpretation. As such, the language was ambiguous and the Court embarked on a “textual, contextual and purposive analysis” to find a meaning that is harmonious with the Act as a whole. The Court concluded that the 10 year limit enacted in 2004 represented a restriction of a right previously enjoyed by the taxpayer and that any ambiguity should rightfully be resolved in favour of the taxpayer. As such, the Court confirmed that the 10 year limit should be interpreted to allow for consideration of relief for interest that has accrued in the previous ten years without reference to the year in which the tax was originally payable.
Although the granting of relief remains at the discretion of the Minister, this interpretation will help those taxpayers who have previously been told their situation is outside of the discretion of the CRA and will hopefully broaden the circumstances in which the CRA will be willing to grant relief. The CRA do not seem to have issued an official response to the case and leave to appeal to the Supreme Court is still possible, as is an amendment to the legislation to clarify Parliament’s intentions. The CRA may change their administrative policies but this remains to be seen. For now the situation is unclear but it would be a good time for anyone who would benefit from the extended time period to get an application to the CRA as soon as possible.
You can read the full case on CanLII and are welome to contact me if you think this affects your case.
Monday, June 20, 2011
Access to Justice
I do a great deal of work with Taxpayers Advocate Inc. to try and increase access to justice for taxpayers in a dispute with the Canada Revenue Agency. This weekend, I had the pleasure of meeting Colin Lachance, the President of CanLII, at LawTechCamp in Toronto. He gave a fantastic presentation about the role of the internet in access to justice and it led me to wonder why we don’t have copies of entire Court files available online. We get access to the judgments through great sites like CanLII and the Courts themselves but still when someone who is unrepresented sits down to draft a Notice of Appeal or Application, wouldn’t it be great if they could go online and browse through copies filed by other people? The Rules of Procedure in most of the Courts give styles for major documents to be filed but these are nowhere near as useful as being able to see an actual Court File. You can go into a Court Registry Office and browse through the pleadings and documents in the file so it is recognized that these are publicly available, just not yet through the wonders of the internet. I’m adding this to the list of things that we should be pressuring those in high places to start making available and if anyone has any suggestions or comments, all will be welcomed!
Tuesday, April 5, 2011
Taxpayers Advocate Inc.
It's a tragic thing when you notice your last blog was over a year ago. Oops... Things have been going well with my practice and I have a new company to complement my legal work - Taxpayers Advocate Inc. This company provides free tax information and support to those in need and is an advocacy group to help uphold the Taxpayer Bill of Rights and to ensure the Canada Revenue Agency is held accountable for their actions. We will officially launch next week but the site is now up and running www.taxpayersadvocate.ca I firmly believe that as this resource grows it will help taxpayers and hopefully I will now stay on top of the blogging experience!
Monday, September 28, 2009
Paying Amounts in Dispute
There are very few areas where you will find common sense, logic and justice as subverted as you will when you deal with the tax system in our country.
Today I had to explain to a client that although he had valid grounds to dispute his re-assessment, there was no law that prevented collection of the taxes arising from the re-assessment before his appeal and/or objection were complete.
“But I don’t owe the money, they made a mistake, why should I have to pay?”
I have no other answer than – that is what the law says. Of course I explain that if he is successful in his appeal then any excess amounts paid will be refunded but that is little comfort to someone facing an $80,000 bill. It is incredibly hard to watch people time and time again look confused and crushed that the law allows these injustices to happen. People have no respect for laws that are unfair and the more you learn about the tax system, the less you respect it.
Paying taxes while an objection is being processed only applies in certain situations but for those where it does, they face the prospect of potentially being bankrupted before their appeal is even heard. All I can do is warn the taxpayer and hope we get a nice collection agent who agrees not to exercise their power to collect…
Today I had to explain to a client that although he had valid grounds to dispute his re-assessment, there was no law that prevented collection of the taxes arising from the re-assessment before his appeal and/or objection were complete.
“But I don’t owe the money, they made a mistake, why should I have to pay?”
I have no other answer than – that is what the law says. Of course I explain that if he is successful in his appeal then any excess amounts paid will be refunded but that is little comfort to someone facing an $80,000 bill. It is incredibly hard to watch people time and time again look confused and crushed that the law allows these injustices to happen. People have no respect for laws that are unfair and the more you learn about the tax system, the less you respect it.
Paying taxes while an objection is being processed only applies in certain situations but for those where it does, they face the prospect of potentially being bankrupted before their appeal is even heard. All I can do is warn the taxpayer and hope we get a nice collection agent who agrees not to exercise their power to collect…
Friday, September 18, 2009
The Taxpayers' Ombudsman
Today I met with Mr. Paul Dubé, the Taxpayers’ Ombudsman. For anyone who thinks the office of the Taxpayers’ Ombudsman is a joke, think again. This man has a vision and with it the belief and determination to make real changes. He knows that there are significant problems with how the Canada Revenue Agency (CRA) treats taxpayers and he is genuinely there to help. It was an absolute pleasure to see he was most definitely not another “ineffective politician” type.
The Taxpayers’ Ombudsman office was created in 2007 and is intended to address service issues and complaints that arise from dealing with the Canada Revenue Agency. While the idea of “service” from the tax collector may seem a little odd, Mr. Dubé was quick to highlight that what his office does goes far beyond dealing with complaints about rude behaviour from CRA agents. He is there to fight for your rights as taxpayers (see my post below).
I really think Mr. Dubé and his team can significantly help to improve the way the CRA operate and we all need to get the word out about what the Taxpayers’ Ombudsman is doing. If you think you have a complaint or want more information, the staff are all very friendly and it’s all free! Call 1-866-586-3839 or go to www.taxpayersrights.gc.ca
The Taxpayers’ Ombudsman office was created in 2007 and is intended to address service issues and complaints that arise from dealing with the Canada Revenue Agency. While the idea of “service” from the tax collector may seem a little odd, Mr. Dubé was quick to highlight that what his office does goes far beyond dealing with complaints about rude behaviour from CRA agents. He is there to fight for your rights as taxpayers (see my post below).
I really think Mr. Dubé and his team can significantly help to improve the way the CRA operate and we all need to get the word out about what the Taxpayers’ Ombudsman is doing. If you think you have a complaint or want more information, the staff are all very friendly and it’s all free! Call 1-866-586-3839 or go to www.taxpayersrights.gc.ca
Thursday, September 17, 2009
Did you know you have Taxpayer Rights?
It surprises some people to learn that there is a Taxpayer Bill of Rights:
1. You have the right to receive entitlements and to pay no more and no less than what is required by law.
2. You have the right to service in both official languages.
3. You have the right to privacy and confidentiality.
4. You have the right to a formal review and a subsequent appeal.
5. You have the right to be treated professionally, courteously, and fairly.
6. You have the right to complete, accurate, clear, and timely information.
7. You have the right, as an individual, not to pay income tax amounts in dispute before you have had an impartial review.
8. You have the right to have the law applied consistently.
9. You have the right to lodge a service complaint and to be provided with an explanation of our findings.
10. You have the right to have the costs of compliance taken into account when administering tax legislation.
11. You have the right to expect us to be accountable.
12. You have the right to relief from penalties and interest under tax legislation because of extraordinary circumstances.
13. You have the right to expect us to publish our service standards and report annually.
14. You have the right to expect us to warn you about questionable tax schemes in a timely manner.
15. You have the right to be represented by a person of your choice.
If your rights haven’t been respected or you do not feel the service you received from the CRA is in accordance with these rights, you can make a complaint. Think of it as a service contract as you would with any other organization that provides a service to the public. Contrary to how it may feel sometimes, CRA agents do have boundaries and taxpayers need to know about them. If the public don’t enforce their rights they won’t be any good to us! You can read more about your rights at http://www.cra-arc.gc.ca/gncy/frnss/tbrbll-eng.html or give me a call if you need help to make a complaint.
1. You have the right to receive entitlements and to pay no more and no less than what is required by law.
2. You have the right to service in both official languages.
3. You have the right to privacy and confidentiality.
4. You have the right to a formal review and a subsequent appeal.
5. You have the right to be treated professionally, courteously, and fairly.
6. You have the right to complete, accurate, clear, and timely information.
7. You have the right, as an individual, not to pay income tax amounts in dispute before you have had an impartial review.
8. You have the right to have the law applied consistently.
9. You have the right to lodge a service complaint and to be provided with an explanation of our findings.
10. You have the right to have the costs of compliance taken into account when administering tax legislation.
11. You have the right to expect us to be accountable.
12. You have the right to relief from penalties and interest under tax legislation because of extraordinary circumstances.
13. You have the right to expect us to publish our service standards and report annually.
14. You have the right to expect us to warn you about questionable tax schemes in a timely manner.
15. You have the right to be represented by a person of your choice.
If your rights haven’t been respected or you do not feel the service you received from the CRA is in accordance with these rights, you can make a complaint. Think of it as a service contract as you would with any other organization that provides a service to the public. Contrary to how it may feel sometimes, CRA agents do have boundaries and taxpayers need to know about them. If the public don’t enforce their rights they won’t be any good to us! You can read more about your rights at http://www.cra-arc.gc.ca/gncy/frnss/tbrbll-eng.html or give me a call if you need help to make a complaint.
Tuesday, April 21, 2009
What to do when you haven't filed your returns...
Its tax time again and I’m sure many people are frantically rushing to get everything ready and filed by the deadline next week. I just finished preparing a presentation about what to do if you have outstanding returns and it occurred to me that there must be people across the country who didn’t file last year and maybe even for a few years before and I wonder what they are thinking at this point. I know how easy it is to fall into the pattern of not filing and I think that many people who miss one year simply get scared into not filing again for the following years. Looking at the penalties and interest that you can have to pay upon filing again it is easy to understand why people get scared. The CRA charges interest on overdue taxes at a rate 4% higher than commercial rates and this can almost double your debt over a few years.
Taxes are a part of our lives and of course when one person doesn’t file, the burden is then placed on all taxpayers to make up their share. I know we need penalties and deterrents in place to make people file but I really think that the interest charges applied by the CRA are too high and act as an unfair barrier to those who are struggling to pay their tax debts.
I think that the CRA should have more programs to help people to deal with the large debts that they will inevitably face when coming forward to correct previous non-filing errors. The voluntary disclosure program is the main CRA initiative to have taxpayers come forward and start filing but this program has overly strict rules for qualification and really doesn’t help to significantly reduce the interest that taxpayers will face if they choose to start filing again this year.
If you have been surprised by the large interest charges on your account, drop me an email and tell me your story. For everyone out there who is scared to file a return this year, look at the CRA website and at least find out exactly what penalties and charges you will have to deal with before you make a decision. Unfortunately, the amounts will only get higher if you leave it another year. I am hoping to have the presentation about late filing on my website shortly at www.troublewithtaxes.com
Good Luck!
Taxes are a part of our lives and of course when one person doesn’t file, the burden is then placed on all taxpayers to make up their share. I know we need penalties and deterrents in place to make people file but I really think that the interest charges applied by the CRA are too high and act as an unfair barrier to those who are struggling to pay their tax debts.
I think that the CRA should have more programs to help people to deal with the large debts that they will inevitably face when coming forward to correct previous non-filing errors. The voluntary disclosure program is the main CRA initiative to have taxpayers come forward and start filing but this program has overly strict rules for qualification and really doesn’t help to significantly reduce the interest that taxpayers will face if they choose to start filing again this year.
If you have been surprised by the large interest charges on your account, drop me an email and tell me your story. For everyone out there who is scared to file a return this year, look at the CRA website and at least find out exactly what penalties and charges you will have to deal with before you make a decision. Unfortunately, the amounts will only get higher if you leave it another year. I am hoping to have the presentation about late filing on my website shortly at www.troublewithtaxes.com
Good Luck!
Wednesday, March 4, 2009
Something to think about before going green…
Anyone who has been audited will tell you that the CRA is obsessed with paper. You need the original receipt to prove an expense or nine times out of ten an auditor will deny your claim. So how does this fit with the new “go green” focus that many companies are now employing?
With e-bills and paperless bank statements, taxpayers have fewer hard records to leave a paper trail for the auditor to examine. Technology has a funny way of crashing right when you need it so unless you have all your online paperwork backed up, when the time comes you may be unable to access the valuable proof you need to claim your expenses. There is no word yet as to whether the CRA will take on the green challenge and accept online documentation. Generally, I have had trouble even with proving online banking transfers as the CRA question what exactly the payment relates to. Although logic says I probably wasn’t sending money to a hydro company for fun, without the bill showing the account and period the amount was for, it could cause trouble in an audit.
So a word of caution in this paperless age, save a tree and you may be digging yourself into a hole!
With e-bills and paperless bank statements, taxpayers have fewer hard records to leave a paper trail for the auditor to examine. Technology has a funny way of crashing right when you need it so unless you have all your online paperwork backed up, when the time comes you may be unable to access the valuable proof you need to claim your expenses. There is no word yet as to whether the CRA will take on the green challenge and accept online documentation. Generally, I have had trouble even with proving online banking transfers as the CRA question what exactly the payment relates to. Although logic says I probably wasn’t sending money to a hydro company for fun, without the bill showing the account and period the amount was for, it could cause trouble in an audit.
So a word of caution in this paperless age, save a tree and you may be digging yourself into a hole!
Thursday, January 15, 2009
Innocent until proven Guilty?
In criminal law, you are presumed to be innocent until the prosecution proves you are guilty beyond reasonable doubt. In civil law, the burden is generally on whoever brings an action to prove their case on a balance of probabilities. The line becomes a little more blurry in tax law.
If you are actually charged with a criminal tax offence, you are protected by the Charter and presumed innocent until proven guilty. However, for general audits, assessments and re-assessments the burden is on you, the taxpayer, to prove the Canada Revenue Agency (CRA) is wrong. A normal assessment or re-assessment is presumed to be correct and the CRA do not have to prove they are right. If you don't object or fail to provide adequate evidence, the assessment will stand. Uncertainty or ambiguity is generally resolved in favour of the CRA.
One area in which this is seen very clearly is ‘Net Worth Assessments’. These usually occur when the CRA believes your tax returns do not show your correct income so they add up the value of what you own etc. and estimated what you must have earned to buy all these things. They then assess you for taxes on this amount. If this happens, you have to show where the money came from and prove that it wasn't income. This can mean obtaining valuations for your property to show it is not worth as much as the CRA claim, going through old bank records to trace deposits and finding proof of any loans you have received. It can be a huge task because not many of us keep good records of all our personal spending.
The CRA have expansive powers such as this to ensure compliance with the Income Tax Act. Net Worth Assessments allow the CRA to assess taxes on people who perhaps deal in cash or may have an illegal source of income they are not paying taxes on. The biggest problem with Net Worth Assessments is that the CRA can’t usually find any evidence to show how much you spent on groceries or alcohol or magazines from 5 years ago. Instead, they use Statistics Canada averages to estimate what you probably spent. If you can’t provide actual proof or receipts, as opposed to you just claiming you don’t drink or eat expensive foods, you will likely face problems in proving your case. Therefore, you are effectively presumed to be ‘guilty’ of earning the additional income and liable for taxes.
Do you think this is fair? It is generally accepted that forcing the CRA to prove their case would be unfair as the taxpayer has all the information about their personal income and the CRA does not. This poses a problem for the CRA if they have to prove that an individual has earned a specific amount of income and the taxpayer destroys all the evidence. However, given that the taxpayer apparently knows their own situation best, should there be extra weight given to their declaration as to where the income came from or what their expenses were, even if there is no additional proof? When there is no evidence, what should win - the taxpayer’s sworn statement or the CRA’s estimation?
If you are actually charged with a criminal tax offence, you are protected by the Charter and presumed innocent until proven guilty. However, for general audits, assessments and re-assessments the burden is on you, the taxpayer, to prove the Canada Revenue Agency (CRA) is wrong. A normal assessment or re-assessment is presumed to be correct and the CRA do not have to prove they are right. If you don't object or fail to provide adequate evidence, the assessment will stand. Uncertainty or ambiguity is generally resolved in favour of the CRA.
One area in which this is seen very clearly is ‘Net Worth Assessments’. These usually occur when the CRA believes your tax returns do not show your correct income so they add up the value of what you own etc. and estimated what you must have earned to buy all these things. They then assess you for taxes on this amount. If this happens, you have to show where the money came from and prove that it wasn't income. This can mean obtaining valuations for your property to show it is not worth as much as the CRA claim, going through old bank records to trace deposits and finding proof of any loans you have received. It can be a huge task because not many of us keep good records of all our personal spending.
The CRA have expansive powers such as this to ensure compliance with the Income Tax Act. Net Worth Assessments allow the CRA to assess taxes on people who perhaps deal in cash or may have an illegal source of income they are not paying taxes on. The biggest problem with Net Worth Assessments is that the CRA can’t usually find any evidence to show how much you spent on groceries or alcohol or magazines from 5 years ago. Instead, they use Statistics Canada averages to estimate what you probably spent. If you can’t provide actual proof or receipts, as opposed to you just claiming you don’t drink or eat expensive foods, you will likely face problems in proving your case. Therefore, you are effectively presumed to be ‘guilty’ of earning the additional income and liable for taxes.
Do you think this is fair? It is generally accepted that forcing the CRA to prove their case would be unfair as the taxpayer has all the information about their personal income and the CRA does not. This poses a problem for the CRA if they have to prove that an individual has earned a specific amount of income and the taxpayer destroys all the evidence. However, given that the taxpayer apparently knows their own situation best, should there be extra weight given to their declaration as to where the income came from or what their expenses were, even if there is no additional proof? When there is no evidence, what should win - the taxpayer’s sworn statement or the CRA’s estimation?
Subscribe to:
Posts (Atom)
