On June 2, 2011, the Federal Court of Appeal released its decision in Bozzer v. Minister of National Revenue, in which the court rejected a long-standing position of the Canada Revenue Agency (the "CRA") restricting the circumstances in which applications for administrative relief from interest accruing on tax debts may be considered by the Minister of National Revenue (the "Minister").
Subsection 220(3.1) of the Income Tax Act (Canada) (the "Act") provides that the Minister may waive or cancel all or any portion of any penalty or interest otherwise payable under the Act by a taxpayer. However, the subsection also provides that the Minister may only grant such relief "on or before the day that is ten calendar years after the end of a taxation year of a taxpayer". Applications by taxpayers for relief from interest under subsection 220(3.1) of the Act are frequently referred to as "fairness applications" or "taxpayer relief applications".
The CRA's interpretation of subsection 220(3.1) of the Act has been that the Minister did not have the authority to grant a taxpayer relief from interest if the taxpayer applied for such relief more than ten years after the end of the taxation year in which the tax debt (on which the interest was accruing) arose. In Bozzer, the appellant's tax debt arose in the 1989 and 1990 taxation years. On December 6, 2005, the appellant submitted an application requesting relief from interest which had accrued on the 1989 and 1990 tax debt. The Minister refused to consider the appellant's application on the basis that such an application could only have been considered if it had been submitted by the appellant by December 31, 1999 (for the 1989 taxation year) and by December 31, 2000 (for the 1990 taxation year).
However, in Bozzer, the Federal Court of Appeal ruled that the ten year period stated in subsection 220(3.1) of the Act did not commence at the end of the taxation year in which the tax debt arose (1989 and 1990 in the appellant's case). Instead, the court ruled that the Minister had the statutory authority to cancel interest on the appellant's tax debt to the extent that it accrued in the ten taxation years preceding the appellant's application (despite the fact that the interest was accruing on a tax debt which arose more than ten years prior to the application). This result is contrary to the CRA's interpretation and application of subsection 220(3.1) since 2004.
It must be emphasized that relief from interest in response to taxpayer relief applications under subsection 220(3.1) of the Act remains at the discretion of the Minister. Nevertheless, the Bozzer decision broadens the circumstances in which taxpayers may apply to the Minister to request the cancellation of interest accruing in respect of tax debts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
