COMMENTARY
TAX LITIGATION 101: TAXPAYER RELIEF AND OTHER EQUITABLE REMEDIES AMANDA S.A. DOUCETTE STEVENSON HOOD THORNTON BEAUBIER LLP
LAUREN E. SCHARFSTEIN STEVENSON HOOD THORNTON BEAUBIER LLP
This is the last article of a series of 3 articles on the topic of tax litigation. In Part 1 of the Series, we discussed filing objections and appeals with Canada Revenue Agency, and in Part 2 of the Series, we discussed various issues relating to collection of taxes. If a taxpayer disagrees with the content of his or her Notice of Assessment/ Reassessment, the typical remedy is to file a Notice of Objection with Canada Revenue Agency (“CRA”). However, if the taxpayer’s dispute is with respect to the imposition of interest, and/or if the taxpayer cannot pay the amount owing, and/or if the assessment/reassessment is the result of a mistake or error, other remedies should be considered. Taxpayer Relief The Minister of National Revenue (“MNR”) has the legislative authority to grant relief to a taxpayer from tax, interest and penalties in four key circumstances: 1. Waiving or cancelling of penalties and interest; 2. Extending a filing due date for elections; 3. Authorizing a refund of tax to an
individual even though a return is filed past the statute-barred period; and
4. Authorizing a reassessment or redetermination for an individual past the three-year reassessment period, where the adjustment would result in a refund or reduction in the amount payable. The forms of relief mentioned above are subject to the discretion of the MNR. An application must be made within 10 years of the relevant tax year in which relief is sought. The MNR may grant relief from penalties and interest in any of the following circumstances: (a) Extraordinary circumstances beyond the taxpayer’s control (ex: natural disaster or serious accident or illness to the taxpayer); (b) Actions of the CRA that contributed or impacted the penalties/interest; or (c) Inability to pay or financial hardship1. A taxpayer’s application for relief from penalties and interest should be made using Form RC4288 (and Form RC376 if financial hardship is argued). In determining whether relief is merited, the MNR will consider the taxpayer’s history of tax compliance and knowledge of the balance and accrual of interest, and whether the taxpayer acted quickly to remedy the matter. Rectification and Rescission If the assessed amount is otherwise correct but is disputed because there is an error/mistake in the underlying legal documentation or transaction, then consideration should be given as to the applicability of the equitable
remedies of rescission.
rectification
and
Rectification is an equitable remedy granted by the superior court of each province. This remedy is utilized when there is a legal document that does not match the original intention of the parties. If rectification is granted, the legal document is amended retroactive to the date of the original document. The following evidence is required (at a minimum) to make such an application: (1) proof of the original intention of the parties; (2) an admission from the person who made the mistake; and (3) an underlying legal document that can be amended. Rescission is also an equitable remedy granted by the superior court of each province. This remedy allows a transaction to be retroactively cancelled, annulled or set aside. An application for rescission requires: (1) a mistake; and (2) evidence that the mistake is of sufficient gravity that it would be unconscionable, unjust or unfair to leave it uncorrected. If rescission is granted, the transaction or document at issue is cancelled and the parties are returned to their precontract positions. The scope of rectification was narrowed significantly following the release of the Supreme Court of Canada’s decision in Fairmont Hotels2 and Jean Coutu3. At one extreme, it has been suggested that rectification can only be used to fix clerical errors. Similarly, there was speculation that the scope of rescission had also been narrowed. However, recent case law in British Columbia suggests that rectification and rescission may still be available in broader circumstances.4
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