AIRD & BERLIS
TAXLINE
By
David
Malach
Subsection 220( 3. 1) of the Income Tax Act provides that he minister of national revenue may waive or cancel “all or
any portion of any penalty or
interest otherwise payable” on or
before the day that is 10 calendar
years after the end of a taxation
year.
Until the decision in Bozzer v.
The Queen, this subsection had
been interpreted as barring any
application for relief that was
made more than 10 years after the
taxation year in question. Therefore, if one applied for a waiver of
interest in 2011, that waiver could
only be allowed for taxation years
after 2000.
The facts of the case are
straightforward. Ronnie Louis
Bozzer had tax debts that arose in
the 1989 and 1990 taxation years.
On Dec. 6, 2005, Bozzer applied
to the minister under subsection
220( 3. 1) of the act for a waiver of
interest accrued on the tax debt.
The minister denied the application, stating that the two 10-year
periods of allowance had expired
on Dec. 31, 1999 and Dec. 31,
2000. Bozzer’s second-level
review was denied as well.
The reasons given stated that
the minister had no discretion
under subsection 220( 3. 1) to waive
or cancel the interest since the
application for relief was not made
within the 10-year period.
In his arguments to the Federal
Court, Bozzer argued that the
phrase “interest … payable … in
respect of (a) taxation year” in
subsection 220( 3. 1) should be
interpreted as applying to all
interest accrued in that taxation
year on a tax debt. Bozzer interpreted the act as allowing the minister to exercise his discretion to
cancel interest accrued within the
10 years preceding the taxpayer’s
application for relief.
Under this interpretation,
Bozzer argued that interest
accrued under the act with respect
to his 1989 and 1990 taxation
years between Jan. 1, 1995 and
Dec. 31, 2004 should be able to be
waived by the minister. The Fed-
eral Court dismissed the applica-
tion. It found that the time limit
outlined in subsection 220( 3. 1)
was for 10 calendar years after the
relevant year of assessment.
220( 3. 1) was part of a special taxpayer relief provision that was
introduced in the 1991 fairness
package meant to help the Canada
Revenue Agency administer the
income tax system fairly and reasonably. In particular, the court
cited the Information Circular
issued by the CRA which stated
that the purpose of subsection
220( 3. 1) was to allow the minister
the ability to administer the
income tax system fairly by
helping taxpayers to resolve issues
that did not arise out of their own
fault. The FCA cited numerous
instances where the minister had
indicated the need to provide fair
and equitable relief for tax debts
that were not the fault of taxpayers.
The FCA examined the legislative history of subsection 220( 3. 1)
in an effort to understand the
legislative intent behind debt
relief. The court noted that before
2004, there was no 10-year limitation period in subsection 220( 3. 1),
as a taxpayer could ask the minister to waive any interest that
accrued since 1985. In 2004, subsection 220( 3. 1) was amended to
include the 10-year limitation
period.
In examining this legislative
history, the court was troubled by
the ambiguous language of the
revision used by Parliament. The
court stated that “it was incum-
bent on Parliament to be clear in
its language imposing the restric-
tion and any doubt should be
resolved in favour of the tax-
payer.” The court therefore ruled
that this ambiguity should be
resolved by concluding that the
minister had the statutory
authority to cancel interest on
Bozzer’s 1989 and 1990 tax debts
for the 10-year period preceding
his application for relief.
Summer student Meghan
Cowan assisted with this article.
David Malach is a partner at Aird &
Berlis LLP specializing in tax litigation, corporate reorganizations and
estate and succession planning. He
can be reach at:
dmalach@aird-berlis.com or (416) 865-7702.
Oil economies need not suffer, report says
Continued from page 12
climate change branch for Saskatchewan’s Ministry of the Environment.
Under the modelling in Taxing
Emissions, Not Income, Alberta
and Saskatchewan fare worst when
the revenue that is raised under a
cap-and-trade system is redistributed by reducing federal personal
and corporate income taxes, the
authors say.
Under this scenario, average
annual GDP growth in Alberta and
Saskatchewan would decline from
2. 30 per cent to 1.88 per cent, a
drop of 0.42 per cent; with the rest
of Canada only declining 0.10 per
cent from 2. 16 per cent to 2.06 per
cent; and Canada as a whole
declining an aggregate 0.16 per
cent, from 2. 19 per cent to 2.03 per
cent.
One of the implications of this
policy is that provinces which produce a lot of greenhouse gas emissions per personal and corporate
income — mainly Alberta and Saskatchewan — are going to end up
paying more than they will benefit
from the cuts in personal and corporate income tax, explains Peters.
A province like Ontario, which
has very low greenhouse gas emis-
sions per unit of personal and cor-
porate income tax, would end up
benefiting from that policy
because they’d receive a bigger tax
cut than they would end up paying
as a result of the carbon rate, he
notes.
ince,” he adds.
RIDGE
“Where the money goes is very
important,” agrees Ridge. “Our
leaning would be more towards
‘keep the money within Alberta’
whereby we put the charge on our
large emitters, and they pay into a
fund that is reinvested in technology which initially benefits
Alberta, but could also be deployed
elsewhere,” he explains.
Graybiel expressed a similar
viewpoint.
“It’s much more difficult, I
think, to reallocate funding if the
federal government’s doing it, than
if the province were to redirect it
through a technology fund, which
large emitters would pay into
directly. So we fully agree it would
be more efficient for the province
to reallocate that revenue,” he says.
The figures in this study are
based on the initial assumption that
net foreign savings in Canada —
affected by the net inflow or outflow of capital — would not be
impacted under the three climate
change policies used as a hypothesis in this report. “It’s a bit of an
artificial situation,” notes Schuh.
“In reality, there are always going
to be people migrating between different jurisdictions; and there are
always going to be companies that
move products across boundaries
in direct response to the enactment
of a certain policy,” she adds.
However, the changes were neg-
coincidence, Peters told The
Bottom Line.)
“The main difference between
this policy and (where) we reduce
federal corporate and personal
income taxes is this policy does not
yield any transfers from Alberta
and Saskatchewan to the rest of the
country,” Peters stresses.
“We strongly support that con-
clusion,” says Graybiel. “Because
we have a relatively small number
of taxpayers proportionate to the
size of emissions in (Saskatch-
ewan), it would be more difficult to
provide a direct benefit if the fed-
eral government was reallocating
or redirecting those funds from an
auction permit back to the prov-
ligible (no more than two one-hun-
dredths of a percent) when the
authors ran new figures using an
alternative assumption based on
the other extreme — namely that
capital moves freely across interna-
tional boundaries to provide a
global return.
