Contact a member of the Dentons’ Tax Litigation group for assistance on applying for a Remission Order
A remission order is an extraordinary measure to provide complete or partial relief from tax, interest, or penalties. The authority is granted under subsection 23(2) of the Financial Administration Act, and in practice, it is the Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch of the Canada Revenue Agency (“CRA”), who makes the recommendation to grant or decline the remission order. The principal types of cases that warrant a remission are:
- extreme hardship;
- incorrect departmental action or advice;
- financial setback coupled with extenuating factors; and
- unintended results of the legislation.
Although commonly used by taxpayers as a last-ditch attempt to challenge a tax reassessment, requests for remission order are infrequently granted. When decisions to deny a remission order are challenged under judicial review, they are rarely decided in the taxpayer’s favour.
However, the recent decision Mokrycke v. Canada (Attorney General), 2020 FC 1027, is a case in which the Federal Court allowed the taxpayer’s application for judicial review of the CRA’s decision to deny a remission order request.
In Mokrycke, the taxpayer was an architect and sole proprietor of his business, who had been reassessed by the CRA. During the audit, the taxpayer was experiencing various personal and professional problems. He was involved in child custody and spousal support proceedings, was facing foreclosure on two properties and the collapse of a major project, and was suffering from health issues. As a result, the taxpayer relied on tax advisors to respond to the CRA on his behalf.
For various personal and other reasons of their own, the taxpayer’s tax advisors failed to respond to certain deadlines related to the tax objection, and then later failed to appeal to the Tax Court on time. The taxpayer attempted to make a request for taxpayer relief, but this request was also denied.
Subsequently, the taxpayer made a request for a remission order, arguing that the amounts reassessed were inaccurate because due to circumstances beyond his control, his tax advisors had been unable to respond effectively on the taxpayer’s behalf to contest the reassessed amounts. Therefore, in reality, the taxpayer did not owe the taxes and penalties imposed by the CRA, but due to the circumstances, he was denied the opportunity to demonstrate this.
The request was denied, and the taxpayer applied for judicial review of the decision with the Federal Court. The Federal Court found that the principal grounds for the taxpayer’s remission request were the following:
- incorrect action on the part of CRA officials (the reassessments were incorrect, but the taxpayer was denied the opportunity to demonstrate this);
- extenuating circumstances (the errors and omissions by the tax advisors); and
- financial hardship (the personal and professional setbacks suffered by the taxpayer).
The Federal Court found that the CRA’s decision to reject the remission request was based on the following:
- A review revealed that no errors were made by the CRA during audit or in re-assessing the taxpayer.
- The taxpayer did not provide any representations in response to the audit proposal and he did not provide the information required to support his position.
- The remission review process should not be used to circumvent the objection and appeal processes in place under the Income Tax Act.
- The taxpayer did not demonstrate that his health difficulties would have rendered him incapable of managing his tax obligations.
- Despite the failure of his tax advisors, it was the taxpayer’s responsibility to ensure that any tax and filing obligations were met, and that any delays on account of actions or failures of tax are not considered extenuating circumstances for the purposes of remission orders.
The Federal Court allowed the application and sent the matter back for reconsideration by another decision maker. The Federal Court accepted the taxpayer’s argument that the reassessments were incorrect, but due to circumstances beyond his control, he was unable to object properly to the reassessments or appeal to the Tax Court.
The Federal Court found that even though the CRA provided reasons for its denial of the remission request, such reasons lacked justification, transparency, and intelligibility and were therefore unreasonable. It appears that the Federal Court took issue with the fact that the CRA did not address the taxpayer’s arguments in a “meaningful way” or give sufficiently satisfactory reasons to deny the remission request.
Closing Thoughts
Although the Federal Court’s decision will be welcomed by taxpayers and tax professionals alike, this was a rare case where an application for judicial review of a rejected remission order request was successful. Normally, a court will not overturn a decision because a taxpayer relied on professionals who failed to meet a filing deadline or to follow mandated procedures. However, it may be that the circumstances in Mokrycke led to the Federal Court’s determination that it would be unjust to pursue the collection of taxes owed by the taxpayer.