Remission Orders: A Taxpayer’s Last Chance
A remission order is a remedy that is available to taxpayers where attempts at obtaining relief from tax liability through the typical channels have been exhausted or are otherwise unavailable.
In general, all available avenues within the applicable legislation (i.e. the Income Tax Act and/or the Excise Tax Act) must be exhausted before an application for a remission order will be considered by the Minister of Revenue (the “Minister”).
Subsection 23(2) of the Financial Administration Act R.S.C. 1985, c. F-11 gives the government the authority to grant remission orders. Subsection 23(2) provides as follows (emphasis added):
The Governor in Council may, on the recommendation of the appropriate Minister, remit any tax or penalty, including any interest paid or payable thereon, where the Governor in Council considers that the collection of the tax or the enforcement of the penalty is unreasonable or unjust or that it is otherwise in the public interest to remit the tax or penalty.
The Financial Administration Act does not describe the conditions that a taxpayer must satisfy for a remission order to be granted. As at the date of this article, the Canada Revenue Agency (“CRA”) website does not provide specific guidance to taxpayers who wish to apply for a remission order.
In 1997, Revenue Canada prepared an internal document that described administrative guidelines in relation to remission orders. These guidelines were amended by CRA in or around July of 2005 (the “Guidelines”).
The Guidelines stipulate that, in general, remission orders will only be recommended by the Minister in the following circumstances:
- unintended results of the legislation;
- financial setback coupled with extenuating factors;
- incorrect action or advice by CRA officials; and
- extreme hardship.
1. Unintended Results of the Legislation
Remission orders may be granted in cases where the applicable legislation results in tax consequences that are inequitable and contrary to the intent of the law. In such cases, a remission order may provide a remedy until the applicable legislation is amended.
2. Financial Setback Coupled with Extenuating Factors
Remission orders may be granted in cases where the tax liability is imposed on a taxpayer with limited resources who can demonstrate that the liability was incurred due to extenuating factors. “Extenuating Factors” that fall within this category include:
- conditions beyond a taxpayer’s control (i.e. serious illness);
- taxpayer error in cases where standard CRA procedures should have detected and corrected the error; and
- court decisions where taxpayers in identical situations are treated differently. (i.e. if one of a group of taxpayers involved in the same transaction successfully appeals to the Tax Court of Canada, the rest of the group of taxpayers would arguably be entitled to the same result).
3. Incorrect Action or Advice by CRA Officials
Remission orders may be granted where a taxpayer’s position is compromised due to incorrect action or advice from CRA.
In general, a remission order will only be considered under this category where: (a) there is no evidence of bad faith on the part of the applicant; (b) the applicant could not reasonably have been expected to initiate timely actions to avoid or minimize the tax; (c) the applicant applies within a reasonable time so that CRA officials can properly investigate the matter; and (d) there is written evidence to substantiate the fact that an official had given incorrect advice to the applicant. If no written evidence exists, the fact that incorrect advice was given must be verified by other means.
Applicants who rely on this category must also demonstrate that: (a) any advice that was provided by CRA was incorrect; (b) the applicant acted on the basis of the incorrect advice; (c) the applicant had reason to believe that the CRA official was acting in an official capacity; and (d) another lawful course of action was open to the applicant that would have reduced the tax liability.
4. Extreme Hardship
Remission orders may be granted in cases where a taxpayer is suffering extreme financial hardship or where the taxpayer’s hardship will negatively affect a large number of people. The Minister will consider the taxpayer’s personal circumstances (i.e. age, health, financial resources, etc.) when evaluating applications under this heading. The Guidelines provide that the following conditions should be met:
- the hardship existed at the time of the application;
- the hardship existed when the tax liability arose; and
- the hardship is such that the tax liability cannot be satisfied by the taxpayer’s personal resources.
Applicants for remission orders should be aware that specific information about the applicant, including the circumstances of the case, will be made public in the event that the application is successful.
Taxpayers are encouraged to seek professional advice from their accountant, lawyer, or other advisors prior to applying for a remission order. In order to ensure that the application is considered, the applicant must demonstrate that it has exhausted all other remedies and the application should specifically focus on the categories described above.
This article was originally published in the October 30, 2008 edition of the Ottawa Business Journal.