Tag: Tax relief

The taxman cometh

I’ve never been a fan of the term “taxman”.  

Seldom, if ever, is it used as a simple reference to a real person.  No, it is a loaded term that is invariably intended to bring to mind the stereotype of a misguided mandarin squeezing the economic life out of the ordinary Joe toiling to make a buck.

Oh, come on!

The foundations of our economy and society are not free, and tax is the necessary cost.  I won’t come to the defense of any particular politician, but I will say that it is neither simple to conceive nor easy to implement an effective tax system.

And as to those front line tax collection people, they probably rank just behind fast food wait staff in terms of the unwarranted abuse they must personally endure.

Having said that …

I came across a real headshaker case recently.  

The decision was handed down in December 2008, with the English translation just recently being available.  In either language, it doesn’t do much to improve the image of the ‘taxman’ as being cavalier and callous.  

Fortunately, the appeal court stepped in to make things right, but it should never have gotten that far.

A series of unfortunate events

Taxpayer CL was a nurse with two children.  She handled the domestic side while her husband worked outside the home and managed all their finances.  

A series of unfortunate events were visited upon the family beginning in 2002:

  1. CL’s husband died suddenly in 2002, followed in short order by the deaths of her mother and her father-in-law.
  2. The couple’s son fell into a serious depression with suicidal issues, and CL herself came under psychiatric care and medication.  
  3. In 2003, the family basement flooded and became infested with rats, at roughly the same time as financial need forced CL to re-enter the workforce.  She went through three job changes through to 2005.
  4. Meanwhile the accountant who had handled the couple’s tax returns fell ill during this time period and eventually died of cancer in 2005.

It was not until 2007 that CL was able to assemble the documentation to file her 2003 to 2006 tax returns and pay the $33,000 tax owing.  She received an assessment totaling about $13,000 in penalties and interest on arrears, which she appealed to the local Tax Service Office.  In support of her application for relief from the assessment, she cited the Canada Revenue Agency’s “Taxpayer Relief Provisions”.  

For further context, by November 2007 CL was collecting employment insurance benefits, due to her psychological condition and inability to work outside the home.

How exceptional must exceptional be?

In January 2008, the Director of the Tax Services Office replied that CL:

“failed to act quickly to remedy the delay and failed to meet your tax obligations in the past. As well, there was no error or delay on our part, nor were there circumstances beyond your control that might have prevented you from doing your accounting on time and as required. The penalty for late filing and interest on arrears are therefore upheld.”

CL appealed this response to the federal court for judicial review 

On further review

The judge affirmed that the Taxpayer Relief Provisions are not mandatory for CRA officials, but rather “were developed by the Department to guide it in the exercise of its discretion and enable it to manage the tax system more fairly, by allowing room for common sense to benefit taxpayers who have been victims of misfortune or circumstances beyond their control.”

One extract provides a non-exhaustive list of possible circumstances, such as 

     (a) natural or man-made disasters such as, flood or fire;
     (b) civil disturbances or disruptions in services, such as a postal strike;
     (c) a serious illness or accident; or;
     (d) serious emotional or mental distress, such as death in the immediate family.
     [Emphasis added by judge.]

After reviewing relevant case law, the judge stated that “if ever there was a situation that merited tax relief, it is the applicant’s in this case, in accordance with the very criteria formulated by the Department of National Revenue.”

CL’s appeal succeeded and the matter was directed back for resolution in accordance with the court’s findings.

Literary culture versus pop culture

By the way, despite that I played on Eugene O’Neill’s “The Iceman Cometh” for the present article title, I’m truly more of the Beatles bent with their straight-up “Taxman”.

Come to think of it, George Harrison wrote that latter piece as he entered the 95% tax bracket.  Perhaps the taxman in the foregoing case was summoning back the spirits of Messrs Wilson and Heath, the politicians George decried in his song.

Whatever the motivation, this taxman may not be the exception that proves any particular rule, but the situation most certainly should be viewed as ad libbing well off the script or songsheet of good tax system management.

Sometimes you can beat City Hall, or rather CRA

As we close out the year and head into RRSP season (I know that term makes some bristle, but it’s a practical reality for many others), here’s an exasperating decade-long battle to mull over.

Where it all began

Back in September 1997, Lindsay Kerr received her Notice of Assessment for her 1996 tax year.  The NOA showed her 1997 RRSP contribution limit to be about four times what it had been in recent years, even though nothing had happened in her employment, income sources or other circumstances that would have explained the jump.  

While she suspected a possible error, Lindsay proceeded to contribute $8,121 into her RRSP in February 2008.  As it turned out, this was far in excess of the $794 she was actually entitled to, though it would be years before this came to full light.  Complicating the arithmetic, and potentially compounding the problem, Lindsay had earlier exercised her prerogative to make a one-time over-contribution of $2,000 so that in total she had made excess contributions of $9,327.

Then Lindsay took a break.  Having no taxes owing in the following years, she did not file tax returns from 1997 to 2002.

The early correspondence

A couple of years on, Lindsay was solicited by CRA to file returns for those missing years.  The letter, received in February 1999, advised her that all taxpayers are required to file an annual tax return in specific situations, none of which applied to her. Specifically, she did not owe any taxes for those years.

Lindsay spoke to CRA on a number of occasions by phone to obtain filing extensions, but eventually she was served with arbitrary tax assessments for 1999 and 2000.  Faced with the prospect of paying taxes she knew she did not owe, in November 2003 Lindsay filed returns for 1997-2002.  As it turned out, indeed there were no taxes owing; in fact, refunds were paid for all the years.

Error discovered, penalty tax assessed

On filing the 1997 return in 2003, Lindsay properly recorded the $794 contribution limit, though there was no paper trail to explain how she came upon this information. 

Still, as a result of this disclosure, Lindsay was assessed the 1% monthly penalty tax for the duration of the over-contribution.  By the time the matter was heard in court in the fall of 2008, she had paid $11,270 in taxes, penalties and interest.

The odyssey: Requesting a waiver

While it would be difficult to say that Lindsay was completely innocent of knowledge of the error, the fact is that she relied on the official documents as she was entitled to do.  On that basis, she applied for a waiver of the penalty tax in September, 2004.

The first CRA response explicitly stated that each individual may make RRSP contributions within the limit “provided on the Notice of Assessment each year.”  A later internal report in 2007 found that CRA “had originally provided an incorrect amount and (it appears) we had never advised the taxpayer, in writing, that her revised 1997 RRSP deduction limit was $794.”

On her second request in September 2005, an administrative review, the content of the denial letter included a comment that “you should have been aware that the amount in Box 52 of your T4 slip is required to be reported on your return.”  Again, the 2007 report found fault: “This statement is of concern because, according to the copy of the 1996 return provided to us by the taxpayer, she did report the correct amount in box 206.”  Box 52 is the pension adjustment to be reported in Line 206: Lindsay entered it correctly; CRA transcribed it incorrectly and then apparently still blamed her for its error. 

On her third request in June 2006, Lindsay specifically asked for a different tax office to handle the review – No doubt there had been some acrimony over the years of wrangling.  That earlier mentioned 2007 internal report was the basis for the ultimate decision in July 2007, at which time Lindsay was again denied, this time on the basis she had not made “reasonable errors” in failing to report the appropriate amounts.  This was despite that the only official record was acknowledged by CRA to be that original erroneous NOA.

Oh, that independent 2007 report?  Despite Lindsay’s request (and CRA’s assurance) for an independent review, it was first approved by an official at the original office before being given to the senior official who wrote to Lindsay.  And to boot, a memorandum obtained from a Privacy Act request revealed that that final writer had some critical misapprehensions of the facts, and appeared to show a bias against Lindsay for not having filed returns in those interevening years … years she was not obligated to file returns.

Judgment for the Applicant    

Incredibly, there were even more twists and turns in this case, but in the end the court was convinced that Lindsay was entitled to the relief she sought.  An order was issued in September ’08 stating that her errors were reasonable, as were her corrective steps, and as a result she was entitled to the return of her $11,270.

Your own resolutions?  Pay close attention to your Notice of Assessment (checkin’ it twice?), keep good written records of your communications with CRA, and maybe hug a judge this new year’s.