Relying on Incorrect CRA Information

Suppose that a taxpayer relies to his or her detriment on incorrect information provided by the CRA. If the problem cannot be corrected by an amended tax filing, appeal, or rectification order, taxpayers can in some cases obtain relief from the courts or by application to the CRA itself.

If the issue in question is the interpretation of the law, the courts have no basis for granting relief: the law is the law. For example, in Reid v. The Queen (2008 TCC 421), a taxpayer in receipt of CPP benefits followed the guidance of the CRA and did not make CPP contributions. The taxpayer was reassessed because the statutory formula deems self-employment income to be earned evenly throughout the taxation year in the year in which a person starts receiving CPP benefits (section 13(1) of the Canada Pension Plan). Although the TCC could not grant relief to the taxpayer, costs were awarded, and the court suggested that the taxpayer apply for a remission order (as discussed below).

On the other hand, if the matter at issue is the application of a penalty, some relief may be possible. In Dunlop v. The Queen (2009 TCC 177), the taxpayer did not receive a T4 slip, so he reported this omission to the CRA in a letter. The taxpayer was assessed a penalty under subsection 163(1) on the unreported T4 income. The TCC held that the taxpayer had substantially complied with the CRA's policy (which, in 2006, was less strict in requiring an income estimate than the current policy) and that the due diligence defence applied, thus absolving the taxpayer of liability for the penalty. Although in this case the CRA did not directly provide incorrect information to the taxpayer, a similar due diligence argument might apply in that situation.

A taxpayer may also seek relief from penalties and from interest under subsection 220(3.1) (the taxpayer relief provisions, or TRP). Information Circular IC 07-1, "Taxpayer Relief Provisions" (May 31, 2007), states that interest and penalties may be waived where there are errors in CRA materials that are available to the public (at paragraph 26). In Kerr v. Canada (2008 FC 1073), the taxpayer's RRSP contribution limit shown on her notice of assessment from the CRA was too high, and so she overcontributed to her RRSP. Her request for relief from interest and penalties under the TRP was denied. Upon judicial review, the FC held that the decision should be quashed and referred back to the minister for reconsideration.

Relief from penalties and interest--and (unlike the TRP) from the taxes owed--may be obtained by applying for a remission order (section 23(2), Financial Administration Act, RSC 1985, c. F-11). One basis for a remission order is incorrect action or advice by CRA officials (CRA Remission Guide, July 2005, unpublished), although a review of remission orders granted over the last five years shows that only three such orders have been explicitly granted on the basis of misleading information provided by government officials; only one of those orders pertained to incorrect information provided by the CRA. Specifically, in 2009 a remission order was granted to Laurie's Recycling & Waste Services Inc. for GST that should have been collected because the taxpayer relied on "misleading advice on the part of a [CRA] official regarding the tax status of waste collection services" (SI/2009-58, July 8, 2009).

It is ironic that taxpayers are forced to rely on the minister's discretion, as exercised by the CRA, in respect of requesting relief under the TRP and on the discretion of the governor in council, on the recommendation of the CRA, for relief via a remission order; in other words, taxpayers must rely on the discretion of the party that originally provided the incorrect advice--the CRA.

Lisa Handfield

Canadian Tax Focus
Volume 3, Number 2, May 2013
©2013, Canadian Tax Foundation