What Is "Just and Equitable"?

The Act and its regulations provide relief for taxpayers caught in difficult circumstances. Depending on the provision, this discretionary power may be exercisable by the TCC or by the minister. In some circumstances, the power is limited to cases in which it would be "just and equitable" to grant relief. When dealing with one of the 28 instances where these words occur (see the accompanying table; currently, no proposed laws use the phrase), a few general principles should be kept in mind.

Although the phrase is not defined in the Act or its regulations, nine provisions list particular circumstances that should be considered: subsections 164(4.1), 166.1(7), 166.2(5), 166.2(5), and 167(5); sections 204.91, 206.4, and 207.64; and subsection 207.06(2). Some provisions also contain other requirements that must be met (for example, subsection 89(14.1)) or preconditions to the application of the provision that permits relief (for example, regulation 5911(3)).

General sources of interpretive guidance include the following:

  • the provision's technical notes;

  • various CRA publications (for example, Information Circular 76-19R3 and CRA document no. 2012-

  • chapter 28 of the CRA Audit Manual, a redacted version of which is available on various tax services; and

  • jurisprudence (for example, International Charity Association Network v. The Queen, 2008 TCC 3).

Regulations 5911(3) and (4) are recent examples of this type of provision. They allow a taxpayer to amend a subsection 88(3.3) controlled foreign affiliate suppression election. In order to obtain relief, the taxpayer must first meet the conditions set out in regulation 5911(3). If those conditions are met, regulation 5911(4) will apply, allowing the minister to permit the taxpayer to amend the initial election if, "in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the initial election to be amended." The technical notes to the provision explain that "it is generally expected that the 'just and equitable' standard would be met where the taxpayer's computation of the surplus balances of the liquidating affiliate requires adjustment because of a foreign tax assessment or an adjustment on audit by the Minister."

The guidance is not always this straightforward. For example, in CRA document no. 2012-0445661C6, the CRA was asked to give an example of when it would be "just and equitable" to permit a late eligible dividend designation under subsection 89(14.1). After setting out several examples, the CRA clarified that "a request for late eligible dividend designation will not be accepted if it is reasonable to conclude that the taxpayers made the request for retroactive tax planning purposes." Those familiar with recent rectification jurisprudence know that this is a difficult line to draw, and one that the taxpayer and the CRA are likely to draw in different places.

A taxpayer who believes that the minister has not exercised her discretion as required by a particular provision may, with respect to most but not all of the provisions (two exceptions are sections 166.1 and 166.2) apply to the FC for judicial review of the minister's decision under section 18.1 of the Federal Courts Act. However, the FC will likely intervene only if the decision falls outside the range of possible acceptable outcomes that are defensible in respect of the facts and law. Query whether the further qualification "in the Minister's opinion" may be viewed as altering the range of acceptable outcomes when the minister's opinion differs from what may be generally acceptable in the circumstances, thus limiting the instances in which the minister's exercise of discretion may be successfully challenged.

Occurrences of "Just and Equitable"
Where "it is" just and equitable Where "in the opinion of the Minister it would be" just and equitable Other
146.4(1.4), 166.1(7), 166.2(5), 167(5), 188.2(5), 204.91(2), 206(4), 206.4, reg. 8300(1.1) 66(12.74), 66(12.741), 66(14.4), 85(7.1), 88(1.9), 89(14.1), 93(5.1), 93(5.2), 96(5.1), 220(4.54), 220(4.63), reg. 5901(2.2), reg. 5911(4) "The Minister is satisfied": 164(4.1) and 207.5(3)

"The Minister believes": 149.2(6)

"The Minister considers it": 207.06(2), 207.64, 207.8(3)

Carla Hanneman
KPMG Law LLP, Toronto

Canadian Tax Focus
Volume 3, Number 4, November 2013
©2013, Canadian Tax Foundation