Tax Audit Solutions

Moving Expenses

tas — Fri, 13 Jan 2012 12:27:39 +0000

If you moved more than 40 KM to significantly reduce your daily commute and kept all of your receipts, you can deduct all the expenses regardless of how long ago you started your new job or business.

Glen Wunderlich was living in Toronto in mid-2004 when he accepted a position with the Burlington company Boehringer Ingelheim (Canada) Ltd. Upon receiving a promotion from the same company in early 2007, he decided to move to Oakville.

In determining his income for 2008, Wunderlich claimed moving expenses of $33,160. The Canada Revenue Agency denied these expenses on the basis that he did not have “a new work location.” CRA’s position implied a time limit to the word “NEW.”

On appeal, Tax Court Judge Wyman Webb ruled that under the Income Tax Act an “eligible relocation” simply means “a relocation of a taxpayer…to enable the taxpayer to be employed at a location in Canada.” There is no actual requirement that there be a move from “an old work location” to “a new work location.”

As authority for his interpretation, he cited a previous decision of Justice C. Miller in Gelinas v. The Queen allowing moving expenses when a taxpayer moved from a part-time job to a full-time job with the same company.

The Judge also found that there is nothing in the legislation establishing a time period within which a move must occur following the commencement of employment at a new work location. Therefore, he said expenses are deductible even if the taxpayer moves at least 40 kilometres closer to his workplace months or even years after he starts working at a new job.

Therefore Wunderlich’s appeal was allowed, and the matter was referred back to the Minister of National Revenue for reassessment on the basis that he was entitled to deduct moving expenses of $33,160 in determining his 2008 income.

And because he refused to take no for an answer, you and other taxpayers in a similar position can now also benefit from his perseverance.

See: Wunderlich v. The Queen and Gelinas v. The Queen.

Docket: 2011-386(IT)I

BETWEEN:

GLEN WUNDERLICH,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard on November 22, 2011 at Hamilton, Ontario

Before: The Honourable Justice Wyman W. Webb

Appearances:

For the Appellant:

The Appellant Himself

Counsel for the Respondent:

Leslie Ross

____________________________________________________________________

JUDGMENT

The appeal from the assessment made under the Income Tax Act (the “Act”) for the 2008 taxation year is allowed and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to deduct moving expenses of $33,160 in determining his income for 2008.

The Respondent shall pay costs to the Appellant which are fixed in the amount of $250.

Signed at Ottawa, Canada, this 1st day of December, 2011.

“Wyman W. Webb”

Webb, J.

Citation: 2011TCC539

Date: 20111201

Docket: 2011-386(IT)I

BETWEEN:

GLEN WUNDERLICH,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Webb, J.

[1] In determining his income for 2008 the Appellant claimed moving expenses of $33,160. In assessing the Appellant for 2008, the Canada Revenue Agency denied these expenses on the basis that the Appellant did not have a “new work location”.

[2] The Appellant commenced employment with Boehringer Ingelheim (Canada) Ltd. (the “employer”) on June 1, 2004. The employer was (and still is) located at 5180 South Service Road, Burlington, Ontario. At that time the Appellant was living at 76 Crossovers Street, Toronto. In February 2007 the Appellant accepted a promotion and he determined that he would need to move closer to his place of work. The Appellant and his family moved to Oakville, Ontario and there is no dispute that the new residence is 50 kms closer to his work than his former residence. The Respondent did not dispute that the Appellant had incurred the costs as claimed in relation to his move in 2008 and the Respondent agrees that the Appellant was not reimbursed for such costs.

[3] As provided in subsection 62(1) of the Income Tax Act (the “Act”) a taxpayer may claim moving expenses (subject to certain limitations that are not in dispute in this appeal) that have been incurred in respect of an eligible relocation. An eligible relocation is defined in subsection 248(1) of the Act, in part, as follows:

“eligible relocation” means a relocation of a taxpayer where

(a) the relocation occurs to enable the taxpayer

(i) to carry on a business or to be employed at a location in Canada (in section 62 and this subsection referred to as “the new work location”), or

…

(b) both the residence at which the taxpayer ordinarily resided before the relocation (in section 62 and this subsection referred to as “the old residence”) and the residence at which the taxpayer ordinarily resided after the relocation (in section 62 and this subsection referred to as “the new residence”) are in Canada, and

(c) the distance between the old residence and the new work location is not less than 40 kilometres greater than the distance between the new residence and the new work location

except that, in applying subsections 6(19) to (23) and section 62 in respect of a relocation of a taxpayer who is absent from but resident in Canada, this definition shall be read without reference to the words “in Canada” in subparagraph (a)(i), and without reference to paragraph (b);

[4] Counsel for the Respondent referred to the decision of then Chief Justice Christie in Bracken v. Minister of National Revenue, [1984] C.T.C. 2922, 84 DTC 1813 and to some of the decisions of this Court which followed this decision, including the decision of Justice Bowman (as he then was) in Jaggers v. The Queen, [1997] 3 C.T.C. 2372, 97 DTC 1317. In Bracken, then Chief Justice Christie stated that:

15 My reading of subsection 62(1) is that it contemplates the existence of four separate elements: old work location, new work location, old residence and new residence, and the comparison of two distances, i.e. the distance from the old residence to the new work location with the distance from the new residence to the new work location, the former of which must exceed the latter by 40 or more kilometers in order for the moving expenses to be deductible. In this case two of the four elements are each combined with one of the other two resulting in two components. That is to say the old work location was joined with the old residence and the new work location is joined with the new residence thereby leaving only the distance between the two components capable of any conceivably meaningful measurement. In my opinion the subsection is not properly applicable to these circumstances.

[5] It is important to note that then Chief Justice Christie’s comments were based on his reading of subsection 62(1) of the Act which would be his reading of the Act as it read in 1981, which was the taxation year in issue. At that time subsection 62(1) of the Act provided (in part) as follows:

62. (1) Where a taxpayer

(a) has, at any time,

(i) ceased to carry on business or to be employed at the location or locations, as the case may be, in Canada at which he ordinarily so carried on business or was so employed, or

(ii) ceased to be a student in full-time attendance at an educational institution in Canada that is a university, college or other educational institution providing courses at a post-secondary school level,

and commenced to carry on a business or to be employed at another location in Canada (hereinafter referred to as his “new work location”), or

(b) has, at any time, commenced to be a student in full-time attendance at an educational institution (hereinafter referred to as his “new work location”) that is a university, college or other educational institution providing courses at a post-secondary school level,

and by reason thereof has moved from the residence in Canada at which, before the move, he ordinarily resided on ordinary working days (hereinafter referred to as his “old residence”) to a residence in Canada at which, after the move, he ordinarily so resided (hereinafter referred to as his “new residence”), so that the distance between his old residence and his new work location is not less than 40 kilometres greater than the distance between his new residence and his new work location, in computing his income for the taxation year in which he moved from his old residence to his new residence or for the immediately following taxation year, there may be deducted amounts paid by him as or on account of moving expenses incurred in the course of moving from his old residence to his new residence, to the extent that …

[6] The four elements identified by then Chief Justice Christie were clearly identified in the provisions of subsection 62(1) of the Act as it then read. In 1981 there was a requirement that a person cease to carry on business or be employed (or cease to be a student) at a particular location and commence to carry on a business or be employed at another location. These are the first two elements identified by then Chief Justice Christie. The other two elements (the old residence and the new residence) have not changed and are not in dispute in this case. Since in 1981 there was a reference to the work location where the taxpayer had been employed (and at which he ceased to be employed) and a reference to another location, it would be logical to refer to the new location at which the taxpayer was working as the “new work location”.

[7] By S.C. 1984, c. 45, s. 21, (applicable with respect to relocations occurring after 1983) subsection 62(1) of the Act was amended to read (in part) as follows:

62. (1) Where a taxpayer has, at any time, commenced

(a) to carry on a business or to be employed at a location in Canada (in this subsection referred to as “the new work location”), or

(b) to be a student in full-time attendance at an educational institution (in this subsection referred to as “the new work location”) that is a university, college or other educational institution providing courses at a post-secondary school level,

and by reason thereof has moved from the residence in Canada at which, before the move, the taxpayer ordinarily resided (in this section referred to as “the old residence”) to a residence in Canada at which, after the move, the taxpayer ordinarily resided (in this section referred to as “the new residence”), so that the distance between the old residence and the new work location is not less than 40 kilometres greater than the distance between the new residence and the new work location, in computing the taxpayer’s income for the taxation year in which the taxpayer moved from the old residence to the new residence or for the immediately following taxation year, there may be deducted amounts paid by the taxpayer as or on account of moving expenses incurred in the course of moving from the old residence to the new residence, to the extent that

[8] The requirement that the taxpayer must cease to be employed or to be a student was removed. Hence the requirement for an “old work location” was removed. Commencing in 1983 the only requirement related to a work location was that the taxpayer had commenced to be employed at a location in Canada. The label that was put on this location was the “new work location”. It should also be noted that the same label “new work location” was also placed on the educational institution if the taxpayer was a student. This emphasizes the point that “new work location” is simply the name or the label that was placed on the particular location. The words used as part of this label (in particular new and work) should not be used to define the expression “new work location”. “New work location” is the expression or label that, prior to 1998, was defined in subsection 62(1) of the Act and was the location where the taxpayer commenced to be employed (or at which he commenced to be a student).

[9] By S.C. 1999, c. 22, subsec. 17(1), (applicable after 1997), subsection 62(1) of the Act was again amended. In 1999 subsection 62(1) of the Act was amended to read, in part, as follows:

62. (1) There may be deducted in computing a taxpayer’s income for a taxation year amounts paid by the taxpayer as or on account of moving expenses incurred in respect of an eligible relocation, to the extent that…

[10] The requirements related to the location of the work and the old residence and the new residence were moved to the definition of “eligible relocation” in subsection 248(1) of the Act, which is quoted above. The requirement that the taxpayer must have “commenced …to be employed” has been changed to a “relocation [that] occurs to enable the taxpayer…to be employed”.

[11] The argument of the Respondent is that the Appellant was employed by the same employer prior to his promotion in 2007 and his move in 2008 and therefore there was no “old work location” nor was there a “new work location”. The requirement for an “old work location” was based on the comments of then Chief Justice Christie in Bracken, above. It seems to me that the comments of then Chief Justice Christie in Bracken, above, were based on the Act as it read in 1981. Since the Act was amended in 1984 to remove the requirement that a taxpayer cease to be employed at a particular location and therefore removed the requirement for an “old work location”, it seems to me that there is no longer any requirement that there must be an “old work location”.

[12] With respect to the requirement related to a “new work location”, the expression that is defined is “new work location”. This expression is defined within the definition of “eligible relocation” in subsection 248(1) of the Act. “Eligible relocation” is defined, in part, as follows:

“eligible relocation” means a relocation of a taxpayer where

(a) the relocation occurs to enable the taxpayer

(i) to carry on a business or to be employed at a location in Canada (in section 62 and this subsection referred to as “the new work location”),

[13] Therefore “the new work location”, as defined in the definition of “eligible relocation” in subsection 248(1) of the Act, is simply a location in Canada where the taxpayer is employed. There is no reference in the part of the subsection in which the definition is found to any requirement that the location be a “new” location. If instead the provision were to read:

“eligible relocation” means a relocation of a taxpayer where

(a) the relocation occurs to enable the taxpayer

(i) to carry on a business or to be employed at a new work location in Canada,

then it would be necessary to determine how the words “new” and “work” would modify the location and how they would affect the determination of whether a particular location is a new work location. However this is not how the provision reads. The provision refers to “a location in Canada” [at which the person is employed] which is referred to as “the new work location”. If the provision, instead of stating that it is referred to as “the new work location”, were to state that it is referred to as “the work location” or “the specified location”, then “the work location” or “the specified location” would have the same meaning as would be ascribed to “the new work location” as only the label for the expression would be changed, not the meaning assigned to that label. The words used as part of the phrase should not be used to interpret the phrase when the phrase is defined in the Act.

[14] The Appellant relied on the decision of Justice C. Miller in Gelinas v. The Queen, 2009 TCC 111, 2009 DTC 1091, [2009] 4 C.T.C. 2232. In that case the taxpayer changed her job from a part-time job to a full-time job. Justice C. Miller found that there was no requirement that there be an “old work location” and found that the change in the taxpayer’s job from a part-time job to a full-time job was sufficient to allow the taxpayer to claim moving expenses, even though the Appellant was employed by the same employer.

[15] It seems to me that in this case, based on the decision of Justice C. Miller in Gelinas, the change in the Appellant’s job would also support the Appellant’s claim for moving expenses. The Appellant stated that his new position was a management position. He described his commute as barely manageable prior to his new job and as a result of his new managerial responsibilities he felt that he needed to be closer to his work.

[16] It also seems to me that there is another basis on which the Appellant’s claim for moving expenses should be allowed. In Beyette v. Minister of National Revenue, [1989] T.C.J. No. 1001, 89 DTC 701, Justice Taylor stated that:

The only issue raised in this appeal, is whether, all other conditions being met (and they were) the taxpayer is entitled to the deduction claimed for moving to his new employment site in 1986, from his old employment site after he had already been working at the new site (commuting daily) for the intervening five year period. The Respondent’s assessment explanation read:

”The general rule is that you may deduct moving expenses from your income if you move from the residence you ordinarily live in to commence employment at a new location. As the information submitted indicates that you commuted from Winnipeg to Beausejour for several years, you do not meet the above-mentioned criteria.”

Counsel for the Respondent argued that Section 62(1) of the Act implied a certain time limit – between the change of work site and the move – and that five years was unreasonable. In addition the critical word in the legislation was “commenced”, in his view and there was a requirement for a relationship between the “commencement of employment” and the “move”.

I do not agree with either point raised by the Respondent. In this matter, I was satisfied from the evidence and testimony that there were good reasons for which the taxpayer delayed his move from Winnipeg to Beausejour – illness, lack of housing in Beausejour, inactive real estate selling market in Winnipeg, etc. – but that is probably irrelevant. In my opinion, the taxpayer and he alone is left to determine the timing of the move, and the costs associated with the move, and no time limit is expressed by the wording of the Act. While clearly five years is an unusually long period of time between the change of work locale and the move, that cannot be put in issue – the respondent has no basis upon which to conclude (I.T. Bulletin 178R2) that there is some time frame that is “reasonable” and another that is unreasonable. As I read Section 62(1) of the Act, it is a requirement that the taxpayer “– has — commenced to be employed previous to the move for which an expense claim is made. I do not see that one should read into the word “commenced” more than that. Mr. Beyette “commenced to be employed” in 1981 at the new work location, he “moved” in 1986 and is entitled to his costs of moving.

[17] In Simard v. The Queen, [1996] T.C.J. No. 626, [1998] 2 C.T.C. 2312, Justice Watson also allowed a taxpayer to deduct moving expenses that had been incurred five years after the taxpayer started to work at the “new work location”, as then defined in section 62 of the Act (now defined within the definition of “eligible relocation” in subsection 248(1) of the Act). Justice Watson stated that:

17 I concur with Judge Taylor. In my view, the Income Tax Act does not require that the move to the new work location be completed within a prescribed period of time.

[18] Justice Watson quoted the provisions of section 62 as they read at that time. In part section 62 provided that:

(1) Where a taxpayer has, at any time, commenced

(a) to carry on a business or to be employed at a location in Canada (in this subsection referred to as his “new work location”), or

…

and by reason thereof has moved from the residence in Canada at which, before the move, he ordinarily resided (in this section referred to as his “old residence”) to a residence in Canada at which, after the move, he ordinarily resided (in this section referred to as his “new residence”), …

[19] At the time that the decisions of this Court in Beyette and Simard were rendered, in order to claim moving expenses in relation to employment, a person must have commenced to be employed at a location and by reason of the commencement of such employment, must have moved. The current wording is that there must be a relocation which enables the person to be employed at a “new work location”. Just as the previous version of section 62 of the Act did not provide any time period within which a move must occur following the commencement of employment at a “new work location”, the current version of section 62 of the Act and the definition of “eligible relocation” in subsection 248(1) of the Act do not provide any time period within which a move must occur following the commencement of employment at a “new work location”.

[20] In Attorney General of Canada v. Hoefele, et al., 95 DTC 5602, Justice Linden, writing on behalf of the majority of the Justices of the Federal Court of Appeal, stated that:

…What must be determined is whether those portions of the mortgage loans taken out by the taxpayers in respect of the Toronto homes, and to which the interest subsidy was directed, came about ‘because of’, ‘as a consequence of’ or ‘by virtue of’ employment.

In resolving this question, one must first note that subsection 80.4(1), whether in its older or newly amended form, requires a close connection between the loan or debt and employment, a connection much closer than that required by paragraph 6(1)(a) as between benefit and employment. In the latter, a benefit may arise if it is received merely ‘in respect of’ employment. The phrase ‘in respect of’ connotes only the slightest relation between two subjects and is intended to convey very wide scope. In Nowegijick v. The Queen, the Supreme Court of Canada stated the following concerning the words ‘in respect of’:

The words ‘in respect of’ are, in my opinion, words of the widest possible scope. They import such meanings as ‘in relations to’, ‘with reference to’ or ‘in connection with’. The phrase ‘in respect of’ is probably the widest of any expression intended to convey some connection between two related subject matters. [ FOOTNOTE 19 : [1983] 1 S.C.R. 29 at 39 per Dickson, J. See also Linden, J.A. in Blanchard. ]

On the other hand, the phrases used in the amended subsection 80.4(1), ‘because of’, or ‘as a consequence of’, as well as in the original version, ‘by virtue of’, require a strong causal connection. I find little or no difference between the meanings of the phrases ‘because of’, ‘as a consequence of’ and ‘by virtue of’. Each phrase implies a need for a strong causal relation between subject matters, not merely a slight linkage between them.

(emphasis added)

[21] It seems to me that “by reason of” would be equivalent to “because of”, “as a consequence of” and “by virtue of”. If the strong causal connection between the commencement of employment and the move that would have been required when Beyette and Simard were decided, based on the wording of section 62 of the Act at that time, would not result in a time period within which the move must occur, then, in my opinion, the change in wording from the requirement that:

(a) a person had to commence work at the “new work location” and move by reason of the commencement of such employment,

(b) a relocation has occurred to enable a person to be employed at a “new work location”

cannot be construed as adding a time period within which a person must move or create any stronger connection or link between the move and the commencement of employment at the “new work location”. If anything the change in wording to provide that a relocation must occur to enable the person to be employed suggests less of a causal connection between the move and the commencement of employment than did the previous requirement that the person had to move by reason of commencing employment. There is no longer any reference to the commencement of employment in section 62 of the Act or in the definition of “eligible relocation” in subsection 248(1) of the Act.

[22] Since it seems to me that it must be accepted that it is not necessary to move before the employment commences at the “new work location” in order to qualify for the deduction, whether the move occurs a short time after the commencement of the employment at the “new work location” or a longer time after such commencement, the relocation has occurred to enable the person to be employed. It does not seem to me that there is any reason to now read into the definition of eligible relocation a requirement that the person must move within a certain amount of time after commencing employment at a “new work location”. If a move within one month of commencing such employment enables a person to be employed at that location, then a move within two months of commencing such employment would also enable the person to be employed at that location, as would a move within one year or two years and so on. Therefore the Appellant’s move in 2008 could be considered to have occurred to enable him to be employed, even though the employment commenced in 2004.

[23] As a result, since there was no dispute that the Appellant otherwise satisfied the requirements of section 62 of the Act and the definition of “eligible relocation” in subsection 248(1) of the Act, the Appellant is entitled to deduct moving expenses in the amount of $33,160 in computing his income for 2008.

[24] The appeal from the reassessment made under the Act for the 2008 taxation year is allowed and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to deduct moving expenses of $33,160 in determining his income for 2008.

[25] The Respondent shall pay costs to the Appellant which are fixed in the amount of $250.

Signed at Ottawa, Canada, this 1st day of December, 2011.

“Wyman W. Webb”

Webb, J.

CITATION: 2011TCC539

COURT FILE NO.: 2011-386(IT)I

STYLE OF CAUSE: GLEN WUNDERLICH AND

HER MAJESTY THE QUEEN

PLACE OF HEARING: Hamilton, Ontario

DATE OF HEARING: November 22, 2011

REASONS FOR JUDGMENT BY: The Honourable Justice Wyman W. Webb

DATE OF JUDGMENT: December 1, 2011

APPEARANCES:

For the Appellant:

The Appellant Himself

Counsel for the Respondent:

Leslie Ross

COUNSEL OF RECORD:

For the Appellant:

Name:

Firm:

For the Respondent: Myles J. Kirvan

Deputy Attorney General of Canada

Ottawa, Canada

The Ten Year Rule for forgiveness on penalties and interest overturned at the court of appeal.

tas — Wed, 26 Oct 2011 17:08:59 +0000

Sometimes the tax courts and the Federal Court of Appeal, just makes my day. This is one of them. The Ten Year limit on Penalty and interest relief applications. The Federal Court of Appeal decides in Taxpayers favour. Bozzer V. Canada.

In a a far reaching decision for anyone who is interested in taxpayer relief requests, the Federal Court of Appeal issued a decision in June 2011 that went against CRAs restrictive interpretation of the ten year rule. Since 2004, the discretionary power of the CRA to waive or cancel interest and penalties has been limited to amounts “in respect of” the ten taxation years preceding the date of an application for relief (s. 220(3.1). CRA has interpreted this ten year rule to mean they do not have the discretion to cancel interest charges in situations where the underlying tax debt occurred outside of the ten year period. This interpretation has been debated by many tax experts who believe that because interest accrues daily under the Income Tax Act, any interest accruing in the past ten years would fall within the legislated discretion regardless of the date of the original tax debt. After both of Mr. Bozzers CRA applications to cancel interest charges were denied on the grounds they were outside of the ten year period for relief, Mr. Bozzer sought a Judicial Review of the CRA’s interpretation of the legislation. Mr. Bozzer was initially unsuccessful as the Federal Court agreed with the Minister that the ten year period started in the year of assessment of the original debt. In appeal, the Federal Court noted that the relevant section did not clearly stipulate the year of assessment as a benchmark starting point and found that the words of the section could potentially support either interpretation. Being so, the language was declared ambiguous and the Court embarked on a “textual, contextual and purposive analysis” to find a meaning that is in alignment with the intent of the Act. The Court concluded that the ten year limit represented a restriction of a right previously enjoyed by the taxpayer and that any ambiguity should rightfully be resolved in favour of the taxpayer. As such, the Court confirmed that the ten year limit should be interpreted to allow for consideration of relief for interest that has accrued in the previous ten years without reference to the year in which the tax was originally payable. Although the granting of relief remains at the discretion of the Minister, CRA will no longer be able to use the law as an excuse to not grant forgiveness. Dan White Here is the ruling;

Federal Court of Appeal Date: 20110602 Docket: A-97-10 Citation: 2011 FCA 186

CORAM: SHARLOW J.A. TRUDEL J.A. STRATAS J.A. BETWEEN: RONNIE LOUIS BOZZER Appellant and HER MAJESTY THE QUEEN IN RIGHT OF CANADA (as represented by the Minister of National Revenue in his capacity as Minister responsible for the Income Tax Act), CANADA REVENUE AGENCY and THE ATTORNEY GENERAL OF CANADA

Respondents Heard at Vancouver, British Columbia, on December 1, 20ten. Judgment delivered at Ottawa, Ontario, on June 2, 2011. REASONS FOR JUDGMENT BY: STRATAS J.A. CONCURRED IN BY: SHARLOW J.A. TRUDEL J.A. RONNIE LOUIS BOZZER Appellant and HER MAJESTY THE QUEEN IN RIGHT OF CANADA (as represented by the Minister of National Revenue in his capacity as Minister responsible for the Income Tax Act), CANADA REVENUE AGENCY and THE ATTORNEY GENERAL OF CANADA Respondents

REASONS FOR JUDGMENT STRATAS J.A.

[1] Subsection 220(3.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) allows the Minister to waive or cancel any portion of interest or penalties owing under the Act. It prescribes a ten year limitation period. But how is that ten year period to be determined? The answer to that question, a question of statutory interpretation, will determine the outcome of this appeal.

[2] The Federal Court judge agreed with the Minister’s view of how the ten year period is to be determined under subsection 220(3.1) of the Act:20ten FC 139 (CanLII), 20ten FC 139. The appellant, Mr. Bozzer, disagrees and, in this Court, proposes an interpretation that is more generous to taxpayers.

[3] As this is a legal issue concerning the proper interpretation of subsection 220(3.1) of the Act, the standard of review of the decision of the Federal Court judge is correctness: Redeemer Foundation v. M.N.R., 2006 FCA 325 (CanLII), 2006 FCA 325 at paragraph 24 (affirmed, without comment on this point, at2008 SCC 46 (CanLII), [2008] 2 S.C.R. 643, 2008 SCC 46).

[4] For the reasons below, I am of the view that Mr. Bozzer’s interpretation of subsection 220(3.1) is the correct one. A. Subsection 220(3.1) of the Act [5] Subsection 220(3.1) provides as follows: [5] Subsection 220(3.1) provides as follows: 220.

(3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer (or in the case of a partnership, a fiscal period of the partnership) or on application by the taxpayer or partnership on or before that day, waive or cancel all or any portion of any penalty or interestotherwise payable under this Act by the taxpayer or partnership in respect of that taxation year or fiscal period, and notwithstanding subsections 152

(4) to (5), any assessment of the interest and penalties payable by the taxpayer or partnership shall be made that is necessary to take into account the cancellation of the penalty or interest. [emphasis added] B. The basic facts

[6] On December 6, 2005, at a time when Mr. Bozzer had tax debts that arose in his 1989 and 1990 taxation years, Mr. Bozzer applied to the Minister under subsection 220(3.1) of the Act for a waiver of interest accrued on the tax debt.

[7] The Minister denied the application for the following reasons: As of January 1, 2005, the Agency’s policy with regards to fairness requests was amended to exclude debts over ten years of age from the date of submission. The ten years expired on December 31, 1999 for the 1989 taxation year and December 31, 2000 for the 1990 taxation year. For this reason we are unable to consider your request for departmental delay or error and have concluded it would not be appropriate to cancel or waive the interest.

[8] Mr. Bozzer applied to the Minister for a second-level review. The Minister denied that application as well, for the following reasons: The above legislation [subsection 220(3.1)] is applicable because you applied for interest cancellation on December 6, 2005. Therefore the Minister has no discretion under subsection 220(3.1) to waive or cancel any interest otherwise payable under the Act in respect of your 1989 and 1990 taxation years. This is because it has been more than ten calendar years since the ends of your 1989 and 1990 taxation years. In addition, you applied after 2004, which is more than ten calendar years after the ends of your 1989 and 1990 taxation years.

[9] Mr. Bozzer applied to the Federal Court for judicial review of the Minister’s decision. The Federal Court judge dismissed the application, finding (at paragraph 51 of his reasons for judgment) that “the time limit in subsection 220(3.1) of the ITA is for the ten calendar years after the relevant taxation year, namely the year of assessment.” In my view, this interpretation cannot stand, as the ten year period in subsection 220(3.1) of the Act does not start in the year of assessment. Nowhere does subsection 220(3.1) mention the year of assessment as a relevant consideration. C. The parties’ competing interpretations of subsection 220(3.1) of the Act and how they apply to the facts of this case

[10] Before this Court, the parties presented competing interpretations of subsection 220(3.1) of the Act. These competing interpretations result in drastically different results on the facts of this case.

[11] The parties’ competing interpretations of subsection 220(3.1) concern only a portion of it and relate particularly to the phrase “interest payable in respect of [a] taxation year” (« d’intérêts payable pour [une] année d’miposition »): 220. (3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer…waive or cancel all or any portion of any …interest…payable…by the taxpayer…in respect of that taxation year…. [emphasis added] (1) Mr. Bozzer’s interpretation

[12] Mr. Bozzer submits that “interest…payable…in respect of [a] taxation year” means any interest accrued in that taxation year on a tax debt. On his view of the matter, subsection 220(3.1) permits the Minister to exercise his discretion to cancel interest accrued in any taxation year ending within ten years before the taxpayer’s application for relief, regardless of when the underlying tax debt arose.

[13] Under this interpretation, Mr. Bozzer analyzes the facts of this case as follows. He had tax debts that arose in the 1989 and 1990 taxation years. Interest accrued on those debts in every subsequent taxation year. On December 6, 2005, he applied to the Minister for a cancellation of interest. On his view of the matter, subsection 220(3.1) permits the Minister to cancel any interest that accrued in the ten taxation years preceding his application, that is, from January 1, 1995 to December 31, 2004. On this analysis, the fact that the tax debt arose in 1989 and 1990 is irrelevant. (2) The Minister’s interpretation

[14] The Minister disagrees. The Minister submits that “interest…payable…in respect of [a] taxation year” means any interest accrued on a tax debt that arose in that taxation year. Therefore, the Minister may exercise his discretion to waive interest otherwise payable under the Act only if a taxpayer applies within ten calendar years of the end of the taxation year in which the underlying tax debt arose.

[15] In Mr. Bozzer’s case, the underlying tax debt arose in 1989 and 1990. On the Minister’s view of the matter, Mr. Bozzer had to apply for a waiver of interest on his 1989 tax debt by December 31, 1999 and his 1990 tax debt by December 31, 2000.

[16] Therefore, the Minister says that he has no statutory authority to consider Mr. Bozzer’s application for a waiver of interest in this case. Mr. Bozzer’s application was on December 6, 2005. On the Minister’s view of the matter, that was nearly five years too late. D. The proper approach to interpreting provisions in taxation legislation

[17] In Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 (CanLII), [2005] 2 S.C.R. 601, 2005 SCC 54 at paragraph ten, the Supreme Court of Canada set out the proper approach for interpreting taxation statutes: The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words plays a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole. The Supreme Court went on to observe (at paragraph 13) that the Act “remains an instrument dominated by explicit provisions dictating specific consequences, inviting a largely textual interpretation.” But where the text is equivocal, “greater recourse to the context and purpose of the Act may be necessary”: Placer DomeCanada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20 (CanLII), [2006] 1 S.C.R. 715 at paragraph 22. E. The interpretation of the text of subsection 220(3.1)

[18] The parties’ submissions on how the text of subsection 220(3.1) should be interpreted, summarized above, persuade me that the text is ambiguous. The words “interest…payable…in respect of a taxation year,” examined in isolation, are conceivably capable of bearing either of the meanings suggested by the parties.

[19] As part of its submissions on how the text of subsection 220(3.1) should be interpreted, the Minister submits that an earlier decision of this Court is directly on point: Montgomery v. M.N.R., 95 D.T.C. 5032; reflex, [1995] 1 C.T.C. 196.

[20] In my view, Montgomery is distinguishable. In Montgomery, this Court did not interpret the text of subsection 220(3.1) that is in issue in this appeal. Rather, this Court interpreted a transitional provision concerning subsection 220(3.1): S.C. 1993, c. 24, subsection 127(5). That transitional provision limited the application of subsection 220(3.1) to the “1985 and subsequent taxation years.” This Court simply held (at paragraph 11) that the Minister’s discretion was limited to the waiving of interest otherwise payable under the Act for a taxation year that is either the 1985 taxation year or any later taxation year. Montgomery offers no guidance on the interpretation issue before us in this appeal.

[21] Since the text in this case is equivocal, in accordance with Placer Dome, supra at paragraph 22, it will be necessary for us to have “greater recourse” to the purpose of subsection 220(3.1) and the context surrounding it. F. The purpose of subsection 220(3.1) (1) What is the purpose?

[22] Subsection 220(3.1) is one of several taxpayer relief provisions in the Act. It was introduced in 1991 as part of what was called a “fairness package.” The Minister has explained the purpose behind these provisions as follows: The legislation gives the CRA the ability to administer the income tax system fairly and reasonably by helping taxpayers to resolve issues that arise through no fault of their own, and to allow for a common-sense approach in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, could not comply with a statutory requirement for income tax purposes. See Information Circular 07-1, “Taxpayer Relief Provisions,” May 31, 2007, at paragraph 8.

[23] In law, the Information Circulars of the Canada Revenue Agency are nothing more than administrative policy statements. They are not finally determinative of the meaning of a provision of the Act.

[24] However, in this case, the plain words of subsection 220(3.1) support the description of purpose in the above passage, and there is nothing in the history behind subsection 220(3.1) or in related sections that would cast doubt on it. Indeed, in 2004 the Department of Finance confirmed it. It stated that subsection 220(3.1) permits the Minister to waive or cancel interest or penalties “in situations where factors beyond the taxpayer’s control, such as illness or a natural disaster, prevented a tax return from being filed on time”: Canada, Department of Finance, 2004 Budget, Budget Plan, March 23, 2004, annex 9, at page 347.

[25] Therefore, I am prepared to accept the description of purpose in the above passage as the purpose that subsection 220(3.1) is meant to further. (2) Testing the parties’ competing interpretations against the purpose of subsection 220(3.1)

[26] One method of testing the parties’ competing interpretations is to imagine factual scenarios in which subsection 220(3.1) might be applied, apply subsection 220(3.1) to those scenarios, examine the results, and then compare those results with the purpose that subsection 220(3.1) is meant to further.

[27] For this purpose, I shall examine two scenarios. Scenario A

[28] Suppose that a taxpayer is obliged to remit income tax instalments during taxation year X but fails to do so. He files his income tax return for taxation year X on time, but fails to pay the resulting tax debt.

[29] At some point in year X+1, the Minister assesses the tax payable for taxation year X, with accrued interest, including interest on the unpaid instalments for taxation year X. Later, the taxpayer decides to apply for a cancellation of the interest accrued on the unpaid instalments for taxation year X.

[30] In this scenario, both the Minister’s interpretation of subsection 220(3.1) and Mr. Bozzer’s interpretation of subsection 220(3.1) will lead to the conclusion that the taxpayer must submit his application within ten years of the end of taxation year X. Scenario B

[31] Suppose that this same taxpayer is about to file his income tax return for taxation year X on time. As in scenario A, the taxpayer was obliged to remit tax instalments during taxation year X but did not do so.

[32] However, in January of taxation year X+1, just before preparing the income tax return for taxation year X, the taxpayer is seriously injured in a car accident. In taxation year X+11 – after going through a coma, enduring many operations, recovering slowly, dealing with physical and mental challenges, and going through years of rehabilitation and retraining – the taxpayer finally gets around to filing his tax return for taxation year X.

[33] In taxation year X+12, the Minister assesses the tax payable for taxation year X, with accrued interest, including interest on the unpaid instalments for taxation year X. Again, the taxpayer decides to apply for a cancellation of the interest accrued on the unpaid instalments for taxation year X.

[34] On the Minister’s interpretation of subsection 220(3.1), the taxpayer would be barred from asking for any waiver of interest. The tax debt on which interest accrued was eleven years ago, past the ten year limitation period.

[35] On Mr. Bozzer’s interpretation of subsection 220(3.1), the taxpayer could apply for a waiver of interest that accrued during the ten taxation years preceding his application. Assessment of the scenarios

[36] Scenario B shows that the Minister’s interpretation of subsection 220(3.1) leads to a harsh result that is contrary to the purpose of subsection 220(3.1): to allow taxpayers to ask for relief against penalties and interest and to allow the Minister to grant such relief where, in his view of the overall fairness of the situation, it is appropriate to do so. In the words of the Information Circular, subsection 220(3.1) is one of several that are supposed to give the Minister an ability “to administer the income tax system fairly and reasonably” by “helping taxpayers to resolve issues that arise through no fault of their own.” In particular, according to the Information Circular, this subsection is one of several designed “to allow for a common-sense approach in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, could not comply with a statutory requirement for income tax purposes.”

[37] Admittedly, scenario B will not be a commonly-occurring circumstance. But it does show that the Minister’s interpretation can prevent him from addressing, in a fair and reasonable way, taxpayers’ problems that were caused by personal misfortune or circumstances during the statutory ten year period that were beyond the taxpayers’ control, contrary to the purpose of subsection 220(3.1).

[38] As scenario B demonstrates, Mr. Bozzer’s interpretation is fairer and, thus, more consistent with the purpose of subsection 220(3.1). Mr. Bozzer’s interpretation gives the Minister a greater ability to address a taxpayer’s misfortune or circumstances within the statutory ten year period that were beyond the taxpayer’s control. G. Subsection 220(3.1), viewed contextually (1) The legislative history of subsection 220(3.1)

[39] Before 2004, there was no ten year limitation period in subsection 220(3.1). At any time, a taxpayer could ask the Minister to waive interest that accrued since 1985. The pre-2004 version of subsection 220(3.1) is as follows: 220. (3.1) The Minister may at any time waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by the taxpayer or partnership and, notwithstanding subsections 152(4) to (5), such assessment of the interest and penalties payable by the taxpayer or partnership shall be made as is necessary to take into account the cancellation of the penalty or interest.

[40] In 2004, subsection 220(3.1) was amended to include a ten year limitation period: S.C. 2005, c. 19, subsections 48(1) and (2). This resulted in the version of subsection 220(3.1) in issue in this case, which is reproduced here with the amendment emphasized: 220. (3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer (or in the case of a partnership, a fiscal period of the partnership) or on application by the taxpayer or partnership on or before that day, waive or cancel all or any portion of any penalty or interestotherwise payable under this Act by the taxpayer or partnership in respect of that taxation year or fiscal period, and notwithstanding subsections 152(4) to (5), any assessment of the interest and penalties payable by the taxpayer or partnership shall be made that is necessary to take into account the cancellation of the penalty or interest. [emphasis added]

[41] The 2004 amendment represents a restriction of a right previously enjoyed by the taxpayer. In my view, in this particular situation, it was incumbent on Parliament to be clear in its language imposing the restriction and any doubt should be resolved in favour of the taxpayer. I note the following passage from the judgment of Estey J. in Morguard Properties Ltd. v. City of Winnipeg, 1983 CanLII 33 (SCC), [1983] 2 S.C.R. 493 at page 509: …[T]he courts require that, in order to adversely affect a citizen’s right, whether as a taxpayer or otherwise, the legislature must do so expressly. Truncation of such rights may be legislatively unintended or even accidental, but the courts must look for express language in the statute before concluding that these rights have been reduced.

[42] The words chosen by Parliament are ambiguous. In my view, in this particular situation, this ambiguity should be resolved in favour of the taxpayer. (2) The Minister’s Technical Notes

[43] The Minister submitted that certain Technical Notes published at the time of the 2004 amendment to subsection 220(3.1) are relevant to the interpretation of the subsection. The Minister submitted that the Technical Notes reveal that the ten year limitation period was introduced in 2004 because of a concern that “administrative problems would arise if the Minister were required to verify claims going back as far as 1985” (Minister’s memorandum of fact and law, paragraph 44).

[44] The Minister says that if Mr. Bozzer’s interpretation is adopted, the Minister might have to verify details relevant to any past taxation year, even years before 1985, as long as the interest in question had accrued within the past ten years.

[45] I do not accept this as a plausible explanation for the ten year limitation period in the case of subsection 220(3.1).

[46] It might be an explanation for other provisions that were amended to include a ten year limitation period. For example, a taxpayer might try to use subsection 152(4.2) to claim a deduction for a business expense incurred 15 years ago. In that context, the addition of a ten year limitation period to that subsection does eliminate “administrative problems.” Similarly, a taxpayer might try to use subsection 220(3.2) to file an election that he or she should have filed 15 years ago. The election goes back so many years that one might anticipate “administrative problems” for the Minister.

[47] But the ten year limitation period in subsection 220(3.1) is not needed to eliminate “administrative problems.” Under subsection 220(3.1), both before and after 2004, the Minister, in considering whether to grant relief, would only have to know the amount of the original tax debt upon which interest accrued, and what payments have been made and when. From there, the interest is determined by a mathematical calculation. There is no evidence that this poses an “administrative problem,” and the record discloses no basis upon which the existence of any such problem can be inferred.

[48] I would also note that, based on Montgomery, supra the Minister can never be obliged to look to years prior to 1985 when considering an application under subsection 220(3.1). (3) The Minister’s Voluntary Disclosures Program

[49] Mr. Bozzer pointed to the Minister’s Voluntary Disclosures Program as another reason why its interpretation should be accepted by this Court.

[50] The Voluntary Disclosures Program is a policy (Information Circular IC00-1R2) of the Canada Revenue Agency, not law. Under this policy, taxpayers can make disclosures to correct inaccurate or incomplete information, or to disclose information not previously reported. If the Canada Revenue Agency accepts a taxpayer’s disclosure as having met the terms of the policy, it will not charge the taxpayer penalties or prosecute the taxpayer regarding the matters disclosed.

[51] Mr. Bozzer submits that the Minister’s statutory authority to relieve the taxpayer of penalties in such a case is found in subsection 220(3.1) of the Act, and nowhere else. Then he points to paragraph 13 of the policy, which describes exactly what penalties can be waived under this policy: [13] For income tax submissions made on or after January 1, 2005, the Minister’s ability to grant relief is limited to any taxation year in which the submission is filed. For example: in an income tax submission made on May 1, 2007, the limitation would apply so that relief would only be available for the 1997 and subsequent taxation years. Mr. Bozzer notes that this is consistent with his interpretation and not the Minister’s interpretation of subsection 220(3.1).

[52] But policy statements are not determinative of what statutory provisions mean in law. I do not consider Mr. Bozzer’s submissions on the Voluntary Disclosures Program to be helpful on the legal issue of how subsection 220(3.1) of the Act is properly interpreted. (4) Parliament’s ability to draft sections in the Act that achieve the effects it wants

[53] The Minister would like subsection 220(3.1) to have a forward looking effect, so that the ten year period runs forward from the year in which the tax debt occurred.

[54] As I have stated above, subsection 220(3.1) does not use language that clearly suggests that it should have a forward looking effect.

[55] But Parliament certainly knows how to draft sections that have a forward looking effect. For example, Parliament has drafted another subsection in section 220, namely subsection 220(3.201), using language that clearly causes a “forward looking effect”: 220. (3.201) On application by a taxpayer, the Minister may extend the time for making an election, or grant permission to amend or revoke an election, under section 60.03 if (a) the application is made on or before the day that is three calendar years after the taxpayer’s filing-due date for the taxation year to which the election applies; and (b) the taxpayer is resident in Canada (i) if the taxpayer is deceased at the time of the application, at the time that is immediately before the taxpayer’s death, or (ii) in any other case, at the time of the application.

[56] If Parliament meant subsection 220(3.1) to have a forward looking effect, it certainly knew how to draft it. It did not do so. This is another consideration in support of Mr. Bozzer’s interpretation of the subsection. (5) Effects on other sections of the Act or the administration of the Act

[57] If this Court were to adopt Mr. Bozzer’s interpretation of subsection 220(3.1), would there be an unintended or unwelcome effect on other sections in the Act or in the administration of the Act? If there were, that might be a clue as to Parliament’s intentions concerning subsection 220(3.1). However, in his written or oral submissions, the Minister did not identify any such effects. H. Conclusion

[58] For the foregoing reasons, I agree with Mr. Bozzer’s interpretation of subsection 220(3.1) of the Act.

[59] Accordingly, the Minister has the statutory authority to cancel interest on Mr. Bozzer’s 1989 and 1990 tax debts, to the extent that it accrued during the ten taxation years preceding his application to the Minister for interest relief under subsection 220(3.1) of the Act. Mr. Bozzer’s application was made on December 6, 2005.

[60] Therefore, on the facts of this case, the interest that is the subject of Mr. Bozzer’s application is the interest accrued under the Act from January 1, 1995 to December 31, 2004. I. Proposed disposition

[61] Therefore, I would allow the appeal, set aside the judgment of the Federal Court, allow Mr. Bozzer’s application for judicial review, and refer his application for interest relief back to the Minister for reconsideration in accordance with these reasons, all with costs to Mr. Bozzer both in this Court and in the Federal Court.

“David Stratas” J.A. FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET: A-97-10

APPEAL FROM A JUDGMENT OF THE HONOURABLE MR. JUSTICE SHORE) DATED FEBRUARY 11, 20ten, NO. T-826-08 STYLE OF CAUSE: Ronnie Louis Bozzer v. Her Majesty the Queen in Right of Canada (as represented by the Minister of National Revenue in his capacity as Minister responsible for the Income Tax Act) and Canada Revenue Agency and The Attorney General of Canada

PLACE OF HEARING: Vancouver, British Columbia DATE OF HEARING: December 1, 2010

REASONS FOR JUDGMENT BY: Stratas J.A. CONCURRED IN BY: Sharlow J.A. Trudel J.A. DATED: June 2, 2011

APPEARANCES: David E. Spiro Angelo Gentile FOR MR. BOZZER Michael Taylor FOR THE RESPONDENT SOLICITORS OF RECORD: Fraser Milner Casgrain LLP Toronto, Ontario FOR MR. BOZZER Myles J. Kirvan Deputy Attorney General of Canada FOR THE RESPONDENT

Insolvency: Canada’s growing industry, thanks to CRA.

tas — Sun, 23 Oct 2011 15:57:01 +0000

Show me a bankruptcy file, and I will show you someone who has taxes as a main reason for declaring Bankruptcy. We are spending more and more time with tax clients discussing doing a debt proposal or bankruptcy to get out of tax trouble.

There are both good and bad trustees and a hundred miles between them. A good trustee is vital in getting though the mess that needs to be dealt with in getting a second or third chance for your financial life.

We are finding that not only do you need a good trustee, but you need a good consultant who only has your best interests in hand. Trustees first obligation is to the creditors… Never lose sight of that important fact. We also can recommend good trustees and we can work with them in dealing with your best interests.

As in everything else in life, you need good advice in making critical decisions. Often being able to discuss your finances with someone besides your trustee… can make all the difference in your stress levels. My recommendation is that before talking to a trustee, get some good advice so that when you first meet your prospective trustee, you are an informed buyer.

Dan White

Frozen bank account and CRA wants a waiver signed.

tas — Sun, 23 Oct 2011 15:43:47 +0000

Hi Dan

I just had a call from a gentleman named XXXX. CRA has froze his company bank accounts because he is behind in filing GST & Source Deductions.

He had a nice collection agent that was working with them while they worked on getting up to date, they had written about 10 post dated cheques all of them were cashed but the file was transferred to a new agent who is being unreasonable. He froze the bank accounts and wants X to sign a form that he owes $150,000 and he might let one of the accounts go.

He is looking for help in dealing with this, I know you are out of the office all day today so I did not schedule a phone meeting. His email is X@msn.com if you wanted to email him later and the notes are in GEEMO

Let me know if you need anything today!!

Sincerely

Melissa

Dan’s Answer:

Hi X,

I am glad you contacted us.

I left a message for you on your voice mail, however I will also send you this email.

You should not sign the agreement because CRA would not ask for that if they were not sure you owed the money. Once you sign the agreement, you will be committed to it. It will be next to impossible to get out of the debt then. CRA will have hung their hat on it and will hang you out to dry. The word “might” tells you that they “won’t” unfreeze any accounts unless they deem it in their interest.

What it boils down to now is, you need a risk management analysis and strategy. Now that you have been selected for terrorizing and it has to do with payroll and HST, this is bad news and there usually is no mercy.

Let me know when a good time to talk is.

Best Regards

Dan White

About this blog.

tas — Sun, 23 Oct 2011 15:35:32 +0000

I will be posting topic of general interest regarding taxes in Canada. This is a new site where we have had the site completely redone. (If you like the appearance and functionality of the site, let me know and I can give you the contact info for the designer.) I will be posting the same information here as I do on my blog.danwhite.ca blog site.

Dan White

Welcome to our new site!

morgancreative — Tue, 11 Oct 2011 20:17:11 +0000

Welcome to the new site for Tax Audit Specialists!

We are very pleased to present our updated site, with new sections, organized in a very user-friendly manner. We hope that you enjoy the fresh look!

Please contact us to discuss your tax and audit issues!

What To Expect CRA To Do This Year in Audits

tas — Mon, 10 Oct 2011 16:14:59 +0000

Look for CRA to claw back any tax credits such as disability or Child Tax Benefits. The government of the day has sic’ed their bloodhounds to go wherever there is money to get. There are no hold barred in their fight with Canadians to get as much as they can.

Times are tough; money is hard to come by. Small business knows this fact very well. So, too, do the tax departments of the world. CRA being in a cash crunch has targeted small businesses with unprecedented aggression. They want to do audits NOW! They don’t want the audit delayed. Delaying an audit only delays their cash flow.

Auditors, pushed by team leaders, are forgetting about the Taxpayer’s Bill of Rights, the Charter of Rights and often the laws of Canada.

There has always been good concern about getting audited by the TaxMan, because the accounting industry is stuck in the Accounting Stone Age. Using generally accepted accounting principles, which often translates to a process of accounting for accounting sake and not for practical and logical reasons.

The bottom line here is that most people do not have a clue as to what audit ready bookkeeping is and why it is the only safe way to keep your books. What that translates to is happy hunting grounds for CRA auditors.

Accounting is done to track every financial transaction and how it relates to business. It is done so tax returns can be done and most importantly to be ready for a audit. Interestingly enough the most important reason is pretty much ignored. When an audit happens there is a panicked scurrying around, following the pages of audit requirements given by the auditors.

Auditors requests are pretty much standard across the board. So why is it that the statement is true but accountants and bookkeepers don’t just follow CRA audit requirements as a standard practice? The answer lies in tradition, a dumb tradition that has outlived its usefulness.

In an audit, the auditor will typically look for the following data.

Copies of previously filed sales/use tax returns with any related reports or work papers used to fill them out.
Detailed general ledgers and a chart of accounts.
Sales invoices.
Resale certificates and exemption letters collected.
Federal and Provincial Income Tax returns for the years under audit.
All purchase invoices.
Cash disbursement journals or check registers.
Asset depreciation schedule or fixed asset schedule.
Bank statements and cancelled checks
Cash register tapes.
Copies of Contracts.
Copies of lease agreements.
Articles of incorporation.
A business description.
A description of who does what.
All bank statements, both personal and business.

All the above CRA Audit documentation requires an audit trail.

In order to keep audit-ready books, we had to develop our own software and procedures. Now begins the difficult task of reprogramming bookkeepers and business owners to understand that if books are kept audit-ready, it then solves all the other requirements of good bookkeeping.

We enter the new year knowing there will be more audits and we can expect the following:

CRA is ferociously aggressive in their desperate drive for tax dollars.
They are using Bedford’s laws… a mathematical analysis of probabilities of tax cheating based on the numbers in a tax return.
They have new data mining software that matches information from various sources back to tax returns that have been filed.
CRA continues to hire more auditors so that they can collect more money from a smaller source amount.
The transition to HST is triggering a 4 year window for Ontario and BC to backlog Retail Sales Tax audits.
Tax Audits are now being automatically generated by computers.
The bookkeeping by small business has been dismally bad, so they are going to fry this year.
The recession has made things a double-bladed axe. Cash Flow Problems and CRA Cash Flow problems. This year will be a brutal tax audit season.
For your business you need to understand that CRA views you and your business as a cash flow revenue stream.
It is going to be a dirty year and small businesses need to clean up their act.
Any business that files a tax return based on non-audit ready books is going to fry in an audit. I recommend having your bookkeeping redone to audit-ready status. Pay me a little now or pay me a lot later. Those are the only two choices left on the tax man’s chopping block. The axe will fall on those who ignore this wisdom.
With lead-sharing between government agencies, and the requirements to register for numerous government bureaucracies, many more new audits will be triggered.
For every corporation formed, there is a new audit target established. Being incorporated is a very questionable activity for small business that does not have a big net income. Incorporation’s appear bigger, and the bigger they are the harder they flop.
Birds of a feather mining… if your clients or suppliers are getting audited this puts you on the radar for a relational audit.
Higher gross sales make you a bigger target, regardless of your net income.
Auditors and CRA investigators are trained to have their antennas up… just dealing with an off-duty auditor could trigger an audit.
If a revenue department falls short of their quota there will be a scramble to audit a lot of businesses to shore up the team performance records.
CRA auditors are now doing drop-in visits to businesses, under the guise of being helpful, they are really looking for cues to justify an audit. I know of one picture framer who ended up going bankrupt following a drop-in audit. He talked too much and caused himself a terminal problem. Friends drop in, so do enemies.
Bureaucracies have the memory of an elephant. Once flagged, you are under the microscope for life and can expect repeated audits. If you don’t have audit ready bookkeeping when you are audited, you have a Tax disease for life. And you have to fight like hell to keep your dollars so you are not seen as a willing victim.

This is the year to enter it ready for an audit. Also a year to await the three year statute barred window for sloppy past years tax returns. Each year you can breathe a sigh of relief as the three year danger zone decreases by a third.
The days of being able to be a sloppy bookkeeper are over. If you don’t have the time to do good books and can’t afford to hire a professional bookkeeper, your days in business are numbered. It is just as simple as that.

What is an “Expert Witness?”

tas — Mon, 10 Oct 2011 16:12:18 +0000

An expert witness is someone who has industry specific in depth knowledge on a subject. Sometimes an Expert Witness could also be a “Material Witness.” A material witness is someone who has direct knowledge of the specific circumstances surrounding the case.

The interesting thing that comes out of this is that it opens up an opportunity where if a taxpayer has a tax issue too big to handle in informal court, but Formal Court (General Procedures) requires a lawyer. If one cannot afford a lawyer, now there is a new option.

The taxpayer could hire an Expert Witness for a lot less per hour than a lawyer, and need the lawyer for less time in court.

The Expert Witness could work with you to prepare the case properly. The Taxpayer would then ask the Witness to testify and explain the hows and whys of the case and what case precedents were being relied on.

In the case of TAS having prepared your audit ready bookkeeping, and prepared your documentation and process for court. That would make us a Material Witness. The only downside to being a material witness instead of an expert witness, it is seen by the courts as being biased.

How I see it… YOU are seen as biased. Your material witness is just not as biased as you are, and has a lot more knowledge and skills than the normal taxpayer could possibly have.

You are much better off with a biased witness than you are by your own biased self.

The tax payer would request that the judge follow the Experts’ Witnesses advice.

While this may not be nearly as good as having a lawyer, but it is a hell of a lot better than not being able to be able afford any help at all.

It is our experience that taxpayers who prepare their own case and documentations, invariably lose because they made mistakes, and not likely that they were wrong.

It is our experience that taxpayers who try to go it alone in court, end up losing on technicalities.

My take on this Expert or Material Witness process is that you have a very reasonable shot at justice this way and you will have knowledgeable help in court where you would otherwise be completely lost.

If you want to discuss having TAS TaxRep represent you in some fashion or other, including us doing your audit ready bookkeeping, just let us know. We are here for you.

What is a Tax Representative?

tas — Mon, 10 Oct 2011 16:11:26 +0000

There are a number of different types of TaxReps

It is very important to match the right TaxRep to the right tax problem. So review the following with just thought to what is right for you.

A TaxRep can come from any one of the following areas.

A Lawyer
An Accountant
A Tax Consultant
An Expert Witness

The practice of law is very broad and you need a specialist in Tax Litigation. If you pick a Lawyer as a TaxRep, it could be your best choice, depending on your situation. If your situation is one where you know your activities involve a criminal element, and the Lawyer is a litigator, who is fully abreast of CRA procedures, then this is where you need to lean. It is normally the most expensive option. A tax litigation Lawyer is your best bet for client material privilege as well as client-solicitor privilege. Privilege is normally not of particular concern if you are not likely going to court.

Accounting is also a broad field, and you will require an accountant who is familiar with Taxes. Not all accountants specialize in taxation. If you are not engaged in a criminal activity, and you just need to get your tax returns caught up, a licensed accountant is a good idea. The chances of you getting audited are low if a licensed accountant does your tax returns. Accountant’s licenses are vulnerable, so they tend to be very conservative in their approach to doing tax returns. As a result a good accountant’s work will reduce your chances of being audited. If you are audited any good accountant can easily explain how they came up with the numbers on your tax returns. Accountants are normally considerably less expensive than Lawyers. However accountants have a monkey on their back when it comes to fighting with CRA. If you are in for a fight, an accountant may not be your best bet.

Tax Consultants can be any combination of 1, 2 and 4. With Tax Consultants you need to be especially concerned with their experience and track record. The concern is that the consultant may not have any credentials. The opposite side of that coin is that they also can be more aggressive in dealing with CRA… because they don’t have a license to lose. You need to make sure that you know that the consultant deals with CRA on a daily basis and has been doing so for a long time.

An Expert Witness, can be any combination of 1,2 or 3. An expert witness can be hired to present the material you have in court. What this means is that if you decide to defend yourself in General procedures in tax court, you can rely on your Expert Witness to testify as to the reasons, evidence, tax laws and cases relied on. While this is not as good as hiring a Lawyer it is an excellent option if you simply cannot afford a Lawyer. Your Expert Witness can also act as a Material Witness. This would apply when they are involved in the actual activities surrounding your tax problems. Lawyers often bring in such witnesses to support their case… Usually it would be as a Material Witness, however if an inexperienced Lawyer wanted to enhance their case, they too would bring in the Expert Witness.

Depending on your particular situation will dictate which is your better choice.

What is a Tax Cowboy?

tas — Mon, 10 Oct 2011 16:10:32 +0000

If you want to fight CRA and Win, then ask yourself;

What is a TaxCowboy?

The short ansewer to the question is;

A Tax Cowboy is someone who can fight CRA and win!

First let’s take a humorous look at Cowboys. The ones who chase cows and the ones who chase tax auditors.

Let’s look at what a Real cowboy is. A real cowboy is someone who rides a horse and herds livestock.

Cowboys sometimes have to put up with bull shit, while keeping their own boots clean.

The have to protect the herds.

Cowboys are believed to be straight shooters, who tell you the way things are. They have no tolerance for tomfoolery.

Cowboys like a good fight, and they fight fair.

Cowboys don’t usually give a damn about degrees, they learn how to handle the herds out there on the range, and if they have to handle some nerd, they kick butt.

You don’t fool around with cowboys!
Now about TaxCowBoys;

They are someone who rides the butts of auditors who stray from their job descriptions.

They handle the audits, while keeping peace whereever possible.

They sometimes have to deal with bullshit while keeping their own boots clean.

They corner auditors into following their own code of ethics and conduct, not to mention the TaxPayers Bill of Rights and the Canadian Charter of Rights.

TaxCowBoys. They don’t fear the taxman and they don’t put up with crap.

Cowboys are believed to be straight shooters, who will tell you the way things are.

They have no tolerance for tomfoolery.

TaxCowBoys like a good fight and they are fair fighters.

Don’t fool around with a TaxCowBoy!

Gee… I guess I AM a TaxCowBoy.