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In regretfully dismissing a taxpayer’s request to extend a deadline, the Tax Court of Canada commented on lack of simple fairness

By Patricia Chisholm |

A May decision of the Tax Court of Canada carried a sober message for individual taxpayers who miss deadlines. Even if the taxpayer's position appears to be sound and the assessment appears to be badly flawed, a missed deadline may end the matter.

In addition, even if it appears that tax officials are partly responsible for the taxpayer's delay, the rules of basic fairness cannot be used by the court to give the taxpayer some relief.

The case, Hansen v. The Queen, involved a taxpayer who worked as a subcontractor and who was audited for the taxation years 2006, 2007, 2008. The taxpayer, who represented himself at the hearing, said that he was struggling to support his family and had been using "payday loans" to buy groceries and other necessities.

An auditor from the Canada Revenue Agency (CRA) took the position that these amounts, uncovered during a review of the taxpayer's bank accounts, were income. They were assessed as such. In addition, the taxpayer was assessed for unpaid sales taxes on the finding that the amounts were for taxable services supplied by him.

In holding, regretfully, for the government, Justice Hershfield noted that assessments that review deposits and assume they are income are a "blunt instrument" that make full recovery for "all but the most meticulous record keepers," difficult at best.

In choosing to comment further, Justice Hershfield noted: "I also believe [the taxpayer's] story needs to be told. It is one that regrettably we hear all too frequently."

The story has elements to which many people could relate. The taxpayer contacted the CRA to say he wanted to file a complaint about the competence of the CRA assessor who reviewed his bank accounts. There was no response.

He then received a new assessment that reduced the amount owing. He believed that this resolved the matter. The evidence showed that he failed to register a notice of objection within statutory time limits.

But, as Justice Hershfield noted, there were key factors at work of which the taxpayer was not aware. "What the Applicant [taxpayer] did not realize was that the filing of the objections automatically generated the reduction in the balance owing on the preliminary assumption that it was a valid objection. On review, the Minister determined that they were statute barred and therefore the assessments were not capable of being in dispute so the statements were revised again to show the balances owed as a result of the assessments," the decision says.

Looking for some avenue for relief, Justice Hershfield requested that the Minister of National Revenue exercise her discretion to reduce the effect of the missed statutory deadline. That request was refused. States the decision: "While I am confident that the vast majority of CRA auditors are competent, experience suggests some will get overly sceptical from time to time. However, we must trust that they will always take a realistic approach to these types of "blunt instrument" assessments. While I lack jurisdiction to deal with such matters, I have to say that I would condemn an auditor who ignored a taxpayer's request for a meeting. The same would apply to a process that does not follow-up on a complaint."

Finally, while noting that the system must be efficient and operate without endless opportunities for review, Justice Hershfield also noted that the taxpayer in this case might seek a settlement from the collections section of the CRA. Even that, however, has issues, he noted: "Alternatively, he may still seek a fairness review [during the collections process], at least in respect of interest and penalties although my understanding is that the basis for granting such relief is so pigeon-holed and regulated that simple, general, concepts of ‘fairness' have regrettably lost a place in the system."