From: abc@a123.ca   
      
   Taxman has no mercy if you ‘should have known better’   
      
      
   Canada Revenue Agency takes a hard line on compliance for tax filing.   
      
   Jamie Golombek  Nov 5, 2011   
      
   In a much-anticipated Federal Court of Appeal tax decision released last   
   week, it’s clear that no mercy is being shown toward taxpayers who should   
   have known better when it comes to tax compliance.   
      
   The case involved the controversial and exorbitant penalties for late-   
   filing Form T1135, the “Foreign Income Verification Statement.” That’s   
   the form Canadian taxpayers (including corporations) must file annually   
   if they own foreign property worth more than $100,000. File that form   
   late and you face an automatic late-filing penalty of $25 per day, to a   
   maximum of $2,500 annually, plus arrears interest.   
      
   The FCA cases involve the Asper Group of Companies, which failed to file   
   T1135 forms for six companies over the course of four years until asked   
   to do so by the CRA.   
      
   The Asper Group’s troubles began in 2000, when its accounting firm   
   incorrectly concluded that T1135 forms were not required where an   
   investment portfolio was managed by a Canadian investment manager and was   
   subject to Canadian tax reporting requirements. As a result, it stopped   
   filing the forms beginning in 2000 until they were asked by the CRA to do   
   so in 2005 for the 2000 to 2003 tax years. It should be stressed that   
   during each of these years, the Asper Group fully reported and paid tax   
   on all its foreign income.   
      
   The cases were first heard at the lower Federal Court in September 2010,   
   when the group sought a judicial review of the CRA’s decision to deny its   
   request for relief from penalties and arrears interest. The court had to   
   decide whether the CRA’s decision not to forgive penalties and interest   
   was reasonable.   
      
   The judge found that the CRA acted within its bounds to deny relief and   
   thus the Asper Group found itself in the FCA last month requesting the   
   court to review whether the lower court was correct in dismissing its   
   application for a review of the CRA’s decision not to grant penalty   
   relief.   
      
   In an interesting and unusual decision, the FCA first concluded that the   
   CRA’s decision “falls outside the range of defensibility and   
   acceptability and, thus, is unreasonable” because it relied solely on the   
   CRA’s published administrative policy as to when to grant relief.   
   Specifically, the policy, as published in CRA’s information circular,   
   states that relief can only be granted if the penalty or interest arises   
   either from extraordinary circumstances or is either mainly due to   
   actions of the CRA or an inability to pay by the taxpayer.   
      
   The FCA said the CRA should instead be basing its relief decision on the   
   Tax Act, which gives the CRA complete and unfettered discretion to cancel   
   interest and penalties and is not limited to the three scenarios in its   
   information circular.   
      
   Yet the FCA went on to state that despite the fact the CRA’s decision was   
   unreasonable, “no practical end would be accomplished by setting aside   
   the [CRA’s] decision and returning the matter back to [the court] for   
   redetermination: the [CRA] could not reasonably grant relief on these   
   facts.”   
      
   It found that the “excuses and justifications offered by the [Asper   
   Group] for the delay in filing … have no merit” and returning the matter   
   back to the CRA for reconsideration would be “an exercise in futility.”   
      
   The Asper Group also tried to argue that it was unfair for the CRA to   
   levy six separate, sizeable penalties against the companies for each year   
   when there was really only one mistake made by its accounting firm and   
   thus the penalties should be substantially reduced.   
      
   The FCA said this argument has no merit, “smacking of a plea for a volume   
   discount.” Since each company was a separate legal entity and a separate   
   taxpayer, potentially subject to penalties and interest for its own non-   
   compliance, each should have been capable of independent decision-making   
   concerning which forms need to be filed.   
      
   Jamie Golombek, CA, CPA, CFP, CLU, TEP is the managing director of tax   
   and estate planning with CIBC Private Wealth Management in Toronto.   
      
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