Remission Orders

A remission order is an order made by the Federal government under the Financial Administration Act.  The order reduces or cancels any tax (including any interest) or penalty that a taxpayer owes when either:

• the collection of tax or the enforcement of a penalty is unreasonable or unjust, or
• when it is in the public interest to reduce or cancel the tax or penalty.

Further, unlike a taxpayer relief request, there is no limitation period on the taxation years in which relief is available.

Application Process

Applications must be recommended by the Canada Revenue Agency (CRA) in order for the Federal government to grant the remission order.  In order for CRA to recommend an application for a remission order, the taxpayer must seek all alternative options available to reduce the tax or penalty. Therefore, the taxpayer must have exhausted all available avenues prior to any application for a remission order, including:

• a notice of objection,
• a notice of appeal, or
• a taxpayer relief request

CRA then screens the application to determine whether the application fits within its criteria for relief.  CRA has four categories in which it will consider recommending a remission order:

• payment of amounts owing would cause extreme hardship,
• Amount owing is the result of incorrect departmental action or advice,
• financial setback coupled with extenuating factors, or
• Amount owing is an unintended results of the legislation.

Convincing CRA to recommend in favor of tax remission is an extremely high bar and this theme informs each of the above-noted factors. A strong application for remission is one that incorporates at least one of these factors.

Extreme Hardship

Extreme hardship is concerned with the sufficiency of the income and resources of the taxpayer in order to resolve the tax debt.  The Remission Guide suggests that CRA will consider an application under extreme hardship when the taxpayer’s income falls below the official low-income cut-offs in Canada.  The extreme hardship should exist at the time of the application and, normally, will have existed when the original tax debt arose.  Arguments based solely on the size of the tax debt, without being based on significant lack of resources, may not be given much weight.

Financial Setback Coupled with Extenuating Factors

Financial setback requires something less severe than extreme hardship but must also be coupled with an extenuating circumstance.  The main examples of extenuating circumstance given by CRA are:

• circumstances beyond a person’s control – something specific to that taxpayer, such as a serious illness; the fact that the economy is sluggish, will not help;
• taxpayer error – a misinterpretation of the legislation or bookkeeping errors will not justify relief, errors, which CRA should have detected and corrected, may justify remission if argued convincingly.

Unintended Results of the Legislation

Where a taxpayer alleges that the amount owing is an unintended consequence of the Income Tax Act, the tax result must be undoubtedly unfair and completely contrary to the scheme of the particular provision.

Incorrect Action or Advice by CRA

To rely on this basis in applying for remission order a taxpayer should have written evidence of the incorrect CRA action or advice.  The alleged incorrect action or advice was clearly incorrect at the time it occurred.  Subsequent changes to the law will not be considered an incorrect advice.  A taxpayer seeking remission on this basis must have always acted reasonably and in good faith in their efforts to resolve the issue.

Judicial Review of CRA Refusals to Recommend Remission

The Federal Court of Canada has jurisdiction to review CRA decisions that refuse to recommend tax remission; however, the Federal Court has no jurisdiction over a Cabinet decision to not pass an order granting a remission. Although there is technically recourse to the Federal Court from a CRA “refusal to recommend” tax remission, to date all taxpayer Judicial Review applications of such CRA decisions have been dismissed, the Courts have so far been unwilling to overrule a CRA decision on tax remission.

This indicates that there are no second chances, and it is imperative that an application for remission is made well in the first instance – clear, convincing arguments drafted with a good understanding of the Income Tax Act.