A Taxpayer May Have Grounds to Judicially Review A Denial of Access to Voluntary Disclosure Relief
The Canada Revenue Agency (CRA) offers a voluntary disclosure program that allows taxpayers to come forward and admit mistakes and pay outstanding GST/HST owing. If the disclosure meets the requirements of the voluntary disclosure program, the taxpayer will not have to pay the penalty (the CRA waives the penalty).
Often, the CRA takes the position that a disclosure is not voluntary because the taxpayer was going to be audited (you cannot come forward after the auditor calls and says he/she is coming to conduct an audit). At this point in time, the taxpayer knows that their mistakes will be found.
In a recent judicial review in an income tax case, the Federal Court did not agree with the CRA's characterization that a particular disclosure was not voluntary. In Amour International Mines d'Or Ltee v. the Attorney General of Canada, the Federal Court determined that the Minister's failure to exercise his/her discretion to treat a disclosure as voluntary was not reasonable. The Minister had relied on an internal CRA memo that indicated that the taxpayer would be audited (in circumstances where the taxpayer would not be aware of the memo). The Federal Court also did not believe that a request for information sent to the taxpayer by the CRA PRIOR TO THE DISCLOSURE would not preclude the particular disclosure from being voluntary in nature.
The Federal Court granted the judicial review, but could not say the disclosure was voluntary and could not order the CRA to refund the penalties collected. The judge did write that "I will, however, state that the decision was based on an erroneous finding of fact, made in a perverse or capricious manner or without regard for the material before the decision-maker." Hint, hint, refund the penalty - please.
The morale of this story is that where enough money is at stake and the CRA refuses to treat a disclosure as voluntary, a judicial review may be an option. A judicial review can cost over $100,000 if counsel for the CRA/Attorney General brings procedural and jurisdictional motions and if there is are problems relating to the release of relevant documents by the CRA. It is not an option if only a small amount is at stake unless you want to fight for the principle of taxpayer fairness.
Cyndee Todgham Cherniak is counsel to and in affiliation with the International Trade Law and the Tax Law (Commodity Tax
