publication date: Sep 29, 2011
author/source: Adam Aptowitzer
While it may seem like ancient history, some donors involved
in the now notorious set of art-flips in the late 1990s are still dealing with
the resolution of their income tax disputes.
Their experience carries a lesson for those now dealing with Canada Revenue Agency
's disallowance of
long-ago donations, such as disallowed donations through tax shelters.
In some cases, the interest (compounded daily retroactive to
the year which has been reassessed) is greater than the amount of tax
originally assessed. And it is on this front that there has been an interesting
While the CRA generally does not have the jurisdiction to
change willy-nilly the amount of interest that has accumulated on a tax
assessment, it does retain the discretion to reduce the amount of interest that
has accumulated in certain circumstances. One situation exists where interest
has accumulated because of an undue delay (through no fault of the taxpayer) in
resolving the matter under dispute.
Process drags on
through decade or more
However, until recently, the CRA's position on interpreting
the provision that allows this kind of a variance was that it could only grant
interest relief if a request was made within ten years of the taxation year
assessed. For some people, say late
filers, that ten-year timeline was so impractical that it was impossible to
meet. In other cases, ten years would often elapse between the taxation year
and a realization that the matter will not be solved speedily.
In some cases we have even been advised to expect a
reassessment of a taxation year more than ten years past, putting us in the
position of applying for interest relief before ever receiving the
reassessment! (Granted it is an odd situation indeed in which the CRA could
issue a reassessment more than ten years after the taxation year in question).
Regardless of the merits of the request for interest relief,
the CRA would refuse even to consider the request, taking the position that it
simply did not have the jurisdiction to grant such relief outside of the
brings hope for reassessed donors
A new case recently decided by the Federal Court of Appeal
gives new hope to those with large interest bills. In the Bozzer case, the
taxpayer put forward an alternative interpretation of the relevant provision.
This interpretation allows the CRA to use its discretion to vary the interest
assessment for the ten-year period ending with the date of the application for
interest relief. So, for example, a request made on June 1, 2011 for an
assessment arising from the 1999 taxation year could gain interest relief for
the period from June 1, 2000 to June 1, 2011.
Given the effect of daily compounding this could be a huge
relief to taxpayers - assuming the CRA uses its discretion to grant it.
This scenario should give much hope to the thousands, if not
tens of thousands of people dealing with assessments arising out of the
disallowed tax shelters.
Adam Aptowitzer of Drache
Aptowitzer LLP is a charity law lawyer with a national practice based in
Ottawa. He has been published in Canadian Taxpayer and the Not-for-Profit News.
He has also published a widely distributed study on the regulation of Canadian charities
with the C.D. Howe Institute.
As a speaker,
he has presented to the National Symposium of Charity Law, the C.D. Howe
Institute, the Association of Fundraising Professionals, the Canadian Association
of Gift Planners, the Ottawa Estate Planning Council and various large and
small Canadian charities. He has also given expert advice on Parliament Hill.
Adam is an executive member of the Canadian Bar Association's Charity and
Not-for-Profit Law section.
Contact him at 613-237-3300 or visit