Canadian Tax Haiku of the Week:

Wither Bozzer case?

Voluntary Disclosures,

Why taxman not help?

Bozzer v Canada, 2011 FCA 186  Federal Court of Appeal Document

By Jonathan Garbutt, Barrister & Solicitor, and Raminder Pandher, Student-at-law


Subsection 220(3.1) of the Income Tax Act (the “Act”)[1] provides the Minister of National Revenue (“Minister”) with the discretion to waive or cancel any portion of interest or penalties owed by a taxpayer under the Act. The subsection prescribes a ten year limitation period, but was unclear on how to determine that period. In Bozzer v Canada,[2] the Federal Court of Appeal (“FCA”) held that taxpayers can apply to have accrued interest under the Actcancelled, as long as the interest has accrued within ten years of the taxpayer’s application.

In this decision, the FCC went against the longstanding policy position of the Canada Revenue Agency (“CRA”). The FCA concluded that this provision, which gives the Minister the discretion to waive or cancel penalties and interest, permits the Minister to exercise his discretion in any taxation year ending within ten years before the taxpayer’s application for relief, regardless of when the underlying tax debt arose.


On September 8, 2006, Mr. Bozzer made a request to the Minister to have the interest waived in respect of a tax debt that arose in the 1989 and 1990 taxation years. The Minister denied Mr. Bozzer’s request based on subsection 220(3.1), stating that the provision limited his discretion to a ten year period after the original tax debt arose.

Subsection 220(3.1)

Subsection 220(3.1) states: ” The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer…waive or cancel all or any portion of any penalty orinterest…payable…by the taxpayer…in respect of that taxation year…” [emphasis added]


The FCA found that subsection 220(3.1) was ambiguous, capable of more than one interpretation, and examined the history, context and purpose of the provision. In its analysis, the FCC concluded that the Minister’s strict interpretation would result in a “harsh result” to taxpayers. These potential results would be contrary to the purpose of the provision which is to allow the Minister to grant relief to taxpayers when, in his view of the overall fairness of the situation, it is appropriate to do so.[3]

The FCA stated that, in considering whether to grant relief, the Minister would only have to know the amount of the original tax debt and any payments that have been made. Since the interest is determined by a mathematical calculation, there will be no need to delve into the details of past taxation years.[4]

The FCA concluded that the Minister had the statutory authority to cancel interest on Mr. Bozzer’s 1989 and 1990 tax debts, to the extent that it accrued during the ten taxation years before his application.[5] Mr. Bozzer’s appeal and application for judicial review were allowed.[6]

It is also worth noting that the FCC noted that the Information Circulars of the CRA are nothing more than administrative policy statements and are not finally determinative of the law.[7] This underscores the importance of receiving sound legal advice when dealing with the CRA. There may be situations where the CRA’s policy does not meld with the law.

The Aftermath

On November 21, 2011, the CRA issued a news release entitled “Taxpayer relief deadline is December 31, 2011.” This confirms that the CRA accepts the interpretation of the ten year limitation period for interest relief established Bozzer.[8] Previously the CRA took the position that the Minister may exercise his discretion to cancel or waive interest only if a taxpayer applies within ten years of when the underlying tax debt arose.[9]

Application to Voluntary Disclosures

So why do we care now about a case that is a couple of years old? Because, it appears that the CRA is not applying the law as set out by Bozzer. In the Voluntary Disclosures Program (VDP) context, to which the same section of the Act applies (it applies to every taxpayer regardless), the Minister will waive the applicable penalties for the most recent 10 years if a taxpayer comes forward to correct their situation. The policy is that the Minister will also reduce the interest for the 7 eldest years of that 10 year period. Which overall is a pretty good deal. But that is exactly the point. The VDP is there to make it easy to come in from the cold and correct tax problems. It costs money and takes effort to catch people who are offside, so it is just easier and more efficient overall if there is a relatively less painful way for people to resolve past issues so they can go forward on a compliant, fully tax-paying basis. Some people may have issues with “tax cheats” getting off so easy, but the objective is just to get the money into the system. The CRA collects far more funds every year from the VDP than it ever has from prosecutions.

However, it can happen that a taxpayer will have to make a voluntary disclosure for tax years more than 10 years old. Specifically, banks and other financial institutions will often only keep records for 10 years. So often with voluntary disclosure files, we will ask the banks for all the records/documents available, if the taxpayer does not have any, which is usually the case. But if we ask the bank for the records in perhaps January of 2014, some banks might not have gotten around to destroying the old records, and so we might get not only the 2013 to 2004 records, but they may even have some 2003 records in the system. If you are really unlucky there may even be more years of documents that slipped through the cracks and are still on file. The problem is that for a matter to be acceptable under the VDP, it has to be complete. Meaning if you have the records, you have to provide them. If your file is not complete, then you risk having the disclosure undone/rejected. Now it is unlikely that the CRA would or could find out if someone sat on a year of records just to “keep the numbers round”, but that is not how we roll. We would never put a client in that position or allow a client to take that risk. We always provide everything we have, because although that one year is technically not eligible for the VDP, we would rather be complete then sorry. And quite often in our experience, the CRA officers would just throw it in rather than have to deal with it because the client was trying to do the right thing, come clean and come in from the cold.

So what does that have to do with Bozzer? We have several clients in the VDP in such circumstances (one extra year) who received letters from the CRA in Q3 of 2013 informing them that their case had been delayed, and would be delayed in processing because the CRA had to determine what their policy would be reBozzer in the VDP context. OK, so we waited for over a year to get a decision, and last week the CRA came back with letters to our clients indicating that they could not provide them with any relief with regard to the 11th year because the Act did not allow it and they had no discretion…. Which is exactly what Bozzer said wasnot the law. I can get my head around the penalties part of their position (because the penalties clearly arise in years that are more than 10 years old), but the Bozzer case said that the minister has discretion with regard to any interest accruing in the past 10 years, even on tax and penalties from before that time, and is not at all handcuffed by the law and has to make a rational decision based on the facts at hand as to whether or not it is appropriate to give relief. “We just can’t” is legally not an option. “The Minister denies relief because …” is an option, but that is not what we from the CRA; we got “no can do”.

We do not know what we find more annoying; a) that the CRA deliberately is ignoring the law as set out by the FCA; or b) that they took a year to come up with this dumbass position and left our clients hanging like that. Actually, what really chaps our … calves is that because it is just one year, our clients have told us to “forget about it”. Which is the only the advisable course of action (and it is what we had to advise them to do) because the cost of fighting this deliberate flaunting of the law is not worth it to them individually. But can we get some Class Action on this anyone? Anyone?

[1] Income Tax Act, RSC 1985, c 1 (5th Supp).

[2] 2011 FCA 186 [Bozzer].

[3] Ibid at para 36.

[4] Ibid at para 47.

[5] Ibid at para 59.

[6] Ibid at para 61.

[7] Ibid at para 23.

[8] CRA Taxpayer Relief Deadline

[9] Bozzer, supra note 2 at para’s 14-16.