Canadas Revenue Agency and dispute resolution settlements: What can a taxpayer do to compel compliance
By Tim Clarke, Moodys Gartner Tax Law LLP
Is the Canada Revenue Agency bound by a settlement made in the course of a tax dispute? Surprisingly, the answer is not always. Unlike UK and U.S. practice, the CRA may not make compromise settlements. Only “principled” settlements are permissible based on the facts and the law as the CRA finds them. A reviewing court may refuse to ratify if the parties’ understanding of the law is flawed1).
In Canada, tax disputes are settled by written agreement2) and waiver of the right of court appeal3) or consent to judgment4). The agreement is an enforceable commercial contract only if it is consistent with tax law.
In Bolton5) a taxpayer asserted “income” in a settlement meant as reported and the CRA as reassessed. The court preferred the former assertion based on CRA admissions and evidence while the CRA’s assertion defied common sense and was inconsistent with contractual interpretation principles.
A settlement should contain a clear statement of facts that is supported by written evidence or admissions. A settlement based on CRA policy that is contrary to tax law is not enforceable so taxpayers should be prepared to defend the legal basis of the settlement with a well-reasoned memorandum.
1) In re Galway v. MNR 74 DTC 6355 (FCA)
2) Under subsections 152(4.2), 165(1.2) and 169(3) of the Canadian Income Tax Act
3) At the audit or objection stage
4) At the court appeal stage under rule 170 of the Tax Court of Canada Rules-General Procedure
5) Bolton Steel Tube Co. v. The Queen 2014 DTC 1102 (TCC)
Moodys Gartner Tax Law LLP, Calgary, Edmonton, Canada
T: +1 403 693 51 00
At Moodys Gartner Tax Law, we focus on tax only – tax in Canada, tax in the US, and tax in both. If you have personal or corporate interests on either side of the border, our unique team of Canadian and US lawyers, Chartered Accountants, and Certified Public Accountants work with you to understand your tax affairs and provide strategic advice to solve your tax issue.
Tim's practice focuses primarily on tax dispute resolution. He acts in various courts for individuals, trusts and corporations in federal and provincial income and commodity tax and GST matters, taxpayers undergoing CRA audits and investigations, and making voluntary disclosures.
published: November 2014