When all else fails, taxpayers will often take the path of last resort to recover taxes, interest or penalties, called "Remission Applications", which are made under the Financial Administration Act (FAA). Specifically, section 23 of the FAA confers discretion on the Governor in Council, exercisable on the recommendation of the Minister, to remit any tax or penalty when it considers that the collection of the tax would be “unreasonable or unjust” or that it is “otherwise in the public interest to remit the tax or penalty” – a hugely powerful discretion.
Yet the Canada Revenue Agency (CRA) tends to administer these provisions with an alarmingly tight fist, essentially allowing such applications only in instances of (their words): extreme hardship, incorrect action or advice by the CRA, financial setback combined with extenuating factors, or the unintended result of legislation.
While there is no formal right of appeal to the CRA’s negative decisions under section 23 of the FAA, an applicant denied relief under the provision may apply to the Federal Court for a judicial review, although that application is required within 30 days the CRA’s decision is communicated, and one’s abilities to overturn a discretional decision of the CRA are extremely limited – even at the Federal Court.
The recent decision of the Federal Court of Canada in Twentieth Century Fox Home Entertainment Canada Limited v. AGC, et al (2013 FCA 25) highlights one faces when trying to challenge denials of remission under these provisions.
In Twentieth Century Fox, the registrant (“Fox”) over-counted the amount of GST collected between 2000 and 2005 due to a computer error – remitting during its regular GST/HST returns, the total amount over calculated. After the error was discovered and fixed in 2005, Fox made a rebate application to recover the tax over-remitted. At that time, however, Fox was out of time in recovering approximately $1 million of the GST over-remitted before May 2003 (the “Over-Remittance”). So Fox filed a remission application under the FAA for remission of the Over-Remittances (the “Remission Application”).
The Assistant Commissioner (A/Commissioner) of the CRA considered the matter, and denied the Remittance Application, advising Fox that the negative decision was based on the “Remission Guidelines” (the CRA’s administrative guidelines developed in vetting remission applications). The grounds for denying the Remission Application were, specifically, that: (1) a computer error was not a matter beyond Fox’s control; and (2) Fox’s large current assets and gross revenues indicated that Fox would not suffer “a significant financial setback” or strain“limited resources”.
Fox filed a judicial review application to the Federal Court requesting the A/Commissioner’s decision be set aside (2012 FC 823).
At the trial division of the Federal Court, the Court confirmed that the applicable standard of review was correctness, and proceeded to consider Fox’s argument that the A/Commissioner did not have the authority to make the decision it made, as the authority rested with the Minister personally, and could not be further delegated. The Federal Court rejected Fox’s position on this point, and concluded that delegation of Ministerial powers was expected unless the statute expressly or impliedly required a specific minister to decide or act personally. The Court then determined that the Minister’s delegation to the Commissioner, and the Commissioner’s further delegation to the A/Commissioner, were both in compliance with section 8 of the Canada Revenue Agency Act and that there was no conflict with the delegation under the FAA.
The Court also dismissed Fox’s other argument that the discretion under the FAA was not exercised reasonably – the applicable standard for a discretional decision. Here Fox argued that the computer error was beyond its control and it was unfair for the government to keep the Over-Remittance simply because Fox had missed the deadline for filing the applicable rebate claim. The Court rejected Fox’s position again, holding that there was no evidence to support the argument that the computer error was not within Fox’s control, and that it was also reasonable for the A/Commissioner to consider Fox’s size and revenues viz the Over-Remittance amount sought. The Court concluded that the Minister’s decision was not made in bad faith, or that the Minister acted arbitrarily.
While Fox appealed the trial court’s decision to the Federal Court of Appeal (“FCA”), the FCA dismissed the appeal, agreeing that the A/Commissioner’s decision was reasonable.
By way of commentary, the evidence in the case was that the Minister’s decision to deny Fox’s Remission Application was in line with nine other applications having some grounds similar to those in Fox’s circumstances. While Fox certainly made comprehensive arguments spanning the ambit of the CRA’s “Remission Guidelines”, it would have been interesting to see the Court’s have to deal with the contention that the Remission Guidelines were themselves a fettering of discretion (a set of immovable guidelines that really did not allow for the decision-maker to make a decision of his or her own). When a person or authority is given “discretion”, that person cannot bind itself as to the way in which its discretion will be exercised either by internal policies or obligations to others. There was certainly an element of “unjust enrichment” here (Fox’s losing the Over-Remittance to its detriment, and the CRA gaining commensurately without lawful reason), and one wonders why the Minister did not take that into account in rendering the decision made. Was the Minister’s discretion fettered by blind adherence to the Remission Application ?
As it stands, the case stands for the stark proposition that section 23(2) of the FAA is a highly discretionary provision. As illustrated by the Twentieth Century case, courts will give substantial deference to decisions made by the CRA, and this must be taken into consideration by all taxpayers when taking that last stab at tax relief under the FAA. Their will be an uphill battle, and could well result in spending good money after bad.
As last though: prevention is better than the cure. Taxpayers should set up internal mechanisms to verify that correct amounts of GST/HST are collected and remitted to the CRA, and ought to have third-party advisors (lawyers or accountants) test those mechanisms annually. The goal is to any errors in GST/HST remittance system are identified in an early stage, and prevented in the future. Modern day tax consulting often looks only for low hanging fruit, and may miss systemic and institutional problems like those faced in the Fox situation.
Authors Robert G. Kreklewetz & Jenny Siu
Millar Kreklewetz LLP, Toronto Ontario