Introduction – Glazer v. Canada (Attorney General) (2019 FC 436)
Lawrence Franklin Glazer (the "Plaintiff") recently had his Action against the CRA dismissed on a summary judgement. The Plaintiff had sought a number of remedies to avoid paying a tax debt that dated back to the mid-1990s. The decision highlights the numerous legal and procedural mistakes that the self-represented Plaintiff made which resulted in a complete denial of any of the relief available to taxpayers as a result of the Action. As we will explain, the case underlines the importance of seeking proper legal advice and assistance from an experienced tax lawyer in Canada.
Overview of Tax Collections Limitation Periods and Tax-Debt History
The Plaintiff originally incurred tax debts for the 1994, 1995 and 1996 taxation years, which for reasons not illuminated in the case he did not extinguish. During the period after these years, a Canada Revenue Agency ("CRA") collections officer sent the Plaintiff a letter stating that the CRA would not "legally collect" upon the debt, and that any credits or refunds due to the Plaintiff would be applied to the arrears.
In 2004, the Federal Department of Finance introduced amendments to the Income Tax Act to clarify the rules surrounding the collection of income tax debts and to exclude the operation of the Crown Liability and Proceedings Act, a general limitations statute, from debts arising under the Income Tax Act. Section 222 of the Act created a 10-year limitation period on income tax debts and also specifically enumerated the circumstances in which the limitation period would restart due to CRA collections action. Further, subsection 222(10) in essence deemed every tax debt owing to be "reset" to March 4, 2004, meaning that all historic tax debts became legally collectible again and the ability of the CRA to collect against them would not expire until at least March 4, 2014.
One of the grounds to restart the tax collections clock enumerated in the Tax Act included subsequent refunds or credits being used by the CRA to set-off an extant income tax debt; utilizing these refunds and applying them to a debt is considered to be a "collections action" and thus the use of these refunds effectively "resets" the collections limitation period for the CRA to collect on a taxpayer's income tax debt.
The Taxpayer Brings an Action Against CRA to Halt Collections
More than twenty years after having incurred the original debts, the Plaintiff decided to sue the CRA to prevent any further collections action. On his own, and clearly without seeking any advice from an experienced Canadian tax lawyer, the Plaintiff brought an Action in the Federal Court of Canada asking for the following relief:
- That the Court find the debt statute barred pursuant to section 221(3) of the ITA or section 32 of the Crown Liability and Proceedings Act;
- In the alternative that the Court find that the debt should be extinguished due to undue hardship;
- That the Court issue an order that the CRA be estopped from withholding income tax refunds from the Plaintiff;
- "An accounting"; and
- An Order that all previously collected funds be returned to the Plaintiff with interest or applied to his current year's income tax arrears.
The CRA Files a Motion for a Summary Judgement to Dismiss the Case
As can be expected, the CRA chose to defend the Action vigorously. Thus, after filing its Statement of Defence, the CRA soon brought a Motion for a Summary judgement alleging that the Taxpayer's claim did not put forth a genuine issue for trial or that the case put forth in the Plaintiff's Statement of Claim was "so doubtful that it does not deserve consideration by the Court". A summary of the CRA's arguments included:
- That the limitation period for the collection of the Plaintiff's debt had not expired due to the statutory "reset" on all income tax debts pursuant to subsection 222(10). In addition, the use of set-off had further reset the debt several times after March 4, 2004;
- That the Federal Court had no jurisdiction to extinguish any income tax debt; and
- That the Federal Court has no basis to issue an Order prohibiting the CRA from collecting an income tax debt.
The CRA further argued that there were only four scenarios where a taxpayer's income tax debt could be "extinguished" as he was requesting:
- Where the CRA grants penalty or interest relief pursuant to subsection 220(3.1) of the ITA;
- Upon the successful completion of a proposal under the Bankruptcy and Insolvency Act;
- Upon a debtor's discharge from bankruptcy; and
- Upon the granting of a remission order by the Governor in Council, pursuant to the Financial Administration Act.
The Federal Court Dismisses the Plaintiff's Action in its Entirety
On the basis of the above arguments, the evidence submitted by the CRA via affidavit, and also considering that the Plaintiff had not taken any of the statutorily prescribed methods for disputing the debts such as filing a Notice of Objection or an Appeal to the Tax Court of Canada, the Court dismissed the case summarily. Based on the Taxpayer's financial situation the Court exercised its discretion not to award costs to the CRA. Despite this, the Plaintiff essentially was back to square one as a result of the dismissal and will still need to determine a way to extinguish these debts using the proper legal methods.
Tax Tip – The Importance of Proper Tax Counsel
While the Plaintiff was unsuccessful, this case is useful as it demonstrates why laypersons should seek tax legal advice before advancing any case against CRA and should not represent themselves in order to run afoul of the very complex rules and procedures related to the dispute of an income tax debt.
First, had the Plaintiff sought legal advice prior to commencing this Action, he would have been advised that the only remedy to disputing the underlying tax would have been to file a Notice of Objection, and if necessary thereafter an Appeal to the Tax Court of Canada. The limitation period on this dispute process is very truncated, with most cases requiring a dispute to be enacted within ninety days.
Second, the Plaintiff would have further been advised that the discretion to relieve penalties and interest under subsection 220(3.1) of the Income Tax Act is granted exclusively to the CRA. In order to be granted any relief he would have needed to file a Taxpayer Relief Application to CRA. Were he unsuccessful he would be able to file a Second-Level Review to ask the CRA to reconsider. If still unsuccessful, his only recourse to the Courts would be through the filing of a judicial review application to the Federal Court, and he would further need to show that the CRA had exercised its discretion unfairly when he was denied relief. This threshold is incredibly high and does not always result in success as the residual discretion still belongs to the CRA despite that the Court can order a reconsideration.
Thirdly, the Plaintiff would have been advised that his debt was still collectible by virtue of the collections provisions under the Tax Act by an experienced Canadian tax lawyer.
Finally, were the merits of the case to warrant it, a Canadian Tax Lawyer with previous experience under the Financial Administration Act would be able to advise the Plaintiff of the procedure for seeking a Remission Order and to draft a cogent application with much more probability of success.
If you or anyone you know has been dealing with CRA collections for an extended period of time, and would like to know your rights under the Income Tax Act and the various other taxing statutes, contact our office. Our top Canadian tax lawyers can provide invaluable advice through the consultation process and where it appears there is a substantive chance that the taxpayer may be able to achieve relief of some or all of the debt, we can prepare and submit applications that have the highest probability of success based on our years of experience.