CRA not always right.

March 31, 2010 by Dan White.

CRA gets caught in their own errors.

Contrary to popular opinion, you can fight CRA and win. That is the business we are in, fighting CRA. We do fight CRA tax problems,  we provide solutions to those problems and we do achieve victories. Usually the solution is a procedural war with CRA. Fighting CRA is not particularly easy. There are brush offs,  ignoring, there are silly responses… all these things usually cause taxpayers to just fold. We have learned from experience that one has to be dogmatic and persistent as well as knowing CRA weaknesses.

It is good to see that “a Lady in her 80’s,” could and did fight and win.

To read more about fighting CRA, go to www.taxauditsolutions.ca

Dan White

Here is a good article written by Neil Reynolds, for the Globe and Mail.

Neil Reynolds
Taxman fallible? Lady in her 80s has the answer

Sometimes, the CRA has to deal with its own human errors

Published on Wednesday, Mar. 31, 2010 12:00AM EDT Last updated on Wednesday, Mar. 31, 2010 6:31AM EDT

In Saunders v. the Queen, the Tax Court of Canada had only a single legal question to resolve: Did the appellant, Elizabeth Saunders, described in court documents as “a lady in her 80s,” file her 2007 income tax return by the deadline of April 30, 2008, or did she file it on May 20, 2008, the date stamped on her return by Canada Revenue Agency staff at the agency’s Montreal office?

The answer would determine whether the agency had the right to levy a late-payment penalty. It would also give the public a glimpse of the arbitrary inclinations of government bureaucracy.

Accountant Nicolas Karavolas testified for the appellant, his client. He described first the established process that his office had followed for a number of years when filing personal income tax returns in the final days before the deadline. As he and his staff (all of whom were accountants) completed various clients’ returns, one staff member would rush them - a pile of returns at a time - to the CRA’s office, where the delivery person would join the line of people waiting to have their returns stamped.

The delivery person would then return to the office for another batch of returns. The office kept a list of all the returns with the corresponding delivery dates. Aside from lineups at the CRA office, Mr. Karavolas testified, the process worked well. Each return got a CRA stamp documenting the time of delivery.

In 2008, presumably in an attempt to provide faster service, the CRA modified its system. It would still accept returns at the counter from people who didn’t mind waiting. Taxpayers could avoid the wait, however, by inserting their returns into the slot of a closed box (similar to a mailbox). It was this time-saving mechanism that the Karavolas team used when it filed Ms. Saunders’ return. The Karavolas list indicated that her return was deposited into the CRA “mailbox” on April 29, 2008. The CRA, however, stamped it as May 20, 2008. What went wrong?

Throughout the days before the April 30 deadline, the CRA procedure for emptying the box didn’t change. At the end of the day or perhaps the next morning (according to CRA testimony), CRA staff would remove the accumulated returns from the box and deliver them to other staff for stamping; these stamped returns were then turned over to other employees who dispatched them to the appropriate CRA officers for processing.

Was this system reliable? The senior CRA official who testified for the agency said it was “pretty” reliable - which was why he believed the stamp properly identified Ms. Saunders’ return as delinquent.

Oddly, the CRA used only a single date in stamping the returns, regardless of the actual date of filing: “April 30, 2008.” The agency reasoned that the deadline date was the only one that mattered. Any return that was not dated April 30 would be automatically deemed a late filing.

Of the Karavolas tax returns deposited in the CRA box on April 29, 2008 (according to the Karavolas list), half bore CRA stamps with drop-off dates in May. The CRA confirmed that it had put in place no mechanism to verify the delivery date of returns placed in the mailbox.

In her ruling last month, Tax Court Judge Georgette Ann Sheridan ruled for “the lady in her 80s.” First, the judge found the three Karavolas witnesses credible. She found the CRA executive who testified, Phillippe Demeule, credible as well - though, she noted, he had “no personal knowledge” of either the collection procedures in place at the agency’s Montreal office at the time, or of how the Saunders return “was treated at the time of filing.” “I must say that I do not share Mr. Demeule’s faith in the infallibility of a huge government bureaucracy, especially during its busiest time of the year,” Judge Sheridan said in her ruling.

She concluded that the different stamp dates resulted from “the mishandling of returns by the roster of unidentified (and, for the Appellant’s purposes, unidentifiable) officials charged with retrieving, stamping and redirecting the flood of returns that would have been deposited at the Montreal office in the dying days of April, 2008.”

Furthermore, Judge Sheridan observed, the record showed that Ms. Saunders met with her accountant early in April, learned that she would owe a significant tax payment, subsequently transferred the money into her chequing account, and delivered two cheques to Mr. Karavolas (one for her federal taxes, one for her provincial). This behaviour, the judge said, hardly suggested either a tax cheat or a tax avoider. “In closing,” the judge added, “it is interesting to note that after 2008, the Canada Revenue Agency modified the collection box procedure to allow for date stamping upon delivery.”

In this case, the tax agency wasn’t dealing with taxpayer dishonesty. It was dealing with human error in its own department. The judge voided the late-payment penalty that the CRA had imposed - though, in fairness, it should have been paid, as damages, to “the lady in her 80s.”

Posted in Tax Topics | Print | No Comments »