CRA Error Doesn’t Help Taxpayer on Reassessment

When the Canada Revenue Agency (CRA) errs, can they correct, reassess and require payment even if this is unfair? Apparently yes, based on a recent court case.

The Tax Court of Canada recently held that being correct is the paramount consideration, notwithstanding reasonable arguments about the fairness.

In Hassen Darbaj and Wafaa Darbaj v. The Queen the appellants missed the two-year deadline under 256.74(7) of the Excise Tax Act (the Act) to apply for the transitional GST rebate on the purchase of their new home. The appellants knew that they missed the application deadline, but decided to apply anyways, even informing the CRA of their tardiness. Even with notice from the appellants that they had missed the deadline, the rebate was approved and paid by the CRA.

Subsequently a review of the file was undertaken by the CRA and the appellants were reassessed and denied the rebate.

Relying on the fact that their rebate had been allowed by the CRA, and not thinking that there was a chance of reassessment due to the missed deadline because of their admission, the appellants spent the rebate.

The appellants’ son appeared in court to argue the patent unfairness of the CRA’s revised position.

The Honourable Justice Judith Woods stated however that “the judicial authorities are clear that if an assessment is permitted by the legislation, this Court cannot vacate the assessment on grounds of fairness, even if the problem is due to an error on the part of the CRA.”

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.