Voluntary Disclosure - Judicial Review and Second Administrative Review
What if CRA denies your Voluntary Disclosure?
After filing a complete Voluntary Disclosure Application, Canada Revenue Agency (CRA) will eventually advise by letter if the voluntary disclosure has been accepted or denied. If accepted under the General program the taxpayer will receive full penalty relief, including from the chance of criminal investigation and prosecution, and partial interest relief. If accepted under the Limited program there is partial penalty relief (no Gross Negligence Penalties), waiver of criminal investigation and prosecution but no interest relief.
If the voluntary disclosure is denied there are a few options to dispute the decision. These include a Second Administrative Review and Judicial Review in Federal Court. Similar relief and rules apply to disclosures related to GST/HST (Excise Tax Act, RSC 1985, c E-15) but this article focuses on disclosures pursuant to the Income Tax Act, RSC 1985, c 1 (5th Supp).
Second Administrative Review
A taxpayer can request that CRA undertake a Second Administrative Review of the decision to deny the disclosure. A written request must be sent to the Assistant Director of the Shawinigan National Verification and Collections Centre. A request will not be granted if the taxpayer merely failed to provide the information to complete the disclosure in time.
If the request is granted, the taxpayer has the opportunity to provide additional information and legal arguments in favour of acceptance.
If a taxpayer does not agree with CRA’s decision and thinks that its discretion to provide relief was exercised improperly, an application for Judicial Review can be made to the Federal Court. The application, absent an extension request, must be filed within 30 days of CRA’s decision. Authority for this is provided under section 18.1 of the Federal Courts Act. RSC 1985, c F-7. A taxpayer should first request an Administrative Second Review before pursuing redress in Federal Court.
What about a Notice of Objection?
The legal authority to offer penalty and interest relief to voluntary disclosure applicants under the Income Tax Act, RSC 1985, c 1 (5th Supp) comes pursuant to subsection 220(3.1). Per subsection 165(1.2) there are limitations on when a taxpayer can file a Notice of Objection to dispute the assessments from a voluntary disclosure. Usually a Second Administrative Review is the first step to challenge CRA’s position.
In general, a Notice of Objection to an assessment based on disagreements with CRA’s decision to provide general or limited relief are disallowed. Also, to be accepted under the Limited program, which offers less relief than the General program, CRA will normally ask the taxpayer to sign a waiver agreeing not to dispute the assessments with a Notice of Objection. However, there are exceptions. For example, a taxpayer can object to an error in the calculation or characterization or anything not directly related to the content of the disclosure.
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