In a recent case, the Federal Court confirmed that the CRA is obliged to examine and assess a tax return with "all due dispatch" even if the taxpayer donated to a charitable donation shelter.
In Ficek v. A.G. Canada 2013 FC 502, the taxpayer had participated in a charitable donation tax shelter that the CRA believed was abusive. In the prior year donors to the same shelter had been reassessed to deny all claimed donation tax credits. Objections had been filed for some 27,000 donors to the shelter.
Management of the CRA's Winnipeg Tax Centre formed the view that allowing donations to tax shelters, paying refunds to participants, then auditing and eventually reassessing later was inappropriate. The CRA therefore began to delay paying refunds to participants in the shelter until the CRA had fully audited the shelter. Ms. Ficek was informed that her 2010 refund was not likely to be paid until 2013. As a result, she sought an order compelling CRA to assess her return.
The Court confirmed that the requirement in the Income Tax Act that returns be assessed with all due dispatch has meaning. Taxpayers are entitled to know what CRA's position is sooner rather than later. The Court also found that the CRA was merely pretending that the purpose of the new approach was simply to verify donations - the Court found that the CRA was actually seeking to deter donation shelter gifts. The Court stated that "the audit is an excuse for delay not a reason for delay (para. 33)”.
It may be that the CRA should have particular powers in dealing with certain kinds of promoted tax shelters. Indeed, in the most recent Federal Budget (see our March Newsletter) Parliament gave the CRA power to delay paying refunds to tax shelter participants in certain circumstances. However, at the time that the Winnipeg Tax Centre had started to delay assessments, the Court found that the CRA officials involved were acting capriciously and without legal authority.