Reduction For Worker Remittance For Undue Hardship To Employer – Tax

Canada:

Relief For Employee Remittance For Undue Hardship To Employer

03 March 2021

Rotfleisch & Samulovitch P.C.

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Taxpayer relief provisions

When a taxpayer fails to comply with his obligations under the

Income Tax Act or other taxation statutes that the Canada

Revenue Agency administers, the CRA will often apply penalties such

as late-filing penalty, repeated failure to report income penalty

and false statement or omissions penalty. However, there are

taxpayer relief provisions (formerly called fairness applications)

in the Income Tax Act that give the CRA discretion to

waive or cancel part or all portions of interest and penalties,

accept late filed, amended or revoked income tax elections, and

provide income tax refunds beyond the 3-year normal period allowed

for individuals. The CRA has also developed administrative

guidelines, described in Information Circular 07-1R1 that

lists the situations where the CRA may grant taxpayer relief. It is

important to realize that there is a 10-year limitation period in

which to apply for taxpayer relief. For example, if a taxpayer

wants to apply for relief for the 2011 tax year, the application

must be submitted to the CRA by December 31, 2021.

The CRA will only grant a taxpayer relief under the following

situations:

Extraordinary circumstances
1. This includes situations of natural or human-made disasters as
  
  well as civil disturbances or disruption of services, serious
  
  illness or accident, or significant mental or emotional distress.
  
  The current COVID-19 pandemic should normally qualify as
  
  extraordinary circumstances.
Actions of the CRA
1. This includes process delays that result in taxpayer not being
  
  informed within a reasonable time that amount was owing, error in material available
  
  to the public which led taxpayers to file returns or make payments
  
  based on incorrect information.
Inability to pay or financial hardship
1. This includes situations when collection is suspended due to
  
  the loss of employment and subsequent financial hardship, when
  
  payment of the accumulated interest would cause a prolonged
  
  inability to provide basic necessities such as food, medical care,
  
  transportation or accommodation.

s.153(1.1) of the Income Tax Act permits the CRA to

the lower the employer’s amount of remittance if it causes

undue hardship

According to s.153(1.1), where the CRA is satisfied that the

deducting or withholding of the amount of salary, wages or other

remuneration paid by an employer to an employee otherwise required

to be deducted or withheld under subsection 153(1) would cause

undue hardship to the employer, the CRA may determine a lesser

amount and that amount shall be deemed to be the amount determined

under that subsection as the amount to be deducted or withheld from

that payment.

The Federal Court rejected a staffing agency’s s.153(1.1)

argument because there was no undue hardship

A recent Federal Court case Allstaff Inc. v AGC sheds

some light on this provision. In this case, Allstaff Inc., a

temporary employment agency was required to deduct and remit

employee deductions and pay its share of those deductions to the

CRA as an employer, and charge and remit GST/HST on the labour it supplied to its

clients. It had consistently submitted its payroll remittance

payments late which incurred interest and penalties because it

prioritized paying its GST/HST remittances. Allstaff Inc. also

cited s.153(1.1) of the Income Tax Act and argued that it

could not pay the employee remittances in a timely fashion because

it had to prioritize paying its outstanding GST/HST payments.

Therefore, the CRA’s collections would constitute undue

hardship and Allstaff Inc. should be allowed to lower the amount of

its employee remittances.

The Federal Court reviewed the facts and decided that no

financial hardship existed, therefore s.153(1.1) did not apply. The

CRA’s Winnipeg Team leader found Allstaff Inc. had net profits

for the tax years from 2013 to 2016, positive shareholder equity

after considering year-end liabilities for the 2016 year as well as

consistent revenues and a consistent number of employees from 2012

to 2016. Accordingly, the CRA’s Winnipeg team leader expected

the taxpayer to borrow against assets or sell non-essential assets

to pay its tax debts. The court confirmed the CRA’s findings

and found that Allstaff Inc. reported over $3 million in increased

sales between taxation years 2016 and 2017 which was reasonably

sufficient to restructure business operations to ensure compliance

with all tax remittances.

Pro tax tips – “undue hardship” is not defined

statutorily in the Income Tax Act.

According to the Federal Court, the term financial undue

hardship is not statutorily defined and has not been judicially

considered. Following the decision in Canada (Minister of

Citizenship and Immigration) v Vavilov, 2019 SCC 65, the

Federal Court mentioned this kind of ambiguity would suggest the

court should give deference to the CRA which is statutorily

empowered to make such a decision. However, this in turn gives the

CRA an unfair advantage over a taxpayer. If you or your business is

struggling to pay off your tax interest and penalties due to

financial hardship, contact our tax law firm to speak with an

experienced Canadian tax lawyer to determine whether you

meet the undue hardship condition of the taxpayer relief provisions

and advise as to what other tax saving measures you might be

eligible.

The content of this article is intended to provide a general

guide to the subject matter. Specialist advice should be sought

about your specific circumstances.