10-year limitation period

The Federal Court of Appeal recently released its decision in Bozzer v. The Queen, 2011 FCA 186. Since the introduction in 2004 of a 10-year limitation period for interest and penalty relief under subsection 220(3.1) of the Income Tax Act, the CRA has administered the provision as if the 10-year period for applying for relief expires on December 31st of the 10th year following the taxation year assessed (i.e., December 31, 2010 for taxation year 2000).

In a resounding victory for taxpayers, Justice Stratas rejected the Minister’s policy. In line with practitioners, who have argued that interest accrues continuously and that the CRA’s administrative practice has no “fairness” rationale, Justice Stratas accepted Mr. Bozzer’s position that the 10-year limitation period is the 10 years that end with the taxpayer’s application for relief, regardless of the taxation year of the principal tax debt.

However, CRA has not changed its administrative practice. The CRA has not yet expressed any official response to the decision and it remains to be seen if the Minister will appeal to the Supreme Court of Canada or ask the Department of Finance to legislate over the decision.