In 1947, in a small town called Vikarabad in south-central India, a girl was born and named Sulochana, which means “beautiful eyes” in Hindi. Among the 9 siblings, she is the one who actively developed herself. After graduating from high school and studying medical nursing in India, she found an opportunity to go to the United States, and then she came to Canada where she got a registered nurse license. She got married and had children, and lived an ordinary and stable life.
She was working in her 60s because of her disabled husband and she received a pension from the Healthcare of Ontario Pension Plan (“HOOPP”).
She claims that she files and pays taxes to the CRA on time every year. But in the spring of 2013, she failed to file her 2012 income tax return on time because HOOPP did not send her the 2012 T4A slip.
On 2013-06-14, she finally hired a tax preparation service to have her 2012 tax return filed, but she did not include the pension income in her return. The service provider advised her that she could always file an amendment later, to include the missing income.
On 2014-01-20, CRA reassessed her 2012 return to include the unreported pension income and levied an omission penalty and a late penalty which totalled almost $10,000.
On 2014-02-29, she visited the HOOPP office in person to obtain the T4A pension slip. She then sent a letter to the CRA:
- promising to pay off her actual outstanding tax owing as soon as possible
- requesting a reassessment of her 2012 tax return with the cancellation of the $10,000 penalties
In May 2014, CRA replied:
- The $10,000 penalties cannot be waived because:
- your unreported income made up a significant portion of your total income, it is impossible that you are unaware of this money;
- even if you did not receive the T4A slip from HOOPP, as per the regulations you should have made an estimate of this portion of income and then included the amount in your tax return in 2013.
- So far we haven’t received your tax payment yet, so, as a rule, we’re going to start going to your employer to deduct money from your monthly salary.
In July 2014, she wrote back to CRA again stating:
- I have always been a law-abiding citizen and paid my taxes on time
- I’m a healthcare professional (RN) but I’m not proficient at computers so when the government systems change, I’m confused
- Can you please cease the garnishment process as I’ll be very much embarrassed if it happens
CRA initialized a second-level review to the senior’s request. After the review, the waiving of the penalties was rejected and CRA began to collect the balance from her wages.
Three years later, in July 2017, all the outstanding amount was repaid in full by way of garnishment.
At this point, this story should have ended as
- The tax debt does need to be paid
- It doesn’t seem to be economical to hire a lawyer to go after the $10,000 penalties because it is likely to be more expensive to hire a lawyer
However, other than an extended family the senior lady has in Canada, she also got a very broad social connection. When her church heard this, it was decided that they will keep fighting to get back the $10,000.
Normally for a lawsuit like this, as long as the taxpayer has something reasonable, even though it is tiny, CRA will be reluctant to go to court. Instead, CRA would like to settle with the taxpayer before the court, as CRA does not want to take the risk of losing the case because of the precedent case law system in Canada.
But! After a detailed investigation, CRA is convinced that:
- The senior taxpayer is not as how she portrayed herself “always been a law-abiding citizen who pays the taxes on time”. In fact, over the past 10 years, she:
- filed late in 1 year
- omitted income in 3 years
- paid tax late in 6 years
- When she knew she had the pension income in 2012, she chose not to report it in 2013 and chose not to do anything about it afterwards
- Coupled with her disgraceful history, no matter how you look at it, she satisfies the criteria of punishment
As a result, the CRA is confident to win.
In the trial, CRA’s arguments appeared to be reasonable, but the judge chose to sympathize with the senior lady. The judge said: she did not evade tax, but rather, tried to resolve the matter through the third party which files her returns and then later with the CRA.
In the end, the judge found a technical flaw in CRA’s system and used this as a breakthrough point to rule the $10,000 penalties to be cancelled. This technical flaw of CRA is quite minor, to be more specific, the judge found 3 CRA audit officers presented their second-level report on the same day, based on this, the judge concluded that there must be a procedural error in CRA, otherwise it cannot be so coincidental.
Shantakumar v Attorney General of Canada 2018
Okay, finally, I have a few thoughts on why the senior taxpayer wins the court case:
- Good image: such an old professional nurse is easily labelled as a vulnerable and disadvantaged individual;
- Broad network: as a first-generation immigrant, she has hundreds of relatives and friends who provide resource and financial support;
- Fighting spirit: with so many relatives and friends, she did not borrow money to repay the debt, instead she keeps fighting with CRA;
- Good luck: This last one may be decisive, the last name of the judge of this case is Ahmed, I believe this judge somehow has a better understanding to the taxpayer’s cultural background.
