Taxman fails fairness test

Income tax rules are simple: file by the deadline and if you’re entitled to a refund, you get it. If you’re late in filing and you owe the federal government money, the more you delay paying that money back, the more interest they tack on.

Income tax rules are simple: file by the deadline and if you’re entitled to a refund, you get it.

If you’re late in filing and you owe the federal government money, the more you delay paying that money back, the more interest they tack on.

If the government owes you a refund and make an error, they add interest to the repayment error, right?

Wrong!

That’s the lesson recently learned by East Coast fishermen who fought a long court battle to recoup about $20 million in overpayments they made to Revenue Canada dating back to 2000. The feds have agreed to repay the overpayments, but refuse to pay 11 years of interest.

That’s both unfair and unconscionable. Eleven years of interest on $20 million would be a huge bonus for fishermen living near poverty.

The tax laws create a double standard — if you owe the government money, no matter how many years ago, you are charged interest from Day 1. But if you overpay in taxes, the government won’t honour that interest obligation.

East Coast lawyer Eli Baker, who represented the more than 754 fishermen in Newfoundland, Labrador and the Quebec’s north shore in the court challenge, said interest will be calculated back to when claimants formally requested a refund. For most of the clients, that was in 2006.

Apparently, taxpayers owed money by the federal government must make a formal request to get back what they are due.

Yet the government doesn’t issue a formal request to taxpayers; Ottawa simply expects each of us to fill out the necessary forms, calculate what we owe, and pay it — or pay interest later, with the original amount!

Last May, the Federal Court ruled that some fishermen overpaid tax on licence buyouts. It ruled that Revenue Canada “gave different and contradictory advice and opinions” on how that income should be treated.

According to The Canadian Press, “fluctuating advice on whether licence buyouts should be treated as a capital gain or a business income meant some fishermen paid thousands of dollars more in taxes than their neighbours.”

Cheques ranging from a few thousands dollars to about $50,000 will soon be in the mail, but they won’t include interest dating back to 2000 when the overpayments were made.

“I think it’s tremendously unfair that the government of Canada gets to hold on to taxpayers’ money interest-free for six years,” said Baker. “The way the law is, a person will receive interest on an overpayment starting from approximately the day they ask for a refund.”

The tax laws appear to be enshrined to benefit the government, at the expense of taxpayers, and damn any potential for fairness.

Noel Carisse, a spokesperson for Revenue Canada, said the Income Tax Act “sets out that interest on repayments does not start to accrue until 30 days after a refund claim is received.” Then why must those owing money to the government pay interest from Day 1?

Baker said the tax laws are especially galling because most of his clients are elderly, were overtaxed because the government failed them, and live in poverty or close do it. Refunds with interest would make a huge difference.

Since the legal action was launched, 108 of Baker’s clients have died.

Canadians should expect nothing less than fair and equitable treatment from its government. And they shouldn’t have to fight lengthy court battles to receive that fairness.

Rick Zemanek is an Advocate editor.

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