Canadian Lawyer

LEGAL REPORT/Tax 'Lightning bolts out of the sky' Overzealous tax collectors are less likely to negotiate and more inclined to impose their interpretation of the law, often leaving lives and businesses in ruins: critics. W hen Rob Krek l e we t z started his legal career as a tax and trade lawyer in the 1980s, tax law was a staid, even gentlemanly field of practice involving mostly matters of income tax and other direct taxes. Lawyers "were brought in at the early stage, usually by the client's accountant, before a notice of objection was filed," he tells Canadian Lawyer from his office at Millar Kreklewetz LLP in Toronto. "We had 90 days to file (and) delay collection until the amount of collection was determined. It was all very orderly." But the advent of an indirect tax — namely Canada's Goods and Services Tax — has changed all that. Nowadays, notes Kreklewetz, Canadian tax lawyers are frequently forced to act with lightning speed in order to advise and defend clients against the sweeping collection powers the Canada Revenue Agency is now wielding to recover assessed amounts owed of GST — even if an appeal is pending. "It's hard to explain to a client who receives one of these notices of assessment that, unlike with income tax, they have no recourse to a judge, that they have to pay millions of dollars, and might even lose their home before they have a chance to get a ruling on whether or not the assessment is right or wrong," says Kreklewetz. "It's not fair and it's not the Canadian way." The aggressive actions of the CRA in regards to GST collection are driving tax lawyers to distraction. And they deplore the irreparable damages some of those actions are having on people's lives and the health of otherwise viable businesses. "With income tax, funds asked for are held in abeyance if they're disputed," notes Greg Gartner, a partner with Moodys Gartner Tax Law LLP. "But now, with GST, CRA just plops down a notice of assessment and then asks for their money." According to Gartner, estimates can and often do reach into the millions of dollars. "I've seen estimates that would break even a big business," he says. "And it hits them like a lightning bolt out of the sky." 48 Jan uary 2014 www.CANADIAN L a w ye r m a g . c o m That was hardly the case when the GST was introduced as a multilevel value-added tax on Jan. 1, 1991. "During the first few years of GST everybody was getting their bearings," he says. It wasn't until the end of the decade that litigation began over run-of-the-mill commercial transactions that had not been seen in the legislation. "Even then," says Gartner, "if you had bona fide differences in fact or reasonable differences in interpretation of the law, you could usually make a deal [with the CRA]." In recent years, as the disparity he considers to exist between what the CRA views as trust funds (such as GST and source deductions) and income taxes continues to grow, Gartner says the CRA is less likely to negotiate and more inclined to use the broad collection powers at its disposal for imposing its interpretation of the law and how it applies to a file. In addition to garnishing a person's or company's bank accounts and accounts receivable without having to see a judge, the CRA's collection department can also personally assess a company's directors (under the Directors Liability Act), a weapon Gartner says the CRA is starting to use more and more. In response to these assertions, in a statement to Canadian Lawyer, the agency said: "The CRA works collaboratively with registrants or taxpayers who do not pay their taxes on time and makes every effort to reach a mutually acceptable payment arrangement before proceeding with garnishment or other forms of legal action. In situations where collaboration is not effective and GST/HST balances owing remain unpaid, the CRA can initiate legal action in order to collect the debt." According to Gartner, many disputes arise over property sales, particularly over the question of whether a transaction is, for accounting purposes, a sale or a lease. If it's a sale, for example, GST is payable up front. If it's a lease, however, GST is payable as payments are made. "Conceptually the GST is there, but the policy about remittance is in question," says Gartner. "But the CRA auditors come in and apply their administrative interpretation and the client has to pay before they can get a decision on appeal." He adds the appeals process, which begins with rulings by Peter Mitchell by Mark Cardwell

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