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Income tax — getting Third Level Fairness review

My client, before first contacting me, had applied under the CRA's "Fairness" (now called "Taxpayer Relief") provisions to reopen a past year's return to claim an allowable business investment loss, due to an investment he had made in a company that went bankrupt.

The CRA misunderstood the facts of the case and denied the request.

My client went to an accountant who specializes in tax matters. The accountant wrote to the CRA to request a "Second Level Review", and explained why the client's claim should be allowed.

Unfortunately, while the accountant's letter was not inaccurate, it did not step through the legislation in detail to show how various complex provisions of the Income Tax Act interacted to allow the loss to be claimed.

The CRA misunderstood the application of the law, thought the accountant was applying under a different provision than he was, and denied the request.

At this point the client came to me.

Normally, after a Second Level Review, the only recourse is a judicial review application in the Federal Court. This would have been very expensive.

Instead, I wrote to the Director of the local office to ask for a Third Level Review, which is not normally allowed. I explained in detail why my client qualified for the loss, and I showed how the earlier requests had been misunderstood, by showing which provisions of the Income Tax Act applied and how the CRA had misinterpreted them. I also cited previous cases where a Third Level Review had been allowed in unusual circumstances.

I followed up the letter with telephone calls to get the matter looked at immediately, so that a decision to conduct a Third Level Review could be made within two weeks so that my client did not have to file an application in Federal Court.

The CRA then took a year to conduct its Third Level Review, including review by Department of Justice lawyers. In due course, the CRA agreed with my submissions, and allowed my client his losses, saving him over $100,000.

Problem vanished!

(2006)