Suppose CRA has assessed you a gross negligence penalty and you offer to settle on the basis that you'll pay only part of the penalty. Does your offer count as a settlement offer when the Court is deciding how much to award for legal costs? No, said Justice Graham.
Although the CRA has discretion to waive part or all of a penalty, Justice Graham said that the waiver power could not be relied on for settlement offers. He referred to cases that say that a settlement offer must be one the CRA can agree to on the law and facts. (See CIBC World Markets Inc. v. Canada, 2012 FCA 3 at para. 23: “'the Minister of National Revenue is limited to making decisions based solely on considerations arising from the Act itself' and cannot make 'deals' divorced from those considerations.") So, Justice Graham said:
" Mr. Harvey submits the authority that the Minister has under subsection 220(3.1) of the Income Tax Act to waive some or all of the penalties assessed against a taxpayer would have allowed the Minister to accept Mr. Harvey’s proposed settlements involving the reduction of penalties. The relief available under subsection 220(3.1) is not relief which the Court has the power to grant, therefore not relief which Mr. Harvey could have obtained at trial and therefore not relief which I need to consider when reviewing settlement offers."
But it's not clear that the cases on settlement are so restrictive as Justice Graham says. In CIBC World Markets, the FCA concluded that: "as a matter of law, the Minister could not have accepted CIBC World Markets’ offer of settlement." But, "as a matter of law", CRA could have accepted Mr. Harvey's offer. The law allows CRA to waive all or part of a penalty.
Mr. Harvey's facts weren't so helpful to him, though. The penalty applied because he had already pled guilty to criminal tax evasion for the same events. (See para. 15.)
See Harvey v. The Queen, (2014 TCC Graham) (Costs order)