When you file a tax return the Canada Revenue Agency will issue a Notice of Assessment. Similarly the result of a tax audit will be that CRA issues a Notice of Reassessment. In either case you have the right to file a tax appeal and dispute the amount of the tax assessment or tax reassessment by filing a Notice of Objection with the Chief of Appeals of CRA. If the Objection is unsuccessful you have the right to appeal to the Tax Court of Canada.
Under subsection 165(1) of the Income Tax Act, and the equivalent section under the Excise Tax Act for GST/HST appeal, a Canadian taxpayer has 90 days from the date of the Notice of Assessment or Reassessment to file the Notice of Objection in writing with the taxation Chief of Appeals. This is an important deadline and one that should not be missed, although an extension application (discussed below) can be made. This is also the time to retain one of our top Toronto tax litigation lawyers to assist you with your income tax or GST/HST Notice of Objection.
If you have missed your 90 day deadline, we can try to apply for an extension of time to file a late Notice of Objection under subsection 166.1(1). A notice of objection extension application can be made up to one year after the normal 90 day deadline. The application must set out the reasons why the notice of objection was not filed on time. CRA will review the time extension application and decide if the reasons for the delay meet with the tests set out in the Tax Act or Excise Tax Act.
In summary there is a possible 15 month window in which to file an Objection and if that time period is missed the taxes are normally fixed and cannot be challenged, subject to the comments in the next section. If you have missed the 90 day Objection period contact one of our top Canadian tax litigation lawyers as soon as possible to that we can submit an extension application on your behalf.
Although as stated above, if the 15 month time period to file an extension application for a Notice of Objection is missed, normally there are no further appeal rights and the tax liability cannot be challenged. However in the recent (early 2016) case of Conocophillips Canada Resources Corp. v MNR T-1811-12 the Federal Court of Canada ruled that CRA can waive the obligation to serve an income tax notice of objection under subsection 220(2.1) of the Income Tax Act. This means that in some circumstances even if the 15 month limitation period to file a Notice of Objection has been missed one of our Toronto tax litigation lawyers can apply to CRA to waive this requirement and in effect a late income tax objection may be possible.
An objection in essence states that you disagree with the computation of the amount of taxes or GST/HST set out in your Notice of Assessment. When one of our experienced Canadian tax lawyers drafts an objection we set out the facts that we are relying on, the reasons for the tax Notice of Objection, the applicable tax law provisions and our legal tax arguments. We submit a form T400A by registered mail to ensure that we have a written record proving that the Objection was submitted within the 90 day limitation period.
If you file the Notice of Objection on your own (which we strongly advise against) it can now be submitted online using the “My Account” feature on the CRA’s website, or it can be sent to the Chief of Appeals at a local taxation centre. We recommend always using a formT400A, but a letter detailing the reasons for the objection is acceptable.
Once the Objection is submitted a form letter acknowledging receipt is sent. Several months later a CRA Appeals Division tax appeals officer will be assigned to the Objection file. This appeals officer can now be from any CRA office in Canada since they are assigned based on workload and may not even be in the city where you reside. The appeals officer has a mandate to independently review the information your Toronto tax lawyer submits, as well as the tax file prepared by the CRA tax auditor who prepared the Notice of Reassessment to which the taxpayer is objecting. This tax appeals officer is an employee of the Canada Revenue Agency but is independent of the Audit division which issues the tax reassessment. Furthermore under CRA’s administrative policies, the tax Appeals Officer is not supposed to talk to or meet with the tax auditor without providing the taxpayer with a copy of the minutes of any such discussion.
The Tax Appeals Officer is required by CRA administrative policies to give you a copy of the tax auditor’s working papers and other documents in the file (except for confidential material relating to third parties, or any legal advice the Canada Revenue Agency has received that is protected by solicitor-client privilege). As a matter of course our Canadian tax litigation lawyers submit an application for the entire CRA file under the Access to Information and Privacy Program, discussed below.
At present the appeals backlog is such that it takes about 3-12 months after you file the Notice of Objection before your case will be reviewed by an Appeals Officer.
In order to properly deal with the Notice of Objection, it is essential to obtain the complete file from CRA. All CRA records, including internal tax audit reports, are available by way of an application under the Access to Information and Privacy program (ATIP). One of the first steps carried out by our Toronto income tax litigation lawyers once we have filed the income tax appeal is to submit an ATIP request on behalf of the taxpayer. We specify the relevant income tax issues and request that CRA provide us with the complete file related to those tax issues, including audit reports and correspondence.
Once our Toronto tax lawyers firm is contacted by the tax appeals officer, we make detailed written submissions setting out further arguments both with respect to the facts and the applicable sections of the Income Tax Act or Excise Tax Act and case law, and we provide full supporting documentation to prove our position. We often work with the taxpayer’s accountants at this stage, after first having retained them ourselves to ensure that the benefit of solicitor client privilege extends to the accountant files. We may also have phone discussions with the appeals officer to clarify the differences between our positions.
The results of these submissions will be a proposal letter from the tax auditor setting out the proposed disposition of the tax appeal. Any proposal has to be based on a correct interpretation of Canadian income tax law. If we do not agree with the tax appeal officer’s interpretation of income tax law we will keep making submissions until our point of view is accepted or we of the opinion that nothing further is to be gained from our discussions.
If our Canadian income tax lawyers do not obtain a satisfactory response from the tax appeals officer we will insist on a meeting with the tax appeals officer’s team leader (his manager). The team leaders are more senior accountants and we often have success in showing them that our submissions are correct even when our arguments were rejected by the tax appeals officer.
Under the Objection section of the Tax or Excise Tax Acts, the appeals officer must decide to “vacate” (cancel) the assessment or reassessment, which is a complete victory for our Toronto income tax lawyers, vary the assessment or reassessment which is a partial victory or leave the reassessment alone by confirming it, which is a victory for CRA. The appeals officer is required to provide the taxpayer with notice of the decision. The date of this notice is important because the time period for a Tax Court Appeal starts at this time.
If the tax appeal is allowed in full or in part the taxpayer will receive a Notice of Reassessment reflecting the changes that have been made in response to the notice of objection. If the appeal is dismissed and the taxpayer is unsuccessful he or she will receive a letter confirming the earlier Notice of Assessment.
As soon as you receive a tax Notice of Assessment or Reassessment that is wrong and needs to be challenged you should contact one of our expert Toronto tax lawyers. We will fight CRA on your behalf.
An unsuccessful Notice of Objection can be appealed by one of our Toronto tax litigation lawyers to the Tax Court of Canada under section 169 of the Income Tax Act or the equivalent section under the Excise Tax Act for GST/HST within 90 days from the date of the notice of reassessment or confirmation referred to above. If the 90 day deadline has been missed the taxpayer may apply for an extension of up to one year under section 167 of the Income Tax Act or the equivalent section under the Excise Tax Act for GST/HST . The Tax Court of Canada is very strict about extensions and generally does not grant them.
The appeal process follows one of two streams either the General Procedure or the simplified Informal Procedure. Whether your appeal will follow the General Procedure rules or the Informal Procedure rules depends on the amount of federal tax or GST/HST in dispute. Under the General Procedure Rules there are filing fees for the Notice of Appeal and the amount increases as the tax in dispute goes up.
The Informal Procedure is like a small claims court for tax and is for smaller disputes with no filing fees. The informal procedure can be used for tax or GST/HST disputes in which the total amount of federal tax and penalties disputed is less than $12 000 per assessment, or where the interest on federal tax and penalties is the only issue. You must elect to use the informal process in your appeal notice or in a letter to the court within 90 days of the CRA Reply to your Notice of Appeal. The informal procedure is generally simpler and less costly than the general procedure and may not fully follow the legal and technical rules of evidence. But make no mistake, an Informal Procedure trial is a full tax trial and requires knowledge of court procedures and of the relevant tax law.
The Tax Court Notice of Appeal must set out the relevant facts, the tax and legal issues in dispute, the provisions of the Income Tax Act or Excise Tax Act relied upon and the grounds for the tax appeal. The Notice of Appeal is filed with the Tax court of Canada which then serves the federal Department of Justice who represents the CRA. A Department of Justice lawyer is assigned to the appeal and they will draft a Reply to the Notice of Appeal. The Department of Justice tax lawyer must reply to the taxpayer’s Notice of Appeal within 60 days with the CRA position regarding the tax appeal. The taxpayer’s Toronto income tax lawyer then has an opportunity (though not required) to respond to the CRA reply within 30 days.
The Notice of Appeal and the Reply are called the pleadings and they set out the basis of the tax dispute and will form the structure for the rest of the tax appeal process. The Notice of Appeal can be amended after it is filed, but there are rules governing amendments and when they can be made.
The first step is to organize all evidence relating to the tax dispute and specifically all documentation that may be relevant to the income tax case. Under the General Procedure rules a process called discovery takes place during which all relevant documents are exchanged by the Department of Justice income tax lawyer and your Canadian tax litigation lawyer. It is important to realize that if a document has not been previously provided to the other party it will generally not be admissible in court. After the documents have been exchanged each side has an opportunity to examine the other party on the record. This is usually done by oral questioning under oath, but is sometimes carried out by written questions with sworn written answers. This discovery process allows CRA and the taxpayer to learn about the other’s case thereby narrowing the issues in dispute. The best chance to settle is the case is usually after discoveries have taken place.
The new settlement offer rules in subsections 147(3.1) to (3.8) of the Tax Court of Canada Rules (General Procedure) are more detailed and complex with respect to costs when an offer in writing has been made. The rules provide that when a judgment is obtained that is as favourable as or more favourable than an offer that was made in writing, a successful party is entitled to substantial indemnity costs from the date of the offer. This means that one of the first things our experienced Canadian tax lawyers do after filing a Notice of Appeal to tax court is to make a formal offer to settle the tax dispute. If it is not accepted and we win in Tax Court then our client may obtain a reimbursement of up to 80% of our costs. This provides a powerful incentive for the Department of Justice lawyer to settle the tax case.
Unless there are motions the next step is to set a date for a hearing of the case in the Tax Court of Canada. A tax court trial is the same as any other court case so the taxpayer has the right to call witnesses, to introduce documents or receipts as evidence and to testify under oath. The taxpayer and the taxpayers’ accountant are normally the most important witnesses and the strength of their testimony and the supporting documents will determine victory. Our Toronto tax lawyer presents your legal position and argues that your interpretation of the tax law is correct and the CRA position is wrong. The CRA tax lawyer argues the opposite. A Tax Court of Canada judge then usually reserves judgement and renders a decision later on regarding the tax case.
When the judgment of the court is issued, either party can be ordered to pay some or all of the legal fees of the other party as discussed above.
As soon as your Notice of Objection is rejected you need to appeal to the Tax Court of Canada you should contact one of our expert Toronto tax lawyers. We will fight CRA on your behalf.
Nathaniel completed his Juris Doctor degree at Osgoode Hall Law School where he excelled in the areas of tax law and legal writing and research.He successfully completed all of the requirements of Osgoode’s Taxation Law Curricular Stream
Carson Pillar articled with us and then joined our tax law firm as an associate Canadian tax lawyer having been called to the Ontario bar in June 2016. Carson runs our Calgary tax office. Carson earned his Juris Doctor from Western University and graduated in 2015.
Ian Thomas joined our Toronto tax law firm as an articling student (student at law) in July 2016 and upon becoming a Canadian tax lawyer in June 2017 he becomes our latest tax associate. Ian earned his Juris Doctor from Osgoode Hall Law School and graduated in 2016.
Tigra Bailey has now joined our tax law firm as a summer tax law student and is expected to return as an Articling Student in 2017-2018. Tigra is completing her Juris Doctor at Queen’s University and her expected graduation date is in 2017.
Ildi has joined the law firm of Rotfleisch & Samulovitch PC in June, 2000 and brings over 25 years of legal secretarial experience to the firm. She started as a Legal Secretary and after obtaining Certificates from The Institute of Law Clerks of Ontario
Jamin Chen joins our tax law firm as an articling student in September 2016 after earning his Juris Doctor from Allard Hall at the University of British Columbia.