The Tax Dispute Process in Canada

Accountants often say that it is not about how much you make, but how much you keep. As we enter the tax return season again, it bears mentioning the deadlines should you wish to dispute the CRA’s assessment or re-assessment.

Under the Income Tax Act (RSC , 1985, c. 1 (5th Supp)), the Minister of National Revenue (the “MNR”) is required to examine a taxpayer’s return once it has been filed and to assess the tax, interest, and penalties, if any, payable, pursuant to section 152(1) of the ITA. The MNR will issue a Notice of Assessment.

Before or after the initial Notice of Assessment, the CRA may request more information or audit you to gather further information regarding your tax obligations. Following the audit, the CRA may decide they agree with what you reported on your tax return or might disagree. If the CRA disagrees, its practice is to issue a proposal letter, allowing the taxpayer an opportunity to make further submissions. Failing the auditor being persuaded to alter the proposal letter, the auditor will issue a Notice of Reassessment that reassesses the tax.

So, you disagree with the CRA’s notice of assessment or notice of reassessment. Perhaps the CRA has ballooned your income or disallowed certain expenses. The first step in the income tax appeal process is the filing of a ‘notice of objection’ to an assessment or reassessment. Crucially, you have a 90-day deadline from the date of the mailing of the Notice of Assessment or Notice of Reassessment to file a Notice of Objection with the Chief of Appeals. This is a hard deadline, without going into detail of the possibility for a time extension which is only available in very narrow and exceptional circumstances. The notice of objection must be in writing and set out the reasons for the objection and relevant facts (per s 165(1) of the ITA). For large corporations, the taxpayer must describe each issue to be decided, specify the relief sought, and provide the facts and reasons on which the taxpayer relies in respect of each issue raised in the notice of objection.

It is important to note that a notice of objection must be filed to preserve a taxpayer’s ability to appeal to the Tax Court of Canada. Justice Woods has stated in Olumide v. The Queen (2015) TCC 125 (CanLII) that “The Tax Court of Canada has no authority to ignore the legislative requirement that an appeal may not be instituted unless a valid notice of objection has been filed. It does not matter that there has been misconduct on the part of the CRA (Ereiser v. The Queen, 2013 FCA 20).”

Again, these decisions highlight the importance of getting the Notice of Objection filed within the 90-day deadline.

Once a Notice of Objection is filed an Appeals Officer will be assigned to the file and must decide whether to “vacate” (cancel the reassessment), vary the reassessment, or leave the reassessment alone (“confirm” the reassessment) per section 171(1) of the ITA.

The taxpayer can request the CRA to produce the documents supporting the assessment or reassessment, such as the auditor’s working papers, relevant court decisions or legislation, appraisal reports, and any third-party documents obtained to support the assessment or reassessment. An Access to Information request can be important if not before the deadline to serve the Notice of Objection, then for litigating at the Tax Court of Canada.

Under section 169(1), where a taxpayer has served notice of objection to an assessment under section 165, the taxpayer may appeal to the Tax Court of Canada to have the assessment vacated or varied after (a) the Minister has confirmed the assessment or reassessment, or (b) 90 days have elapsed after service of the notice of objection and the Minister has not notified the taxpayer that the Minister has vacated or confirmed the assessment or reassessed, granted that no appeal can be instituted after expiry of 90 days from the day the notice has been sent to the taxpayer under section 165 that the Minster has confirmed the assessment or reassessed.

In deciding the appeal, the Tax Court of Canada may dismiss it or allow it and

· Vacate the assessment;

· Vary the assessment; or

· Refer the assessment back to the MNR for reconsideration and reassessment (ITA s. 171(1); Shairp v. MNR).

As tax law is an intersection between law and accounting, if one has to go to court, only a tax lawyer can represent the taxpayer and not an accountant. However, accountants sometimes assist at the earlier stages where the matter is still at the CRA level such as filing a notice of objection in a less complex case. However, from a lawyer’s point of view the Notice of Objection can be one of the most important parts of a tax dispute since the Tax Court of Canada will not generally allow new facts and arguments to be raised in the Tax Court that were not disclosed or raised in the Notice of Objection. This highlights the importance of setting out the taxpayer’s key issues in the Notice of Objection and presenting the facts and persuasive reasons for why the tax authority should accede to the taxpayer’s position in a way that will be reliable in the future should the dispute not be resolved at the CRA level.

Whether faced with an income tax, GST or provincial sales tax assessment, the Notice of Objection can be one of the most important parts of a tax dispute in Canada today, and it is best to get advice early on from both an accountant’s perspective and a lawyer’s perspective.

This blog has outlined some of the aspects of the tax dispute process in Canada but does not constitute legal advice and is not intended to be a summary of the law relating to tax disputes in Canada. If you are seeking advice on whether to dispute an assessment or reassessment, it is best to contact an accountant and/or a tax litigator. For a litigation perspective please do not hesitate to reach out for a consultation: colin@cuttresslaw.com