Tax Settlement Conferences: Rule 126.2 of the Tax Court of Canada Rules (General Procedure) – A Canadian Tax Lawyer’s Guide

Tax Court of Canada: Two Types of Appeals

Two types of procedural appeals, informal and general, are available to a taxpayer at the Tax Court of Canada (the “Court”). Tax Settlement Conferences are only available under the general procedure for tax appeals.

This article will discuss who can initiate a Settlement Conference, the preparation of the Tax Settlement Conference Brief (the “Brief”), and provide a general description of what occurs behind the closed conference doors.

Tax Settlement Conferences – Rule 126.2 of the Tax Court of Canada Rules (General Procedure)

Tax Settlement Conferences are scheduled at the request of a party or by the Court’s own initiative. In many cases, the request to the hearings coordinator to schedule such a conference will be done on consent of the parties.

Unless ordered otherwise, all parties and their counsel must attend the Tax Settlement Conference. Secondly, the judge that presides over the conference shall not preside over the hearing (if there is one). Lastly, anything discussed at the conference cannot be communicated to the judge presiding over the hearing.

The purpose of a Tax Settlement Conference is to narrow the issues at appeal and to encourage settlement. These discussions are not prejudicial to the parties and the parties benefit from the moderation of a neutral third party with legal tax expertise.

Procedural Items: What do you need to do before the tax settlement conference?

There are several procedural items that need to be completed before the start of a Tax Settlement Conference. Most importantly, each party is required to prepare and serve a Brief on the other parties (in addition to filing with the Court) 14 days before the date of the conference.

Typically, the Court will issue a letter of direction with guidelines to assist in the preparation of the Brief. For example, our office (as representative for the Appellant) received the following guidance from the Court with respect to a recent Brief:

• • Limit your brief to 10 pages.
• • Summarize the Appellant’s perspective and briefly describe the material facts and law upon which you are relying.
• • State the issues to be decided at hearing as well as the propositions of law to be relied on and authorities in support of those propositions.
• • Summarize Expert Opinions in 3-4 paragraphs (if applicable). Also highlight crucial portions of said Expert Opinions.
• • Describe what you believe is getting in the way of settlement.
• • List the issues on which you have reached agreement or are close to reaching an agreement. Attach any settlement offers.
• • Summarize anything else that you believe the settlement judge would find helpful in working with you and the other party.

The Tax Settlement Conference Checklist

In addition to the guidance mentioned above, the Letter of Direction will also attach a “Settlement Conference Checklist”. Parties must be prepared to address the issues raised in the checklist at the conference.

These checklist items include, but are not limited to the following:

• • Are the pleadings in order?
• • Are there contemplated motions?
• • How many witnesses will be at the hearing?
• • Are discoveries and undertakings complete?
• • Is it possible for the parties to agree to an Agreed Statement of Facts for the Conference or the Hearing?
• • What issues are significantly affecting your ability to settle?
• • What is the expected duration of the hearing?
• • What are the prospects of settlement of the appeal/issue(s) on appeal?
• • Do the parties require any orders to be issued before the Hearing?

The Tax Settlement Conference

The judge presiding at the conference acts as a moderator and can direct the flow of the conversation. There is no set structure. How the conference is structured is largely dependant on the attitudes of the parties in addition to the level of detail in the Briefs.

In general, the session will start with introductions. Once the introductions are completed, the Appellant (taxpayer) will typically be asked to summarize their position. The Respondent (CRA) will then respond. The judge presiding over the conference will ensure that each side gets to speak uninterrupted and will ask that the parties address the judge directly in most scenarios. A Tax Settlement Conference is not intended to be an unsupervised shouting match. Each party gets an opportunity to speak and voice their frustrations; however, the discussion occurs in a controlled and respectful setting.

As the parties to the litigation highlight the issues that are barriers to settlement, the judge will offer comments to facilitate discussion and provide his or her opinion where able. Often, as a result of the conference, issues to be determined at hearing will be narrowed or terms on which a settlement can be reached will be discussed.

Tax Tips – Tax Settlement Conference

The materials to be included in the Brief speak to both substantive legal issues as well as procedural status of the tax appeal. In fact, motions can brought at a Tax Settlement Conference provided that the Notice of Motion and supporting materials are filed 10 days before the date of the conference. In addition to motions, the state of the pleadings, witnesses, and discoveries must also be spoken to. As a large number of issues can be canvassed at the conference on a non-prejudicial basis, it can be an effective tool in resolving tax litigation disputes or honing the focus of an appeal.

Taxpayers under the general procedure may benefit from attending Tax Settlement Conferences even if they have no inclination to settle. Further, having representation to assist in the preparation of the Brief is recommended so that all the issues in the Guidelines and the “Settlement Conference Checklist” can be concisely addressed and put before the CRA and the judge.

If you have filed an appeal to the Tax Court of Canada under the general procedure, speak with one of our Canadian tax lawyers today to discuss whether a Tax Settlement Conference should form part of your litigation strategy.

About the Author

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David J. Rotfleisch

David J. Rotfleisch, a leading Canadian tax lawyer, is not only a certified specialist in taxation but also a chartered professional accountant. Most recently, David is a pioneer in Canadian crypto taxation.

As of April 2020, he was one of 12 Ontario Certified Specialists In Taxation™.

Learn more about David J. Rotfleisch