Published: October 6, 2021
Last Updated: October 6, 2021
Introduction: Tax Assessment under the Income Tax Act and Limitation Periods
Under the Canadian Tax Act, when a taxpayer is assessed or reassessed, the time periods for putting the amounts into dispute are very short. As an initial proposition, when an assessment or reassessment is issued the taxpayer has only a ninety (90) day period to file a formal dispute by way of a Notice of Objection. While this initial ninety day period can be extended, at the option of CRA, by up to one year, the ability to take advantage of this time extension period is contingent upon certain conditions precedent, including demonstrating that the taxpayer had an ongoing intention to dispute the tax assessment if the taxpayer was unable to do so in the first ninety days.
In other words, those who sit on their rights often find that there is no way to overturn an assessed tax amount, even if it is completely incorrect, with the result that there is no way to suspend or halt CRA collection actions. The practical reality of tax law is that it is incredibly complex, and when clients come to us it can sometimes be years after these limitation periods have lapsed. In these circumstances, our experienced Canadian tax lawyers try to get creative.
One such case our Canadian tax law firm recently successfully concluded involved a taxpayer who had been audited in the 2012 taxation year for the years 2006 through 2010. She had been involved in some real estate transactions by a family member who used her name on title without explaining to her the business or tax aspects of what she was getting involved in. She received no benefit or profits from this property speculation business, and she had used a series of accountants to try and correct the situation prior to meeting with our Canadian tax lawyers in 2019.
By 2019, her audited and subsequent taxation years had been reassessed several times, but no real progress had been made in removing the tax amounts assessed, which were in excess of $300,000. With little information to go on, our Canadian tax law office got to work on requesting her CRA internal file through an access to information request to see what, if anything, could be done to resolve her tax problems.
Our Tax Strategy: Due Diligence and an Aggressive Stance
Upon receiving the full client file from the CRA, we determined that all of the years subject to tax audit had become statute barred and no Notices of Objection could be filed. However, we also noted that the CRA had issued a reassessment of the 2010 taxation year less than one year previously. This 2010 reassessment did not result in any change to her income or taxes owing, so we were not sure why this test reassessment had been issued. At the same time, we noted there were valuable deductions available to be moved into the 2010 taxation year that were previously denied by the CRA. On this basis we immediately filed an Extension of Time Application and Notice of Objection to the 2010 tax reassessment with the CRA.
The CRA’s Appeals Division got back to our Canadian tax law office quickly stating that the Notice of Objection that we filed was not valid, claiming that a Notice of Objection could not be filed to a reassessment that did not result in an increase to taxes owing by the taxpayer. The CRA’s correspondence did not provide us with any legal justification for this position.
Thus, on this basis that the objection should have been accepted, we proceeded to the Tax Court of Canada on behalf of the client by filing an Application for an Extension of Time Within Which to File a Notice of Objection. Our position was that a tax assessment could be objected to under section 165 of the Tax Act, and that the CRA had failed the taxpayer by denying the objection as legitimate as well as by failing to legally justify this position.
The Application itself required us to demonstrate to the Court why the taxpayer did not file the objection within the ninety day period, which we did by way of detailed argument and analysis in our written submissions. A hearing date was set down by the Tax Court of Canada shortly thereafter.
However, prior to the hearing date, we received correspondence from the Canadian tax lawyer assigned to the file on behalf of CRA indicating that they would not oppose our Application. This position was also communicated to the Tax Court. Accordingly, the Tax Court of Canada issued an Order that the Notice of Objection was valid and that the CRA was required to consider the merits in the normal course.
The Outcome: Success Based on Tax-Law Expertise & An Aggressive Approach to Objection Rights
Though it took some time, eventually the CRA’s Appeals Division assigned an Appeals Officer and contacted our Canadian tax law office in the normal manner. However, in this case our objection was so detailed and convincing that the only correspondence we received from the CRA appeals officer was to indicate that our objection was allowed in full and that tax reassessments were forthcoming for the client.
In all, when the tax reassessments were issued, the client’s tax debt was reduced by about $100,000 or one-third of the total overall debt. This in itself was a massive victory considering that we were dealing with amounts that went back almost a decade and a half.
We continue to work on this client’s behalf to aggressively reduce the remaining amounts owing as much as possible, though the age of the debt means we are going to continue to need to be creative and think outside the box.
Tax Tips – Vicarious Assessments, Limitations & The Value of Consulting an Experienced Canadian Tax Lawyer
This tax file demonstrates the value of an early consultation with a Certified Specialist Canadian tax lawyer. Had we been retained originally, we believe that we would have fully eliminated these tax liability amounts when they were first assessed. Had we been consulted any later, we may not have been able to reduce the amounts at all.
If you receive a tax assessment or reassessment, time is of the essence; you should always immediately seek tax advice from a knowledgeable Canadian tax lawyer to ensure that your appeal rights are preserved and that you are able to meet any limitation periods.
So, if you or someone related to you, including a corporation, has been assessed for any reason, our experienced Canadian tax lawyers can handle it. We thoroughly understand this area of law, and we can ensure that your response to the Canada Revenue Agency is quick, efficient and as cost-effective as possible.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."
Frequently Asked Questions
Depending on the factual scenario, we may be able to take certain steps to “pry open” otherwise barred years. This is more likely in a scenario of a business with expenses that may or may not have been claimed. If the amount is large enough, we may advise you to retain us to do due diligence to determine if we can devise a strategy to reopen the amounts and put them in dispute. As every case is different, we can’t say for certain, though the above case-study shows that creativity can sometimes pay dividends in terms of tax owing.
Although the CRA’s agents will always advise a tax debtor to file a Taxpayer Relief Application, our office considers this a strategy of “last resort”. What CRA will not tell you is that these applications cannot address the underlying taxes, and the bar for relief is incredibly high. Our advice to clients is to always attempt to exhaust the dispute process prior to approaching CRA for a Taxpayer Relief Application. Prior to approaching CRA you would do well to allow a top Canadian Tax Lawyer to assess your tax situation and tailor a strategy for you.