Published: March 20, 2020
Last Updated: October 21, 2022
Most tax returns, corporate or personal, are usually assessed as filed by the taxpayer. In some cases, however, Revenue Canada will disagree with the taxpayer’s return, and impose additional taxes. This can occur due to an arithmetic or clerical error. Or there may be a dispute as to the appropriate treatment of a deduction claimed. This is especially common for a corporation being audited.
When a Notice of Assessment or Reassessment is received by a taxpayer indicating that taxes are due, there are procedures designed to permit the taxpayer to challenge any increased tax assessment. Provided that the dollar amount is sufficiently high, a professional, either the accountant who prepared the return or if there are technical or tax interpretation issues one of our experienced Toronto tax lawyers, should be involved from the outset. Our team knows how to dispute CRA reassessments and we have years of experience dealing with CRA tax auditors.
When dealing with a tax auditor who intends to issue a tax reassessment, your professional Canadian tax lawyer should discuss the proposed changes with him or her. Set out your position with respect to any disputed tax points, and the sections of the Income Tax Act and previously decided cases which support it. Explain why you took the positions which you did. The situation can sometimes be resolved with a reasonable compromise.
Time Limitation to file a tax Notice of Objection
An individual taxpayer usually has until April 30th of the following year to file a Notice of Objection to a Notice of Assessment or Reassessment. For previous taxation years there is a time period of 90 days from the date of mailing of the Notice of Reassessment. However this date can vary and should therefore be verified with a professional Ontario tax attorney.
A corporate taxpayer has 90 days from the date of mailing of a Notice of Assessment or Reassessment in which to file a formal Notice of Objection.
Filing this Notice of Objection is the key to the appeal process. It preserves a taxpayer’s rights under the Income Tax Act, and is the first step which must be taken before any action can be commenced in the Courts.
A Notice of Objection, which is usually prepared on a prescribed form, must set out the reasons for the objection and all relevant facts pertaining to it. Normally the relevant sections of the Income Tax Act are also cited. A separate Notice of Objection must be prepared for every year in dispute, even if the facts and issues are identical.
Since the Objection can be used as evidence in Court by the Minister of National Revenue, and because allegations of fact or omissions of fact may be binding in Court even if they hurt the case, it is important to ensure not only that the Objection is filed on a timely basis but that the contents are carefully considered, are accurate and include all key facts and are drafted by one of our experienced Calgary tax appeal attorneys.
The Objection must be sent to the Deputy Minister of National Revenue for Taxation in Ottawa. It is a good idea to file it by registered mail to have evidence that it was sent. When it is received in Ottawa, a copy is sent to the local District Taxation Office for an independent review by the Revenue Canada Appeals Section.
It is during this appeals process that you have the best, and cheapest, opportunity to settle the matter. A discussion can take place between the taxpayer or his representatives and the Appeals officer. Any arguments about the law or detailed computations can be submitted. These negotiations can be supplemented by written submissions when appropriate. At this time, the taxpayer’s position can be made clear and any misunderstandings resolved.
Through negotiation and compromise it is often possible to resolve the dispute in a manner which is satisfactory to both taxpayer and Revenue Canada.
When the matter is a simple one, such as an obvious error on the part of Revenue Canada or missing information or documents, the problem can sometimes be solved with a phone call.
If the discussions are unsuccessful, then the Minister will notify the taxpayer by registered mail either that the initial tax assessment will be confirmed or that a Notice of Reassessment will be issued.
Time Extension to file Notice of Objection
If the Notice of Objection was not filed within the 90-day limitation period, all is not necessarily lost. An application can be made by an Edmonton tax lawyer to the Minister of National Revenue extending the time within which a Notice of Objection may be served. The application must be made within one year after the expiration of the original 90-day time period and it must include the Notice of Objection.
Vancouver Tax Lawyer Appeal to Tax Court of Canada
If the dispute has not been satisfactorily resolved at the Notice of Objection stage, then the taxpayer has rights of appeal to the court system. Within 90 days from the mailing of the Minister’s reply to the Objection, an appeal may be instituted with the Tax Court of Canada by one of our leading edge Vancouver tax lawyers.
If this 90 day time period is missed, the Income Tax Act permits an application to be made to the Tax Court of Canada for an order extending the time within which a Notice of Objection may be served. The application must be made within one year after the expiration of the original 90-day time period. It must state the reasons why it was not possible to serve the Tax Appeal Notice in time. The Tax Court may make such an order extending time if it is of the opinion that to do so would be just and equitable in the circumstances.
However, the Tax Court seldom grants such extensions of time. The application is normally opposed by Revenue Canada, and numerous tax cases have been decided on the issue. Although it is impossible to set out specific guidelines, the Court will not grant an extension unless it considers that there are very good reasons to explain why the Notice of Objection was not filed in time. A taxpayer should therefore not rely on the extension being granted in most cases.
If the amount of taxes at issue, excluding interest, is $12,000 or less then the taxpayer can elect to proceed by way of the informal procedure in the Tax Court. This informal procedure requires no special form of written pleadings and allows the taxpayer to appear personally or by counsel or agent. At the Hearing the Court is not bound by any legal or technical rules of evidence and the Hearing is dealt with by the Court as informally and expeditiously as possible. There is a speedy trial mechanism which compels the Minister to file a reply within 60 days and requires the Court to hear the appeal within a further 180 days. Further appeal rights from the Tax Court of Canada are restricted if the informal procedure is elected.
The other method of proceeding is by way of general procedure. This procedure is a formal one requiring the taxpayer to be represented by a Canadian tax appeal lawyer.
Once a Notice of Appeal to a Court has been filed, and responded to by the Minister, then opportunities again exist for a negotiated settlement. This time the negotiations will normally take place with a Department of Justice Canadian tax attorney, who will often have a different perspective on the matter than the CRA appeals officers did.
If a settlement is still impossible, then a Hearing will take place in the Tax Court. Both sides will have the opportunity, through their Toronto tax attorneys, to call witnesses, to present evidence, and to make submissions with respect to all relevant points of law. The onus is on the taxpayer to establish the facts and the legal basis on which the Assessment should be overturned or varied. If the taxpayer fails to do so then the Minister will usually win the case.
The Income Tax Act permits an award of costs to be made to the taxpayer if the appeal is successful. If an offer to settle was made and rejected then the winning party will have most of their tax lawyer costs reimbursed by the other party.
If the general procedure was utilized then the unsuccessful party can bring an appeal to the Federal Court of Appeal. Finally, in rare circumstances, leave will sometimes be granted to institute an Appeal of a Federal Court of Appeal decision to the Supreme Court of Canada.
Taxes Owing During Tax Appeal
When a Notice of Objection is filed with respect to disputed taxes the disputed amount does not have to be immediately paid to the Minister of Revenue. Instead, the Minister is required to accept security for payment and is prohibited from undertaking any collection action.
When the matter is finally resolved, any outstanding taxes and related interest would have to be paid by the taxpayer or the Minister would have to return any security which he has. If the taxpayer is unsuccessful, on application by the Minister, the Court may impose a penalty of 10% of the amount of taxes in dispute; it determines that there were no reasonable grounds for the appeal and that one of the main purposes for the appeal was to delay the payment of taxes.
Finally, if you have failed to file tax returns, or have unreported income or over reported expenses, you need to apply for relief under a special program called Voluntary Disclosure or Tax Amnesty. If you take any other action such as filing a Notice of Objection, you will be subject to penalties, interest and possible prosecution.
Tax Appeal Help by Toronto Tax Lawyer
As soon as you have a tax dispute you need to contact our knowledgeable Toronto tax lawyers for tax help with your tax appeal. We fight CRA for our tax clients every day.
"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."