Navigating The Tax Court of Canada
The Tax Court of Canada is typically the third state in the dispute resolution process. First, an audit is initiated by the Canada Revenue Agency to take a look at a taxpayer’s past tax filings. Following the conclusion of the audit, taxpayer’s may file notices of objection stating they disagree with the audit results. After the notice of objection is reviewed and a new decision is made, taxpayer’s now normally file a notice of appeal in Tax Court.
However, the Tax Court of Canada may be the second stage as explained below:
- Option 1: File a Notice of Appeal to the Tax Court after the CRA Appeals Division review your objection and issues a Notice of Confirmation or a Notice of Reassessment; or
- Option 2: File a Notice of Appeal to the Tax Court before the CRA Appeals Division finishes reviewing your objection and before a Notice of Confirmation or a Notice of Reassessment is issued.
The Tax Court of Canada – Important Deadlines
There are deadlines that need to be met if you want to proceed with each approach described above:
- In order to file a Notice of Appeal after a Notice of Confirmation or Notice of Reassessment has been issued, you need to file it within 90 days from when the Notice of Confirmation is issued. If you miss this deadline, you may still file a Notice of Appeal for another year, but an Extension Application will be needed.
- In order to file a Notice of Appeal before a Notice of Confirmation has been issued, you need to wait 90 days after filing your objection before you can “bypass” the Appeals Division and file your Notice of Appeal to the Tax Court of Canada.
The Tax Court of Canada – Pros and Cons of the two Different Approaches
There are pros and cons to going through the CRA Appeals Division (Option 1) or bypassing the CRA Appeals Division (Option 2).
- May avoid Tax Court altogether, which will save you money since the preparation and the hearing itself can be expensive;
- May narrow the issues if agreements are made on some of the items at issue; and
- May be able to negotiate based on an agreement not to take the matter to the Tax Court of Canada.
- If the CRA denies your claim you will then still need to go to Tax Court and your dispute will therefore take longer than if you went straight to court;
- May feel like a waste of time if no changes are made from the audit position; and
- May cost additional fees if you’ve now paid for the objection stage, but still have to take the matter to the Tax Court of Canada.
- Get to the Tax Court of Canada faster by filing a Notice of Appeal as soon as possible;
- If the matter is complex, it will likely proceed to the Tax Court of Canada anyway;
- A quicker resolution is possible; and
- Your dispute is reviewed by lawyers and judges with decades of experience in the field, instead of CRA agents who can have as little as a few months of experience in the field
- The Tax Court of Canada can be an expensive and long endeavour; and
- By skipping the objection stage, you have given up one opportunity to fight the audit conclusions.
The Tax Court of Canada – Informal vs. General Procedure
When you file your Notice of Appeal, you can elect to proceed under the Informal Procedure instead of the General Procedure if you meet certain requirements:
- The disputed amount of federal tax and penalties is not more than $25,000 per assessment (per taxation period);
- The disputed loss is not more than $50,000 per determination; or
- Interest on federal tax and on federal penalties is the only matter in dispute.
If you do not meet these criteria, you will have to proceed under the General Procedure.
The Informal procedure is usually quicker than the General Procedure, and the Tax Court of Canada is more flexible in their application of the rules of evidence. There are no litigation steps in an Informal procedure appeal, a notice of appeal is filed and the Department of Justice issues a Reply. The parties may then attempt settlement while waiting for a hearing date. In addition, you are not charged a filing fee for an appeal under the the Informal Procedure, but you must pay one under the General Procedure.
The Tax Court of Canada – Settlement
It is important to note that settlement discussions may occur at any point throughout these proceedings. Typically, once a Notice of Appeal and Reply are filed, we recommend that the Appellant (taxpayer) prepare a settlement offer in order to begin settlement negotiations.
Most of the time, we encourage settlement as opposed to proceeding with the hearing, because a settlement will usually end the dispute much faster and hearings are often unpredictable whereas with a settlement you know exactly the terms that you are agreeing to.
If you are considering going to the Tax Court of Canada or are currently in the middle of a dispute in the Tax Court of Canada and want assistance, call us today! We can help!
This article provides information of a general nature only. 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 this article. If you have specific legal questions you should consult a lawyer.
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