Overview of the Tax Dispute Process in Canada
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For many individuals and small business owners in Canada, dealing with a Canada Revenue Agency tax dispute can be a daunting and stressful process.
Understanding some basics about the tax dispute process in Canada can help you to know your right if you find yourself in a fight with the CRA.
Canada’s tax system is a self-reporting system. This means that each Canadian taxpayer has the obligation to accurately and honestly report the amount of tax owing each year. This is the purpose of your annual tax return.
The CRA processes your tax return and decides whether they agree or disagree with your reported information and provides you with an assessment of tax. This is called a Notice of Assessment and is routinely sent to you several weeks after you file your tax return.
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. An audit can be focused on a narrow issue or two, or an audit may be a full-scale or global audit that reviews information related to every aspect of your business or personal finances.
After an audit the CRA may decide that your tax return was accurate and that they agree with what you reported on your tax return. Alternatively, the CRA may decide that they disagree with what you reported on your tax return. Where the CRA disagrees with you, the CRA auditor will usually issue you a “proposal letter” which outlines the CRA’s position and provides some detail about how the CRA proposes to reassess you. The CRA’s current practice is to provide 30 days to make further submissions to the auditor with respect to the “proposal letter”.
Our tax lawyers can provide you with advice regarding the audit process and can represent you throughout the audit process and ensure that the CRA auditor is treating you fairly, and is not acting outside the rules.
Unless you can persuade the auditor to alter the proposed reassessment, the auditor will issue a reassessment of tax that reassesses you in the manner described in the proposal letter. This is called a Notice of Reassessment.
You should receive a Notice of Reassessment which tells you how much tax you owe as a result of the reassessment. It is important to take note of the date of the Notice of Reassessment.
The date on the Notice of Reassessment is the start of the 90 day appeal period. It is not the date that you receive the Notice of Reassessment which could be much later.
The Notice of Reassessment together with the proposal letter contain information that will be required should you wish to dispute the amount of tax, interest or penalties owing as a result of the reassessment.
Should you wish to dispute the amount of the reassessment, as detailed in the Notice of Reassessment, you must “object” to the Canada Revenue Agency Appeals Division. You object to the reassessment by filing a “Notice of Objection” with the Chief of Appeals of the Canada Revenue Agency.
You have 90 days from the date of the Notice of Reassessment to file your Notice of Objection with the Chief of Appeals. This is an important deadline and one you should not miss. If you are going to hire a tax lawyer to assist you with your Notice of Objection, you should hire us as early as possible, so that the deadline can be met and a comprehensive and persuasive Notice of Objection can be filed before the deadline.
If you have missed your 90 day deadline, we can try to apply for an extension to file late. An application can be made up to one year after the normal deadline. The CRA will review the application and decide if the reasons for the delay meet with their rules. An extension will be granted in certain circumstances and we can help you to make such an application for an extension of time to object and improve your chances of getting an extension.
After a number of months, an appeals officer from the CRA Appeals Division will be assigned to your file. This appeals officer could be from any CRA office in Canada. The appeals officers are assigned based on workload and may not be in the same city as where you live. The appeals officer is supposed to review the information you or your tax lawyer provides, as well as the information provided by the CRA auditor who prepared the Notice of Reassessment. Often your Notice of Objection is followed with further submissions that we prepare on your behalf setting out further argument, law or facts or providing supporting documentation.
The appeals officer must decide to “vacate” (cancel the reassessment), vary the reassessment or leave the reassessment alone (“confirm”).
The appeals officer is supposed to provide you with notice of the decision. The date of this notice is also an important date to be aware of.
Appealing to the Tax Court of Canada
Should you wish to appeal the decision of the Appeals Officer to the Tax Court of Canada, you have 90 days from the date of the notice to do so. If you have missed your 90 day deadline, you may apply for an extension of up to one year. An extension will be granted in certain limited circumstances and you should obtain the advice of a tax lawyer in order to make such an application for an extension of time to appeal.
You appeal a decision of the Appeals Officer by filing a Notice of Appeal with the Tax Court of Canada registry.
The appeal process follows one of two streams: (1) the General Procedure; or (2) the Informal Procedure. Whether your appeal will follow the General Procedure rules of the Informal Procedure rules depends on the amount of federal tax in dispute. There are filing fees for the Notice of Appeal if your appeal falls under the General Procedure Rules. The Informal Procedure is for smaller disputes and the rules are easier to comply with and there are no filing fees.
A Notice of Appeal sets out the relevant facts, the issues in dispute and the grounds for the appeal. The Notice of Appeal is served on the federal Department of Justice who represents the CRA. A Department of Justice lawyer is assigned to the appeal and they will draft a Reply to the Notice of Appeal.
Generally, the Notice of Appeal and the Reply set out the basis of the dispute and will form the structure for the rest of the appeal process.
It is important to organize all evidence relating to the tax dispute and to gather any documentation that may be relevant to the tax dispute. The Tax Court of Canada General Procedure rules provide for a process called discovery during which documents are exchanged by the Department of Justice and your tax lawyer, and each side has an opportunity to orally examine the other party on the record. The discovery process allows each party to learn about the other’s case which narrows the issues in dispute and facilitates settlement.
At this time a date for a hearing of your case in the Tax Court is set. In a tax dispute, you have the right to call witnesses on your behalf. You have the right to introduce documents or receipts as evidence, and you get to provide your side of the story by testifying under oath.
At the hearing in Tax Court, witnesses are called and documentary evidence is entered on the record. Your tax lawyer presents your position and argues that your position is correct and the CRA position is wrong. The CRA is represented by a Government tax lawyer. A Tax Court of Canada judge then renders a decision regarding the case.
Appeals to the Federal Court of Appeal and Supreme Court of Canada
If you feel the Tax Court of Canada judge made a mistake in the judgment you have a limited right to appeal to the Federal Court of Appeal within 30 days of the pronouncement of the decision of the Tax Court judge. If you are still unsatisfied you have the right to apply to the Supreme Court of Canada for a further appeal, but this is more complex and much more expensive. The Tax Court of Canada Judges specialize in tax disputes and are very knowledgeable and understanding. They are often much more sympathetic towards taxpayers then the CRA and they understand that the CRA can make mistakes.
These tight timelines mean that prompt action is essential.
This overview of the tax dispute system in Canada is very brief and simplistic. It is intended to provide you with a basic framework of the process. We hope you find it helpful and informative. The tax dispute system in Canada is complex and is filled with pitfalls and tight deadlines. It is prudent to consult a tax lawyer as soon as possible if you find yourself in a dispute with the Canada Revenue Agency.