Fixing a Mistake
One of the main jobs of the Canada Revenue Agency (Revenue Canada) is to ensure that the proper amount of tax is assessed on transactions such as a sale of property or a sale of shares. But what happens if Revenue Canada misinterprets the transaction and thinks that you have done something that triggers tax when it really doesn’t? What happens if you think you are doing a transaction which you think is tax free but in fact it triggers all kinds of unexpected taxes, interest and penalties? There are special tax rules which allow a person to transfer property or shares to a corporation without triggering any tax. But what if you make a mistake and you don’t qualify for the tax-free transfer?
In all of the foregoing situations, Revenue Canada can assess tax, interest and possibly penalties based on their assumptions about the transaction. But what if they are wrong? What if you disagree?
Can you tell Revenue Canada that they have misinterpreted the transaction or explain that it was a mistake and therefore they should them cancel the tax, interest and penalties? You can try but don’t be too optimistic. Don’t expect Revenue Canada to be too sympathetic. Revenue Canada auditors usually have accounting training. They are not experts on the laws governing contracts, corporations or transfers of property or shares.
Using the tax appeal system may not be the correct solution. Interpreting property laws and contracts and property and share transactions is not really within the jurisdiction of Revenue Canada or even the Tax Court. An appeal may result in the Tax Court saying that it does not have the jurisdiction to give you the relief you are asking for.
The tax appeal system is designed to deal with disputes about the application of tax law. But contract law, corporate law and the laws dealing with a transfer of property or shares is generally governed by Provincial/Territorial laws in Canada and not Revenue Canada or the Federal Courts. So it may be best to make an application to the Supreme Court or the Superior Court of the Province or Territory to interpret the contract or to determine whether a transfer did or didn’t actually occur at law.
If a Court of the Province or Territory makes a finding that a particular transaction is different than Revenue Canada thinks or is null and void, it will generally be binding on Revenue Canada and your tax assessment will be cancelled.
So not every dispute about tax is resolved within the tax appeal system. In some cases like mistake or a dispute about the terms of a contract or who owns a particular property or whether or not there actually was a transaction that triggered tax, you need to look at Provincial/Territorial property laws rather than tax laws.