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Informal Procedure Tax Appeals

When a taxpayer disagrees with an assessment or reassessment, in order to dispute it they must file a formal Notice of Objection. The objection process is administered by the CRA’s Appeals Division and can result in either the assessment being confirmed, vacated or varied as discussed in our article on objections.

If an assessment is upheld after objection, the CRA must issue a formal letter explaining their reasoning called a Notice of Confirmation. If the assessment is to be vacated or varied, a reassessment will be issued to the taxpayer.

In either case, if the taxpayer still disagrees with the CRA’s decision, their next step is to proceed to the Tax Court of Canada.  Depending on the amounts in dispute, a taxpayer may proceed by way of the general procedure, or the informal procedure. Conceptually, these can be thought of as the difference between a normal civil court and the small claims court.  For the purposes of this article, all references are to the informal procedure; our sister article on the general procedure should be referenced separately with particular attention to the amounts that have been reassessed.  Additionally, please refer to the general procedure article for discussion on limitation periods and extensions of time, as those rules are applicable to all appeals.

When a taxpayer files an informal procedure Appeal to the Tax Court of Canada, they are in essence now a plaintiff in a civil claim with the CRA as a defendant; in many respects filing such an Appeal can be thought of as “suing” the CRA – the Tax Court is a superior court akin to the provincial courts, though with a less broad jurisdiction as detailed below.

Informal Procedure Limits – the informal procedure is designed as a more “streamlined” process for bringing an appeal to a CRA decision. Since it ought to be thought of as akin to a small claims court, the limits for utilizing the informal procedure are on the lower end of the tax dispute spectrum.

As an initial proposition, the limits for the informal procedure are as follows:

  • $25,000.00 of income taxes in dispute;
  • $50,000.00 of a denied income tax loss; or
  • $50,000.00 of GST/HST in dispute.

However, the income tax amounts referenced above are deceptive; the $25,000.00 limit is calculated on something defined in the tax court’s rules as the “aggregate amount” on reassessment. The aggregate amount is defined as including only the federal portion of income taxes assessed, plus any penalties. Provincial portions are ignored, as is any accrued interest.  It should also be noted that each taxation year is considered separately – meaning so long as your amounts in dispute do not exceed the aggregate amount in any one taxation year when appealing multiple years, the taxpayer is entitled to elect to utilize the informal procedure.

Filing Fees – unlike the general procedure, there are no court filing fees associated with bringing an informal procedure appeal. This is reflected in the cost awards available to the litigants, discussed below.

The Notice of Appeal/Pleadings – as above, Tax Court litigation can be viewed as analogous to bringing a civil claim against a defendant. The process begins with preparing and submitting the formal Notice of Appeal; the appeal must clearly and concisely set out the salient facts, the issues to be decided, the legal arguments that the Appellant intends to bring and the relief requested.

Once the Notice of Appeal is filed with the Court, it will review and confirm that it conforms to the requirements and then serve it on the Attorney General of Canada, by way of the Department of Justice.  The Crown then has a period of sixty (60) days within which to file and serve a rebuttal by way of a formal “Reply” in much the same form as the Notice of Appeal.

Once the Reply is filed and served, the Appellant will then have a period of thirty (30) days to file a formal “Answer” if deemed necessary. The rules of the Tax Court of Canada deem the Appellant to deny all the allegations of fact in the Reply if no Answer is filed, so it is rare that a formal Answer should be filed.

Together, the Notice of Appeal, the Reply and the Answer are referred to as the “Pleadings”, and they form the basis for the litigation; the Pleadings are generally the only documents or information that a judge presiding at the final hearing has access to in advance, so it is important to ensure that they are drafted with skill and care by an experienced professional.  Pleadings are deemed to close at the time an Answer is filed and served or the time for doing so expires.

Discoveries and Other Interlocutory Steps – similar to most small claims courts in Canada, there is no formal discovery process. The parties do however have the right to examine such evidence and documents that the other side may use at the hearing in advance, so litigants should be aware that failure to provide such documents if and when requested by the Crown lawyer assigned to their appeal may create further delays or even have their case dismissed for want of prosecution if they do not have their evidence ready for presentation to the opposing lawyer or the Court.

Setting the Hearing & Decision of the Court – as touched upon above, the informal procedure is meant to be a more streamlined process. The court uses what is referred to as a “summary procedure” meaning that the parties submit their pleadings and then prepare for a hearing immediately.

When the Court determines a date for the hearing, it will issue orders to both litigants containing the date and time for appearance. Unlike the general procedure, the parties do not normally have a say in when the hearing is to be scheduled. Generally speaking, this order will be sent about six weeks in advance, giving the parties sufficient time to prepare. If there is any conflict the Court and Crown counsel should be updated immediately.

On the day of the hearing, the Court generally schedules multiple appeals – this can result in the hearing being postponed if there are many litigants that appear that day. It may also be that the evidence will take longer to present than a single day – if so the hearing will be recalled at a later date to be determined by the Court.

The hearing proceeds in much the same manner as the general procedure hearing would – all evidence must be introduced by way of witness testimony and the witnesses themselves are subject to cross-examination.

Once the hearing is concluded the judge will if requested recuse themselves and issue written reasons at a later date.  This is generally where the dispute is resolved, but either the taxpayer or the CRA still has the option to appeal to the Federal Court of Appeal, though that court’s review powers are much more limited than the Tax Court’s as it cannot reweigh the evidence.

It should be noted that in issuing its decision, the Tax Court of Canada’s jurisdiction is limited by the respective legislation; it has no equitable powers, and the relief available is limited to:

  • Dismissing the Appeal; or
  • Allowing the Appeal and
    • vacating the assessment;
    • varying the assessment; or
    • referring the assessment back to the CRA for reconsideration and reassessment.

As such, there is no way to seek damages or other claims for economic loss beyond litigation costs as the Tax Court has no power to grant such requests.  It can only order that the assessment of tax that ought to have been imposed under the legislation be substituted for the CRA’s.

Costs & Settlement Offers – unlike general procedure appeals, the informal procedure rules do not generally allow for an order of costs against either party. There are some minimal costs calculated in accordance with the prescribed Tariff, however, these are quite low and will certainly not indemnify the litigants.

That being said, a settlement offer may be of use to a litigant in that properly presenting a settlement offer, along with evidence to support it, can stop the process if the Crown has time to review and agrees in principal with the settlement offer.  The rules for settlement being on a “principled basis” are the same as the general procedure, so refer to that article for more details.

It should be noted that oftentimes a settlement agreement will come much closer to the actual hearing date than in a general procedure appeal, due to the lack of cost concerns for the Crown, as well as the summary nature of this process.

Proper Experienced Advice – if you disagree with a reassessment or have received a Notice of Confirmation and wish to dispute the amounts, proper advice and representation are invaluable to ensure both that the formal requirements of the acts are met, and that you are in the best position to present a logical and winning case to the Tax Court of Canada. The tax lawyers at Devry Smith Frank LLP have years of experience practicing in the Tax Court and can advise you expertly, keep professional costs down and maximize your chances of success.

 

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