Tax Dispute and Litigation Process

Administration of Taxes by the CRA

The Minister of National Revenue (the “Minister“) is the administrator of tax in Canada. However, in practice, the Canada Revenue Agency (“CRA“) performs nearly all of the Minister’s functions.

When a taxpayer files a tax return, the CRA will ensure that all of the taxpayer’s required documentation has been submitted. When this process is complete, a notice of assessment is issued by the Minister to the taxpayer.

Once a notice of assessment is issued, some tax returns will undergo a more careful examination, and the CRA will select certain tax returns for an audit. As employees earning a salary can have their incomes verified through cross-checks against the information filed by their employers, it is self-employed individuals, corporations, and trusts that are more likely to undergo an examination or audit.

After the examination or audit, a notice of reassessment is issued by the CRA. The period for the reassessment of individual tax returns is three years from the date of mailing of the original assessment and four years for corporations (other than Canadian-controlled private corporations). After this period, the CRA cannot reassess a taxpayer except in cases of taxpayer misrepresentation or fraud.

There is a ten-year limitation period for the collection of unpaid taxes by the Minister. Under section 224 of the Income Tax Act (“ITA“), the Minister can collect unpaid taxes by garnishing the taxpayer’s wages without getting a court order. Similarly, under section 225 of the ITA, the Minister has the power to verify whether a taxpayer’s taxes have been paid and direct the taxpayer’s chattels and goods to be seized without getting a court order.

A taxpayer who disagrees with a notice of assessment can contact the CRA and informally resolve the dispute. If the taxpayer is unsuccessful in resolving the dispute informally, the taxpayer can initiate an appeal from an assessment or reassessment by serving a notice of objection on the Minister. The deadline for serving the notice of objection and initiating the appeal is the later of one year after the filing due date and 90 days from the mailing of the notice of assessment for individuals, and 90 days from the mailing of the notice of assessment for corporations. The Minister has the discretion to extend these deadlines.

There is no prescribed form for the notice of objection; however, according to subsection 165(1) of the ITA, the objection must set out “the reasons for the objection and all relevant facts.” Once the taxpayer initiates the objection, the Minister will confirm, vary or vacate the assessment or reassessment.

Tax Court of Canada 

A taxpayer who disagrees with the Minister’s decision to confirm, vary or vacate the assessment or reassessment has the right to appeal the Minister’s decision to the Tax Court of Canada (“TCC“). The taxpayer must initiate the appeal within 90 days from the day of the mailing of the Minister’s notice of objection decision.

There are two different procedures at the TCC: the informal procedure and the general procedure. Taxpayers can use the informal procedure for cases where the amount of tax and penalties at issue is $12,000 or less, and the amount of loss in issue is $24,000 or less, or only the payment of interest is the issue.

Informal Procedure

Under the informal procedure, a taxpayer may be self-represented or represented by an agent (who does not need to be a lawyer). Furthermore, under the informal procedure, the TCC is not bound by the legal rules of evidence, there are no particular forms of pleadings or other formalities required, and judgement is generally rendered within 60 days. The TCC’s decision is final under the informal procedure, and the taxpayer has no further right of appeal available. Nevertheless, the decision will still be subject to judicial review by the Federal Court of Appeal, which permits review of decisions on the basis of errors of law, violation of natural justice or material errors of facts.

General Procedure

Under the general procedure, the proceeding will be more formal, the legal rules of evidence will bind the TCC, and a non-lawyer may not represent the taxpayer. Furthermore, there is no time limit for the TCC to render its decision, and the TCC may be award costs against the taxpayer. The general procedure is used in all other cases that the informal procedure cannot be used and also in cases where the amount of tax or loss in issue is the same or less than the prescribed amounts for the informal procedure, but the taxpayer has not selected the informal procedure.

Further Appeal

Taxpayers can appeal the decision of the TCC to the Federal Court of Appeal and from there to the Supreme Court of Canada. 

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By Kaveh Rezaei – Attorney at KR Law Firm

**Disclaimer 

This article contains information of a general nature only and does not constitute legal advice. All legal matters have their own specific and unique facts and will differ from each other. If you have a specific legal question, it may be appropriate to seek the services of a lawyer.