Tax Litigation in Canada: CRA Objections, Tax Court Appeals and Dispute Process

What Is Tax Litigation in Canada?

Tax litigation in Canada involves formal disputes between taxpayers and tax authorities over assessments, reassessments, penalties, tax liability, and other tax-related decisions.

Most federal tax disputes involve the Canada Revenue Agency (CRA) and may progress through several stages, including a CRA audit, Notice of Objection, Tax Court of Canada appeal, and in some cases further appellate proceedings.

Tax litigation can involve individuals, corporations, trusts, partnerships, and other taxpayers.

For legal representation in a tax dispute, visit our Tax Court appeal lawyers page.

What Types of Tax Disputes Can Lead to Litigation?

Tax litigation can arise from many different issues.

Common disputes include:

• Unreported income assessments;
• Denied business expenses or deductions;
• CRA net worth assessments;
• Gross-negligence penalties;
• Real estate tax disputes;
• Capital gains versus business income;
• Corporate tax reassessments;
• Shareholder benefits;
• GST/HST assessments;
• Foreign income and international tax issues;
• Tax residency disputes;
• Tax avoidance or GAAR disputes; and
• Other disagreements about the interpretation or application of Canadian tax legislation.

Does Tax Litigation Usually Start With a CRA Audit?

Often, but not always.

A tax dispute may begin when the CRA audits a taxpayer and proposes adjustments to one or more tax returns.

If the CRA ultimately issues a Notice of Reassessment and the taxpayer disagrees with the result, the next step is often a formal Notice of Objection.

If you have received an audit request, see our CRA Audit Letter: What to Do Next guide.

For legal representation during an audit, visit our CRA audit lawyers page.

What Is a Notice of Objection?

A Notice of Objection is the formal administrative process used to dispute certain CRA assessments and reassessments before the matter proceeds to court.

The taxpayer identifies the disputed issues and provides the factual and legal basis for challenging the assessment.

A CRA Appeals officer then reviews the matter.

The CRA may:

• Confirm the assessment;
• Vary the assessment;
• Vacate the assessment; or
• Issue a reassessment or redetermination.

For detailed information about objection deadlines and filing requirements, see our Notice of Objection (T400A) guide.

For legal representation in the objection process, visit our CRA tax objection lawyers page.

When Can You Appeal to the Tax Court of Canada?

If a taxpayer remains dissatisfied after the CRA objection process, an appeal may be available to the Tax Court of Canada.

For many income-tax disputes, section 169 of the Income Tax Act allows an appeal after:

• The CRA confirms the assessment or issues a reassessment; or
• 90 days have passed since the Notice of Objection was served and the CRA has not issued a decision.

A Tax Court appeal generally must be filed within 90 days after the CRA sends its notice of confirmation, reassessment, or redetermination.

For GST/HST objections, a taxpayer may generally appeal where the CRA has not issued a decision within 180 days after the objection was filed.

For official guidance, see the CRA’s Tax Court appeal guidance.

What Happens If You Miss the Tax Court Appeal Deadline?

An extension of time to appeal may be available in certain circumstances.

For income tax and GST/HST appeals, an application for an extension generally must be made within one year and 90 days after the applicable confirmation, reassessment, or redetermination.

The taxpayer must also satisfy the statutory requirements for an extension.

Because the deadline is strict, a missed appeal deadline should be reviewed promptly.

What Is the Tax Court of Canada?

The Tax Court of Canada is an independent federal court that hears disputes under Canadian tax legislation, including many appeals involving income tax and GST/HST.

The Tax Court generally considers whether the assessment or reassessment made by the CRA is legally correct.

The Court can hear evidence, interpret legislation, make findings of fact, and issue judgments affecting the assessment.

What Are the Informal and General Procedures?

The Tax Court has two principal procedures for many tax appeals:

• The Informal Procedure; and
• The General Procedure.

The procedure affects how the case is conducted, the applicable rules, filing fees, discovery obligations, costs exposure, and other procedural matters.

The Informal Procedure is generally available for smaller disputes, while the General Procedure is more formal and is used for larger or more complex cases.

For a detailed explanation, see our Tax Court of Canada procedure guide.

What Happens After a Tax Court Appeal Is Filed?

Once a Notice of Appeal is filed, the Crown generally responds by filing a Reply.

In General Procedure matters, the Reply usually sets out:

• Facts admitted or denied;
• Assumptions made by the Minister;
• The Crown’s position on the issues;
• The statutory provisions relied upon; and
• The reasons the assessment should be upheld.

The case may then proceed through discovery, motions, settlement discussions, trial preparation, and ultimately a hearing if it is not resolved beforehand.

What Is Discovery in Tax Litigation?

Discovery is an important stage in many General Procedure Tax Court cases.

It can involve:

• Exchange of relevant documents;
• Production of records;
• Examinations for discovery;
• Written undertakings;
• Admissions; and
• Other procedural steps intended to clarify the issues and evidence before trial.

Discovery can significantly affect how a case is prepared and whether settlement becomes possible.

Can Tax Litigation Settle Before Trial?

Yes.

Many tax disputes settle before a full Tax Court hearing.

Settlement discussions may occur:

• During the CRA objection process;
• After pleadings are filed;
• During discovery;
• After expert evidence is exchanged; or
• As trial approaches.

However, tax settlements generally must be legally supportable under the applicable legislation. The CRA and the Crown cannot simply compromise a valid tax liability in the same way a private creditor might settle a commercial debt.

What Happens at a Tax Court Trial?

If the dispute does not settle, it proceeds to a hearing before a Tax Court judge.

A trial may include:

• Opening statements;
• Witness testimony;
• Expert evidence;
• Documentary evidence;
• Cross-examination;
• Legal argument; and
• Closing submissions.

The judge may issue an oral decision or reserve judgment and release written reasons later.

What Can the Tax Court Decide?

Depending on the legislation and type of appeal, the Tax Court may:

• Dismiss the appeal;
• Allow the appeal;
• Vacate an assessment;
• Vary an assessment; or
• Refer the assessment back to the Minister for reconsideration and reassessment.

Who Represents the CRA in Tax Court?

Tax Court litigation is generally defended by lawyers acting for the Attorney General of Canada, commonly through the Department of Justice.

The CRA auditor or Appeals officer does not normally conduct the court case.

Once the dispute reaches the Tax Court, it becomes formal litigation between the taxpayer and the Crown.

Does Filing a Tax Court Appeal Stop CRA Collections?

For many disputed income-tax amounts, the CRA will generally postpone collection action while a Tax Court appeal is pending.

However, important exceptions apply.

Collection may continue for certain debts, including:

• GST/HST liabilities;
• Payroll source deductions;
• Other amounts required to be withheld or remitted;
• Certain large-corporation amounts;
• Jeopardy situations; and
• Other statutory exceptions.

Interest generally continues to accrue on unpaid amounts during the appeal.

If the CRA is already taking enforcement action, see our CRA collections and enforcement guide.

Can You Appeal a Tax Court Decision?

Yes, in appropriate circumstances.

A judgment of the Tax Court of Canada may be appealed to the Federal Court of Appeal.

The appeal generally concerns legal or reviewable errors in the Tax Court’s decision.

A further appeal to the Supreme Court of Canada is possible only if the Supreme Court grants leave to appeal.

What Is the Difference Between Tax Court and Federal Court?

The Tax Court of Canada primarily deals with statutory tax appeals involving assessments and reassessments.

The Federal Court generally handles judicial review of administrative and discretionary decisions.

For example, disputes involving certain CRA taxpayer-relief decisions, Voluntary Disclosures Program decisions, or other administrative decisions may proceed by judicial review rather than through the Tax Court.

For more information, visit our judicial review of CRA decisions page.

When Should You Hire a Tax Litigation Lawyer?

Legal representation may be particularly useful where:

• The amount in dispute is significant;
• The assessment involves complex tax legislation;
• The CRA has imposed gross-negligence penalties;
• The dispute involves a net worth assessment;
• The case requires extensive documentary evidence;
• Expert witnesses may be required;
• The matter involves corporate or international tax issues;
• A Tax Court appeal deadline is approaching;
• The Crown has filed a Reply; or
• The case is proceeding toward discovery or trial.

How Our Tax Lawyers Assist With Tax Litigation

KR Law Firm represents individuals and businesses in CRA disputes and Canadian tax litigation.

Depending on the matter, our tax lawyers can assist with:

• CRA audits;
• Notices of Objection;
• Tax Court appeals;
• Documentary discovery;
• Examinations for discovery;
• Settlement negotiations;
• Trial preparation;
• Tax Court hearings;
• CRA collection issues connected to litigation; and
• Related judicial review proceedings.

Frequently Asked Questions About Tax Litigation in Canada

Do tax disputes always go to court?

No. Many disputes resolve during the CRA audit or objection stage, and some Tax Court appeals settle before trial.

Do I have to file a Notice of Objection before going to Tax Court?

For most income-tax and GST/HST assessment disputes, yes. The taxpayer generally must first engage the CRA objection process before appealing to the Tax Court.

How long do I have to appeal to Tax Court?

A Tax Court appeal generally must be filed within 90 days after the CRA sends the relevant confirmation, reassessment, or redetermination.

Can I appeal if the CRA has not decided my objection?

For income-tax disputes, a taxpayer may generally appeal after 90 days have passed since the objection was served without a CRA decision. For GST/HST disputes, the corresponding period is generally 180 days.

Does a Tax Court appeal stop CRA collections?

The CRA generally postpones collection of many disputed income-tax amounts, but important exceptions apply. Interest generally continues to accrue.

Can a Tax Court decision be appealed?

Yes. A Tax Court judgment may be appealed to the Federal Court of Appeal in appropriate circumstances. A further appeal to the Supreme Court of Canada requires leave.

Speak With a Canadian Tax Litigation Lawyer

Tax litigation can involve strict deadlines, complex legislation, significant documentary evidence, and formal court procedures.

KR Law Firm represents individuals and businesses in CRA objections, Tax Court appeals, and related Canadian tax litigation.

Book a Free Consultation with one of our tax lawyers to discuss a Canadian tax dispute.

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By Kaveh Rezaei – Principal Lawyer, KR Law Firm

Disclaimer: This article provides general information only and does not constitute legal advice. Tax disputes depend on their particular facts, applicable legislation, evidence, and procedural history.