Tight Timelines In Tax Litigation

By Pushor Mitchell LLP
Categories: Blog, Tax

Taxpayers have to be attentive to tight timelines when managing a tax dispute with the Canada Revenue Agency.

Deadline for Objecting to a Reassessment

After the CRA issues a Notice of Assessment or Reassessment the taxpayer has a right to object.  The right to object must be exercised within 90 days of the date the Notice of Assessment or Reassessment was mailed to the taxpayer.  The right to object is exercised by filing a Notice of Objection with the Chief of Appeals of the CRA.

With only 90 days to prepare a Notice of Objection in response to an assessment, taxpayers must be prompt and gather their resources quickly in order to prepare a persuasive and comprehensive objection.

Application For an Extension of Time to Object

If a taxpayer does not file a Notice of Objection within the 90-day deadline but wants to fight the reassessment, the taxpayer must file an application for an extension of time to object.

An extension of time to object will only be granted where the taxpayer demonstrates that the following four requirements have been met:

  1. the application for an extension of time has been made within one year after the 90-day period for objecting has expired;
  2. the taxpayer was unable to act within the 90-day period for objecting or had a bona fide intention to object within the 90-day period for objecting;
  3. it is just and equitable to grant the application for an extension; and
  4. the application for an extension was made as soon as practicable.

A taxpayer’s application for an extension of time to object should specifically address each of these four requirements.  An explanation of how each requirement is satisfied should be included in the application.

If the CRA denies the taxpayer’s application for an extension of time to object, the taxpayer can then apply to the Tax Court of Canada for the extension.  The Tax Court of Canada will make a decision with reference to the same four requirements.  The deadline for applying to the Tax Court of Canada is 90 days after the CRA denies the application for an extension of time to object.

If more than one year and 90-days has elapsed since the date the assessment or reassessment was mailed to the taxpayer, the taxpayer does not have a right to object to the reassessment and no extension of time to object can be granted by the CRA or the Tax Court of Canada.

Typically, where a taxpayer has failed to file a Notice of Objection within the 90-day deadline and has also failed to file an application for an extension of time to object within one year of the expiration of that 90-day deadline, the taxpayer is out of luck.  Typically in such circumstances, the reassessment stands and the taxpayer has lost his or her opportunity to dispute the assessment of tax.

There have been rare circumstances where taxpayers have successfully advanced arguments after more than one year and 90 days have elapsed, which  resulted in a Notice of Objection being accepted.

Two cases from 2011 illustrate arguments that can be raised by a taxpayer who failed to file a Notice of Objection within the 90-day deadline and failed to file an application for an extension of time to object within the one-year and 90 day period.

Lambo v. R., 2011 TCC 293

In Lambo v. R., 2011 TCC 293, the taxpayer made an application for an extension of time to object.  The CRA denied the application for extension of time to object because the application was not made within one year after the expiration of the 90-day deadline for objecting.

In Lambo, the taxpayer filed a Notice of Objection after the 90-day deadline expired but before the one-year deadline to file an application for extension of time.  However, the taxpayer did not formally made an application to extend time to object.  The Tax Court of Canada decided that, despite not making a formal application to extend time, the taxpayer had demonstrated an attempt to dispute the reassessments and had otherwise satisfied the four requirements for the granting of an extension of time to object.

In Lambo, the Tax Court of Canada also confirmed that the CRA has the burden of proving the Notice of Assessment exists and its date of mailing.  The clock does not start ticking on the 90-day deadline to object or the subsequent one-year deadline to apply for an extension of time to object, until the Notice of Assessment or Reassessment has been issued and mailed.

Melanson v. R, 2011 TCC 569

In Melanson, the taxpayer was assessed by two Notices of Assessment dated March 17, 2009.  The taxpayer did not file a formal Notice of Objection until January 27, 2011.  This Notice of Objection was filed well after the 90-day deadline for objecting and the one-year and 90-day deadline for an application to extend time to object.

However, the Tax Court of Canada found that the taxpayer had sent a letter to the CRA on June 17, 2009.  The letter was virtually identical to the Notice of Objection which was later filed in January, 2011 except that the letter did not formally meet the requirements to be a Notice of Objection because it was not addressed to the Chief of Appeals at the appropriate CRA office.  This letter was sent two days after the expiration of the 90-day deadline for objecting.

The Tax Court of Canada stated that “there is going to be a reluctance to see a taxpayer’s entitlements derailed on the basis of some formality.”  The Tax Court of Canada further stated that the taxpayer “took reasonable steps to comply with the law and acted on incorrect written information given by the Agency when she was told how to file an objection without being warned that she was already past the 90 day limitation period.”

The Tax Court of Canada sent the matter back to the CRA to reconsider stressing that the CRA could:

  1.  treat the June 17, 2009 letter as an application for an extension of time to object and waive the formal requirements regarding how to make an application for an extension of time to object; or
     
  2. accept the June 17, 2009 letter as a valid objection by waiving either:

– the requirement to file an application for an extension as a prerequisite to granting the extension; or
– extending the deadline for filing the objection.

The Tax Court of Canada stated that “under either of these approaches, the June 17, 2009 letter could be accepted by the Minister as an objection.”

Conclusion

Taxpayers must be aware of statutorily imposed deadlines when managing a tax dispute with the Canada Revenue Agency.  Taxpayers have 90 days to object to an assessment or reassessment of tax.  Ideally, a Notice of Objection is filed within this time.  If a Notice of Objection is not filed within 90 days, an application for an extension of time to object can be made provided it is made within one year from the expiration of the 90-day deadline and otherwise meets the requirements for such an application.

Typically a taxpayer is out of luck if an application to extend time to object is not made within the one-year and 90-day period.  The two cases discussed provide some creative arguments that could be raised with the CRA or the Tax Court of Canada in some circumstances.  However, in both of these situations the taxpayers’ paths to justice would have been much easier to travel had they been mindful of the statutorily imposed deadlines and made applications in time that met the formal requirements of the legislation.