After COVID, the CRA seems to be really ramping up its audit activities, both for GST/HST and income tax matters.  Once a Notice of Assessment is issued, reversing the CRA’s position becomes an uphill battle as the Objection and Appeal processes are technical and complex.

This blog focuses on the Objection and Appeal processes under the Excise Tax Act (the “ETA”), highlighting common pitfalls and the need for a strategic approach in tax disputes.

Dealing with Proposed Audit Adjustments

As part of the audit process, the CRA often provides taxpayers with an opportunity to respond to a Statement of Proposed Audit Adjustment before issuing a Notice of Assessment.  However, persuading the CRA auditor is no easy feat, as the same individual who proposed the adjustment is responsible for reviewing the additional submission.

Accordingly, filing a Notice of Objection becomes a necessary next step – a process laden with technicalities and potential pitfalls.

Notice of Objection

Under the ETA, taxpayers have the right to challenge a Notice of Assessment by filing a Notice of Objection within 90 days from the issue date of the Assessment.  The Objection must be in prescribed forms and include the reasons and all relevant facts: see ETA 301(1.1).  It is important that a Notice of Objection contains as much information as necessary to support the taxpayer’s position.  For taxpayers classified as “specified persons”, the stakes are even higher as the ETA outlines what must be included in the Notice of Objection: see ETA 301(1.2).

Once filed, the CRA may reconsider, vacate, confirm, or reassess the original Assessment.  But even here, success is far from guaranteed.  If the CRA maintains its position, taxpayers may need to escalate their dispute by filing a Notice of Appeal with the Tax Court of Canada (the TCC”).

Notice of Appeal – Tax Court of Canada

When the CRA issues a Notice of Reassessment, Confirmation, or Determination, the taxpayers can appeal to the TCC.  Filing a Notice of Appeal is a time-sensitive and technically demanding process, with a strict 90-day deadline starting from the day after the issuance of the relevant notice: see ETA 302. 

A Notice of Appeal is an extremely detailed document that typically contains, among other things, a comprehensive description of the facts being relied upon, the legal issues in dispute, references to specific statutory provisions, and arguments supporting the taxpayer’s case.  A poorly drafted or incomplete Notice of Appeal significantly reduces the chances of favourable outcome.

Takeaways

Tax assessments can be thought of like the Seasons: often delayed but usually inevitable.  The real “tax dispute” is often resolved through the Objection and Appeal processes.  However, the CRA has vast resources and the Department of Justice at its disposal, which can make navigating these processes without legal assistance an uphill battle. 

Given the high stakes, strict deadlines and technical requirements of both the Objection and Appeal process, obtaining legal advice is strongly recommended.

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