It's that time again. The CRA is mailing those brown envelopes that may or may not include a tax refund cheque but most certainly will contain your annual Notice of Assessment. Review the information on that document carefully and quickly consult with your accountant if you disagree with any of the information. Here is what to do if you want to challenge the tax agency's calculations.
 Strict Time Limitations |
Time is of the essence when you receive your annual Notice of Assessment from Canada Revenue Agency (CRA).
| Useful Information |
 In addition to the amount of your refund -- or taxes owing – and an explanation of any changes the CRA made, the document also contains:
|
If you disagree with any information on the document you can challenge the CRA by filing a Notice of Objection. Individual taxpayers usually have until April 30th of the following year to file. Corporate taxpayers have 90 days from the date of the assessment.
The date on the Notice of Assessment starts the clock running on the three-year period during which the agency can reassess your return. After that, the CRA can reassess returns only in cases of fraud of negligent preparation of a tax return.
Notices of Assessment are computer-generated, so discrepancies are not unusual. The assessments summarize how the government calculated refunds -- or additional taxes payable -- and explain any changes. Compare the government's figures to those on your income tax return. if you have a problem with the assessment or the agency's reasons for any changes, call your accountant immediately.
Never just assume the CRA is right and that you made an error. if you and your accountant decide the CRA has made an error, you can challenge the agency by filing a Form T400A, Objection - Income Tax Act, or mailing a letter. In either case you will need to provide:
- Your name, address, social insurance or business number;
- Daytime phone number;
- Contact information for any tax or legal professional representing you;
- A copy of your assessment; and
- Reasons you object along with all relevant facts as well as references to provisions of the Income Tax Act if you and your adviser feel they are necessary.
A separate objection is required for each year being disputed, even if the facts and issues are identical.
The tax agency will review your objection and then discuss the issue with you and your accountant. After that it will come to a final determination. If it agrees with your objection, it will adjust your tax return and send out a Notice of Reassessment, otherwise it will mail a letter confirming its initial findings.
If you still don't agree, you have 90 days from the mailing of the CRA's reply to appeal to the Tax Court of Canada. If you are unable to file within that time period you can file for an extension within one year after the 90-day period expires. You will have to state the reasons you could not file on time.
The appeal will proceed in one of two ways: a general or an informal procedure. Most appeals are heard under the general procedure, where the court follows formal rules that cover:
- Filings of appeals;
- Rules of evidence;
- Examinations for discovery; and
- Production of documents.
Filing fees range from $250 to $550, and are based on the amount being disputed. In a general procedure, Individuals can either represent themselves or have a lawyer represent them. A lawyer must represent a corporation, except in special circumstances when the court may allow a corporate officer to represent the company. Once the court makes its ruling under the general procedure, it can order the losing party, whether it is you or the CRA, to pay some of the other party's legal costs.
Your appeal will be heard under the informal procedure only if you qualify and specifically ask for it. You qualify if:
- The federal tax and penalties in dispute are not more than $12,000 per assessment;
- The disputed loss is not more than $24,000 per determination; or
- The dispute involves only interest owing on federal taxes and on penalties.
You don't need to complete a specific form, but you must appeal in writing and include a filing fee of $100. Your appeal must reach the court within 90 days of the date the CRA mailed the confirmation of its initial assessment. It may be possible to obtain an extension.
The informal procedure is aimed at a speedy resolution of disputes, so the court does not follow the usual rules of evidence. In addition, it applies these strict time limits:
- The CRA must reply to your appeal 60 days after receipt;
- The court must hear the appeal within 180 days after the last day the CRA has to file its reply; and
- The court must hand down its ruling within 90 days of the last day of the hearing.
If you are more than 50 per cent successful in your appeal, the court can order the CRA to pay part of your legal costs. This would be the case if, for example, you disputed $6,000 of federal tax on disallowed expenses and the court reduced the amount by more than $3,000 in tax. The court cannot order you to pay any of the agency's costs if you lose your appeal.
In the event that you do lose, you can ask the Federal Court of Appeal to review your case. You must file this appeal within 30 days of the Tax Court ruling. If you lose that review, you could take the case all the way to the Supreme Court of Canada, but only if that court agreed to hear it.
The CRA usually postpones collections until 90 days after it mails its decision to you. If you appeal to the Tax Court of Canada, the agency typically postpones collection action until the court mails its decision or you end the appeal. In some cases, the CRA will not postpone collection, for example on taxes you were required to withhold and remit.
In all cases, interest continues to accrue on amounts payable. You can pay all or part of the amount, and you will receive a refund with interest if you win your appeal to the Tax Court. If you lose, the CRA will resume collection even if you take the case to the higher courts.
Consult with your accountant and legal adviser throughout the entire objection and appeals process.
