Income Tax Audit Manual

Compliance Programs Branch (CPB)

Chapter 19.0 Objections and appeals

19.1.0 Introduction

There are two aspects to the appeal process if a taxpayer cannot resolve issues prior to a (re)assessment. There is the objection process and the appeal process. Objections allow for a resolution of disputes at the agency level whereas the courts (Tax Court of Canada, Federal Court of Appeal, and Supreme Court of Canada) are independent of the Canada Revenue Agency (CRA).

The publication P148, Resolving your dispute: Objection rights under the Income Tax Act, outlines what taxpayers can do if they object to their income tax assessment or determination, and would like to formally dispute it. The publication also covers appeals to the various courts in Canada.

19.1.1 Responsibilities of auditors during the objection and appeal process

Providing assistance

Appeals and litigation officers need to understand the basis of the (re)assessment to which the taxpayer objects or appeals. Appeals and litigation officers may contact the auditor who was in charge of the audit to better understand the facts and reasons behind the (re)assessment.

Auditors must respond to information requests in a timely manner and must provide clarification regarding working papers, correspondence, reports, and other documents supporting the (re)assessment. Auditors also need to attend meetings with the appeals or litigation officer, when requested to do so.

Performing audit work and providing a recommendation

During the course of resolving an objection, an objector or their authorized representative may provide additional documents not provided, or produced at the audit stage. Depending on the circumstances, appeals officers may consider, or may be required, to refer a file back to the Compliance Programs Branch. For more information on the referral process, please refer to 19.2.3, Review process.

Defending (re)assessments

Auditors are responsible to assist the Appeals Branch and the Department of Justice in defending (re)assessments at the various stages of the objection and appeal process including examination for discovery and preparation for trial. Auditors may also be required to attend court as witness in defence of (re)assessments including being subject to cross examination.

Auditors remain responsible to assist the Appeals Branch and the Department of Justice after they move to a different position. Former CRA employees may also be required by the Department of Justice counsel to attend a hearing as a material witness (a person who has a firsthand knowledge of the events that led to the CRA’s position or a person who has taken steps to inform themselves of the events).

19.2.0 Objections

If the taxpayer disagrees with a (re)assessment, they may file a notice of objection. The objection must state in writing the reasons for the objection and include all relevant facts.

19.2.1 Time period to file an objection

Objections must be filed within:

• 90 days from the date the notice of (re)assessment is sent under subsection 165(1) or
• one year from the due date of the returns of an individual (other than a trust) or a testamentary trust under subsection 165(1)

Extension of time

An extension of the time to file an objection may be granted either by the minister or by the Tax Court.

Application for extension of time to the minister

If an objection was not filed within the required time, a taxpayer may apply to the minister to extend the time for serving a notice of objection if all of these conditions are met:

• the application is made within one year after the expiration of the time otherwise limited for serving a notice of objection; and
• the taxpayer demonstrates that:
  • within the time otherwise limited by the ITA for serving a notice the taxpayer
    • was unable to act or to instruct another to act on their behalf, or
    • the taxpayer had a bona fide intention to object to the assessment
  • given the reasons set out in the application and the circumstances of the case, it would be just and equitable to grant the application, and
  • the application was made as soon as circumstances permitted

Application for an extension of time to the Tax Court of Canada

A taxpayer that has made an application for an extension of time to the minister may apply to the Tax Court of Canada to have the application granted after either:

• the minister has refused the application or       
• 90 days have elapsed after service of the application under subsection 166.1(1), and the minister has not notified the taxpayer of the minister's decision

Under these provisions, no application may be made after 90 days after the day on which notification of the decision was sent to the taxpayer in the case of an income tax assessment.

19.2.3 Review process

An appeals officer reviews the issues as stated by the taxpayer on an impartial basis, discusses the objection with the taxpayer, and recommends a course of action. After considering the reasons for the objection and all the relevant facts, the chief of appeals or a delegated official makes the final decision concerning the assessment. The taxpayer is notified of the decision under subsection 165(3).

The ITA does not include any provision that allows for the withdrawal of an objection by the taxpayer or their representative. In such situation, the minister must confirm the assessment.

The onus is on the taxpayer to prove that the (re)assessment is incorrect. However, the onus for proof of penalties assessed under section 163 or 163.2 is on the CRA. The burden of proof is also on the CRA to justify raising an assessment beyond the normal reassessment period.

Referrals to the Compliance Programs Branch

At the request of the Appeals Branch, an auditor will perform additional audit work and provide a recommendation to the appeals officer. The referrals are discretionary or mandatory based on circumstances outlined in the information sources cited below.

As an independent and impartial reviewer, the appeals officer has complete decisional independence relative to the auditor’s recommendation to confirm, vary, or vacate the (re)assessment, or issue a reassessment.

For more information, please refer to 10.11.18, Referrals from the Appeals Division, and RC4067, Protocol - Appeals Branch and Compliance Programs Branch. Also, the Appendix to the protocol between the Appeals Branch (Appeals) and the Compliance Programs Branch (CPB) outlines the referral process, the roles and responsibilities of appeals officers and auditors in the resolution of objections, and procedural aspects such as timelines, service standards, and communication between the program areas with respect to the referral process. 

19.2.4 Restrictions

Taxpayers are subject to certain restrictions of their objection rights, including:

• subsection 165(1.2) restricts a taxpayer from objecting to the assessment of an issue where they have waived the right of objection in writing
• taxpayers cannot object to a (re)assessment made pursuant to subsection 220(3.4)
• according to subsection 165(1.13), large corporations cannot raise new issues or revise the relief sought with respect to an issue in an objection to an assessment made under any of the provisions, or circumstances referred to in paragraph 165(1.1)(a)

19.2.5 Further recourse

Appeals to the Tax Court of Canada

When the taxpayer does not agree with the disposition of the issues at the objection stage, the appeals officer will advise the taxpayer of their right to appeal to the Tax Court of Canada, which is the first level of the court process.

Dispute resolutions under Canada’s tax treaties

In situations where the taxpayer agrees with the disposition of the issues at the objection stage, and waives any further rights to object or appeal, the CRA will not be able to vary the disposition of the issues even if the taxpayer makes a separate request for relief under the Mutual Agreement Procedure of an income tax treaty with respect to the same issues. For more information, please refer to IC71-17R6, Competent Authority Assistance under Canada’s Tax Conventions.

19.3.0 Appeals

19.3.1 Introduction

Taxpayers that disagree with the decision of the minister with respect to an objection may appeal to the Tax Court of Canada. This is the first level in the appeal process. At the higher levels of the court system (Federal Court of Appeal or the Supreme Court of Canada), the appeal process is a formal process. In general, taxpayers cannot skip levels of the Court in the appeal process.

19.3.2 Tax Court of Canada

The Tax Court of Canada (TCC) is independent of the CRA. The TCC has the exclusive jurisdiction to hear and determine references and appeals under the ITA, the Excise Tax Act, and other designated acts.

According to paragraph 169(1)(b) the taxpayer can appeal to the TCC if 90 days have elapsed after service of the notice of objection and the minister has not notified the taxpayer that the (re)assessment has been vacated, varied or confirmed.

For more information on the TCC, please refer to Tax Court of Canada.

Time limitation to appeal

According to paragraph 169(1)(a), a taxpayer must appeal to the TCC within 90 days after the minister has confirmed the (re)assessment, or has issued a reassessment.

Extension of time limitation to appeal

Where an appeal has not been instituted by a taxpayer within the time limit for doing so, the taxpayer may apply to the TCC for an order extending the time within which to appeal by virtue of subsection 167(1) however, no order shall be made unless:

• the application is made within one year after the expiration of the time limited by subsection 169(1) for appealing and
• the taxpayer demonstrates that:
  • within the time otherwise limited by the legislation for appealing the taxpayer
    • was unable to act or to instruct another to act in their name or
    • had a bona fide intention to appeal
  • given the reasons set out in the application and the circumstances of the case, it would be just and equitable to grant the application
  • the application was made as soon as circumstances permitted
  • there are reasonable grounds for the appeal

Informal procedure

Section 18 of the Tax Court of Canada Act and the Tax Court of Canada Rules (Informal Procedure) include the rules for the informal procedure. Taxpayers can refer to publication RC4443-2, Appealing Income Tax Assessments to the Tax Court of Canada for more information.

The appeal must be submitted in writing and include the relevant facts and reasons for the appeal. If the taxpayer does not elect the informal appeal procedure, the general procedures apply. The taxpayer must clearly indicate on the notice of appeal that the informal procedure has been chosen.

Under subsection 171(1), TCC appeals can be disposed of by any of the following means:

• dismissal of the appeal
• allowing the appeal and:
  • vacating the assessment  
  • varying the assessment, or
  • referring the assessment back to the minister for reconsideration and reassessment

The TCC may order the unsuccessful party to compensate the other party for legal costs incurred under this procedure.

Under subsection 169(3), TCC appeals can also be disposed on consent, also known as 169(3) reassessment or settlement via Minutes of Settlement. Minutes of settlement reflect a private agreement between the taxpayer and the minister where the parties have agreed on terms to resolve the appeal. Under the terms of the agreement, the disputed assessment is vacated or varied. Following the implementation of the agreement (issuance of the notice of reassessment) the appellant discontinues the appeal.

The taxpayer may also discontinue the appeal under section 16.2(1) of the Tax Court of Canada Act.

Informal procedure eligibility

For ITA appeals, a taxpayer can elect to follow the informal appeal procedures of the TCC, as long as the issues meet these criteria:

• the disputed amount of federal tax and penalties is not more than $25,000 per assessment
• the disputed loss is not more than $50,000 per determination, or
• the amount of federal tax and penalties is greater than $25,000 per year or the amount of loss is greater than $50,000, and the taxpayer elects to limit the appeal to $25,000 tax and penalties, or $50,000 loss per year

Advantages of the informal appeal process

Some of the advantages of the informal appeal process to the TCC include:

• There is no formal exchange of documents between parties and no examination for discovery.
• Taxpayers may represent themselves or be represented by an agent (that is, any individual). The taxpayer does not need a lawyer.
• Decisions issued under the formal procedure are not normally precedent setting, but can be persuasive.

General procedure

Taxpayers will follow the general court procedure by default unless the taxpayer qualifies and chooses the informal procedure. A filing fee applies. For more information, please refer to RC4443-2, Appealing Income Tax Assessments to the Tax Court of Canada.

The Tax Court of Canada Act and the Tax Court of Canada Rules (General Procedure) include these criteria and other rules for the general procedure:

• Individuals can either represent themselves or have a lawyer represent them. A lawyer has to represent a corporation, except in special circumstances when the TCC may allow one of the corporation’s officers to represent it.
• Strict rules of evidence must be adhered to.
• Both the taxpayer and the Crown can appeal the TCC's decision to the Federal Court of Appeal.
• TCC decisions reached using the general procedure can be used as a precedent in other cases.

The Court can order either party to pay some of the other party’s legal costs.

19.3.3 Federal Court of Appeal

The second level of appeal for a taxpayer in the legal system is to the Federal Court of Appeal (FCA).

Either the taxpayer or the CRA can appeal a decision from the TCC to the FCA. Appeals to general procedure judgements must be filed within 30 days from the date of the TCC judgement, but the months of July and August are not included in the 30-day calculation.

Subsection 27(2) of the Federal Court Act governs time limits for appeals or reviews from the Tax Court judgement. Extensions of time to appeal under the Federal Courts Rules may be granted by the FCA or fixed by an order.

Regardless of whether the TCC decision was reached using the informal or general procedure, the FCA reviews the issues to determine if the lower court’s decision was correct.

For more information on the FCA, please refer to Federal Court of Appeal.

19.3.4 Federal Court Judicial Review

A taxpayer can apply for a judicial review of a Taxpayer Relief decision (discretionary decision by the minister or authorized designate) to the Federal Court if they believe the CRA did not properly exercise its discretion in arriving at a decision. The taxpayer must apply for judicial review to the Federal Court within 30 days of the date they received the CRA decision. The Court cannot change the CRA’s decision however, it may refer the decision back to the CRA for further consideration by another delegated official.

For more information on the Federal Court, please refer to Federal Court.

19.3.5 Supreme Court of Canada

The highest court in the appeal process is the Supreme Court of Canada (SCC). The SCC hears cases involving individuals or governments. Its jurisdiction includes Quebec civil law as well as the common law of the other provinces and territories.

An appeal can be made to the SCC only if the Court authorizes the appeal by granting permission or leave to hear the case under paragraph 58(1)(a) and subsection 58(2) of the Supreme Court of Canada Act.

Applications for leave to appeal must be filed within 60 days after the judgement date from the FCA. The month of July is not counted in calculating this deadline.

An extension of time to appeal may be granted where a motion is brought before the Court explaining the reasons for the delay. The motion for an extension of time will be considered together with the leave application.

The SCC normally addresses questions of legal interpretation however, in certain situations, questions of fact may also be considered.

For more information, please refer to Supreme Court of Canada.

19.4.0 Other references and related topics

• Taxpayer Bill of Rights 
• 3.0, Taxpayer rights and taxpayer relief
• Appeals Manual
• @AOhelp for Income Tax Appeals Officers
• @LOhelp for Litigation Officers