Canada: Tax Appeals - Notices of Objection to Fight Tax Assessments (Income Tax and GST/HST)

Last Updated: January 5 2016

CRA issues assessments, including net worth assessments, third party assessments for director liability or for assets transferred to a relative when taxes were owing under section 160 of the Income Tax Act, as the first step to establishing tax liability and collecting taxes. If the tax auditor believes that a tax return was filed incorrectly or contained inaccurate information, it is likely that the taxpayer will be reassessed by the Canada Revenue Agency. The taxpayer’s first step to dispute the auditor’s findings is by requesting an internal review of their file at the Canada Revenue Agency by an Appeals Officer with a mandate to take an independent look at the file. This is accomplished by filing a Notice of Objection. There is a time limit to file a Notice of Objection; 90 days from the date of the Notice of Assessment/Reassessment, with extension requests possible, but not always granted, for an additional year from the expiration of the 90-day objection period.

Upon filing a Notice of Objection, an Appeals Officer from Canada Revenue Agency will make contact with the taxpayer (or their Canadian tax lawyer if they are represented by a professional tax advisor) and conduct an independent review of the amounts on the taxpayer’s return(s) that are in dispute. This means that the Appeals Officer should not meet or talk with the tax auditor assigned to your file unless your Canadian income tax lawyer is given a copy of the minutes of any discussion.

It is very important that the Notice of Objection be drafted with legal arguments in mind and with references made to the Income Tax Act, as it is possible that any further appeals will be developed on the basis of the arguments contained within the Notice of Objection. Remember, the Canada Revenue Agency is bound by the Income Tax Act and can only act on the authority that is given to it by the Income Tax Act. Additional submissions can be made to the Appeals Officer at this time to persuade the officer as to why the auditor was incorrect in coming to their conclusion in their tax audit.

Our experienced Canadian tax lawyers can assist at this step by drafting a Notice of Objection that emphasizes the most important points, citing the relevant income tax law and decided income tax cases as well as by explaining to you why an argument is strong or weak even if it at first seemed otherwise. Our Canadian tax litigation lawyers can also help by identifying the additional information or submissions that would most support your arguments, and making sure that something irrelevant or unhelpful is not submitted along with everything else.

The Appeals Officer can decide in one of three ways to the objections raised. The reassessment can be: (1) vacated, meaning that the Appeals Officer agrees with the taxpayer; (2) varied, meaning that the Appeals Officer accepts some of the taxpayer’s arguments and a new reassessment will be issued that reflects this; or (3) confirmed, meaning that the Appeals Officer rejects the taxpayer’s arguments.

If the taxpayer disagrees with the Appeals Officer’s interpretation of the facts, the taxpayer can appeal, as of right, to the Tax Court of Canada. This must be done within 90 days from the date of the reassessment, but can be extended through an application to the court for up to one additional year. However, an extension relating to a Notice of Appeal to the Tax Court of Canada is rarely granted. For a more detailed discussion of the stages involved in appealing to the Tax Court of Canada, refer to Part III of this series, which discusses disputing a tax assessment at the Tax Court of Canada.

Case Studies

Ivan from Toronto prepared and filed his own tax return. He made a keying error and claimed a large rental loss in error. CRA denied the loss and issued an income tax assessment for almost $100,000 in taxes owing plus late filing penalties and interest. He retained our firm within the 90 day time window and we immediately filed a Notice of Objection on his behalf. After making submissions to the Revenue Canada appeals officer the entire tax amount, plus penalties and interest, was reversed.

C is a psychologist who teaches at a university in Montreal and also has a private consulting practice. The tax department audited her tax returns and sent her assessments that denied her claims for most expenses for 4 years. One our tax law firm was retained we submitted Notices of Objection for all of the years. We worked with her and her accountant to provide audit evidence of of the expenses claimed and submitted the evidence to the tax department. We also provided a legal analysis to the CRA appeals officer of expenses that he claimed were not deductible, such as conference expenses. She did not have receipts for some of the expenses or a car log for travel expenses, so we agreed with CRA not to allow some of those costs. At the end we reduced most of the taxes owing and related penalties and interest.

The information is thought to be current to date of posting. Income tax law changes frequently and content may no longer reflect the current state of the law. This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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Useful Resources
Forms available to download for income tax filing in Canada.
Hear David J. Rotfleisch discuss timely and highly topical tax matters during appearances and interviews with specialist publications.
Useful explanatory videos of income tax matters.
The following questions and answers are based on the proposed measures that were announced on December 7, 2015.
The official Government website of the CRA.
This guide is for any person who deals with the Canada Revenue Agency (CRA). The guide gives you information on the 16 rights set out in the Taxpayer Bill of Rights and explains what you can do if you believe that the CRA has not respected your rights.
The Office of the Taxpayers' Ombudsman (OTO) works to enhance the Canada Revenue Agency's (CRA) accountability in its service to, and treatment of, taxpayers and benefit recipients through independent and impartial reviews of service-related complaints and systemic issues.
Ontario personal income tax is an annual tax collected from individuals who are Ontario residents on the last day of the tax year or have income earned in Ontario for the tax year.
The following documents provide instructions for filing your 2015 income tax return.
If you earned income in B.C. or operated a Corporation with a permanent establishment in B.C. last year you need to file an income tax return. Find out when you need to file your income tax return, and if any tax credits or rebates apply to you.
Generally, a corporation must file an Alberta corporate income tax return (AT1) for each taxation year during which it has a permanent establishment in Alberta.
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