Appeared in the Mid-November 2009 issue of The Bottom Line.
More times than not, Canadians file their annual tax return and receive a formal Notice of Assessment from the Canada Revenue Agency ("CRA") without dispute. Every year, the CRA reviews a large number of tax returns, so it is not surprising that the occasional assessment or reassessment is issued in error or contains an error. Usually these kinds of errors are the result of a misunderstanding or a clerical slipup and can easily be remedied informally over the phone.
Sometimes an assessment or reassessment can initiate a valid disagreement between the taxpayer and the CRA, whether it arises from a factual scenario or the correct interpretation of the federal Income Tax Act (the "ITA"). In these circumstances, the taxpayer has the right to file a Notice of Objection under section 165(1) of the ITA, which requires a written rendition of the facts as well as the reasons for the objection.
The CRA has published Form T400A "Objection-Income Tax Act," however neither the ITA nor the CRA requires that this specific form be used to object to an assessment or reassessment. In fact, the CRA has published a brochure called Resolving Your Dispute: Objection and Appeal Rights Under the Income Tax Act (P148) advising that a simple letter can be used. The CRA document even proposes a sample Objection letter that apparently satisfies the statutory requirements. The recent decision in Schneidmiller v. The Queen is a reminder that courts may become more lenient with what will be classified as an acceptable form of a Notice of Objection, particularly where a taxpayer attempts to resolve issues with the CRA on an informal basis.
The chronology of events leading up to the application in Schneidmiller began in late April 2006 when the Appellant received Notices of Reassessments at his home residence in Gull Lake, about 300 kilometres west of Regina, Saskatchewan. The Appellant realized that his Notices of Reassessment for 2002, 2003 and 2004 ("Reassessments") listed his gross income instead of his net income. He notified the CRA in Regina, and in response, the CRA sent him a T1 Adjustment Request. The taxpayer promptly completed the form for the requisite years and sent it to the CRA in Surrey, British Columbia as he was told to do. The CRA in Surrey received the forms and apparently forwarded them to the CRA in Regina.
One and one half years later, the CRA in Surrey acknowledged an inquiry by the taxpayer stating that the T1 Adjustment Requests were forwarded to the CRA in Regina, but the Regina Office was unable to locate them. The CRA in Regina then asked the taxpayer to resubmit the T1 Adjustment Requests and the taxpayer promptly refiled.
Two and a half months later, the taxpayer followed up with the CRA Regina Office and as a result of the conversation, the CRA sent him a Notice of Objection. The Appellant quickly completed and mailed back the forms to the CRA in Regina as requested. To his surprise, he was then told that he was too late to object to the Reassessments dated April 27, 2006. The explanation offered to him was that the statutory time limit for filing an Objection had lapsed; apparently it did not matter that his documents were lost through no fault of his own. The Appellant then applied to the Tax Court for an extension of time under s. 166.2 of the ITA.
Justice Beaubier made the sensible decision, holding that the ITA does not define or describe an "Objection" or a "Notice of Objection," nor does he think they should be. Based on the definition from the 3rd Edition of The Shorter Oxford Dictionary, Justice Beaubier ruled that the T1 Adjustment Requests submitted to the CRA constituted timely-filed Notices of Objection. Based on this decision, it is presumed that the T1 Adjustment Requests met the requirements under subsection 165(1) of the ITA.
The limited guidance in the ITA regarding the form or content of a Notice of Objection is likely to ensure that tax disputes are not resolved on a procedural basis, but rather a substantive one. The Schneidmiller case furthers this notion since Justice Beaubier focused on the substance contained in the TI Adjustment Request, and not the form.
As a result of his reasoning, Justice Beaubier found that the taxpayer's application for an extension of time under s. 166.2 of the ITA was unnecessary. As of the date of the hearing, the CRA had still not confirmed its Reassessments, but since more than 90 days had elapsed since the date the CRA received the taxpayer's T1 Adjustment Request, the taxpayer had the right to appeal these Reassessments to the Tax Court of Canada pursuant to s. 169(1) of the ITA.
The Schneidmiller case should provide taxpayers with a certain level of comfort that tax disputes will be resolved on a substantive basis, as opposed to a strictly procedural one. However, advisors should be conscientious about objection filing deadlines, even where attempts are made to resolve things informally. We have often filed a protective objection on the 90th day where informal resolution has not yet been accomplished.
* The author wishes to thank articling student Sarah Subhan for her assistance in preparing this article.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.