Introduction – Objections and Appeals by Specified Persons
If your business is subject to a GST/HST audit by the Canada Revenue Agency ("CRA") and you think the results of the tax audit are incorrect you can dispute the result. The first step in disputing the results of a tax audit is to file a notice of objection with the CRA with respect to the GST/HST reassessments issued due to the tax audit, usually by retaining an experienced Canadian GST/HST law firm. The notice of objection must be filed within 90 days of the date the reassessments are issued. The Canada Revenue Agency will then assign an appeals officer to your file who will consider your reasons for disagreeing with the tax reassessments. That appeals officer will consider your notice of objection and also any subsequent written or oral submissions your Toronto tax lawyer makes. The appeals officer will then decide whether to confirm, vary, or vacate the GST/HST reassessments.
If you are not satisfied with the decision of the appeals officer your expert Canadian tax litigation lawyer can appeal to the Tax Court of Canada. It is also possible to by-pass interacting with an appeals officer and appeal directly to the Tax Court of Canada if 180 days have elapsed since you served your notice of objection without an appeals officer notifying you that the CRA will be confirming, varying, or vacating your GST/HST reassessments.
When a specified person decides to use this process to dispute GST/HST reassessments it is subject to special procedural restrictions which must be navigated to have its case considered properly.
What is a "Specified Person" – Objections and Appeals by Specified Persons
A person can qualify as a "specified person" for the purposes GST/HST objections in two ways. First, for a particular reporting period, a person that is not a charity is a specified person when that person's GST/HST threshold amount exceeds six million dollars for both that person's fiscal year containing the particular reporting period and that person's previous fiscal year.
A person's GST/HST threshold amount for a fiscal year is similar to the gross revenue that person earned from selling goods and services in Canada during the preceding fiscal year. More precisely, the threshold amount is based on the total consideration for taxable supplies made in Canada by the person that came due in the preceding fiscal year or that was paid in the preceding fiscal year before coming due. A taxable supply is the commercial provision of a good or service. For the purpose of calculating the threshold amount of a person, certain types of taxable supplies are excluded, including the supply of financial services or the sale of real property that was the capital property of the person. In addition, in computing the threshold amount of a specific entity, the consideration for taxable supplies made in Canada by associated entities that are considered by the Excise Tax Act to be part of the same corporate group are also included. If your business may be on the boundary of being a specified person by virtue of its threshold amount, you should seek specialized GST/HST tax lawyer assistance.
Second, a person that is considered a financial institution by the Excise Tax Act is a specified person. This includes banks, credit unions, insurers, dealers in financial instruments, persons in the business of lending or purchasing debt securities, and investments funds. If you are unsure if your business qualifies as financial institution for the purposes of the Excise Tax Act, you should consult an experienced Canadian GST/HST lawyer.
Notices of Objection for Specified Persons – Objections and Appeals by Specified Persons
When a taxpayer objects to a GST/HST reassessment, the notice of objection that the taxpayer files is supposed to set out the reasons for objection and all the relevant facts. If the taxpayer is a specified person, the notice of objection prepared by the Canadian tax professional on behalf of the taxpayer is subject to additional requirements. The notice of objection filed by a specified person is required to:
- reasonably describe each issue to be decided;
- specify in respect of each issue, the relief sought, expressed as the change in any amount that is relevant for the purposes of the assessment; and
- provide the facts and reasons relied on by the specified person in respect of each issue.
It is sometimes possible for a specified person to fix some aspects of its notice of objection after it has been filed. If the CRA believes the specified person has failed to properly specify the relief sought for each issue or to properly provide the facts and reasons for each issue, the Canada Revenue Agency may send a letter to the specified person requesting the missing information. If that information is provided to the CRA in writing within 60 days of when the Canada Revenue Agency made its request then the specified person will be deemed to have met the corresponding requirements. The Excise Tax Act does not provide for a method to fix a notice of objection made by specified person that failed to include an issue to be decided. The Canada Revenue Agency is also not required to write to the specified person with respect to missing information.
Limitations on Appeals and Subsequent Objections – Objections by Specified Persons
Failing to comply with the notice of objection requirements above does not invalidate the specified person's notice of objection, but it does effectively remove the specified person's ability to pursue any issues that were not described in the required manner through the objection or through a subsequent appeal.
When a specified person's notice of objection fails to comply with the detailed requirements with respect to an issue, then that issue may not be included in the specified person's appeal to the Tax Court of Canada. The issues that were adequately described in the specified person's notice of objection can still be appealed.
If an objection made is resolved by the appeals officer by issuing a new reassessment to vary the reassessment that the specified person objected to, it is possible to object to that newly issued reassessment. However, the specified person can only pursue issues that were raised in the specified person's previous notice of objection and only pursue relief up to the amounts specified for those issues in the specified person's previous notice of objection.
There is an exception to these restrictions however. If CRA issues a reassessment as a result of an objection, and that reassessment incorporates an issue that was not a part of the assessment that was the subject of the original objection, then the restrictions described above for both appeals and objections do not apply with respect to that issue.
Pro Tax Tips – Objections and Appeals by Specified Persons
If your business is operated by entity which may be a specified person then it is important to retain our experienced certified specialist in taxation Canadian tax lawyer to assist you with any tax disputes before the objection is filed to ensure that you meet all of the CRA requirements. Determining whether a particular entity is a specified person can be a difficult exercise that requires specialized tax expertise. If your business is run by a specified person, you need expert tax assistance in any tax disputes because specified persons are held to a high standard, and failure to meet that standard right from the beginning of a dispute can result in permanent damage to your business's tax appeal.
If your business which is run by a specified person is involved in a GST/HST dispute it is very important for your expert Canadian tax advisor to correctly identify all of the potential issues and incorporate them into your notice of objection. Missing an issue can permanently remove your ability to pursue that issue with the CRA or in court. If there is uncertainty about the amount involved in a particular issue, it may be wise to use a high estimate of the amount of relief you are entitled to avoid prematurely restricting your ability to get relief.
When engaging in any significant transaction, it is worth connecting tax planning to consider whether that transaction will transform any of your entities into a specified person. Acquisitions, amalgamations, and reorganizations can all effect whether an entity is a specified person for the purposes of GST/HST objections and appeals.