Winnipeg Free Press - PRINT EDITION

Field tilted more steeply to taxman

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The Tax Court of Canada has made it tougher for Canadians to appeal Canada Revenue Agency claims on their money.

Not that it was easy before the ruling -- the Income Tax Act deems CRA's notice of assessment valid and binding, even if it contains an error or miscalculation.

A taxpayer who wants to challenge an assessment bears the onus of proving the agency wrong.

But, unlike the normal two-year limitation period in civil law, a taxpayer has only 90 days from the date of mailing of the assessment to initiate a claim against the taxman by filing a notice of objection. Note that the limitation period isn't 90 days from a taxpayer's actual receipt of the assessment, but 90 days from when CRA gives it to Canada Post.

In complex, and even not-so-complex cases, 90 days -- minus whatever number of days it took the mailman to make delivery -- is a short time to retain professional help, carefully assess the best response, assemble supporting evidence and complete and file a notice of objection.

Failing to file a notice of objection within this tight limitation period leaves a taxpayer no legal recourse against an assessment. Technically, you can apply to the Tax Court of Canada to extend the time for filing an objection; however, in practice an extension is rarely granted.

Compare this to CRA's generous limitation periods to claim against a taxpayer.

The agency has three years from issuing its notice of assessment to change its mind and reassess a taxpayer's return. But where CRA alleges a taxpayer made a misrepresentation in a return attributable to neglect, carelessness, willful default or fraud it's subject to no limitation period whatsoever, and can reassess a taxpayer at any time.

If CRA dismisses a notice of objection, and confirms its original assessment of the amount of tax due, it mails a notice of confirmation to the taxpayer. As with the original assessment, the taxpayer again has a mere 90 days from the date of mailing to launch an appeal to the tax court.

But a recent decision of the tax court puts a heavy onus on the taxpayer to not only quickly, but also precisely and fully, identify in the notice of objection what's in dispute.

The ruling means that if a taxpayer doesn't expressly develop a particular argument in the filed objection, he or she can't later raise it on appeal to the tax court. And though the case involved a corporation, not an individual, and turns on an issue particular to corporate finance, its principle applies across the board.

In a nutshell, Ontario company Bakorp Management Ltd. objected to a CRA reassessment. It argued in its notice of objection that a $28-million deemed dividend included in its 1995 income was actually received in 1993 and, therefore, should be included in the corporation's 1993 tax year, not 1995.

CRA dismissed its objection. Bakorp appealed to the tax court.

At the tax court, however, Bakorp maintained a still larger sum, the full $53 million of 1995 deemed dividend, was in fact received in 1993, and therefore not a penny should have been included in the 1995 tax year. Bakorp said this was the same argument raised in its notice of objection, only the amount in play had changed.

CRA disagreed. And so did the court. It cited the different dollar values and rejected the company's attempt to punt the income into its 1993 tax year.

An appeal from the tax court decision to the Federal Court of Appeal has been filed, so this may not be the last word on the issue.

The taxpayer has always carried the burden of proof and faced heavy-handed filing deadlines when challenging an assessment or reassessment. But now, unless the tax court decision is overturned on appeal, a taxpayer's objection will be strictly construed by the courts to preclude raising any related taxpayer-advantageous argument not spelled out in the notice of objection.

The procedural rules for challenging a CRA assessment, always tough, just got a lot tougher.

Douglas J. Johnston is a Winnipeg lawyer.

Republished from the Winnipeg Free Press print edition May 11, 2013 A17

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