DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

Posts Tagged ‘Appeals’

Your Honour…The Dog Ate It!!

In Canadian Income Tax on December 2, 2013 at 9:00 am

In the last edition of Fiscalitems, we dealt with the deadlines and procedures involved in making an application for an extension of time to file a Notice of Objection. Although it seems harsh, the Minister of Revenue and the courts show little leeway in allowing late objections without justification, regardless of the amount of time involved. In this issue, we discuss reasons that may be set forth and whether they would result in acceptance of a late objection

Essentially, the law requires the taxpayer to establish that he was unable to act or to instruct another to act in his name, or that he had a bona fide intention to object to the assessment. A successful request for extension must either show that the taxpayer missed the deadline through no fault of his own, or that he never agreed with the assessment and has always intended to object. Both criteria do not have to be met. However, he must show that he filed an objection as soon as circumstances permitted.

What situations will find sympathy from the courts? Here are some examples:

Physical or Mental Disability: Where a taxpayer has had an accident before the assessment was made, and remained incapacitated for some period of time thereafter, or where the taxpayer suffered an illness during the relevant time, there is clear case law and Revenue Canada commentary that would suggest an extension would likely be granted. The application should highlight the unusual nature of the disability and be precise as to the timing involved.

The above situation would fall under the category of “exceptional” or “unusual” circumstance rendering the taxpayer unable to act in accordance with the law. Other such circumstances which have been accepted by the courts include natural disasters, absence from the jurisdiction and inability to communicate in either of the official languages.

Address Problems: Often, the taxpayer argues that he moved and that he never received the assessment due to an address change. Revenue Canada’s only duty is to send an assessment at the last address made available to the department by the taxpayer. If this address is used, the taxpayer has no recourse. It is his responsibility to notify Revenue Canada of an address change immediately.

Ignorance of Time Limit: Often, a taxpayer may argue that he was simply not aware of the statutory time limit involved, and that he acted as soon as he was informed. The case law here is clear: ignorance of the law is not grounds for allowing an extension. All taxpayers are informed on the actual assessment of the time limit for objection. The courts, therefore afford little sympathy to this excuse.

Reliance on a Professional: In many cases taxpayers plead that they relied on their professional advisor. Here the case law is less clear. In one case, a taxpayer returned from a vacation to find a pile of documents, including a tax assessment, on his desk. Without reading them, he simply delivered the pile to his accountant. The court dismissed the application for extension, citing a lack of special circumstances that rendered the taxpayer unable to act. Furthermore, the simple admission of fault by a professional does not automatically absolve the taxpayer of responsibility.

In order to be successful in placing reliance on a professional, the taxpayer must show that he at all times had the intention to object, was aware of his circumstances, and exercised a reasonable degree of diligence in following up his objection with his advisor. This is particularly true where the taxpayer is a businessman or someone who should be “sophisticated” in his income tax affairs.

 

Save The Date….Please!

In Canadian Income Tax on November 18, 2013 at 8:42 pm

Imagine this: One fine day, your favourite client enters your office and hands you a tax assessment he found in pile on his desk after returning from vacation. Upon close examination of the date, you realize that the time for issuing a Notice of Objection has expired. Suddenly, you are faced with the problem of filing a late appeal. Besides demoting your client to your less-than-favourite list, what do you do?

Most of us are familiar with the deadlines involved for objecting to an assessment, but let’s go over them again for good measure: An individual taxpayer must file an objection on or before the later of 90 days from the date of the assessment and one year after the balance due date of the taxpayer for the year. For a corporation or a trust, only the 90-day limit applies.

If the deadline is missed, the first step is to request an extension of time from the Minister of Revenue. This would consist of a letter addressed to the Chief of Appeals in a District Office or Taxation Centre, outlining the facts and reasons why the extension should be granted. You must also enclose the actual proposed Notice of Objection that the taxpayer wishes to file. The request for extension must be made within one year from the time the objection was otherwise due.

To be successful, the taxpayer must show that he was unable to act or to instruct another to act on his behalf within the relevant time period, or he must prove that he had a bona fide intention to object to the assessment within the normal time period. He must also show that the application was made as soon as the circumstances permitted, and that it would be just and equitable for the Minister to grant the extension.

The time periods involved can be a bit confusing. For example, in one case, the taxpayer’s lawyer failed to file a Notice of Objection on time. When he realized his mistake, rather than sending in his request for extension as soon as the circumstances permitted, he waited almost one year, because he thought that he had this amount of time to make the request under the rules described above. His request was denied, due to his misinterpretation of the law.

Should 90 days expire after making a request to the Minster without a response, or if the request for extension is denied, the next step is to request the extension from the Tax Court of Canada. This application must be filed within 90 days following a refusal of the application (if any) by the Minister. The taxpayer must send three copies of: (a) the request made to the Minister, (b) the proposed Notice of Objection, and (c) the Minister’s Notice of Refusal (if any) to the Registry of the Tax Court of Canada. It is also advisable to include a covering letter briefly explaining the facts and reasons for the request.

The Tax Court has the power to grant the application only where the first application was made with the Minister of Revenue within the one-year time period discussed earlier. The criteria used to determine whether the request will be granted are basically the same as those set out above. The only difference here is that the review will be made by the Tax Court, which is a body independent of Revenue Canada.

The Tax Court will, after receiving the application, fix a date for a hearing under the Informal Procedure Rules. This means that a taxpayer may be represented by an agent (such as an accountant) other than a lawyer.

Finally, we come to the question everyone is asking (I can hear you all now): What are the circumstances under which an extension of time will be granted? The case books are filled with some very interesting tales. For the answers, you are invited to wait by your laptops for the next edition of The Tax Issue.