Waiting for Tax Judgment Day
By Arthur Drache
Across Canada, there are thousands of cases where a taxpayer has filed
a Notice of Objection with the tax authorities and nothing has happened
for years. The majority of these cases are “art flip” or similar
cases where the taxpayers have been reassessed, have filed objections
– and are just sitting and waiting. In some cases there have been
letters written by the Canada Revenue Agency (CRA), telling the taxpayer
that the cases are being “stockpiled” pending some resolution
of the fundamental legal issues.
The Tax Court did make a decision in the Klotz case1, which might have
broken the logjam. But in fact, insofar as we are aware, no further action
has been taken by the government, pending an appeal to the Federal Court
As a result, thousands of taxpayers continue to play a waiting game with
interest charges accumulating. (A Notice of Objection is the taxpayer’s
first step in appealing a decision by the CRA and is filed after receiving
a Notice of Assessment. The Notice of Objection starts a process of review
by the CRA of its original decision.)
We suppose this experience has been common, and have been asked many
times whether there is anything that can be done. Indeed, a lot of clients
seem to think that the delay is such that the courts should vacate the
assessments. The problem is that taxpayers do have a remedy. But that
remedy is to file an appeal to the Notice of Assessment even though there
has been no response to the Notice of Objection.
The procedure to be followed can be found in subsection 169 (1) of the
Income Tax Act, which gives the taxpayer the right to institute an appeal
to the Tax Court of Canada where there is no response to the Notice of
Objection within 90 days.
A recent Tax Court decision sums up the issue quite nicely and shows
that where there is a delay, even one which is unconscionable, the court
can’t offer much in the way of relief.
Tax Court Judge Eric Bowie heard the case, which had nothing to do with
art flips. The following opening paragraphs of his reasons for judgment
sum up the tardy response situation:
“I am going to deal first with the four points that are made in
the Notice of Appeal. The first of those is that you filed a Notice of
Objection and that it was not dealt with in a satisfactory manner. I take
that to mean that it was not dealt with nearly quickly enough, and I could
not agree more. Two and a half years to confirm a notice of assessment
in a case like this strikes me as an unjustifiably long time and deserving
at least of some explanation from Canada Customs and Revenue Agency (CCRA).
I have seen nothing to explain it. However, that is not a matter as to
which I can grant any relief.
It has been raised as an issue before in this Court, and it has been
raised as an issue in the Federal Court of Appeal, and the Federal Court
of Appeal has made it quite clear that the fact that Revenue Canada (or
CCRA as it is now called) takes an unreasonable length of time to deal
with a Notice of Objection does not give rise to any relief that this
Court can grant. One of the reasons the Federal Court of Appeal took that
position is that subsection 169 of the Income Tax Act gives the taxpayer
a remedy. It provides that if you file a Notice of Objection and you have
not heard from anybody at the end of 90 days, then you can file a Notice
of Appeal in this Court and you will be heard right away. Unfortunately,
that is an obscure section of the Act. I do not know whether the Notice
of Assessment or any of the other communications that are sent out routinely
from CCRA to Appellants bring that provision of the Act to their attention,
but I would have thought probably not, because more people would take
advantage of it and simply come directly to this Court rather than wait
for what are sometimes unreasonably long delays in hearing from the so-called
appeals branch of CCRA.”
We have brought this provision to the attention of clients but we have
never had a single case in all the years we have been practising in which
the client chose to go ahead with an appeal before getting a response
for the tax authorities. It may be that many taxpayers think that a long
delay means that the CRA is giving the objection some serious thought,
though in our own – perhaps cynical – view, the delay is more
likely to be based on administrative inefficiency.
Copyright © 2004 by Arthur Drache. All rights reserved.
Arthur Drache is a partner of Drache, Buchmayer, LLP and specializes in all areas of personal tax and estate planning. The opinions and views expressed herein are those of the author and not those of CI Investments Inc. CI Investments Inc. does not necessarily endorse or encourage any specific tax strategies. Please consult a tax professional for advice specific to your particular situation.