As part of the controversial Omnibus Bill introduced by the Harper government in the fall, 2013, was an increase in the “amount in dispute” up to $50,000 for GST/HST appeals, and up to $25,000 for many other tax disagreements. That is significant, and probably a large enough amount to enable most small to medium size companies (SME’s) to fight what they are confident represents an incorrect or unfair ruling by Canada Revenue Agency (CRA).
As many of you know, generally a tax dispute arises from and follows three distinct events, an audit, an objection, and when that fails, an appeal to the Tax Court of Canada (Tax Court). An appeal to the Tax Court is not a very attractive alternative for most SME’s. It requires legal representation, and, can take years to resolve. If the amount in dispute is small, it probably isn’t worth the time, money, and distraction from your core business to fight it. Most business owners believe Tax Court is for large companies and not an affordable proposition for them. That all changed with Bill-60 , the increase to $50,000 of the disputed amount that can be heard as an informal appeal.
The Income Tax Act is enforced based on the technical interpretation of the law by CRA. Technical interpretation is not absolute, and changes, and can be nuanced depending on current situations. In fact, CRA maintains the Income Tax Ruling Directorate, whose sole purpose is to present CRA’s current interpretation of the Income Tax Act. Further, technical interpretation is enforced by policy, and policy also can change depending on current circumstances. If you are in doubt about the fluidity of technical interpretations of the Income Tax Act, you need look no further than the approximately 60 page Income Tax Interpretation Bulletins and Technical News that summarize the specific interpretation document as issued to provide CRA’s interpretation of income tax law and is re-issued every three years.
While the Income Tax Ruling Directorate interpretation and accompanying bulletin is important to the Tax Court, it is not the Income Tax Act, the document used by the Tax Court to judge disputes.
While the traditional appeals process (referred to as the General Procedure) is the only alternative for cases involving significant amounts of tax, or complex legal questions, the Informal Review Procedure claim settlement process is a very attractive route to resolve more traditional types of disputes for many SME’s. The informal procedure is a simplified and streamlined procedure that moves cases quickly to a hearing (akin to a small claims matter in the civil procedure). At an Informal Procedure, both the taxpayer and the CRA (through the Department of Justice) will present their evidence and make arguments. The onus of proof in this case is with the taxpayer. The taxpayer needs to show that he was incorrectly assessed by CRA, and that the actual amount of taxation is not equivalent to the CRA assessment. The process consists of a “single day in court”, with a ruling by the judge. There are no second chances, no ability to go back to your office to locate further documents, or to bring the proper personnel before the judge. Therefore, just like in small claims matters, while the proceedings are informal, it is important that the taxpayer have all of his evidence and involved parties available at the hearing. There is only one chance to explain your case. Be prepared.
The good news for the taxpayer is that the Tax Court focuses judgements on the law and not the nuanced interpretation that so often resulted in the initial dispute with CRA. Further, the process does not require the taxpayer to incur any legal fees, it is informal, and, resolved in an acceptable timeframe (180 business days maximum).
With the new, higher limits available, SME’s can now feel confident that they will obtain the tax credits that they are entitled to, in a reasonable time period, with a reasonable chance to state their case before a Judge of the Tax Court, not CRA.