Canadian Tax Haiku of the Week:

Time and the Taxman

Wait for no-one. To fight him,

Call us right away!


Everybody dreads opening their mailbox and finding an unanticipated letter from the CRA (“CRA”). Except, of course, for tax lawyers like us, because we live for this stuff! However, correspondence from the CRA (that is not a refund) typically signals an impending audit or other bad news. The best course of action when dealing with the CRA is to meet them head on. We have seen too many taxpayers delay and procrastinate hoping that the matter will simply go away. Or worse, we have seen “normal people” try to engage the CRA in a reasonable, rational discussion about their unique situation, hoping that if they just keep explaining, eventually they will talk to someone who can make an intelligent, rational decision to deal with their tax issue. Sadly, that hardly ever happens.

Instead, what happens when regular normal people try to deal with the CRA is that the meantime, interest accrues and deadlines fly by, effectively locking the taxpayer into an impossible Kafkaesque situation where they know they do not owe any tax, interest or penalties, but are unable to dispute any of it, and facing collections procedures that hamstring them further.

The CRA has a wide variety of tools to collect unpaid tax, such as the seizure of property, garnishments, or priority over creditors (even secured creditors). Short of bankruptcy (a topic for another day), there are few ways to avoid paying the CRA what they think you owe.

If you want to dispute what the CRA thinks you owe, you need to follow the strict deadlines that are legislated for filing Notices of Objection[1] and Notices of Appeal.[2] These limitation periods may appear to be too short, but they are the deadlines that Parliament has imposed.[3] Failure to comply with these rules can result in the loss of legal right to dispute and you’ll have to pay, regardless of whether the CRA is right or wrong, regardless of whether that is fair or unfair. Below is a discussion of the various steps leading up to take when disputing a reassessment from the CRA and, ultimately, appealing to the Tax Court of Canada (“Tax Court”).


The Minister is required to review tax returns and assess any tax interest or penalties.[4] In practice, most returns are given a brief “desk audit” within a short time of the receipt. A notice of assessment is then issued.[5] This date is important because it starts the limitation period of three years for reassessments.[6]


If, after going through the audit process, CRA believes additional tax should be payable, it will issue a Notice of Reassessment (“Reassessment”) with the amount of tax due. The CRA can do this as many times as it wishes during the “limitation period” of three years for an individual, four years for a corporation (or longer if the transactions at issue involve non-Canadian entities). However, there really is no “Statute of Limitations” in Canadian tax. The CRA can assess any year at any time if there has been misrepresentations made by the taxpayer that are attributable to neglect, carelessness or willful default or fraud.[7] FYI, the CRA takes the position that if you filed a tax return in a manner that is in any way inconsistent with their policies (which may or may not be consistent with the law) then you are at the very least negligent or careless. So the upshot is that as far as the CRA is concerned, if they want to, they can reassess you at any time for anything they do not like. That is also not the law as determined by the Tax Court, but that is just how the CRA rolls.


A taxpayer who wishes to dispute any tax, interest or penalties assessed or reassessed may file a Notice of Objection (“Objection”) within 90 days of the assessment or reassessment.[8]There is no prescribed form for an Objection, although the taxpayer must set out all relevant facts and all of the reasons for the Objection in writing.[9] This communication with the CRA should be in writing, and filing a form T400 is good practice.[10]

Parliament has provided for strict deadlines for the filing of Objections and extensions of time. These deadlines cannot be extended by the Court for any reason, however sympathetic.[11]Following these steps is very important. Failing to file the appropriate objections, will preclude a taxpayer from appealing their matter to the tax court.[12]

The Tax Court has held that complicated circumstances or confusion about navigating the Objection requirements are not excuses for failing to follow the rules.[13] Parliament has enacted a complex objection procedure which taxpayers and their advisers sometimes fail to navigate properly. While these legislative requirements are indeed strict, relief cannot be granted on the basis of fairness alone.


Generally speaking, filing an Objection by a taxpayer suspends collection by CRA.[14]The Objection is normally processed by appeals section within the district/regional office. Following review of the notice of objection, the assessment may be confirmed, modified or vacated. Within 90 days of the day the Minister’s confirmation, a taxpayer may file an Appeal with the Tax Court.[15]

Since January 1, 1991, Tax Court has had exclusive original jurisdiction over tax matters. Two methods of procedure: the informal procedure and general procedure. Informal Procedure is similar to small claims court proceedings. Taxpayers can elect this if the amount of federal tax and penalties in dispute doesn’t exceed $12,000, the amount of loss in dispute doesn’t exceed $24,000, or only interest is at issue.

Application for an extension of time

If a taxpayer does not file an Objection or Appeal within the 90-day deadline but wants to contest the assessment of tax, the taxpayer must file an application for an extension of time to object.[16]

There are four requirements that must be met in order for a taxpayer to obtain an extension:[17]

  1. the application for an extension of time must be made within one year after the 90-day period for objecting has expired;
  2. the taxpayer must demonstrate that it was unable to act within the 90-day period for objecting or had a bona fide intention to object within the 90-day period for objecting;
  3. the taxpayer must demonstrate that it is just and equitable to grant the application for an extension; and
  4. the taxpayer must demonstrate that the application for an extension was made as soon as practicable.

Examples of bona fide intention include retaining accountants and tax lawyers, cooperating with the CRA, pursuing remedies diligently without committing a single error or omission.[18]

If the CRA denies the extension the taxpayer can apply to the Tax Court. The Tax Court of Canada will make a decision with reference to the same four requirements. The deadline for applying to the Tax Court of Canada is 90 days after the CRA denies the application for an extension of time to object.[19] However, a request must be made to the Minister before going to the Tax Court.[20]

After one year and 90-days

If more than one year and 90-days has elapsed since the date the assessment or reassessment was mailed to the taxpayer, the taxpayer does not have a right to object to the reassessment and no extension of time to object can be granted by the CRA or the Tax Court of Canada. The Assessment/Reassessment stands and the taxpayer has lost his or her right to dispute the assessment of tax.

There have been rare circumstances where the taxpayers have successfully advanced arguments after more than one year and 90-days have elapsed, which resulted in a Notice of Objection being accepted. The Tax Court is encouraging the CRA to exercise leniency with respect to whether taxpayers comply with the formal requirements of the Income Tax Act in this contextDespite not make a formal application to extend time, the taxpayer had demonstrated an attempt to dispute the reassessments and had otherwise satisfied the four requirements for the granting of an extension of time to object.[21] Taxpayer “took reasonable steps to comply with the law and acted on incorrect written information given by the CRA.[22]

Strict Compliance Required

It is important that the Income Tax Act and Tax Court Rules be followed. There are few, if any, latitudes given to taxpayers.[23] For example, oral communications with CRA does not amount to an extension application for filing an objection.[24] Some tax payers my point to the shock[25] and complexities of tax affairs[26] as reasons why they failed to follow the rules. However sympathetic, the Tax Court cannot bend the rules.[27]

The presence of evasive or uncooperative behavior, sophisticated knowledge or experience, general insouciance and lack of dispatch upon learning of any deficiency will destroy the foundations of a reasonable misapprehension of a perfected appeal.[28]


We have blawged about the Leroux[29] case, in which the CRA was found to have a duty of care when dealing with taxpayers. Mr. Leroux was recently interviewed, and gave perhaps the most succinct summation of our views on dealing with the CRA, and the best plug for tax lawyers that we have ever heard (at least from someone who is not a tax lawyer): “First, don’t ever let [the CRA] touch your documents, or remove them. Copies only. Itemize everything. Second, cooperate and pay what you owe but if you don’t agree with an audit, then go to the team leader and ask for a review. Then hire a good lawyer, and go directly to Tax Court because if you don’t they’ll delay for years, and keep adding on penalties.” Amen, Brother!

The Canadian tax system is complicated, confusing and entirely non-obvious. And we have only discussed in this note the rules up until getting into the Tax Court… After that, it just gets more complicated. So dealing with the CRA on your own is hazardous to your health and wealth. If you get audited or reassessed, please just call us ASAP. Before its too late.

by Jonathan Garbutt, Barrister & Solcitor, and Raminder Pandher, Student-at-law

[1] Income Tax Act, RSC 1985, c 1 (5th Supp) [Income Tax Act].

[2] Tax Court of Canada Rules (General Procedure), SOR/90-688a [Tax Court Rules].

[3] Furlong v. The Queen, 2014 TCC 69.

[4] Income Tax Act, s. 152.

[5] Income Tax Act, ss. 152(2).

[6] Income Tax Act, ss. 152(3.1).

[7] Income Tax Act, ss. 152(4.01).

[8] Income Tax Act, ss. 165(1).

[9] Income Tax Act, ss. 165(1).

[10] Bush v. The Queen, 2014 TCC 97.

[11] Hanson v. The Queen, 2013 TCC 341.

[12] Furlong supra at 3.

[13] Palubjak v. The Queen, 2013 TCC 285 (CanLII)

[14] For a corporation, 50% of tax is payable regardless.

[15] The taxpayer can also initiate the Appeal 90 days after the Objection is served.

[16] Income Tax Act, s. 166.1.

[17] Income Tax Act, ss. 166.1(7).

[18] Breathe E-Z Homes Ltd. v. M.N.R., 2014 TCC 122.

[19] Income Tax Act, s. 166.2.

[20] Akal Sahai Development Ltd. v. The Queen, 2014 TCC 98.

[21] Lambo v. R., 2011 TCC 293.

[22] Melanson v. R., 2011 TCC 569.

[23] Hanson v. The Queen, 2014 DTC 1003.

[24] Bush v. The Queen, 2014 TCC 9.

[25] Legault v. The Queen, 2013 TCC 313.

[26] Palubjak v. The Queen, 2013 TCC 285 [Palubjak].

[27] Moon v. R., 2010 TCC 393.

[28] Gidda v. R., 2013 TCC 190.

[29] Leroux v Canada Revenue Agency, 2014 BCSC 720