Introduction
Once the Canada Revenue Agency completes an audit of a taxpayer’s taxation year, the Canada Revenue Agency may change the amount of the income tax liability of the taxpayer and may also assess penalties and interest. Once the Minister of National Revenue issues a Notice of Assessment or Notice of Reassessment, the taxpayer can file a Notice of Objection with Canada Revenue Agency Appeals and object to the change to the tax liability as well as to the assessment of interest and penalties.
While preparing a Notice of Objection might appear to be a relatively simple process, there are a number of technical provisionscontained in the Income Tax Act and in case law of which taxpayers should be aware. Failure to comply with the requirements may deprive the taxpayer of appeal rights.
General Rules
A taxpayer may object to a Notice of Reassessment when:
- The taxpayer disagrees with the Notice of Reassessment; and
- Tax, interest and/or penalty is assessed.
A taxpayer may even object to its own filing position if the taxpayer subsequently determines that the filing position was incorrect.
Time Limitations For Filing A Notice Of Objection
An individual or a testamentary trust must serve a Notice of Objection on the Minister on or before the day that is the later of the day that is:
- one year after the taxpayer’s filing-due date for the year; and
- 90 days after the sending of the Notice of Reassessment.
A corporate taxpayer must serve the Notice of Objection within 90 days after the Notice of Reassessment was mailed. The date of sending of the Notice of Reassessment is usually the date printed on the Notice of Reassessment, though taxpayers should always compare the date on the Notice of Reassessment with the postmark reflected on the envelope transmitting the Notice of Reassessment.
The Minister may extend the time for serving a Notice of Objection. The taxpayer must apply, to the Minister, for the extension of time and the application must be made within one year after the deadline for serving a Notice of Objection. The granting of an extension of time is at the discretion of the Minister. A taxpayer should not assume the extension is automatic. Among other things, there must have been a bona fide intention to dispute an issue before the expiry of the 90-day deadline. Recourse to the Tax Court is available should the Minister deny the extension of time.
Form And Content Of A Notice Of Objection
A Notice of Objection must be in writing, though a taxpayer is not required to use the Canada Revenue Agency’s Notice of Objection form (the T400A Form). The Notice of Objection is generally signed by the taxpayer or an authorized representative. The Notice of Objection should set out the taxpayer’s reasons for objecting to the reassessment along with all of the relevant facts.
More detail is required from a “large corporation”. A corporation is a “large corporation” if the corporation’s taxable capital, together with the taxable capital of related corporations, exceeds $10-million. This can, therefore, include a corporation which has less than $10-million on the right-hand side of its balance sheet if it has a controlling shareholding with more than $10-million on its balance sheet.
A taxpayer which qualifies as a “large corporation” must:
- Describe each issue to be decided;
- Specify the relief sought; and
- Provide the facts and reasons on which the taxpayer relies on in respect of each issue raised in the Notice of Objection.
The relief sought by a “large corporation” must be expressed as the amount of change in the income, taxable income, taxable income earned in Canada or any loss of the corporation for the year or other amount payable by, refundable to or deemed to have been paid or have been an overpayment or a balance of undeducted outlays, expenses or other amounts.
A taxpayer may file one Notice of Objection for multiple years as long as the Notice of Objection meets the requirements with respect to each issue in each taxation year.
Where To File A Notice Of Objection Form
The Notice of Objection must be addressed to the Chief of Appeals in a District Office or a Taxation Service Centre. The Notice of Objection may be mailed or delivered (e.g., by hand, including courier) to any one of the Canada Revenue Agency’s District Offices or to a Taxation Service Centre. In its publication, “Resolving Your Dispute: Objection and Appeal Rights Under the Income Tax Act”, the Canada Revenue Agency states that a Notice of Objection can also be served by using the Canada Revenue Agency’s online services in “My Account” for personal income tax and benefits or in “My Business Account” for corporation or payroll accounts.
Failure to address a Notice of Objection to the Chief of Appeals and/or deliver the Notice of Objection to the proper place can result in the objection being considered invalid.
The Canada Revenue Agency’s T400A Form for a Notice of Objection is addressed to the “Chief of Appeals” and contains instructions to insert the address shown on the taxpayer’s Notice of Reassessment. The address shown on the Notice of Reassessment is the address of the Taxation Service Centre where the taxpayer’s tax return is processed. Consequently, proper use of the T400A Form should ensure that a Notice of Objection is not considered invalid solely because of having been improperly addressed.
It is no longer necessary to send the Notice of Objection by registered mail. As a practical matter, taxpayers are no longer required to obtain registration receipts (e.g., double registered mail) for their records. However, a taxpayer should ask the Canada Revenue Agency to confirm in writing the receipt of the Notice of Objection or, if delivered by courier, obtain an acknowledgement of courier delivery.
Effect Of Notice Of Reassessment Issued Subsequent To Filing Notice Of Objection
Sometimes the Minister will issue more than one Notice of Reassessment in respect of a taxation year. A new Notice of Reassessment will likely cancel and replace a previous Notice of Assessment or Reassessment when the reassessment relates to the same part of the Act as the earlier assessment or reassessment. In the event of cancellation, a new Notice of Objection must be served by the taxpayer with respect to any issue to which the taxpayer previously objected if the taxpayer wants the Canada Revenue Agency Appeals to deal with that issue.
For example, assume that the Minister issues a Notice of Reassessment for the 2011 taxation year on January 10, 2013. In reassessing the taxpayer, the Minister disallowed the taxpayer’s deduction of business expenses. The taxpayer disagreed with the Minister’s action and served a valid Notice of Objection on the Canada Revenue Agency Appeals. On June 20, 2013, the Minister issued a further Notice of Reassessment and also disallowed the taxpayer’s deduction of capital cost allowance (CCA) in respect of certain assets but made no adjustment in respect of the previously disallowed business expenses. The taxpayer agrees with the disallowance of CCA but wants to keep the objection relating to the disallowance of business expenses “alive”.
The Notice of Reassessment issued on June 20, 2013 automatically cancels and replaces the January 10, 2013 Notice of Reassessment. The taxpayer must serve a new Notice of Objection on the Chief of Appeals and “reobject” to the business expense deduction issue. If the taxpayer does not “reobject” within 90 days of the issuance of the June 20, 2013 Notice of Reassessment, the Canada Revenue Agency Appeals will not further consider the business expenses issue.
Provincial Objections
Taxpayers should always consider whether provincial Notices of Objections need to be filed. It is only necessary for a taxpayer to file a Notice of Objection in respect of the provincial portion of the reassessment when a non-agreeing province levies an assessment. Quebec and Alberta (corporate only) are the only remaining non-agreeing provinces for which the Canada Revenue Agency does not administer the provincial income tax statutes.
When Ontario makes an adjustment based on a federal reassessment relating to taxation years prior to Ontario becoming an agreeing province, the Ontario Notice of Reassessment will likely contain the notation of “designated assessment”. Where the taxpayer files a federal Notice of Objection and agrees to accept the outcome of a federal objection with respect to the particular issue for Ontario purposes, the taxpayer is not required to file a separate Ontario Notice of Objection. The taxpayer, however, must serve a separate Notice of Objection for any issues that it wants to contest provincially but which is not consequential to the federal reassessment.
Know The Facts And Position Of Canada Revenue Agency
Before drafting a federal or provincial Notice of Objection, the taxpayer should review all the facts and documents available which relate to the disputed issue. For example, the taxpayer should obtain a clear understanding of the Canada Revenue Agency’s position in order to best contest the matter in issue. Important sources of information regarding the Canada Revenue Agency’s position are the T20 Auditor’s Report, the T2020 Audit Notes, relevant position papers and the Canada Revenue Agency proposal letters. The Canada Revenue Agency’s policy is that the Canada Revenue Agency auditor should provide at least the T20 Auditor’s Report, to the taxpayer, on request. The taxpayer should also consider whether to file an Access to Information request to obtain additional information from the Canada Revenue Agency files. Although such information may not be available prior to the deadline for serving a Notice of Objection, this information may be useful for purposes of the Canada Revenue Agency Appeals process or the Tax Court litigation process.
Conclusion
Joe Truscott has been assisting his clients and various taxpayers with the preparation and filing of Notice of Objection forms for over 30 years. He has extensive experience in preparing these forms and in negotiating with Canada Revenue Agency Appeals Division..
If you would like to engage Joe Truscott with respect to Notices of Objections or any other income tax matters, please contact Joseph A. Truscott, Chartered Accountant at 905-528-0234 ext: 224, or email Joe at [email protected].
January 2013
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