CRA Tax Disputes & COVID-19
As the ongoing Coronavirus outbreak makes far-reaching changes across Canadian society, the Canadian tax system is feeling the effects. In particularly, it has immediately suspended swaths of the dispute resolution mechanisms under tax legislation. This has upsides and downsides for taxpayers involved in contentious tax matters.
First, CRA has hit the pause button on audit activity of small and medium sized businesses. For taxpayers who are waiting to get a response to their defence against an audit, this can cause additional stress while waiting for a decision. Tax is only very rarely collectible during this time, and so it does buy additional time for taxpayers who hope to defer collections.
CRA has also temporarily shuttered the Appeals Division. This both manages objections and provides direction to the Department of Justice in tax appeals. Taxpayers can expect that it will take significantly longer to receive confirmation of receipt of or decisions on objections and can expect delays in response time for settlement offers in Tax Court appeals.
Suspension of the appeals division does not suspend statutory deadlines for objections. While the Federal government extended the filing deadline for a broad range of tax returns, they have the statutory power to do so under subsection 220(3) of the Income Tax Act. The CRA does not have this power under the related subsection 220(2.1) with respect to objections filed more than one-year-and-ninety days after an assessment or reassessment following a decision in Canada (National Revenue) v. ConocoPhillips Canada Resources Corp., 2017 FCA 243. As such, absent a legislative amendment, taxpayers should be very careful about meeting objections deadlines, notwithstanding a significant backlog in resolving them.
In terms of appeals, the Tax Court of Canada recently released a practice direction suspending the effect of timelines provided for under the Court’s rules. This relieves both the Department of Justice and taxpayers’ representatives from their obligations to meet deadlines imposed under the Court’s Rules (including, for example, the 60-day period for Justice to file a Reply to the taxpayer’s Appeal) and under orders (for example, the parties’ obligations to list documents they intend to disclose).
However, taxpayers should be very cautious about relying too much on this practice direction. Taxpayers generally have 90 days from the date of a notice of confirmation or reassessment following an objection to file a Notice of Appeal; they can request an extension for up to a year. The Tax Court does not have jurisdiction to extend this deadline, and absent legislative amendments, taxpayers may be left out in the cold if they do not handle tax disputes for the duration of the pandemic.
The Federal Court, which handles some tax matters in the form of judicial reviews and most of the CRA’s audit powers, and the Federal Court of Appeal, which handles appeals from both courts, have issued a similar practice direction.
If you would like to discuss any of these matters with a member of our tax law team, we welcome you to contact us at (416) 631-7227 to arrange for a consultation. We intend to operate throughout the pandemic and can help you meet statutory filing deadlines.
Most common tax issues allow the taxpayer ninety days to file a notice of objection, which initiates the CRA’s formal dispute resolution mechanism. In most (but not all) cases, the CRA provides an additional one-year within which to request an extension of time to file an objection may be filed. Taxpayers must meet some conditions for the CRA to grant these requests, although the CRA is generally quite generous in allowing these extensions.
However, beyond this one-year period, CRA does not have discretion to allow extensions, virus or no virus. After that point, it can be possible for the CRA to address some tax issues through filing an amended return or requesting an adjustment. A lapsed objection deadline makes obtaining adjustments much more difficult.
Over the next few months, due to the Coronavirus (COVID-19) pandemic, it may significant additional time for the CRA to confirm receipt of any objection and/or allow extension requests. In light of this, taxpayers should be particularly careful about maintaining records of the date they submit objections.
If the CRA has already instituted collections action (e.g., frozen accounts or garnished wages), they have not announced a blanket policy of leniency. However, they have indicated that they will evaluate request to remove such action on a case-by-case basis. It may be difficult for you to find an agent who can assist you with this—while CRA has provided a number to access collections agents, this line has proved extremely busy in recent days.
If the CRA has not instituted collections action yet, you likely have some breathing room during the Coronavirus pandemic, given a stated policy of leniency and the fact that most collections officers have presently been laid off. Taxpayers in this position should watch the CRA’s news closely, as it is not clear yet what will happen in the long term.
CRA has announced that they will waive interest on balances paid prior to the extended filing deadlines for individuals and businesses due to the Coronavirus pandemic. However, they have not made the same policy explicit for reassessments of prior years.
Where the CRA pauses or an audit or defers reassessment of a prior year due to COVID-related delays, taxpayers have a very strong cases for a waiver of interest. Under CRA’s relief policy, COVID is likely an extraordinary circumstance in-and-of itself, and will result in CRA delays, both of which can justify relief. Some auditors and appeals agents will consider requests to waive interest in the course of audits or objections, and particularly given the circumstances, it would be sensible to do so as a matter of course.
As it takes the CRA some time to process voluntary disclosures in most circumstances, the program has almost certainly stopped processing applications. However, particularly given the delay in audit activity during the Coronavirus pandemic, this is likely an opportune time for taxpayers considering making a disclosure to come forward. CRA’s electronic filing system still works, and taxpayers may be able to leverage the pause in audit activity to ensure to wrap up the returns necessary for a valid disclosure.
– James Alvarez, Tax Counsel
© Kalfa Law 2019