I Object!

FORUM Magazine

2010-05-01



Tips on how to handle a disagreement with CRA

By now, chances are both you and your clients should have received your formal Notice of Assessment for the 2009 tax year.

If you disagree with CRA’s assessment, it is probably best to try to resolve the matter informally, discussing it with your local tax services office, as most issues can generally be resolved either by phone or through a casual meeting.

However, if you find yourself unable to resolve the issue informally, you do have the right to file a formal Notice of Objection, which must be in writing and clearly set out the reasons why you are objecting.

After the CRA has reviewed your Notice of Objection, it will either issue a reassessment or a confirmation that the assessment was correct. You then have 90 days from the date of the CRA’s review of the objection to appeal to the Tax Court of Canada. Note, however, that if the CRA hasn’t responded within 90 days of filing of your Objection, you can go directly to the Tax Court.

Two recent cases, each with a different outcome, dealt specifically with both the form and timing of a Notice of Objection.

Schneidmiller v. The Queen (2009 TCC 354)

The first case involved Robert Schneidmiller who lives in Saskatchewan. He was in court to request an extension of his deadline to file Notices of Objection to reassessments of his 2002, 2003 and 2004 taxation years. The reassessments were issued in April 2006.

He phoned the CRA in Regina complaining that the reassessments incorrectly showed his “gross” rather than his “net” income and were therefore not correct. CRA advised him to file “T1 Adjustment Request” forms for each year, which he filed in May 2006.

Having heard nothing for nearly 18 months, Mr. Schneidmiller inquired as to the status of his adjustments and was told that even though they had been received, the CRA couldn’t “locate” them and he was asked to resubmit them, which he did in November 2007.

In January 2008, he telephoned the CRA, which told him he should file formal “Notice of Objection” forms, which he did in February 2008.

Then in March, the CRA advised him that he was now too late to object to the Notices of Reassessment dated April 2006.

The judge pointed out that an “objection” is not specifically defined or described in the Income Tax Act, “(n)or should it be. It is a matter of substance, not form.” The judge concluded that Mr. Schneidmiller’s Adjustment Requests forms submitted —twice! — constituted “Notices of Objection” and as a result, they were indeed filed on time.

Fidelity Global Opportunities Fund v. The Queen (2010 TCC 108)

The second case involved mutual fund manager Fidelity Investments Canada ULC and concerned an objection to a Notice of Assessment for its Global Opportunities Fund.

In the mutual fund’s 2006 tax return, it carried forward and applied a capital loss from its 2002 taxation year to offset capital gains arising in 2006.

In January 2008, the Canada Revenue Agency reduced the amount of capital losses which the Fund could apply in calculating its 2006 taxable income.

In February 2008, less than three weeks after receiving the Notice of Assessment denying the loss carryforward, Fidelity sent a letter to the CRA’s Ottawa Technology Centre stating that it disagreed with the 2006 assessment and requested two adjustments to its return.

It was Fidelity’s belief that this letter constituted a valid notice of objection.

Under the Income Tax Act, a taxpayer who objects to an assessment has to file a “notice of objection, in writing, setting out the reasons for the objection and all relevant facts.”

The Act goes on to state that the notice must be addressed and delivered to the “Chief of Appeals in a District Office or a Taxation Centre” of the CRA.

The Judge concluded that the letter written by Fidelity and addressed to the Ottawa Technology Centre was not addressed to the correct area of CRA and thus did not constitute a validly filed notice of objection.

As the Judge explained, “There are good reasons why (the Act) specifies that a notice of objection shall be served on the Chief of Appeals…If objections are not served (to the Chief of Appeals), then it would be next to impossible for the (CRA) to keep proper records and to ensure that the objections are dealt with ‘with all due dispatch.’”

While the Tax Act does permit the CRA to accept a notice of objection that was not correctly filed, in this case CRA refused to do so and the Judge had no discretion to interfere with that decision. As a result, Fidelity’s objection was invalid and the assessment for 2006 stood.

A sobering lesson for Fidelity and an important warning for the rest of us.