Even the big guns get it wrong

National Post


With tax season underway, Canadians will begin receiving their Notices of Assessment confirming, or in some cases changing, the amount of tax owing for 2009.

If you disagree with the Canada Revenue Agency’s assessment, you may be tempted to resolve the dispute informally by discussing it with your local tax services office. However, always be mindful of your legal right to formally object, which has both strict deadlines for the process as well as a required format.

A harsh lesson in form over substance was handed down to mutual fund giant Fidelity Investments Canada ULC last week in tax court. It thought it had properly objected 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 CRA reduced the amount of capital losses 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 carry forward, 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 the 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 this tax season.