Going to Court

FORUM Magazine


The downside to an informal procedure decision
by Jamie Golombek

By now, most of your clients will have received their Notice of Assessment in respect of their 2004 tax returns that were filed by May 2, 2005. If your client disagrees with her assessment, she may wish to try to resolve the matter by discussing it with her local Canada Revenue Agency (CRA) tax services office as most issues can be resolved either by phone or through informal meetings with the CRA.

Notice of Objection

If, however, your client is unable to resolve the issue informally, she has the right to file a formal Notice of Objection, which must be in writing and must clearly set out the reasons why she is objecting. The benefit of a formal objection is that the CRA will generally suspend any collection procedures they may have started to try to collect the tax owing until the appeal is resolved.

After the CRA has reviewed the Notice of Objection, it will either issue a reassessment or a confirmation that the assessment was correct (at least in the CRA's view). The client then has 90 days from the date of the CRA's review of the objection to appeal to the Tax Court of Canada (TCC). Note that an appeal to the TCC may also be made if the CRA delays and does not respond to the Notice of Objection within 90 days.

Tax Court of Canada

When appealing to the TCC, your client may be able to choose one of two paths: the "general procedure" or the "informal procedure". Under the general procedure, formal court procedures must be closely followed and there are many procedural rules applicable throughout the entire appeals process. Although a lawyer is not technically required for a general procedure hearing, it is strongly recommended due to the complex rules of procedure, discovery and evidence.

The informal procedure, on the other hand, is intended "to minimize the legal steps involved in the appeal process" and is limited to tax cases in which the amount of federal tax and penalties in dispute for each taxation year, excluding interest, is $12,000 or less. If the amount in dispute is over $12,000 and your client still wishes to proceed under the informal procedure, she must limit the amount under appeal to $12,000.

Krause versus The Queen

In September 2004, the TCC, under the informal procedure, heard an interesting tax case (Krause v. the Queen, [2004 TCC 594]) involving tuition credits for an online university program.

Under the Income Tax Act, in order for a student to claim tuitions fees for a university outside of Canada, the student must be in "full-time attendance" at the university. The TCC judge concluded that full-time attendance at a foreign university can include full-time attendance through the Internet or online. As he wrote, "[this] view conforms to common sense and to the reality of modern technology".

Originally, this case was seen to be a positive development for many online students, who now could seek some tax relief for their tuition fees, until it was pointed out by the CRA that the case was heard under the informal procedure.

No precedential value

The drawback of informal procedure judgments is that under section 18.28 of the Tax Court of Canada Act, "a judgment on an [informal procedure] ... shall not be treated as a precedent for any other case".

In fact, in a CRA letter (2004-0108331M4) dated February 11, 2005, the CRA was asked whether they would now be adopting the position in the Krause case concerning tuition paid for online attendance.

The CRA refused to change its long-standing position and explained that the requirement of full-time attendance can only be met "if a student physically attends the particular university and would not be met by a student taking courses over the Internet only".

The CRA goes on to dismiss the finding in Krause, stating that this case "does not affect this position since the case was heard under the informal procedure of the Tax Court and, therefore, cannot be used as a precedent for any other case".

That being said, informal procedure decisions, while not technically legally precedential, often do have an influential value on other judges; however, it may take another case, decided under the general procedure, before the CRA formally changes its position on online attendance.