Notice of Objection: from Drafting to Resolution The Statutory Right to Redress The legislation administered by the Canada Revenue Agency including the Income Tax Act, Excise Tax Act, Excise Act 2001, Air Traveler's Security Charge Act, Softwood Lumber Products Export Charge Act, Canada Pension Plan, and the Employment Insurance Act, all have specific references to Canadians fundamental right to redress in their dealings with the federal government. 2
T.C.J. Bowman (Retired) The system of objection and appeals is one that works well. Indeed, in my experience it is one of the best in the world. At every stage taxpayers are entitled to meet with representatives of the government in an attempt to resolve outstanding issues. The result is that many disputes are settled. The success of the system requires good faith and openness on both sides. 3 Appeals Branch Mandate > To resolve disputes arising from decisions made under legislation administered by the Canada Revenue Agency by conducting fair and impartial reviews. > Collaborate with the Department of Justice in the conduct of court cases. > Agency-wide leadership of the CRA s Taxpayer Relief Provisions and Service Complaints. 4
Appeals Reorganization > Appeals was reorganized as of April 1, 2007 in Ontario > Starting in April 2008, CRA assumed the administration of CTAO > Distribution of Appeals workload in Ontario was determined by whether the objection related to a large file vs. non large file 5 Appeals Reorganization > Large files for the Ontario Region are managed from the Toronto North TSO under a Chief of Appeals. > Non large files in the Ontario Region are managed by five Regional Chiefs of Appeals who are located in Toronto East, Toronto West, Sudbury, Ottawa and London. 6
7 Appeals Branch > Income tax appeal activities are located in 36 field offices > 5 Tax Centres > 31 Tax Services Offices > GST appeal activities in 27 field offices; CPP/EI in 7 field offices. > Field appeals offices are headed by a Chief of Appeals (13) who has delegated authority to decide cases, and reports to the Assistant Commissioner, Appeals, for functional direction and the quality of decisions. 8
Appeals Branch > HQ Appeals Branch supports field operations through functional direction and guidance, quality assurance reviews, determining and allocating resources, and coordinating court cases of regional or national significance. > HQ Appeals instructs the Department of Justice on cases that will be litigated through the Federal or Supreme Courts. 9 ONTARIO REGION CHIEFS London TSO Non Large File Objections & CPP & EI London - 5 teams Windsor - 1 team Kitchener/Waterloo - 3 teams Ottawa TSO Non Large File Objections & Litigation Sudbury TSO Screening & Objections Ottawa - 6 teams Belleville - 1 team Peterborough - 1 team Toronto Centre TSO - 1 team (Litigation) Screening - 2 teams Projects - 4 teams TSO Officers - 1 team Control - 1 team Toronto North TSO Large File Objections Toronto West TSO Non Large File Objections Toronto North - 1 team Toronto West (Mississauga) - 3 teams Hamilton - 2 teams St. Catharine's - 2 teams 10
Independence of Appeals > Previous Audit staff with experience > Equitable, impartial and expeditious review > Audit/Appeals Protocol outlines the roles and responsibilities of auditor and appeals officer in resolving the dispute 11 Drafting an Effective Objection > Technical requirements > Where is the dispute expected to end up? > The facts 12
Disclosure Rules For Notices of Objection > Large corporation rule: s.165(1.11) ITA: Where a large corporation that was a large corporation in a taxation year (within the meaning assigned by subsection 225.1(8)) objects to an assessment under the Part for the year, the Notice of Objection shall 13 Disclosure Rules For Notices of Objection (a)reasonably describe each issue to be decided; (b)specify in respect of each issue, the relief sought, expressed as the amount of a change in a balance (within the meaning assigned by subsection 152(4.4)) or a balance of undeducted outlays, expenses or other amounts of the corporation; and (c)provide facts and reasons relied on by the corporation in respect of each issue. 14
Disclosure Rules For Notices of Objection > Parallel provision for GST/HST for specified persons : s. 301(1.2) ETA and for RST: s.24(1.1) 15 Limitations on Further Appeals & Objections > Ss. 169(2.1) ITA and 306.1(1) ETA impose limitations on large corporations and specified persons > If the disclosure requirements are not met, the taxpayer is prohibited from raising new issues or revising the relief sought on appeal to the Tax Court > No prohibition if issue raised for the first time by CRA in a reassessment issued by the Appeals Division 16
Late Compliance with Disclosure Rule > Ss. 165(1.12) ITA and 301(1.3) ETA > Where a large corporation/specified person s NOB does not meet the disclosure requirements, the CRA may request the required information in writing > If the request is satisfied within 60 days, the disclosure requirements are deemed to be met 17 Where will the dispute end up? > Small file > NOB may be the final stage > Re-audit > Purpose to have appeals officer conduct a proper audit > Matter destined for Court > CRA policy/ruling 18
> Art not science > My philosophy 19 The Facts Focus on the facts 20
Filing the Notice > All objections are routed to an Intake Centre, regardless of where they are first mailed to, or hand delivered > NOO are forwarded to the Intake Centre > Filing directly with the Intake Centre is recommended > Mail, fax, courier, hand delivery and internet filing are all acceptable methods for filing > Content more important than method 21 Time Limits > Taxpayers have 90 days to file a Notice of Objection from the date of the assessment. > Individual taxpayers have the later of one year from the due date for filing the return or 90 days from the assessment. 22
Extension of Time Objections > The conditions for time extension applications are detailed in the following provisions of the legislation: > Extension of time by Minister: ITA 166.1 or ETA 303 > Extension of time by TCC: ITA 166.2 or ETA 304 > The time limit for requesting an extension is within 1 year from the expiration of the 90 day objection period. 23 Extension of Time Objections > The application for extension of time must: > set out the reasons why the objection was not served or made on time; and > include a copy of the Notice of Objection. > The application should be addressed to the Chief of Appeals in a TSO or a TC. 24
Processing the Notice > Intake Centre Responsibilities: > Intake Centre screens and registers items and all non- Appeals correspondence is forwarded accordingly. > Files are screened for validity, nil assessment, issues in dispute and applicable tax, complexity and whether part of a group. > Acknowledgement letter is issued and codes are set to delay collection activity for Income Tax only. 25 Processing the Notice > Files are completed where possible, stored in inventory for TSO s or sent to TC s where applicable. > Correspondence addressed to Appeals is forwarded to the Intake Centre if already dealing with an officer, address correspondence directly. 26
Processing the Notice > Appeals Officer s Role > Prior to Initial Contact > Initial review of file to determine validity, issues in dispute, reasons for objecting and any supporting information provided > Review of the CRA records and documents to ascertain the basis for the assessment and facts and reasons relied on 27 Processing the Notice > Determine whether all information required to make a decision is available and make requests accordingly 28
Processing the Notice (cont d) > File involvement/resolution > All relevant facts, arguments and supporting documentation should be provided to facilitate resolution of the objection > New information supplied at objection stage will be referred to audit if voluminous > Questions of interpretation of law or policy can be referred to HQ Appeals (TCAD) > Objection decisions and reports are approved by a Team Leader or the Chief of Appeals > Chief involved on an exceptional basis 29 Some Reasons For Delay > Objections held in abeyance pending court outcome > Referral to Competent Authority > Common issues require consistent treatment > Mandatory referral for tax avoidance and international issues 30
Mandate of the Appeals Branch > P148, Resolving Your Dispute: Objections and Appeal Rights under the Income Tax Act: [T]o provide a fair and impartial process to resolve disputes, service complaints and requests for relief Our highly skilled workforce will conduct these fair and impartial reviews by actively engaging in dialogue and utilizing alternative processes when appropriate. > Income Tax Act ss. 165(3) reconsider the assessment and vacate, confirm or vary the assessment or reassess and ( ) notify the taxpayer in writing 31 Mandate of the Appeals Branch > No discretion Minister must act on the basis of the facts as he finds them and in accordance with the law as he understands it. > Ludco Enterprises Ltd. v. The Queen, [1995] 2 FC 3 at par 43. (FCA) (leave to appeal to the SCC denied, SCC No. 24573). > Settlement must be made on a principled basis > Galway v. MNR, [1974] 1 FC 600 > CIBC World Markets Inc. v. The Queen, 2012 FCA 3 32
Settlements > Questions of fact can be settled. > Questions of law cannot be negotiated. > Waiver of objection and appeal rights. > Settlements must be based on the facts and the law. No provision for compromise type of settlements. 33 Establishing objectives consider > Basis for the assessment/reassessment > Factual or legal issue? Both? > Misunderstanding with respect to facts? > Legal issue requiring intervention of lawyer > Burden > Strength of the case > Evidence available, state of law 34 > History at audit level (who was involved? Binding decisions made?)
Establishing objectives consider (2) > Time > Backlog at Appeals Branch > Increased number of Appeals to TCC, but timeline established by Rules > Payment of amount(s) in issue > Client s tolerance to risk and delays > Client s financial means 35 Pursue Objection or File Appeal > Advantages of Appeal after 90 days > New interlocutor (Department of Justice) > Can assess quality of evidence / legal issues > More at distance from audit (large corporations : same TSO reviews objection) > Timeline dictated by Court Rules > Ultimately, review by Court 36
Pursue Objection or File Appeal > Advantages of pursuing Objection > Could prove effective if issue relates to misunderstanding of facts or facts not disclosed at audit stage > If similar file(s) more advanced in the dispute process > Possibly avoiding litigation costs related to appeal process (list of documents, examinations for discovery, pre-trial conferences, etc.) > DOJ receives instructions from Appeals Division 37 Interaction with the Appeals Officer > Objective: favorable resolution of dispute > How achieved? > By demonstrating to appeals officer that if appeal proceeds further: > outcome will favor client, or > be equivalent to settlement offer (e.g. valuation case) 38
Interaction with the Appeals Officer > Demonstration > Drafting of NOB or more required > Follow up phone or in writing > Follow up required in actual context > Face-to-face meeting (consider requesting in NOB) 39 Interaction with the Appeals Officer > Follow up submissions > Effective use of jurisprudence > Deck, PowerPoint presentation along with description of facts > With backlog, increase your chance by assisting appeals officer 40
Interaction with the Appeals Officer > Involvement of Supervisor / Head Office > Do not bypass appeals officer > Issue must be important 41 Interaction with the Appeals Officer > Written process > Could involve Rulings Division or industry specialist > Make sure that taxpayer s position is properly conveyed > Face-to-face meeting (consider handing written submissions) 42
Interaction with the Appeals Officer > Involvement of Department of Justice lawyer > Effective with respect to legal issues, but also to assess merits of evidence > Make sure taxpayer s position is properly conveyed > Request face-to-face meeting in certain cases > e.g. s. 173 ITA reference 43 Appeals to Tax Court > If taxpayers do not agree with our decision, they may appeal to the Tax Court of Canada. > The Tax Court has to receive your Notice of Appeal within 90 days from the mailing date of our Notice of Confirmation or Notice of (Re)Assessment http://www.tcc-cci.gc.ca/appeal_e.htm > The application for time extension can be made within 1 year after the expiration of the time limited by sec. 169, ITA and sec.305, ETA for appealing (i.e., within one year after the 90 day period). 44
Appeals to Tax Court > The CRA s Litigation Offices in conjunction with the Department of Justice will handle most appeals to the Tax Court of Canada. > HQ Appeals Officers service files appealed to Federal Court of Appeal and the Supreme Court of Canada. > The Appeals Branch has 6 regional litigation offices: > Halifax (Atlantic), Montreal (Quebec), Toronto (ORO), Ottawa (ORO), Edmonton (Prairies), Vancouver (Pacific) 45 Role of Litigation Officer > DOJ acts as the Federal Government's law firm. The AG is the chief law officer of the Crown and is the appellant's point of contact for all enquiries or submissions related to an appeal. 46
Role of Litigation Officer 47 > A litigation officer is the link between the DOJ and the CRA. The litigation officer is the instructing officer, directing DOJ counsel on behalf of the Minister of National Revenue. The litigation officer provides the assistance necessary to inform DOJ counsel of the Minister's position, to ensure that counsel handling an appeal has the information he/she needs to conduct the case. Assistance is provided by drafting or reviewing the Reply to the Notice of Appeal, analyzing the appellant's submissions and arguments, arranging witnesses, and/or considering settlement offers. In addition, the Litigation Officer reviews adverse decisions and considers whether to recommend a further appeal. Volumetrics > The Appeals Branch administers the Government of Canada s largest administrative dispute resolution service. > In any given year, the Appeals Branch receives anywhere from 80,000 to 110,000 objections (requests for formal administrative reviews of disagreements). 48
Statistics objections** As of March 31, 2011 > Inventory: > 183,756 files > 28,595 workable > 155,161 non-workable ** - Income tax only GST 1/10 49 Statistics objections Received Processed 2006-07 60,158 74,414 2007-08 78,845 45,535 2008-09 84,079 43,868 2009-10 106,080 57,254 2010-11 93,959 61,035 50
Statistics objections Allowed Varied Confirmed Increased 06-07 22% 18% 60% <1% 07-08 35% 28% 36% <1% 08-09 38% 26% 36% <1% 09-10 39% 25% 35% 1% 10-11 36% 28% 35% 1% 51 Statistics litigation > As of September 30, 2011: > 7,090 cases before the courts > 6,394 Tax Court of Canada > 216 Federal Court > 161 - Federal Court of Appeal > 19 - Supreme Court of Canada (8 appeals & 11 leave applications) > 300 - Other courts (provincial, etc.) 52
Statistics litigation > 2010 2011, TCC Allowed Varied Dismissed 16% 41% 43% - 3,439 judgements issued 53 Statistics litigation > 2003 2011, FCA > decisions in favour of the CRA: > 84% > decisions in favour of taxpayers: > 16% 54
Questions? 55