One Of The Common Objection Mistakes - Missing The Deadline

There have been many times that a potential client contacts me (or any tax lawyer) to discuss filing a notice of objection to challenge a notice of assessment from the Canada Revenue Agency ("CRA"). The potential client seems to have a good legal position.  Then, I ask for the notice of assessment date and --- yikes --- it is more than 3 months ago. 

The deadline to file a GST/HST notice of assessment is 90 days from the date on the notice of assessment.  Three months is a short amount of time that seems to tick by quickly.  Some of that time passes while the notice of assessment is in the mail.  Some of the time is spent looking for a tax lawyer.  Unfortunately, some of the time is spent avoiding the issue of a GST/HST assessment.

If a taxpayer misses the 90 day deadline, is there any chance to still file a notice of objection?  The answer is that it depends..  Section 303 of the Excise Tax Act gives taxpayers an opportunity to apply to the Minister for an extension of time to file a notice of objection within one year of the expiration of the 90 days deadline.  In the application for an extension of time, the taxpayer must:

1) demonstrate that within the 90 day deadline for the notice of objection the taxpayer was unable to act or give instructions to a representative to file a notice of objection OR the taxpayer had a bona fide intention to object; and

2) give good reasons why the Minister should grant the application for an extension of time.

It is not a sure thing that the Minister will grant an extension of time to file a notice of objection.  We have been successful in receiving an extension of time when a client did not receive the notice of assessment, where the client asked for information from the auditor and was waiting for the information, where the client continues to discuss the audit file with the auditor or a supervisor after the date of the notice of assessment (and the T2020 report has recorded this contact), and when the client has communicated with the CRA about a desire to object.

It is important to note that while a telephone call does not constitute a notice of objection, telephone calls can evidence a desire to object.  That being said, if the notice of assessment was issued in 2013 and you contact a lawyer in 2016, the 90 days plus 1 year period for seeking an extension of time will have expired. In this scenario, there is no opportunity to file a notice of objection late.

If the Minister rejects an extension of time request, the taxpayer may appeal to the Tax Court of Canada to have the extension of time reconsidered (see section 304 of the Excise Tax Act). The Tax Court of Canada may dismiss the request or grant the request. The taxpayer must be able to present the Tax Cort of Canada with evidence that they intended to object to the assessment and that it would be just and equitable to grant the extension of time to file the notice of objection.  The Tax Court will not be moved by arguments that the taxpayer forgot about the deadline.

What are the Typical Steps in a Tax Court of Canada Appeal?

Most Canadians know about the Tax Court of Canada, but are not aware of the typical steps in a GST/HST appeal proceeding before the Tax Court of Canada. The following is a list of the typical steps in an appeal under the general procedure rules (which is different than an informal procedure appeal - but similar):

1. The Notice of Appeal: The taxpayer (called the Appellant in the appeal) commences an appeal by filing with the Tax Court of Canada a Notice of Appeal and paying the applicable filing fee.  The Tax Court of Canada Rules sets out what must be in a Notice of Appeal.

2. Service of the Notice of Appeal: The Appellant files the Notice of Appeal with the Tax Court of Canada and provides 2 copies of the Notice of Appeal.  If the Appellant would like a stamped copy, they provide three copies.  The Tax Court of Canada serves the Department of Justice (the Department of Justice provides lawyers to Crown Agencies, such as the Canada Revenue Agency and defends the appeal).

3. The Reply: The Department of Justice must file with the Tax Court of Canada the Canada Revenue Agency's reply within 60 days after service of the Notice of Appeal and serve it on the Appellant within 5 days after the 60 day deadline. The Reply must set out information required by the Tax Court of Canada Rules.  Generally speaking, the Reply sets out which facts in the Notice of Appeal that the CRA admits, which facts in the Notice of Appeal that the CRA denies, which facts in the Notice of Appeal that the CRA claims no knowledge and the CRA's facts and assumptions that for the basis of the assessment.

4. The Answer: The Appellant has 30 days after service of the Reply to file with the Tax Court of Canada the Answer.  It is not mandatory to file an Answer. The Answer identifies new facts that must be provided in light of the Reply by the CRA.  The Answer must set out the information required by the Tax Court of Canada Rules.  Generally speaking, the Answer sets out which facts in the Reply that the Appellant admits, which facts in the Reply that the Appellant denies, which facts in the Reply that the Appellant claims no knowledge and additional relevant facts that will be put forth by the Appellant in the proceedings.  If an Appellant does not file an Answer, then he/she/it is deemed to deny all the allegations of fact put forward in the Reply.

5. List of Documents: Both the Appellant and the CRA file and serve a list of relevant documents within 30 days of the close of pleadings. In practice, the exchange of lists of documents may take longer.  The list of documents is a list and not the documents themselves.  Both the Appellant and the Respondent prepare a list of all relevant documents known to the party at the time which may be used in the proceedings as evidence by the party.  Either side may later ask for the production of any document listed. In practice, the Appellant will review the Respondent's List of Documents and ask for the production of documents that are not contained on the Appellant's List of Documents.  The same holds true for the Respondent.

6. Examinations for Discovery: Both the Appellant and the Respondent (the CRA) are entitled to ask questions to discover the what testimony may be provided in the case 9and to attempt to narrow the issues to be decided in the case).  Often the Department of Justice asks to examine the Appellant (if an individual) or the key personnel (if the Appellant is a business entity). Sometimes accountants and advisors are examined. The Appellant may examine the auditor, the CRA's appraiser, an appeals officer or another relevant person. A court reporter records the examination if it is in oral form.  Sometimes the examination may proceed by way of written questions.  The testimony is given under oath.  There is no timeline for the examinations for discovery.

7. Undertakings: During the examination for discovery, a party may not be able to answer a question or a document may be discussed that has not been exchanged.  The examiner will ask for an undertaking for the answer to be provided in writing or a document be provided. A list of Undertakings is exchanged shortly after the examination for discoveries.

8. Motions and Questions Presented to the Court: Sometimes examinations for discovery may be frustrated by refusals to answer questions and legal issues arising. When problems arise in the process, they are generally dealt with my a motion to the Tax Court.

9. Hearing Date Application: The Appellant and the Respondent jointly apply for a hearing date to be set after the examination for discoveries and the satisfaction of undertakings has occurred. The parties must indicate the number of days that will be required for the hearing,  In practice, the parties discuss lists of witnesses and a litigation plan is created by the Appellant's counsel. Calculating the number of days required for a hearing is not a science, but the litigation plan helps.

10. Pre-hearing Conference and Pre-Hearing Conference Brief:  After the hearing date has been set, the Tax Court of Canada may set a pre-hearing conference date (or the parties may apply to the Tax Court for a pre-hearing conference).  A judge will preside over the pre-hearing conference, but that judge will not ultimately hear the case. The purpose of the pre-hearing conference is to narrow the issues.Often the pre-hearing conference judge will give a first impression of the evidence and this may lead to a settlement because the weaknesses of the case are discussed. The Appellant provides a short Pre-Hearing Conference Brief in connection with the pre-hearing conference setting out the issues, the Appellant's theory of the case and propositions of law to be relied upon at the hearing. Where the parties have requested more than three days for the hearing, the Court may discuss the scheduling of the hearing in order to reduce the number of days needed for the proceeding.

11. Hearing:  This is the big event.  The witnesses testify and the arguments are presented. The Appellant and the Respondent will be required to file documents and books of authorities and detailed arguments prior to the hearing. During this time, settlement discussions may occur.

In addition to the above steps, there may be motions (e.g., the Department of Justice may ask the Court  to strike parts of the Appellant's proceedings, the Appellant may ask the Court  to strike parts of the Respondent's proceedings, either may bring jurisdictional questions to to the court, either may bring a motion to compel production of certain documents, etc) and request examinations of non-parties. Litigation may take many twists and turns.

HST Place of Supply Rules for Litigators and Those Who Provide Litigation Services

Warning: On April 30, 2010 the Department of Finance released draft place of supply rules regulations that supersede/override the information in this post.  Please do not rely on the information in this post.

The HST place of supply rules include a specific rules for "services rendered in connection with litigation". These rules apply to lawyers, process servers, transcription service providers, those who provide expert opinions in connection with litigation, etc.

Rule #1: The general place of supply rules for services will apply to criminal, civil or administrative litigation services provided prior to the commencement of such litigation.  The general place of supply rule focuses on the billing address of the client and the place where the services are performed..  There is a hierarchy of 4 place of supply rules that are applied in order.

For example, if a person hires a lawyer to discuss whether the facts warrant litigation, the general rules apply.  If a person hires a lawyer to sue an opponent and discussions lead to a settlement before a statement of claim is filed with the Court, the general place of supply rules would apply. 

Rule #2: The general rules for services will not apply to litigation services rendered after the commencement of litigation. In other words, if there is an initiating document (such as a statement of claim) Rule 2 applies and Rule 1 does not apply.

Rule #3: If litigation has commenced, a supply of a service rendered in connection with criminal, civil or administrative litigation in an HST province will be regarded as being made in that HST province.  In other words, if the litigation is in the Ontario Superior Court of Justice and you have a court file number assigned, HST at the rate of 13% applies.

Rule #4: If litigation has commenced, a supply of a service rendered in connection with criminal, civil or administrative litigation in a non-HST province (e.g., Alberta) will be regarded as being made in that non-HST province.  In other words, if the litigation is in Alberta and you have a court file number assigned, HST will not be applicable to the services in connection with the litigation (however GST will be applicable).

Rule #5: If a supply of services in respect of litigation is supplied to a non-resident of Canada, the zero-rating provisions may apply to both the GST and HST component. The HST place of supply rules do not override the zero-rating provisions for exported services and professional services.

The HST place of supply rules do not currently distinguish between federal court litigation and provincial court litigation. As a result, it is not clear whether filing a Tax Court of Canada case in Alberta will save the litigants HST.  It is also not clear whether all pre-hearing meetings and the trial must take place in Alberta if the case is filed in Alberta.

It is also not clear whether all cases filed with the Canadian International Trade Tribunal, which is located in Ottawa, will be subject to Ontario HST at 13% even if the affected litigant is located in Alberta. The same confusion will hold true for many other administrative tribunals with all the powers of a superior court of record, such as the CRTC, the Competition Bureau, to name a few. There are a number of federal statutes that create administrative tribunals and a number of federal statutes establish appeal rights only to that federal tribunal that happens to be located in the nation's capital, Ottawa, which is located in the HST Zone. it will be interesting to watch whether access to justice issues are raised by persons (such as individuals) who cannot recover HST costs.

Another question is whether an arbitration is "litigation" under the place of supply rules and, therefore, subject to the specific place of supply rule discussed above that bases the application of HST on the place of the filing. If the Canada Revenue Agency takes the position that an arbitration is caught by the rules, arbitration centres in the HST Zone may not be popular with Canadian parties. Also, business law lawyers and in-house counsel may have to reconsider contractually stipulating that Ontario or British Columbia as the place of arbitration in contracts.

Lawyers should consider whether their clients can save HST based on the place of filing and should start asking the questions as part of their litigation strategy now --- given that litigation filed today will likely continue after HST implementation.

Lawyers and service providers should also recognize that the place of supply rule for pre-filing services is different than post-filing litigation services. Therefore, one file might involve a change in the HST rate. When this happens, it is best to open a new file at the time of the filing of the initiating document.