Court actions

Competent courts

Which courts have jurisdiction to hear tax disputes?

The Tax Court of Canada has exclusive original jurisdiction to hear and determine appeals and references arising under Canada’s federal tax laws, including the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan, and Part IX of the Excise Tax Act (goods and services tax/harmonised sales tax). The Tax Court of Canada has 18 registry offices across Canada, and sits in locations across Canada (a list is available here). A list and biographical information about the judges of the Tax Court of Canada is available here. In broad terms, the Tax Court of Canada has the exclusive jurisdiction to determine the correctness of an assessment.

The Tax Court of Canada does not have jurisdiction to review discretionary decisions of the Canada Revenue Agency. Such decisions may instead be reviewed in the Federal Court by way of application for judicial review under the Federal Courts Act.  

There is a body of case law that helps define the jurisdictional boundaries between the Tax Court of Canada and the Federal Court. According to that case law, taxpayers may not instigate proceedings in the Federal Court that in substance are collateral attacks on an assessment. The correctness of assessments may only be adjudicated by the Tax Court of Canada.

Lodging a claim

How can tax disputes be brought before the courts?

Taxpayers that disagree with an assessment issued by the Canada Revenue Agency (CRA) and have not resolved their dispute through the administrative appeal (objection) process, may commence an appeal in the Tax Court of Canada to dispute the assessment. An appeal is commenced by filing a Notice of Appeal with the Tax Court of Canada. In most cases, a Notice of Appeal must be filed within 90 days after the CRA has confirmed the assessment in issue or reassessed. Taxpayers can also file Notices of Appeal if 90 days (for income tax appeals) or 180 days (for goods and services tax or harmonised sales tax appeals) have elapsed after the taxpayer commenced the administrative appeal (objection) process and the CRA has not vacated or confirmed the assessment in dispute or reassessed.

Although there is no monetary threshold for claims, the Tax Court of Canada has two procedures for appeals. The more streamlined and less expensive Informal Procedure is limited to cases in which the amount of federal tax and penalties in dispute for each taxation year, excluding interest, is $25,000 or less (income tax appeals) or $50,000 or less (GST/HST appeals). The Tax Court’s General Procedure applies for all other appeals.

Where the Tax Court of Canada does not have jurisdiction to adjudicate a dispute over a decision of the CRA, such as a decision relating to the exercise of discretion in various circumstances, the taxpayer may challenge the CRA’s decision by filing a Notice of Application for Judicial Review in the Federal Court. The Notice of Application for Judicial Review must normally be filed within 30 days after the decision in issue was first communicated to the taxpayer.

Combination of claims

Can tax claims affecting multiple tax returns or taxpayers be brought together?

Although taxpayers who dispute multiple CRA assessments file separate administrative appeals (objections) in respect of each assessment in dispute, administratively, the CRA will typically deal with multiple assessments issued to a single taxpayer simultaneously if the assessments arise from the same facts. If the dispute moves on to the Tax Court of Canada, a single appeal involving multiple assessments in dispute for a single taxpayer is generally permitted.

Under the Income Tax Act and Excise Tax Act, the Minister of National Revenue may apply to the Tax Court of Canada for a determination of a question if the Minister is of the opinion that the question is common to assessments or proposed assessments in respect of two or more taxpayers and is a question of law, fact or mixed law and fact arising out of the same or similar transactions.

Under the General Procedure Rules of the Tax Court of Canada, if two or more appeals have been filed, the Court has not made a decision disposing of any of the appeals, and the appeals give rise to one or more common or related questions of fact or law, the Court may specify one or more of the appeals as a lead case or lead cases and stay the other related appeals. Once there is a direction to designate a lead case or lead cases, taxpayers in the related appeals are given the opportunity to agree to be bound by the decision in the lead case or cases. If a taxpayer in a related appeal does not agree to be bound by the lead case or cases, the related taxpayer’s appeal is no longer stayed.

Pre-claim payments

Must the taxpayer pay the amounts in dispute into court before bringing a claim?

Taxpayers are not required to pay the amounts in dispute into court as a condition for bringing a claim. 

For income tax appeals, the CRA is precluded from taking most kinds of collection action while an assessment is under administrative appeal (objection) or while the matter is before the Tax Court of Canada. However, for companies that are ‘large corporations’ (as defined in the Income Tax Act), the CRA can enforce collection of one-half of the amount in controversy even if the assessment in issue is under administrative appeal (objection) or while the matter is before the Tax Court of Canada.  Also, for amounts in controversy (other than one-half of the amount in controversy for ‘large corporations’), taxpayers can provide security to the CRA for the amount that is in controversy. For amounts not in controversy, the CRA has discretion to accept security from the taxpayer.

For appeals relating to goods and services tax or harmonised sales tax, there are no collection restrictions imposed on the CRA that correspond to the restrictions for income tax disputes under administrative (objection) or judicial appeal. However, for amounts in controversy, taxpayers can provide security to the CRA for the amount that is in controversy. For amounts not in controversy, the CRA has discretion to accept security from the taxpayer.

Taxpayers may choose to pay all or a portion of an assessment in dispute in order to stop further interest from accruing on unpaid balances.

Cost recovery

To what extent can the costs of a dispute be recovered?

Under the General Procedure Rules of the Tax Court of Canada, costs may be awarded to either (or neither) party in a tax appeal. In exercising its discretion with respect to cost awards, the Court may consider the results of the proceeding; the amounts in issue; the importance of the issues; any offer of settlement made in writing; the volume of work; the complexity of the issues; the conduct of any party that tended to shorten or lengthen unnecessarily the duration of the proceeding; whether any stage in the proceeding was improper, vexatious or unnecessary or taken through negligence, mistake or excessive caution; whether the expense of having an expert witness was justified; and any other matter relevant to the question of costs. There are also rules for increased cost awards if certain written settlement offers are made in the course of litigation.

Under the Informal Procedure Rules of the Tax Court of Canada, the Court also has broad discretion in making a cost award. However, cost awards in favour of the Crown are restricted, and are awarded only if the actions of the taxpayer unduly delayed the prompt and effective resolution of the appeal.

The rules relating to cost awards in the Federal Court and Federal Court of Appeal are comparable to the rules for cost awards in the General Procedure Rules of the Tax Court of Canada.

Third-party funding

Are there any restrictions on or rules relating to third-party funding or insurance for the costs of a tax dispute, including bringing a tax claim to court?

There are no formal restrictions on the use of third-party funding or insurance for the costs of a tax dispute.

Court decision maker

Who is the decision maker in the court? Is a jury trial available to hear tax disputes?

An appeal before the Tax Court of Canada is heard and decided by one judge of that court. An application for judicial review before the Federal Court is also heard and decided by one judge of that court. An appeal, either from a Tax Court of Canada judgment or from a Federal Court judgment on an application for judicial review of a discretionary decision of the federal tax authority, is generally heard by a panel of the three judges in the Federal Court of Appeal. Appeals to the Supreme Court of Canada are heard by a panel of five to nine judges of that court.

A jury trial is not available to hear federal non-criminal tax disputes.

Time frames

What are the usual time frames for tax trials?

The time between the commencement of an appeal to the Tax Court of Canada to the hearing of the appeal can vary tremendously, depending upon factors such as the nature and complexity of the issues before the court, whether there are pretrial matters that must be determined, whether the matter is case-managed by the court, and the court’s own schedule. It is not unusual for two to three years to have passed between the commencement of an appeal and the hearing of that appeal.

Applications for judicial review before the Federal Court from discretionary decisions of the tax authority are often heard within one to two years from the commencement of the application.

Disclosure requirements

What are the requirements concerning disclosure or a duty to present information for trial?

There is a discovery process for appeals before the Tax Court of Canada. A party to an appeal may serve on the other party and file a ‘partial’ list of documents or a ‘full’ list of documents. 

A partial list of documents contains a list of the documents of which the party has knowledge that might be used in evidence (1) to establish or to assist in establishing any allegation of fact in any pleading filed by the party, or (2) to rebut or assist in rebutting any allegation of fact in any pleading filed by another party.

A full list of documents contains a list of all the documents that are or have been in the party’s possession, control or power relevant to any matter in question between or among the parties to the appeal.

Normally, parties serve and file partial lists of documents. Parties may agree to file and exchange full lists of documents or, in the absence of an agreement, either party may apply to the Tax Court of Canada for an order directing that the parties file and exchange full lists of documents.

Discovery examinations may be conducted orally or by written questions. If a party chooses to conduct oral examinations for discovery, the party generally may examine the adverse party once, and the adverse party must select a knowledgeable current or former officer, director, member or employee to be examined on the party’s behalf. If a party chooses to conduct discovery by written questions, responses to the written interrogatories are normally required to be served within 30 days of receipt of the list of questions.

For applications for judicial review of discretionary decisions of the tax authority, there are no lists or affidavits of documents. However, each party in an application may file supporting evidence by way of affidavit. The affidavit may contain exhibits of documents that are relevant to the determination of the application. Each party in an application for judicial review may choose to cross-examine the affiant of the other party.

Permitted evidence

What evidence is permitted in a tax trial?

Oral and documentary evidence are both permitted in a hearing before the Tax Court of Canada. The taxpayer is not required to testify, but usually does testify. Experts, and expert reports, are permitted in tax trials, subject to meeting the legal and court-imposed tests for admissibility (such as relevance and necessity, and service of the expert’s report not less than 90 days before the commencement of the hearing).

Parties in a tax appeal before the Tax Court of Canada often prepare statements (or partial statements) of agreed facts to narrow those facts that might otherwise have to be proven.

In applications for judicial review before the Federal Court, evidence is typically provided by way of affidavit (and exhibits to the affidavits).

If requested, the Tax Court of Canada and Federal Court will provide interpreters for translating from English to French or French to English (English and French are Canada’s official languages). If interpreter services are required for translation from or to any other language, the party requiring the translation is normally required to bear the associated costs.

Permitted representation

Who can represent taxpayers in a tax trial? Who represents the tax authority?

In the Tax Court of Canada and the Federal Court, taxpayers who are individuals may act in person or be represented by legal counsel. Other taxpayers must be represented by legal counsel except with leave of the Court.  A representative of a party under a legal disability before the Tax Court of Canada must be represented by legal counsel, except where the representative him or herself is also counsel acting in that capacity.

In informal procedure appeals in the Tax Court of Canada, parties may also be represented by an agent.

Publicity of proceedings

Are tax trial proceedings public?

Appeals before the Tax Court of Canada, and applications for judicial review before the Federal Court, are normally open to the public. 

For proceedings before the Tax Court of Canada, the taxpayer may apply to the Court for permission to hold the hearing in camera, if it is established to the satisfaction of the Court that the circumstances of the case justify an in camera hearing. Similarly, the Federal Courts Rules provide that, on motion, the Court may direct that all or a part of a proceeding be heard in camera if the Court is satisfied that the hearing should not be open to the public.

Burden of proof

Who has the burden of proof in a tax trial?

The Supreme Court of Canada has described the burden and onus of proof in a tax case as follows:

  • The burden of proof in a tax case is the balance of probabilities.
  • The taxpayer has the initial onus to ‘demolish’ the assumptions on which Minister relies for the assessment in issue. This initial onus is met if the taxpayer makes a prima facie case.
  • Once the taxpayer has established a prima facie case, the burden then shifts to the Minister, who must rebut the taxpayer’s prima facie case by proving, on a balance of probabilities, the Minister’s assumptions.

 

In recent years, some judges in the Federal Court of Appeal and the Tax Court of Canada have expressed the view that the onus and burden of proof in taxation cases should be rearticulated as follows:

  • A taxpayer should have the burden to prove, on a balance of probabilities, any facts that are alleged by that taxpayer in their notice of appeal and that are denied by the Crown.
  • If there are facts that were assumed by the Minister in reassessing a taxpayer and that are not inconsistent with the facts as pled by the taxpayer, the taxpayer should also prove, on a balance of probabilities, that such facts are not correct.
  • If the Minister alleges a fact that is not part of the facts that were assumed by the Minister in assessing a taxpayer or confirming an assessment, the Minister will have the onus of proof with respect to such facts.

 

It can be expected that, in the coming years, more judges will express their views on whether the onus and burden of proof in tax cases should be rearticulated as described above.

Case management process

Describe the case management process for a tax trial.

The General Procedure Rules of the Tax Court of Canada provide the Court with a broad authority to manage cases and trials.

In a typical tax appeal, the Court will request that the parties submit a timetable for the remaining steps in the appeal, failing which the Court will convene a status hearing. Parties may request amendments to timetables. The Court may also choose to require the parties to appear before a judge, among other things, to set deadlines for completion of the remaining steps of an appeal; to determine the advisability of amending the pleadings; to attempt to identify any issue and shorten the hearing; and to determine whether the parties are ready to proceed with the hearing of the appeal.

The Court may, on its own initiative or at the request of a party, order that an appeal be subject to case management. If an appeal becomes subject to case management, one or more case management conferences can be scheduled for setting a timetable for the conduct of the appeal or a group of appeals; consolidating appeals; determining pretrial motions; setting deadlines for the completion of any steps in the appeal; or any other order in relation to the management of the appeal. A case management judge will not preside at the hearing of the appeal except with the consent of the parties.

A trial management conference may also be held as soon as a date for the hearing has been fixed, at the request of one of the parties to an appeal or on the initiative of the judge presiding at the hearing. During a trial management conference, the judge may, among other things, obtain from the parties the names and contact information of the anticipated witnesses and the substance of their testimony; consider the possibility of obtaining admissions that may facilitate proof of non-contentious issues; and identify and hear any pretrial motions. 

The General Procedure Rules and practices of the Tax Court of Canada also provide for settlement conferences.

Appeal

Can a court decision be appealed? If so, on what basis?

General Procedure judgments of the Tax Court of Canada may be appealed to the Federal Court of Appeal. An appeal is commenced by filing a Notice of Appeal setting out the grounds of appeal, which may include errors of law, errors of fact, or mixed errors of law and fact. Notices of Appeal must generally be filed within 30 days of the pronouncement of the judgment of the Tax Court of Canada, though extensions of this deadline may be sought.

Informal Procedure judgments of the Tax Court of Canada may also be appealed to the Federal Court of Appeal by filing a Notice of Appeal setting out the grounds of appeal, which are more restricted for appeals of informal procedure judgments than for appeals of general procedure judgments. Informal procedure judgments can only be appealed on the basis that the Tax Court of Canada:

  • acted without jurisdiction, acted beyond its jurisdiction or refused to exercise its jurisdiction;
  • failed to observe a principle of natural justice, procedural fairness or other procedure that it was required by law to observe;
  • erred in law in making a decision or an order, whether or not the error appears on the face of the record;
  • based its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it;
  • acted, or failed to act, by reason of fraud or perjured evidence; or
  • acted in any other way that was contrary to law.

 

Notices of Appeal from Informal Procedure judgments of the Tax Court of Canada must generally be filed within 30 days after the pronouncement of the judgment of the Tax Court of Canada, though extensions of this deadline may be sought.

Final judgments of the Federal Court, such as judgments relating to applications for judicial review of discretionary decisions of the CRA that cannot be appealed to the Tax Court of Canada, may also be appealed to the Federal Court of Appeal.

Leave to appeal to the Supreme Court of Canada may be sought from decisions of the Federal Court of Appeal.