We’ve all heard of the Supreme Court of Canada and the Federal Court of Appeal but have you heard of the Tax Court of Canada?
To set the stage, the legal basis for our tax system is the Income Tax Act.
This is legislated by the government with guidance from the Department of Finance, and then implemented by the Canada Revenue Agency (CRA).
The Income Tax Act is a lengthy complex document that is open to interpretation. To this end, CRA produces many support documents to aid taxpayer understanding.
The CRA tax assessment process involves assessors, and then perhaps reviewers, auditors and even appeals officers to move through the process of eventually determining a taxpayer’s outcome.
Once the assessment is complete, there are taxpayers who disagree with the CRA final determination, and because CRA only interprets the law, these interpretations can be challenged in court, the Tax Court of Canada to be precise, and in fact, the taxpayer may have the right to challenge to the Federal Court of Appeal, and even all the way to the Supreme Court of Canada.
If you have a genuine legal case for an appeal to your tax outcome, the Tax Court is described as open to taxpayers, even those without a lawyer who are appealing an amount less than $25,00.
This is called an Informal Procedure.
It is still subject to standard court hearing procedures but the judge is allowed more flexibility and freedom in the process.
This being said, the judge’s final decision will have its legal basis drawn from the Income Tax Act, and will not simply be based on apparent “unfairness” to the taxpayer.
As an FYI, for Tax Court cases involving an amount greater than $25,000, regular formal court procedures are followed.
A taxpayer losing to the Tax Court can challenge the decision in the Federal Court of Appeal on a question of law regarding the Income Tax Act. The facts of the case remain as presented in the Tax Court with no new evidence typically allowed.
Likewise, CRA can appeal to the Appeals Court when a taxpayer wins their case in the Tax Court.
From the Appeals Court, both a taxpayer and CRA can appeal to the Supreme Court of Canada if leave is granted by the Appeals Court, and leave is only granted for issues of national importance.
A few cases per year make it this far.
The adage that no two things are alike holds true in the court system when it comes to tax rulings.
Although a ruling may appear very broad in its application, in tax cases the courts tend to interpret and confine a ruling to that particular case, in effect allowing judges to ignore earlier decisions and base each case on its own facts.
In the end, if the government of the day is unhappy with the final ruling of a tax case of national importance, it has the authority to amend its legislation to correct the legislation’s error or omission.
What this speaks to … the closing of the proverbial tax loophole identified by the court system.
Ron Clarke, owner of JBS Business Services in Trail, provides accounting and tax services.