Our tax system is complex and complicated. It is especially unfortunate when every day individuals fall prey to procedural mistakes that deny them justice in tax disputes.
The Tax Court of Canada (the "Tax Court") in Anderson v. The King, 2024 TCC 72 ("Anderson"), an informal procedure case, recently found that it could not extend the time for a taxpayer to file an objection, that it could not hear an appeal following a late objection, and that it did not have jurisdiction to hear an appeal of the Minister's refusal to accept a T1 Adjustment request. The decision emphasizes the importance of taking the correct procedural steps when advancing a tax dispute, and raises questions respecting what the Tax Court and Parliament can do to reduce procedural barriers to justice in tax disputes.
Jurisdiction of the Tax Court of Canada
Under section 12 of the Tax Court of Canada Act, the Tax Court has jurisdiction to hear appeals under the Income Tax Act (the "ITA") and certain other tax statutes. A taxpayer can file an appeal to the Tax Court in the circumstances described in subsection 169(1) of the ITA. A key requirement is that the taxpayer must have served on the Minister a valid notice of objection within the time required under subsection 165(1) of the ITA (generally 90 days after the assessment). Importantly, a taxpayer cannot object to (and then appeal) discretionary decisions of the Minister, but rather, can only appeal assessments for amounts of tax, penalty or interest.1 A valid notice of objection is generally a prerequisite for appealing to the Tax Court.2
In addition to appeals, the Tax Court may hear applications to extend the time to file a notice of objection under section 166.2 of the ITA. The Tax Court may extend the time permitted to object provided that the taxpayer has properly applied to the Minister for an extension under section 166.1 within one year after the expiry of the time otherwise provided to object,3 and provided that the other requirements are met. However, only the Federal Court has jurisdiction to hear applications for judicial review of the Minister's discretionary decisions. 4
The Tax Court Decision
Procedure on Application to Extend Time to Object
In Anderson, the taxpayer filed his notice of objection late, but within one year after the required deadline to object. The taxpayer's objection included a request for the Minister to extend the time to object. The Minister rejected the request for an extension, and the taxpayer subsequently filed a Notice of Appeal. Technically, the procedure commenced by the taxpayer before the Tax Court was not an application to extend the time to object. Since the taxpayer technically initiated the wrong procedure, the Tax Court refused to consider the merits of whether it should grant an extension of time to object.5 That is, the Tax Court failed to consider the document filed as a Notice of Appeal (in the form set out in Schedule 4 of the Tax Court of Canada Rules (Informal Procedure)) to be construed as an Application for Extension of Time for Serving a Notice of Objection (in the form set out in Schedule 18(1) of the Tax Court of Canada Rules (Informal Procedure)).
There is no discussion in the Tax Court decision about the possibility that the Notice of Appeal should be treated as if it were an application to extend under section 166.2. The Tax Court relied on the Federal Court of Appeal in Bormann v. Canada, 2006 FCA 83 to find that it had no "jurisdiction to amend or extend the time-periods established by Parliament".6 However, Bormann can be distinguished from the facts in Anderson: whereas the taxpayer in Bormann had not applied to the Minister to extend time to object, the taxpayer in Anderson had already applied to the Minister under section 166.1. Accordingly, if the taxpayer's "appeal" could be considered an application under section 166.2, then the Tax Court would have had jurisdiction.
Moreover, existing jurisprudence provides support for the proposition that, in what may be rare but appropriate circumstances, a taxpayer's improperly or informally commenced procedure should be treated as equivalent to an application to extend. With respect to the similar rules for extending time to appeal to the Tax Court in Pardiak v. R.,7 the Tax Court "treated the Appellant's defence to the Respondent's motion as if it had been a formal application for an extension of time to appeal".8 Moreover in Fagbemi v. R., the Tax Court held that "the Notice of Objection that was filed within the one-year period should be generously viewed as an application to extend time".9 In 1682320 Ontario Ltd. v. R., the Tax Court likewise "concluded that the notice of objection filed by the applicant satisfies the requirement" of needing to actually apply for an extension of time to object.10
It was therefore open to the Tax Court to find that the taxpayer's procedure either was (or was not) an application to extend.11 These decisions reflect "the general preference of courts, based on principles of fairness, that disputes be determined on their merits rather than on procedural grounds".12 Although decisions which dispense with certain procedural formalities may be rare, proper procedure ought not prevent principles of fairness.
Procedure for Reviewing Minister's Discretion
The taxpayer in Anderson had also requested that he be reassessed by the Minister as described in his T1 Adjustment Request. Unknown to most taxpayers, under subsections 152(4.2) and 220(3.1) of the Income Tax Act, an individual can make an application to the Minister to reassess tax or to waive penalty and interest so long as the relevant application is made within 10 years. Mr. Anderson made his T1 Adjustment Request in May 2022, more than 10 years after the end of the 2011 taxation year. As a result, the Minister denied the request. It is not clear whether the CRA told the taxpayer that his remedy was to seek a judicial review in the Federal Court.13 Understandably, the Tax Court found that it did not have jurisdiction to consider the matter since the decision to (or not to) reassess a taxpayer is within the Minister's discretion. Although the exact scope of the Tax Court's and the Federal Court's jurisdiction is confusing to many taxpayers and can be the subject of significant dispute,14 an exercise of the Minister's discretion as in Anderson is properly the subject of judicial review before the Federal Court and cannot be appealed to the Tax Court.
Anderson is not the first case where a litigant has chosen the wrong forum for contesting an exercise of the Minister's discretion.15 Taxpayers are frequently burdened with having arrived at the wrong forum when attempting to review the Minister's decisions. It is understandably difficult for self-represented litigants to know which tax matters go to Tax Court and which go to the Federal Court.
Key Takeaways
Getting tax procedure right is important. Failing to abide by the proper procedure can be a bar to taxpayer success in a dispute, regardless of the substantive merits of the tax case. However, particularly for self-represented litigants, it is worthwhile to reflect on what the Tax Court and Parliament can do to relieve procedural barriers to justice.
Interestingly, section 21(1) of Tax Court of Canada Rules (Informal Procedure) states that "[f]ailure to comply with these rules shall not render any proceedings void unless the Court so directs, but such proceedings may be set aside either in whole or in part as irregular and may be amended or otherwise dealt with in such manner and on such terms as, in the opinion of the Court, the circumstances of the case require". In addition, subsection 21(3) provides that the Court may, where and as necessary in the interests of justice, dispense with compliance with any rule at any time. Had the Tax Court put its mind to its own rules, perhaps the Notice of Appeal could have been construed as an Application for Extension of Time for Serving a Notice of Objection.
In appropriate circumstances, the Tax Court should consider its power to look through procedural irregularities so that parties to the dispute can deal with the substantive merits of the case. It may also be that certain legislative solutions are required, such as expanding Tax Court jurisdiction to include review of a broader range of decisions by the Minister.
Footnotes
1. Under subsection 152(1), an assessment is for an amount of tax, penalty or interest. Subsection 165(1) only allows objections to assessments.
2. Subsection 169(1).
3. Paragraph 166.1(7)(a).
4. Section 18 of the Federal Courts Act.
5. Anderson v. R., 2024 TCC 72 at para 28.
6. Anderson v. R., 2024 TCC 72 at para 30.
7. Section 167 allows the Tax Court to extend time to file a Notice of Appeal, and has extremely similar requirements for extending time under sections 166.1 and 166.2 for service a notice of objection.
8. Pardiak v. R., 2011 TCC 375 at para 5.
9. Fagbemi v. R., [2005. 3 CTC 2470 at para 6, 2005 CanLII 94622.
10. 1682320 Ontario Ltd. v. R., 2013 TCC 126 at para 17.
11. Although the Anderson decision was informal procedure, the general procedure rules allow similar options to the Tax Court see sections 4, 8 and 9 of the Tax Court of Canada Rules (General Procedure) SOR/90-688a, which provide that, inter alia, the rules should be "construed to secure the just, most expeditious and least expensive determination of every proceeding on its merits" (emphasis added), and that the Tax Court has the power to "where and as necessary in the interests of justice, dispense with compliance with any rule at any time".
12. 1682320 Ontario Ltd. v. R., 2013 TCC 126 at para 16.
13. It is also not clear whether the Minister could reassess under subsection 152(4) or if the "normal reassessment period" under subsection 152(3.1) had expired. If September 2022 was the first time Mr. Anderson was assessed, then it may be possible that the "normal reassessment period" is still open if the T1 Adjustment Request in December 2022 could be considered a valid waiver: see Remtilla v R. , 2015 CC 200 at para 50.
14. See e.g., Canada v. Dow Chemical Canada ULC, 2022 FCA 70, appeal to Supreme Court of Canada heard on November 9, 2023.
15. See e.g., the following decisions also issued in 2024: Cole v. The King, 2024 TCC 64 at para 69 and Bacchus v. the King, 2024 62 at para 34.
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