Tax & Trade Blog

The recent decision of the Tax Court of Canada (“TCC”) in Refind Environment Inc. v. The King (2024 TCC 2) is a poignant reminder of the importance of filing deadlines.

In Refind, the TCC dismissed an application for an extension of time to file a Notice of Objection against assessments under the Excise Tax Act (“ETA”) because the Registrant was one (1) day late in filing their application for an extension of time to the Minister of National Revenue (the “Minister”)!

Last March 18th, the CRA announced the suspension of the vast majority of audit activities as a result of the COVID-19 pandemic. How quickly things change!

CRA assessments can have devastating financial consequences that commonly push taxpayers into bankruptcy.  In considering bankruptcy, the taxpayer should take into account the extent to which the bankruptcy will impose limitations on the taxpayer’s ability to contest the assessment itself.  Section 71 of the Bankruptcy and Insolvency Act (BIA) specifies that a bankrupt ceases to have any capacity to deal with its “property”, which is a broadly defined term and has the effect of virtually eliminating the bankrupt’s ability to maintain legal actions.  The extent to which the BIA has a limiting effect on a bankrupt taxpayer’s ability to contest an assessment in the Tax Court of Canada (“TCC”) was at issue in the decision in Schnier (2015 TCC 160).

In order to maintain some level of taxpayer certainty, there are general time limits applied to CRA’s ability to assess taxpayers for previous periods. The normal assessment period is three years under ITA clause 152(3.1)(b) and four years under ETA subsection 298(1) and ITA clause 152(3.1)(a). However, CRA can assess a taxpayer in respect of a matter at any time where,inter alia, the taxpayer has made a misrepresentation attributable to neglect, carelessness or wilful default in respect of that matter (ITA subclause 152(4)(a)(i); ETA subsection 298(4)(a)). The recent Inwest decision (2015 BCSC 1375) considers what “misrepresentation” actually means in this context, and just when a misrepresentation will be “attributable to neglect or carelessness”.

Whether a notice of assessment was mailed or not has important legal consequences for taxpayers.  There is an irrebuttable presumption of receipt of the notice of assessment by a taxpayer once it is mailed by the Minister (S,248(7)(a) of the Income Tax Act (“ITA”)); a notice of objection must be served on the Minister within 90 days of the date on which the notice of assessment was mailed (s.165(1)); upon receipt of a notice objection, the Minister is obliged to reconsider the assessment and vacate, confirm or vary the assessment or reassess and to notify the taxpayer of its decision (s. 165(3)); and the taxpayer may appeal the assessment to the Tax Court of Canada (“TCC”) if the Minister has not vacated or confirmed the assessment or reassessed within 90 days of receiving the notice of objection (s. 169(1)). Parallel provisions are found in the Excise Tax Act.

GST/HST rules provide that a notice of objection has to be filed with the Minister within 90 days of the mailing of an assessment (section 301(1.1) of the Excise Tax Act (the “ETA”); the parallel provision in the ITA is section 165(1)).  However, as established in Le sage au piano v. The Queen (2014 TCC 319), the clock may not start ticking on the 90 day period if the CRA has left out important details of the taxpayer’s address on the notice of assessment—extending the previous doctrine from income tax cases that it is insufficient for the CRA to mail a notice of assessment to an incorrect address (The Queen v. 236130 British Columbia Ltd., 2006 FCA 352). The fact that litigation continues in this area also highlights the fact that there is no electronic means of determining whether a notice of assessment has been issued.

The Ontario Ministry of Finance has threatened to turn the Ontario cigar industry upside down, by beginning to assess vendors selling cigars and other non-cigarette tobacco to status indians on federal indian reserves, for Ontario provincial tobacco tax (PTT). Previously most industry insiders would have assumed - just from Ontario's acquiescence to wide-spread industry practice of exempting all sales of non-cigarette tobacco sold to Indians that sales of cigars, pipe tobacco and chewing tobacco to status Indians on federal Indian reserves was exempt of PTT.