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TAX OBJECTIONS: WHAT HAPPENS NEXT?

APPEALS PROCESS MOVES SLOWLY UNTIL SUDDEN ACTION IS REQUIRED

As we have reported on, Canada Revenue Agency (“CRA”) and other government authorities appear to be ramping up their tax audit activity. While taxpayers have statutory rights to appeal assessments they view as incorrect by filing a Notice of Objection, what happens after filing those documents can be unclear.

Appeals processes initially move slowly and can feel a bit like a “black box”. Government officials are generally not forthcoming with updates, and it is not uncommon for taxpayers to hear nothing for months – or even years! However, when the appeal does advance, the timelines for action can suddenly become very short.

A failure to respond in time can result in an objection being denied, or the permanent loss of one’s further appeal rights.

Wait Times: the Good, the Bad & the Ugly

All Canadian tax regimes provide a statutory right of appeal. What is often NOT made clear is the expected wait times for administrative decisions before the relevant bodies.

1. GST/HST Appeals: For GST/HST appeals under the Excise Tax Act, the CRA’s Appeals Branch assigns each file a complexity rating (low, medium, or high). The CRA’s reported average completion times for each are:

• Low complexity – 115 days
• Medium complexity – 262 days
• High complexity – can be over 500 days

In practice, taxpayers may not know an Appeals Officer has been assigned to the file unless they proactively follow up.

2. Excise Act, 2001 Appeals: Appeals under the Excise Act, 2001 (which deals with excise duties on vaping products, tobacco and certain kinds of alcohol) follow a similar but less transparent approach. CRA acknowledges receipt of the appeal and assigns a complexity rating. However, no service standards are published, and the acknowledgement itself can take around 6 months to arrive.

3. Provincial Appeals: Provincial appeals can be just as – if not more – opaque. For example, appeals under Ontario taxes like the Employer Health Tax (EHT) are handled on a first-in, first-out (FIFO) basis. Status inquiries are often met with generic responses advising that an Appeals Officer will contact the taxpayer and that the resolution service standard for objections is 18 months from the date of receipt. In our experience, some objections take longer.

Why Do I Care?

Long appeals processes – especially those lacking clear communication – can lead to false assumptions: (1) that no work is being done; (2) that significant engagement is still far off; or (3) that the matter has resolved.

In reality, long periods of silence are usually followed by sudden action, including requests for documents or further information – often with tight response deadlines. Taxpayers who are unprepared or who have missed key details in the initial objection and who do not respond in time risk having their objection quickly dismissed.

Furthermore, adverse decisions normally trigger further appeal deadlines to the Courts, which are short and often NOT extendable.

Takeaways

No matter the situation, taxpayers need to go in assuming that the objections process will take a long time. Given the time and resources involved, it is wise to have Experienced Tax Counsel write the most effective objection possible and be ready when the Appeals Officer re-engages.

For help with an Indirect Tax Objection or Appeal, please click here.

Download a PDF copy of this Blog here.

For an updated Index of our Tax Appeals Series, click here.