Canadian Government Commended For Tax Court Proposals

by Mike Godfrey, Tax-News.com, Washington

02 January 2012

Plans to overhaul the running of Canada's Tax Court have been endorsed by the Tax Executives Institute (TEI) but they could be improved, the association has said.

In its response to the government's consultation on the future of Canada's Tax Court, TEI has commended the government for its desire to accord the Court greater flexibility in managing its caseload. The proposals, unveiled in November, would update the monetary limits for access to the informal appeal procedure and are designed to provide taxpayers with greater access to a simplified and cost-effective judicial process and enabling a better balance in the Tax Court of Canada’s caseload.

The main features of the proposals are as following:

• A taxpayer will be able to elect to proceed by way of Informal Procedure (a simplified procedure designed to expedite tax cases) where the aggregate of all amounts in issue in an income tax appeal is equal to or less than CAD25,000 (USD24,470) (or where a loss does not exceed CAD50,000).
• Under a new monetary limit for sales tax appeals, an appeal involving an amount in dispute in excess of CAD50,000 would be required to proceed by way of the General Procedure.
• The Tax Court will be able to dispose of issues raised in an appeal of an assessment separately, so that some issues can be resolved independently from others and to allow the Minister of National Revenue to give effect to the decision of the Court in respect of those discrete issues.
• The Court would be permitted to hear a question affecting a group of two or more taxpayers that arises out of substantially similar transactions, and provide that the resulting judicial determination is binding across the group.

Specifically, TEI endorses and supports the plans for increasing the monetary limits for access to the informal appeal procedure, and for allowing the Tax Court to dispose of issues raised in an appeal of an assessment separately so that issues can be resolved independently from others and to permit the Minister of National Revenue to give effect to the decision of the Court in respect of those discrete issues.

TEI adds that having a process for disposing of a particular issue (a "pro-tanto judgment") that resolves part, but not all, of an appeal will permit the Tax Court to streamline its workflow and case consideration and afford both taxpayers and CRA the opportunity to better manage their appeals and caseloads. It also approves of the plan to permit the Tax Court to hear a question affecting a group of two or more taxpayers that arises out of substantially similar transactions, thereby providing a judicial determination that is binding across the group.

TEI recommends that legislation be developed to authorise the Canada Revenue Agency (CRA) and the Department of Justice to enter into settlements at the appeals, pre-trial, and trial stages based on a "risks (or hazards) of litigation" approach. It says that the adoption of such a provision would significantly reduce the number of cases, especially large complex cases where the taxpayer is well advised and the legal outcome uncertain, that must be addressed at all. It is argued that this change, by itself, would improve caseload management.

In its response, TEI refers to current legislative provisions, which state that Under the Minister of National Revenue "has a statutory duty to assess the amount of tax payable on the facts as he finds them in accordance with the law as he understands it. It follows that he cannot assess for some amount designed to implement a compromise settlement." This, TEI says, means that the CRA is prohibited from settling a matter where it believes that its position is correct as a matter of law — even in cases where the CRA and the Department of Justice recognise that the prospects for success in court are uncertain, especially in terms of the amount of the assessment.

The result of this is that taxpayers are frustrated by the current system because they are unable to resolve disputes about uncertain issues without resort to litigation, TEI maintains. It argues that with the enactment of enabling legislation, the CRA and the Department of Justice can work together with taxpayers to develop appropriate administrative guidelines, systemic checks and balances, and appropriate reviews to ensure that cases that should be settled are settled, while issues that present novel legal questions meriting further legal interpretation and development or that require significant factual determinations are retained for disposition by the courts. TEI says it would be pleased to consult with the CRA and the Department of Justice on the development of such guidelines.

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