
Tax Court of Canada: A Guide on Informal Procedure
Disputing a tax assessment with the Canada Revenue Agency (CRA) can be a daunting process. Fortunately, the Tax Court of Canada provides an accessible and cost-effective mechanism for taxpayers to challenge CRA decisions through something known as “Informal Procedure.” This process is designed for individuals and small businesses disputing lower-value tax matters. It offers a simplified, less expensive, and faster alternative to the formal court process, known as “General Procedure”.
This article will guide you through the Informal Procedure: how it works, who qualifies, what you can expect, and tips when disputing a CRA tax assessment.
What is the Informal Procedure in the Tax Court of Canada?
The Informal Procedure is a streamlined method for resolving tax disputes, available through the Tax Court of Canada. There are no filing fees associated with this type of procedure.
Unlike the General Procedure, which follows strict court rules and involves complex legal arguments, the Informal Procedure is less formal, quicker, and more affordable. It’s particularly suited to smaller, lower-value tax disputes.
Who Can Use the Informal Procedure?
To qualify for the Informal Procedure, your tax dispute must meet the following conditions:
- The amount of federal tax and penalties in dispute for each taxation year, excluding interest, is $25,000 or less.
- The amount in dispute is $50,000 or less for GST appeals.
If your tax dispute exceeds the prescribed limitations but you wish to proceed with the informal procedure, you may still be able to do so through the following mechanisms:
- Stating your intention to proceed with the Informal Procedure in your Notice of Appeal
- Agreeing to reduce the disputed amount to $25,000 or $50,000.
Steps to Filing an Appeal Under the Informal Procedure
Step 1: File a Notice of Appeal
To initiate the Informal Procedure, you must file a Notice of Appeal with the Tax Court of Canada within 90 days of receiving the CRA’s Notice of Confirmation or Reassessment.
The Notice of Appeal should include:
- Your name and contact details.
- Your Social Insurance Number (SIN) or Business Number (BN).
- The tax year(s) affected and the amount in dispute.
- The specific facts of your case.
- Any legal issues to be decided and legal arguments in support of your position.
- A clear explanation of the dispute (why you disagree with the CRA’s decision).
- The relief requested.
You can file your appeal online, by mail, or in person at the Tax Court of Canada.
Step 2: Respondent’s Response to Your Appeal
Once your appeal is filed, the Court will review it to ensure it meets the requirements. Subsequently, the court will serve it on the Department of Justice (DOJ), who represents the CRA. The DOJ has 60 days to file a formal response, known as a “Reply.” After the Reply is filed, the taxpayer has another 30 days to file an “Answer,” although this is typically not necessary unless specific issues still require attention.
These documents in their entirety are collectively referred to as “Pleadings” and form the foundation of the case. Once completed, they are some of the only documents the judge will review prior to a hearing.
Step 3: Preparing for Your Hearing
Unlike the General Procedure, the Informal Procedure does not have a formal discovery process. However, both parties must exchange documents that will be used at the hearing. This is crucial to avoid delays or complications. The documents include any evidence to support your claim (tax returns, assessments/reassessments, financial records, or correspondence with the CRA).
Step 4: The Hearing
The hearing process is less formal than traditional court hearings. The Tax Court will set a hearing date, typically providing six weeks of notice.
On the day of the hearing, you will present your case before a judge, by introducing evidence through witness testimony, and the DOJ will have an opportunity to cross-examine witnesses. After the hearing, the judge will issue a decision with their reasoning in writing. The Tax Court decision can result in:
- Dismissing the appeal (upholding the CRA’s decision)
- Allowing the appeal by vacating or varying the CRA’s assessment/reassessment.
- Referring the case back to the CRA for reassessment.
It is important to note that the Tax Court cannot grant claims for economic damages or losses. Its authority is strictly limited to adjusting the tax assessment based on the law.
If you disagree with the decision of the Tax Court, you can appeal to the Federal Court of Appeal, however, this follows a more formal legal process.
Costs and Settlement Offers
In the informal procedure, costs are generally not awarded to either party. This is one key difference from the general procedure, where costs may be imposed. However, there are minimal costs in accordance with the prescribed Tariff, but these are usually quite low and are unlikely to cover the total expenses.
That said, settlement offers can be an effective way to resolve the dispute before the hearing. A taxpayer may present a settlement offer, supported by evidence, which could lead to the case being settled if the DOJ agrees to the terms. Settlement negotiations are often initiated closer to the hearing date due to the informal nature of the process.
Advantages of the Informal Procedure
- Lower Costs
- The Tax Court waives filing fees for most Informal Procedure cases.
- No requirement for a lawyer (but legal advice can improve your case).
- Faster Resolution
- The Informal Procedure typically resolves cases within 12-18 months, whereas the General Procedure can take several years.
- Simplified Process
- Less formal court rules mean taxpayers can represent themselves without extensive legal knowledge.
Common Mistakes to Avoid in an Informal Procedure Appeal
- Missing the 90-Day Deadline
- You must file your Notice of Appeal within 90 days of receiving the CRA’s decision.
- Failing to Provide Evidence
- Prepare all necessary documentation to prove your case (receipts, emails, tax returns, financial records).
- Not Preparing for the Hearing
- Even though the process is informal, being unprepared can weaken your appeal.
- Ignoring DOJ Settlement Offers
- The DOJ may offer to resolve the dispute before the hearing. If the offer is fair, settling early may save time and stress.
How a Tax Lawyer Can Help with the Informal Procedure
Although the Informal Procedure does not require a lawyer, hiring a tax lawyer can significantly improve your chances of success by:
- Preparing a strong Notice of Appeal that clearly explains why the CRA’s assessment is incorrect.
- Gathering relevant tax documents and building a compelling case.
- Negotiating a settlement with the DOJ before the case goes to court.
- Representing you at the hearing if you are not comfortable presenting your case.
If you are disputing a CRA tax assessment and need guidance on the Informal Procedure, consulting a tax lawyer can make the process smoother and more effective.
Schedule a free consultation with Rosen & Associates Tax Law today to discuss your tax dispute and explore your options.
***Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.