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When you receive a Notice of Reassessment (NoR) from the CRA and decide to contest it, one strategic choice significantly influences both the resources you commit and the outcome: selecting the most effective legal arena to challenge the NoR.
You might not realize that the law does not require you to follow the CRA's process step-by-step or use the CRA's internal objection process to overturn the NoR. Instead, the law permits opting for the Tax Court process as a strategic move to secure the best possible outcome, starting 91 days after filing a notice of objection.
For business leaders who suspect, and are likely right, that the CRA has made up its mind and won’t change it at the objection stage, this approach offers a disciplined way to disengage, without provoking conflict and without spending resources reinforcing the CRA’s existing position.
Your decision will impact not only the time and money you invest in the tax dispute but also the quality of the outcome. So, we chose to write this article to provide you with an overview of some factors to consider when deciding your pathway for you. We hope this article will help you make an informed decision.
Fully Engage CRA Objection vs. Disengage & Leverage Tax Court
When facing a NoR, understanding the benefits of different pathways is essential. Below is a comparison table that outlines the benefits of the two paths you might consider after filing a notice of objection. You have the option to (1) fully engage with the CRA through its internal objection process or (2) disengage from the CRA's internal objection process 90 days after filing the notice of objection and strategically use the Tax Court process to achieve the most favourable result.
This table aims to clarify the differences in terms of time investment, cost, complexity, and potential benefits to help you make a well-informed decision on which path might best serve your needs in overturning the CRA's decision and NoR.
| Category | Benefits: Full CRA Objection Process | Benefits: Disengage & Leverage Tax Court Process |
| Objective | To reverse the NOR by fulling engaging with the CRA's internal process to try to get the most favourable result. | Primary: To reverse the NOR through a negotiated agreement with the CRA before trial, using the Tax Court process as leverage. Secondary: If necessary, to seek a judicial ruling to overturn the NOR, often perceived as a fairer, more balanced process due to judicial oversight. |
| Professional Fees | There are possibilities of lower initial costs, but unsuccessful objections could increase total costs if the issue is not fully resolved in the most favourable way at this stage. | There are possibilities of higher initial costs. However, overall costs are lower in many cases, with a more favourable and definitive outcome reached in an overall shorter timeframe. |
| Time | Often lengthy due to delays in assigning an appeals officer. Total time will exceed the Tax Court process if the objection does not resolve the issue. | Comprehensive but can parallel the objection stage in duration. |
| Complexity | Initially less complex but lacks the formal legal protections and procedures of a court setting. Submissions made here can constrain options later on. | It involves more complex legal procedures but provides structured opportunities for resolution, such as mediation and pre-trial negotiations. |
| Outcome Control | Limited control and fewer rights; subject to internal CRA review by a CRA decision-maker, with potential bias. Submissions may inadvertently limit arguments and strategies available through the Tax Court process, potentially lowering the quality of the outcome. | Greater control over outcomes due to the ability to negotiate settlements with the CRA or to present the case to a judge, ensuring a fair hearing. |
| Public Record | Proceedings remain private; details are not public, which might (in very limited) benefit privacy but possibly at the expense of the quality of the economic outcome. | Pleadings are published, and negotiation agreements are usually private. If parties go to trial, the Tax Court will publish its decision. |
| Potential for Favourable Negotiated Agreement | The potential for the CRA to agree to a negotiated agreement favourable to the taxpayer exists but within a more CRA bias and more constrained administrative context. Also, repeated positions across stages may reduce the CRA's willingness to negotiate at later stages. | There is a high potential for the taxpayer and CRA to enter into a negotiated agreement favourable to the taxpayer before trial, often in a more balanced environment due to the presence of legal oversight. |
Analysis
It's essential to recognize the natural inclination of professionals to recommend solutions within their domain of expertise. In the context of tax disputes, accountants and tax lawyers who do not specialize in tax litigation often suggest fully engaging with the CRA using their internal objection process to try to overturn the CRA's decision and NoR. We imagine that expertise, familiarity with the process, conflict aversion, and previous experience in the arena will lead to some natural bias. Conversely, tax lawyers who specialize in overturning CRA decisions and NoRs and skilled in utilizing the Tax Court often take a broader view. They recognize the advantages of engaging on this level including the court's direct and indirect oversight, the court's structured and time-bound process, and a rule-based environment for negotiating or litigating effectively.
We think it's wise to assess which course of action suits your situation best rather than simply following the CRA's preferred path and basic approach.
Strategic Reflection: Considering Key Factors in Your Tax Dispute
Here are some questions designed to trigger your thinking and reflection on how various factors might impact your specific situation. Reflecting on these can help you determine the most effective way to proceed with your tax dispute.
- What way is more likely to lead to a favourable result?
- How important is a balanced playing field?
- When you hear 'Tax Court process,' do you mistakenly envision a trial, overlooking the nuanced opportunities the process offers to achieve the most favourable result, even before reaching a hearing?
- Imagine you choose to engage fully at the objection stage and fail to achieve the most favourable outcome. Will you simply move to the next stage and use the Tax Court process to overturn the CRA's decision? If so, what are the upsides and downsides of fully engaging in the CRA's internal process?
- Do you think the CRA appeals officer will agree with your perspective and reverse the auditor's decision, potentially reducing the CRA's revenue?
- Is indirect or direct independent oversight important? How might direct and indirect judicial oversight in the Tax Court process contribute to a more favourable outcome compared to the CRA’s internal review?
Taking the Right Path for You in Your Tax Dispute
We imagine you will benefit from carefully evaluating the decision to engage fully at the CRA objection stage or to use the Tax Court process as a strategic move to secure the best possible outcome.
While some professionals provide invaluable guidance through the objection process, exploring the potential advantages of strategically disengaging from it could reveal opportunities for a more favourable resolution in its fairer and impartial setting. Armed with this information, we hope this article helps you gain clarity and make whatever choice aligns with your long-term best interests.
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