Equity, deadline and when CRA is at fault
A Canadian tax lawyer analysis of Dutka v. The Queen
Introduction – Fairness and when CRA is at fault
As a complex and massive administrative organ, the Canada Revenue Agency ("CRA") makes its share of mistakes when it comes to processing tax returns and assessing taxpayers. Fortunately for taxpayers, errors such as losing taxpayer's submissions, or unreasonable delays can give rise to strong grounds for relief with programs such as the Taxpayer Relief Program. However, in circumstances where a CRA mistake has resulted in a taxpayer missing not only his or her statutory deadline for appeals but also the statutory deadline for filing an extension of time application, the recent court case Dutka v. the Queen showed that the Tax Court of Canada is powerless to grant an equitable remedy.
Statutory Deadlines for Objection, Judicial Review, and Extension of Time
When a taxpayer receives a notice of assessment or notice of reassessment from the CRA, subsection 165(1) of the Income Tax Act imposes a statutory deadline for the taxpayer to file a notice of objection. The statutory deadline is the latter of 90 days after the date in which the CRA sent out the notice of assessment or reassessment or one year after the taxpayer's tax filing due date.
In addition to the statutory filing deadlines, the Income Tax Act also set out an extension of time procedure for each deadline.
Section 166.1 sets out the rules for taxpayers to file an extension of time application for the purpose of filing a notice of objection past the statutory deadline. The taxpayer must file the extension of time application one year after the expiration of the statutory deadline for filing a notice of objection. Furthermore, the CRA must be satisfied that:
- the taxpayer had a genuine intention to file a notice of objection within the 90-day period or was unable to act or instruct someone to act on his or her behalf;
- granting the extension would be equitable, and;
- the application was filed as soon as it was practically possible to do so.
Under subsection 167(5) of the Income Tax Act. A taxpayer who has received a confirmation of notice of assessment or reassessment has to meet a number of conditions in order to file for an extension of time application to appeal to the Tax Court of Canada. First, the taxpayer has to file the Extension of Time application within one year of the expiration of the statutory deadline as set out in subsection 169(1). Second, the taxpayer has to meet the following four conditions
- the taxpayer had a genuine intention to appeal within the 90-day period or was unable to act, or instruct another to act, within the 90-day period;
- it would be just and equitable to grant the application;
- the application was filed as soon as circumstances permitted; and
- there are reasonable grounds for the appeal.
The Facts of Dutka v the Queen
In Dutka v. the Queen, the taxpayer was issued a notice of assessment on September 24, 2015. The taxpayer filed a notice of objection on December 24, 2015. The CRA rejected the notice of objection as they considered it to be filed past the statutory deadline.
In response on March 2, 2016, the taxpayer filed an extension of time application to file a notice of objection under paragraph 166.1(7)(a). This application was allowed on March 16, 2016. The CRA subsequently assessed the taxpayer's notice of objection. After more than a year, the original assessment was upheld by CRA on July 6, 2017.
However, on July 12, 2017, the taxpayer received a letter from the CRA stating the notice of objection has been received, and an appeals officer would be assigned to his file shortly. These two letters from the CRA caused confusion to the taxpayer as to when and whether he needed to file an appeal to the Tax Court of Canada.
Based on the date from the original confirmation of the assessment, the taxpayer had until October 4, 2017, to file an appeal to Tax Court, and a year after that, to file an extension of time application in accordance with subsection 167(5). However, due to the confusion caused by CRA, the taxpayer only filed an extension of time application on May 13, 2019.
Tax Court Ruling – Tax Court has no Equitable Jurisdiction to Grant Relief for Missed Statutory Deadlines.
The taxpayer appealed to the Tax Court, asking the Court to accept his extension of time application on equitable grounds. After surveying the case laws, the court concluded that statutory deadlines under the Income Tax Act are drafted as such that it excludes both the CRA and the Tax Court from extending the deadlines. The question of whether it is fair for the Court to extend the deadline simply does not arise, given the Court has no discretion to alter what has been drafted by the Parliament.
One case cited by the Court even states the Tax Court has no general power to grant relief based on equity because its power and jurisdiction are exhaustively spelled out in subsection 171(1) of the Income Tax Act, and is to decide whether an assessment or a reassessment made by the CRA was correct.
Furthermore, the Court in Dutka cites two cases that dealt specifically with the issue of missing statutory deadlines as a result of CRA mistakes or misguidance from CRA. The case law is consistent that the Court has no discretion to extend statutory deadlines even in instances where CRA is at fault for the taxpayer missing deadlines.
Analysis and Advice
Dutka, along with the tax law jurisprudence on statutory deadlines, confirms the general proposition that the Tax Court of Canada has no jurisdiction to grant an extension to statutory deadlines, even when there is a strong argument that not doing so would be unfair for the taxpayer. Once a notice of objection or a tax court appeal is rejected on the ground of missed statutory deadlines, a taxpayer might be left without any remedy even if the CRA assessment is incorrect under the law.
Nevertheless, a taxpayer in Dutka's situation is not entirely without remedies. Having incurred unfair tax liabilities due to CRA mistakes are relevant grounds for relief in both applications for Taxpayer Relief as well as Remittance Orders applications.
David J Rotfleisch, CPA, JD, is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax litigation. Visit www.Taxpage.com and email David at firstname.lastname@example.org.