After a taxpayer files a notice of appeal, the Crown has 60 days from the day the Registry transmits the notice of appeal to the Minister of National Revenue (CRA) to file a reply (unless an application is made to have the appeal heard under the General Procedure Rules). If the Crown needs more time, it needs to seek the consent of the taxpayer or apply to the Court for an extension of time. If the Crown fails to obtain the taxpayer’s consent or the Court refuses the Crown’s application for time extension, the Crown can still file its reply, but the allegations of fact contained in the notice of appeal will be presumed true for the purposes of the appeal, meaning that the onus will be on the Crown to disprove those allegations. However, it rarely happens that the Crown misses the filing deadline or fails to obtain a time extension.
Note that the Crown need not adopt the same basis as the CRA in defending a reassessment, unless:
- there is relevant evidence that the taxpayer is no longer able to adduce without leave of the Court; and
- it is not appropriate in the circumstances for the Court to order that the evidence be adduced.
In concrete terms, this means that if the CRA relied on reason “A” to reassess a taxpayer, the Crown need not rely on reason “A” but may invoke other reasons such as reason “B” or reason “C”. Although the Crown can generally advance a new argument or basis in support of the reassessment, it cannot increase the amount of tax under appeal (assuming the normal reassessment period has expired).
How Is a Reply Structured?
A reply is generally structured as follows:
The reply starts by giving some background on the appeal, such as the taxation year(s) under appeal, the reassessment(s) under appeal, etc.
Next, the reply will refer to the facts mentioned in the notice of appeal and state which facts are:
- denied; or
- unknown (to the Crown).
The reply then generally gives a history of the key dates up to the appeal process, including details of the reassessment(s).
This next section is important, as the Crown is required to state here the findings or assumptions of fact made by the Minister of National Revenue (CRA) when reassessing. In simple terms, when the CRA reassesses a taxpayer, it relies on facts. A reassessment cannot be made in a vacuum, but must relate to specific facts. When the Crown writes its reply, it must state those facts upon which the CRA based its reassessment. These facts are called “assumptions” because the CRA need not prove each and every single fact. If the taxpayer is uncooperative, the CRA can simply “assume” a fact and let the taxpayer set the record straight in court.
A simple example: The taxpayer is a freelancer and claimed business expenses of $14,000 in 2014. The CRA decides to audit this taxpayer and, in the course of the audit, asks the taxpayer to support his business expenses. The taxpayer was only able to provide receipts for $8,000 and claims that the receipts for the remaining $6,000 were lost. In the absence of evidence to support the business expenses of $6,000, the CRA auditor is entitled to assume that those expenses were never incurred.
This may come to a surprise to many taxpayers, but assumptions of fact made by the CRA are presumed to be true, except for specific circumstances. What does this mean concretely? It means that the taxpayer must bring forward evidence at trial to disprove the assumptions of fact made by the CRA. The evidence can be either testimonial evidence or documentary evidence. However, documentary evidence generally has more weight than testimonial evidence.
The judge presiding at the hearing is what lawyers refer to as the “trier of facts,” meaning that he will look at the evidence, will weigh the evidence and will decide on the facts. If a taxpayer has nothing to show, but for his own words, that may not be enough to convince the judge. It is always preferable to have concrete proof beyond just words.
Why are the assumptions of fact presumed to be true? Because taxpayers are in the best position to prove or disprove a fact. Therefore, if the CRA made a wrong assumption, the taxpayer should be able to prove that assumption wrong.
After the assumptions of fact, the Crown can state other facts, which were not assumed, but which the Crown may rely upon in court. The Crown has the burden to prove these other facts.
Provisions Relied Upon
In this section, the Crown will state the legislative provisions it is relying upon to support its case. For instance, if the appeal relates to a reassessment under the Income Tax Act (the “Act”), the Crown will reference the relevant provisions of the Act and other legislation it is relying upon. However, the Crown will not state or make reference to the case law (i.e. judgments rendered in other cases).
In this last section, the Crown will state the reasons it intends to put forward in court to support its position. It is common for the Crown to rely on many arguments in support of a single position.
For example, if the Crown’s position is that the amounts claimed by the taxpayer as business expenses are not deductible, the Crown could argue that “the expenses claimed by the appellant are not deductible because the appellant did not carry on a business. Alternatively, if the appellant carried on a business, the expenses are not deductible because they were not made or incurred for the purpose of gaining or producing income from his business.”
Last updated: October 4, 2015