Archived - Backgrounder: Proposals to Improve the Caseload Management of the Tax Court of Canada

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To improve the caseload management of the Tax Court of Canada (“Tax Court”), amendments to the Tax Court of Canada Act and the Income Tax Act are proposed.

Monetary Limits

The Tax Court of Canada Act provides for two procedures available to a taxpayer who wishes to appeal a tax assessment: the Informal Procedure and the General Procedure.

The Informal Procedure reduces costs and delays in appeals heard by the Tax Court. As well, the Informal Procedure rules provide for a simpler, less formal, appeal process in the Tax Court: for example, although the notice of appeal must set out, in general terms, the reasons for the appeal and the relevant facts, no special form is required; the taxpayer may be represented by an agent who is not a lawyer; the Tax Court is not bound by any legal or technical rules of evidence in conducting the hearing; and the decisions have no precedential effect. Also, generally, the taxpayer is not ordered by the Court to pay any part of the Crown’s costs if unsuccessful in their appeal.

The Tax Court of Canada Act currently restricts access to the Informal Procedure, in the case of appeals under the Income Tax Act, to appeals where the aggregate of all amounts in issue is equal to or less than $12,000 (or where a loss does not exceed $24,000). In the case of an income tax appeal that involves an amount in excess of these limits, the appeal must proceed by way of the General Procedure, unless the taxpayer elects to limit the appeal to $12,000 (or to $24,000 for a loss).

The monetary limits for appeals under the Income Tax Act under the Informal Procedure have remained unchanged since 1993. In order to promote greater access to the Tax Court at lower cost, it is proposed to increase the limit for the aggregate of all amounts in issue to $25,000 from $12,000 in respect of Informal Procedure appeals (and to increase the limit for a loss determination to $50,000 from $24,000).

The Tax Court of Canada Act would also be amended to allow the Governor in Council to make regulations to further increase the limit for the aggregate of all amounts in issue to a maximum of $50,000 (and to $100,000 for a loss) for Informal Procedure appeals under the Income Tax Act.

In addition, amendments are proposed with respect to limits on examinations for discovery, in order to reduce the overall costs of litigation. Currently, for appeals where the aggregate of all amounts in issue is $25,000 or less, an oral examination for discovery may not be conducted unless the parties consent or the Tax Court orders an oral examination for discovery. It is proposed to increase this amount to $50,000 from $25,000.

Unlike appeals under the Income Tax Act, the Tax Court of Canada Act does not currently require the use of the General Procedure for appeals above a monetary limit in the case of goods and services tax/harmonized sales tax (GST/HST) appeals under Part IX of the Excise Tax Act. In order to achieve a better balance between General Procedure and Informal Procedure caseloads, it is proposed to introduce a $50,000 limit for Informal Procedure appeals to the Tax Court in respect of GST/HST appeals. Accordingly, when an appeal involves an amount in dispute in excess of $50,000, the appeal would be required to proceed by way of the General Procedure.

Pro-Tanto Judgments

Under the existing law, a taxpayer may appeal an assessment of tax for a particular taxation year. Where the assessment involves more than one issue, all such issues must be dealt with within a single appeal.

There are instances where it would be to the benefit of the taxpayer, the Minister of National Revenue (“Minister”) and the Tax Court to allow the Tax Court to dispose of one or more such issues separately. Having a disposition of a particular issue (a “pro-tanto judgment” — that is, a judgment that disposes of part, but not all, of an appeal) apart from other issues in the appeal would enable a more efficient workflow for the Tax Court and would allow taxpayers to better manage their appeals. For example, an appeal may deal with multiple issues that are unrelated and varying in complexity. In such cases, a complex issue could be dealt with in isolation from the remainder, leading to an earlier resolution of the more straightforward issues.

The proposed amendments to the Income Tax Act would allow the Tax Court to dispose of a particular issue where both the parties to the appeal and the Tax Court agree that a particular issue should be dealt with separately.

Where some, but not all, of the issues are determined by the Tax Court, the Minister could issue a reassessment concerning those issues (even though all outstanding issues for the particular taxation year have not been resolved) and the appeal procedure at the Tax Court would continue on the remaining issues. Parties would not be required to recommence procedures, such as by the filing of a new notice of objection with the Minister, or a new notice of appeal to the Tax Court, on the remaining issues.

Taxpayers would be able to appeal the disposition of the particular issue to the Federal Court of Appeal while the remaining issues continue to be dealt with at the Tax Court.

Common Questions

In recent years, the Tax Court has seen an increase in the number of appeals where issues and facts that are common to two or more taxpayers are repeatedly litigated.

Currently, under section 174 of the Income Tax Act, the Minister may apply to the Tax Court to determine certain questions arising out of “one and the same transaction or occurrence or series of transactions or occurrences” which are common to the assessment of two or more taxpayers. The resulting judicial determination is binding on all of the taxpayers named in the application. Taxpayers that oppose the grouping of their appeals are allowed to object to the application in the Tax Court and, if unsuccessful, may appeal to the Federal Court of Appeal.

Not all common questions arise out of “one and the same” transaction, but rather out of identical or substantially similar transactions. Accordingly, it is proposed to amend the Income Tax Act to allow, on application by the Minister, the Tax Court to also hear a question arising out of identical or substantially similar transactions and cause the resulting judicial determination to be binding across the group. The proposed measure would allow the Tax Court to bind taxpayers whose income tax filings raise issues identical or substantially similar to a lead court case. The questions put before the Tax Court would be restricted to the common issues, allowing other issues, if any, to be dealt with independently.

The Crown and any taxpayer who has filed an appeal from an assessment in the Tax Court, would be permitted to appeal the determination to the Federal Court of Appeal. Any other taxpayers named in the determination would be permitted to appeal a determination of the substantive question, only if they were granted leave by a judge of the Federal Court of Appeal.

Taxpayers bound by the determination by the Tax Court would also be bound by a subsequent decision of the Federal Court of Appeal.

It is also proposed that the Income Tax Act be amended to specify that the Minister can serve notice of the application by way of regular mail or may seek direction from the Tax Court as to alternate means of service. Currently, the Income Tax Act requires that a copy of an application be served by the Minister on each of the taxpayers named in the application and, by virtue of Rule 24 of the Tax Court of Canada Rules (General Procedure), service must be effected personally or by registered mail. Allowing the Minister to serve notice of the application by way of regular mail is more practical given the potentially large numbers of taxpayers involved. Also, there may be situations where service is more easily effected in a different manner; accordingly discretion will be provided to the Tax Court.

Application Date

These proposals, as modified to take into account the public consultations, would apply upon the passage of a bill implementing the required legislative amendments.