An update on the impacts of COVID-19 on the tax dispute resolution process

Stephanie Stapleford and Allison Whelan,LL.M

In a previous Thought Leadership piece, “Tax update – response to COVID-19” (26 March 2020), we reviewed the Federal COVID-19 Emergency Response Act and provided an update on operational changes announced by the Canada Revenue Agency (the “CRA”) and the Tax Court of Canada (the “TCC”) in light of the COVID-19 outbreak.

In this segment, we provide an update specific to the impact of COVID-19 on objections to the CRA and litigation before the TCC and the Federal Court.

Objections to the CRA

Normally, taxpayers who wish to dispute an assessment or reassessment must file a Notice of Objection within 90 days of the date on the Notice of (re)Assessment. However, for any objections due between March 18, 2020, and June 30, 2020, the CRA has extended the filing deadline to June 30, 2020.

If the 90-day deadline to file the objection cannot be met due to circumstances outside of the taxpayer’s control, an application for an extension of time can be made within one year after the deadline. However, even in response to COVID-19 it appears that the CRA cannot further extend this one-year extension period (see, for instance, Canada (National Revenue) v ConocoPhillips Canada Resources Corp, 2017 FCA 243).

Accordingly, for objections that were due before March 18, 2020, we recommend filing a request for an extension of time as soon as possible. A member of our Tax Group may be able to assist with the filing of a Notice of Objection and, if necessary, the preparation of an application for an extension of time.

Taxpayers who are considering filing a Notice of Objection, or who have one in the pipeline, should anticipate significant delays in the resolution of their tax dispute. The CRA has identified objections related to Canadians’ entitlement to benefits and credits as a critical service during COVID-19, so these objections will continue to be processed; however, objections related to other tax matters for now will be held in abeyance.

The shut-down of the CRA’s Appeals Division also affects the TCC appeals process, as this Division provides direction to the Department of Justice in tax appeals. Accordingly, taxpayers can also expect delays in any settlement discussions at the appeals stage.

Appeals to the TCC

On April 17, 2020, the TCC announced the cancellation of all judicial sittings and conference calls scheduled to take place on or before May 29, 2020. Parties affected by these cancellations will be contacted by TCC Registry staff.

At this time, hearings that are scheduled beyond May 29, 2020, are expected to proceed, but the TCC will reassess by May 20, 2020, to determine whether the schedule must be further altered.

Similar to the timeline for filing a Notice of Objection, taxpayers who wish to appeal a Notice of Confirmation (or Notice of Reassessment further to their objection) normally have 90 days to file a Notice of Appeal with the TCC, with an additional one-year period to request an extension of time. Initially, the TCC had not granted any concessions with respect to the 90-day filing deadline. However, on April 17, 2020, in an effort to avoid numerous applications for extensions of time to appeal, the TCC ordered that all Notices of Appeal filed between March 16, 2020, and 60 days after the TCC reopens for business shall be treated as including an application for extension of time on the exceptional grounds that COVID-19 and the TCC closure prevented the timely filing of a Notice of Appeal. As a result, within 60 days after the Registry serves the Notice of Appeal on the Respondent Department of Justice, the Respondent will be required to confirm whether the appeal was filed:

• in a timely manner, such that no extension application is necessary; or
• after the statutory deadline, and whether the Respondent consents to, or opposes, the extension application.

With this potential that the Department of Justice may still oppose a time extension application, we recommend that, to the extent possible, all Notices of Appeal be filed in advance of their original deadline to prevent further delays in the tax dispute process.

In addition, the period from March 16, 2020, to 60 days after the TCC resume operations, is excluded from the computation of time under:

• the Tax Court of Canada Rules (General Procedure);
• Orders or Directions of the TCC made prior to March 16, 2020 (including orders dealing with litigation timetables); and
• all other Rules made under the Tax Court of Canada Act governing the conduct of matters that are under the TCC’s jurisdiction.

Other statutory filing deadlines over which the TCC has no jurisdiction continue to apply, such as the ultimate one-year deadline to apply to the TCC for an extension of time to file a Notice of Objection or Notice of Appeal.

The TCC and its Registry offices across Canada remain closed until further notice. However, filings may be made electronically using the TCC’s online filing system or by fax. Notices of Appeal and other documents will likely not be processed or served on the Department of Justice until the TCC resumes its operations. If there is no statutory deadline, parties are asked to wait to file documents and requests until the TCC resumes its operations.

Applications for Judicial Review to the Federal Court

The Federal Court, which handles applications for judicial review of the CRA’s administrative decisions and audit powers, has suspended its normal operations through to May 15, 2020. This suspension period may be further extended by the Court if necessary.

The suspension period pauses timelines under, inter alia:

• the Federal Courts Rules;
• Orders and Directions of the Court made before March 16, 2020; and
• subsection 18.1(2) of the Federal Courts Act—i.e., the 30-day deadline for commencing an application for judicial review.

It should be noted that while the 30-day judicial review deadline under the Federal Courts Act has been temporarily suspended, any time limits and deadlines expressly provided for in the Income Tax Act and other taxation statutes continue to apply and cannot be extended or varied unless the applicable statute allows it. For instance, the 14-day time limit to claim solicitor-client privilege over documents seized by the Minister under section 232 of the Income Tax Act is not modified by the suspension period. We therefore recommend that taxpayers who are considering applying for judicial review seek legal advice before concluding that their filing deadline has been suspended.

All Federal Court hearings that had been scheduled to take place during the suspension period have been adjourned. No new date is being set for adjourned hearings—rather, parties must contact the Court to request that their matters be rescheduled once operations have resumed. Exceptions may be made for urgent or exceptional matters, which may proceed by telephone or video conference if the Court so directs.

Taxpayers should not expect that their judicial review application will be considered “urgent” by the Court unless the delay is likely to cause the taxpayer hardship or serious financial consequences. That said, even if a judicial review application is not urgent, the Court has indicated that it will endeavour to accommodate requests for hearings by telephone or video conference. Such requests will be assessed on a case-by-case basis and will only be approved if all parties consent and certain other procedural and logistical conditions are met. In some cases, parties may also request that their adjourned hearings be determined in writing, based on the materials that have already been filed with the Court.

Once operations have resumed, the Federal Court has indicated that the scheduling of matters that have been adjourned due to COVID-19 will be broadly undertaken on a first-in first-out basis, subject to the availability of the parties and priority given to urgent or time-sensitive matters.

Conclusion

The situation is continuously evolving, and the directives by the CRA and all levels of court are subject to change. All court levels have indicated that they will continue to monitor this situation and have expressed their intention to be as flexible as reasonably possible in response to the hardship caused by COVID-19.

The Stewart McKelvey Tax Group will continue to provide updates, though taxpayers are also advised to consult the websites for the CRA and the courts.

This article is provided for general information only. If you have any questions about the tax dispute resolution process or if you require assistance with a tax dispute, please contact a member of our Tax Group.

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