Clients who have been reassessed by the CRA often ask us to prepare and file notices of objection on their behalf. More often than not, their accountants do the job because they are more familiar with the facts and circumstances that have led to the reassessment. Sometimes the accountants will ask us to review the objection, perhaps because they believe it is possible that the dispute will end up in Tax Court, in which case it might be important to have a lawyer’s input.
What makes for a good objection? It’s impossible to write an article about the substance of a good objection because that will vary from case-to-case of course. This article, then, sets out some thoughts on form and style, which count for something too.
The “Prescribed Form”
There is no prescribed form for an income tax objection. The Income Tax Act (Canada) simply requires that the objection be in writing and that it set out “the reasons for the objection and all relevant facts”. The CRA has created a form for objections (the T400A), but the taxpayer need not use it. That said, we always do, if only because it makes the CRA feel better, and using the form helps to ensure that the objection will end up in the right CRA pigeon-hole.
(One annoying feature of the T400A, however, is that, while it includes space for identifying an authorized representative, the CRA will not accept it as an authorization. If the objecting taxpayer wishes to appoint a representative for whom the CRA does not have a ‘valid authorization’, then the taxpayer must provide a separate piece of paper like the T1013.)
Form of Pleading
The T400A provides room for setting out the facts and reasons underying the objection, but we almost always attach a “Schedule ‘A'” for that purpose, if only because using a schedule makes it easier to prepare the substance of the objection (because we can use Word rather than a pdf fill-in form) and because we can use the same Schedule “A” for multiple years where the dispute relates to more than one taxation year.
Our Schedule “A” tends to repeat the information that is set out in the T400A, just in case the Schedule and the T400A are separated somehow at the CRA. Putting all the information in one place might also make it easier for the Appeals officer, which is a Good Thing.
In preparing the Schedule, I have adopted some of the form and style of Tax Court pleadings.
- I number each paragraph of the Schedule. If the Schedule has 40 paragraphs, then paragraph number 1 is number ‘1’ and 40 is ’40’. This makes it easier to refer to specific parts of the Schedule, and if I must take the objection to the next level by filing an appeal to the Tax Court, using this style makes it easier for me to use the Schedule as my starting point for the notice of appeal.
- The Tax Court Rules specify the basic information that must be included in a notice of appeal, and I try to ensure that my Schedule contains this information. I divide the Schedule into sections. One is called “Facts” or “Background”; another is titled “Issues”; and, of course, there is a part called “Reasons”.
- I also include a paragraph that specifies the relief I am asking for. Do I want the reassessment vacated or am I asking for a variation only? The paragraph will specify the relief requested.
Facts and Reasons
I set out one statement of fact in each paragraph of the Schedule and no more. This tends to make the paragraphs quite short, but, again, it facilitates easy reference to the Schedule, and it makes it easier to pinpoint where the taxpayer and the CRA disagree about the facts. I can go through each paragraph with the appeals officer and play a game of “Agree/Disagree”.
I tend not to provide a lengthy recitation of the facts, and I do not “plead evidence”. I set out the facts on which my client’s claim is based and no more. I will state that the taxpayer incurred certain expenses, for example; but I don’t mention that he has receipts to prove it. I tend to save a more detailed discussion of the facts and evidence for my interactions with the appeals officer once he or she has had a chance to review the audit report and the objection. I don’t want my basic message lost in a fog of detail because I know that the audit report is written in a similar way and that a lot of the needed detail will be in the CRA file already anyway.
Similarly, I provide only the basic reasons for my client’s objection. Although I am careful about the legal research I perform when preparing an objection, I cite cases only rarely. If the case is right on point, or if it establishes a principle that is important to the objection, I’ll mention the case and provide a citation (using the proper legal form). I don’t provide a lengthy summary of the case; I trust the officer to read it, if he or she hasn’t already. The appeals officer rarely needs a lecture on the law and won’t appreciate having to wade through one. In any case, in my experience objections rarely turn on fine legal points. The real problems usually relate to the facts and evidence. If the law is important, I’ll find out during my discussions with the appeals officer and then I can tailor further submissions to his or her specific concerns.
Bashing the Auditor—Don’t Do It!
Nothing distinguishes the amateur objection more than the attention it devotes to the failings of the auditor and the audit process. In an amateur’s objection, it is common to read much about the auditor’s moral, mental and physical failings. The objection devotes relatively little space to the substance of the dispute, which is what the appeals officer and, more importantly, the courts care about (see, for example, Main Rehabilitation Co. v. The Queen, 2004 FCA 403). It is a mistake to waste time on such issues unless they really do affect the substance of the dispute, and even then one must be cautious to ensure that the process concerns don’t distract from the substance.
The difficulty, of course, is that some clients want the objection to be a complaint about the auditor and the audit. The professional adviser must resist the client’s wishes in this regard. Perhaps the best thing to do is recommend a complaint to the taxpayer Ombudsman so that the client’s concerns—which may be very valid—are addressed in some manner.
I won’t pretend that the foregoing suggestions are an infallible guide to style and form in objections. In this respect, as in so much else in professional practice, Your Mileage May Vary. Nonetheless, I would like to think that these suggestions do facilitate an effective and efficient review by the CRA of the taxpayer’s concerns with the substance of the reassessment under objection. That is the whole point of a notice of objection after all.