A Guide to Appealing Your Taxes – Part II

Here is Part II of Raphael‘s guide.

After the objection process, if you are still not satisfied, you can take your case to the Tax Court of Canada (www.tcc-cci.gc.ca).  The TCC is a neutral, independent court of law and is separate from the CRA.  The judges don’t work for the CRA – their job is to decide whether the CRA’s tax assessment was correct under the appropriate laws.

The deadline for appealing to the TCC is 90 days after the date on the Notice of Confirmation or Reassessment.  In most cases, you can appeal using the Court’s “Informal Procedure”.  This process works like small claims court – the rules are simplified, documents don’t have to follow specific forms, and you can get your day in court relatively quickly.  You can also choose to represent yourself or have somebody else (a friend, accountant, lawyer etc) advocate on your behalf.

To start the tax appeal, you need to send a Notice of Appeal to the nearest Tax Court office (see www.tcc-cci.gc.ca for addresses and phone numbers).  If you’re following the informal procedure, you don’t need to use a specific form, but the court does provide fill-in-the-blank forms you can use if you’d like.  At a minimum, the Notice of Appeal made under the informal procedure needs to be in writing and include:

* Your name, address, and phone number
* If you’re not representing yourself: your representative’s name, address, and phone number.
* A description of what you want to appeal – e.g. “The Notice of Confirmation dated April 10, 2008 for my 2006 income taxes”.
* The facts and reasons why you disagree with the CRA’s decision.
* A statement that you want to follow the informal procedure.
* A filing fee of $100 (refunded automatically if your appeal is successful).

After filing the Notice of Appeal, the TCC will send a copy to the CRA, who must respond to it within 60 days.  CRA will send a copy of their reply to you and to the court.  After the CRA files its reply, the TCC will set a date for the appeal to be heard, and you’ll get a notice  telling you when and where you’ll get your day in court.  It’ll also tell you to bring any documents that support your case with you to the hearing.

Before the court hearing, you’ll get a letter telling you the name of the lawyer who will represent the CRA in court.  It’s a good idea to call this lawyer and ask to meet with him or her before the day of the hearing – you can show them the documents in support of your appeal, and after some discussion they might decide to settle the case without the need of a court hearing.  This is a much easier way to deal with the case than going to the time and expense of a court case.  In the eyes of the justice system, an agreed-upon settlement between the parties is always preferable to a court hearing.

If the case doesn’t settle and needs to go to court, the hearing will probably not be what you’d expect.  Anything you’ve seen on “Law and Order” won’t apply in a Canadian courtroom.  The TCC publishes a helpful brochure called “Your Day in Court” (http://www.tcc-cci.gc.ca/reference/day_%20in_court_e.pdf) that lets you know what will happen in the courtroom, who gets to speak and when, and other information about the hearing.  Court hearings are open to the public, so you can watch other people’s cases to get a feel for how things work – the TCC publishes a schedule on its web site (www.tcc-cci.gc.ca) or you can call any TCC office for hearing dates.

The TCC judge will listen to your evidence and any evidence from the CRA, along with legal arguments from both sides.  Bear in mind, though, that the judges can’t ignore or override the law.  If the Income Tax Act says, for example, that a deduction for XYZ isn’t allowable, then the judge can’t decide otherwise.  The judge’s job is to interpret and apply the law, not to write or rewrite the law.

In many cases the judge will give his or her decision at the end of the hearing, so you’ll know the result right away.  The CRA must obey the judge’s decision, and reassess your taxes in accordance with the court’s ruling.  If you (or the CRA) thinks the TCC judge made a mistake or misinterpreted the law, the decision can be appealed further, to the Federal Court of Appeal and beyond to the Supreme Court of Canada, but in most cases the TCC decision is the end of the matter.

A Guide to Appealing Your Taxes – Part I

Well after my post about what to do when you make an error on your taxes a reader contacted me about doing a guest post about appealing your taxes. So here is Raphael’s two part series on appealing your taxes in Canada.

The following information to help you, Mr. or Ms. Taxpayer, understand the tax process and your rights along the way. It is generalized and simplified information not intended to replace tax, accounting, or legal advice – if that’s what you need, consult a qualified professional. Rules change all the time, and there are always exceptions to various rules. This post is not authoritative in any way, shape, or form.

Before we look at how to appeal your taxes, it’s helpful to summarize how taxes work in the first place. The Income Tax Act governs federal income taxes, and it is the most ungodly, complicated piece of literature you’ll ever set your eyes on. Nobody can honestly say they understand each and every section of it. It has been said that it is written in neither of Canada’s official languages. It’s available online at http://laws.justice.gc.ca/en/I-3.3/index.html and it’s HUGE. Put simply: it’s bloody complicated.

The Federal Government, through Parliament, sets tax policy. This is an important point to keep in mind – the people that you deal with (the staff at the Canada Revenue Agency – CRA) do not set the rules. Their job is simply to apply and enforce them. To that end, it doesn’t make any sense to complain to CRA if you don’t like “the rules”. If you don’t like tax policies or some provision of the Income Tax Act, complain to your MP or the Finance Minister (currently Jim Flaherty).

At various times and for various reasons, the CRA will calculate the amount of income tax that you owe. They do this by “raising” an assessment, and they’ll send you a copy of it in the mail. The document is called a Notice of Assessment or a Notice of Reassessment. If you filed your 2007 taxes early, you’ve probably received one recently. A tax assessment sets out how much money the CRA thinks you earned, what deductions and credits the CRA thinks you’re entitled to, and as a bottom line the taxes the CRA thinks you owe. In most cases the CRA’s assessment will match the one you made when you sent in your tax return, which is why the tax system is considered to be a “self-assessment” system – you send in your tax return, and the CRA usually accepts you at your word unless they think you might be lying. The taxes owed are compared to the taxes already paid, and the result is either a bill or a refund.

In some cases, you might disagree with the assessment made by the CRA. You might, for example, think that you qualified for a deduction or credit that CRA disallowed. You might also think that the CRA miscalculated your income for the year, or made some other mistake.

The first step to take if you disagree is to contact the CRA (http://www.cra-arc.gc.ca/contact/menu-e.html) and ask for details. Ask them to explain the reasons for the decision, and ask them to give you exact references to the section(s) of the Income Tax Act and regulations that apply to their decision, if these weren’t listed on the Notice of (Re)Assessment. Look at those sections and try to decide whether you have a case worth fighting further.

Before deciding to “fight” the assessment, it’s a good idea to talk to a tax lawyer or tax accountant. They might tell you that you have no chance of winning, and that it doesn’t make any sense to pursue the matter. They might also be able to give you some helpful pointers, even if you don’t hire them to represent you.

Let’s assume that you honestly believe CRA made a mistake. The next step is to formally object to the tax assessment. The form for this, form No. T400A – Notice of Objection, is on the CRA web site (http://www.cra-arc.gc.ca/E/pbg/tf/t400a/README.html). You can also send a letter to the “Chief of Appeals” at the CRA office listed on your Notice of (Re)Assessment. The Notice of Objection should set out the facts and reasons for the objection, and enclose copies of any relevant documentation that you have. There is a deadline to send in an objection. If you miss the deadline, it’s possible to ask that it be extended, but it’s less work if you can send in the objection on time.

The CRA publishes a good overview of the objection and appeal process – the brochure is numbered “P148” and is available at http://www.cra-arc.gc.ca/E/pub/tg/p148/p148-e.html.

One note about the process: if the assessment says that you owe taxes, then you owe those taxes until the CRA or the courts say that you don’t. Although the policy of the CRA is to not pursue collection action (i.e. garnishing your wages or seizing your property) on amounts that are under dispute through an objection or appeal to the Tax Court, interest will accrue on any amounts owed every single day until they are paid or the assessment is varied. For this reason, it can make sense to pay the amount owed in full. Paying the tax doesn’t mean that you’re “giving up” or that you are acknowledging that the CRA is “right” – it does, however, avoid the problem of winding up with a much larger amount to pay after pursuing every avenue of appeal, because of several months’ (or possibly years’) worth of compound interest. If you pay the amount owed and the assessment is later changed in your favour, you’ll get a refund of the overpayment, with interest.

The objection will be looked at by a fresh set of eyes at the CRA – staff that work in a different branch than the one that made the tax assessment in the first place. They’ll look at the information and documentation you’ve submitted, and decide whether the assessment was in error. In some cases, CRA will decide that you (the taxpayer) were correct, and the assessment was wrong. They’ll send out a new Notice of Reassessment with appropriate changes (allowing the deduction that you claimed for, for example). In some cases, though, they’ll decide that the assessment was correct, and send you a Notice of Confirmation, which confirms that the CRA think the assessment was correct.

Part II deals with going to Court and will be up tomorrow.

The Hidden Costs of Breast Feeding

So with another baby my wife is back to breast feeding.  I find it rather amusing now again when people comment that breast feeding a baby has no cost.  When in actually it does have some related costs.  After all breast milk isn’t formed out of thin air you know.

So what costs are involved? Here is a brief list:

  1. Nursing bras. Good ones cost about $40 each and my wife has four.  She used some sales and gift cards to reduce our cost to $120 rather than the full $160.
  2. Nursing pads. To protect those bras from leaks.  Cost is about $0.40 a day.  You might be able to get this cheaper with coupons so keep an eye out.
  3. Food. Nursing woman need about an extra 500 calories a day to produce the breast milk.  Given the average female diet is around 2000 to 2500 calories per day that means an increase of 20 to 25% of their normal food intake.  You will notice this on your monthly food costs.  I would estimate this is going to be around $40/month for us.
  4. Water. Lots of water.  Depending on your costs you might actually notice this on your water bill.
  5. Optional items. Such as a nursing pillow for comfort (about $40), and perhaps a new chair if you don’t have a good one in the house.  Additionally some nursing shirts might be useful depending on what you have in the closet.  My wife highly recommends nursing sleep wear ($30) for comfort while getting what little sleep you can between those first few weeks of feeds in the middle of the night.

Despite all these cost breast feeding is still cheaper formula, but it isn’t free.  The exact cost is going to depend on how long you nurse the baby.  Many thanks to my wife who provided most of the information for this post.