Dealing with tax authorities can be very distressing for taxpayers. Correspondence from the tax authorities often contain deadlines which are easy for the taxpayer to miss.
In a recent Tax Court of Canada decision, Osadchuck v. The King, 2023 TCC 16, the Court required a hearing to determine an application to extend time to object because of the low chances of success of the grounds for appeal. The Court’s comments heavily emphasized the “reasonable grounds for the appeal” requirement.
Case summary
The taxpayer sought an extension in time to file his notice of appeal pursuant to the relevant provisions of the Income Tax Act (Canada) (the “Act“).
Section 167(1) states:
Where an appeal to the Tax Court of Canada has not been instituted by a taxpayer… within the time limited by that section for doing so, the taxpayer may make an application to the Court for an order extending the time within which the appeal may be instituted and the Court may make an order extending the time for appealing and may impose such terms as it deems just.
Interestingly, HMK did not oppose the application by the taxpayer. The Court held that while it will consider the parties’ consent or non-opposition, it is the Court’s decision whether or not to grant an extension, on the merits in accordance with the Act.
The Court then set out the requirements to grant an application, (emphasis from the Court):
… subsection 167(5) sets out the requirements for making an order. That subsection reads:
-
- (5) When order to be made — No order shall be made under this section unless
- (a) the application is made within one year after the expiration of the time limited by section 169 for appealing; and
- (b) the taxpayer demonstrates that
- (i) within the time otherwise limited by section 169 for appealing the taxpayer
- (A) was unable to act or to instruct another to act in the taxpayer’s name, or
- (B) had a bona fide intention to appeal,
- (ii) given the reasons set out in the application and the circumstances of the case, it would be just and equitable to grant the application,
- (iii) the application was made as soon as circumstances permitted, and
- (iv) there are reasonable grounds for the appeal.
- (i) within the time otherwise limited by section 169 for appealing the taxpayer
- (5) When order to be made — No order shall be made under this section unless
Citing an earlier decision of the Court made by Justice Webb, the Court emphasized that
the statutory requirement that an applicant demonstrate that there are reasonable grounds for the appeal is a condition that must be satisfied in order for this Court to have the jurisdiction to issue the order extending the time within which an appeal may be instituted and it is not a requirement that can be waived by the Respondent. It is not a requirement that is imposed solely for the benefit of the Respondent. The requirement that an applicant demonstrate that there are reasonable grounds for the appeal is a condition precedent to this Court issuing the requested order.
Stated differently, the Court must be satisfied that there is a chance of success for the Appellant before granting the application to extend. The Court stated that “the threshold for ‘reasonable grounds of appeal’ is not high…However, there must be at least some possibility of success.”
Even though the Court felt that the proposed notice of appeal did not have merit, its decision fell short of dismissing the taxpayer’s application for an extension of time to file his Notice of Appeal. Instead, the Court required a hearing in order to decide whether the conditions in 167(5) of the Act had been met.
Insights for taxpayers and tax practitioners
What does this mean for taxpayers? It is important for taxpayers to meet with a tax practitioner to understand the overall risks and chances of success before proceeding with tax controversy.
What does this mean for tax practitioners? It is important to have frank conversations and ask your client the tough questions to prepare them for what to expect. It is equally important to discuss, broadly, the chances of success. Ultimately, it is for the taxpayer to decide whether to proceed and whether to make a payment on account of taxes assessed, despite an objection or appeal. Before setting off a tax controversy journey, it is important that your client has some idea of the roadmap to understand the ultimate destination sought and roadblocks that they may encounter on the way.
Our Tax Disputes Resolution team members are experts at navigating the yellow brick road; we can help taxpayers and tax practitioners with the tax controversy journey and to avoid pitfalls. Please call us if we can assist.
