Below is a summary of the implications of the COVID-19 pandemic on tax audits and disputes as of June 1, 2020. A link to the CRA’s most up-to-date administrative policies regarding COVID-19 can be found here.
CRA audit activity
The CRA recently announced that following the suspension of audit activity that began on March 18, 2020, it is resuming a full range of audit work.
The CRA indicated that as audit activity resumes, it will be prioritizing actions that are beneficial to taxpayers or where taxpayers have indicated there is an urgency to advancing their audit. It will also be focusing on higher dollar audits first, audits close to completion, and those with a strategic importance to the Government of Canada, provinces and territories, or Canada’s tax treaty partners. In addition, efforts to combat suspected fraud and other criminal activity will be advancing.
Requirements for Information (“RFIs”) issued prior to March 16 and due after that date will be reviewed and taxpayers and third parties, including financial institutions, will be contacted where the CRA continues to require the information in the RFI.
There is currently no extension to statute barred periods for reassessment, meaning that taxation years will go statute-barred in accordance with the provisions in the Income Tax Act and Excise Tax Act. Note, however, that on May 19, 2020, the Minister of Justice published draft legislative proposals (the “Draft Legislative Proposals”) which may, if enacted, allow the Minister of National Revenue to make an order extending the “normal reassessment period” defined at subsection 152(3.1) of the Income Tax Act or the period for an assessment or rebate pursuant to the subsections 398(1) and (2) of the Excise Tax Act. This order could have retroactive effect to March 13, 2020. The draft legislative proposals and explanatory notes are available here.
Taxpayers that received a Notice of Assessment, Notice of Reassessment or Notice of Determination
Under normal circumstances, the deadline to file a Notice of Objection is the later of (a) one year after the date of the return’s filing due date for the year; or (b) 90 days after the issuance of a Notice of Assessment, Notice of Reassessment or Notice of Determination.
On March 27, 2020, the Government of Canada announced that the deadline for any Objection originally due between March 18, 2020 and June 30, 2020 is now June 30, 2020. This extension is provided by way of an administrative concession, pursuant to which the CRA will proactively exercise its discretion under the Income Tax Act and the Excise Tax Act to grant an extension to file a Notice of Objection. Taxpayers should file their Objections well in advance of the June 30, 2020 deadline in the event there are disruptions to mail and courier services.
Please note that for Objections that were due prior to March 18, 2020, a request for an extension should be filed as soon as possible, as the CRA does not have the discretion to extend the deadline to file a Notice of Objection past the one-year period following the deadlines listed above.
Taxpayers with a Notice of Objection pending
Notices of Objection that have already been filed are currently being “held in abeyance” by the CRA. There is no indication at this time of how long this period will last. The CRA has indicated that Objections relating to Canadians’ entitlement to benefits and credits have been identified as a “critical service” and that there should not be any delays with processing these Objections during the COVID-19 crisis. For all other Objections, we anticipate significant processing delays upon the reopening of the CRA offices.
Taxpayers that received a Notice of Confirmation or a Notice of Reassessment further to an Objection
Taxpayers generally have 90 days to file a Notice of Appeal with the Tax Court of Canada following the issuance of a Notice of Confirmation or a Notice of Reassessment further to an Objection. At present, no statutory extension to this deadline has been granted and all Notices of Appeal should be timely filed electronically using the Tax Court of Canada’s on-line filing system or by fax at 613-957-9034. Such filings will not be processed or served on the Department of Justice until the Tax Court resumes its operations.
Taxpayers seeking to commence a proceeding before the Federal Court or an appellate Court
If enacted, the Draft Legislative Proposals will suspend the time limits to commence an appeal before the Tax Court, the Federal Court, or the Federal Court of Appeal or seek leave from the Supreme Court of Canada for the period that starts on March 13, 2020 and that ends on September 13, 2020.
At this time, however, all statutory deadlines for commencing appeals and applications to the Federal Court or Federal Court of Appeal or for seeking leave from the Supreme Court remain in effect. As such, all filings should be done in a timely manner, adhering to these statutory deadlines. Parties are encouraged to use the Federal Court’s e-filing portal to file documents, or to file by e-mail to email@example.com, firstname.lastname@example.org, or email@example.com for the Federal Court, Federal Court of Appeal or Supreme Court, respectively.
Taxpayers with a tax appeal pending
All levels of Courts have adjourned sittings and granted extensions to complete litigation steps. The Draft Legislative Proposals also contain measures which, if enacted, will suspend the time limits to complete any procedural step in a proceeding for the period from March 13, 2020 to September 13, 2020, unless a particular court chooses to shorten the suspension period.
Tax Court of Canada
By a Practice Direction and Order dated March 23, 2020, Chief Justice Rossiter of the Tax Court of Canada cancelled all judicial sittings and conference calls until May 1, inclusively, and suspending the computation of time in the Tax Court of Canada Rules (General Procedure) and under all orders between March 16 and May 1.
On April 17, Chief Justice Rossiter further cancelled all judicial sittings and conference calls up until May 29, and extended its previously announced suspension period to the period beginning on March 16, 2020 and ending on the day that is 60 days after the Court and its offices eventually reopen for the transaction of business (the “suspension period”). The Court will treat all Notices of Appeal filed during the suspension period as including an application for an extension of time to appeal brought on the exceptional grounds that the COVID-19 pandemic and the closure of the Court prevented the filing of the appeal within the normal statutory deadlines.
On May 27, 2020 the Tax Court issued an Amended Practice Order and Direction and a new Notice to the Public and the Profession cancelling all judicial sittings and conference calls scheduled through July 17, 2020. Should circumstances allow for the resumption of the Court’s operations in the coming weeks, the Court will sit during the 4-week summer recess and appeals will be scheduled between July 20, 2020 and August 13, 2020. Priority will be given to parties whose hearings were interrupted in March or whose general appeals were adjourned in March or April. The Court is also currently looking into conducting proceedings related to litigation process, such as Case Management Conferences and Status Hearings, by phone or online.
The May 27, 2020 Practice Direction and Order and Notice to the Public and the Profession can be found here and here. The April 17, 2020 Practice Direction and Order and Notice to the Public and the Profession can be found here and here. The March 23, 2020 Practice Direction and Order can be found here.
Chief Justice Crampton of the Federal Court issued a Practice Direction and Order on March 17, 2020 indicating that all hearings scheduled up to April 17 are adjourned sine die. All timelines under any order or direction of the Federal Court or under the Federal Courts Rules are suspended during the same period (the “suspension period”). The suspension period was extended on April 4, April 29 and May 29 and is currently set to expire on June 15, 2020. Timelines for filing documents and completing other procedural steps will be extended by another 14 days after the suspension period is over, to June 29, 2020, to allow parties and their legal counsel time to prepare.
The Federal Court will not hold in-person hearings until July 13, 2020. Parties are to provide their mutual dates of non-availability up to December 18 for the rescheduling of hearings that have been adjourned as a result of the suspension period. Such dates should be provided no sooner than May 15 and no later than June 12.
During the suspension period, the Court is accepting requests for hearings by telephone or video conference, to be assessed on a case-by-case basis and subject to the following requirements: (1) all parties consent; (2) joint schedule of availability is provided; (3) all documents required for the hearing have been or will be filed electronically, and are available to the other parties in electronic format; and (4) the hearing is for a duration of less than two hours.
The Court is also accepting requests from parties interested to have their hearings on the merits that have been adjourned determined in writing. The Court will continue to adjudicate motions in writing provided that all parties consent and that all documents have been or will be filed electronically. The Court will also continue to hear urgent matters. The Court announced that it will begin reaching out to parties for select matters that are ready to proceed or close to ready to proceed to hearing. The Court’s Case Management Judges will continue to manage cases, and issue orders and directions, when the Court considers it appropriate to do so.
Federal Court of Appeal
Chief Justice Noël of the Federal Court of Appeal issued an Update of Court Operations on March 16 and a Temporary Suspension of Deadlines on March 19 indicating a “suspension period” between March 16 and April 17, during which time the computation of time under both procedural rules and any direction or order of the Federal Court of Appeal will not run. The suspension period was extended by announcements released on April 2, 2020, April 15, 2020, May 12, 2020 and May 28, 2020 with the suspension period now set to expire on June 15, 2020.
On April 15, 2020, the Federal Court of Appeal announced that it will be selecting certain cases to progress towards a determination on the merits. The Court is reviewing its list of pending cases (including cases in which the parties have not yet completed all necessary procedural steps) to identify the cases that should move forward, taking into consideration the nature of the case, the complexity of the case, the extent to which the record is or can be made electronic, and the ongoing resource challenges facing the Registry. The Court will notify the parties if their case has been selected to proceed. We expect other courts to follow the Federal Court of Appeal’s lead in attempting to move matters forward where possible.
For cases that are not selected to proceed by the Federal Court of Appeal, parties may request on consent that their case be heard remotely. As well, a party may request at any time that a case be allowed to progress due to urgency.
The most recent Notice to the Parties and the Profession released on May 12, 2020 can be found here. The Notices to the Parties and the Profession released on May 12, 2020, April 15, 2020 and April 2, 2020 can be found here, here and here. The original Update of Court Operations and Temporary Suspension of Deadlines can be found here and here.
Supreme Court of Canada
The Supreme Court issued a news release on March 25, 2020 pursuant to which cases previously scheduled for hearing in March, April and May are adjourned, tentatively, to the month of June 2020. The Supreme Court indicated that it will continue to issue judgments on applications for leave and on appeal during this time period. Deadlines imposed by the Rules of the Supreme Court of Canada are suspended until further notice.
On April 29, 2020 the Supreme Court of Canada announced a list of appeals that will be heard in June 2020. It also announced a list of appeals which will be heard in September of 2020, the exact dates of which will be confirmed at a future time. All other hearings postponed due to COVID-19 will be heard in the regular fall session, which will begin the week of October 5, 2020.
Taxpayers with a tax debt or entitled to a refund
On March 21, 2020, the CRA indicated that collection activities on new debts will be suspended until further notice, and flexible payment arrangements will be available. Pre-existing situations will be addressed on a case-by-case basis to prevent financial hardship. Until further notice, banks and employers are not required to comply with existing requirements to pay issued by the CRA.
Although collections measures have generally been put on hold during the crisis, interest on outstanding amounts (other than those where specific extensions for payment have been granted) will continue to accrue. Taxpayers can request relief to waive or cancel penalties and interest. Reasons for granting a relief request include, amongst other things, the inability to pay or financial hardship and extraordinary circumstances. The CRA has indicated that once its business operations resume, the Taxpayer Relief Program will review requests related to COVID-19 on a priority basis.
Communications regarding collections and refunds are to be directed to dedicated CRA Collections Officers at 1-800-675-6184.