By Ivan Merrow, Summer Law Student
This article is part two of a three-part series on the Canadian Tax Foundation (“CTF”)’s event titled “Tax Dispute Resolution: an Inside Look from the Government’s Perspective.” (Part one can be found here.)
Devry Smith Frank LLP (“DSF”)’s tax litigation team attended the event to better help its corporate and personal clients to resolve ongoing or threatened litigation by the Canada Revenue Agency (“CRA”).
Part two of this article series features Marie-Thérèse Boris, formerly Senior Counsel for the Department of Justice (the “DOJ”):
The CRA has discretion on when to involve the Department of Justice
Ms. Boris explained that the CRA has the discretion to involve the DOJ at any time during the tax dispute resolution process. Auditors may or may not recognize legal issues early on in an assessment. Tax lawyers like those at DSF can highlight those legal issues and ask that the DOJ provide an opinion on them. That provides the benefit of an early signal whether there is a matter that may justify going to trial.
Tax practitioners need to talk to the DOJ early in order to settle
The CRA and DOJ assess cases at every stage of appeal for the potential to go to trial. Tax litigators who want to settle client disputes need to talk to the DOJ lawyer assigned to the file early. At that time, Ms. Boris said, the DOJ lawyer is more open-minded and less entrenched in their defence of the CRA’s position.
Tax lawyers like Eldad Gerb will reach out to the DOJ on your instructions should you wish to reach a settlement with the CRA early on in your dispute.
Ms. Boris also suggested that lawyers bring clients to a meeting with the DOJ lawyer and the CRA to resolve credibility issues. Your tax lawyer can advise you whether this is a good strategy for your case. In Ms. Boris’ words, meeting you in person is a chance to provide new information that may help persuade the DOJ that a trial may prove difficult to win.
Interest and penalty relief cannot be included in a settlement
Under the current law, interest and penalty relief can never be included in a settlement. The DOJ has no input into interest relief. It is handled solely by the CRA.
Ms. Boris said that it may help if your tax lawyer is upfront with the DOJ when making a request for interest relief. She suggested that tax lawyers send their client’s request to the CRA and ask for a tentative decision.
Barriers to settlement: failure to fully disclose, deceptiveness, and project files
Before concluding, Ms. Boris wanted to share the following five barriers that commonly prevent settlement of tax dispute files with the CRA:
(1) “Project files,” for example, the CRA’s recent crackdown on charitable donations. The CRA will not be interested in settling these files. The legal issues at play must all be settled at once or determined at trial, not settled piecemeal.
(2) Deceptive accountants or lawyers. Professionals who attempt to lie on your behalf jeopardize the dispute resolution process. That is why the lawyers at Devry Smith Frank LLP operate by ethical standards that protect your ability to be taken seriously by the CRA and have your case evaluated fairly.
(3) Last minute settlements. Attempting to rush DOJ lawyers into a settlement once they are prepared for trial lowers the odds a settlement will be reached.
(4) Less than full disclosure.
(5) Previous DOJ opinion or CRA ruling on the matter at issue. The CRA will be extremely reluctant to settle any matter they have already ruled on. Ask your tax lawyer to make an access to information request to see all DOJ opinions and CRA rulings on a particular matter if this concerns you.
As always, for any tax law related matters in Toronto, Ontario Canada, contact Devry Smith Frank LLP at 1-416-446-1400 or Eldad Gerb at 1-416-446-3327.