For the week of October 24, 2012

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Poll Question: Should governments increase taxes on investment income dividends and capital gains to increase revenues and meet their responsibilities?

DISTINGUISHED PRACTICES: Tips for Real Wealth Managers™: Broader interpretation of transfer pricing

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Tax Tips: How the CRA is helping small business

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Tips From Tax Court: Procedures for Objecting Taxpayers

Taxpayers who wish to appeal Canada Revenue Agency's notice of assessment/reassessment generally have two ways to proceed — the less costly, less time-consuming, informal procedure or the lengthy and expensive Tax Court of Canada route.

Each has its requirements and limitations, which may affect your choice. In both cases, to begin the appeal process, you must file a Notice of Objection in writing to the CRA within one year of the due date for filing your return or 90 days from the date of the CRA mailing the Notice of Assessment. That is where the similarities end. Here is a look at both procedures.

•The Informal Procedure is available only if the total disputed tax amount (other than interest or provincial tax) does not exceed $12,000, the amount of loss in issue does not exceed $24,000, or the only amount disputed is interest.

To proceed, you must also make an irrevocable election which, in effect, surrenders your right to appeal to an appellate court, although judicial review by the Federal Court of Appeal is still available.

Once you have decided this is your route, you must submit your appeal in writing to the Appeals Branch of the CRA within 90 days from the date on the notice, organizing the relevant facts and grounds for appeal. The CRA, likewise, must submit its response to the Appeals Branch within 45 days of the date when you filed your Notice of Appeal. That results in a hearing, to be heard within 90 days of the CRA's reply, at which you may represent yourself or have an agent represent you. Within 60 days of the hearing of the appeal, the Appeals Branch issues its judgment and either confirms or varies the original assessment or reassessment.  

The entire Informal Procedure usually takes about seven months from the date you file the Notice of Appeal. About 93% of taxpayers' objections are resolved within the CRA. Now, to the other 7%.

• General Procedure is a formal litigation process that begins in the Tax Court of Canada and can proceed, if unresolved, through the Federal Court of Appeal right up to the Supreme Court of Canada. Going through this general court process is usually lengthy — there is no pre-determined time frame and can take several years — and very costly. It applies to disputes in which federal taxes exceed $12,000.

One further important point to remember is that settlement offers from the CRA for less than the full amount owing are not authorized by the Income Tax Act. This means the offer is unenforceable, as unfortunate taxpayers found out the hard way in the cases of Cohen v The Queen, and Galway. So, be aware.