With almost 22 million Canadians filing tax returns each year, there are bound to be disputes between taxpayers and Canada Revenue Agency.
The good news is that the Tax Court of Canada, which hears such disputes, has an informal appeals process that makes it easy for taxpayers to represent themselves in a challenge to the taxman’s rulings. The bad news is that taxpayers often don’t understand the rules of the game and can fumble the ball when it comes time to state their cases.
Of the 13,491 appeals in Tax Court over the past three years, taxpayers represented themselves in 32% of the cases. Most of those were brought under the informal rules procedure, and covered appeals under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan, the Old Age Security Act and the Excise Tax Act, the last of which includes the goods and services tax.
It could be something as simple as appealing a CRA ruling that disallowed auto expenses to appealing a disentitlement of a medical expense or benefits such as employment insurance or CPP.
The informal procedure process is akin to Small Claims Court, in that Tax Court relaxes the normally strict rules that accompany courts. Taxpayers must still prove their cases, but they don’t have to file lengthy tomes that lawyers prepare in normal litigation. Rather, all that is required is a letter outlining their beef with the taxman, setting out the reasons for the appeal and the facts.
“It’s less formal than other procedures,” says Robert McMechan, a tax lawyer in Ottawa (please see www.taxassistance.ca). It’s a lot faster and less expensive than typical litigation, he says.
However, that informality doesn’t mean it’s a free-for-all. “The judges still expect you to prove the facts in a way that is reliable,” he says.
Self-represented taxpayers make their biggest mistakes in presenting their cases, he says: “They may have a case, but they fail because they didn’t understand how to present it.”
André Gallant, a tax lawyer at McInnes Cooper in Halifax, agrees, but notes that, overall, the informal rules work.
Gallant, a former law clerk at Tax Court, has studied the impact of the informal procedure on self-represented taxpayers: “In the majority of cases, it does work for unrepresented litigants. They go there and the judges will often guide them and ask them questions to make sure they have a fair chance.” However, he says, “There are still some cases in which that procedure does not work.”
That is usually because self-represented taxpayers fail in one of four areas: proving their innocence, staying relevant, establishing credibility and providing corroborating evidence.
So what does it take to succeed? Here are the top five tips for taxpayers when representing themselves in Tax Court:
> Learn about the process. Ed Kroft, a tax partner in the Vancouver office of national law firm McCarthy Tétrault LLP, says the first mistake taxpayers make is failing to inform themselves about the process. “The first thing a person should do is go to the court and watch the process. Too many people go in and have no idea what’s happening.”
That also means speaking to counsel on the other side before you get to court. Once your written appeal is filed, it’s up to the government to respond. It must provide you with a written statement that explains which facts it agrees to and which are disputed or unknown to the government, as well as the statutory provisions of the law it relies on and the reasons your claim was denied.
Lawyers from the Department of Justice represent the CRA in Tax Court. Gallant says many people may feel intimidated about calling the other side. However, contacting the other side in advance might result in the matter being settled out of court, or in the CRA being provided with information it didn’t have.
> Prove your innocence. Kroft says most taxpayers fail to understand that it is up to them to prove their case. “You are guilty until proven innocent,” he says, which is different than for most courts.
In criminal courts, for example, the government has to make the case against the accused. “[In Tax Court], the burden of proof is on the taxpayer,” Kroft says. That means taxpayers have to provide enough evidence to convince a judge to rule in their favour.
@page_break@While that may seem unfair, most lawyers point out that it’s the taxpayer who has the information at hand that supports a claim, and not the government.
> Stay relevant. Lawyers say one of the biggest problems self-represented parties face in Tax Court is keeping the argument on track and not wandering into irrelevant areas.
That means checking your emotions at the courthouse door.
“The person listening to your story has to understand it,” says Kroft. “So if you ramble, digress or start criticizing everything from the system to the weather, that’s not going to contribute to an efficient rendering of a decision by the judge, who has to hear other cases and would like to take the time to dispense — in a humane fashion — an appropriate decision.”
Lawyers say taxpayers often go off topic and start complaining about fairness and how they were treated. “The judges don’t have jurisdiction to deal with issues of fairness,” McMechan says. “They have to see the legislation applied to the facts in a proper manner, and can’t overturn an assessment because they think somebody has been badly treated.”
> Establish your credibility. Gallant says credibility is key in the eyes of the judges. That means being forthright and honest with the court. The best way to build your credibility is to be prepared and provide evidence that backs up your claims.
“Bring your papers and your witnesses, and be prepared,” Kroft says. “Stay on point.”
If the facts are in dispute, the taxpayer will have to provide evidence that convinces the court that his or her version is the correct one.
For example, if CRA has rejected claims that you use your car for work, you need to provide the court with your driving log that shows how many miles you drove in relation to work. If you can’t provide the log, then provide a diary that shows off-site meetings involving clients and work out the mileage involved.
Gallant says the taxpayer often has the information, but has never provided it to the CRA. Instead, he says, the taxpayer “comes into court with boxes of documents, and that’s the first time that the Justice lawyer sees them. It’s all a mess.”
It’s not the judge’s job to go through receipts looking for information, he notes. He suggests taxpayers put the documentation in an order that makes sense and explains the story, and provide it to the Justice Department lawyers and the judge ahead of time.
> Use witnesses to corroborate your story. Taxpayers often overlook the impact witnesses can have. Witnesses can corroborate a story and bolster the credibility of a case. The lack of a witness can also kill a case.
McMechan notes that only people with personal knowledge of the facts can testify. For example, if the dispute is over a disability issue, the taxpayer needs to bring his or her doctor to testify that the disability is legitimate. The taxpayer can’t simply say a doctor said the taxpayer was sick. If the fight is over a valuation, the taxpayer needs an expert who can explain how he or she arrived at that figure.
The problem, says Gallant, is the added cost of paying expert witnesses. Many people cannot afford the cost, but the witness could be critical to the success of the case.
Taxpayers can take heart, however. Lawyers say most judges will try to help self-represented litigants through the informal procedures. “Judges in Tax Court are good with self-represented litigations and really try to help them a lot,” Kroft says.
But they can only go so far. IE
Bring documents and witnesses, like good lawyer
A taxpayer who represents himself in Tax Court against the CRA needs to come to court prepared
- By: Jim Middlemiss
- November 2, 2005 November 2, 2005
- 12:11