You file an income tax return for your client, and later the CRA issues an assessment or a reassessment that does not agree with the return as filed. Your natural instinct is to try to solve the problem by discussing it with the auditor or the person who issued the assessment. The communication is quicker and more direct. The person is already familiar with the issue in dispute. Remember, however, that while you are dealing with this person the clock is ticking away and your time for filing an objection is running out.
Subsection 165(1) of the Income Tax Act (Canada) (the “Act”) gives a taxpayer the right to file an objection to an assessment for a taxation year. The subsection imposes time limits for filing the objection. For an individual or testamentary trust (but not any other kind of trust) the objection must be filed by the later of (1) the day that is one year after the taxpayer’s filing-due date for the year and (2) 90 days after the date of the assessment. In any other case, the objection must be filed by the day that is 90 days after the date of the assessment.
We are aware of one case where the CRA reassessed an individual for a taxation year in January of the second year after the year. A request for an adjustment was filed, but the CRA denied the request in a letter dated April 29, the day before the expiry of the limitation period. Moreover, the client did not receive the letter until mid-May. The client, then, was out of time for filing an objection.
Under section 166.1 of the Act, a taxpayer can apply to the CRA to extend the time within which an objection can be filed. The application must be made within one year of the expiration of the time otherwise allowed for filing the objection. If the CRA denies the application, the taxpayer can appeal to the Tax Court under section 166.2 for an order requiring the CRA to extend the time. The CRA, however, usually does not deny the application. David Sherman, in the Practitioner’s Income Tax Act (27th edition), notes that for the year ended March 31, 2001, the CRA accepted 85% of the applications it received.
Notwithstanding the CRA’s generosity (in most cases), it would be wise to avoid having to make such an application in the first place because, at the very least, applying for more time takes more time. It is better to respect the deadline for filing the objection in the first place. If you wish to keep dealing with the auditor, file the objection to protect your client’s rights, and then ask CRA Appeals to hold your objection in abeyance while you continue to work with the auditor. Appeals, with its large inventory of objections, will likely be happy to agree to your request.
