Who Pays Costs If You Lose in Tax Court?

Losing a Tax Court of Canada appeal is stressful enough without wondering whether you'll also be handed a bill for the government's legal costs. The answer depends heavily on which procedural track your case followed — and that distinction catches a lot of self-represented taxpayers off guard. Understanding Tax Court costs before you appeal helps you weigh the real financial risk of pushing a dispute past the objection stage.

The Tax Court of Canada runs two very different procedures, and the rules around who pays whom look nothing alike between them. Getting this wrong can mean the difference between a manageable appeal and one that costs far more than the tax in dispute.

This article explains how cost awards generally work in each stream, what can increase your exposure, and how to think about the risk before you commit to litigating.

Two Tracks, Two Different Cost Regimes

The Tax Court offers two procedures for federal tax appeals — income tax, GST/HST, and CPP/EI ruling disputes all fall into one or the other:

• Informal Procedure — a simplified, faster process available where the amount of federal tax and penalties in dispute for the year is modest (currently $25,000, or $50,000 where the amount in dispute is a claimed loss; GST/HST appeals use a $50,000 limit — figures as of mid-2026, verify the current thresholds before relying on them).
• General Procedure — used for larger or more complex disputes, and it operates much more like an ordinary civil lawsuit, with formal pleadings, examinations for discovery, and a full trial.

Informal Procedure decisions do not set binding precedent, which is part of why the process is lighter-weight — including, generally, on costs.

Informal Procedure: Limited Cost Exposure

One of the appeals of the Informal Procedure is that it's designed to let taxpayers represent themselves without facing a serious risk of paying the government's legal bill if they lose. Cost awards in this stream are limited by design, and a self-represented taxpayer who loses an Informal Procedure appeal typically does not face a large costs order.

That doesn't mean costs never come up in the Informal Procedure — but the scale of exposure is fundamentally different from General Procedure litigation, which is one reason many smaller disputes are deliberately kept under the Informal Procedure's monetary limits.

General Procedure: Costs Generally Follow the Event

General Procedure appeals function more like other Canadian civil litigation: the general expectation is that the losing party contributes to the winning party's legal costs, calculated according to the Court's own tariff rather than actual legal fees billed. If you lose a General Procedure appeal, you should expect to owe something toward the Crown's costs — and if the amount in dispute is large, formal litigation costs become a real part of the overall calculation.

The reverse is also true: if you win, you may recover a portion of your own costs from the Crown, although tariff-based costs rarely cover the full amount you actually spent on legal fees.

Settlement Offers Can Affect the Outcome

Formal settlement offers made during a dispute can influence a later costs award in General Procedure appeals. In broad terms, a party who rejects a reasonable offer and then does worse at trial than the offer would have given them can face a less favourable costs outcome than if no offer had ever been made. This is one reason serious settlement discussions matter well before a hearing date is set.

Comparing the Two Streams

Managing Your Costs Risk

• [ ] Confirm which procedure your dispute falls under before you file your Notice of Appeal.
• [ ] Get a realistic assessment of your chances before committing to General Procedure litigation.
• [ ] Keep a paper trail of any settlement offers exchanged with the Department of Justice.
• [ ] Ask your lawyer to estimate a costs range for both possible outcomes, not just the tax at stake.
• [ ] Remember a Notice of Objection must be filed with the CRA before any appeal — resolving a dispute at that earlier, cost-free stage is often the better outcome.

Frequently asked questions