Can You Settle a Tax Court Appeal with the CRA in Canada?

Filing a notice of appeal does not mean you are headed straight to a hearing. Many people want to know whether they can still reach an agreement with the Crown once the case is in the Tax Court of Canada, and what that agreement actually looks like on paper.

This article explains, in general terms, how a settlement connects to the CRA's power to reassess, how written offers can affect costs, and what to think about before you make or accept one. Every case is different, so a lawyer or accountant should confirm how this applies to yours.

This article covers Canadian federal tax law, which applies in every province.

How a filed appeal can end by agreement

The Income Tax Act allows the Minister, with your written consent, to reassess at any time to dispose of an appeal. That is the legal basis for settling a case that is already before the Court. In practical terms, an agreement is carried out by a new assessment that reflects what the parties have agreed.

The exact steps for negotiating with the Crown's lawyers, and how long they take, depend on the case and on the issues involved. A lawyer can tell you what to expect in your situation.

Know the Crown's position before you negotiate

In the general procedure, the Crown must file its reply within 60 days after service of your notice of appeal. The reply sets out, among other things, the facts admitted and denied and the issues to be decided. Reading it closely shows you where the two sides actually disagree, which is where settlement talks usually focus.

If you want to respond to the reply, any answer is filed within thirty days after service of the reply. In the informal procedure, the Minister files a reply within sixty days after the notice of appeal is transmitted, and the Court then fixes the hearing date.

Written offers and costs

In the general procedure, the Court can order one party to pay some of the other party's legal costs, and written settlement offers are one factor it considers. A written offer can also increase costs recovery to substantial indemnity costs, which is 80% of solicitor-and-client costs, for the period after the offer date if the judgment is as favourable as the offer.

Timing matters. The offer must be served at least 30 days after the pleadings close and at least 90 days before the hearing, and it must not be withdrawn.

In the informal procedure, the Court may award costs to the appellant if the judgment reduces the aggregate of amounts in issue, and it may consider written settlement offers. The CRA states that the taxpayer will not pay the Minister's costs unless the taxpayer unduly delays the appeal.

Which procedure you are in

If the amounts in issue exceed $25,000 or the loss exceeds $50,000, the Court orders the general procedure to apply, unless you elect to limit the appeal to those amounts. That choice can affect your settlement strategy, so raise it with a lawyer early.

If there is no settlement, and what to do next

If the case is not settled, the Court decides it. A further appeal to the Federal Court of Appeal must be filed within 30 days, not counting days in July and August, after the judgment. Informal procedure judgments can be appealed only on limited grounds such as lack of jurisdiction, breach of procedural fairness or an error of law.

• Read the Crown's reply and list the facts and issues still in dispute.
• Decide what result you would accept, including any penalties and interest.
• Ask a lawyer whether a written offer makes sense and when it could be served.
• Never sign a consent to reassess without understanding exactly what the new assessment will say.
• Keep a record of every deadline in your case.

Frequently asked questions