Can the Tax Court Award Costs Against You or the CRA in Canada?

Fear of losing and being ordered to pay the CRA's legal bills keeps some people from appealing. How costs work depends heavily on which Tax Court procedure applies, and the difference is significant.

This article compares the two procedures, explains how a settlement offer can change the outcome, and covers the special rule when the Crown appeals. Specific dollar amounts under the costs tariff are not covered here, so a lawyer can confirm what applies to your case.

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

Which procedure applies

Before costs come into play, you need a live appeal. After the Minister confirms the assessment or reassesses following your notice of objection, the appeal deadline is 90 days from the day the notice was sent to you. If the Minister has not notified you of a decision, you may appeal once 90 days have elapsed after service of the notice of objection.

The informal procedure applies where the aggregate of all amounts in issue is $25,000 or less, or the loss in issue under ITA s. 152(1.1) is $50,000 or less, and you elect it. It also applies where the only subject-matter is interest assessed under the Income Tax Act.

If the amounts exceed $25,000 (or the loss exceeds $50,000), the Court orders the general procedure unless you elect to limit the appeal. In that case the judgment is deemed to state that the amounts will not be reduced by more than $25,000 or the loss increased by more than $50,000.

In an interest-only informal appeal, the Attorney General may apply to move the case to the general procedure, and the Court must grant it if the interest in issue exceeds $25,000. Interest accruing after the notice of assessment is excluded from that calculation.

Costs in the informal procedure

The Court may award costs to you if the judgment reduces the aggregate of amounts in issue, and it may consider written settlement offers. The CRA says you will not pay the Minister's costs unless you unduly delay the appeal.

There is also a protection if the Crown appeals. If the Minister appeals an informal procedure judgment, your reasonable and proper costs of the appeal are paid by the Crown.

The informal procedure is also less formal in other ways: you may appear in person or be represented by counsel or an agent, and the Court is not bound by technical rules of evidence. The Minister files a reply within sixty days after the notice of appeal is transmitted, and the Court fixes the hearing date. Judgment must be rendered not later than ninety days after the hearing concludes, except in exceptional circumstances.

Costs in the general procedure

In the general procedure, the Court can order either party to pay some of the other party's legal costs. Under Rule 147(3) it considers factors including the result, the amounts in issue, the importance and complexity of the issues, written settlement offers, and conduct that lengthened the proceeding.

That means a costs order can go either way, so weighing the risk before you proceed is sensible. Individuals may appear in person or be represented by counsel in this procedure.

The process has its own steps. The Crown must file its reply within 60 days after service of the notice of appeal, and allegations of fact in your notice of appeal that are not denied in the reply are deemed admitted. Each party also files and serves a list of documents within thirty days following the closing of the pleadings.

How settlement offers change the picture

A written offer of settlement can increase costs recovery to substantial indemnity costs, meaning 80% of solicitor-and-client costs, after the offer date if the judgment is as favourable to the offeror.

To qualify, 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. Timing and wording matter, so a lawyer should review any offer.

If a settlement is reached, the Minister may, with your written consent, reassess at any time to dispose of the appeal.

What to do next

• Work out the amounts in issue (and any loss) to see whether the informal procedure is available.
• Ask a lawyer what costs exposure applies to your case and what the tariff would provide.
• Consider whether a written settlement offer makes sense, and when it must be served.
• Avoid unnecessary delay, since it can affect costs.
• Keep a record of legal and filing expenses from the start.

Frequently asked questions