Tax Court Costs: Can You Be Ordered to Pay in Canada?

Fear of paying the CRA's legal bill stops some people from appealing. The answer depends heavily on which Tax Court procedure your case uses.

A costs award is an order that one side pay part of the other side's legal expenses. This article explains when that can happen, what the Court looks at, and how the informal procedure is different. It does not set out dollar amounts, because those depend on the case and the Court's discretion.

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

What a costs award is

In the general procedure, the Tax Court of Canada can order either party to pay some of the other party's legal costs. That is different from the tax in dispute, and it covers only some of those costs, not necessarily all of them. When it decides, the Court 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.

Whether an order is made, and how much, turns on the procedure and the Court's discretion. How much you might expect in costs depends on your situation, so it is worth confirming with a lawyer to get a realistic estimate for your case.

Costs in the informal procedure

The informal procedure applies where the aggregate of all amounts in issue is $25,000 or less, or the loss in issue 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.

The costs risk is limited here. The Court may award costs to the appellant if the judgment reduces the aggregate of amounts in issue. The CRA says the taxpayer will not pay the Minister's costs unless the taxpayer unduly delays the appeal.

If the Minister appeals an informal procedure judgment, the taxpayer's reasonable and proper costs of the appeal are paid by the Crown.

• You may appear in person or be represented by counsel or an agent.
• The Court is not bound by legal or technical rules of evidence.
• Judgment must be rendered not later than ninety days after the hearing concludes, except in exceptional circumstances.
• The judgment is not treated as a precedent for any other case.

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. That means a taxpayer who loses can be ordered to pay part of the Crown's costs.

Under Rule 147(3), the Court 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.

If your amounts exceed $25,000, or the loss exceeds $50,000, the Court orders the general procedure, unless you elect to limit the appeal to those amounts. That election keeps you in the informal procedure, but 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. For an interest-only informal appeal, the Court must move the case to the general procedure on the Attorney General's application if the interest in issue exceeds $25,000, and interest that accrues after the notice of assessment is not counted toward that amount.

Settlement offers

A written offer of settlement can increase costs recovery to substantial indemnity costs, which is 80% of solicitor-and-client costs, after the offer date if the judgment is as favourable. The offer must be served at least 30 days after pleadings close and at least 90 days before the hearing, and it must not be withdrawn.

Offers matter in the informal procedure too, since the Court may consider written settlement offers on costs there. A filed appeal can also be settled outright: with your written consent, the Minister may reassess at any time to dispose of an appeal.

What to do next

• Add up all the amounts in issue to see if the informal procedure is open to you.
• Ask whether electing to limit your appeal is worth the cap it brings.
• Respond to the Crown's reply and deadlines promptly, since conduct that lengthens a case can affect costs.
• Discuss with a lawyer whether and when to make a written settlement offer.
• Keep a record of every offer and its date.

Frequently asked questions