Who Pays Legal Costs If You Win or Lose a Tax Court Appeal in Canada?

If you are thinking about appealing a CRA assessment to the Tax Court of Canada, one worry is often the risk of being ordered to pay the government's legal bills if you lose. A related question is whether you can recover anything if you win.

This article explains costs awards, meaning orders about who pays part of the other side's legal costs. It is not about what you spend on your own appeal. The rules differ depending on whether your case is in the informal or the general procedure.

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

What a costs award is

A costs award is a Court order that one party pay some of the other party's legal costs. It usually covers only part of what a party actually spent, so winning does not mean every expense comes back. Which procedure your appeal is in largely decides how the Court approaches costs.

The informal procedure is available where the aggregate of the amounts in issue is $25,000 or less, or the loss in issue is $50,000 or less, and you elect it. Interest-only appeals can also be informal. Other appeals go through the general procedure.

Costs in the informal procedure

The Court may award costs to the appellant if the judgment reduces the aggregate of the 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 a special rule if the Minister appeals an informal procedure judgment. In that case, your reasonable and proper costs of the appeal are paid by the Crown.

• Costs may go to you if the judgment reduces the amounts in issue.
• You are not expected to pay the Minister's costs unless you unduly delay the appeal.
• If the Minister appeals, the Crown pays your reasonable and proper costs of that appeal.

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 face a costs order, so it is worth understanding the factors before you choose this route.

Under Rule 147(3), the Court considers factors including the following.

• The result of the case.
• The amounts in issue.
• The importance and complexity of the issues.
• Written settlement offers.
• Conduct that lengthened the proceeding.

How a written settlement offer can change costs

A written offer of settlement can 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.

To count, the offer must meet timing rules. It 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.

Because these timing rules are strict, get advice before you draft or accept an offer.

Settlements and what to do next

If you and the Crown settle a filed appeal, the settlement is carried out by reassessment. With your written consent, the Minister may at any time reassess to dispose of an appeal.

• Confirm which procedure your appeal is in, informal or general.
• Keep the dates of the close of pleadings and the hearing, since they control settlement offer timing.
• Avoid unnecessary delay, which can affect costs.
• Put any settlement offer in writing and keep proof of when it was served.
• Ask a lawyer or accountant how costs could apply to your amounts in issue.

Frequently asked questions