Overview
In the operation of the tax system, it is inevitable that disputes will arise. The Appeals Branch has the mandate to manage and resolve formal disputes arising from decisions made under legislation administered by the CRA. Appeals Branch staff is encouraged to make every effort to settle disputes.
Early resolution of a dispute benefits all parties. An agreed-upon solution rather than a court-imposed one will provide significant advantages to the parties, such as maintaining relationships and striking agreements that last. For the Appeals Branch settling disputes as early as possible is a good management practice in the administration of the tax system. Other benefits include lower costs, time saved and greater satisfaction.
In addition to the duties described under formal review, Appeals officers decide whether a settlement should be considered for the case. The taxpayer usually proposes settlement offers; however, informal discussions often occur before formal written documents are exchanged. All such negotiations are considered “without prejudice”.
Not all cases can be settled without proceeding to court. For example, it would generally be inappropriate to settle issues which are contrary to long-standing or public CRA practices, where taxpayers in comparable circumstances may be treated differently, where pursuit of the matter through the courts is significant for CRA compliance operations or where the conditions for settling an issue are not reasonable.
Disputes that are more appropriate to settle include those where the issue, and particularly the facts, are unique or unusual and not likely to be considered a precedent in other situations, or where the settlement achieves compliance for current and future years.
This process is intended to apply only to matters concerning Income and/or Commodity Taxes.
Meaning of the term “Settlement”
The term “settlement” is taken from the legal context to signify the final resolution of an issue or of issues in dispute.
Limitations on Settlements
The final resolution of any issue must be based on the facts and in accordance with the law, as it is understood. Further, settlements to compromise an amount owing, or for a partial payment in full satisfaction of a debt, are not acceptable, as they are not supportable in law. Finally, there will be situations where issues will ultimately be required to be resolved by the courts.
It should be noted that these principles are also generally applicable to reaching settlements at the appeals stage.
Factual disputes
Historically, almost all formal disputes are resolved at the notice of objection stage, and in many situations, following the clarification and understanding of all the facts. Accordingly, it is extremely important for all the relevant facts to be made available as early as possible.
Further, the resolution of factual disputes in court generally does not add much value to the subsequent administration or interpretation of the law by taxpayers or the CRA. Accordingly, such types of cases should only be resolved in court where valid attempts to settle are not fruitful.
Factual disputes include:
- the fair market value of property;
- the value of benefits;
- the timing of an event;
- the nature of an expenditure; or
- the quantum of an item.
Questions of law
In addition to factual disputes, situations arise where the CRA and the taxpayers have differing views on the interpretation of legislation.
Some interpretive disputes are less likely to be settled than others. Specifically, a proposed settlement that is contrary to a CRA position that the public is or should be aware of (for example, an interpretive position taken in an Agency publication) will generally not be accepted.
The taxpayer’s objective
Taxpayers may have as their primary objective a settlement based on a set dollar amount or range. A settlement based solely on a dollar amount cannot be entertained, since such a settlement would not be based on the facts and law. However, in considering the resolution of the dispute, taxpayers should also be aware of the existence of the fairness provisions that may reduce their overall liability.
