This article continues our series on a charity’s dispute with the Canada Revenue Agency (CRA). In our last article we dealt with the first formal stage of a dispute, the audit process, culminating when the charity receives a notice of assessment or reassessment for a fine or penalty or an administrative fairness letter (an AFL) notifying the charity of the Minister’s intention to revoke, annul or suspend the charity’s registration. In either case, the next stage is the “appeals stage”. The appeals process used by charities is also used by corporations and individuals who have a dispute with the CRA, however, unlike for those groups, this procedure is only newly being applied to charities and it remains to be seen how effective it will be in resolving disputes. The appeals process is designed to resolve disputes between a taxpayer/charity and the CRA as an alternative to the parties litigating at the Tax Court or the Federal Court of Appeal whatever the case may be.

Conceptually, the results of a CRA audit can result in one of two possibilities. The first is where the CRA imposes intermediate sanctions (generally a fine or penalty), and the charity is informed of such by a notice of assessment (or reassessment). The second possibility exists where the CRA notifies the charity of its intent to revoke, annul or suspend the charity’s registered charity status. For procedural purposes, the effective difference between the two is that intermediate sanctions are appealed to the Tax Court of Canada whereas administrative fairness letters are appealed to the Federal Court of Appeal. For the purposes of convenience I will refer to both of these communications from the CRA as notices in this article.

Where a charity receives a notice, it has 90 days in which to file a notice of objection to the chief of appeals at any tax services office in the country. Notices of Objection are not required to be in any particular form (although the CRA does have a form T400A for private taxpayers). The Notice of Objection should contain the charity’s address, name and registered charity number; as well it should be addressed to the Chief of Appeals at a tax services office and should contain a detailed set of reasons stating the basis for the objection. It has been the author’s experience that Appeals Officers will contact and ask the private taxpayers if they have any additional submissions to make in addition to those stated in the initial submission; presumably this trend will hold true for charities.

It is also possible at times to meet in person with the Appeals Officer. This is often a worthwhile endeavour to explain your position in more detail than is possible on paper. There is still no substitute for human contact, particularly where you have a sympathetic set of facts. However, it is important to keep in mind that the mandate of an Appeals Officer is simply to test the merits of the objection against the law as it was applied by the auditor, therefore, do not expect that simply because your charity does good work and you convey this to the Appeals Officer that he or she will rescind the auditors’ action. Nevertheless, Appeals Officers have some discretion when to reduce the amount in issue and come to some sort of principled arrangement with the charity. Of course, this is less applicable where the charity has received an AFL, as in those cases it is an all or none approach.

The appeals procedure should be considered an informal legal procedure, thus a charity would benefit from legal advice in conducting themselves in this matter. In particular, a charity facing revocation or annulment should have experienced charity law counsel representing them, this is because any written statements made to the Appeals Officer could come back to haunt the charity in the form of written evidence being used against the charity at the Federal Court of Appeal level. Hence, it is important to exercise caution when constructing arguments at this level. Generally, at this stage charities have at least some idea of the auditor’s thoughts on the charity’s file, the notice of objection therefore should attempt to address these thoughts by citing the appropriate statutory and case law as if this case were being presented before a judge. This is not the place for pleading to an Appeals Officer that your charity should be given special treatment because it carries out particularly good deeds. As is the case with auditors, Appeals Officers have a job to do and will not take into consideration the particular activities of the charity unless they bear some sort of specific significance on the facts at hand.

The CRA Charities Directorate has set up a new appeals division dealing specifically dealing with issues relating to charities (the “Tax and Charities Appeals Directorate”). This is a welcome sign given that the CRA recognizes that the issues facing charities are unlike the issues facing private taxpayers. As there is no body of case law for the new intermediate sanctions and a very small one in the case of revocations to guide the CRA and charities, Appeals Officers must be specialized individuals charged with performing a fair bit of intelligent analysis. Unfortunately, in the private context the appeals procedure has gained a fair bit of criticism as an exercise in public relations perpetrated by the CRA, and there is considerable doubt that the Tax and Charities Appeals Directorate will be more effective.

If the Appeals Officer simply believes that the charity does not have a basis to plead its case, the officer will simply confirm the auditor’s decision and let the Tax Court or the Federal Court of Appeal decide the case should the charity wish to appeal it further. Such appeals will form the subject of our next article in the series Appeals at the Tax Court and Federal Court of Appeal Level.

If you have any questions or comments please feel free to contact me.

This article first appeared in Charity Law Insights, a law newsletter for charities and not-for-profits. It is reprinted with permission. Contact Adam at aaptowitzer@drache.com.

Adam Aptowitzer distributes the above information on the understanding that it does not constitute legal advice or establish the solicitor/client relationship by way of any information contained herein. The contents are intended for general information purposes only and under no circumstances can it be relied upon for legal decision-making. This article is current only as of the date above and does not reflect any subsequent changes in the law. Readers are advised to consult with a qualified lawyer and obtain a written opinion concerning the specifics of their particular situation.