Which tax disputes go to Tax Court?

Some notes from 2023 data (and a correction to post on judicial review)

The CRA reviews or audits a fraction of the millions of tax returns filed by Canadian taxpayers. Out of that fraction, the CRA reassesses some taxpayers. A certain fraction of those taxpayers ultimately challenge the CRA’s reassessment in an appeal to the Tax Court of Canada.

What kind of tax disputes end up before the Tax Court?

I tried to figure this out using the Tax Court’s online docket. Helpfully, the court’s online docket includes basic case information such as the type of appeal and the “nature” (i.e. the legal issues) of a case.

Using this data for cases filed in 2023,¹ here is what I found.

Observations

I will start with some general observations about the court’s case load:

1. 2,508 cases began in 2023. This appears to be much lower than the average of 3,775 cases per year in the last five years.²

2. 48.37% of the proceedings filed in 2023 were general procedure appeals, while 34.29% were informal procedure appeals (i.e. were limited to tax and penalties of less than $25,000 per tax year).³

3. 19.46% of the proceedings filed in 2023 involved GST/HST. This appears to be higher than the share of GST/HST matters in the Court’s active proceedings for the last five years (14.26%).⁴

4. 36.64% of cases filed in 2023 involved a self-represented litigant, including 60.35% of cases begun under the informal procedure and 11.21% of cases under the general procedure.

Here are the most common issues in the 2,508 cases filed in 2023:

1. Penalties (554 cases, 24.37%)⁵

2. Charitable donations (366 cases, 16.10%)

3. Expenses (272 cases, 11.97%)⁶

4. Extensions of time (280 cases, 11.16%)

5. Statute barred (247 cases, 10.87%)

6. Unreported income (227 cases, 9.99%)

7. Input tax credits (143 cases, 6.29%)

8. Capital gains (124 cases, 5.46%)⁷

9. Shareholder benefits (105 cases, 4.62%)

10. Rebates (92 cases, 4.05%)⁸

Two things stand out to me with this list of issues.

First, a large fraction of the cases involve penalties or statute barred years. In either case, a large fraction of tax disputes are not only about the tax owed, but about the taxpayer’s conduct.

Second, over 10% of proceedings involve extensions of time. Despite the fact that the time limits for tax disputes are well-established and well-known to tax practitioners, hundreds of taxpayers found themselves in a dispute with CRA in 2023 over whether they were too late to object or appeal a reassessment.

Notes of caution

I will note a few limitations or qualifiers with these numbers:

1. The Tax Court’s public dockets do not always record the nature of a case. The docket for 206 out of the 2508 cases does not record a “nature”, and a further 29 cases have been categorized as "issues not clearly specified".

2. The Tax Court’s public dockets record multiple issues for some cases. For example, a case may be recorded as being “Net worth, statute barred, penalties.” Hence, a single case may involve more than one of the issues in the list above.

3. Some of the Tax Court dockets use more general descriptions than others. For example, 255 cases include the label "tax payable". I exercised my judgment to exclude certain more generic labels from my list above.

4. I am human and, like ChatGPT, I am capable of error. Any errors in the above figures are mine and not attributable to the court, its staff, or its website.

Correction regarding judicial reviews in the Federal Court

My last post include a submission to the Global Review of the federal courts rules. The submission addressed changes that could expedite judicial review proceedings. I suggested that affidavits are not necessary to prove the record of a decision under review.

A reader pointed out, correctly, that an applicant may sometimes need an affidavit to prove parts of the record of the decision under review. Although Rule 317 requires decision-makers to produce the record of their decision, and an applicant does not need an affidavit to prove documents produced under that rule, Rule 317 does not require a decision-maker to produce documents already in the possession of the applicant. An applicant may therefore need to file an affidavit to ensure the Federal Court has all of the relevant parts of the record.

Notwithstanding the above, I still believe that the rules could be improved to reflect the fact that many judicial reviews center on the record of the decision under review, and don’t require much if any additional evidence by affidavit or cross-examination.

1. As I understand the naming convention of the Court, court file numbers begin with the year the proceeding was instituted. I accordingly looked at cases with court file numbers beginning in “2023”.

2. In the five years ending April 30, 2023, there was an average of 3,775 cases filed per year. Source: https://www.tcc-cci.gc.ca/en/pages/about/reports-and-statistics.

3. The remaining 17.34% include applications for extension of time, or appeals under legislation other than the Income Tax Act or the Excise Tax Act.

4. In the five years ending April 30, 2023, there was an average of 1,518 active proceedings involving GST/HST, out of an average of 10,643 active proceedings. Source: https://www.tcc-cci.gc.ca/en/pages/about/reports-and-statistics.

5. You may notice that 554 divided by 2,508 does not equal the percentages indicated. This is because I excluded the cases for which no data was recorded for their nature or for which the data indicated “issues not clearly specified”.

6. This includes expense cases of any kind - E.g. "expenses disallowed", "business expenses", "employment expenses", "business v. personal expenses".

7. This includes various descriptions using “capital gain” - E.g. “capital gain or income”, “capital gain from disposition of property”, and simply “capital gain”.

8. This includes rebates of any kind. However, out of theses 92 rebate cases, 79 cases concerned the new housing rebate.