One thing that usually goes undiscussed when contemplating appeals to the Tax Court of Canada ("TCC") is what happens if a taxpayer loses.
One thing that CAN happen is a "costs award" against the taxpayer, which is where a TCC judge orders the taxpayer to pay a portion of the Department of Justice ("DOJ") costs in defending the appeal – which puts a significant premium on understanding one's "chances of success" BEFORE filing the appeal!
Unexpected Costs
In Watts, 2024 TCC 100, the TCC considered the DOJ's request for $30,000 in costs against a losing taxpayer, who was regarded as wasting the Court's time with a number of losing (and 'meritless') motions during the course of the Appeal.
As outlined in the prior reported substantive decision, also called Watts, 2023 TCC 11, the Appellant taxpayer was seen to had been assessed for $138,550 under section 160 of the Income Tax Act, and related to certain asset transfers from her husband (a tax preparer found guilty and jailed six years for creating fictitious tax losses to artificially decrease his client's net incomes, and taking a percentage of the tax refund). The taxpayer lost her substantive appeal because the transfer was regarded as a transfer for no consideration, at a time that the husband owed the CRA (a lot of) money, and the transfer was viewed as properly assessable against her under section 160.
Problematically for the wife, however, she was also viewed as having brought a number of procedural motions that the TCC characterized as "without merit" and attempting to re-litigate matters already addressed in her husband's own appeal some 10 years prior.
As the result, the TCC ordered $30,000 in costs against the taxpayer wife, based on her overall responsibility for costs of the DOJ as the losing party in the substantive appeal.
Takeaways
While many tax appeals are completely warranted, some are not and discerning between the two often requires professional advice – and a thorough understanding of what happens if you lose is necessary BEFORE a tax appeal is filed.
This all puts a premium on frank discussions about the merits of the appeal with one's tax counsel – and actually listening to the advice of one's counsel in these points. (One suspects the taxpayer may have been deaf to her own Counsel's good advice on these points!)
Indeed, one of the best questions a taxpayers can ask before initiating a tax appeal is simply, "What are my chances of winning?"
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.