FOOi Inc. v. The King (2023)

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FOOi Inc. v. The King (2023)

 Key Lessons / Points

  • This case illustrates the repercussions of the COVID-19 pandemic as the Applicant could not reach the CRA to inquire about their file.
  • Make sure when filing for SR&ED that all forms are filled out correctly and transmitted with your T2s, particularly if filing an amendment close to the 18-month deadline.
  • While an informal follow up may be a way to resolve issues quickly under normal circumstances, be aware of formal deadlines for filing objections and be sure to file on time if you do not agree with an assessment.
  • Be cognizant of the submission deadlines for SR&ED applications. Early submission is best to avoid the risk of the CRA receiving the application after the deadline. The deadlines are neither negotiable nor flexible. 

Fiscal Years in Question 

2018

Court Heard In 

Tax Court of Canada (Toronto, ON)

Dates Heard 

October 11, 2023

Length of Process

5 years

Neutral Citation 

2023 TCC 176

Docket 

2022-388(IT)APP

Amount Under Dispute 

$200,000

Decision 

UPON hearing from the parties;

AND in accordance with the attached Reasons for Judgment, the application for an extension of time to file a Notice of Objection with respect to the Applicant’s 2018 taxation year is dismissed without costs.

[38] Unfortunately, despite the very frustrating facts of this case, I agree with the Respondent that the Application for an extension of time under s.166.2 must be dismissed. The Applicant never sent a Notice of Objection for the 2018 taxation year in a timely fashion. Furthermore, after the expiration of 90 days from the date of the assessment, an application for an extension of time with the Minister was not filed.

[39] There will be no costs payable in this matter.

Summary 

The Applicant had a fiscal year end of June 30, 2018. Their accounting firm filed their tax electronically on December 5, 2019, without any SR&ED forms filled out. The CRA issued a notice of assessment on December 11, 2019. The Applicant’s accountant filed an amended return with the SR&ED information on December 20, 2019. The accounting firm attempted to follow up with the CRA in early 2020 but due to the COVID-19 pandemic they were unable to reach anyone in the CRA about the return. In December 2020, the Applicant learned that the CRA could not locate their 2018 SR&ED claim. Their accountant sent a letter on their behalf to the CRA on January 21, 2021, explaining that a SR&ED claim had been filed in December of 2019 and no response had been received. The letter did not contain a notice of objection or a request for an extension of time. On March 8, 2021, the Applicant received news from the CRA that their claim was denied as it was filed more than 12 months after the return date was due. On April 9, 2021, the Applicant’s accountant filed a formal Notice of Objection which the CRA notified the Applicant on June 2, 2021, that it could not be accepted as the deadlines had passed. The Judge ruled that although an error was committed by the CRA, the requirement to file a Notice of Objection and an extension request in the prescribed timeline established by the Income Tax Act stands.  The case was dismissed without costs.

Key Excerpts 

[8] On March 8, 2021, the Minister informed the Applicant that the SR&ED expenditures claim was denied as the claim was filed more than 12 months after the return was due.

[9] On April 9, 2021, the Applicant’s accountants sent a formal Notice of Objection. The Minister notified the Applicant on June 2, 2021 that the Notice of Objection could not be accepted as it was filed past the prescribed deadlines.

[12] I have concluded that the CRA misplaced the Applicant’s original December 20, 2019 filing concerning the SR&ED claim for the 2018 taxation year. The Applicant is not asking for an order that the CRA process this misplaced claim, as this is outside the jurisdiction of the Tax Court.

[13] Unfortunately, even when an error has been committed by the CRA, the requirements of the Act must be met in order to object to the Notice of Assessment. In this case, because an assessment was issued by the Minister in December 2018, a timely notice of objection, pursuant to s.165 of the Act, was required to be filed by the Applicant.

[14] In order for this Court to decide whether to grant the application for an extension of time for serving a Notice of Objection, the parties have raised the following issues:

  1. Whether the Applicant filed a Notice Of Objection in their correspondence dated December 20, 2019;
  2. If a Notice of Objection is found not to have been filed on December 20, 2019, whether the Applicant filed an application for an extension of time with the Minister by way of their correspondence on January 21, 2021;
  3. If I find in the positive to the question above, whether the correspondence dated January 21, 2021 is also a Notice of Objection.

[16] With the above general principles in mind, the Applicant submits that their filing with the CRA on December 20, 2019, which was a T2 with the appended SR&ED claim, constituted a Notice of Objection. As part of this argument, they state that this filing challenged the assessing position of the Minister by filing additional information. In effect, they claim their SR&ED claim filed in December 2019 should satisfy the requirement that a Notice of Objection must be filed.

[17] The Applicant submits that the bar for establishing an objection is low. A simple letter can be considered to be a Notice of Objection as there are no strict requirements to use the prescribed form. Furthermore, the Applicant argues that the taxpayer does not need to be as precise in his Notice of Objection as he would be in his Notice of Appeal.

[19] The Respondent argues that the SR&ED claim submitted by the Applicant on December 20, 2019 does not constitute a Notice of Objection. Even if the bar for establishing an objection is not high, the Respondent submits that a SR&ED claim is conceptually and legally different from a Notice of Objection.

[20] The Respondent further submits that since the Applicant had nothing payable in its taxation year ending on June 30, 2018, the Minister’s assessment dated December 11, 2019 represented a nil assessment.

[25] Concerning the Respondent’s position that the Applicant could not object to the nil assessment which existed in December 2019, I am in agreement. The right to object, or to bring an appeal before this Court only applies to assessed amounts, which arises from assessments that determine or confirm the taxpayer’s liability to pay a specified amount. In this matter, no taxes were owing.

[26] The denial of a SR&ED claim can be objected to after the Minister has assessed a taxpayer’s income tax return for a taxation year. However, such appeals address whether a claim was properly denied because it did not meet the requirements for a valid SR&ED claim.

[27] In this case, the Applicant’s SR&ED claim for its 2018 taxation year has not been assessed on its merits nor evaluated by the Minister when the December 20, 2019 filing was sent by the Applicant’s accountants.

[28] For both the reasons put forth by the Respondent, I am in agreement that the Applicant’s correspondence dated December 20, 2019 was not a Notice of Objection.

[38] Unfortunately, despite the very frustrating facts of this case, I agree with the Respondent that the Application for an extension of time under s.166.2 must be dismissed. The Applicant never sent a Notice of Objection for the 2018 taxation year in a timely fashion. Furthermore, after the expiration of 90 days from the date of the assessment, an application for an extension of time with the Minister was not filed.

[39] There will be no costs payable in this matter.

Link to Full Ruling 

View the full report here.

Related Ruling

N/A