The Tax Audit Part 8 - The Appeal

The first thing to understand about the appeal process is that it is administered by CRA and the people making the decision are CRA employees.   They are supposed to be impartial and for the most part they are, but they still are trained by CRA and have a bit of a company mentality. 
There are two parts the appeal process.  The first part of the process is called the Objection.  In this stage you state your reasons for disagreeing with the re-assessment and support your position using Tax Law.  The CRA will review your arguments and if submitted supporting documentation, and make a decision.  If they need documentation they will usually contact you and ask you to provide it when they are ready to review your specific objection.  Don’t be tardy.  Get them what they want ASAP.  In fact when you start the appeal process make sure you have everything ready to go before you ever send in the Notice of Objection.
If the decision CRA reaches is not in your favour there are two choices.  One, give up, or two, fight some more.  At this point you have 90 days to file an appeal.  At this point you are appealing the decision CRA reached at the objection stage.  You now have two arguments to make.  You want to re-present your arguments made at the objection stage, and present arguments as to why the decision made during the objection phase is wrong .  The CRA will assign someone new to review your appeal and if applicable source documents you provide.  If the CRA again rules against you, you will have one last chance to appeal.  This appeal will be to the Tax Court of Canada.  CRA will issue a written decision advising you of the reasons for their denial of the appeal.  The notice will also advise that if you disagree you have 90 days to appeal to the Tax Court of Canada.
Something important to note is that just because the CRA says they are right and you are wrong does not mean that it is time to give up.  It is important to know that going to Tax Court is not hard, nor expensive.  It is also important to understand that the CRA regularly goes to Court and loses (they win some too).  There are Court cases on issues where CRA has argued opposing sides.  It is my contention that a lot of re-assessments are purely motivated by the fact that a deduction is being claimed or income not reported the way someone thinks it should be.  For example CRA has argued that shareholders have to be employees of their own corporations.  They have also argued that shareholders can’t be employees of their own corporation.  The only difference in the Court cases was the fact that CRA could get tax dollars or penalties by arguing one side or the other.  The point is that it should not be assumed that CRA is right just because they say so.  There seems at times to be a disconnect between logic and CRA policy and procedures.
One last point about the appeal process is that it is the same for individuals and corporations.