Raw Deal for Sushi Restaurants and All Future Corporate Appellants Seeking to Self-Represent at the Tax Court
You know you’re in for a bumpy ride when a judge’s reasons state “[g]iven the prior state of the law, none of the parties could reasonably have anticipated the conclusion that I have reached.” On November 28, 2017, the Tax Court of Canada (TCC) denied the motions of two corporate appellants, Masa Sushi Japanese Restaurant Inc. and 2075957 Ontario Inc. (o/a Katsu Japanese Restaurant), and their individual directors. All four appellants are parties to a TCC proceeding under the general procedure and were seeking to be represented by a Chartered Professional Accountant (CPA).
Appeals to the TCC follow either the informal or general procedure. The informal procedure normally applies when the amount in dispute, not including interest, is equal to or less than $25,000 for income tax appeals and $50,000 for GST appeals. Taxpayers can also elect to limit the amount in dispute and have the informal procedure apply. Otherwise, the appeal proceeds under the general procedure. The primary distinction between the two procedures is the amount in dispute, not the complexity of the issues to be argued. Any taxpayer appealing under the informal procedure can appear in person, be represented by counsel, or an agent, such as a CPA, regardless of the complexity of the issues at stake.
The Tax Court of Canada Rules (General Procedure) (GP Rules), established pursuant to the Tax Court of Canada Act (TCA), give individual parties two options for representation under the general procedure. They can represent themselves, i.e. “act in person”, or be represented by counsel. Counsel is defined with reference to the TCA as a person “who may practise as a barrister, advocate, attorney or solicitor in any of the provinces.” Since the definition of counsel does not include accountants, the TCC’s denial of the individual directors’ motions to be represented by their CPA isn’t controversial.
For parties that are not individuals, such as corporations, the GP Rules stipulate the “party shall be represented by counsel except with leave of the Court and on any conditions that it may determine.” Prior to this case, the TCC had interpreted the GP Rules to permit “officers, directors or even shareholders to represent a corporation in general procedure appeals.” However, in this case, the judge identified a conflict between the GP Rules applicable to corporate parties and the TCA that had not previously been addressed by the TCC. Essentially, the specific wording in the TCA section dealing with a party’s right to appear in general procedure proceedings mirrors the GP Rules’ wording for individual parties, i.e. the TCA section provides that parties “may appear in person or be represented by counsel.”
The TCC judge examined a number of factors, including other cases, historical context, and policy reasons, before ultimately determining that, unlike an individual, a party that is a corporation cannot appear “in person.” Although the corporate appellants in this case were given additional time to find a lawyer and amend their notices of appeal, other corporate taxpayers who appeal to the TCC will feel the impact on their bottom line—if they choose to appeal under the GP Rules at all.
Small businesses with a sole director, officer, and shareholder are likely to be especially hard hit, as they will need to weigh the potential costs of legal representation against the amount of tax in dispute before choosing to appeal under the GP Rules. Ditto for corporations that are registered charities or non-profit organizations seeking to appeal an assessment of tax and penalties at the TCC. Overall, the outcome of this decision is particularly frustrating for small corporate taxpayers with income tax amounts in dispute of more than $25,000 (or GST amounts in dispute of more than $50,000), but with relatively less complex issues to be argued.