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You have the right to question taxman's assessment

Last week, I was travelling out West. As I was packing to leave, the phone rang. Since I was running late, and figuring that it was just my sister-in-law calling for my wife, Carolyn, I chose to let voice mail pick it up. Turns out Winston, my son who is five, beat the machine and picked up the phone. He then sent his sister, Sarah, age four, upstairs to get me.

"Daddy, the phone is for you," Sarah said.

"Sarah, tell them I will call back later because I'm upstairs packing," I replied.

Turns out that was too much information for a four-year-old to relay to a five-year-old to relay to the caller.

Somehow, my message turned from "Daddy is upstairs packing," to "Daddy can't come to the phone. He's downstairs drinking." Also turns out that it was Canada AM calling -- not my sister-in-law.

Hey, misunderstandings happen. And they can happen on your tax return as well. When they do, consider a notice of objection.

Notice of objection

After filing your tax return, you can expect to receive a notice of assessment from the taxman within eight to 12 weeks. If you disagree with Canada Revenue's assessment of your tax return, don't let it go.

Your first line of defence is to call your local Canada Revenue Agency (CRA) taxation office to talk over your concerns. If that call doesn't resolve the problem to your satisfaction, then consider filing a notice of objection.

Now, you've got to file your objection on time -- otherwise CRA is not obligated to hear you out. For individuals and testamentary trusts, the deadline is 90 days after the mailing date noted on your assessment, or one year after the due date of the tax return you're fighting, whichever is later.

If, for example, your 2003 assessment notice is dated May 15, 2004, you'd have until April 30, 2005 (one year after the due date of your 2003 return) to file an objection. The same deadlines apply in Quebec.

Again, before filing an objection, try to resolve your beef with CRA over the phone first. If you jump right to the notice of objection, there's always a chance that your objection could be denied, leaving you with no alternative but to take the taxman to court. When a notice of objection is your best bet, visit a tax pro to have it prepared properly because it may be your last kick at the can, unless you're willing to go to court.

Take 'em to court

If your notice of objection doesn't help your cause, your next option is to take CRA to the Tax Court of Canada (or the Court of Quebec for Quebec tax issues).

At the Tax Court of Canada, you've got two options: the informal or the general procedure.

With the informal procedure, you can represent yourself, or have anyone else (your accountant, lawyer, or your brother's friend's cousin, for example) lend a hand in the appeal, and you can expect to have a judgment on your case in six to 12 months.

To be eligible for the informal procedure, the amount of federal tax in dispute has to be less than $12,000 for each year in question, or less than $24,000 in disputed losses where disallowed losses are the issue. If you don't qualify for the informal procedure, the court's general procedure is your other option. The general procedure should mean a visit to a lawyer who can represent you in court since formal rules of evidence and other legal procedures will apply.

Tim Cestnick, FCA, CPA, CFP, TEP is author of Winning the Tax Game 2004, and The Tax Freedom Zone. He is managing director, National Tax Services, AIC Ltd.

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