Access to Justice or Second-Class Justice? The Proposed Expansion of the Tax Court’s Informal Procedure

Introduction

Bill C-31, the Budget 2025 Implementation Act, No. 2, proposes a substantial expansion of the Tax Court of Canada’s Informal Procedure.

For income tax appeals, the monetary limit would increase from $25,000 to $50,000, while the limit for disputed losses would rise from $50,000 to $100,000. For GST/HST appeals, the amount in dispute that may proceed informally would increase from $50,000 to $100,000.

The stated objective is sensible. The existing limits have not been materially updated since 2013. Litigation costs have increased significantly, and many taxpayers cannot economically justify retaining counsel to contest an assessment under the General Procedure. Increasing the limits should allow more taxpayers to obtain a judicial determination without assuming the expense and procedural burden of formal pleadings, documentary discovery, examinations for discovery and potentially adverse costs.

But the proposal raises a more difficult question.

At what point does simplified justice become insufficient justice?

A $100,000 GST/HST appeal is not necessarily a small or simple case. Nor is an income tax appeal involving $50,000 of federal tax. Depending on provincial tax, interest, penalties and the effect on other taxation years, the taxpayer’s true financial exposure may be considerably greater than the statutory limit suggests.

The expansion of the Informal Procedure may improve access to the Tax Court. It may also move increasingly complex and consequential disputes into a process that was designed primarily for smaller cases and self-represented litigants.

The Existing Distinction Between the Two Procedures

Tax appeals before the Tax Court of Canada generally proceed under either the Informal Procedure or the General Procedure.

The Informal Procedure is intended to provide an accessible, efficient and comparatively inexpensive means of resolving smaller disputes. Pleadings are simplified. The strict rules of evidence do not apply. There is generally no documentary or oral discovery. Hearings are usually shorter, and costs awards are limited.

The Court is directed to deal with an Informal Procedure appeal as informally and expeditiously as the circumstances and considerations of fairness permit. A taxpayer may prepare a notice of appeal without using a prescribed form and may present the case personally or through counsel.

The General Procedure is conventional litigation. It involves formal pleadings, lists of documents, examinations for discovery, procedural motions and broader costs consequences. It provides parties with tools to compel disclosure, test the opposing party’s theory and narrow the factual and legal issues before trial.

Those tools increase expense. They also serve an important function.

A taxpayer ordinarily begins a tax appeal with a significant informational disadvantage. The Minister has completed the audit, formulated assumptions of fact and issued the assessment. The Crown has access to the CRA’s working papers, internal records and the auditor’s evidence. Under the General Procedure, the taxpayer can obtain documentary disclosure and examine a knowledgeable representative of the Crown before trial.

The Informal Procedure generally provides no equivalent right of discovery. A taxpayer may therefore arrive at the hearing without having obtained full disclosure of the evidentiary foundation for the assessment.

That may be acceptable in a genuinely modest dispute involving a narrow factual question. It is more concerning when the appeal involves substantial amounts, complex transactions or allegations of serious misconduct.

What Bill C-31 Would Change

Bill C-31 would double the principal monetary limits.

For income tax appeals, the Informal Procedure would apply where the aggregate of all amounts in issue is $50,000 or less. The disputed loss limit would rise to $100,000.

For GST/HST appeals, the amount in dispute would rise to $100,000.

The higher limits would apply only to appeals commenced after the amendments come into force. Appeals filed before that date would remain governed by the existing provisions.

The amendments would also preserve the taxpayer’s ability, in certain circumstances, to elect to limit the amount of relief sought so that a larger dispute may proceed informally. Such an election can make economic sense where the additional amount at stake does not justify the cost of the General Procedure. It also involves the deliberate surrender of any entitlement beyond the applicable limit.

The proposal is therefore not merely an inflationary adjustment. It would substantially enlarge the range of tax disputes decided without discovery and without the ordinary procedural architecture of civil litigation.

The Amount in Dispute Can Be Misleading

The statutory amount in issue does not always measure the real importance of a tax appeal.

In an income tax case, the Informal Procedure limit concerns federal tax and penalties, not necessarily the taxpayer’s total economic exposure. Provincial tax, arrears interest and instalment interest may increase the amount significantly.

The decision may also affect other taxation years. A dispute concerning the characterization of income, shareholder benefits, deductibility of expenses, the existence of a partnership or the treatment of a recurring transaction may have consequences far beyond the particular assessment formally before the Court.

A disputed loss of $100,000 can affect the taxation year in which the loss arose, the years to which it is carried and future years in which the same legal or accounting position is taken.

In GST/HST matters, the proposed $100,000 threshold is particularly significant. Appeals involving input tax credits, alleged sham transactions, carousel allegations, unremitted net tax, builder assessments or subsection 323 director liability can involve extensive documentary records and serious credibility findings. They may also generate consequential assessments against related corporations, directors, shareholders or participants in the same transactions.

A case does not become factually simple because the assessment is one dollar below a jurisdictional threshold.

The Absence of Discovery

The most significant limitation of the Informal Procedure is the absence of conventional discovery.

Discovery is sometimes portrayed as an expensive procedural exercise. Poorly managed discovery can certainly become disproportionate. Properly used, however, it performs several indispensable functions.

It requires the Crown to disclose relevant documents. It permits the taxpayer to examine the factual assumptions underlying the assessment. It identifies which allegations are actually contested. It preserves admissions. It exposes gaps in the audit theory. It allows the parties to evaluate credibility and litigation risk before trial.

These functions frequently promote settlement. A case that appears irreconcilable at the pleading stage may become capable of principled resolution once the evidence has been tested.

Without discovery, factual and legal issues may emerge for the first time at the hearing. A self-represented taxpayer may not understand the significance of the assumptions pleaded in the Reply or know which CRA records should be requested. The taxpayer may also have difficulty compelling evidence from third parties or anticipating objections to admissibility.

Tax Court judges often take considerable care to assist self-represented litigants. Judicial assistance, however, cannot replace disclosure or become advocacy. The Court must remain impartial.

If Parliament expands the Informal Procedure to disputes involving up to $100,000, it should consider whether some proportionate form of disclosure should accompany that expansion.

Gross Negligence Penalties and Allegations of Misconduct

The concern is particularly acute where the assessment includes gross negligence penalties.

Subsection 163(2) of the Income Tax Act and section 285 of the Excise Tax Act impose penalties where a person knowingly, or under circumstances amounting to gross negligence, makes or participates in a false statement or omission.

These are serious allegations. Although the penalties are civil, the language used is condemnatory and the financial consequences can be substantial. The Crown bears the burden of establishing the facts justifying the penalty.

An appeal involving $40,000 or $50,000 of tax and penalties may fall within the proposed Informal Procedure limit while requiring the Court to decide whether the taxpayer was wilfully blind, knowingly participated in a false statement or displayed indifference amounting to gross negligence.

A taxpayer facing such an allegation should have a meaningful opportunity to understand and test the Crown’s case. Yet the Informal Procedure does not provide the same access to examinations for discovery, documentary production or formal requests to admit.

One possible reform would be to permit either party to request that an appeal involving gross negligence penalties proceed under the General Procedure without exposing the taxpayer to disproportionate costs. Another would be to create a limited disclosure obligation specifically for penalty appeals.

Access to justice is not measured only by whether a person can enter the courtroom. It also depends on whether the person has a fair opportunity to know and answer the case against them.

Informal Decisions and Precedent

A further concern is that Informal Procedure judgments do not have the same precedential status as General Procedure decisions.

Under section 18.28 of the Tax Court of Canada Act, an Informal Procedure judgment is not to be treated as a precedent for any other case.

The reason is understandable. Informal cases may be decided on abbreviated records, without complete legal submissions and without strict application of the rules of evidence. It would be unfair to allow an inadequately developed case to settle a legal issue for all taxpayers.

But increasing the monetary limits means that more legally significant disputes may be decided in judgments that formally bind only the parties.

The result could be repeated litigation of the same issue, inconsistent outcomes and reduced certainty for taxpayers and the CRA. A legal question affecting many taxpayers might arise repeatedly in Informal Procedure appeals without producing authoritative guidance.

This is not merely an academic concern. Certainty is an important component of tax administration. Taxpayers should be able to arrange their affairs by reference to reasonably stable legal principles. The CRA should apply the law consistently. Courts should not be required to decide the same unresolved question repeatedly because earlier decisions arose under a procedure that denies them precedential effect.

The expansion may therefore save resources in individual cases while producing duplication across the system.

The Appeal Route Is Also Different

A final judgment under the General Procedure may be appealed to the Federal Court of Appeal on a question of law, fact or mixed fact and law, subject to the applicable standards of review.

An Informal Procedure judgment is subject to a much narrower statutory appeal route. The available grounds generally concern jurisdiction, procedural fairness, an error of law or a perverse or capricious factual finding made without regard to the material before the Court.

A taxpayer whose case falls within the expanded Informal Procedure limits may therefore face not only reduced pre-trial procedures, but also more restricted appellate review.

For a genuinely small dispute, that compromise may be justified by the need for finality and proportionality. As the possible financial and precedential significance of the cases increases, the compromise becomes more difficult to defend.

Costs and the Economics of Tax Litigation

The strongest argument for the proposed expansion is economic reality.

A taxpayer disputing $30,000 of federal tax may spend much of that amount, or more, litigating under the General Procedure. Even a successful taxpayer will not ordinarily recover all legal fees. The rational economic choice may be to abandon a meritorious appeal or accept an unfavourable settlement.

That undermines confidence in the tax system. An assessment should not become practically unreviewable because the cost of challenging it approaches the amount assessed.

The Informal Procedure can correct that imbalance. It reduces pleadings, eliminates discovery, limits interlocutory disputes and permits a case to proceed more quickly. For many taxpayers, the expanded limits will provide the only economically viable route to an independent judicial determination.

The answer is therefore not to oppose the expansion. The better question is how the Informal Procedure should evolve to accommodate the more substantial cases that will enter it.

A Proportionate Middle Ground

The choice should not be limited to a fully informal hearing or full General Procedure litigation.

A proportionate middle ground could preserve accessibility while protecting fairness. Possible reforms include mandatory early documentary disclosure, a right to limited written discovery, short case management conferences, targeted production orders and simplified requests to admit.

The Court could also be given express authority to transfer a case to the General Procedure where the legal or factual complexity makes the Informal Procedure unsuitable, even if the amount is below the monetary limit. In exercising that authority, the Court could consider the financial circumstances of the taxpayer and make an order limiting costs exposure.

Cases involving gross negligence penalties, allegations of sham, serious credibility disputes, complex expert evidence or issues affecting multiple taxation years may warrant additional procedural protection.

Conversely, a straightforward dispute over a single deduction should not be forced into expensive litigation merely because the amount marginally exceeds an arbitrary limit.

Proportionality requires attention to complexity and consequence, not merely quantum.

Conclusion

The proposed expansion of the Informal Procedure is a welcome recognition that the cost of tax litigation can deny taxpayers meaningful access to justice.

But access to a simplified hearing is not the same as access to complete justice.

At the proposed limits, the Tax Court will be asked to decide cases involving significant financial exposure, complex commercial transactions and serious penalty allegations without the disclosure and discovery ordinarily available in civil litigation. Many of those judgments will have no formal precedential value and will be subject to a restricted appeal route.

The expansion should therefore be accompanied by procedural reform. Limited disclosure, active case management and the ability to move complex cases into an appropriately modified General Procedure would preserve the advantages of informality without sacrificing fairness.

The objective should not be to make more tax appeals informal at any cost. It should be to ensure that the procedure remains proportionate to what is genuinely at stake.

Bill C-31 offers a valuable opportunity to improve access to the Tax Court. Parliament should ensure that greater access does not come at the price of reduced justice.

This article provides general information and does not constitute legal advice. Bill C-31 had not been enacted as of August 19, 2026, and its wording and parliamentary status should be confirmed before reliance.