http://cas-ncr-nter03.cas-satj.gc.ca/portal/page/portal/tcc-cci_Eng/Index
The Tax Court of Canada and the Federal Court of Appeal have begun to display a more and more irritable stance towards CRA’s intransigence in tax appeals. See, for example, Canada v. Donato:
http://decisions.fca-caf.gc.ca/en/2010/2010fca312/2010fca312.html 
Myrdan Investments[1] is one of the most recent examples of this evolving judicial temperament, resulting in an award 154% of the applicable tarriff. The Court summarized the costs issue quite pithily:
II Summary of Myrdan’s Costs, Result of Judgment, and Tariff Cost Award
|
Total costs (including audit and objection stage)
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Cost from Notice of Appeal to hearing
|
Tariff Award
|
|
$48,076.75
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$37,845.89
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$9,619.76
|
[4] In Myrdan’s case, the legal costs subsequent to the audit/objection stage exceeded the total amounts in issue. The amount in issue on appeal does not present the entire picture, however. Much more was at stake for Myrdan prior to the settlement by Consent to Judgment reached on October 12, 2012. It would therefore appear that many of Myrdan’s costs pertain to issues that were settled with the Minister on the eve of the trial.
III Summary of Mr. Halyk’s Costs, Result of Judgment, and Tariff Cost Award
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Total costs (including audit and objection stage)
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Costs from Notice of Appeal to hearing
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Tariff award
|
|
$11,914.47
|
$11,914.47
|
$3,450.00
|
[5] The amount at issue for Mr. Halyk on appeal was $17,683 (not taking into account the $950 shareholder benefit that the Tax Court found to have been received by him). Thus, the income inclusions he was appealing clearly exceeded his costs in pursuing the appeal. However, his estimated tax in issue only exceeds his costs incurred after the appellants’ settlement offer of September 28, 2011.
IV Issue
[6] Can an award of costs above the tariff amounts be based on the Minister’s conduct at the pre-litigation stage?
[Footnotes omitted, Tables abridged]
While the issues under appeal (other than the amount of personal use of a corporate truck) are not set out in the costs decision, it appears that there were a grab bag of small audit issues that the appellant tried unsuccessfully to resolve with CRA until the eve of trial in the Tax Court. In particular, the appellant waited 12 months after filing notices of objection and the appeals officer still had not looked at the files. As a result they filed Notices of Appeal with the Tax Court. Most of the outstanding issues were resolved in the taxpayer’s favour in the pre-trial settlement. For those issues the taxpayers were forced to take to trial, they were largely successful with the exception of a very modest ($950) allocation for personal use of the truck.
The Court’s conclusions are illustrative of a fresh approach to costs awards:
VII Conclusions
[21] I conclude that the respondent’s conduct prior to the appeal stage falls short of the “reprehensible, scandalous or outrageous” standard required for an award of solicitor-client costs. I do find, however, that the dispute resolution process was undermined through considered inaction. The CRA auditor’s responses to questioning by counsel for the appellants demonstrate that she made thoughtful decisions not to act and did so on the basis of instructions from, and prior positions taken by, her team leader. Whether the blame lies with the CRA auditor or her team leader is irrelevant. Effective dispute resolution requires effort on the part of all adverse parties. In this case, it is clear that the appellants went to some lengths to cooperate with the CRA auditor and facilitate the audit process. The Minister’s subsequent offers to settle notwithstanding, it is clear that some or all of the issues before this Court could have been resolved at the outset if the auditor had reviewed the appellants’ documentation, and pointed out gaps in their records, prior to the appeal stage.
[22] Merchant is authority for the proposition that conduct prior to the commencement of an appeal may be taken into account in fixing an award of costs. Landry is distinguishable on the basis that the current case is one in which the appellant has been nothing but forthcoming and cooperative in attempting to facilitate the dispute resolution process. It is the Minister alone who has undermined that process by failing to review documents or communicate effectively with the appellants, which resulted in a lengthy dispute that might have been resolved well before it reached this Court. Thus, it is appropriate in this case to award a lump sum amount of costs against the respondent. For these reasons, I award the appellants costs of $20,000 plus disbursements.
[Footnotes omitted]
While Tax Court costs under this new approach as still far less than awards in most provincial superior courts there is clear evidence that the gap is in the process of being narrowed and CRA will be held accountable for intransigence and not just “reprehensible, scandalous or outrageous” conduct.
[1] 2013 TCC 168.