Questions? Call 416-367-4222

Published: May 16, 2020

Last Updated: July 19, 2021

Attorney General of Canada v. Valero Energy Inc. — Canadian Tax Lawyer’s Analysis and Comments

Introduction: The CRA Can Require a Taxpayer to Provide any Information or Any Document

Valero is a manufacturer, distributor, and marketer of transportation fuels. In its business, the company paid fees for international shipping services provided by non-resident carriers. During the 2011 to 2015 tax years, Valero did not withhold the necessary 15% tax on payments to non-residents, as required by subsection 105(1) of the Income Tax Regulations (Regulations).

Valero requested an order to set aside CRA’s request for specific documents and information relating to the international shipping services rendered in Canada between 2011 and 2015. In the alternative, it argued that the CRA made representations, through discussions, written communications, and meetings, to Valero that they had a legitimate expectation that no withholding tax or deductions were required under section 105 of the Regulations. Valero also submitted a second alternative – it argued that the CRA should use its discretion under subsection 153(1.1) of the Act to lessen the burden of withholding taxes on payments to non-residents under subsection 153(1) of the Act.

In the Federal Court of Appeal’s (FCA) decision, the Court held that the Canada Revenue Agency (CRA) may for any purpose related to administering the Income Tax Act (Act), require the Taxpayer to provide “any information or additional information, or any document.” This information includes the Taxpayer answering questions related to their tax filings.

The Federal Court of Appeal also found that Valero’s position that a “legitimate expectation that no withholding [tax] or deduction was required” under section 105 of the Regulations and the exercise of CRA discretion under subsection 153(1.1) of the Act was premature. The Court held that CRA must complete its audit of Valero in the relevant tax years before the Taxpayer can make submissions under section 105 of the Regulations and subsection 153(1.1) of the Act.

See also
CRA Released the Latest Tax Evasion Prosecution Statistics

Subsection 231.2(1): the CRA Power to Require Taxpayers to Provide Information and Documents

In its analysis, the Court found that the ultimate question was whether “…the minister can be blocked from exercising her statutory authority under subsection 231.1(1) of the Act”. Subsection 231.1(1) of the Act allows the CRA to collect any information or documents when administering the Act, such as during CRA audits.

This subsection was significant in this case. The FCA pointed out that the application only stood if subsection 231.1(1) was valid. Without this subsection, the CRA could not accurately review Valero’s 2011 to 2015 tax years and decide whether to issue an assessment. Therefore, the FCA had to allow the use of subsection 231.1(1).

The FCA also found that the doctrines of promissory estoppel and legitimate expectations could not prevent the CRA from obtaining the necessary documents to fulfil their duties. The CRA has a positive duty to assess taxpayers and must take the appropriate steps to collect unpaid taxes.

The Prematurity of Rulings on Section 105 and subsection 153(1.1)

Regulation 105 states that any person paying a non-resident for services performed in Canada must withhold 15% of that payment. However, Valero’s payments to non-residents were not always for services rendered in Canada. This made it very difficult for Valero to determine the amount of tax that it had to withhold. This is why Valero made numerous requests for a waiver of the requirements listed in section 105 of the Regulations. Had the Court agreed with Valero, section 105 of the Regulations may have exempted it from withholding tax because they had a legitimate expectation that there was no withholding tax or deduction applicable under Regulation 105.

See also
CERB Repayment: Do This to Avoid the CRA’s December 31st Payback Demand

Alternatively, subsection 153(1.1) of the Act would have lessened Valero’s withholding tax burden. This subsection provides that CRA has the discretion to lessen the amount that the Taxpayer owes in withheld taxes if the payment would cause undue hardship. The FCA ultimately found that Valero’s requests were premature and that once the CRA receives their documents, and if they assess that Valero did not withhold the proper taxes, only then can Valero make the arguments under section 105 of the Regulations or subsection 153(1.1) of the Act.

Tax Tips: Protection from CRA Requests for Documentation

Since the Taxpayer was unsuccessful, this case demonstrates the powers that the CRA has when auditing a taxpayer. Taxpayers should seek advice from an experienced Canadian tax lawyer before advancing a case against the CRA. Navigating the Canadian tax law system involves copious complex considerations, rules and procedures, and an experienced Canadian tax lawyer can help guide the way.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

Get your CRA tax issue solved

Address: Rotfleisch & Samulovitch P.C.
2822 Danforth Avenue Toronto, Ontario M4C 1M1