Canadian Income Tax – Appeals to Tax Court of Canada– Canadian Tax Lawyer Analysis

Introduction

When a Canadian taxpayer has a disagreement with the Canada Revenue Agency (“CRA”), the first step they need to take is to file a Notice of Objection and attempt to have decision reviewed by CRA appeals officers. However, though the CRA appeals division is tasked with being an impartial reviewer, this is often not the case. When submissions to the Appeals Officer are unsuccessful, the only recourse left for a taxpayer is to appeal to the Tax Court of Canada.

A Brief History of the Tax Court and Predecessor Decision Making Bodies

The Tax Court of Canada is Canada’s youngest superior court. It was created by the Tax Court of Canada Act in 1983. By 2003 it became a superior court of record, and holds a position equivalent to the Federal Court of Canada in Canada’s judicial hierarchy.

Starting in 1946, appeals from the decisions of Revenue Canada were heard by the Canadian tax lawyer Income Tax Appeals Board. Though it was technically considered a court of record, it was organized as a typical administrative tribunal, and taxpayers were permitted to appeal to the Exchequer Court of Canada as of right. Because of this right, taxpayers oftentimes would present a minimal case to the Income Tax Appeals Board with the sole purpose of appealing directly to the Exchequer Court.

Later, in 1970, the Income Tax Appeals Board was reconstituted into the Tax Review Board, which from its creation was intended to be an informal forum for the hearing and resolution of taxpayer’s appeals. However similar problems plagued the Tax Review Board as taxpayers would typically bypass it in favour of appealing directly to the Federal Court – Trial Division.

In 1983 the Tax Court of Canada was formed as a solution to this problem. In order to maintain the accessibility of the Tax Review Board, rules were developed to allow for an Informal Procedure for lower amounts of tax in dispute. This gave taxpayers the ability to make representations on a less formal basis depending on the situation.

The Jurisdiction of the Tax Court

The Tax Court of Canada has the jurisdiction to hear a wide variety of appeals under several statutes such as the Excise Tax Act, the Employment Insurance Act, the Excise Act and the Customs Act. For most Canadians, the jurisdiction that is most relevant is of course the Income Tax Court’s jurisdiction to hear tax appeals arising from disputes with the Canadian tax department under the Income Tax Act.

There are however limits to the jurisdiction that the Tax Court has, even between various provisions in the Tax Act itself. For example, any sections of the Tax Act that allow for discretionary decision making by the Minister of National Revenue, and by extension the CRA, are not within the ambit of the Tax Court of Canada to hear, as set out below.

The Basic Powers and Remedies of the Tax Court

Unlike the provincial superior courts, which exercise inherent jurisdiction granted to them by Canada’s constitution, the Tax Court is, as mentioned previously, a creation of statute. Because of this, the Tax Court is only empowered to offer relief that is expressly set out in its constituting statute, the Tax Court of Canada Act, RSC 1985, c T-2. The reality of this is that many taxpayers become confused and disheartened when they attempt to bring their case to the Tax Court of Canada and discover that their expectations of the relief offered is far from ideal. Early consultation with a Canadian tax lawyer from our Canada tax law firm can help resolve these issues.

Under Canada’s Tax Act, the Tax Court is limited in its ability to offer relief. In fact, the Tax Court has only three powers granted to it with respect to appeals of assessments and reassessments:

• The Tax Court of Canada judge may confirm the assessment or reassessment issued by the CRA;
• The Canada Tax Court judge can vacate the assessment, ordering the CRA to reconsider its decision and issue a reassessment to the taxpayer;
• The Tax judge may also direct the Minister to reassess the taxpayer in accordance with his or her instructions, based on findings of fact determined at trial.

Additionally, the Tax Court and its judges are limited by the enabling statute to make decisions in accordance with the statutory provisions of the Tax Act. This means that they do not have the traditional review powers of the provincial superior courts such as the prerogative writs like mandamus and certiorari.

The Tax Court also does not have the power to make decisions on the basis of equity, meaning that decisions on the basis of what may be considered fair for the taxpayer in question are not possible. There have been many reported cases where the TCC’s judges have openly acknowledged that they are forced to render an unfair decision as it lacks the jurisdiction to provide relief to the taxpayer.

Limits of the Tax Court’s Powers and the Federal Court

As touched upon above, the Tax Court of Canada is limited generally to hearing appeals from assessments and reassessments. This power does not include judicial review of the CRA’s discretionary decision making. For example, if a taxpayer attempts to make an application to the CRA under the so-called taxpayer relief or “Fairness Provisions”, including a voluntary disclosure application, which are by their nature discretionary, an appeal of that final decision would not be possible to the TCC.

Instead, taxpayers will have to rely upon the narrow powers of judicial review of the Federal Court of Canada. While the Federal Court does indeed have powers “in nature” of the common law prerogative writs, the scope of judicial review of the CRA’s decision making powers is very narrow. If one is to consider an appeal to the Federal Court of Canada, they would do well to consult with one of our Toronto income tax law firm’s experienced and knowledgeable Canadian tax lawyers.

Taxpayers may be Able to Sue in the Provincial Courts

While the Federal Court has been the most frequently utilized forum next to the Tax Court for hearing disputes over income tax, recent case law in the Provincial Superior Courts suggests that in certain circumstances taxpayers may have a civil law remedy against the Canada Revenue Agency for negligence. In Leroux v Canada Revenue Agency, 2014 BCSC 720, it was held that the CRA had a duty of care to the taxpayer for the first time. Additionally, in 2013 the Ontario Court of Appeal handed down its decision in McCreight v Canada (Attorney General), 2013 ONCA 483, stating that actions against the CRA for negligence are capable of being heard in the provincial courts.

Groupe Enico & Archambault v. Revenu Québec, 2013 QCCS 5189 is another provincial superior court case which demonstrates the slowly developing duty of care by the CRA to taxpayers. The taxpayers in this case were awarded $4 million, including $2 million in punitive damages, for an inflated GST/QST assessment and subsequent abusive collections action. While it is becoming accepted law that the CRA and Canada’s other taxing authorities have a duty of care to taxpayers for improper actions the case is currently under appeal to the Quebec Court of Appeal.

In another case of taxpayers holding the Canada Revenue Agency accountable for alleged improper action, Alberta company Cardel Construction is suing the CRA for $32 million, claiming that two of the company’s five shareholders “’ suffered mental anguish and stress’ as a result of multiple CRA audits that ‘threatened to impose unreasonable and punitive levels of … income tax, both corporate and personal, for the sole purpose of intimidating’ a settlement on Ottawa’s preferred terms.” This case is currently before the courts, so interested parties should pay particular attention to see this area of the law develop. A win by the taxpayers in this case would likely solidify the duty of care concept first recognized in Leroux.

Taxpayers who have had their livelihoods destroyed by the CRA may be able to sue for damages in certain circumstances. Given that this area of the law has been slow to develop, a consultation with one of our top Canada tax lawyers should be considered a necessity before any attempt is made to sue the CRA for negligence.

Canadian Tax Lawyer Assistance

If you are in a dispute with the CRA, get in touch with our Experienced Canadian Tax Litigators. Effective planning and strategy is necessary at all stages of the tax litigation process. Understanding the unique rules of the Tax Court and the various powers of the courts is critical for your success. Our Canadian tax law firm can give you the counsel and representation that you need to be successful in your dispute with the CRA in the Tax Court of Canada as well as the Federal Court.

Get in touch with us today 647-699-4784  Make the phone number and link to call their number

About the Author

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David J. Rotfleisch

David J. Rotfleisch, a leading Canadian tax lawyer, is not only a certified specialist in taxation but also a chartered professional accountant. Most recently, David is a pioneer in Canadian crypto taxation.

As of April 2020, he was one of 12 Ontario Certified Specialists In Taxation™.

Learn more about David J. Rotfleisch