Canada: The Second Opinion: CRA Officials May Be Liable For Negligent Investigation

In an interesting new judgment released yesterday, the Ontario Court of Appeal refused to strike out a claim involving allegations of negligent investigation against officials of the Canada Revenue Agency ("CRA").  The decision in McCreight v. Canada (A.G.), 2013 ONCA 483 holds that CRA investigators may owe a duty of care to suspects under investigation for criminal misconduct, even if those suspects are not the taxpayers themselves.


McCreight involved claims by two accountants who, together with their corporate clients, had been investigated by the audit department of the CRA.  The CRA's concern was that the corporate taxpayers, with the help of the appellants, had applied for fraudulent research and development tax credits.  From 1998-1999, the lead CRA investigator obtained warrants to search their homes and businesses, and seized numerous documents which the CRA was authorized to retain until July, 1999.

The CRA did not complete its investigation by July, 1999, and applied for a judicial extension of the warrants, which was denied.  Rather than return the documents, the lead CRA investigator obtained approval from the Department of Justice to charge the appellants and their clients with fraud and conspiracy under the Income Tax Act and Criminal Code.  As a result, the CRA was entitled to keep the materials.  It was later found that the CRA investigator had laid the charges primarily to retain possession of the seized documents.  All of the charges were ultimately withdrawn or discharged, and the appellants brought an action against the CRA investigators, and other government entities and officials.

The appellants pleaded numerous causes of action, including negligence, on the theory that the respondents had failed to investigate the matter properly, rushed to lay charges before the investigation was complete, and targeted them for criminal prosecution without cause.  The respondents brought a Rule 21 motion in 2012, where all of the causes of action were struck out with the exception of abuse of public office.  The appellants then appealed the Motion Judge's rulings regarding a handful of their causes of action to the Court of Appeal.

The McCreight Decision

On July 16, 2013, the Ontario Court of Appeal allowed the appellants' appeal in part, finding that their claims for negligence and abuse of process should proceed to trial alongside the abuse of public office tort.

The most significant aspect of the Court's judgment was Pepall J.A.'s finding that CRA investigators arguably owe a duty of care to suspects under criminal investigation.  She observed that, while there was no direct precedent for such a duty, the respondents conceded there was sufficient foreseeability to ground a duty of care.  Further, as to proximity and policy reasons, Pepall J.A. relied upon Leroux v. Canada Revenue Agency, 2012 BCCA 63, where the B.C. Court of Appeal refused to strike out a claim alleging negligence by CRA officials in the audit and assessment of a taxpayer.  She also found an analogy could be drawn to Hill v. Hamilton-Wentworth Regional Police Services Board, [2007] 3 S.C.R. 129, where the Supreme Court of Canada held that police officers could be liable for the tort of negligent investigation.  According to Pepall J.A.:

In my view, in this case, the motion judge erred in concluding that it was plain and obvious that the respondent CRA investigators did not owe a duty of care to McCreight and Skinner, policy considerations would foreclose such a duty in any event and, therefore, the negligence claim had no reasonable prospect of success and should be struck.

Firstly, given the Supreme Court's ruling in Hamilton-Wentworth that, in certain circumstances, police officers may owe a duty of care to their suspects, surely it is not plain and obvious that a CRA investigator owes no such duty when operating under ITA provisions that attract criminal sanction and under the Criminal Code. The same analogical reasoning applies to any residual policy rationale that could negate such a duty.

Secondly, I see no relevant distinction between the above-cited case of Leroux and this case. That case that involved a claim of negligence against CRA employees as well and the British Columbia Court of Appeal dismissed an appeal of an order permitting the cause of action to proceed to trial. The Court was not persuaded that the claim should be struck because it was at least arguable that such a cause of action could succeed and the issue was to be considered at trial. (paras. 60-62)


McCreight is likely to be highly relevant in future civil claims against the CRA for misconduct during the investigation of tax advisers and taxpayers.  Further, while McCreight involved a criminal investigation rather than the audit or assessment process, the Court of Appeal's reliance on the Leroux decision indicates that the CRA arguably owes a duty of care to taxpayers in that context as well.  Finally, McCreight is an important reminder that parties may challenge the CRA's wrongful conduct in civil or administrative proceedings, provided they do not collaterally attack matters that fall within the exclusive statutory appeal jurisdiction of the Tax Court: Ereiser v. Canada, 2013 FCA 20 at paras. 35-38.

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