Canada: Oh! Taxman, What Big Teeth You Have!

Today, no one seems to doubt the existence of tax havens. But tax hell... does it exist? Based on the testimony of taxpayers and tax practitioners, one might wonder. Reports of abuse and misconduct by the tax authorities seem increasingly common.

The fierce fight against tax evasion led by Canadian tax authorities in recent years seems relevant to this issue. The pressure on tax officials to bring money into state coffers is enormous. To achieve its tax recovery objectives, is the taxman slowly turning into a big bad wolf, taking a bite out of everything that happens to fall under his teeth, indiscriminately and sometimes even without grounds?

It would probably be unwise to answer that question positively. Having said that, in the presence of gross negligence or abusive behaviours by tax officials, one should not refrain from denouncing the situation. Some taxpayers go even further and claim damages against the state. This is a treacherous path. Few have succeeded with such claims. Tenacity and stamina are sometimes the only tools available to taxpayers who engage the Canadian tax authorities in this way.

At the federal level, the state is treated as a person for any damage caused by its servants. However, it is not liable for anything done or omitted in the exercise of authority conferred by statute. The jurisprudence is uncertain regarding acts or omissions of officials of the Canada Revenue Agency (CRA). While many taxpayers have been authorized by judgments on interim motions to maintain their lawsuits against the state, judgments on the merits are rare. Damages have been awarded in the cases of Chhabra v. The Queen and Longley v. MNR.

In Chhabra, the state was ordered to pay the taxpayer $1,000 in general damages and $10,000 in exemplary damages for abuse of power committed with malice by CRA agents. The agents failed in their responsibility to uncover the truth when they used tainted documents against the taxpayer, after the taxpayer had voluntarily surrendered the documents and advised that they may be suspect. Collection agents of the CRA also abdicated their responsibility by taking recovery action against the taxpayer on the grounds that an assessment had been issued against him, while totally ignoring the pleas and the particular circumstances of the taxpayer's situation, in clear violation of the CRA's guidelines. In addition, the agents knew that the assessment would be "wiped out" and replaced by a new assessment for an unknown amount. Finally, the agents were dishonest and took malicious action when they garnisheed 75 percent of the taxpayer's gross monthly professional income. Provincial legislation, though not applicable to the situation but mentioned by the court for guidance, permitted a maximum garnishment of 30 percent.

In Longley, the state was ordered to pay the taxpayer $5,000 in general damages and $50,000 in punitive damages. The taxpayer had put forward a plan to benefit from the federal political contribution tax credit. The CRA refused to acknowledge the legitimacy of the plan, despite knowing the plan did not offend the Income Tax Act. Consequently, the taxpayer not only lost an opportunity to enhance his political reputation, but also suffered damage to his political reputation. In addition, the CRA was held to have "intentionally misled" the taxpayer when it falsely denied that it had received legal advice that the taxpayer was on good ground. The court held that the CRA's response to the taxpayer's requests amounted to misfeasance in public office.

Claims for damages based on the negligence of CRA agents were rejected in the cases of Canus Fisheries Ltd. v. Canada and Leighton v. Canada. In both cases, the courts concluded that CRA officials do not owe any duty of care to taxpayers. In Leighton, the court stated: "There are residual policy considerations that would militate against recognizing a duty of care...[as] the effect of recognizing a duty of care would conflict with the CRA's broad duties under the Income Tax Act to ensure that all taxes lawfully owing are correctly assessed and collected."

In contrast, claims for damages based on the negligence of CRA agents were recently allowed to continue in Leroux v. Canada Revenue Agency, Gordon v. The Queen and McCreight v. Canada.

In Quebec, provincial liability for acts or omissions of Revenu Québec and its agents is governed by the Civil Code of Québec. Damages have been awarded in the cases of Construction M.D.G.G. Inc. v. SMRQ (M.D.G.G.), Joncas v. Agence du Revenu du Québec and Groupe Énico Inc. v. Agence du Revenu du Québec.

In M.D.G.G., Revenu Québec was ordered to pay the taxpayer $67,863 as general damages, $10,000 as reimbursement of legal fees and $5,000 for trouble and inconvenience after having recovered penalties that the court had ordered cancelled. In its defense against the claim for damages, Revenu Québec argued that it did not have to comply with the terms of the judgment cancelling the penalties, as that judgment contained an error. The court held that Revenu Québec's proper course was to appeal the judgment, rather than to disregard it. The judgment awarding the damages is currently under appeal.

In Joncas, the court cancelled assessments issued against the taxpayer and held unequivocally that Revenu Québec had committed a "flagrant foul." An auditor had taken refuge behind premises that he knew were false and had consistently refused to see what he ought to have seen before issuing the assessments. Following this judgment, the taxpayer sent a formal demand to Revenu Québec requesting the payment of $38,664 as reimbursement of court fees and disbursements, and for damages. When Revenu Québec refused to comply with the demand, the taxpayer sued. The court concluded there was an abuse of legal proceedings by Revenu Québec and ordered the reimbursement to the taxpayer of legal fees and disbursements in the amount of $28,634. It also awarded the taxpayer the reimbursement of $995 in notary fees incurred in the preparation of a mortgage that the taxpayer had to take out on his home to cover legal fees, as well as $6,352 in interest fees paid on that mortgage. Amounts of $3,000 for trouble and inconvenience and $5,000 for punitive damages were also awarded.

Finally, in Groupe Énico the taxpayers claimed more than $12 million against Revenu Québec following an audit conducted by a dishonest auditor that ultimately led to the taxpayers' ruin. In a judgment of over 200 pages, the Quebec Superior Court granted them compensation of nearly $4 million plus interest, of which $2 million was for punitive damages. The facts of the case and the taxpayers' allegations against Revenu Québec are numerous and complex and, frankly, hard to believe. In its judgment, the court's criticism of Revenu Québec is particularly harsh, describing falsely inflated assessments, planted evidence, wrongdoing, inflexibility on the part of its audit department, abuse of power, unreasonable approach, malicious seizure, uncommon and unjustified administrative relentlessness, misfeasance, gross negligence, reckless conduct amounting to bad faith and unlawful violation of the taxpayers' property and dignity.

Revenu Québec appealed the Superior Court judgment in November 2013. On January 10, 2014, following a motion from one of the plaintiffs, Justice Morissette of the Court of Appeal of Quebec ordered the partial provisional execution of the Superior Court judgment, ordering the amount of $450,000 be paid to the plaintiff to avoid an immediate bankruptcy and enable him to instruct lawyers on appeal. The other plaintiff did not appear, having no financial resources to pay for lawyers' fees.

It now remains to be seen whether or not the judgment of the Superior Court will be upheld. If so, the scope of the judgment might require Revenu Québec and probably even the CRA to review their agents' tactics. For taxpayers, although the case is based on very specific facts, the judgment will certainly serve as a precedent for future damage claims against the tax authorities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.