While taxpayers have initiated a number of civil claims against
the CRA, alleging everything from negligence to fraud, these claims
are rarely successful, as courts have traditionally been reluctant
to ascribe any duty of care to the CRA. However, the British
Columbia Supreme Court's decision in Leroux v. Canada Revenue Agency, 2014
BCSC 720 signals a shift in judicial thinking and provides
guidance to potential litigants seeking to hold the CRA accountable
for negligent conduct.
The CRA issued reassessments to Leroux for GST and income tax
totaling more than $600,000, after interest and penalties.
Following an appeal to the Tax Court, some payments made by Leroux
and a successful application for interest relief, Leroux received a
refund of $25,000. However, Leroux did lose his business and home.
He sued the CRA for misfeasance in public office, and in response,
the CRA argued it owed no private law duty of care to an individual
Prior to the decision in Leroux, courts for the most
part accepted CRA's position and found it owed no private law
duty of care to taxpayers. Absent a duty of care, taxpayers are
prohibited from pursuing the CRA in negligence.
In Leroux, the Court rejected the CRA's position
and held the CRA did owe a duty of care to Leroux, and by
extension, other taxpayers. The Court also held that the CRA
breached the duty of care owed to Leroux in imposing gross
negligence penalties. In doing so, the Court found the auditor used
the wrong standard for imposing penalties and that the penalties
were applied to the whole of the income, including that resulting
from issues the CRA itself argued were difficult and complex. The
CRA could not characterize the issues as difficult and complex and
at the same time, characterize the contrary positions taken by
Leroux on those issues as grossly negligent. The Court went on to
find that the CRA's conduct in characterizing Leroux's
position as grossly negligent and assessing huge penalties,
apparently for the purpose of avoiding a limitation period, was
"unacceptable and well outside the standard of care expected
of honourable public servants or of reasonably competent tax
auditors". What was objectionable, in the Court's opinion,
was not that the CRA was wrong, or that the auditor made mistakes
in fact and law, but that the CRA misused and misapplied the term
"grossly negligent" and proceeded to assess penalties
that were as much as 900%.
Ultimately, Leroux was not successful in his claim against the
CRA because he could not prove that his losses were caused by the
CRA's negligent conduct. However, for Canadian taxpayers,
Leroux is a winning decision, as it reinforces the
CRA's accountability in issuing assessments, auditing and
imposing penalties. While it will rarely be the case that the
CRA's conduct is actionable, the Leroux decision
provides an additional check on what can and cannot be done by
employees of the CRA in the course of their duties. Hopefully,
Leroux will be the first in a line of cases that will
further and better define the scope of the CRA's civil law
duties to taxpayers.
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.
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The CRA provides new housing rebates for individuals who have purchased or built a new house or have substantially renovated a house or made a major addition to a house who plan on living in it personally or letting a relative live there.
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