On Nov 6, 2015 the Federal Court of Appeal dismissed the CRA
appeal in MNR v McNally 2015 FCA 248 in a unanimous
decision. Mr. McNally was successful in requiring CRA to assess his
return. CRA had refused to do soon the basis that he had
participated in a tax shelter. The Court of appeal repeated that
the CRA's policy of delaying tax returns in order to deter
taxpayers was not a valid policy under the law. Revenue Canada
admitted that the main reason Mr. McNally's return (like other
Canadian taxpayers in the same situation) had not been assessed was
to discourage participation in Canadian income tax shelters. Mr.
McNally's Canadian income tax lawyer brought a mandamus
application in the Federal Court of Canada to require the Canadian
tax department to assess that return. The Federal Court of Canada
at 2015 FC 767 ruled in the taxpayer's favour in June 2015 that
CRA's duty to provide an income tax assessment with due
dispatch under section 152(1) of the Canadian Income Tax Act was
violated by CRA. Canada Revenue Agency is of the view that widely
marketed tax shelters are generally invalid. CRA therefore decided
not to assess the participants' tax returns until after the
audit of the gifting tax shelter. The tax department stated that
the purpose in implementing this change was to deter participation
in these income tax shelters. The Federal Court held that the
Minister of National Revenue owes Mr. McNally a statutory duty to
examine his return "with all due dispatch".
CRA complied with the judgment but still wished to continue the
appeal in order to pursue a jurisprudential point. The taxpayer
declined to participate in the appeal. He got what he wanted since
the Federal Court gave judgment in his favour and CRA had complied
with it. CRA appealed to the Federal Court of Appeal. The parties
agreed that the appeal became moot once the income tax assessment
had been issued. The case therefore discussed the 3 tests for
reviewing a moot case set out in the Supreme Court's decision
in Borowski v. Canada (Attorney General),  1 S.C.R.
342, 57 D.L.R. (4th) 231. Applying the facts of Mr. McNally's
situation to these 3 factors the court concluded that there were no
grounds for continuing the appeal. Mr. McNally was therefore not
required to participate in the appeal.
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